Evolving Business Models 2014

EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW
1 AmericanCouncilOnRenewableEnergy(ACORE)
EVOLVING BUSINESS MODELS FOR RENEWABLE
ENERGY: 2014 INDUSTRY REVIEW
JUNE 2014
AMERICAN COUNCIL ON RENEWABLE ENERGY (ACORE)

ACORE,a501(c)(3)nonprofitmembershiporganization,isdedicatedtobuildingasecureandprosperousAmerica
withclean,renewableenergy.ACOREseekstoadvancerenewableenergythroughfinance,policy,technology,and
marketdevelopmentandisconcentratingitsmemberfocusin2014onNationalDefense&Security,Power
Generation&Infrastructure,andTransportation.Additionalinformationisavailableat:www.acore.org
POWER GENERATION & INFRASTRUCTURE INITIATIVE
PowerGeneration&InfrastructureInitiativebringstogetherleadersfromtheutility,business,investment,
regulatory,publicandnonprofitsectorsto:(1)examinethechallenges,opportunitiesandappropriatestrategies
relatedtotheexpandeduseandeffectiveintegrationofrenewableenergyinthepowergenerationsector;and(2)
explore21stcenturybusinessmodelsthatwillallowforthisrenewableenergyscaleup.Additionalinformationis
availableat:www.acore.org/programs/memberinitiatives/powergeneration
COPYRIGHT
2014ACORE
AllRightsReservedunderU.S.andforeignlaw,treaties,andconventions.Thisworkcannotbereproduced,
downloaded,disseminated,published,ortransferredinanyformorbyanymeanswithoutthepriorwritten
permissionofthecopyrightownerorpursuanttotheLicensebelow:
Publishedby:
AmericanCouncilOnRenewableEnergy(ACORE)
1600KSt.NW,Suite650
Washington,DC20006
202.393.0001
QuestionsorComments:info@acore.org

ADVISORY COMMITTEE AUTHORS
ACORE
ToddFoley,JamesHewett,
LesleyHunter,and
MichaelBrower
AbengoaSolar
PaperCoAuthoredby
ConcentratingSolarPower
AllianceandPerkinsCoieLLP
FredMorse(Abengoa),Kate
Maracas,Frank(Tex)Wilkins,
andArthurHaubenstock
AmericanCleanEnergy
SteveMorgan
RESAmericas
ShaliniRamanathan
ScottMadden,Inc.
ChrisVlahoplus,CristinLyons,
andPaulQuinlan
SiemensSmartGrid
Services
ChrisKing
Sullivan&WorcesterLLP
JimWrathall,EliasHinckley
andJohnFrenkil

SPONSORS
TABLE OF CONTENTS
ExecutiveSummary.................................................................................................................4
EvolvingBusinessModelsforRenewableEnergy.....................................................................5
RenewableEnergyDriversofChangeandOverviewofActionsfromtheUtilityPerspective,
ScottMadden,Inc...............................................................................................................................5
DistributedEnergy:UnderstandingandMitigatingCommercialandRegulatoryRisks,
Sullivan&Worcester,LLP.................................................................................................................11
RevisitingtheElectricitySystem:LeveragingDistributedGeneration,AmericanCleanEnergy..........15
RoleofIndustrialandCommercialEnergyUsersinChangingUtilityBusinessModels,
RESAmericas.....................................................................................................................................20
MarketSpotlights..................................................................................................................24
GridIntegrationChallengesandtheRoleofConcentratingSolarPower,ConcentratingSolar
PowerAlliance,PerkinsCoie,LLPandAbengoaSolar.....................................................................24
ElectricVehicles:Flexibility,Creativity,andProfitPotentialforUtilities,SiemensSmart
GridServices......................................................................................................................................28
EXECUTIVE SUMMARY
Renewableenergycontinuestogrowasashareof
ournationsoverallelectricityportfolio,now
responsiblefor14%oftotalU.S.powergeneration.
Acombinationofprivatesectoringenuity,
investmentandgovernmentpolicycertaintyhave
drivensignificantcostreductions,technology
improvements,andscaleupoftherenewable
energyindustryoverthepastseveralyears.In2013,
nearly40%ofallnewU.S.electricitygenerating
capacitycamefromrenewableenergy.
Atthesametime,developmentsinnaturalgas
extractionoffergamechanging,buthighlywater
intensiveopportunities;stringentenvironmental
standardsraiseperformancerequirements;the
centralcoalandnucleargenerationfleetisrapidly
aging,foretellingaverycostlyreplacementscenario;
andthetransmissionanddistributionsystems
requireexpansionandupgrade.Anupdatedpolicy
frameworkandsignificantcapitalinvestmentare
requiredtomodernizethepowergenerationsector
andassurereliableservice.Technological
innovations,regionaldifferencesinresource
availability,thechangingnatureofcustomer
relationsandusepatterns,emergingfinancing
structures,theelectrificationofthetransportation
sector,andamurkypolicycertaintyoutlookpresent
challengesandopportunitiesforthissector.
Buildingontheconsiderableprogresspower
generationcompaniesacrosstheU.S.aremakingto
integraterenewableenergy,ACOREsPower
GenerationandInfrastructureInitiativebrings
togetherleadersfromtheutility,businessand
investment,regulatory,public,andnonprofit
sectorstodefineaviablearchitectureforthescale
upandsystemsintegrationofrenewableenergy
resources.Thecollaboration:(1)examinesthe
challenges,opportunitiesandappropriatestrategies
relatedtotheexpandeduseandeffective
integrationofrenewableenergyinthepower
generationsector;and(2)explores21stcentury
businessmodelsthatwillallowforthisrenewable
energyscaleup.
PURPOSEOFTHISREPORT
ThisIndustryReviewexploreskeyissuesand
providesrecommendationsrelatedtotheevolving
powersectorandincreaseduseofrenewable
energy,particularlyrelatedtodistributedgeneration
andtheeffectiveintegrationofadvancedgrid
technologiessuchassmartgridsandmicrogrids.This
reportprovidesaseriesofindustryperspectiveswith
usefulanalysis,data,andinsightforrenewable
energyandutilitystakeholders,including:
Insightintohowdistributedgenerationand
advancedgridtechnologiesarechangingthe
powergenerationsectorandtraditionalutility
businessmodels
Suggestedoutcomesforthesuccessful
integrationofrenewableenergyatscale
SpotlightsonhowCSPandEVsarechangingthe
wayutilitieslookatgeneration,integration,and
storage
Agroupofprominentrenewableenergydevelopers,
professionalservicefirms,energyservicecompanies,
andothergroupsauthoredthesixarticlesinthis
Review.
Theviewsandopinionsexpressedinthisreportare
thoseoftheauthorsanddonotnecessarilyreflect
theviewsofACORE.
.
RENEWABLE ENERGY DRIVERS OF CHANGE AND OVERVIEW
OF ACTIONS FROM THE UTILITY PERSPECTIVE
ChrisVlahoplus,CristinLyons,andPaulQuinlan
ScottMadden,Inc.
Renewablegenerationresources,coupledwiththe
innovationofenablingtechnologyonthe
distributiongrid,arecreatingthepotentialfor
disruptivechangeforelectricutilities.Whileutility
scalerenewablestrategiescanbesimilarto
traditionalutilityscalegeneration(i.e.,largescale
assetswithpurchasepoweragreements(PPAs)),the
utilitybusinessmodelmayfacesignificantchanges
fromcustomersiteddistributedresources,
especiallydistributedsolarphotovoltaics(PV).
Utilitiesresponsestodistributedgenerationhave
varied,rangingfromfinancingprojectsoutsideof
theserviceterritorytoowningandoperating
distributedgenerationwithintheserviceterritory.
Regardlessofdirection,utilitiesarefacedwiththe
needtorethinkhowdistributedresourcesaffect
theirapproachto:realtimeoperations;system
planning;customerengagement;andstrategy,
regulatory,financial,andstakeholdermanagement.
Inresponse,utilitiesshouldtakeproactiveactionto:
Renewtheregulatorycompact
Market,test,orpilotalternativeresources
Defineadjustmentstotheoperatingmodel
Defineadjustmentstothebusinessmodel
Despitesomerhetorictothecontrary,utilitieswill
continuetoexistandplayavitalroleinproviding
valuableservicestocustomers.Therefore,utilities
musthaveroomtobecomevaluablepartnersto
ensurethatdistributedgenerationbecomesalong
term,positiveenhancementoftheelectricgrid.
Inrenewableenergyprojectdevelopment,
regulatoryriskcanoftenbeoneofthemore
frustratingissuesthatrenewableenergydevelopers
mustaddress.Todate,U.S.DepartmentofDefense
(DoD)officials,inparticular,theU.S.ArmyEnergy
InitiativesTaskForce(EITF),havetakena
conservativeapproachtostateregulatoryriskby
includingrequirementsinrequestsforproposals
(RFPs)thatthebiddercomplywithallstateutility
laws.Understandingthenuancesofstateregulation
mayprovideanopportunityforpowerpurchase
agreements(PPAs)tobeexecutedthatmight
otherwisenotbeconsideredreadilyfeasible.
FederalregulationofpublicutilitiesbytheFederal
EnergyRegulatoryCommission(FERC)isrelatively
wellunderstood,andthereforeisnotthefocusof
thisarticle.
DRIVERSOFCHANGE
Resourcesthathavethepotentialtoshifttheutility
businessmodelaregenerallyappearingonthe
customersideofthemeterandprovidingutility
customerswithalternativestosupplytheir
electricityneedsthatdidnotpreviouslyexist.
Principalselfsupplyenergyresourcesincludesolar
PV,combinedheatandpower(CHP),demand
response,andmicrogrids.Theprimarydrivers
propellingthegrowthofdistributedgeneration
resourcesinclude:
TechnologyandDistributedGeneration
Advances:AdvancesinPVtechnology,coupled
withcommoditypricedeclines,areintroducing
unprecedentedlevelsofnontraditional
generationtothegrid.Inaddition,distribution
automation,advancedandaggregateddemand
response,energyefficiency,andautomated
meteringinfrastructureareimprovingthe
reliabilityandefficiencyofthegrid.
PublicPolicyandRegulatorySupport:Policies
drivingadoptionincludenetmetering,
renewableportfoliostandardswith
distributedgenerationrequirements,
authorizationtoallowthirdparty
ownershipmodels,andincentives.
Statesarebeginningtoexplorethese
dynamicsandtheirimpactonelectric
utilitiesandcustomers.Policiesbuilt
aroundthevalueofsolarorother
distributedgenerationmaybecome
moreprevalentandmayreplacenet
metering.Regulatorsarealso
encouragingutilitiestoexplore
advancedtechnologiesandnewbusiness
models.Examplesoftheseeffortsinclude
Minnesotasvalueofsolar,gridmodernization
inMassachusetts,andutilityofthefuture
discussionsinMarylandandNewYork.
CustomerPreference:Businessesare
demonstratingagrowinginterestin
incorporatingdistributedgenerationintheir
energysupply.Forexample,Walmartgenerates
1%ofitselectricityor174GWhperyearfrom
onsitebiogas,solar,andwind.
1
Inaddition,
residentialcustomersareconsidering
distributedgenerationingrowingnumbersas
costscontinuetodecline.Demographicswill
increasethistrendasyoungercustomershave
strongerpreferencesforgreensolutions.
Theadoptionandimpactofthesedriverswillnotbe
consistentacrosstheUnitedStates.Instead,states
withmorefavorableenvironments(e.g.,more
lucrativenetmetering,thirdpartysolarleasingand
PPAs,higherelectricityprices,etc.)aremorelikelyto
haveasignificantinfluxofdistributedresources.The
majorityofthesestatesareinthenortheastand
southwest.
ISSUESANDCONSEQUENCES
Distributedresourcesintroducecomplexityto
traditionalmodelofcentralstationgenerationand
1
U.S.EPA,Top30OnsiteGeneration,RevisedJanuary27,
2014,
http://www.epa.gov/greenpower/toplists/top30onsite.htm
thelonghaultransmission.Theissuesrangefrom
thestrategictotactical,forexample:
Thirdpartysalesofelectricitymaydisplacethe
utilitysrolewiththeretailcustomer.
Microgridsintroducethequestionoffranchise
rightsandthedefinitionofautility.
Utilitiesmayneedtoupgradedistribution
infrastructure(relaying,reclosers,conductors,
andtransformers)toaccommodatetwoway
powerflowsthatcomefromtheseinstallations.
Theutilityneedstobeabletoseewhere
resourcesarelocatedonthegridandmanage
intermittencyatthedistributionlevel.
Distributedresourcesanddemandresponse
havethepotentialtochangetheloadcurveofa
utilityinspecificnetworksinthedistribution
system.
Duetonetmeteringprovisions,distributed
generationcustomersmaynotparticipatefully
inpayingforthedistributionupgradesrequired
tointerconnecttheirrooftopsolarinstallation.
Somearguethatcrosssubsidizationofrate
classesistakingplaceinthedeploymentof
distributedgeneration(beyondexistingcross
subsidizationoflowincomeandbetweenother
EXHIBIT1:PROSPECTSFORDISTRIBUTEDGENERATION
rateclasses,i.e.betweenindustrial,commercial
andresidential).
Largecorporations,whichareutilitieslargest
customers,arefacingpressurefromproduced
productsandservices.
TODAYSUTILITYACTIVITY
Utilitiesarecontemplatingthedegreetowhichthey
wanttoownoroperatedistributedgeneration
assets.ThereisparticularinterestinsolarPVassets
andthatisthefocusofthissection.Approachesto
thistechnologyfallbroadlyintothefollowing
categories:
FinanceOutsideofServiceTerritory:
Companiesmaypursueopportunitiesby
providingprojectfinancingorequity
investmentsincompanies.In2010,Pacific
EnergyCapital(asubsidiaryofPG&E)agreedto
fundSolarCitytoinstallsolaronhomesand
businesses.Examplesofequityinvestments,
whichappeartobethepreferredapproachin
recentyears,includeDukeEnergysinvestment
inCleanPowerFinanceandEdison
Internationalsacquisitionofsolarinstaller
SoCoreEnergy.
Own/OperateOutsideofServiceTerritory:
Numerousutilitieshaveinvestedinutilityscale
solaroutsideoftheirserviceterritoriestolearn
aboutthetechnologywhilepotentially
increasingearnings.Directownershipof
distributedsolarhasbeenmorelimited.
However,IntegrysannouncedinJanuary2014
thatitssubsidiary,IntegrysEnergyServices(IES),
wouldinvest$40to$50millionperyearin
commercialandresidentialsolar.CleanPower
Financewillprovideoriginationandoperation
services,whileIESremainstheownerofthe
solarassets.
ProvideGreenOptionstoCustomers:Utilities
maymeetcustomerneedsbyproviding
communitysolarinitiativesorgreenrates.For
example,SaltRiverProjectofferscustomers
accesstoa20MWcommunitysolarproject.
Meanwhile,DukeEnergy,NVEnergy,Dominion,
GeorgiaPower,andothersprovidecreditsor
tariffsforcustomerstopurchaserenewable
energy,therebyeliminatingtheneedfor
customersitedinfrastructurefromtheir
perspective.Theutilitybenefitsbecausethese
resourcesaregenerallyutilityscaleandhave
minimalimpactonthedistributionsystem.
Own/OperatewithinServiceTerritory:Utility
owneddistributedsolarmaybecomea
regulatedassetwithinacompanysservice
territory.Thisapproachmitigatesissuesrelated
tonetmeteringwhileprovidingoperational
benefits,astheutilitycanpotentiallysitethe
solarinthepartofthesystembestequippedto
accommodateit,andwhereitmayhelpsolve
congestionorreliabilityissues.Dominionis
testingutilityowneddistributedsolarina30
MWpilotprogram.
Inaddition,someutilitieshavebegunto
contemplatearoleakintoadistributedregional
transmissionorganization(RTO).Inthisscenario,the
utilitybecomesamanageroftransactionsacrossa
diversesetofresourcesincludingdistributed
generation,demandresponse,energyefficiency,and
customerloads.Thismodelpresupposeschangesto
ratedesignandsignificantadvancesinutility
operations.
OVERVIEWOFUTILITYCOURSESOFACTION
Autilityshouldbeginbyevaluatingthepotential
marketsizeofdistributedgenerationinitsservice
territory.Keydriverswillbethelocalrenewable
resources,installationcosts,andpolicystructure.
Withanunderstandingofthepotentialmarket,a
utilityshouldfollowthestepsbelow.
RenewtheRegulatoryCompact:Thecurrent
ratemodelwasdesignedforadifferent
environment.Theconvenienceofcostallocation
toafewmajorrateclasses,usingvolumetric
rates,breaksdowninaworldofvariedand
distributedcustomers.Ifdistributedresources
aretoseelongterm,viablepenetration,this
modelmustberethought.Theutilityriskprofile,
businessmodel,andfinancialstructureall
dependontheregulatorycontract.Keyactions
torenewtheregulatorycompactinclude:
Addressingnetmeteringinequalityissues
Immunizingreturnsagainstflattodeclining
consumptionthroughratedecouplingor
othermechanisms
Protectingfranchiserightsand
responsibilities
Creatinggridreliabilityinterconnectand
operatingprotocols
Creatingflexibletariffstoservedistributed
generationcustomers
MarketTestorPilotAlternativeResources:
Markettestsandpilotsallowutilitiestodevelop
operationalexperiencewithnewtechnologies.
Utilitiesmayalsotestpricingprinciplesthrough
marketexperimentsanddifferentiatedpricing.
Markettestsorpilotswithinaserviceterritory
mayestablishaprecedentforfullscale
implementation.
DefineAdjustmentstotheOperatingModel:
Utilitieswillneedtorefineoperatingmodelsto
accountforthelessonslearnedthroughmarket
testsandpilots.Keyareasoffocusincludereal
timeoperations,systemplanning,andcustomer
engagement(seeexhibit3).
DefineAdjustmentstotheBusinessModel:
Utilitiesmustalsorefinebusinessmodelsbased
onthelessonslearnedfromthemarkettestor
pilot.Keyareasoffocusincludestrategy,
regulatory,financial,andstakeholder
engagement(seeexhibit4).
TypesofUtility
Involvement
Benefits Challenges
FinanceOutsideof
ServiceTerritory
Allowsforparticipationingrowingmarket
andpotentialreturnoninvestmentthrough
direct(energyrevenues,renewableenergy
certificates)andindirectbenefits(taxcredits,
diversification)
Facilitatesanunderstandingoftechnology
andmarketconsiderations
Technologiesand
regulationsoutsideofthe
serviceterritorymaynot
provideadequateknowledge
transferforfutureservice
territoryinstalls
Own/OperateOutside
ofServiceTerritory
ProvideGreen
OptionstoCustomers
Providesanopportunitytogainfirsthand
knowledgeofhowtomaximizeresource
value
Understandingtechnologymayprovide
ancillarybenefits(e.g.,voltageregulation)
Morelikelytobeeligibleforraterecovery
Requireslargerinvestment
incapitalandresourcesto
acquireandmanage
Needstobecoordinated
withotherfacetsofthe
company
Own/Operatewithin
ServiceTerritory
EXHIBIT2:BENEFITSANDCHALLENGESOFCURRENTUTILITYACTIVITY

