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With the proper structure, demand response can shave peak, lower wholesale prices, decrease investments in new capacity and transmission, and reduce CO2 emissions. To accomplish these goals, market rules have been established to encourage participation of demand response providers in energy and capacity markets.
But are these market rules promoting the development of a real demand response market? Or are they enabling artificial bids that prevent real reductions from being competitive while undermining grid reliability?
Market rules that treat demand-side resources the same as supply-side resources are a relatively new development, and not necessarily what the electricity market was designed to accommodate. It is very clear that including demand-side resources, like efficiency and demand response, in capacity markets has clear advantages. What is less clear is how to ensure that the rules governing the ways these resources compete can prevent market manipulation.
Market manipulation hurts real demand response because all bids in the market reflect the marginal cost of supplying that resource. Real demand response has real costs: technology, sales, marketing, operations, and overhead. However, if an entity can make bids in the market that are lower cost by manipulating the market rules, this squeezes out real demand response that has to bid its true cost.
The most interesting and heated discussion about market manipulation revolves around financial arbitrage in capacity auctions.
Capacity auctions are held in PJM every three years to ensure enough resources will be available to meet demand in advance to secure the long-term reliability of the system. These are called “base residual auctions.” Every year up to the delivery year, there are also auctions called “incremental auctions” that deal with any balancing that may occur.
For example, if a power plant is bid in to the base auction, but then cannot deliver due to mechanical failure or environmental regulation, they have to purchase replacement capacity in the incremental auction so that someone else can provide the generation they promised. If they don’t, they get hit with a heavy penalty, since participating in the auction requires posting a lot of money (basically, a bond) that says they will deliver.
Since demand response can bid into the capacity market as if it were traditional supply, and because it is almost always lower cost, it pushes some of the more expensive supply out of the market. Generators do not like this, and have pointed out that demand response doesn’t have to meet all the requirements faced by traditional suppliers, who have to prove that they have capacity and promise they will deliver when called upon. Demand response has other options, including delivering 10 times a year for 6 hours at a time.
The problem, said John Shelk, president of the Electric Power Supply Association, is that “demand response providers are essentially bidding in their business plan.” Demand response does not necessarily need customers signed up to participate, just a plan for acquiring customers.
Shelk pointed out that, as a result, a lot of replacement capacity is purchased by demand response providers in the incremental auctions, a position supported by the recent market monitor report, which notes that after adjusting for some replacement due to rule changes, "the remaining replacement capacity megawatts constituted about 27 percent of cleared capacity for the 2012/2013 Delivery Year."
This is the heart of the arbitrage issue. Since the prices in the incremental auctions are much lower than the prices in the base auction, demand response providers can bid in capacity at a higher initial price and then purchase replacement capacity for cheaper later -- and pocket the difference. While it is clear why this bothers generators who lose out on that revenue, it is important to see that this could also hurt the development of a real demand response market.
If these bids are being made with no intention of delivery, the bid price would not reflect the costs to operate -- meaning that the real demand response that requires technological changes and demand reductions would be priced out of the market.
Gregg Dixon, Senior Vice President of Marketing and Sales at EnerNOC, thinks this fear is overblown.
“The idea that demand response providers have no intention on delivering on their bids is, on its face, ridiculous,” Dixon said. “When we make a commitment, our intent is to deliver physically. If we arbitrage, we lose out on our long-term value.”
Dixon pointed out that the entire demand response provider business is premised upon customer acquisition that creates real savings for those customers.
That view holds weight with independent analysts, including the Market Monitor, which noted: "The IMM has identified no evidence that any Curtailment Service Providers (CSPs) are purely financial entities that sell DR positions in capacity auctions with no intention of providing a physical resource and fully buy out of those positions every year.”
Dixon also pointed out that the beneficiaries of these incremental auctions are usually supply-side generators, because when replacement capacity becomes available, it is purchased by power plants that would not otherwise be getting capacity payments. As for the reliability question, Dixon explained that demand response is fundamentally more reliable than traditional supply because it aggregates customers. In other words, when demand response is short, it is short 10 out of 100 megawatts if some customers do not curtail. When a 100-megawatt power plant goes down, you lose 100 megawatts.
The truth is probably somewhere in the middle. The data shows that demand response has purchased a disproportionate amount of replacement capacity compared to generators. The cost differential in the auctions means that demand response providers are likely making some money off these plays.
If true, this would to some extent suppress prices and inhibit demand response from really maturing. However, it seems unlikely that this is part of a broad plan to game the system, since demand response providers need to save customers money in order to acquire new ones.
What can be done to ensure that these market rules promote real, physical deliveries on demand response commitments?
This issue is being addressed in PJM now, but there is actually a clear path forward that all sides seem to agree on: better measurement and verification techniques.
EnerNOC has long supported this idea and believes that this process should come in the form of technology standards and better visualization of demand reductions across markets (which would fall on PJM to implement). The Market Monitor report supports these changes as well, stating that “a rule requiring that DR providers demonstrate that they are actually in the business of providing DR resources would be an appropriate part of any package of rule changes related to this issue."
There is a delicate balance to be struck. On the one hand, if the market rules are too strict, there will be little incentive for companies to make the investments in smart technology and demand aggregation to be real players. Conversely, if the rules are too lax, real demand response players stand to lose out on a big slice of the pie.
Adam James is a Research Assistant for Energy Policy at the Center for American Progress and the Executive Director of the Clean Energy Leadership Institute. You can email him at firstname.lastname@example.org and follow him on Twitter @adam_s_james.
Michael Levi, a senior fellow at the Council on Foreign Relations, is a familiar name the energy media-sphere. He’s the rare kind of opinionated expert who thrusts himself into a debate without ideological baggage and straddles both sides of a contentious issue gracefully. Agree with him or disagree with him, he knows how to incite a healthy conversation about energy.
Levi is now out with a new book titled The Power Surge: The Battle for America's Energy Future, which looks at the on-the-ground realities of America’s energy shift. The book is his attempt to dispel many of the myths that have crept into the debate about America’s energy future over the last few years.
To understand today’s polarized discussion about energy, we need to go back to the 1970s, which brought two major global energy crises, the rise of nuclear energy, deepening fears about peak oil and the birth of the modern environmental movement.
“You really have to go back to that time to see a period with this much change," said Levi.
The result was America’s first major political divide about the country’s energy future that pitted those advocating a “soft path” based on conservation and renewables against those who saw fossil fuel supply growth as the answer.
"There was this sharp split. Both sides largely agreed that either [approach] was exclusive,” he said.
The deepening divide was largely driven by fears about the environment, the economy and global geopolitics.
Sound familiar? Levi argues that fear is the reason why America's conversation around energy is so polarized today.
“When you’re scared, you grasp for answers. I worry that when we expect too much, you tend to go to extremes. And that ends up quite poorly," said Levi.
I attended Levi’s book launch in Washington recently, where he spoke about the need to think more clearly about the implications of America’s energy shift, rather than automatically shift to extremes. Here are three realities about America's energy transition he outlined in his talk.
Reality: The oil and gas boom is not an economic or energy security panacea.
Thanks to technology revolutions that allow us to access fossil fuels trapped under shale formations, America's oil output has climbed to 20-year highs and natural gas prices are half of what they are in Europe and Asia. Fossil fuel proponents claim that America's economy will be fundamentally transformed by this boom -- creating millions of jobs and finally making the country energy independent. The reality is much less spectacular, said Levi.
"Even if you did double or triple U.S. oil production, it might allow you to use the term 'independence' like an accountant. But it doesn’t actually make you independent," he said.
That's because oil is a global market -- a fact that pundits conveniently forget when talking about energy independence. And even if the U.S. were to triple production as some project, "it's not clear there's space in the world" for all that new supply, said Levi. Getting OPEC countries to hold 10 million barrels per day off the market to make room for the U.S. is "not a great assumption." And with all that new supply, prices would fall, thus making unconventional oil much less competitive and slowing the boom.
The fossil fuel industry also claims it will add 3 million new jobs by 2020. While the oil and gas boom is certainly creating new jobs, Levi said those jobs figures are squishy. "It's difficult to say this will add lots of new jobs in an absolute way."
Many of the jobs tallied by the oil and gas industry are at service stations. Those jobs aren't going to double if oil production doubles. A lot of jobs are also "induced," which makes the absolute impact difficult to calculate. (This is also an issue when calculating green jobs.) And because the U.S. economy is so diversified, the fossil fuel industry's economic impact will be far less significant than in previous decades when it was a larger part of America's economic picture.
"I see opportunities. But I don’t see the same fundamentally transformative outcome that others see. The reality is somewhere in between," said Levi.
Reality: Cleantech progress is slow and methodical, not revolutionary.
