California recently was ranked by the World Bank as number eight in world economies, ahead of Russia and Italy and just behind Brazil. Jerry Brown, re-elected as governor, delivered an inaugural address that included an energy policy in the form of three energy objectives for 2030. Given this state’s ability to make markets through its imposing economic and innovation strengths, here are my projections about what this energy policy will mean for California, electric utilities, Smart Grid vendors, and the world.
Energy objective 1: Increase electricity from renewable sources to 50%.
The state was well on its way to achieving the 2020 objective of integrating a 33% mix of renewables into its electricity sources. This new goal puts increased emphasis on energy storage to firm up even more intermittent renewables, so the state market will markedly expand for both utility-scale and distributed renewable generation and storage solutions. Distributed generation, particularly in the form of rooftop solar, will also be required to meet this objective. California utilities will seek regulatory approval to rent customer rooftops and operate solar generation assets on an aggregated scale, as long as these assets count towards their expected renewable investments. Vendors with distributed grid operations management solutions have a bright future in the state.
Energy objective 2: Reduce petroleum use in transportation by 50%. Don’t bank on a focus on technologies that improve miles per gallon in internal combustion engines. California’s strong support for carbon cap and trade markets and climate change initiatives put the emphasis on clean alternative fuels. Hydrogen technologies and fuel cell cars could be part of this strategy. However, the regulated electric utilities have a new leverage point to build EV programs and create new opportunities to explore transactive energy scenarios that firm intermittent renewables. PG&E recently announced a pilot program with BMW. Municipalities will also look at greenhouse gas reduction goals through systemic transportation transformations. Community Choice Aggregation (CCA) initiatives and municipal utilities will adopt EVs for their flexibility in smart charging.
Energy objective 3: Double the efficiency of existing buildings and make heating fuels cleaner. California enacts new building energy efficiency standards every three years that typically apply to new buildings. It’s noteworthy that this energy objective highlighted existing building stock. Building energy efficiency retrofits have multiple benefits – local jobs in communities, and accrued savings from reduced energy bills for residential and business consumers. Since California is one of eleven states that decoupled both electricity and natural gas, regulated utilities won’t see negative impacts on their bottom lines. Expect innovations in programs that encourage energy efficiency retrofits for multi-family and rental properties and more PACE-like programs that focus on energy efficiency rather than generation. With regards, to cleaner heating fuels, most California homes use natural gas, which emits those bad greenhouse gases. However, look for most policy and investment activity in commercial buildings, which can benefit from combined heat and power (CHP) and even more energy-efficient combined cycle heat and power (CCHP) technologies to heat building spaces. The solutions here are much more mature than they are for residential, although this 2030 objective offers significant impetus to future Department of Energy Funding Opportunity Announcements.
The leader of the eighth largest world economy said, “How we achieve these goals and at what pace will take great thought and imagination mixed with pragmatic caution. It will require enormous innovation, research and investment. And we will need active collaboration at every stage with our scientists, engineers, entrepreneurs, businesses and officials at all levels.” The good news is that California has all the ingredients to make it happen, and what happens in California does not stay there.
I made ten predictions in January 2014 about Smart Grid and Smart City trends and changes that will occur between 2014 and 2020. Here is an update on the final five predictions. The first five were reviewed last week. You can review the full predictions here and here, and judge for yourself the quality of my crystal ball.
6. Debates about the future of the social compact for electricity services and the socialization of electricity costs continue. The Reforming Energy Vision initiative includes the objective to “enable and facilitate” new business models for utilities, customers, and energy service companies. This is just the first state activity that will generate significant discussion about how to equitably balance distribution grid investments that accommodate and integrate more distributed energy resources (DER). Since it will take time to implement and then measure results from new business models, this debate is sure to continue for the next decade.
7. EVs advance to 10% of the US car market. The current electric vehicle (EV) penetration in 2013 was just a bit over .5%. The falling costs of gasoline are putting additional pressure on EV manufacturers to reduce prices of zero emission vehicles to increase consumer adoption. However, utilities are now taking a more active role, as Edison Electric Institute members will start investing up to $50 million annually in EV service trucks and charging stations for consumers. The Department of Defense (DoD) is conducting pilots for vehicle to grid or V2G applications. Their first smart charging demonstration are exploring V2G performance, and they will also examine re-purposing used EV batteries for fixed energy storage.
8. Resiliency measures also become part of the definition of a smart building. There are a number of federal, state, and non-governmental initiatives that address resiliency, and some critical infrastructure definitions include selected buildings. The National Institute of Standards and Technology (NIST) is developing standards guidance for community disaster resilience, but this is focused on building materials and codes. Microgrids, DER and Zero Net energy codes and technologies can bridge the gap in existing resiliency initiatives for buildings. Microgrids are already in production as resources to maintain power to critical infrastructure during emergencies – one of the goals of the Borrego Springs microgrid.
