Distributed Energy Resources: Lead or Follow Aspen...• Owned by First Solar • Commissioned 2014 • Located in Webberville, TX • Signed a $45/MWh PPA for 150 MW solar farm with

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DISPUT E S & INVESTI GATI O N S • ECONOMI C S • F INAN CI A L ADVISO RY • MANAGEM E N T CONSULT I NG

Distributed Energy Resources: Lead or Follow

Aspen Institute Energy Policy Forum

July 18, 2015

Jan Vrins

©2015 Navigant Consulting, Inc. All rights reserved.11

» The Energy Cloud

» What is happening with DER?

» Utility Business Models

» Closing Remarks

Agenda

The energy cloud represents a wide range of strategic, operational,

technological, commercial, environmental, and regulatory changes that

are transforming the traditional utility model for energy provision.

THE ENERGY CLOUD

Transformation of the Power Industry—Key Trends

Four key trends underpin this market transformation:

– Increased broad discussion, development, and implementation of new regulations to reduce carbon emissions

– Transition toward an increasingly decentralized power grid architecture as a result of a dramatic rise in renewables and distributed energy resources (DER)

– Greater customer choice: More customers want control over their electricity usage and spend, as well as when and what type of power they buy—or, in some cases, customers want the ability to self-generate and sell that power back to the grid

– Increasing availability of data enabled by healthy growth of smart grid infrastructure and behind-the-meter technologies and solutions

2

TRANSMISSION &

DISTRIBUTION

INDUSTRIAL

RESIDENTIAL COMMERCIAL

POWER PLANT

TODAY: ONE-WAY POWER SYSTEM EMERGING: THE ENERGY CLOUD

©2014 Navigant Consulting, Inc. All rights reserved.

• Widespread adoption of DER

• Supporting two-way energy flows; plug-and-play emphasis

• Digitalization of the grid and advanced planning and

monitoring of power demand and supply

• Flexible, dynamic, and resilient

• Advanced business models and new products and services

• Complex market structures and transactions

• Regulation changing rapidly around renewables, distributed

generation (solar, microgrids, storage), net metering, etc.

• Large, centrally located generation

facilities

• Designed for one-way energy flow

• Controlled by incumbents

• Technologically inflexible

• Simple market structures and

transactions

• Highly regulated (rate base) and pass

through

THE ENERGY CLOUD

Unlocking DER and Many-to-Many Energy Networks

©2014 Navigant Consulting, Inc. All rights reserved.

3

THE ENERGY CLOUD

Defining Distributed Energy Resources (DER)

Distributed Energy Resources is one of the most disruptive factors affecting the Grid today and into the future.

Resources can be utility owned on the grid “in front of the meter” or customer owned “behind the meter”.

Distributed Generation

• Solar• Wind• Turbines / Micro Turbine• Fuel Cells

Distributed Storage

• Electrochemical• Mechanical• Thermal

Demand Response

• Direct Load Control• Price Based• Incentive Based• Virtual Power Plants

Utility Side Loss Reduction

• Conservation Volt Reduction• Volt/VAR Optimization• Grid Optimization

Microgrid

• On the Grid • Customer

Electrification

• EV Charging and impact• EV to Grid

4


» The Energy Cloud



» Closing Remarks

Agenda

» In April 2015, roughly 31 percent of electric power generation came from natural gas, whereas coal accounted for 30 percent.

» DG new build will be larger then centralized generation from 2018 onward.

» DG solar installed cost to drop to less than $3/Watt for residential PV and less than $2/Watt for commercial PV by 2020.

» Price of utility scale installed solar reaching < $40/MWh in U.S., expected to be $20-10/MWh within the next 3-5 years.

» Storage will be a game changer, investments in storage are projected to exceed $6 billion by 2020.

» AB327 – DRP, AB2514, DR, Rule 21 are driving significant transformation in California; REV doing the same in NY.

» Carbon regulations are shifting the investment landscape toward efficiency and DR DER.

» In response to weather-related electricity systems outages, States like NJ, NY, CT are adopting policies that support DER, e.g. microgrids.