This reality is painfully clear now that the pre-stimulus exuberance has faded and promises of a “clean energy economy” have not materialized in the U.S. as people had hoped. This is not due to the failure of cleantech, but the failure of political promises to create a revolution in such a short timeframe. Even with a doubling of renewable electricity production and the creation of tens of thousands of jobs over the last four years, we've barely started realizing the extent of the clean energy transition.
"Cleantech is big business. But it's not yet up to the scale of the climate challenge," said Levi.
Levi believes financial and regulatory support mechanisms for renewables are important. But the relationship between regulation and technology is a delicate dance. Regulators are beholden to the progress of technology, so they can't push hard if there isn't a "clear way to satisfy their demand." He pointed to the recent 54.5 mpg fuel economy standards for automobiles as an example of that dance. The targets were passed with support from the auto industry because technological changes (spurred by earlier fuel standards) have made them possible. However, the auto industry also negotiated a possible "out" in 2022 in case the technology wasn't ready to meet the requirements in the final three years.
The technological changes needed to meet those targets won't necessarily come from a revolutionary electric vehicle; they'll mostly come from improvements in materials and engine design. That evolutionary progress is representative of the way many clean technologies will find a path to market.
“Evolutionary changes are more likely to happen when replacing infrastructure. Any change takes a long time," said Levi, who is still bullish on the growth prospects for cleantech.
Reality: People who say they can predict the future probably can’t.
This is one of the most important points that Levi makes. The energy world is full of prognosticating pundits attempting to predict the future ten, twenty and 30 years from now. But the energy markets -- particularly the oil markets -- are extremely complex and nearly impossible to predict.
Those difficulties in predicting the future are a problem in both cleantech and fossil fuels. A decade ago, those concerned about peak oil never would have imagined that America would be awash in unconventional oil and gas like it is today. And those predicting only incremental progress in renewables certainly never imagined how dramatically wind and solar would surpass expectations.
These two examples are good lessons for anyone making dramatic predictions about what's going to happen in energy.
"In some cases, if you say you don't know what's going to happen, people think you don't know what's going on," said Levi. "But a lot of the people who say they know what's going to happen are the people who understand the least."
That applies to people who make grandiose claims about U.S. energy independence, job creation (both green and fossil) and energy geopolitics -- basically, the entire energy punditocracy.
"In a time when we have so many problems, it's really tempting to check these items off a list. But we need to be smart and serious about what's happening," said Levi.
And the first step to approaching energy issues in a rational way is admitting when you simply don't know.
A House of Representatives subcommittee hearing produced some real insights into how safe renewables are for the U.S. electrical grid.
The House Subcommittee on Energy and Power invited testimony on "Grid Reliability Challenges in a Shifting Energy Resource Landscape."
Insight: Both parties realize that the U.S. grid’s electricity generation sources are shifting.
Abundant new natural gas has created change quickly, said Dominion Energy CEO Gary Sypolt, testifying for the Interstate Natural Gas Association of America (INGAA). There is a threat to reliability from variable renewables, he testified, but natural gas can meet U.S. electricity needs -- if market rules allow the industry to recover the costs for needed new pipeline infrastructure. Today’s natural gas prices are too low to cover it.
Insight: Cheap natural gas comes with costs.
“The ‘shale gale’ will not be the last game-changer,” Electric Power Supply Association (EPSA) President/CEO John E. Shelk testified. “What’s next in cleaner coal, solar, smart grid, storage, modular nuclear reactors, natural gas technologies, electric vehicles, efficiency, distributed generation and demand-side management?”
Ratepayers can only be protected from the risk inherent in change through competitive power markets, he explained. Regulators and policymakers have to let the market act.
Insight: Things are going to keep changing.
U.S. manufacturers are concerned about the cost of reliability, according to testimony from Industrial Energy Consumers of America President Paul N. Cicio. LNG exports, he warned, are going to increase reliability concerns and drive up natural gas and electricity prices.
Insight: Cheap natural gas isn’t likely to stay cheap.
Because electricity generation is the biggest contributor to climate change, Center for American Progress Senior Fellow Dan Weiss testified, any discussion that ignores global warming “is like a discussion about personal wellness that ignores cigarette smoking, diet and exercise.”
Storms and extreme weather events could cost the U.S. economy $20 billion to $55 billion annually, but every $1 spent on pre-disaster mitigation, like investment in renewables, can save an average of $4 in damages, Weiss testified. Taxpayers spent $442 billion in tax breaks and subsidies for oil and gas over the past 90 years but only $5.6 billion for renewables over the past fifteen years. From 1950 to 2010, natural gas got $121 billion in government support and coal got $104 billion, while wind, solar, and ethanol got only $74 billion.
Insights: The government has always invested in the energy it needs; It’s OK to talk climate change in Washington again.
Wind energy in 2012 provided over 20 percent of the electricity in two states and over 10 percent in nine more, said American Wind Energy Association Interim CEO Rob Gramlich. It reached over 55 percent grid penetration on Colorado’s system and over 35 percent on the Texas system without issues. Studies show that wind energy can increase many times over without negative impacts.
“It is much cheaper to accommodate the slow and predictable variations in wind output than the instantaneous loss of conventional power plants that can occur at any time,” Gramlich said. A Texas grid study found it added about six cents out of a typical $140 monthly electric bill. Other studies show the cost of backup for conventional power sources is 40 times higher, at around $2.50 per monthly bill.
Studies show that doubling wind energy in the Mid-Atlantic and Great Lakes states could save consumers a net $2.6 billion per year, Gramlich said, and 20 percent wind on New England’s grid would cut electricity prices by more than 10 percent.
Insight: Wind cuts costs with no threat to reliability and is part of the climate-change solution.
Policies that subsidize development of intermittent resources, especially wind, reduce the reliability of the power system, economist Jonathan A. Lesser told the committee. To compensate, grid operators have to have fossil fuel backup, usually natural gas.
“As more intermittent resources are built, they increase the severity of reliability issues and increase per-megawatt-hour integration costs, as well as total integration costs,” Lesser testified in direct contradiction to Gramlich.
Lesser, who claimed to be independent but has been funded by the fossil and nuclear industries, argued that wind is a mature industry without need of subsidy, that wind and other subsidized renewables do not lower power market prices because government intervention drives out competition, and that subsidized renewables only create jobs while the subsidies last, which lead to higher long-run electric prices that impede job growth.
Lesser recommended requiring all generators to pay for reliability-related integration costs and eliminating all subsidies.
Insight: The renewables industries and the fossil and nuclear industries have starkly different takes on the issue of intermittency.
The typical partisan question-answer session followed the testimony.
“Subsidizing intermittent generation is exacerbating reliability problems, causing increases in integration costs, and jeopardizing the stability of competitive electric markets,” Lesser told the committee. “The wind PTC is especially egregious.”
“Since the days of Thomas Edison, grid operators have had to constantly adjust the output of power plants to respond to fluctuations in electricity demand and the sudden failures of large conventional power plants,” Gramlich said. “Grid operators that use efficient practices have found they can reliably add large amounts of wind energy with virtually zero need for backup power beyond what is already needed.”
Women are under-represented in wind and the other renewable energy industries, according to Kristen Graf, Executive Director of Women of Wind Energy (WoWE). She believes progress in renewables may depend on correcting that.
“Statistics are difficult [to come by] because there is little historic data,” Graf said, “but preliminary results from an as-yet-unreleased NREL study show women make up approximately 20 percent to 25 percent of the wind workforce. Most work in administrative and human resources roles. I don’t think we have to hit a 50 percent line, but I think we will be better off if the workforce is more reflective of the overall long-term customer base.”
It's not a ‘Can women have it all?’ question, Graf said. “If it were, it would be across all industries. But the reality is that those numbers are much more the case in the high-tech industries.”
About 41 percent of lower-level STEM jobs are held by women, Graf said, referencing recent Harvard Business Review (HBR) numbers. But by the time women in the industry hit their mid-to-late-30s, some 51 percent leave, and very few ultimately end up at the very top.
The HBR piece cites five reasons for this, Graf noted, including:
Graf recounted an interesting anecdote about Bill Gates. He was asked by Saudi Arabians how their country could become a leader in high tech, and he answered that their country isn't engaging 50 percent of its potential workforce. If you are not tapping 100 percent of your talent, Gates said, you will never get there.
Graf added that Warren Buffett recently identified the increasing presence of women in business as the primary factor that makes him optimistic about the future of the U.S. economy.
What these two men are saying, Graf observed, is that having women in an organization makes for a more successful organization. “Catalyst, which studies women in business, did a study comparing the performance of Fortune 500 companies with no women on their board and companies that have three or more women board members,” Graf said. “The ones with more women showed significantly better returns on sales, invested capital and equity.”