Areasof
Concern
Implications Considerations
RealTime
Operations
Amarkettestorpilot will
allowoperatorstoseeand
operatenewresources
connectedtothegrid
Considerexpanded,moregranularvisualization
tools
Determinehowcoordinationwithnonutilityentities
thatoperateassetsshouldwork
Protocolsdictatingtheavailabilityofresourcesmay
becomeimportantiftheyaretoberelieduponby
operations
System
Planning
Centralstationgeneration
andlonghaultransmission
planningwillneedto
incorporateamarkettest
orpilot
Modelsneedtoaccountfornewresources
Locationandtimearenowimportantvariablesand
needtobeconsideredbothintransmissionand
distribution
Customer
Engagement
Amarkettestorpilot
allowsutilitiestoprovide
customersnewservices
Theutilitywillbecalledupontointerconnectto
variousentities;therolesandresponsibilitiesinthat
interfaceneedtobeclear
Customersmayrequireadditionaltypesofservice
Areasof
Concern
Implications Considerations
Strategy Theutilitywillface
competitionandlossof
revenue
Alternativebusiness
opportunitiesmayexist
Theutilityneedstoconsiderwhichbusinessesit
wantstobein
Isthereanopportunitytobecomethesinglepoint
ofcontacttothecustomer?
Arethereotherlinesofbusinessestheutilityshould
enter?
Regulatory Utilityloadswilldecline
withtheinfluxof
resources;theexisting
rateconstructmaybe
insufficienttoaddress
decliningdemandgrowth
andcustomergeneration
Considerratedecoupling,riders,andother
strategiestoprotectrevenuestoday
Openthedialoguewiththeregulatoronchangesto
thebusinessmodelandthevalueofthegrid
Considerfurtherbifurcationofcustomersandrate
classes
Financial Customersareusingless
electricityorself
supplying
Clarifyapproachtonetmetering
Considernewgrowthstrategies(e.g.,electrification
ofinfrastructure,etc.)
Stakeholder
Management
Astrategytomanageall
stakeholderswillbe
critical
Theutilityneedstomanageandcommunicatetoall
stakeholdersthroughtransition
Thisapproachshouldbecoordinatedwithother
strategies
EXHIBIT3:OPERATINGMODELADJUSTMENTS
EXHIBIT4:BUSINESSMODELADJUSTMENTS
Despitesomerhetorictothecontrary,utilitieswill
continuetoexistandplayavitalroleinproviding
valuableservicestocustomers.Therefore,utilities
musthaveroomtobecomevaluablepartnersifwe
aretoensurethatdistributedgenerationbecomesa
longterm,positiveenhancementoftheelectricgrid.
ABOUTTHEAUTHOR
ChrisVlahoplusisapartnerandleadsthefirms
cleantechandsustainabilitypractice.Hehasbeena
managementconsultanttotheenergyandutility
industryformorethan20years.Chrisearnedan
M.B.A.fromtheUniversityofNorthCarolinaat
ChapelHillandanM.S.innuclearengineeringfrom
theMassachusettsInstituteofTechnology.
CristinLyonsisapartnerandleadsthefirms
transmission,distribution,andSmartGridpractice.
Shejoinedthefirmin1999andhassinceconsulted
withamyriadofclientsonissuesrangingfrom
mergerintegrationtoprojectandprogram
management.CristinearnedanM.B.A.from
SouthernMethodistUniversityandaB.A.inpolitical
scienceandSpanishfromGettysburgCollege.
PaulQuinlanisaCleanTechSpecialistwiththefirms
cleantechandsustainabilitypractice.Heearneda
masterofpublicpolicyandamasterof
environmentalmanagementfromDukeUniversity
andaB.S.fromtheUniversityofNotreDame.