9. Nanotechnologies help propel solar harvesting efficiencies past the 50% mark, and by 2020 research scientists are aiming for 75% harvest efficiencies. The number of patents filed for innovations in nanotechnology using graphene have tripled in the past 10 years. The research pipeline contains single molecule thick sheets of graphene and molybdenum that can potentially provide 1000 times more power per weight unit of material than current commercially available solar cells. The fabrication of flexible solar panels is on the horizon, which can be wrapped around curved or uneven surfaces or reduced in scale, expand the possibilities for where solar can be deployed.
10. There’s sufficient electricity production from renewable energy sources that we no longer talk about “renewables.” American grid-connected wind turbines have a combined capacity of 60,000 MW, projected to double by 2020. Solar is enjoying explosive growth. Energy storage solutions will “firm up” the intermittency of wind and solar and thus eliminate the last objections to reliance on renewables. It will just be a cheap and clean source of electricity without the price volatility of fossil fuels.
These final five predictions are well on their way to realization too, although the prediction about nanotechnology advances is admittedly a stretch goal. You’ll note that energy storage has a significant influence on the advancement of some of these predictions. We’ll keep tracking these predictions and bring you periodic updates.
The Energy Storage North America (ESNA) conference in San Jose, CA last week can be summed up in one word – optimism. The sanguine outlooks on market opportunities and trends were unanimous. Several vendors can’t manufacture their equipment fast enough to meet demand.
California is making the market for energy storage. The ninth largest economy in the world recognized energy storage systems as important technologies in electricity value chains with the passage of AB2514. The CPUC decision 13-10-040 set the regulatory expectations about utility-interconnected and behind the meter energy storage. States like California view energy storage as a critical tool to firm up intermittent forms of renewable generation. State policies in the Northeast USA encourage energy storage systems to deliver resiliency for grids and critical infrastructure. Of course, a credible argument could be proffered that Tesla is making a market for energy storage with its gigafactory in Nevada. The company plans to build 50 GWh in annual battery storage starting in 2017. These combined influences are driving the growth of new storage technologies, services and financing mechanisms.
The comparisons to solar trajectory trends are well-known. Energy storage technologies are expected to rapidly decrease in price in response to increased economies of scale and expertise. Deployment numbers forecast fast growth – particularly in behind the meter solutions that focus on reducing electricity costs due to high demand charges.
But the energy storage ecosystem has to overcome two challenges that could have negative impacts on adoption rates. First, energy storage technologies are diverse. There are chemical and non-chemical categories of storage. There are many subcategories based on different elements such as lithium, zinc, sodium, or iron; and non-chemical storage ranges from pumped hydro to compressed air to flywheels. There is significant variety in number of charges, stability in different environmental conditions, and form factors. You can select an energy storage solution to ensure that your mission-critical devices or operations are not disrupted by power outages – a resiliency function. Storage can help maintain stable grid operations, a reliability function. Storage can reduce electricity use at peak time periods or avoid those demand charges mentioned above – a cost-savings function. The market places very different values on the potential uses for energy storage by function. There’s a lot of confusion that needs to be addressed with education to ensure buyers are making sound decisions that meet and exceed their expectations.
The second challenge is that early stage energy storage technologies and services are usually proprietary and customized engineering solutions. Deployments may include features that aren’t supported on a commercial scale, or may not exist in the future. All of these qualities increase the balance of system costs that go beyond the storage equipment purchases. There is no equivalent to a USB standard for physical connections of different energy storage solutions to the grid. The Byzantine variety of permitting processes and fees is a problem that bedevils the solar industry too, but it’s a brand new learning curve for the energy storage system integrators and installers. In essence, there’s too much complexity in the entire design, development and deployment process for energy storage systems, and it’s an area that’s ripe for innovation.
The good news is that vendors are working collaboratively to solve some of these problems. There’s a new industry initiative called the Modular Energy Storage Architecture (MESA) standard initiative that can help promote more of a plug and play environment. It would be interesting to see similar collaborative efforts between utilities to standardize on interconnection processes. Likewise, the irrationalities of municipal permitting processes should be replaced with national standards – just as we use the NEC (National Electrical Code) to define the safe design and installation of electrical systems in a uniform way across the USA.