Graf went on to discuss several of Catalyst's conclusions. The firm found that the presence of women at high levels improved average social perceptiveness (i.e., the ability to read non-verbal cues); improved the balanced participation in the decision-making process; and increased the proportion of women throughout the organization.
“Women’s presence makes the first two more likely, because the culture tends to condition women to be good at [these tasks],” Graf said.
WoWE’s mission, Graf said, is the education, professional development and advancement of women in the industry. What that is intended to achieve, she added, is to bring more women to the table, build a more diversified wind industry workforce and, as a result, build a more robust renewable energy economy.
Graf, 34, trained as an engineer with the intention of helping build game-changing renewable energy technology. But, she said, technology is not the only obstacle. Many other pieces, including the markets, the policy, the public understanding and perception of renewable energy, are just as significant.
“This industry, right now especially, needs innovative policy and financing methods. That is going to take all the talent we can find and the best ideas that are out there,” Graf said. “Without a doubt, the greater presence of women is a solution.”
It is not that women have a particular perspective, Graf said, but “chances are good that they have some sort of different perspective.”
WoWE’s 2013 Woman of the Year was meteorologist Lucille Olszewski. During 30 years as a wind site prospector and developer, Olszewski assessed over 9,000 megawatts of planned capacity and sited over 14,000 wind turbines. She also pioneered radio telemetry systems for meteorological data collection and was the first to use cell phone technology for data collection.
The 2013 Rising Star was University of Colorado Assistant Professor and National Renewable Energy Laboratory researcher Dr. Julie Lundquist. Lundquist’s study of the effects of atmospheric stability and turbulence on wind forecasting and turbine performance revealed important new affects in the atmospheric boundary layer. It is work that goes beyond academia into areas that may revolutionize wind resource assessment.
Transphorm named Fumihide “Humi” Esaka as its new CEO. He'll be helming the GaN-based power conversion startup starting in July. Esaka is currently CEO of Nihon Inter Electronics Corporation (NIEC), and is also the former VP-Japan of International Rectifier. Transphorm co-founder and CEO Umesh Mishra stays on as Chairman and CTO. The firm's technology has applications in power supplies and adapters, motor drives, PV panels, and EVs.
Tesla (TSLA) hired Aston Martin's Chief Engineer of Vehicle Engineering, Chris Porritt, to be its VP of Vehicle Engineering. Chris was Chief Engineer for Aston Martin's One-77 supercar.
Garrett E. Mikita replaced David Bennett as CEO of Proterra, a maker of of zero-emission buses. Mikita was most recently president of the $5.3 billion Defense & Space business unit of Honeywell Aerospace.
Sempra Energy (SRE) elected James C. Yardley to the firm’s board of directors. Yardley retired last year after 34 years with El Paso Corp., then the largest natural gas pipeline company and oil and gas producer in the country, according to a release.
Lux Capital named Bilal Zuberi as Partner in its Palo Alto, California office. Bilal was previously a Principal at General Catalyst Partners where his investments included Gridco Systems, Arc Energy, SunBorne, and CLEAResult. Lux recently closed on a new fund, Lux Ventures 3, with commitments of $245 million.
Catching up: Sanjay Wagle is now COO and President at AliphaJet, a firm looking to convert oils and fats into replacement hydrocarbons. Wagle was most recently an advisor at Solazyme, and prior to that, an Associate Director for Commercialization at ARPA-E.
On Friday, Elon Musk pulled out as a major donor to Mark Zuckerberg’s political group, FWD.us, after two subsidiaries of the organization paid for ads supporting the Keystone XL pipeline and oil drilling in the Arctic. The original purpose of the group was to push comprehensive immigration reform, not comment on energy policy. However, FWD's strategy has been to spend over a million dollars on ads promoting politicians who support immigration reform -- even though some of the ads have nothing to do with immigration.
That strategy apparently didn't sit well with Musk, who founded Tesla Motors and sits on the board of SolarCity.
“I agreed to support FWD, because there is a genuine need to reform immigration. However, this should not be done at the expense of other important causes,” Elon Musk told the website AllThingsD. “I have spent a lot of time fighting far larger lobbying organizations in D.C. and believe that the right way to win on a cause is to argue the merits of that cause.”
Also joining Musk in departing FWD was David Sacks, the founder of Yammer and former Chief Operating Officer of PayPal.
FWD still includes a number of heavy-hitters in Silicon Valley, including Bill Gates, venture capitalist John Doerr, Yahoo's Marissa Mayer and LinkedIn’s Reid Hoffman.
For an organization attempting to foster bipartisan support in Washington, the ads backed by FWD's funds are fairly political. In one ad supporting Senator Lindsay Graham (R-SC), the narrator slams President Obama's "seedy Chicago-style politics" and mocks his campaign's "change" slogan. Another ad promoting Senator Marco Rubio (R-FL) reassures the viewer that Obamacare will not apply to any immigration package.
But the two television ads supporting fossil fuel development are what sparked the most controversy among environmental groups and liberal activist organizations. Keystone XL, a proposed 1,700-mile pipeline that would carry tar sands crude from Canada to the Gulf Coast, has become a central target for environmentalists trying to raise awareness about climate change.
After the ads ran, advocacy organizations such as 350.org, CREDO, MoveOn.org, the League of Conservation Voters and the Sierra Club said they would pull advertising from Facebook.
The departure of Musk and Sacks illustrates how far the politics of Keystone XL have seeped outside of Washington.
Tom Steyer, the California billionaire hedge fund manager and clean energy activist, recently issued a political threat to a Democratic Senate candidate in Massachusetts for his support of Keystone XL. And just last week, 150 political donors to the Obama administration threatened to pull funding if the president approves the Keystone XL pipeline. Clean energy investor Vinod Khosla joined the group of donors, saying the pipeline is a "lousy investment."
The Electricity Reliability Council of Texas (ERCOT), which manages Texas’s grid, will raise the system-wide offer cap (SWOC) to $9,000 per megawatt-hour in 2015. For the summer of 2013, the SWOC will be $5,000, up from $2,500 just two years ago. Most other areas of the country have a far lower market cap, between $1,000 to $2,500. (For the math and methodology of the ERCOT SWOC, click here [.doc file].)
The price spike is meant to encourage new generation as Texas’ capacity needs get dangerously close to its reserve margin. But the high prices could also impact demand response, which is badly needed in the Lone Star State in summer. The SWOC, which is essentially a price cap during scarcity conditions, usually only kicks in during the very hottest days of summer when generation is strained to keep up with the high demand.
(Key to graph above. Blue: Firm Load Forecast; Pink: Resources; Red: Forecast + Reserve Margin).
Demand response is growing at about 10 percent a year in ERCOT, but unlike PJM Interconnection, which has robust demand response offerings, there is no forward capacity auction. ERCOT, however, is toying with the idea of a forward capacity auction. ERCOT is also considering opening up ancillary services to demand response, which is an active market in PJM.
Large commercial and industrial customers may want to increase their participation in the demand response programs that are offered through utilities and ERCOT to hedge against being exposed to the potential high prices during the hottest days of summer. But to really curb peak, Texas needs the participation of everyone. The price signal alone does not provide ERCOT with a reliable source of load reduction,” Frank Lacey, VP of regulatory and market strategy at Comverge, recently wrote on Greentech Media.
To hedge against the high prices, retail electric providers may build more aggressive (and attractive) time-of-use and demand response programs to offer customers. Some of the large retailers like TXU and Reliant already have some time-based offerings, but there’s no clear information on how much peak load relief they’re delivering.
For the first time in ERCOT, there will be a “weather-sensitive load” pilot program in 2013 to allow residential and small commercial to take part in the grid operator’s demand response program. The pilot is capped at 30 megawatts, but it will likely be smaller, according to Paul Wattles, supervisor of demand response for ERCOT.
There are also some moves afoot in the Texas Senate to boost demand response participation. Senate Bill (SB) 1351 would require ERCOT to allow customers to participate in all competitive energy markets, while Senate Bill (SB) 1280 would require ERCOT to have enough demand response on hand to meet reliability needs if traditional generation cannot meet the demands.
ERCOT would welcome active participation from millions of residents. “If there’s going to be a lot of movement,” said Wattles, “it’s going to be in retail.”
Greentech Media is pleased to announce our updated and expanded coverage on energy efficiency. As part of our launch, we present a special report on “intelligent efficiency,” a new paradigm emerging in the market based on information awareness and data analytics. We present the first chapter of our report below. For more, you can download the full paper at the bottom of the page.
Chapter 1: How energy efficiency is evolving into "intelligent efficiency"
The last two major economic revolutions were caused by the convergence of two factors: communications and energy.