DISTRIBUTED ENERGY: UNDERSTANDING AND MITIGATING
COMMERCIAL AND REGULATORY RISKS
JimWrathall,EliasHinckleyandJohnFrenkil
Sullivan&Worcester,LLP
Improvingtechnology,combinedwithhighercosts
oftraditionalgriddeliveredelectricityand
increasinglystringentenvironmentalrequirements,
havecreatednewopportunitiesforonsitepower
andotherdistributedenergyresources(DER).
AccordingtotheU.S.EnergyInformation
Administration,42gigawatts(GW)ofnewpeak
powergenerationcapacitywillbeneededinthe
nexttwentyyears.
2
Muchofthiscapacitywillbe
metwithDER,drivenbyenergyconsumersseeking
improvedperformance,reliability,powerquality,
andcostsavings.SeveralFortune100companies,
includingWalMart,GoogleandApple,have
committedtosupplyingalloftheirenergyneeds
throughrenewableenergyresources.
Anumberofstatesarepursuingaggressive
programsprovidingincentivesandregulatory
reformssupportingadoptionofDER.Mostrecently,
onApril25,2014,NewYorkStateGovernorAndrew
CuomoannouncedthattheN.Y.PublicService
Commissionwilloverhaulthestatesenergymarket
regulationswiththegoalofincreasingdistributed
generation,smartgrid,anddemandresponse
technologies.PublicutilitycommissionsinCalifornia,
Arizona,Colorado,Minnesota,Florida,Hawaii,and
IowahaveopendocketsaddressingDERadoption
andrelatedratemakingissues.
Thesemarketandpolicydynamicsareleadingto
increasedadoptionofDER.Growthhasaccelerated
http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2014&s
ubject=0AEO2014&table=9AEO2014&region=0
0&cases=full2013fulld102312a,ref2014d102413a
substantiallyinthemarketforcommercialand
industrialDERsystemsrangingfrom1megawatt
(MW)to3MWinscale.Forexample,distributed
solarenergycapacitywasthethirdlargestsourceof
newgenerationin2013,andisexpectedtogrowata
rateof22%annuallythrough2020.
3
WhilesolarPV
hasbeenattheforefront,theDERopportunityis
muchlargerthansolar,encompassingavarietyof
distributedgenerationtechnologies,including
modularwind,combinedheatandpower,biomass,
biogas,fuelcellsandmicroturbines,aswellas,
otherresourcessuchasenergystorage,microgrids,
demandresponse,andadvancedenergy
managementinformationtechnologies.
Ontheotherhand,electricutilitiesandbroader
nationalorganizationshaveincreasinglysoughtto
restrictandimposeadditionalfinancialchargeson
DER.Theyarguethatconsumersobtainingpower
throughtheirowngenerationassetsarenotpaying
enoughforgeneralgridservices.
TheshifttowardDERiscreatingmajoropportunities
forinvestors,althoughinacontextofincreasing
uncertainty.Innovativefinancialmodelscanbeused
tostructureDERinvestments,particularlythose
focusedonaggregatingpoolsofassetsfor
investmentandsecuritization.Giventhe
complexitiesofDERandthechangingregulatoryand
marketlandscape,identifyingrisksandopportunities
tomitigatetheseriskswillbeincreasinglyimportant
inthecontextofDERinvestments.
3
EdisonElectricInstitute,DisruptiveChallenges:Financial
ImplicationsandStrategicChallengestoaChangingRetailElectric
Business,Jan.2014(citingBloombergNewEnergyFinance).
RISKCATEGORIESINDISTRIBUTEDENERGY
TRANSACTIONS
Distributedresourceinvestmentsbringuniqueareas
ofrisk.Anumberofthesetypesofrisksare
commercialinnature,andwillbeaddressed
primarilyonthebusinesssideofthetransaction.
Othertypesofriskarestructuralandregulatoryin
natureandwillgenerallybehandledwith
contractualprovisions.
CommercialRisks
Akeyinitialissueistheproposedstructureofthe
DERinvestment.Financingmayeitherbedirectly
providedtotheprojectsiteownerortothirdparty
providers.Transactionsmayemployamixofnon
recoursedebt,taxequityfinancing,andequity.
Sponsorsareabletoachieveperformance
advantagesandcostsavingsthroughaportfolio
approach,andcaneffectivelymonetizethe
economicbenefitsrealizedthroughgovernment
incentives,taxcredits,anddepreciation.Portfolios
andtheassociatedrevenuestreamscanthenbe
packaged,securitized,andofferedtoinvestors.Each
transactionmodelmustbeevaluatedinconsidering
thepotentialrisksandexpectedupside.
Particularlyinthecontextofthirdpartyfinancing,
thereareanumberofsignificantcategoriesof
commercialrisks,including:
1. TechnologyRisks:Understandingtheexpected
performanceandreliabilityoftheproposed
technicalsolutioniscriticallyimportant.This
includesboththedirectoperationofgenerating
assetsaswellasrelatedremotesensingand
informationtechnologies.
2. DeveloperQualifications:Thehistoryand
capabilitiesoftheprojectdevelopercanmake
thedifferenceinachievingasuccessful
outcome.
3. SponsorRisk:Thedutiesandcapabilitiesofthe
sponsors/hostsoftheprojectassetsshouldbe
assessed.Iftheunderlyingassetsmustbe
accessedovertimeformaintenancepurposes,
andifthesponsorsarereliedon,includingfor
ongoingoperationsandmaintenance,these
risksbecomemoreimportant.
4. CreditRisk:Wherereturnsaretobeprovided
throughanarrangementwiththecounterparty
topurchaseandtakethepowerproduced,the
termsandconditionsoftheofftakeagreement
willbecriticallyimportant.Indebttransactions,
thelenderalsomaytakeasecurityinterestin
thesuppliedpowerandresultingcashflows.
RegulatoryRisks
Distributedgenerationprojectsarestructuredwithin
acomplexsystemofstateandfederalregulatory
requirements.Eachstateregulatespower
generationandutilityinterconnectionandofftake
separately.Achievingfinanceableandsuccessful
transactionsrequiresaclearunderstandingofthese
regulatorymatters.
Forexample,akeyquestionforaDERinvestmentis
whethertheprojectwouldbelocatedinstatesthat
permitthirdpartyleasingofonsiteenergy
resourcesreferredtoasretailchoiceprograms.
Currently,suchprogramsareallowedintwenty
threestatesandtheDistrictofColumbia.Instates
whereretailchoiceisnotauthorizedbystatute,
thirdpartyfinancingisnotanoption,andproject
proponentsmayberequiredtoenterintodirect
discussionswithregulatorstoobtainnecessary
approvalsforDERtransactions.
Federalandstatefinancialincentiveprogramsalso
mustbefullyconsidered.Thespecifictermsofthe
applicablenetmeteringorfeedintariffprovisions
willgreatlyimpacttheeconomicsofthetransaction.
Severalstateshavepassedlegislationauthorizing
programssuchasPropertyAssessedCleanEnergy
andonbillfinancing.Theseprogramshave
substantialimpactsoninvestmentriskprofiles.
Anotherissueistheabilitytomonetizerenewable
energycredits(RECs)andthepotentialforchanges
inRECvaluesovertime.Inanumberofstates,
renewableportfoliostandardsareunderattackby
opponentsseekingrepeal.Inthosestates,theriskof
achangeinlawcouldhaveasignificantimpacton
thevalueofRECs.
Finally,astheindustryitselfhasrecognized,the
adoptionofdistributedenergyresourcesis
challengingtheelectricutilityindustrybusiness
model.
4
Someutilitiesandcompaniesinvolvedin
fossilfuelrelatedsectorsarerespondingtothese
developmentsinratemakingcases,requesting
modifiedratestructuresthatrequireDERusersto
payadditionalamountstocovergridservicesand
standbyandbackupservices.Also,DER
opponentsareincreasinglyseekingrepealor
modificationoftheunderlyinglegislationcreating
renewableandDERvaluestreams,suchasstate
renewableportfoliostandards(RPS)andtaxcredit
programs.Thepotentialforfuturechangesinlaw
andtheextentofresultingimpactsonDERfinancial
returnsshouldbecarefullyassessed.
DUEDILIGENCEANDCONTRACT
FRAMEWORKSINDISTRIBUTEDGENERATION
TRANSACTIONS
Investinginaggregatedpoolsofdistributed
generationassetsposesuniquetransactional
challenges.Comprehensiveduediligence,including
inspectionsofeachoperatinginstallation,maynot
becosteffective.Inthesekindsofprojects,thegoal
istodesignandimplementduediligencereviews
thataresufficientlyrepresentativetoachieveoverall
riskassessment,atalevelofexpensethatis
consistentwiththereturnsofferedbytheproposed
investment.
Keyitemsforreviewincludetheinvestmentfinancial
model;applicableregulatoryframeworkaffecting
interconnection,offtakeandpricing,aswellas
potentialforfuturemodificationstothatframework;
whethertheprojectdeveloperhasprovided
consistentanduniformdocumentationofthe
underlyingcontractualarrangements,includingoff
takeandinterconnectionagreements;structureage
andphysicalcondition,ownership,andsecurityof
theassets;resourceforecastdataandmethodology;
4
Id.
equipmentselection,design,engineering,reliability,
andsystemdegradationprojections;installation
qualitycontrolhistoricaldata;operationsand
maintenanceproviderandagreementterms;
inspectionreportsfromsitevisitsatselected
representativefacilities;performanceofsponsor
portfoliosinpriorDERinvestmenttransactions;and
warranties,performanceguarantees,andinsurance.
Potentialinvestorsandtheircounselshouldconsider
retainingindependenttechnicalandengineering
consultantstoaidindesigningandconductingdue
diligencereviews.Theseexpertscanbeparticularly
helpfulinassessingthereasonablenessand
uncertaintyofpowergenerationforecasts,cost
assumptionsandprojections,andreviewofthe
O&Mplans.
Similarduediligencemodelswillneedtobe
developedforotherDERtechnologyportfolios,
includingfuelcells,modularwind,and
biogas/biomassapplications.Increasing
standardizationwillbeimportantasthemarketsfor
DERprojectsemployingthesetechnologiesmature.
Thecapabilitytostandardizetheduediligence
processandprovideeffectivereviewsinacost
effectivemannerwillbeakeytoincreased
investmentinDER.Theultimategoalisdevelopment
andapplicationofduediligencetemplatesthatwill
reliablyachievetheassessmentofthesignificant
variablesinaDERportfoliotransaction.
Unlockingthevalueindistributedresources
investmentsrequiresauniqueblendofcreativity
andstandardization.Atypicaldealpackagemight
includesomecombinationofthefollowing:
Projectcompanydocumentsandequity
agreements
Loanandcreditagreements
Taxequityagreements
Developeragreements
Leaseagreements
Powerpurchaseagreements
RECownership
Collateralsecurityagreements
Revenuedistributionwaterfall
O&Mandbackupserviceagreements
Insurancepolicies
Thenature,scope,andstructureofeachprojectwill
necessarilydeterminetheprecisecontract
framework.Earlyandcarefulstrategicassessment,
andcreativeuseandmodificationoftheavailable
contractstructures,willbecriticallyimportantto
mitigatingtheprojectandregulatoryrisks,and
achievingsuccessfulfinancialoutcomes.
ABOUTTHEAUTHOR
JimWrathallisacounsel,EliasHinckleyapartner
andDavidJohnFrenkilanassociatewiththeEnergy
FinancePracticeGroupofSullivan&WorcesterLLP.
InadditiontoheadingS&WsEnergyFinance
Practice,Mr.Hinckleyhasbeentheleaderofthe
alternativeenergypracticeforoneoftheworlds
largestprofessionalservicesfirmsaswellasthe