WHAT IS HAPPENING WITH DER

Tipping Points



Solar Cost Forecast

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2012 2013 2014 2015 2016 2017 2018 2019 2020

$/W

att

Residential Solar PV Price Forecast, 2013-

2020

Mid High Low

0.00

1.00

2.00

3.00

4.00

5.00

2012 2013 2014 2015 2016 2017 2018 2019 2020$/

Wat

t

Commercial Solar PV Price Forecast, 2013-

2020

Mid High Low

Navigant forecasts the US installed DG solar cost to drop to less than $3/Watt for residential PV and less than $2/Watt for commercial PV by 2020.

(Source: Navigant, Jan. 2015)

7

Navigant forecasts the total US installed solar capacity to be close to 65,000 MW by the end of 2020 of which 55% distributed. This assumes ITC will not be extended.

1


Solar Outlook


U.S. Cumulative Capacity, by System Type (MW)


Note: Distributed is defined as projects < 1 MW whereas centralized is defined as projects ≥1 MW

• 22 MW merchant plant – sells power into ERCOT wholesale market

• Owned by First Solar• Commissioned 2014• Located in Webberville, TX

• Signed a $45/MWh PPA for 150 MW solar farm with Recurrent Energy in March 2015

• Obtained bids of <$40/MWh in June 2015 for 600 MW of solar

• By 2020, Austin Energy forecasts pricing of <$40/MWh without ITC, and <$20/MWh with ITC

Source: Austin Energy, June 30, 2015

Barilla Solar – 1st US Merchant PlantAustin Energy Solar RFPs -

<$40/MWh in June 2015


Solar in Texas

Source: First Solar

9

Lowest Installed Cost for Utility Applications 2014, 2017, 2020

Source: Navigant Research

Cost reductions are expected across all technologies, with the largest percentage reductions expected for Li ion and flow batteries.

$-

$100

$200

$300

$400

$500

$600

$700

2014 2017 2020

$/k

Wh

Lithium Ion Sodium Sulfur Sodium Metal Halide Advanced Lead-Acid Flow Batteries


Energy Storage Cost Forecast

10

Navigant forecasts the total US installed energy storage capacity to be close to 6,000 MW by the end of 2020 of which ~40% distributed.

1


Energy Storage Outlook


U.S. Cumulative Capacity, by System Type (MW)


Note: Distributed is defined as systems located through the Distribution System (substation down to the customer, including “community storage”).

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Cu

mu

lati

ve

Cap

acit

y, M

W Distributed

Utility-Scale

Between 2014 and 2023, DG is expected to displace the need for 300–350 GW of new large-scale power plants globally.

Annual Centralized Power Plant and DG Capacity Additions and Vendor Revenue, World Markets: 2014-2023

(Source: Navigant Research)

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

0

20

40

60

80

100

120

140

160

180

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

($ M

illio

ns)

(GW

)

Annual New Centralized Power Plant Capacity AdditionsAnnual New Distributed Generation Capacity AdditionsAnnual Distributed Generation Revenue


Rate of DG Capacity Deployments Is Accelerating

12

New DG capacity expected to surpass

centralized generation in 2018


» The Energy Cloud



» Closing Remarks

Agenda

In several states, proceedings are underway that will impact industry structure, and business model boundaries for utilities.

New York REV Proceeding

• Industry Structure Elements: Regulatory changes that promote efficient use of energy, deeper penetration of renewable energy resources such as wind and solar, and increased DER deployment.

• Key Questions: What are the roles and responsibilities of the regulated utilities and retail markets? What changes are necessary to align utility interests with these objectives?

California Initiatives (AB327 – DRP filing, AB2514, DR, Rule 21)

• Industry Structure Elements: Enablement of retail entities to receive appropriate locational value for DER implementations through integration of DER into local system planning, established procurement targets for Energy Storage, movement of DR into wholesale markets, fast track approval of DER/energy storage equipment, and increased data accessibility.

• Key Questions: How should utilities modify system planning to optimize DER deployment? How to quantify locational based benefits and costs? Will energy storage add value to system operations? How fast can new devices enter the marketplace?

UTILITY BUSINESS MODELS

State Proceedings Impacting Utility Business Models

14

Hawaii Legislative Policy

• Industry Structure Elements: Allow customer-owned generation resources at all points in a timely manner and at reasonable cost.

• Key Questions: What level of market acceptance will this new policy engender and will it adversely effect rate recovery?