In the 1800s, the convergence of printing technology and steam power created the first form of mass communications -- bringing with it sweeping changes in literacy and education. In the 1900s, the convergence of radio and television with electricity and the oil-powered combustion engine created the modern consumer-based society we know today.
We are now on the verge of a third revolution, argues economist Jeremy Rifkin. This one will be abetted by the convergence of the internet and distributed energy, creating new ways to do business, communicate, and build wealth. Rifkin calls this a "new economic paradigm for the 21st century."
This new paradigm is already reshaping the way we think about energy efficiency.
All around us, embedded in every commercial building, manufacturing facility and corporate campus, is a vast, untapped energy resource: efficiency. In the past, that resource was hidden, ignored or misunderstood by the companies sitting on the potential, and recognized only by a small group of energy professionals.
But with dramatic advances in web-based monitoring, real-time data analytics and utilities using peak pricing, that hidden resource is now becoming something tangible -- an asset that companies can measure, manage, procure and sell.
This isn’t the stale, conservation-based energy efficiency Americans often think about.
"In the past, energy efficiency was seen as a discrete improvement in devices," says Skip Laitner, an economist who specializes in energy efficiency. "But information technology is taking it to the next level, where we are thinking dynamically, holistically, and system-wide."
This emerging approach to energy efficiency is information-driven. It is granular. And it is empowering consumers and businesses to turn energy from a cost into an asset. We call this new paradigm "intelligent efficiency."
That term, which was originally used by the American Council for an Energy-Efficient Economy in a 2012 report, accurately conveys the information technology shift underway in the efficiency sector.
The IT revolution has already dramatically improved the quality of information that is available about how products are delivered and consumed. Companies can granularly track their shipping fleets as they move across the country; runners can use sensors and web-based programs to monitor every step and heartbeat throughout their training; and online services allow travelers to track the price of airfare in real time.
Remarkably, these web-based information management tools are only now coming to the built environment in a big way. But with integration increasing and new tools evolving, they are starting to change the game for energy efficiency.
Although adoption has been slow compared to other sectors, many of these same technologies and applications are driving informational awareness about energy in the built environment. Cheaper sensors are enabling granular monitoring of every piece of equipment in a facility; web-based monitoring platforms are making energy consumption engaging and actionable; and analytic capabilities are allowing companies to find and predict hidden trends amidst the reams of data in their facilities and in the energy markets.
This intelligence is turning energy efficiency from a static, reactive process into a dynamic, proactive strategy.
We interviewed more than 30 analysts and companies in the building controls, equipment, energy management, software and utility sectors about the state of the efficiency market. Every person we spoke to pointed to this emerging intelligence as one of the most important drivers of energy efficiency.
"We are hitting an inflection point," says Greg Turner, vice president of global offerings at Honeywell Building Solutions. "The interchange of information is creating a new paradigm for the energy efficiency market."
Based on our conversations with a wide range of energy efficiency professionals, we have identified the five key ways intelligent efficiency is shaping the market in the commercial and industrial (C&I) sector:
Figure 1-1: How Intelligent Efficiency Creates Value for Customers
At its core, energy efficiency is still about the nuts and bolts of changing equipment and improving the physical components of a facility. Information is not a panacea and is not a substitute for the physical integration of new systems. But it is becoming the glue binding the holistic, system-wide approach that is starting to define the intelligent efficiency business.
"It is rapidly becoming much cheaper to measure efficiency and analyze that data alongside lots of other information so companies can actually take action," says Robert Hutchinson, managing director of the Rocky Mountain Institute. "These information technologies are transforming the efficiency business. They are incredibly powerful."
Driven by the convergence of instantaneous communication and distributed energy resources, the world is entering a new phase of economic growth. The evolution of intelligent efficiency parallels that larger shift that is now underway. In this report, we detail crucial pieces of that shift.
Want to read the full 32-page special report, including a list of 20 companies to watch in the intelligent efficiency space? Please enter your information below and the report will be emailed to you as a PDF.
a special report by:
Fuel cell "startup" Bloom Energy just raised $130 million more in venture capital, according to a scoop from Fortune.
That takes the VC funding to beyond $1.1 billion for this firm and makes it one of the all-time leaders in VC funding. Along with Fisker and Solyndra -- not exactly great company.
According to Fortune, the first $100 million came from an unidentified new investor and $30 million came from Credit Suisse -- while existing investors did not participate. This funding was structured as an "extension to the company's Series G round that originally closed on $150 million in 2011 at a $2.7 billion pre-money valuation," as per Fortune. Existing investors include KPCB, NEA, Advanced Equities, Goldman Sachs, and DAG.
Bloom Energy had $101 million in pro forma Q3 2012 revenue alone. And Bloom suggests it will turn a profit, according to Dan Primack of Fortune. Bloom's valuation dwarfs the collective market cap of the public fuel cell firms and its revenue is greater than the collective revenue of those firms. A Bloom board member has spoken of an IPO this year or next.
After raising more than $1.1 billion in venture capital over a decade from investors including GSV Capital, Apex Venture Partners, DAG Ventures, Kleiner Perkins Caufield & Byers, Mobius Venture Capital, Madrone Capital, New Enterprise Associates, SunBridge Partners, Advanced Equities, and Goldman Sachs, this could be the year.
According to an investor letter cited by Dan Primack of Fortune, the firm's cost of goods was $106 million, along with $26 million in operating expenses. That's a loss of $42 million on a GAAP basis, along with a net cash loss of $80 million in the quarter. However, those Q3 numbers are hobbled by an inventory and timing issue, and cash burn dropped 56 percent between Q2 and Q3, according to Primack. The firm had a 26 percent quarter-over-quarter revenue increase.
Bloom CFO Bill Kurtz told Fortune in an official statement: "Bloom Energy is pleased with the substantial progress we have made in 2012. On a pro-forma basis, Bloom has become gross-margin-positive in 2012 and is on track with our goal to be profitable in 2013." The claim from Bloom's CFO suggests that Bloom is finally making money on every fuel cell it ships.
Bloom builds fuel cells of the solid-oxide variety with natural gas as the fuel. There is no heat resource in the Bloom Box as in other CHP fuel cells.The 200-kilowatt units are intended for commercial and industrial applications, and the firm boasts an all-star list of customers, including Adobe, FedEx, Staples, Google, Coca-Cola, and Wal-Mart.
In 2012, Bloom raised $100 million of a potential $150 million from Apex Venture Partners and an undisclosed firm. (Jeff St. John of GTM reports on Bloom's valuation and stock sales in the secondary market.)
SiliconBeat reports that Santa Clara Valley's Transportation Authority will get $750,000 in federal funds to help finance a 400-kilowatt Bloom Energy fuel cell facility at a total cost of $4 million. Using the numbers supplied, that works out to $10,000 per kilowatt, which sounds about right for a Bloom Box, although a bit high for a competitive power source.
Bloom's fuel -- natural gas -- is a commodity and subject to price increases. Bloom's business has relied on state subsidies for distributed energy, but subsidies expire. The long-term reliability of the fuel cell stack remains a risk, and some have doubted Bloom's green claims and employment practices.
But in today's difficult cleantech business climate, those profit noises from the CFO are cause for cautious optimism. If Bloom is actually profitable in 2013, the company would be a testament to the viability of capital-intensive, VC-funded cleaner energy breakthroughs and the virtue of distributed power generation.
Scott Sandell, a partner at NEA and Bloom board member, was quoted by Reuters as saying that Bloom will likely attempt an IPO late this year or early next.
Without a doubt, there are some applications for which fuel cells make perfect sense, such as premium power for the military, remote sites, construction industry, travel, etc.
But for stationary power, fuel cells compete with the grid and diesel gen sets. And few if any fuel cell vendors, other than perhaps Bloom, have proven that they can go head-to-head with those incumbent technologies on a per-kilowatt-hour basis.
Fuel cells can be distributed and do have less emissions. Natural gas is currently cheap. But for fuel cells dependent on the natural gas grid, there's the downside of volatile prices and the sometimes less-than-green processes used to extract natural gas.
Fuel cells have benefited from state and federal subsidies, or in the case of Bloom, Delaware ratepayer bill subsidies. The justification for renewable energy subsidies is often debated in these pages. But in the case of fuel cells, even after incentives, the fuel cell is expensive compared to the grid or to a diesel gen-set.
But somehow, Bloom, by my back-of-the-envelope calculations, will have shipped around 200 megawatts of fuel cells in 2012 to a dream team of customers: Adobe, AT&T, FedEx, eBay, Coca-Cola, etc. These folks are not philanthropic organizations -- they are looking to save money, and customers attest to a three-year ROI for the Bloom Box. How is Bloom doing this? Perhaps through a PPA structure that keeps potential O&M costs isolated from the customer.
