Navigant Research Blog

Floating Offshore Wind Showing Potential

— November 1, 2017

Offshore wind is notching up impressive cost reduction success, evidenced by record low power purchase agreement prices in recent UK and other European competitive bidding auctions. This is great news, but the game changer is if floating offshore wind foundations could achieve commercial success.

This could reduce offshore wind foundation costs and open cost-effective wind power in locations coincident with large coastal population centers, energy demand, and deep ocean sea beds that currently aren’t cost-effective with today’s variety of fixed bottom foundations. Potential markets are the entire west coast of the Americas, Hawaii, Japan, South Korea, parts of China, South Africa, New Zealand, and many European markets, including much of the Mediterranean.

Floating Offshore Wind Becoming a Reality

With that context in mind, it’s great news to see that floating offshore wind is moving from the conceptual and design phase to actual projects. In 4Q 2017, Norway’s Statoil installed a 30 MW wind farm on the northeast coast of Scotland. It is made up of five 6 MW Siemens turbines installed on floating structures at Buchan Deep, 25 km off Peterhead, Scotland.

The Hywind Scotland wind farm is expected to power around 20,000 households. Statoil believes the project will demonstrate the feasibility of future commercial floating wind farms “that could be more than four times the size.” From the first pilot floating turbine outside Karmøy, Norway in 2009 to the launch of this new wind farm, capital costs have fallen by around 60%-70%. Statoil says cost reductions of a further 40%-50% are realistic for future projects.

Hywind Scotland Wind Farm

(Source: Statoil)

Hywind Scotland

The Hywind project will cover around 4 square kilometers at a sea depth of 95-120 meters. The floating turbines have a total height of 253 meters, with 175 meters of the structures floating above the surface of the sea (to the wingtip) and 78 meters submerged underwater. The rotor diameter is 154 meters. This is only the first step of the project, with the end goal being to develop a large-scale floating offshore wind project of 500 MW-1,000 MW. Statoil is a serious company with serious money backing its efforts, including the company agreeing in a competitive auction round in December 2016 to pay $42.4 million for lease rights to develop an offshore wind project off the New York coast.

Following France’s Example

The Hywind launch comes on the back of the inauguration of France’s first floating offshore wind turbine—Floatgen—in October and represents an important breakthrough for floating offshore wind. It shows it is ready to be integrated into the energy market. Floatgen’s 2 MW turbine features a number of innovative solutions, from the concrete composition and its construction to the nylon mooring lines.

The consortium developer Ideol has optimized some areas of the design and the construction method. It is building its supply chain in preparation for mass production, all with an eye to driving costs down. Ideol says its solution is ideal because it is compact and does not need to increase in size and mass at the same ratio as the turbine nameplate rating. Ideol says it can potentially be adapted to turbines up to 15 MW, the size range the leading turbine OEMs are planning for next-generation 2025-2030 offshore installations.

Offshore Wind Soon to Be a Legitimate Power Option

Floating offshore wind is not yet commercially viable against fixed bottom foundations. Plenty of fixed bottom locations are available, but these two projects show that commercial viability just around the corner. If the past decade has been any guide, with the costs of onshore wind falling 77% in the past 7 years, the wind market has been attacking challenges, costs, and other impediments and disproving doubters. Floating offshore wind is increasingly likely to prove its legitimacy as a cost-effective offshore wind option.

 

Data Centers and Military Microgrids: The Diesel Dilemma

— October 20, 2017

If something isn’t broken, why try to fix it? This kind of thinking sums up the perspective of many owners and operators of data centers. If they feel comfortable with the technology or solution that has been in place for quite some time, the incentive to enact something new and different is small. As a result, to maintain power for mission-critical loads, data centers have historically relied upon diesel generators linked to lead-acid batteries and (perhaps) dual feeds from two different utilities.

The Uptime Institute has created de facto data center industry standards that range from Tier I to Tier IV, with the latter representing the highest possible resilience. “Human beings have an almost emotional attachment to their diesel generators, as they give data center owners and operators both comfort and a form of insurance,” observed Chris Brown, CTO for the Uptime Institute. He does not see a decline in reliance upon diesel generators. According to Brown, “Engine generator usage will likely hang on, as the emotional tie and the form of insurance will still be present.”

Despite these insights, new data highlights how existing power infrastructure does carry risks for data centers. The average power outage cost for a data center in 2015 was $740,357—a 38% increase in the cost of downtime compared to 2010. Perhaps the most disturbing statistic found in Eaton’s Blackout Tracker Annual Report for 2016 is that the increase in maximum downtime costs rose to $2.4 million.

Military Base Parallels

One analogy to the challenge facing data centers is military bases in the United States. A typical large-scale military base may feature from 100 to 350 backup diesel generators, each hardwired to a single building. In many instances, they are sized at more than 200% of each building’s peak load as a contingency for energy security. Just a simple networking of existing diesel generators into a microgrid can offer cost savings for military microgrids and data centers alike.

A study by Pew Charitable Trusts found, for example, that creating a microgrid instead of relying upon standalone backup diesel generators reduces the cost of resilience by $1 billion or more. Note that the savings vary by region, with the greatest savings for those military microgrids deployed in the PJM Interconnection transmission control area. Yet, when displacing diesel backup generators with 50% diesel/natural gas fuel hybrid microgrid, California military bases boast the largest net savings. With a 50/50 portfolio of diesel/natural gas, microgrids in the PJM territory and the Southeast ironically show an increase in cost on a dollar-per-kilowatt basis if compared to the current reliance upon diesel backup generators. This is largely a result of low diesel fuel prices in those parts of the country, and it arguably points to the need to diversify power generation sources with a microgrid beyond fossil fuels.