cleanenergyandcleantechleaderfortwo
AmLaw100lawfirms.Healsoisaprofessorof
internationalenergypolicy,aregularcontributor
toseveralenergyforumsandfrequentspeaker
onenergypolicyandfinance.
Mr.Wrathallspracticeincludesenergyand
environmentalpolicymattersandtransactions.
PriortojoiningS&Winlate2011,hehadover
twodecadesofexperiencewithAmLaw20law
firmsandservedasSeniorCounselwiththeU.S.
EnvironmentandPublicWorksCommitteefrom
2007through2011,handlingcleanenergyand
climatechangelegislationandoversight
activities.
Mr.Frenkilisanenergyfinanceattorney
focusingontherepresentationoflenders,equity
investorsanddevelopersindomesticand
internationalenergyprojects.Priortojoining
S&W,herepresentedenergyclientsintheLos
Angelesofficeamajorinternationallawfirm.
S&WsEnergyFinancePracticedesignssolutionsfor
complexfinancingchallenges,includingthe
integrationofnewtechnologiesandrelatedfinancial
innovationforthepowergenerationindustry,aswell
asthedeploymentandcommercializationof
advancedenergytechnologiesanddistributed
generationprojects.
REVISITING THE ELECTRICITY SYSTEM: LEVERAGING
DISTRIBUTED GENERATION
SteveMorgan
AmericanCleanEnergy
Aresurgenceoftherenewableenergyindustryhas
takenplaceoverthelastdecade,fueledbystate
mandatesandfederalpolicyincentives,aswellas
significantreductionsinprojectcosts.Despitethe
recessionof20082009,growthintherenewables
sectorparticularlyacceleratedthedeploymentof
windandsolarphotovoltaics(PV).
5
Whatwasonceanichemarkethasgrowntobecome
abusinessconcernforutilitiesandregulators.
However,theintermittencyandlowcapacityfactors
ofwindandsolarPV,relativetobaseloadthermal
powerstations,hasraisedoperatingconcerns.
Revenueerosionascustomersuselessenergyand
capacityofthegrid,oractuallygeneratebackinto
thegrid,createsconcernsfortheutilitybusiness
model.
THESHIFTINGMARKETANDPOLICY
LANDSCAPE
Since1983,38statesandtheDistrictofColumbia
haveadoptedrenewableenergytargets,30ofwhich
havemandatorycompliancerequirementsandeight
ofwhichhavevoluntaryrequirements.Inaddition,
43statesandD.C.haveestablishedvariousnet
energymetering(NEM)policies.TheRPS
requirementsareapatchworkofpoliciesthatvary
fromjurisdictiontojurisdiction.Someincludeall
formsofrenewables,and10ofthemcallforset
asiderequirementsforsolarPVand/ordistributed
generation.
5
Bird,L.,J.McLaren,J.Heeter,C.Linvill,J.Shenot,R.Sedano,and
J.MigdenOstrander.RegulatoryConsiderationsAssociatedwith
theExpandedAdoptionofDistributedSolar.(2013).
6
Council,InterstateRenewableEnergy.StatusofElectricity
RestructuringbyState.EIA.2014.
Duringthissameperiodoftime,utilityderegulation
orrestructuringoccurredin16statesplusD.C.,
verticallydisaggregatingtheutilitiesinthose
jurisdictions.
6
Tofurthercomplicatethepicture,34
statesandD.C.partiallyortotallyparticipatein
organizedwholesalemarketsforelectricpower
transactionsthrougharegionaltransmission
operator(RTO)orindependentsystemoperator
(ISO).
7
Theupshotofthesechangesinpolicyand
regulationhasbeenthereturntorelyingonprivate
investmentforneworreplacementgeneration
assetsinmost,butnotallofthecountry.
Atthesametime,uncertaintyoverfuturecarbon
regulationshasallbutkillednewcoalfired,base
loadconstruction.Expectedfuturecapacitywill
comefromnaturalgasandrenewableresources.In
2013,37%ofallnewelectricitygeneratingcapacity
camefromrenewableenergy,threetimesmore
generationcapacitythanfromoil,coal,andnuclear
combined.Whilethebulkofrenewableenergy
additionsoverthepastdecadehadbeenfromgrid
connectedwind,2013sawthelargestrenewable
powercapacityincreasefromsolarPV,both
distributedandcentralized.
8
Theproblemsattendanttocentralstationpower
sourcesaffectgridconnectedrenewableenergy
projectsaswell,includinglongdistancetransportof
theenergytotheloadcenters.Therearesubstantial
benefitstobederivedbyplacingnewrenewable
sourcesclosertotheloadstheyserve.
www.eia.gov/cneaf/electricity/page/restructuring/restructure_el
ect.html
7
AD10,OrganizedWholesalePowerMarkets."137FERC61,064
UNITEDSTATESOFAMERICAFEDERALENERGYREGULATORY
COMMISSION."
8
SolarMarketInsightReport2013YearinReview.SEIA.2014
THEPOWERMARKETTODAY:ANEW,OLD
MODEL
SolarPVpenetrationhasgrownfromvirtually
nothingin2000toabout12GWattheendof2013.
9
Whilemanyofthepreviousadditionshavebeen
largescale,gridconnectedprojects,smaller,
distributedsolarPVisexpectedtomakeupthe
majorityofadditionsincomingyears.
Thepaceofdeploymenthasbeendrivenbyvarious
stateandfederalincentivesavailabletodevelopers
andowners.However,growthisincreasinglydriven
bysolarPVcostreductions.Since2007,PVpanel
priceshavefallenover80%.Solarpanelscanbe
purchasedinvolumeatabout$0.70perwatt
delivered,andcontinuedpricepressuresare
expectedintothefuture.
Totalinstalledcostsrangefrom$2.304.00perwatt,
andlittlehasbeendonetoreducethebalanceof
systemsorfinancingcostsforPVsystems.
10
However,atexistingdevelopedcosts,assuminga
30yearlifeandaconservativeestimateoffuture
operationsandmaintenance(O&M),theU.S.Energy
InformationAdministration(EIA)calculatesthe
levelizedcostofenergy(LCOE)tobearound
$0.13/kWh.
11
Marketbidshavealsocomeinaround
$0.08/kWhallin,makingtheLCOEcomparableto
prerecession,wholesalepowerpricing.Evenatthe
higher,moreconservativeestimateoftheU.S.EIA,
LCOEisbelowexistingretailratesinhighcoststates
likeNewJersey,NewYorkandCalifornia.Thenwhat
ispreventingrapiddeploymentofdistributedsolar
generation,particularlyinhighcostserviceareas?
Thebarriersarenumerous,butthemostsignificant
arethebalkanizationofmarkets,uncertaintyof
policy,overrelianceontaxequityfinancingand
projectfinance,andagenerallackofunderstanding
9
Solar,U.S."TRENDS2012."(2013).,www.irecusa./publications
10
Feldman,David,G.Barbose,R.Margolis,R.Wiser,N.
Darghouth,andA.Goodrich.Photovoltaic(PV)pricingtrends:
historical,recent,andneartermprojections.No.DOE/GO
1020123839.NationalRenewableEnergyLaboratory(NREL),
Golden,CO.,2012.
andinabilitytomonetizethevaluethatdistributed
generationresourcesbringtothegrid.
Manyprojectssitedinthedistributionsystemwillbe
below1MWofcapacity,limitedbybothspaceand
customerloadaswellasdistributionsystemdesign.
Therehasbeensomeconcernthatprojectsofthis
sizecannotscalebecausetheprojectfinancemodel
generatesahighcostofcapitalandlegalexpenses,
makingdevelopmenteconomicallyunattractive.
Giventherelativelylowpenetrationratesthusfar
andtheragingdebateovernewfinancingtools,one
mustconcludethatthereissomemerittothis
argument.
However,economiesofbothscaleandscopecanbe
createdonceasubstantialpipelineofprojectsis
established.Thereareeconomiesthatcomefrom
boththesupplychainaswellaslessonslearnedfrom
replication,andmosteconomiesareyettobe
achievedinthismarket.Although,achievementof
thesebenefitscannotberealizedwithoutabetter
fundingvehiclethanisnowinplace.
Taxequityfinancinghasbeenanessentialtoolinthe
financingofprojectstodate.Theexplosioninsolar
deploymentsin20102012was,atleastinpart,the
resultoftheconversionofincentivesintocash
paymentsunderthe1603federalcashgrant
programimplementedtocompensateforthecrash
ofthetaxequitymarketfollowingthe20082009
financialcrisis.Thetaxequitymarkethasreturnedto
precrisislevelsbutthelimitedavailabilityoftax
equityinvestorsandthehighcostofcapitalthey
commandwilllimittheindustrysgrowthtrajectory.
Therapidgrowthoftheelectricutilityindustryinthe
postWorldWarIIerareliedupontheabilityof
utilitiestosecuritizetheircapitaladditions.Accessto
stable,predictable,longtermsourcesoffundingcan
haveasimilarimpactontheemergenceofthe
distributedgenerationmarket.Buttheabilityto
11
"U.S.EnergyInformationAdministrationEIAIndependent
StatisticsandAnalysis."U.S.EnergyInformationAdministration
(EIA).N.p.,n.d.Web.Apr.2014.
<http://www.eia.gov/forecasts/aeo/electricity_generation.cfm>.
financefutureprojectswithbondproceedsis
generallylimitedtoaveryfewlargedevelopers.
Utilitiesareinapositiontoaccessthesecapital
marketsatacostandtenorthatcanmakethe
deploymentofdistributedgenerationgrow.Afterall,
theseresourcesarelonglived,utilitylikeassetswith
provenandpredictableoperatingcharacteristicsand
lives.
Presenthistoryinthesolarrenewablemarketplace
suggeststhatmosthostsprefertoacquiresolar
energythroughapowerpurchaseagreement(PPA),
whereintheygetstable,predictable,longterm
pricingforelectricitywithouttheburdensofupfront
capitalorfutureO&Mcosts.Thissuggeststhatthose
familiarwithowningandoperatinglonglivedassets
arebestpositionedtotakeadvantageofthemarket
developmentphaseofgrowth.
Inorderforthissuggestedmodeltowork,two
criticalingredientsarerequired.First,theutility
mustbeconvincedofthevaluepropositionin
movingtoamoredistributedgenerationplatform.
Secondly,thecustomermustbeconvincedinthe
longtermvaluepropositioninallowingthe
distributedgenerationontheirsite/building.
Muchofthecurrentpolicydebatehasfocused
aroundtheeliminationofincentives,includingnet
energymetering,largelydrivenbytheconcernover
utilityrevenueerosionasmarketuptakeaccelerates.
Weareseeingtheevolutionofrenewable
distributedresourcesintheinterconnectedgrid.The
currentdebatehasfocusedonwhowinsandwho
loses?Theredonotneedtobeanylosers.The
challengeistocraftawinwinframework.
TRANSITIONINGTOFUTUREMODELS
Somesuggestthattheintermittentnatureofsolar
distributedgenerationwillcauseoperationalissues
intheinterconnectedgridatevenmodest
penetrationlevels.TheNationalRenewableEnergy
12
Mai,T.,R.Wiser,D.Sandor,G.Brinkman,G.Heath,P.Denholm,
D.J.Hostick,N.Darghouth,A.Schlosser,andK.
Strzepek.RenewableElectricityFuturesStudy.Volume1:
ExplorationofHighPenetrationRenewableElectricityFutures.No.
Laboratory(NREL)report,RenewableElectricity
FuturesStudy,concludedthat:Thecentral
conclusionoftheanalysisisthatrenewable
electricitygenerationfromtechnologiesthatare
commerciallyavailabletoday,incombinationwitha
moreflexibleelectricsystem,ismorethanadequate
tosupply80%oftotalU.S.electricitygenerationin
2050whilemeetingelectricitydemandonanhourly
basisineveryregionoftheUnitedStates.
12
Willtherebechangesandadaptationsrequired?
Certainly,butthechallengescanbemetanddonot
requireunknownorunavailabletechnologyfor
success.
Whataboutcustomerobjectionstoutilityowned
andoperatedassets?Frommyexperience,
customerdissatisfactionstemsfromtwomain
sources:priceandavailability.Customer
dissatisfactionovereitherorbothoftheseissues
generallytranslatesintoacallforcompetitionor
control.