In any case, if Bloom is real, it will have some big lessons to teach the rest of the fuel cell industry. And if Scott Sandell of NEA is right -- we'll read about it in an SEC S-1 IPO registration in the coming quarters.
The U.S. wind industry is revisiting the policies and goals that made it the U.S. leader in new electricity generating capacity in 2012. The result: two major announcements on the opening day of Windpower 2013, the industry’s annual conclave, which this year is being held in Chicago.
By raising the possibility last December of a six-year phase-out of its two-decades-old $0.022 federal production tax credit (PTC), wind won its political fight for a one-year extension of the incentive. It also got new language in the law likely to make the credit viable well into 2014. Now the industry is backpedaling.
“Our top priority...is keeping the PTC,” announced new American Wind Energy Association (AWEA) CEO Tom Kiernan in his first public speech to the industry, during the conference morning session. So much for that phase-out.
GTM readers will not be surprised. The idea of the six-year phase-out, AWEA Interim CEO Rob Gramlich said in a recent GTM piece, was just an “analysis” of what going incentive-free by 2018 would look like. In the Chicago conference’s morning press availability session, he repeated that the phase-out analysis was offered only as what the industry might offer “in the context of larger tax reform legislation, and only if the other energy sources were also negotiating about their incentives.”
In the same morning session, EDP Renewables North America CEO and new AWEA Board Chair Gabriel Alonso said wind’s 42 percent share of new U.S. installed power capacity is “just another story we keep writing every day.” The "phenomenal" technological innovation that has almost doubled wind’s average capacity factor in a decade, from 27 percent in 2003 to 44 percent in 2013, he said, has not been matched by the industry’s holding on to its brand.
He also called for wind to take “ownership of its message and get its brand back” by stopping fossil fuels from defining their energy production as “clean.” This is also a new policy shift from the emphasis on jobs and the reluctance to talk about climate change during the recession.
In the afternoon session, U.S. Department of Energy (DOE) Wind and Water Technologies Director Jose Zayas announced it will update the landmark 2008 DOE study that found it a feasible goal for wind to provide 20 percent of U.S. power by 2030.
Advances in wind technology make it necessary to rethink what wind can do in 2020, 2030, and 2050, Zayas said.
As it did in 2008, DOE will call on environmental groups, utilities, energy experts, and stakeholders to help re-evaluate wind’s technology, its energy markets, and its competition. The intent, Zayas said, is to see how wind can “play a key part in the energy mix of the future” and contribute to DOE’s 2050 target of an 80 percent cut in U.S. greenhouse gas emissions.
National Audubon Society President/CEO David Yarnold and National Wildlife Federation President/CEO Larry Schweiger sat on a panel with Zayas and endorsed the notion of upping wind’s long-term goal. Both noted that climate change is the urgent threat to biological habitat and wind is a part of the solution.
“Wind is the first renewable technology that has become affordable and scalable,” added EDF Renewable Energy Board Vice Chair Jim Walker. “Efficiency and other renewables, especially solar, and a judicious amount of natural gas, to balance the system, are the energy portfolio of the future. And I would be surprised if wind isn't more than 20 percent.”
Last week, Tokyo Electric Power Co. (TEPCO) quietly named the winner of a big part of its multi-billion-dollar plan to install smart meters for all of its 27 million customers over the next decade. The winner is Toshiba, the Japanese grid giant that bought Swiss smart metering giant Landis+Gyr for $2.3 billion in 2011.
It’s a huge win, even if it doesn’t come with any promises of meter sales right now. That’s because TEPCO hasn’t yet picked the vendors it will choose for its actual meter purchases -- those contracts are to be announced in the third quarter of this year.
Even so, what TEPCO has awarded Toshiba and its partners is a pretty significant chunk of the project. Under the terms of the bid TEPCO has picked, Toshiba will be prime contractor on the project’s core communications system, along with cellular provider NTT and component provider NEC Corp.
As for Landis+Gyr, the company announced Wednesday that it will be “providing much of the project's technical foundation, including: supplying the head end system (HES), network expertise, RF communications modules, [and] large-scale product deployment experience.” In addition, Ecologic Analytics, the meter data management software (MDMS) vendor that Landis+Gyr bought last year, will be supplying the Gridstream MDMS to collect and manage data across TEPCO’s deployment -- a big win in and of itself.
Richard Mora, CEO and president of Landis+Gyr, wouldn’t name the financial terms of the TEPCO contract in a Wednesday interview, though he noted that the company will also be competing for a share of the actual meter hardware contracts coming later this year. Initial news reports pegged the expected price tag of TEPCO's entire AMI project at about 200 billion yen, or $2.6 billion.
Of course, we can expect to see lots of competitors for TEPCO's meter tenders. Some of the companies active in Japan include Itron in partnership with Panasonic, and Osaki Electric, which has partnered with Hitachi. Hitachi is also a partner and investor in Silver Spring Networks, which has identified Japan as one of its target markets in Asia.
In terms of specifics, TEPCO wants to deploy a multi-communications AMI platform that supports both the radio frequency (RF) mesh wireless technologies commonly used in North American smart meter networks, as well as cellular connectivity and the ability to communicate via powerline carrier (PLC) technologies, Mora said. TEPCO hasn’t yet decided the split between those three technologies in terms of how many meters will use each, he said.
Landis+Gyr has its own versions of both RF and cellular communications, allowing it to use both mesh technologies to link lots of meters in a low-power, low-cost wireless network, and to connect meters to cellular networks for point-to-point communications. The PLC technology is still being worked on, Mora said.
TEPCO announced its smart metering plans in early 2012, putting it years behind some of the biggest AMI deployments underway in the United States, including big Landis+Gyr customers like Pacific Gas & Electric and Oncor. But that also means that TEPCO’s plan is years ahead in terms of the technology and expertise available for smart meter systems, Mora noted.
That includes a focus on using internationally recognized technology standards for the communications technologies that will connect a lot of these meters, he said. For instance, Landis+Gyr is working on incorporating the IEEE 802.15.4g standard for the physical communications (i.e., the radios) that make up its mesh network, in a way that could allow other 802.15.4g-compliant systems to interoperate with its underlying communications platform, he said.
“TEPCO was really pushing us on standards, and part of that was the rationale to be able to migrate the solutions down the road,” he said. Still, with the 802.15.4g process still in the works, it’s as yet unclear how that interoperability may take place in the future.
Likewise, while TEPCO intends to support a “broad array of new pricing, demand response, and energy automation options that enhance the efficiency and reliability of the electric grid” via its two-way communicating meters, Mora said that just how those features are to be rolled out is yet to be determined, though “to the extent they wanted to do some in-home automation…the bandwidths on the network could certainly support that.”
One thing’s for sure: TEPCO’s smart meter project is one of the biggest, if not the biggest, underway in the world right now. That makes it a huge prize for competing smart meter vendors, along with some big projects in Europe that compare in terms of size, such as the nationwide smart meter rollout plans underway in the U.K., France and Spain.
TEPCO’s rollout is also expected to guide development of smart metering plans for other utilities in Japan, which is facing an unprecedented power crisis in the wake of the Fukushima nuclear power plant disaster and the subsequent shutdown of the country’s nuclear generation fleet. While the rest of Japan’s utilities haven’t been as quick as TEPCO to formalize their plans, the country wants 80 percent of its power consumers to be equipped with smart meters by 2017.
Then, of course, there’s the broader Asian market to think about. “I would liken Asia to where we were in the U.S. four or five years ago,” with AMI deployments mostly limited to pilot projects, Mora said. "We are seeing other opportunities in Asia, and we hope that the fact that we’ve been chosen in Japan bodes well for us.” Indeed, part of TEPCO’s plan with its new partners is to develop an AMI system that could be exported to other countries, he said, though he added that it’s far too early to talk about any developments on that front.
Toshiba and Landis+Gyr have plenty of competition on that front as well, from many of the same companies fighting over the TEPCO contract. For instance, smart grid networking partners Itron and Cisco have landed a pilot in Hong Kong, Echelon is building its AMI technology into projects in China, and Silver Spring Networks, the AMI networking vendor that held a successful IPO in March on the strength of its big U.S. deployments, is also doing projects in Singapore and Malaysia.
Alarm.com has acquired the home energy management startup EnergyHub. The security company has been moving further into connected home offerings in the past few years, and raised $136 million last year to expand the business.
Alarm.com and EnergyHub were already working with utilities like San Diego Gas & Electric so the utility can leverage customers in its territory for demand response programs.