The energy storage ecosystem has to rapidly mature, or suffer self-inflicted pain evident in inflexible, non-scalable, and proprietary solutions slowed down with non-standard processes. These challenges could reduce overall investment paybacks for grid scale and behind the meter deployments. Industry optimism must be tempered with pragmatism to create the right technology and policy frameworks that enable continued success to this important segment of Smart Grid solutions.
Recent reports released by UBS, the largest private bank in the world and Citi Research, a division of Citigroup offer compelling investment guidance based on Smart Grid innovation trends that have been described in many previous articles from the Smart Grid Library. The ongoing trends of decreasing costs for innovative technologies such as solar generation and energy storage; decreasing costs of manufacturing these technologies; and increasing effectiveness/efficiency of these technologies form the basis for many of their observations and recommendations regarding the future of the electric utility ecosystem. Financial analysts aren’t known for wild proclamations. That makes it even more noteworthy that UBS writes: “Large-scale power generation, however, will be the dinosaur of the future energy system: Too big, too inflexible, not even relevant for backup power in the long run.” While the UBS report focuses on Europe, it’s reasoning and conclusions have equal applicability to North American markets given the similarities in supply chains as well as technology innovations, and to a lesser extent, policy drivers. The report mentions that these trends create opportunities for utilities that are given the regulatory frameworks to deliver new services in end customer supply and distributed power generation.
There’s an implied threat in the UBS report – if utilities cannot or do not change their business models, their direct relationships with consumers will be intermediated by new entrants coupled with reductions in electricity revenues. The Citi Research report spells out that potential for confrontations between tech giants (notably Google and Apple) and utilities in value-added services (specifically energy management services) to consumers.
In North America, these trends enable the emergence of a new class of consumer – the prosumer. As noted in our previous articles, prosumer actions challenge existing regulated utility constructs by democratizing generation of both kilowatts and negawatts. Progressive regulatory agencies are taking notice of this erosion of the monopoly position – the New York Department of Public Service published The Reforming the Energy Vision document that starts discussion about how regulators can help utilities adapt to changing technologies and market expectations, and the California PUC is requiring its three regulated utilities to present plans for distributed energy resources and appropriate valuation of DER assets by mid 2015.
Utilities can no longer count on revenue growth based on centralized generation – Citi Research indicates that demand for utility-provided power will flatten or even decrease as a result of energy management technologies, improved energy efficiency and prosumer activity. The strategy for utilities is to create new services that deliver new revenue. Taking a page from the communications service providers’ playbooks and experiences, could utilities create a value-added service that combines solar with fixed energy storage (both individual and community) and electric vehicles (EV) into an energy triple play? It’s an idea floated in the UBS report. This combination of technologies leverages solar power to “fill the tanks” of the fixed and mobile batteries. The EV gets charged with solar power creating another potentially-recognizable carbon reduction benefit for utilities.
Many consumers would like to add solar panels and energy storage, but without the hassle of sourcing, financing, deploying, managing, and maintaining the equipment. A triple play electricity service certainly offers possibilities to address the Smart Grid benefits gap experienced by consumers in multi-family residential and rental situations. Utilities would be well-positioned to organize and manage these types of services to ensure grid reliability and safety. Many of them are already experienced in working with contracted third parties who deliver energy efficiency and other demand reduction services. An extension to generation wouldn’t be a huge stretch. However, it will take regulatory revisions to create the playing field that allows this type of development. The good news is that the first regulatory agencies are starting that investigatory process. Which utility will be the first to make a move into an electricity triple play?
The electric utility sector has been quite successful at managing power on a just-in-time basis. It had to be just-in-time, because since the days of Thomas Edison and Nikola Tesla, there were very few cost-effective ways to store energy, and those options were mostly limited to solutions like pumped hydro. The investments were substantial, and could only be deployed where the ideal geographical and hydrological conditions existed. The workaround was to build more generation that remained in a stand-by capacity until needed for power, voltage, or frequency regulation – a just-in-time scheduling practice. It’s still the workaround today. It has been effective, but it is also relatively crude and expensive, as some generation capacity may only be activated for a few hours per year to address peak electricity usage.
Over time, progressive utilities and regional independent system operators (ISOs) developed policies and practices to schedule the just-in-time production of negawatts – a reduction in electricity usage – in the form of demand response (DR) programs. Negawatts should have equal financial value to kilowatts from a wholesale market perspective, and realistically, the avoided kilowatt (the one you never use) is not only the cheapest form of energy, it is also the cleanest. This was the first evolution in the definition of just-in-time scheduling and generation sources.
There are three Smart Grid technologies that will force another evolution in the just-in-time scheduling concepts and sources of electricity. Clean renewable energy technologies – at utility scale as well as small to large residential and commercial are rapidly proliferating on the grid. Renewables like wind and solar are freely available and carbon-free too, which makes them very attractive for electricity generation sources.