Availabilityintheutilityindustryisgenerally
measuredasanaverageforallcustomersovera
year,basedon8,760hoursperyear.Accordingtoa
2012reportfromLawrenceBerkeleyNational
Laboratory(LBNL),theaverageoutagedurationand
averagefrequencyofoutagesforU.S.customersis
increasingatarateofapproximately2%peryear.
13
Asystemthatdoesnotachieve100%availabilityis
seenasinsufficientgiventhedigitalageinwhichwe
live.WhiletheLBNLreportisnotconclusiveastothe
causeofthetrend,thoseintheutilityindustryknow
thatcustomerperceptionofreduced
reliability/availabilityhastranslatedintocustomer
andregulatorypressureforchange.
Tosome,thatchangerequiresmassivenew
investmentincapacity,whichworksagainstthe
primaryconcernofprice.Bysomeestimates,
upwardsof$1.5trillionareneededtobringthe
systemtoalevelofperformancethatwouldsatisfy
NREL/TP6A20524091.NationalRenewableEnergyLaboratory
(NREL),Golden,CO.,2012.
13
Eto,JosephH.AnExaminationofTemporalTrendsinElectricity
ReliabilityBasedonReportsfromUSElectricUtilities.(2013).
customerdemands.Whatif,insteadofspending
moneytoreinforcethetransmissionanddistribution
systems,weutilizeddistributedgeneration
resourcesandsemiautonomoussmartgrid
architecturetoisolateanoutagecausetothe
smallestpossiblesetofaffectedcustomers?
TheRockyMountainInstitutesElectricityInnovation
Labissuedareportsummarizingtheknownbodyof
workonsolarPVbenefitsandcosts.
14
Inall,15
cost/benefitstudiesundertakenbyregulatory
bodies,electricutilities,nationallabs,orother
organizationswerereviewedandassessed.
Differencesinmethodologyandassumptionsmake
directcomparisonsofthestudiesnotuseful.
However,therewereanumberofobservationsthat
supportaviewthatthebenefitsofsolarPVarenet
positive.Thereisgeneralagreementthatenergy
costreduction,encouragedbylessenergy
production,energylossreduction,andavoided
capacitycharges,ispossibleandfairlyeasily
quantified.Likewise,itisunderstoodthatdistributed
generationcanprovideancillaryservicestothe
transmissionanddistributionsystembywayof
reactivesupply,voltageregulation,frequency
response,andcongestionreduction,thoughthereis
nogeneralagreementastothevalueofsuch
services.OtherpositedbenefitssuchasavoidedT&D
infrastructurecosts,eliminationofcriteria
pollutants,waterandlanduse,carbonreduction,
jobsandeconomicgrowth,nationalenergysecurity,
enhancedreliabilityand/orresiliency,andfuelprice
hedgingarestillbeingdebatedandarenoteasily
monetized.
ThenetvaluenotedintheNRELRenewable
ElectricityFuturesStudyamountedtoabout
$0.28/kWhfordistributedPV,whichisinthemiddle
ofthepackamongtheotherstudies.Whilethere
continuestobemuchdebateabouttheproper
methodologiesandassumptionstouseinmaking
thesecalculations,itshouldbeclearthatthereis
sufficientbenefitfromdistributedgeneration
14
Branker,K.M.J.M.,M.J.M.Pathak,andJoshuaM.Pearce."A
reviewofsolarphotovoltaiclevelizedcostof
resourcesthat,particularlygiventhatsolarPVis
competitivewithnewsourcesofgeneration,we
simplycannotignoreit.
TheintrinsicvalueofsolarPVwillberealizedwhena
utilitydecidestoinstalldistributedresourcesinstead
ofafossilfueled,centralstationgeneratororanew
transmissionlinetoeliminateorreducecongestion.
Assumingautilitymustmakeaninvestmentinnew
generation,transmission,ordistributioncapacityto
serveitsloadgrowthorreplaceretiringfacilities,the
customersbenefitwhenthatdecisionisdisplacedby
distributedgenerationresources.Ofcourse,this
assumessignificantmarketpenetrationof
distributedresourcesareachieved.
Importantlythough,thedistributedgeneration
modelcanbeeconomicallyattractiveintheexisting
gridarchitecture.Thewidedevelopmentof
distributedgenerationresourcesisanessential,but
incompletesolutionfortheestablishmentofthegrid
ofthefuture.Theadditionofsmartinvertersand
distributedenergystoragepromisestotakethegrid
toitsultimateperformance.Smartinverters,capable
ofautonomousorsemiautonomousoperation,
alreadyhavetheabilitytoprovidevolt/var
regulationandislandingcapabilitiesintheeventof
lossofthegridforoutageevents.Couplingthis
capabilitywithdistributedenergystorage
technology,whethercollocatedwithdistributed
solarPVornot,effectivelymakesthoseresources
dispatchable.Thedistributedenergystoragecan
beusedtomitigateoreliminateanyintermittency,
providefrequencyregulationanddemandresponse
services,andhelploadshapingtomaximizethe
valueofthesolarresources.
Incombination,distributedsolarPVanddistributed
energystorage,coupledwithsmartgridenabled
equipment,canprovidesignificantreductioninboth
customeroutagefrequencyandduration,which
helpsachievethelongsoughtafterselfhealing
grid.
electricity."RenewableandSustainableEnergyReviews15,no.9
(2011):44704482.
Aviablebusinessmodelalreadyexists.Utility
ownershipofthesedistributedresourcesobviates
theneedtoeliminatebalkanizedpolicies,provide
neworrenewedfinancialincentives,orprovidenew
toolstoaccesscapitalmarkets,allthewhileensuring
rapiddeploymentandlongterm,stableownership
andmanagementoftheassetsforthebenefitofthe
utility,itscustomers,andultimatelythenation.
Thisisnotacallforutilitiestobecomelargescale
engineering,procurement,andconstruction(EPC)
contractorsortoinsourcethedevelopmentprocess.
Justasutilitiesdonotdesignorconstructlarge
centralstationgenerationandcontractoutT&D
designandconstructionwork,theycanrelyonthe
alreadyavailablepoolofdevelopersandEPC
contractorsfortheessentialwork.Rather,thisisa
callforthem,inexchangeforallofthebenefits
enumerated,tobringtheirfinancingmuscletothe
taskoffundingbuildoutandtoutilizetheirexpertise
intheintegrationoftheseassetsintothegridofthe
future.
Nodoubtthereareskepticsofsuchamodel,butitis
relevanttopointoutthatoverthelast130years,
theelectricutilityindustryhascreatedoneofthe
greatestmachinesknowntohumankind:the
interconnectedgrid.Accesstoreadilyavailableand
cheapenergyhasbeentheengineoftheU.S.
economyforatleastthepast50years.AlookatU.S.
EIAdataoverthatperiodrevealsthatthereal
priceofelectricitydeliveredattheendof2010was
thesameasitwasin1960.Overthatperiodoftime,
electricitypriceswereeffectivelyindexedtoGDP
growth,andthedataindicatesthatproductivity
improvements,broughtaboutthroughthe
electrificationofwork,werethereason.Thenext
100yearscanachieveatleastthesamebenefit,all
thewhilesecuringthenationseconomic,energy
andenvironmentalsecurity.
Usingaratebased,rateofreturnapproach
eliminatesmanyofthebarrierspresentlypreventing
rapidscalingofrenewabledistributedresources.
Providingtheutilitywithareasonablereturnand
earningsonitsinvestmentovertheassetlife,in
returnforusingitsbalancesheettoaccesscheap
capitalmarkets,isthemodelthatbuilttheexisting
gridandprovidedtheenergythatfueledour
economicgrowth.Utilizationofthismodeltobuild
renewablegenerationandeventuallystorage
technologieswillallowustounlockthevalueof
distributedenergyresourcesinawaythatbenefits
allconstituenciesutilities,customers,and
regulatorsthroughstableandaffordableenergy
supply,amoreresilientandcapablegridforthisnext
century,andasafer,cleanerandmoresecure
world.
ABOUTTHEAUTHOR
SteveMorganistheCEOofAmericanCleanEnergy,a
NewJerseybasedsolardeveloper.Priortoforming
thecompanyin2009,Mr.Morganspent33yearsin
theelectricutilityindustry,retiringastheCEOof
JerseyCentralPowerandLightCompany,a
subsidiaryofFirstEnergyCorporation.Hewas
recentlyelectedtotheBoardofDirectorsofSEPA
andhasservedsince2010ontheBoardofACORE
andisactiveonanumberofotherboardsinNJ.
Moreinfocanbefoundatwww.amcleanenergy.com
ROLE OF INDUSTRIAL AND COMMERCIAL ENERGY USERS IN
CHANGING UTILITY BUSINESS MODELS
ShaliniRamanathan
RESAmericas
Commercialandindustrialelectricityusers
increasinglypurchaserenewablepowertosupport
sustainabilitytargets.Purchasesincludebehindthe
meterrooftopsolarandfinancialsettlementsfor
bulkwindpower.Theroleofelectricutilities,the
traditionalbuyersofrenewableenergy,variesin
thesetransactions.Somecommercialorindustrial
electricityusersworkthroughutilities,whileothers
directlyhandlepurchases.Thereareadvantagesand
disadvantagestoeachapproach.Utilitieswilllikely
reacttothistrendbyofferingproductsandservices
tocommercialandindustrialusersandbychanging
thewaytheychargeforgridservices.
RENEWABLEPOWERANDCOMMERCIALAND
INDUSTRIALUSERS
Formanyyears,ownersoflargewindandsolar
projectshadjustonetypeofcustomer:electric
utilities.Now,inadditiontosellingtoutilities,itis
possibletosellrenewablepowerdirectlytolarge
endusersofelectricity,suchasretailers,
manufacturers,ortechnologycompanieswithlarge
datacenters.Theinteractionbetweenindependent
powerproducers(IPPs),utilities,andcommercial
andindustrialusersischanging.Theroleofutilities
variesineachtransactionasnewmodelsare
developed.
Commercialandindustrialuserscanbemajor
customersforutilities.Retailersaggregateloadsand
technologycompaniesdatacentersaresignificant
powercustomers.Alargedatacenter,forexample,
mayrequire80MWofpower,equivalenttothe
electricityusedbyapproximately80,000average
households.
15
Becausetherearefewnewaluminum
15
JohnFinnigan,BigBoxRetailersTurnToSolar,HowCan
ElectricUtilitiesAdapt?,EnvironmentalDefenseFund(August9,
smeltersorcementmanufacturingplantsbeingbuilt
intheUS,retailersaggregateloadsandtech
companiesdatacentersaresignificantpower
customers.Whatthesecustomersdoisimportantto
utilities,toIPPs,andtotheelectricitysectoroverall.
Whymightacommercialorindustrialcustomer
workwithautilityinsteadofdirectlyprocuring
power?Electricityisacomplicated,highlyregulated
business,and,ifyourbusinessiswidgets,youmight
prefertoremainfocusedonwidgets.Unlessthereis
anexistingpowermanagementprogram,livingupto
thetermsofapowerpurchasecontractmayrequire
newexpertiseandcompliancemeasures.Becausea
bigretailstoreormanufacturingplantwilllikelybe
connectedtothegrid,evenifithassolaronitsroof,
itmaybeeasiesttomeetallpowerneeds,including
renewableenergy,throughthelocalutility.
Accountingrulesmayalsoplayarole.Manypower
purchasers,whethertheyareutilitiesorcommercial
orindustrialusers,preferreceivingfixedblocksof
powerinsteadoftakingunitcontingent,
intermittentpowerasproduced.Structuringa
powerpurchaseagreement(PPA)tobuyfixedblocks
ofpowermaymakeitaderivativeinstrument,
triggeringcomplicatedmarktomarketaccounting
treatment.
Furthermore,powercontractsarelongterm.While
windandsolarpricesareatalltimelows,andthese
technologiesareagoodhedgeagainstrisingpower
prices,itcanbechallengingforcompanieswhose
corebusinessisnotpowertotakealongtermview