“As we go after larger utility programs, we’re now representing a larger, more resourceful entity,” said Seth Frader-Thompson, president of EnergyHub.
EnergyHub will continue to operate as an independent company within Alarm.com.
“We believe that EnergyHub’s Mercury platform provides the best available solution for powering comprehensive residential demand response and energy efficiency programs,” Steve Trundle, CEO of Alarm.com, said in a statement.
Alarm and telecom companies are poised to take hold of the home energy management space, as they already have a relationship with customers and can bundle a suite of connected home products. Energy efficiency, by itself, is a pretty dull sell, but packaged with convenience, comfort and safety, the proposition gains appeal.
Alarm.com is also a key partner of Vivint, another of the country’s larger home alarm companies. Vivint recently expanded into third-party-financed residential solar. Earlier this year, Vivint lined up $75 million for its solar business. Although Alarm.com doesn’t plan to get into the solar business, it can support solar panels. “When you look at the connected home,” said Jay Kenny, VP of marketing at Alarm.com, “it becomes more valuable the more devices you can connect.”
One of the fastest-selling devices is the thermostat, said Kenny. The company has well over 1 million customers, hundreds of thousands of which are using thermostats that run on EnergyHub’s Mercury platform. When EnergyHub goes to large utilities to sell its services for residential demand response, “We now have a utility-grade balance sheet,” said Frader-Thompson. The company was one of the first to talk about leveraging existing thermostats in a utility’s territory for load programs, “and this is a huge extension of that,” he added. Other companies like Nest, Honeywell and Carrier are also looking to partner with utilities to leverage thermostats they've already sold.
The Brooklyn-based startup will maintain relationships with its other partners, such as Radio Thermostat of America, which uses the Mercury platform for its wireless thermostats.
Terms of the deal were not disclosed, but EnergyHub has raised about $19 million to date.
Consumers are a fickle lot, especially when it comes to purchasing a car. The emotional decision of choosing your ride, however, does not necessarily extend to the charging station for drivers of electric vehicles.
Most people respond to price, and buying a charging station is no different. After extensive market testing, Bosch has responded with a $450 Level 2 240-volt EV charger for the home. The price point is less than half of most other Level 2 chargers available on the market today.
“The number-one issue for consumers to adopt a Level 2 charger is price sensitivity,” said Tanvir Arfi, president of Bosch Automotive Service Solutions.
The basic technology is the same as Bosch’s Power Xpress, which sells for $950. The new model, Power Max, is not networked, so it cannot talk to the utility or the connected home. Although that might seem like a major drawback, most EV-to-grid projects are still in the research phase. For the average consumer, it will be a long time before their car is a demand-response device.
The Power Max also has a 12-foot cable instead of an 18- or 25-foot cable. “The largest cost of the charger is the cord and the connector,” explained Arfi. The $450 version charges at 16 amps, but there is an 18-foot cord, 30-amp model for $600.
Bosch has sold more than 16,000 home charging stations worldwide, although the Power Max model will only be available in the U.S. market at this time. A lower-priced European model will be released in the future.
Unlike some other brands, which can be purchased from big-box stores or through dealer programs, Bosch will sell the Power Max directly to customers through its website. “People who are buying EVs are very well-researched consumers,” said Arfi, adding that sometimes people know what charger they want before they settle on the car.
If utility networking programs for electric vehicles come on-line in the next few years, Arfi said that there could be an exchange program for customers who would then want the added networking features.
“Because many of the incentives available to offset the costs of purchasing and installing residential Level 2 charging stations are expiring, we believe it’s critical to maintain the momentum towards Level 2 by offering high-quality, lower-cost charging solutions to our customers,” said Arfi.
The low price will have to compete with the convenience of dealer programs, such as Nissan’s deal with AeroVironment to bundle the cost of the charger with the car financing. AeroVironment was also just named the preferred installation partner for Ford’s line of EVs and plug-in hybrids. Bosch, however, is the preferred Level 2 charger for the Chevy Volt.
Bosch is currently taking orders for the new chargers, and the first shipments will go out in June.
It’s not like the U.S. Army has been standing still on renewable energy. Not at all. Energy performance savings contracts (which pay the developer through savings that flow from projects) have driven projects at bases from Texas to Puerto Rico, and who can forget the recently completed solar power plant at White Sands Missile Range in New Mexico, which happens to be the world’s largest low concentrating PV plant?
But the big gun in the Army’s renewable energy arsenal goes by the name Renewable and Alternative Energy Power Production for DOD Installations, and uses a device called Multiple Award Task Order Contracts (MATOC) that will give the service the ability to source $7 billion in renewable energy.
This is an initiative that has its roots in Bush 43-era legislation and has been further developed by the Obama Department of Defense over the past couple of years. Now an initial round of contracts has gone out to five companies that will help hook the Army up with geothermal power. According to the Army:
The five companies awarded contracts for use in competing and awarding PPA task orders using geothermal technology are Constellation NewEnergy, Baltimore, Md.; ECC Renewables, Burlingame, Calif.; Enel Green Power North America , Andover, Mass.; LTC Federal, Detroit; and Siemens Government Technologies, Arlington, Va. The contracts provide a three-year base with seven one-year options, for a total ordering period of 10 years. Having these contracts in place will expedite the acquisition process for future projects.
As the term "power purchase agreement" indicates, these deals won’t lead to the Army owning renewable energy generating facilities; instead, the developers, using private financing, will. In a sense, the Army will take advantage of the kind of utility-bill-trimming arrangements that are driving so many companies and homeowners to go solar these days.
“In our current fiscal environment, attracting third-party money to build renewable energy production facilities that will allow military installations to purchase energy at a pre-determined rate without building, owning and maintaining the facility is the right thing to do,” said Col. Robert Ruch, commander of the U.S. Army Corps of Engineers Support Center in Huntsville, Alabama.
This first round of contracts focused on geothermal is just the beginning of a parade of announcements that the Army is promising. “Announcement of awards for the remaining technologies, solar, wind and biomass, are anticipated for staggered release through the end of calendar year 2013,” the service said.
What’s driving this push for renewables? Well, it all began with the Defense Authorization Act for fiscal year 2007 -- passed in 2006 under a Republican Congress and signed into law by President George W. Bush -- that codified the military’s goal to “produce or procure not less than 25 percent of the total electric energy it consumes during FY2025 and thereafter from renewable energy sources.”
Building on that, in April 2012 President Obama vowed that the U.S. would deploy 3 gigawatts of renewable energy -- comprising solar, wind, biomass and geothermal -- across all the services by 2025.
Conventional wisdom says that buildings are a sprawling, untamable black hole for energy. But a new analysis of federal data shows that the U.S. buildings sector has made enormous strides in efficiency over the last six years -- potentially eliminating the need to build any new power plants to support growth in the sector through 2030.
When sustainable architecture guru Edward Mazria looked at the EIA's latest Annual Energy Outlook, he noticed two surprising things: one, that 2030 projections for building energy consumption continue their steep decline; and two, that America plans to add over 60 billion square feet of new buildings by then. So even as a huge portfolio of new buildings is constructed in the next two decades, the energy needs in those buildings will be low enough to prevent the need for any new power plants to service them, concluded Mazria.
"There is no longer any need to build power plants to meet growth in the buildings sector," said Mazria. "This is a monumental shift."
In the EIA reference case outlined below (assuming no technological or policy changes), demand for new electricity capacity doesn't reach 2013 levels until about 2025. In the two other scenarios, assuming the building sector -- which accounts for 73 percent of electricity use -- makes either modest or strong improvements in efficiency, there is a wide range of potential to actually shut down plants.
The "high demand" and "best available demand" scenarios are looking increasingly likely. EIA projections for building energy consumption have been shifting downward since 2005.
Even more strikingly, if architects and builders were to implement "best available demand technology" on new projects and renovations, they could cut demand in buildings by more than eight quadrillion BTUs of energy and reduce the equivalent of 145 gigawatts of power plant capacity. Considering that agencies like EIA consistently underestimate technological change in the efficiency and renewable energy sectors, it's quite feasible that the sector follows a more aggressive downward trajectory, as shown in the following figure.
The reality, however, is that hundreds of gigawatts of new power plants will still get built to replace retiring plants and service other areas of the economy. But Mazria's analysis shows that buildings are becoming an increasingly smaller factor in that growth.
In 2002, very few people were paying attention to energy consumption in the built environment. But interest in the sector piqued when Mazria founded the group Architecture 2030 and started raising awareness about the fact that buildings account for nearly 50 percent of U.S. energy consumption.
Three years later, Mazria created the Architecture 2030 challenge that set targets to make new buildings carbon-neutral by 2030. Those targets essentially mirror the EIA's "best available technology" scenario. The 2030 challenge, along with the rapid growth in the U.S. Green Building Council's LEED rating system, helped thrust buildings into the discussion around climate change and a transition away from fossil fuels.