Massachusetts Grid Modernization

• Industry Structure Elements: Enable grid design that “maximizes integration of renewable power, much of which is intermittent.”

• Key Questions: How will the utility incentive structure and utility cost recovery mechanism change to enable achievement of this policy?


State Proceedings Impacting Utility Business Models

15

Model Description Examples

Utility as DSO

• Utility owns the distribution assets, makes allowable investments based on DSO planning process.

• Utility acts as independent DSO, and conducts market operations (market facilitation of DER and transaction management).

• Utility as DSO also conducts physical operations (real and reactive power flow, outage restoration, switching, reliability coordination, situational awareness).

NY REV proposal

Third-Party DSO

• Utility owns the distribution assets, makes allowable investments based on DSO planning process.

• Third-party DSO conducts market operations (market facilitation of DER and transaction management)

• Third-party DSO may also conduct physical operations (real and reactive power flow, outage restoration, switching, reliability coordination, situational awareness)

NY REV proposal


Emerging Utility Business Models

116

Model Description Examples

Value-AddedService Provider*

• In addition to any of the roles described in previous slide, the utility is allowed to provide additional value-added services that may or may not be related to DER, such as:

― Behind-the-meter energy services (e.g., home energy management)

― Premium (i.e., higher reliability/quality) power supply

― Warranties, financing for DER― Ownership/operation of electric vehicle (EV)

charging stations― Operations and maintenance of third-party owned

DER― Community based solar or wind

OG&E, NV Energy, BG&E home energy management programs, TEP (rooftop and community PV), PG&E (EV charging stations, pilot)

* May be combined with any of the above business models.

While some business model constraints are imposed, remaining business model choices should be informed by the utility’s value proposition, risk profile, and growth aspirations .


Emerging Utility Business Models

17

Utilities can select from a variety of business models related to DER.

Model Selection RationaleKnowledge

TransferTime &

ResourcesRisk

1. Integrate,develop, and own DER

Utility has DER integration experience and has no difficulty with designing, integrating, and controlling with in-house resources.

High knowledge

transfer

Least knowledge

transfer

High level of

investment

Low level of investment

High risk

Relativelylow risk

2. Develop and own DER

Utility has the in house capability to handle permitting, site selection,financing, and interconnection.

3. Purchase a turnkey solution

Due to DER specific knowledge, it may be more economical to have a third party handle the project development and site preparation tasks.

4. Contract services

Due to the regulatory environment, utility contracts services from 3rd

Parties.

Development and Ownership Model Selection


Utility Business Model Selection

18


» The Energy Cloud



» Closing Remarks

Agenda

» The Energy Cloud is here to stay, DER will be one of the most disruptive factors affecting our industry

» DER pushing center of gravity of the electricity value chain downstream

» Market rules and regulation will try to keep pace with technology and customer choice, but we are not optimistic more periods of uncertainty and chaos.

» Role of the Utility is key : they are taking both defensive and offensive positions to adapt to DER opportunities and threats

» Utilities will be impacted - strategy and business models, but more so operations, organization and culture

» Significant investments will be needed in the grid to support DER

– Who will pay?

– How to balance customer choice, cost and reliability?

» This is not just about Hawaii, California and NY anymore

Closing remarks


Generation

DER and

Retail

Markets

Transmission Distribution

KeyC O N T A C T S

©2010 Navigant Consulting, Inc.

Confidential and proprietary. Do not distribute or copy.

KeyC O N T A C T S



KeyC O N T A C T S



C O N T A C T S&

R E S O U R C E S


Confidential and proprietary. Do not distribute or copy.21

E N E R G Y

Jan VrinsGlobal Energy Practice LeaderNavigant Consulting, Inc.

305.341.7839 office [email protected]@Jan_Vrins

Navigant Energy Practicehttp://www.navigant.com/industries/energy

Navigant Researchhttp://www.navigantresearch.com/research

mailto:[email protected]

http://www.navigant.com/industries/energy

http://www.navigantresearch.com/research

Documents

Distributed Energy Resources: Lead or Follow Aspen...• Owned by First Solar • Commissioned 2014 • Located in Webberville, TX • Signed a $45/MWh PPA for 150 MW solar farm with