onpowerpricecurvesinthismarket.Autilitymust
havealongtermviewonpowerpricecurves,andit
2013),http://blogs.edf.org/energyexchange/2013/08/09/bigbox
retailersturntosolarhowcanelectricutilitiesadapt/
hastheabilitytosocializethecostofrenewable
poweramongitscustomerbase.Utilitiesmayalso
bemorecomfortablesteppingintorenewable
productionownershipifrequireddueto
counterpartyfailuretoperformunderaPPA,arole
thatmaybetoofarremovedfromthecoreexpertise
ofcommercialandindustrialusers.
Ontheotherhand,somecommercialandindustrial
energyusersmayprefertodirectlynegotiatepower
purchasecontractswithIPPstosecurefavorable
termsandusetheforceoftheirbrandandbalance
sheettodrivedownprice.CompaniessuchasApple
andWalMart,withtheirstrongcreditratingsand
amplecashreserves,areattractivecounterparties.
Andifacompanyisusinghedgestomanage
exposuretoenergyinputs,managingobligations
underaPPAmaynotrequireadditionalstaffor
expertise.DirectnegotiationwithIPPsreduces(if
noteliminates)theneedforregulatoryapprovalof
purchaseagreements,whichcanintroduce
uncertaintyintotheexecutionofadealwherethe
commercialtermshavebeennegotiated.
UTILITYROLES
Theroleofutilitiesinthecommercialorindustrial
procurementofrenewablepowerhasvaried:
WalMarthasnearly89MWofrooftopsolar
acrossitsfacilitiesandnowusesmoresolar
powerthan38U.S.states.Thirdparty
companiesinstallandmaintainmostofthesolar
systemsandsellthepowertoWalMartthrough
PPAs.Thesearrangementslookalotlike
residentialsolar,withlimitedrolesforutilities.
16
16
TomRandall,WalMartNowDrawsMoreSolarPowerthan38
USStates,Bloomberg(October25,2013),
http://www.bloomberg.com/news/20131024/walmartnow
hasmoresolarthan38usstatesdrink.html
17
MichaelGrahamRichard,AppleWantsItsMassiveArizona
SapphirePlanttoRunonRenewableEnergyfromDayOne,
TreeHugger(February12,2014),
http://www.treehugger.com/greeninvestments/applewants
massivearizonasapphireplantrunrenewableenergyday
one.html
Appleannouncedearlierthisyearthatitsnew
sapphireglassmanufacturingplantinArizona
wouldrunfullyoncleanenergy.Thecompany
hasnegotiatedwiththeArizonautility,theSalt
RiverProject(SRP),forrenewablepowersupply.
NeitherSRPnorApplehaveshareddetailson
howmuchpowerthenewfacilitywilluse,
thoughSRPhasrecentlyenteredintocontracts
for75MWofrenewablepower.
17
Inarelatedexample,inNorthCarolina,Apple
andGooglehaveencouragedDukeEnergyin
NorthCarolinatoexpanditsrenewablepower
procurement.Applehastwosolarprojectsof20
MWeachthatitownsandoperatestopowerits
datacenters,withonlyasmallroleforthe
utility.DukeEnergywonapprovalfromits
regulatorsinlate2013toprocuremore
renewableenergy,andchargeapremiumif
necessarytotechcompaniesandotherswilling
topaythehigherprice.Inthiscaseasin
Arizona,techcompanieshaveencouragedthe
utilitytoexpanditsrenewableenergyoffering,
whilecreatinganewmodelthatchargesthose
whochooserenewablepowerahigherpriceif
necessary.Thisaddressesconcernsabout
affordabilityandimpactonautilitysother
customers.
18
Microsoftsignedacontractlastyeartobuy
powerfromawindprojectinNorthTexas.
19
The
companywillcontinuetoreceiveelectricitygrid
servicesfromCPS,themunicipalownedutility
inSanAntonio,foritslocaldatacenter.The
financialsettlementcontract,whichmakesthe
newwindprojectpossibleandaddstothe
amountofrenewablepowerontheTexasgrid,
18
KatieFehrenbacher,PushedbyInternetCompanies,Utility
MakesProgresstoSellCleanPowerinNorthCarolina,Gigaom
(November15,2013),http://gigaom.com/2013/11/15/pushed
byinternetcompaniesutilitymakesprogresstosellclean
powerinnorthcarolina/
19
RobertBernard,MicrosoftSigningLongTermDealtoBuyWind
EnergyinTexas,Microsoft(November4,2013),
http://blogs.msdn.com/b/microsoft
green/archive/2013/11/04/microsoftsigninglongtermdealto
buywindenergyintexas.aspx
allowsthecompanytobuyrenewablepower
fromalocationthatitbelieveshaspricingand
interconnectionadvantagesinsteadofbeing
limitedtothelocationofitsdatacenter.No
utilityisinvolvedinthedealwiththeIPP,and
CPScontinuestoserveMicrosoftinSanAntonio.
WHYTHECHANGE?
Thereareafewreasonsbehindthechangingroleof
commercialandindustrialcustomersinprocuring
powerdirectly.First,theemergenceofderegulated
marketsallowsforcommercialandindustrial
companiestoactasmarketparticipantsandbuy
powertomeettheirneeds.Inmarketswhere
utilitiesholdmonopolies,directpurchaseswithIPPs
canbedifficultorevenillegal.
Second,largecompaniesaregreeningtheirpower
purchasesaspartofoverallsustainabilityand
corporatesocialresponsibilitygoals.Manyhave
adoptedclimatemitigationorrenewableenergy
targets.Forexample,IKEAhasannouncedthatitwill
use100%renewableenergyby2020.Whilemany
companieshavemetgoalsbypurchasingrenewable
energycredits(RECs),thereisgrowingrecognition
thatbuyingrenewablepowerinawaythatadds
20
Reuters,Apple,Facebook,GoogleInternetDataCenters
GettingGreener,ReportFinds,FoxBusiness(April2,2014),
http://www.foxbusiness.com/industries/2014/04/02/apple
facebookgoogleinternetdatacentersgettinggreenerreport
finds806649195/
morecleanenergytothegridhasagreater
environmentalimpactthandoRECpurchases.
Additionally,techcompaniesaresourcingrenewable
powerfortheirdatacenters.Thesecompanies,and
theirconsumers,knowthatusingdigitaldevicesis
onlyrenewableifthedatacentersbehindthemuse
cleanenergy.
20
TheNewYorkTimescalculatedthat,
globally,datacentersconsume30billionwattsof
electricity,theequivalentof30nuclearpower
plants.Onequartertoonethirdofthatpowerusage
istiedtoU.S.users.
21
Finally,thedramaticfallinsolarpriceshasledto
commercialandindustrialusersbuyingpowerfrom
behindthemetersolarinstallations,similarto
residentialusersadoptingrooftopsolar.Thefallin
windpowerpricesmakesdirectprocurementby
commercialandindustrialusersattractivein
deregulatedmarkets,wherethepoweraddedcan
renewabletheoverallgridwithoutnecessarilybeing
deliveredtothepointofpowerusage.
GOINGFORWARD
Ascommercialandindustrialcustomersstepup
theirrenewablepowerprocurement,itwillbe
interestingtoseeifutilitiesofferspecialservicesto
thesecustomers.Autilitycould,forexample,offer
tohandlepowerdispatchingandmarketinterfacing
forafee.Orautilitycouldoffersolarorwindtoits
customerstoretainthem,eithercompetingor
collaboratingwithIPPs.Increasesinfixedchargesfor
beingconnectedtothegrid(evenifafacilityhas
solarinstalledorprocureswind)seeminevitablefor
commercial,industrialandresidentialsolar
adopters,asdoesafreshlookatanynetmetering
planthatautilityseesasharmingitslongterm
interests.
Utilitiescouldalsopartnerwithcityorstate
governmentstoofferrenewableenergyaspartof
21
JamesGlanz,Power,Pollution,andtheInternet,TheNew
YorkTimes(September22,2012),
http://www.nytimes.com/2012/09/23/technology/datacenters
wastevastamountsofenergybelyingindustry
image.html?pagewanted=all&_r=0
economicdevelopmenteffortstoattract
investment.Teslahasannouncedthatitsbattery
factory,plannedtobethelargestintheworld,will
bepoweredbyrenewableenergy.Thefactoryssite
hasyettobeselected,andseveralstatesarevying
fortheinvestment.Itispossiblethatanenterprising
utilitywilloffertoprocurerenewableenergyata
low,fixedpriceaspartofabroaderefforttoattract
Teslasinvestment.Thesamedynamiccouldholdfor
carcompanies,largedatacenters,oranyother
sourceofnewloadandinvestment.
Finally,someutilities(withtheirregulators
approval)maydecidetoownprojectsthatsupply
renewablepowertocommercialandindustrialusers
forthebenefitstheyprovide.Puttingprojectsina
utilitysratebasewouldallowittoearnaregulated
rateofreturnwhileprotectingmarketshare.Utilities
wishingtodothiswillhavetoconvincetheir
regulatorsthatpotentialincreasesinthecostof
powerforallusersarejustifiedtoavoidthelossof
customers,whichinitselfcouldleadtohigherrates
forthosenotoptingtosecuretheirownrenewable
power.
Weareintheearlydaysofbulkpowerusers
procuringtheirownpower.Moreinnovationand
greatercollaboration,aswellasgreatercompetition
amongutilities,IPPs,andcommercial/industrial
users,aresurelycoming.
ABOUTTHEAUTHOR
ShaliniRamanathanisVPOriginationforRES
Americas,aleadingdeveloperandconstructorof
utilityscalewindandsolarprojects.Ms.
Ramanathanhasclosedmultipledealswithnearly
$2Bintotaltransactionvalue.Shecurrentlyleads
thecompanyseffortsinsecuringrenewablepower
andrenewableprojectsalesopportunitiesand
previouslyledSouthCentraldevelopmentefforts.
PriortojoiningRESAmericas,Ms.Ramanathanwas
basedinNairobi,Kenyaandworkedonrenewable
energyprojectsacrossEastAfricafortheBritish
companyCAMCO.Shepreviouslyworkedforthe
NationalRenewableEnergyLab(NREL).
SheholdsaMastersdegreeinEnvironmental
ManagementfromYaleUniversityandaBAfromUT
Austin.SheservesontheBoardofDirectorsof
CleanTX,whichpromotesandsupportstheclean
energyeconomyinCentralTexas.
MARKET SPOTLIGHT: GRID INTEGRATION CHALLENGES AND
THE ROLE OF CONCENTRATING SOLAR POWER
Frank(Tex)Wilkins,ArthurHaubenstock,KateMaracas,andFredMorse
ConcentratingSolarPowerAlliance,PerkinsCoieLLP,andAbengoaSolar
Concentratingsolarpower(CSP)withthermal
energystorage(TES)canaddressmounting
problemsassociatedwithintegratingrenewable
powerintothegrid,enablingrenewableresources
shareoftheenergysupplytogrowwhile
maintaininggridreliability.Growingconcernsabout
overgeneration(projectedtoincreaseexponentially
asrenewablesapproach50%oftheenergysupply)
andsolarandwindvariabilitycanbemitigatedby
CSPwithstorage.CSPwithstorageactsasacatalyst,
allowingincreasedsolarandwindwithoutadding
carbonorotheremissionsassociatedwiththe
peakersthatmightotherwisebeneededfor
reliabilitywhileprovidingsubstantialquantitiesof
cleanpower.
BACKGROUND
CSPusesmirrorstoconcentratesunlightona
receiver,heatingfluidstoupwardsof1,000For
more.Theheatedfluidcaneitherproducesteam
immediately,drivingturbinesjustlikethoseinfossil
fueledplantstoproduceelectricity,ortheheated
fluidcanbestoredtogeneratepoweratalatertime.
Theabilitytostoreandproduceenergyatanytime
meansCSPisdispatchablei.e.,abletoprovideor
withholdpowerasneededbythegrid,thereby
enablingthegridtoabsorbmorerenewablesthat
arelessflexible.
OfthemultipletechnologiesthatcompriseCSP,two
arenowbeingcommercialized:parabolictroughs
andpowertowers.ThemostrecentCSP+TESplantin
theU.S.isthe280MWSolanaparabolictrough
facility,inGilaBend,Arizona.Solanahassixhoursof
storage,allowingittoconvertheatstoredinmolten
saltformtoelectricityatanytime,dayornight.Ona
typicalsummerday,forexample,ArizonaPublic
Service(APS)coulddispatchSolanatogenerate