"Before 2006, everyone thought SUVs were the problem. You couldn't find an article on buildings. Then the buildings sector finally came onto the scene, and now you can't get away from it," said Mazria.
Mazria hopes Architecture 2030's latest analysis will once again transform the way people think about energy use in the built environment.
"This is huge. I don't think people truly understand what just happened," said Mazria. "We have essentially created a moratorium on new power plants through efficiency gains in the built environment. We are already beating the targets that we set six years ago."
This is the second piece of surprising news in the efficiency industry. Last week, analysts at CO2 Scorecard concluded that economy-wide efficiency efforts were responsible for three-quarters of the carbon dioxide emissions reductions in 2012 -- not natural gas, as was commonly thought.
How much is solar power worth?
In Austin, a solar kilowatt-hour will get you 12.8 cents. In CPS's San Antonio territory, that same solar kilowatt-hour will get you about 5.6 cents from the utility via its Value of Solar Tariff (VOST). The cities have each installed about 10 megawatts of solar.
We're seeing attacks on net energy metering policies (and Renewable Portfolio Standards) across the U.S. Last month, the attack came from San Antonio’s municipally owned CPS Energy.
CPS had revealed, via its homepage, a plan to replace net metering with a different plan called "SunCredits," which calculated the value of consumer-generated solar at about 5.6 cents.
Well, in a statement made today and again via its online blog, the San Antonio utility wrote, "CPS Energy has agreed to delay changes to its rooftop solar net metering program for one year as it works with local installers to come up with an equitable solution." The utility is forming a working group after having recently hosted a town hall with solar installers and stakeholders.
"CPS remains committed to distributed solar power. Its rebate for rooftop systems is one of the most robust in the country. It has already paid out roughly $20 million of $40 million budgeted by 2020. CPS Energy must make sure all customers are still paying to maintain infrastructure, upgrade technology, enable a smart grid and expand energy efficiency programs," according to Cris Eugster, CPS Energy’s EVP.
Adam Browning tells GTM, "Utility monopolies are granted to serve the public good -- and utilities neglect the fact that solar is incredibly popular and the deep visceral appeal of self-generation at their peril. This is a good outcome that allows all the stakeholders a seat at the table."
It's a question of what is solar worth. And the math involves transmission costs, generation costs deferred, capacity value, loss avoidance and a number of other factors depending on one's worldview. But it also requires a bit of a negotiation, and this has been CPS's negotiation strategy, so far.
Shayle Kann, GTM VP of Research, notes, "After significant pushback from the solar industry in its territory, CPS Energy delayed its SunCredits program by a year in order to have a more detailed dialogue about how to accurately value distributed generation in its territory. This is a question that is being asked, and fought over, across many utility territories in the U.S., including major solar markets such as California and Arizona. The issue is not just how to value individual factors such as avoided generation and capacity, but also what factors to include in the first place. Ultimately, the valuation of solar will shape the future of both distributed generation and utility business models in the U.S. and the early adopters of new models, like CPS and nearby Austin Energy, will provide a benchmark for future utility/solar industry interactions."
CPS Energy’s Internal Calculation of Solar SunCredits in San Antonio
"We're fifteen to twenty years out of date in how we think about renewables," said Dr. Eric Martinot to an audience at the first Pathways to 100% Renewables Conference held April 16 in San Francisco. "It's not 1990 anymore."
Dr. Martinot and his team recently compiled their 2013 Renewables Global Futures report from two years of research in which they conducted interviews with 170 experts and policymakers from fifteen countries, including local city officials and stakeholders from more than twenty cities. They also reviewed more than 50 recently published scenarios by credible international organizations, energy companies, and research institutes, along with government policy targets for renewable energy, and various corporate reports and energy literature.
The report observes that "[t]he history of energy scenarios is full of similar projections for renewable energy that proved too low by a factor of 10, or were achieved a decade earlier than expected." For example, the International Energy Agency's 2000 estimate for wind power in 2010 was 34 gigawatts, while the actual level was 200 gigawatts. The World Bank's 1996 estimate for China was 9 gigawatts of wind and 0.5 gigawatts for solar PV by 2020, but by 2011 the country had already achieved 62 gigawatts of wind and 3 gigawatts of PV.
Dr. Martinot's conclusion from this exhaustive survey? "The conservative scenarios are simply no longer credible."
There is now a yawning gap between "conservative" scenarios and more optimistic ones, as illustrated in this chart contrasting scenarios published in 2012 by entities like the IEA and ExxonMobil with those offered by groups like the International Institute for Applied Systems Analysis (an international scientific policy research organization), Greenpeace, and the World Wildlife Fund.
At the low end, ExxonMobil expects renewable energy to have just a 16 percent share of electricity by 2040, while BP projects a 25 percent share. At the high end, groups like Greenpeace and WWF/Ecofys think renewables could nearly or completely overtake electricity production by 2050.
Renewable generation targets in the OECD far surpass the more modest outlooks, with the European Union, Germany, and Brazil reaching for at least 60 percent renewable electricity by 2030, while Denmark and Munich aim to hit 100 percent by 2030.
And those targets might actually be achievable. For the past seven to eight years, the annual growth rate of global wind capacity has been 25 percent to 30 percent, while that of solar has been 50 percent to 60 percent, Dr. Martinot notes. Collectively, renewables are growing at rates of more than 20 percent. More money has been invested globally in renewable capacity than in fossil-fueled generation capacity since 2010, led by China, the U.S., Germany, Italy, and India.
Martinot hastened to banish another point of conventional wisdom: that the grid can't handle high penetration rates of renewables. "It's not a question of technology or economics," Martinot asserted. "It's finance, business models, [and] market development. We have all the technology we need already. The economics are there, or coming soon."
Further innovation would help, but isn't necessary. "Research and development (both public and private) for new technologies, especially driven by new materials, will certainly make the future come easier and faster," Martinot wrote in the report. "But we don’t need to wait for those breakthroughs -- we have enough at our disposal already."
Commercial battery storage is arriving faster than most people realize, and pumped hydro can be greatly expanded to buffer the grid. Even so, Martinot dismissed as more conventional wisdom the notion that we need to wait for better storage options, because there are now numerous ways to manage grid variability, such as demand response and better forecasting software. "Storage is just a small part of it," he told the conference. "An 80 percent share [from renewables] is possible in most scenarios without large amounts of storage."
Before 2020, renewables will become economically competitive. With the cost of solar PV now under $1 per watt, and grid parity within reach over the next five years in much of the developed world, it's just a matter of time. Indeed, Martinot noted that in Germany, the feed-in tariff (FIT) incentive price is already below the grid price, so they could eliminate the FIT now and just proceed with net metering.
Then the conversation will turn to how integration can be managed, not whether it will happen. "A new generation of policy is ahead," Martinot told the conference. "It's a question of how, not cost- or price-related anymore." New business models, including third-party players, will be needed -- a point that Rob Day made last month.
Building the new capacity will take significant amounts of capital, but here again things are turning in favor of renewables. In an environment of low -- even negative -- interest rates, many wealth managers are looking to new sources of finance. Pension funds, insurance funds, securities funds like mortgage-backed securities, community funds, and sovereign wealth funds are discovering that renewable energy is the lowest-risk option, even lower than other conventional power sources.
In his personal observations at the end of the report, Martinot says that the prospects are excellent for the world to be 80 percent to 90 percent fueled by renewable energy by 2040-2050. Getting to 100 percent might be a useful social and political aspiration, but in practice it's probably best to meet some remnant transportation needs with conventional liquid fossil fuels, and use some natural gas to balance out grid variability.
The demand for petroleum fuels will fall as better transportation options -- vehicle-to-grid technology, biofuels, different vehicle sizes and types, and different modes of ownership and operation -- are integrated. Likewise, the demand for energy in the built environment will fall with increasing integration of technologies like passive and zero-energy design, solar thermal (for cooling and heating), and geothermal energy.
Martinot's vision for the renewable-powered grid is hugely bullish. "In the coming years, there will be an explosion of solar PV rooftops across the world, big and small," Martinot wrote. "Fifteen or twenty years from now, a 'bare' rooftop will seem very strange to us, and most new construction will include PV as routine practice. This will lead to a parallel explosion in micro-grids (both residential and commercial), community-scale power systems, and autonomous-home systems. The grid will become a much more complex hybrid of centralized and distributed power, with a much greater variety of contractual models between suppliers and consumers. For bulk power supply and industry, the 'big grid' resources -- wind, solar thermal power (CSP), and geothermal -- will predominate."