Annual Net Cost of Protection ($/kW of Critical Load)

(Sources: Noblis, The Pew Charitable Trusts)

A new report by Navigant Research, Military Microgrids, notes that a key to innovation lies in new business models. The same could also be said for data centers. Data centers like to control their own destiny, which often means they want to own infrastructure. Yet, just like solar leases and third-party power purchase agreements accelerated the solar PV industry at a critical point in time in its development path, similar models could also bring microgrids into the mainstream.

Does such an approach hold promise for state-of-the-art data center microgrids? Schneider Electric would like to find out. Learn more at the upcoming webinar on October 24.

 

Service Providers Capitalizing on Smart Home Opportunity

— October 17, 2017

The smart home is a concept gaining hype and excitement with its futuristic promises. This market is projected to see significant growth, as Navigant Research expects smart home platform revenue to increase from $4.2 billion in 2017 to $39.5 billion in 2026. As discussed in our report, The Smart Home, a range of companies are vying for market share in this hotbed of opportunity, from startups to large tech incumbents.

Recently, I had a chance to attend the Service Delivery Innovation Summit, a conference bringing together a range of service providers to discuss innovations in the service business. Service providers are increasingly looking toward the smart home as a way to create new revenue streams as existing business models are challenged by newer offerings, such as traditional cable TV versus streaming services.

Who Can Take the Chance?

Service providers are arguably the best positioned to seize opportunity in the smart home. These companies are already trusted by consumers and have existing touchpoints and technologies deployed in the home, making it convenient and easy to go to market with smart home technologies. Because service providers are already in the home, they also have the unique position of being the gatekeeper for technologies that enter the home. Thus, service providers can profit from becoming smart home technology aggregators and can assist in solving many of the issues that exist in the smart home, such as technology interoperability, the comprehensiveness of solutions, and data privacy and security.

Additionally, broadband service providers and telcos offer products and services that support the development of smarter homes, such as cellular and broadband connectivity (which allows for the communication of connected devices and smart home data transmission). They can also use existing networks and infrastructure to offer new smart home-related services, such as professional installation and customer support.

Early Smart Home Investors

Some service providers are already making big investments in the smart home space. Comcast has been in partnership with EcoFactor to offer its EcoSaver thermostat-based energy management service to Xfinity Home customers since 2013. In 2016, the company partnered with Earth Networks (which has since spun off its home sensing and software company Whisker Labs) to bring big data and analytics to the EcoSaver service. In 2017, Comcast finished its acquisition of iControl, a home automation company. It will use the acquisition to build a Center of Excellence in Austin, Texas to wholesale its home automation and security services.

Service Providers Are Paying Attention

Comcast is just one example of a service provider ramping up activity in the smart home industry. Others such as energy providers Centrica and Vattenfall, as well as Telefonica, AT&T, Verizon, and Cox, are also offering home solutions. Service providers are increasingly recognizing the opportunity in this market and can help the progression of smarter homes.

 

Innovative Business Models Required to Drive Microgrids for Resilience

— October 17, 2017

The devastation caused by recent hurricanes in the Caribbean and southern United States has focused attention on the potential benefits of microgrids and local power generation. With widespread power outages and major damage to grid infrastructure, the opportunity to rebuild electrical systems with a more distributed and resilient architecture has never been clearer. Navigant Research’s new report Energy Storage for Microgrids highlights some the developments taking place in this emerging market along with the challenges that must be overcome to capitalize on the full potential of these technologies. The report explores innovations in business models that will be key to the growth of microgrids and distributed energy over the coming years, particularly in markets with significant financial constraints.

Protecting and Improving

Microgrids equipped with distributed energy storage, solar PV, and other forms of distributed generation can greatly enhance the resilience of the electrical system by preventing damage to a single portion of the grid from causing massive outages. This capability would be especially beneficial for islands such as Puerto Rico and the US Virgin Islands, which face frequent hurricanes capable of destroying transmission and distribution lines. In a centralized grid system, although power plants may still be operational after a storm, the energy they generate will be unable to reach customers. Microgrids with localized energy storage and generation are less susceptible to storm damage and can be brought back online more quickly, without damage in one area preventing service from being restored elsewhere. Furthermore, under normal conditions, microgrids provide numerous benefits to the grid by operating both independently and in a coordinated fashion to maximize the use of renewable energy without affecting grid stability.

Leveraging Financial Innovation to Drive Growth

Since microgrids are a relatively new technology platform, two major challenges that hold back new projects are the limited number of standardized solutions (despite some early plug-and-play offerings) and the limited financing options that reduce upfront investments and risks for customers. In the case of Puerto Rico and other islands with significant financial constraints, innovative business models will be critical for microgrids to spread.

Business model and financing innovations have been key drivers of growth in the solar PV industry over the past decade. Many of these same concepts are being applied to microgrid and distributed energy storage projects with the goal of negating the perceived risk of investing in new technologies. Some of the new models shifting risk and upfront investment away from customers include: power purchase agreements and leases with owner financing, software, energy as a service, and design, build, operate, and own models. New business models are being driven by the growing number of companies that leverage their backgrounds to provide microgrid solutions, including utility subsidiaries, energy service and technology providers, solar PV developers, and building energy management and controls providers.

Creating Opportunities

While the distributed energy industry races to help communities recover from recent disasters, it is critical that new technologies capable of reducing the effect of future storms be implemented. However, overcoming the lack of familiarity with these new systems and relatively high upfront costs will be a major challenge. The most successful companies in this industry will be those that can unlock the potential of new business and financing models to reduce the risk and upfront costs to customers. This ability to leverage private investment in infrastructure will be particularly important as countries with limited resources look to recover from massive damage while preventing similar issues in the future. In a webinar later this month, Navigant Research will explore the role of microgrids for improving resilience in another high profile area: data centers.

 

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