electricityforuptosixhoursafterthesungoes
down,tosupplyairconditioningdemandthrougha
warmevening.Onacoldwinterday,APScould
dispatchSolanatostartoperatingat4am,provide
electricityuntiltheendofthemorningpeak,then
comebackonlinefortheeveningpeak.
Aswithconventionalenergyresources,themarket
forCSPandotherrenewableenergyresourcesis
driven,inpart,bygovernmentpolicies.Whilethese
policieshavebeensuccessfulinencouragingprivate
sectorinvestmentand
deployment,reliability
andcostissueshave
arisenduetolackof
attentiontotheneedto
procureabalancedmix
ofdiverseresourcesas
renewablesshareofthe
energysupplyincreases.
Germany,withthe
worldshighest
renewableenergylevels,
isgoingthroughthe
worststructuralcrisisin
Solana,GilaBend,AZ,Source:Abengoa
thehistoryofenergysupply,"accordingtoPeter
Terium,CEOofRWE,thecountryssecondlargest
utility.
22
SimilarconcernshaveechoedinItaly,
Spain,andelsewhereinEurope.HereintheU.S.,
Californiahasmaderemarkableprogresstowardsits
33%renewablesportfoliostandard(RPS)while
maintainingreliabilityandminimizingcostincreases,
inpartduetothegridflexibilityprovidedbyits
hydropoweranditsmildclimate.
23
Nonetheless,
similarissuestothoseexperiencedinEuropeare
beginningtoemerge;tomaintainanaffordable,
reliablegridasrenewablesincrease,theirlessons
mustnotbeignored.
Governmentspromoterenewableenergytoachieve
severalimportantobjectives:energysecurity,
improvedairquality,andclimateprotection.To
meettheseobjectives,whilemaintaininggrid
reliabilityandminimizingunduecosts,adiverse
portfolioofrenewablesthatcollectivelysupportgrid
needsisvital.
INTEGRATIONOFRENEWABLEENERGY
Thegridisahighlycomplexsystem.Asrenewable
portfoliostandardsincrease,
severalgridrelatedconcerns
emerge,includingover
generation(whichcandestroy
keygridelements),fluctuations
inpower,lackofpredictability,
andsteepramprates(i.e.,the
rateatwhichthenetpowerload
changes).
Figure1,sometimescalledthe
duckcurve,portraysthe
CaliforniaIndependentSystem
Operators(CAISO)projectionof
gridrequirementsasCalifornia
approachesits33%RPS.Itshows
22
Steitz,Germany'sutilitiesstruggletoadapttorenewable
revolution,(ReutersFeb.3,2014),availableat
http://www.reuters.com/article/2014/02/03/ukgermany
utilitiesidUKLNEA1200D20140203
23
CaliforniaPublicUtilitiesCommission,BiennialRPSProgram
Update,(Feb.2014),availableat
thenetdemand(load)thatCAISOmustmeetafter
windandsolarpowerisaddedtothegrid.Inthe
middleoftheday,generationcouldexceeddemand;
whenthesungoesdownandnondispatchablesolar
wanes,theneteveningpeaksoars,causinga
particularlysevereupwardramprate.Recent
analysisbyEnergy+EnvironmentalEconomics(E3)
concludesthatovergenerationwillbethelargest
renewableenergyintegrationchallenge,estimating
thatovergenerationwillincreaseexponentiallyat
RPSlevelsapproaching50%.
24
Overgeneration
wouldrequiregeneratorstoreduce(curtail)output,
reducingtheirincomeandbecominganeconomic
threattothem.Whilesomesuggesttheduck
curveandtheE3conclusionsrepresentworstcase
scenarios,theseriousnessoftheriskstheyportray
arewidelyrecognized.
Generationresourcescalledpeakershave
traditionallyprovidedtheprecise,continuous
balancebetweensupplyanddemandneededfor
gridreliability.Withinthisdecade,increased
renewableswouldrequirepeakerstooperateator
neartheirreliabilitythresholds,andtorampupand
downatratesthatmaybedifficulttoachieve
http://www.cpuc.ca.gov/NR/rdonlyres/F39A3D4C6EE948AA
A0C903D6A3B3EF38/0/Section_399_19_Report_FINAL.pdf
24
InvestigatingaHigherRenewablesPortfolioStandardin
California,EnergyandEnvironmentalEconomics,Inc.,January
2014,availableat
https://ethree.com/documents/E3_Final_RPS_Report_2014_01_0
6_with_appendices.pdf
Source:CAISO
increasingtheiremissions,aswellastheircosts.For
example,thehighestaverageramprateinCalifornia
ispresentlyabout30MWperminute.By2020,itis
estimatedtobethreetimeshigher.
25
These
challengesmayincreaseasintermittentrenewable
levelsincrease,andthreatentoundermine
renewablepolicyobjectivesanderodepublic
supportforthesepolicies.CSP+TEScanmitigate
theseproblemswhiledecreasingemissions.
CSPENABLINGHIGHERRPSLEVELS
TheRegulatoryAssistanceProject(RAP)takesa
positiveoutlookonhighrenewablepenetration,
26
indicatingCSP+TES,alongwithothercleanenergy
resourcessuchaselectricalstorage,demand
response,andenergyefficiencycancost
effectivelyaddressgridreliabilityconcerns.
CSP+TESoffersessentiallyalltheelectricpower
productsandservicesprovidedbyfossilfueled
plants,withouttheircarbonandotheremissions.
CSP+TESprovidescapacityandoperational
attributesthegridneedsasrenewablesincrease,
suchasfastrampratesthatcanbesustainedfor
multiplehours.Asasynchronous,steamcycle
resource,itcanprovideregulationservicesthat
shoreupintermittentgenerationresources,while
contributingcarbonfreeenergy.CSP+TESalso
providesothervitalgridservicessuchasvoltage
support,frequencyresponse,spinningandnon
spinningreserves.
CSPsabilitytostoreenergyaddsflexibilitytothe
grid.Severalstudiesquantifythecomparativevalue
ofpowerfromCSP+TES.LawrenceBerkeleyNational
LaboratoryestimatesCSP+TESwithsixhoursof
storagewouldprovide$0.035/kWhmorevaluethan
solarwithoutstorage.
27
TheNationalRenewable
EnergyLaboratory(NREL)cametoasimilar
25
FlexibleSupplyandRenewableEnergy:SolarandtheImpacton
LoadCurves,MarkRothleder,August2013,availableat
http://www.epri.com/About
Us/Documents/Summer%20Seminar%20Presentations/3.2_Rothl
eder_CAISO_FINAL.pdf
26
Availableathttp://www.raponline.org/featuredwork/teach
theducktoflyintegratingrenewableenergy
27
ChangesintheEconomicValueofVariableGenerationatHigh
conclusion,estimatingtherangeofadditionalvalue
ofCSP+TESas$0.03to$0.04/kWh.
28
Notably,these
studiesfocusonlyontheflexiblereliabilitybenefits
thataremostcriticalasRPStargetsincrease;theydo
notattempttocalculatethevalueoftheothergrid
benefitsCSP+TESprovides.
Inafurtherreport,NRELprovidedadditional
analysesofCSP+TESabilitytoaddressemerging
changestotheenergyloadcurves.
29
LiketheE3
report,NRELfoundthatmarginalcurtailment
increasedrapidlyafterthresholdlevelsof
nondispatchablesolarwereaddedtothegrid;
however,italsofoundthataddingCSP+TEScan
significantlydecreasecurtailment,increasingthe
effectivenessofthenondispatchablesolar.
NRELschart(onthepreviouspage)showshowCSP
andPVcomplementoneanother.NRELsprojection
showsthreecurtailmentrates:forPValone,PVplus
CSP+TES,andPVplusCSP+TESassumingCSP+TESis
notdispatchedtoprovidetheflexibilitybenefitsit
couldoffer.TheredPVcurveshowssignificant
curtailmentoncePVreaches~14%ofgridpower
(theprojectedPVlevelforCalifornias33%RPS).The
greenPVplusCSPcurveshowscurtailment
decreaseswhenPVandCSPprovidepowerduring
PenetrationLevels:PilotCaseStudyofCalifornia,Mills,A.,andR.
Wiser,June2012b,LBNL5445E(at10%solarpenetration)
28
APreliminaryAnalysisofConcentratingSolarPowerwith
ThermalEnergyStorageinaCAISO33%RPSScenario,Denholm,
P.,etal,March2013,NREL/TP6A2058186
29
EnablingGreaterPenetrationofSolarPowerviatheUseofCSP
withThermalEnergyStorage,Denholm,P.,Mehos,M.,NREL/TP
6A2052978,November2011
Source:NREL
thedayandCSPprovidesadditionalmorningand
eveningpowertoreducesomecurtailment.The
whitecurveshowstheimpactofCSP+TESwhenit
providesadditionalflexibilityintheformofhigher
turndown.
30
Moreanalysisisneeded,butthisstudy
suggestshighrenewableportfoliostandardscanbe
implementedwithoutlossofgridreliabilitywhen
CSP+TESisaddedtotheportfolio.
CONCLUSION
Currentapproachestoprocuringrenewableenergy
couldleadtoanunnecessarilyunstablegridand
increasedcosts,ultimatelystuntingrenewable
energygrowth.CSP+TEScouldprovideacost
effectivemeanstoincreaserenewablespenetration
whilemaintainingastablegrid.Arevised
procurementprocess,intentionallytargetedto
achievealeastcost,leastemissionsandreliable
grid,wouldenableCSP+TESandothersolutionsto
contributetoacleanenergyfuture.
30
Turndownreferstotheoperationofapowerplantbelowits
ratedcapacity.Coalandnuclearplantshavehistoricallybeen
designedtoprovidebaseloadpower.Theyoperateatleastcost
andhighestefficiencywhenatfullcapacity.Theycan,however,
operateatpartialloadalthoughdoingsoacceleratesdamage.CSP
ABOUTTHEAUTHORS
Frank(Tex)WilkinsisExecutiveDirectorofthe
ConcentratingSolarPowerAlliance.Texpreviously
ledDOEsCSP,SolarIndustrial,andSolarBuildings
Programs.Heholdsdegreesinmechanical
engineeringfromtheUniversityofMaryland.Arthur
HaubenstockisseniorcounselinPerkinsCoies
Environment,Energy&Resourcespractice.Arthur
previouslyheldseniorpositionswithBrightSource
EnergyandPG&E.HeholdsaJ.D.fromGeorgetown
UniversityandaB.A.fromWesleyanUniversity.Kate
Maracasisanenergyconsultant,wasVicePresident
ofDevelopmentforAbengoaSolar,andhaspracticed
intheenergysectorforover30years.Kateholds
degreesfromThunderbirdGraduateSchooland
ArizonaStateUniversity.FredMorseisSenior
AdvisorofUSOperationsforAbengoaSolar.Fred
previouslyservedasExecutiveDirectoroftheWhite
HouseAssessmentofSolarEnergyandDirectorof
DOEsSolarHeatprogram.Dr.MorseholdsaB.S.
fromRPI,anM.S.fromMIT,andaPhDfrom
Stanford.
plants,ontheotherhand,aredesignedtooperateatpartialload.
Inthisreport,NRELassumedCSPplantscouldoperateaslowas
20%ratedcapacity(aturndownfactorof5)andthatcoaland
nuclearplantscouldoperateaslowas50%ratedcapacity(a
turndownfactorof2).
MARKET SPOTLIGHT: ELECTRIC VEHICLES: FLEXIBILITY,
CREATIVITY, AND PROFIT POTENTIAL FOR UTILITIES
ChrisKing
SiemensSmartGridServices
Utilitiesneedgreaterflexibilityinordertosurvive
andthriveinaradicallyshiftingenergylandscape.As
vastlymorerenewableresourceshavebeenadded
tothegrid(andevenmorearepoisedtocome
online),utilitiesareracingtoadapttheiroperations
topeakdemandpatterns,whichhavesignificantly
changedinjustthelasttwoyears.
Electricvehicles(EVs)representoneofthegreatest
opportunitiesonthisfront.EVscanhelputilities
enhancereliability,implementdemandresponse,
andevendevelopnewrevenuestreamsallwhile
meetingcrucialconsumertransportationneeds,and
alsowhilehelpingtheenvironment.Pilotprograms
andEVresearchintheU.S.andelsewhereare
demonstratingthisvalueandyieldingpractical
lessonsforlargescaleEVdeploymentandvehicle
togridstrategies.EVsalsoarecrucialtodeveloping
anetworkofmicrogridstoenhancereliabilityand
managedemand.
Utilitiesandregulatorscanworktogethertorealize
thefullpotentialofEVsinthesmartgrid.Thirdparty
providersofchargingstationinfrastructurealso