The continued downward slide in solar PV prices and the increase in new market entrants offering affordable rooftop solar means grid parity and the rise of the prosumer in residential and commercial customer categories. The market potential is estimated to be 16 million homes across 20 states in the USA, and year over year growth projections are as high as 22%.
The intermittency of these sources, however, triggered concerns and objections on the part of grid operators. Just-in-time electricity sourced from intermittent renewables is harder to reliably schedule and ensure steady grid voltages and frequency.
There are two complementary technology answers to the intermittency challenge of renewables. One is the deployment of existing solutions that deliver dynamic voltage support on a broader scale and further down and across the distribution grid to manage additional generation sources. The other technology category energy storage that complements or “firms” renewable energy sources. In five years, solutions like the combination of Tesla battery storage with Solar City renewables generation will be matter-of-course, and perhaps even required in certain circumstances.
When you factor in energy storage, the challenge of just-in-time scheduling of renewables across the grid becomes an additive issue – scaling up existing grid management systems to address scheduling of energy storage devices with predictable levels of power for local or grid use. Without energy storage, just-in-time scheduling is instead approached as a predictability issue solved through creation of extremely complicated algorithms that predict solar and wind generation in every possible combination and permutation, and places greater reliance on more generation or DR.
For grid operators, the adoption of one or all of these technologies will force another evolution in their thinking and management practices for just-in-time electricity delivery. It’s just one of many shifts triggered by Smart Grid technologies in the power sector.
Rodney Dangerfield had a great line about how he went to the fights and a hockey game broke out. It was a concise and witty commentary on the frequency of bench-emptying fist fights between hockey teams. We’re going to witness a similar trend in energy storage conferences. Many will transform into data analytics events.
Energy storage has extraordinary potential to transform electric utility operations and business models. There are many moving parts to it – there are almost daily announcements about new breakthroughs in chemistries that improve energy density, safety, and number of roundtrip charges and discharges.
Some moving parts of the energy storage market will mirror trends and characteristics of solar energy. Energy storage breakthroughs will result in rapid decreases in costs that have been witnessed in solar technology production and deployment. Privately-owned energy storage, like rooftop solar, will create whole new businesses that focus on deployment and maintenance of batteries and local jobs that require skilled workers. Energy storage solutions will also challenge utilities and regulators – another example of how technology outpaces policy. Just like net metering and feed-in tariffs were created for distributed solar photovoltaic (PV) installations, special tariffs will be created for energy storage assets that are not owned by utilities.
There is added complexity to energy storage tariffs insofar as batteries can deliver a variety of difference services to utilities ranging from ancillary services to keeping the lights on for specific periods of time during grid service disruptions. While solar panels constitute opportunities for their owners to reduce purchases of electricity from a utility or sell power back to it, energy storage has a greater variety of potential business cases. In addition to firming renewable sources of generation, owners of energy storage assets will have new opportunities to transact with utilities or with energy services aggregators. The basis of these transactions may be to place distributed energy storage assets alongside solar generation to enable greater participation in demand response programs. Today, demand response usually means a business must modify their operations to accommodate reductions in energy use. For some businesses, that may not be feasible as they lack that flexibility in their use of energy, or don’t want to invest in management systems that support automated responses to DR events. But if that business can rely on energy storage to take up the slack for demand response or other utility requests for capacity, voltage, or frequency responses, then they can earn money leveraging their energy storage assets.
And that’s how a funny thing happened when I attended a recent Agrion event about energy storage. A data analytics event broke out. In order for companies to participate in these new types of transactions, there’s a significant amount of data that must be gathered and analyzed. One company, Bosch Energy Storage Solutions has focused on development of complex software analytics and algorithms to define customer power needs. They are building data sets to forecast energy use patterns based on a number of historical and realtime data sources. They look 24 hours ahead to anticipate energy use as well as review the last week and the last year’s data to understand historical patterns of use in order to formulate the best energy storage management decisions. Another company, Stem, created a software platform that uses predictive algorithms to manage individual energy storage systems and aggregated storage systems to perform load reduction in conjunction with utilities’ operational needs. They collect granular usage data at a higher resolution than what is gathered by smart meters and combine this data with tariff information to build reliable financial models and determine the optimal times to discharge and charge batteries.
These are two examples where data analytics applications help run energy storage as cost-effectively as possible, and help build the business cases for sales resources to sell storage solutions to customers. There will be many more applications to follow that help energy storage solution purchasers determine which technologies and what storage applications make the most sense based on unique requirements. So don’t be surprised if you go to an energy storage event and discover that it’s a data analytics event too.