haveanimportantroletoplayinexpanding
consumerEVadoption.Together,thesestakeholders
canbuildamoreresilientenergysystemintheU.S.
andaroundtheworld.
THEEVOLVINGSYSTEMPEAK:EVSFOR
DEMANDRESPONSE
Peakdemandisnotwhatitoncewas.Traditionally,
systemdemandwouldpeakduringhotsummer
afternoons,andnetloadactualdemandonthe
systemminusgenerationfromvariablerenewable
31
DemandResponseandEnergyEfficiencyRoadmap:Maximizing
PreferredResources.CaliforniaIndependentSystemOperator,
resourceswouldpredictablycrestinthehours
beforeandafterthispeak.Backthen,utilitieswould
rampupproductionfromconventionalpowerplants
tomeetmostofthisdemand,becausecontributions
fromrenewableswererelativelymodest.
However,asmorerenewableresourcesarebeing
addedtothegrid,thispictureisbecominginverted.
Inparticular,solarpowerproductionpeaksfrom
midmorningthroughtheafternoon.Assolarenergy
becomesmorecommon,theremaybetoomuch
gridpoweravailabilityintheafternoonandmaybe
notenoughshortlyaftersunset.
Above:Theduckcurve,updatedMarch2014basedonactual
systemdata,showsthatinthelasttwoyearspeakdemand
trendshaveshiftedradicallyinCalifornia,largelyduetothe
impactofasignificantincreaseinrenewablegeneration.
Source:CourtesyCaliforniaISO
DatafromtheCaliforniaISO
31
showsthefirst
appearanceofthisshiftin2013,andithasquickly
grownmorepronouncedtodate.Projectingahead,
December2013,p.7(TheDuckCurve):
http://www.caiso.com/Documents/DREERoadmap.pdf
by2020,thistrendcouldyieldcostlyandriskyspikes
andtroughsinnetloadwhichsystemoperators
wouldstruggletoaddressthroughconventional
means.
Thegridneedstobefarmoreflexible,mostlyonthe
demandside,inordertorespondtosuchgrowing
fluctuationsinavailablepower.WidelydeployedEVs
cansupplymuchofthisflexibility.EVscanhelp
minimizetheneedtobuildnewpowerplants,
enhancelargescaledemandresponse,and
ultimatelyevenreducewholesalepowerprices.
AslongasanEVispluggedin,itcanbechargedat
anytimeespeciallyduringoffpeakhours.Also,
thecarsbatterycouldbeusedasapowerresource
byutilitiesduringtimesoflowerpoweravailability,
orforemergencyhomepowerduringoutages.And
allofthiscanbeachievedwithoutsacrificingthe
paramountconsumerpriorityofondemand
transportation.
Pricesignals,suchastimeofuse(TOU)rates,are
thekeytotappingEVsasaflexiblegridresource.
Rightnow,TOUratesarenotavailabletomostU.S.
consumersbutwithstrongerregulatorysupport,
theycouldbe.
Thepotentialforpricesignalstohelpaddressmany
ofthemostpressingchallengesfacingpower
systemsisoneofthemostintriguingopportunities
thatregulatorscanexplore,andwithwhichutilities
canexperiment.Consumersarealreadyusingsmart
thermostatstorespondtopricesignalsandsome
aretranslatingthistoEVs,whereEVTOUratesare
available.
Forinstance,forseveralyearsnow,Commonwealth
EdisonandAmeren
32
haveofferedtheoptionfor
theirIllinoiscustomerstosignupforrealtime
marketpricingforelectricity.Sofar,about10,000
32
IllinoisresidentialrealtimepricingprogramsatCommonwealth
EdisonandAmeren,anoverviewbyPlugInIllinois:
http://www.pluginillinois.org/realtime.aspx
33
EDISONprojectexecutivesummary.DanishEnergyAssociation,
July2013:http://www.edison
net.dk/Project%20Details/Executive%20Summary.aspx
34
Casestudy:Electricvehiclesusingsustainableenergyandopen
networkstheEDISONproject.EBusinessW@tch,2009.
residentsinthestatehavesignedupfortheserates.
ItisunknownhowmanyresidentsalsoownEVs,but
thosewhodocouldeasilysavemoneybycharging
suchasignificantloadduringoffpeaktimes.
EVSINTHEREALWORLD:PILOTPROGRAMS
Recently,inDenmark,theEDISON
33
pilotproject
demonstratedthatEVscanfunctiononalargescale,
yieldingpracticallessonsandtechnicaladvances.In
thisproject,thelocalutilitymanagedthedistributed
resourceofafleetofEVs(drivenbyresidentsonthe
DanishislandofBornholm)asasinglevirtualpower
plant.Thisprogramexploreddemandresponse
strategies(includingtheimpactofTOUrates)and
optionsforchargingstationinfrastructure.Italso
evaluatedtheutilitybusinesscaseforEVs.
34
TheU.S.DepartmentofDefense(DoD)ispilotingan
extensiveprogramwithpluginEVs,incooperation
withlocalutilitiesandindependentsystem
operatorsservingsixmilitarybases.
DoDisusing
fleetmanagementsoftwareasaprimaryinterface
formonitoringandmanagingEVsasaresource.The
softwaredispatcheschargingsignalsfromthelocal
utilityorsystemoperatortochargingstations,to
optimizevehiclechargingpatterns.Sometimes,the
EVsfeedpowerintothegridthroughvehicletogrid
(V2G)technology.AccordingtoDoD,V2Gstrategies
areanessentialelementtosatisfyfinancial
constraintsonourfleetelectrificationefforts.
35
Inanotherproject,researchersevaluatedthe
economicpotentialoftwoutilityownedEVfleets
andfoundthatV2Gpowercouldprovidea
significantrevenuestreamthatwouldimprovethe
economicsofgridconnectedelectricdrivevehicles
andfurtherencouragetheiradoption.Itwouldalso
improvethestabilityoftheelectricalgrid.
36
35
U.S.Dept.ofDefense,PluginElectricVehicleProgram.
Overviewpresentation,2013:
http://sites.ieee.org/isgt/files/2013/03/Camron5C.pdf
36
Usingeetsofelectricdrivevehiclesforgridsupport,eby
JasnaTomicandWillettKempton,UniversityofDelaware.Journal
ofPowerSourcesvol.168,2007:
http://www.rmi.org/Content/Files/Fleetsforgridsupport.pdf
Furthermore,thisresearchrevealsthatlargeroverall
profitswereyieldedwhenutilitiescouldsellpower
fromEVsbacktothewholesalemarketwhenprices
werehigh,sharingthebenefitswithEVowners.
THEFUTUREOFEVSINTHEU.S.
Chargingstationinfrastructurestillneedstobe
substantiallybuiltoutinordertosupportU.S.
consumeradoptionofEVsatascalethatwould
enablepowerfuldemandresponse.Thisincludes
publicchargingstations(eitherutilityowned,or
operatedthroughthirdpartypartnerssuchas
ChargePoint
37
)aswellasonpremisecharging
stationsathomesandbusinesses.Developingmore
charginginfrastructureisasignificantinvestment,
butitalsorepresentsasignificantlongtermrevenue
opportunityforutilities.
InFosterCity,California,aChargePointstationwas
installedattheheadquartersofeMeter,aSiemens
Business.Employeesuseitonafirstcome,first
servedbasis.SomeemployeesownEVs,andeMeter
alsoownsaNissanLeafEV.Havingthischarging
stationattheofficeisnotmerelyanemployment
perkforeMeterstaff;italsomeansmorerevenue
forlocalutilityPacificGas&Electric.
Mosthomechargingstationsuseastandard220
circuit,justlikewhatisneededforanelectricclothes
dryerorresidentialairconditioningunit.Thirdparty
chargingstationproviderstypicallyprovidetheir
ownTOUpricingtocustomers.Utilitiescommonly
assistwith,oratleastpromote,theinstallationof
chargingstationsduetotheirrevenuegenerating
potential.Sometimespermittingforcharging
stationscanbeahurdle,butusuallythiscanbe
easilyaddressed.
TheGreenButton
38
energydatastandardallowsU.S.
consumerstodownloadtheirenergydata,including
37
ChargePointEVchargingstationprovider:
http://www.chargepoint.com
38
GreenButtonenergydatastandardinfo:
http://www.greenbuttondata.org
39
PlugInElectricVehicleinteractivecalculator,byConsumers
Power,Michigan:
EVenergyconsumption.Thiscanbeusedin
calculatorappstohelpconsumersunderstandthe
valueofEVsandmakesmartdecisionstosave,or
perhapsevenmake,money.InMichigan,Consumers
Power
39
hassuchacalculator,andPEV4me
40
created
onethatusesGreenButtondata.
EVSFORRELIABILITY:MICROGRIDS
Whenahomeorbusinesshassolarpanels,EVs,and
chargingstations,theycanbeusedtogetherto
functionasamicrogrid.Amicrogridisanelectrical
systemthatincludesmultipleloadsanddistributed
energyresourcesbothgenerationandstorage
thatcanbeoperatedinparallelwiththebroader
utilitygridorasanelectricalisland.Thiscombination
oftechnologiescanevenhelppreventoutagesby
providingflexibilitytoquicklyshiftlargeloadsin
timesofgridstress,andgenerallymaintaingrid
balance.
Thesolarpanelsproducepowerduringtheday,
storingexcessproductionintheEVbatteries,which,
inturn,providepowertothehomeatnight.
Tomakethisreliabilitystrategywork,theremustbe
asafewaytodisconnectthehomefromthegrid
becauseitwouldcreateasignificanthazardto
powerahousefromthebatterywhileitisalso
connectedtogridpower.
Intheeventofanoutage,controlatthehomes
smartmeterprovidedautomaticallybydemand
responsemanagementsoftware,aswellasbya
manualswitchcoulddisconnectthehomefrom
thegridandactivatethelocalmicrogrid.Themeter
wouldalsosensewhengridpowerisrestored,
deactivatethemicrogrid,andreconnectthehometo
thegrid.Thisconceptisrelativelysimple,butthis
strategystillneedstobetestedthroughpilot
projects.
http://www.consumersenergy.com/apps/pev/index.aspx?ekfrm=
3751
40
PlugInElectricVehicleforMesavingscalculator:
http://www.pev4me.com.ThisprojectwasafinalistintheU.S.
Dept.ofEnergy751x?ekfrm=3751"gan:2013:project.bcontest.
CONCLUSION
Thoughthemarketisstillinitsinfancy,consumers
arebuyingmoreEVsataneverincreasingrate.
Forwardthinkingutilitiesandregulatorsarealready
gettingaheadofthistrendwithpilotprogramsand
innovativerates.Smartgridtechnologyandsoftware
allowEVstobemanagedasacoherentyetflexible
gridresource.
InvestmentsinEVsandtheirassociated
infrastructurearelikelytodomorethanjusthelp
utilitiesstaycompetitive.Theyarelikelytoyield
considerablereturns,whilealsogivingconsumers
valuableoptionsandpeaceofmind,andwhile
addressingenvironmentalconcerns.
Thebestpartaboutdeployingsuchaflexible
resourceasEVsisthatitcanbeusedcreatively.Itis
likelythatevenmorepowerfulandprofitableV2G
strategiesremaintobediscovered.
ABOUTTHEAUTHOR
ChrisKingisGlobalChiefRegulatoryOfficerfor
SiemensSmartGridServices.Aninternationally
recognizedauthorityonenergyregulationand
competitiveenergymarkets,Chrisiswidelyrecruited
byregulatorsandlegislatorstoconsulton
technologyissuesinelectricrestructuring,smart
meters,andgridmanagement.Hehastestified
beforetheU.S.Congressandwasinstrumentalin
craftingtheEnergyPolicyActof2005thatpavedthe
wayforadvancedmeteringandSmartGrid
initiativesintheUSA.HechairstheBrusselsbased
SmartEnergyDemandCoalitionandtheSilicon
ValleyLeadershipGroupEnergyCommittee,andis
ontheExecutiveBoardoftheDemandResponseand
SmartGridCoalition.Chrisalsowasoneofthe
foundersofeMeter,nowaSiemensBusiness,focused
onsmartmeterdatamanagementandapplications.

Evolving Business Models 2014

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Evolving Business Models 2014

Uploaded by

Copyright:

Available Formats

EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

AMERICAN COUNCIL ON RENEWABLE ENERGY (ACORE)

POWER GENERATION & INFRASTRUCTURE INITIATIVE

You might also like