This may be an unwelcome prospect to the private utility incumbents in the U.S., as I have discussed previously in pieces published by Greentech Media (see "Can the Utility Industry Survive the Energy Transition?" and "Adapt or Die? Private Utilities and the Distributed Energy Juggernaut"). Or perhaps the utility industry will seize the opportunity to lead that transition, as Peter Kind asserted in his response to my article.
Martinot definitely sees big industry playing important roles, including utilities, oil companies, automakers, IT companies, and industrial giants.
A lot of the talk in home energy management is all about the startups: Opower, Nest, EcoFactor, Tendril, EnergyHub, to name a few. But the relatively nascent market, which still relies on buy-in from utilities, as Nest’s recent announcements illustrate, is also attracting some old standbys in the utility world.
The global giant Schneider Electric, for example, works across the entire electric ecosystem, from solar inverters to transformers to data center efficiency. But there is one key area where the multinational firm didn’t have foothold until recently: the home.
“What we’re doing in residential is really strategic and significant,” said Yann Kulp, VP of strategy and business development at Schneider Electric.
Schneider Electric is rectifying the hole in its portfolio with an update to its Wiser home energy management platform, which was quietly released back in 2011.
The hardware and software platform includes an in-home display, internet gateway, smart plug, load control device and smart thermostat that connect to an online and mobile platform.
If you’re thinking that gateways and in-home displays are so 2011, you may be right. But for smaller utilities, like municipals and cooperatives, one-stop shopping for demand response offerings could be attractive.
The grid giant has partnered with Calico Energy Services for its Wiser offering, so that it can sell an entire demand response solution to utilities that might not have a demand response management system on the backend.
Other companies, like Tendril and Energate, have turned to broadband as a channel into the home. The trend in 2013 is attracting the utilities that do not have plans for smart meters at this time. Schneider is not alone amongst large players when it comes to connected home; Siemens is partnered with Tendril and General Electric has its Nucleus platform.
Schneider has a pilot with a Northeast municipal utility, although it won’t name names. The company is also working with contractors and builders, including KB Homes. Although home energy management is relatively new, Schneider already has a deep portfolio of energy controls for the commercial and industrial sector and has partnered with startups like BuildingIQ to bring additional intelligence to its efficiency offerings.
Many of the functionalities are similar to other offerings: a web portal to see energy use, get energy tips, control the thermostat from a mobile device and compare energy usage to peers. The gateway connects to the home’s router and the hardware within the home communicates over ZigBee.
There are some additional features that could be attractive to utilities. For utilities that still want an in-home display (despite the low time-to-kitchen-drawer) or control of the hot water heater or pool pump, Schneider can offer all of that. For consumers who want to control certain plug loads, there are smart plugs. The thermostat currently sells for about $200, with the gateway, load controls or smart plugs selling for about $100. However, Schneider said those prices are dropping significantly in coming months.
The load control module, which would be necessary for hot water heaters or pool pumps, would require professional installation. Although the load control module would not have to be part of the package, the gateway is necessary even if a homeowner only wants the smart thermostat. The need for a second device, even if it’s cost-competitive with other offerings on store shelves, could be a deterrent for the average homeowner. However, Kulp noted that most of the sales would be through partners, and not necessarily direct to customers.
Although Schneider isn’t offering the sexiest product in the market, or necessarily the cheapest, it is hoping its longstanding relationship with utilities will make it a contender as a home energy management partner. “There’s a richer value proposition than just a thermostat,” said Kulp. “As part of the larger Schneider organization, we’re well positioned.”
GTM Analyst MJ Shiao writes, "While there are numerous companies attacking the module-level power electronics (MLPE) space, three companies (Enphase, SolarEdge and Tigo) account for over 93 percent of the total market share of shipments.
Here's some news from those three market leaders.
Enphase just announced its first-quarter 2013 earnings. Revenue and margin continue to grow, while losses persist. Enphase's growth is undeniable -- the firm shipped 315,000 units in Q1, amounting to approximately 68 megawatts. Revenue was $45.6 million for the quarter (at the top end of guidance and up 7 percent year-over-year) at a gross margin of 26.8 percent. Enphase gets roughly $0.67 per watt for their microinverter -- far more than the price per watt of a string inverter.
Tigo Energy raised an undisclosed round of equity for its solar panel optimizers from Alon Ventures and appointed Zvi Alon as Chairman. Sources close to the deal put the round in the range of $10 million. Tigo promises "a major product announcement at Intersolar Munich and San Francisco."
SolarEdge will soon be introducing optimizer products aimed specifically at the commercial market. The new 600-watt units are made to handle two PV modules. SolarEdge shipped almost 400 megawatts in 2012, according to the company.
Solar microinverter and DC optimizer adoption grew from 51 megawatts in 2009 to over 785 megawatts in 2012, according to GTM Research.
FIGURE: Module-Level Power Electronics (MLPE) Taxonomy
Source: The Global PV Inverter Landscape 2013
More than 400 solar industry experts got together in Phoenix, Arizona last month at Greentech Media's Solar Summit. By all measures it was a successful event. The panels and debates were thought-provoking. Information flowed in all directions. The weather was amazing. There was bocce for those interested in that type of thing. ABB acquired PV inverter firm on the eve of the event.
Here are some videos and articles that might give you a flavor of this great and still-growing annual event from GTM Research. We hope to see you there in-person next year.
***April 23, 2013
The GTM Solar Summit kicked off with a pre-conference look at how states solar markets are faring. With more than 3.1 gigawatts of capacity installed last year, the U.S. market seems healthy and continues to grow. However, some states are in better shape than others. On the state level, there are some major differences. GTM Research analysts led four panel discussions on the state of play in Arizona, Colorado, California and Texas. Here are some top-level takeaways from those discussions.
The panel with the most fireworks looked at the solar industry in a post-subsidy world.
As Stephen Lacey wrote, "The conversation around how to handle subsidies -- which has become more heated as renewables scale -- is where facts and opinions start bleeding together," adding, "Sunrun's CEO, Ed Fenster, came ready to throw some punches at Arizona Public Service for its solar policies. The relationship between utilities and solar companies has always been somewhat tenuous. But this week's panel discussion was a notable change in tone."April 23, 2013
Pull up a chair, get some popcorn and watch the session below.
GTM Research Senior Analyst Shyam Mehta shared some of his data.
One of Mehta's observations was that the performance gap between p-type mono-crystalline silicon and multi-crystalline silicon is narrowing. Efficiency gains in conventional multi c-Si have accelerated, and the gains have come "without significant increases in capex or material cost," according to Mehta. Yet mono crystalline still commands a 4 cent to 8 cent per watt premium in sales price. Mehta suggests that the value proposition for p-type mono continues to deteriorate. P-type might make sense in highly real-estate-constrained Japan, but in the long term, Mehta sees n-type mono as a key to maintaining the efficiency advantage of mono. Panasonic, SunPower and Yingli are working on n-type cells.
Shayle Kann, vice president of research, shared his outlook on consolidation, module prices, and the shifting global demand through 2016. Here is one of four charts from his presentation that provide a glimpse of what the world may look like in the next three years:
Is the solar industry marketing itself successfully? Are solar firms reaching consumers? Is branding important? Can the average consumer name even one solar panel manufacturer?
These were some of the questions that moderator Scott Clavenna, CEO of Greentech Media, posed to two solar equipment firms and two downstream solar companies at the Solar Summit.
Danny Kennedy of Sungevity said the fact that "GTM [hosted] this panel" was a sign of progress for marketing solar. He added that his goal is to lower customer acquisition costs (CAC) and keep the firm's referral momentum going. "At the end of the day, solar is not about the technology; it's about the customer," said the Sungevity founder. He notes that Australia went from 900 PV roofs to 300,000 rooftops in six years -- and that scaling was all due to word-of-mouth.
"We are a service business," said Kennedy, adding, "Southwest isn't an airline; it's a service business. That's how we have to think about solar."
So how important is marketing to PV? Did you learn about Yingli from their ads at the World Cup? #gtmss13— Eric Wesoff (@ewesoff) April 24, 2013
The coming 10-gigawatt solar market in China may not offer the business boom the industry hopes, according to a panel of experts at the Solar Summit.
“There are market forces [to contend with] and good companies do survive, but peeling back the layers, it is also the companies with very good relationships to the government that survive,” explained Azure International Managing Director Chris Raczkowski.
“We see China as a centralized state, and it is true that the decisions are made centrally, but execution of the polices is at the local level,” added Sky Solar COO Petra Leue. It is difficult to do business as an outsider unfamiliar with the provinces “in the same way it would be difficult for a developer from Arizona to do business in New York state or Hawaii.”
“It is difficult, but it is also possible,” said Clean Energy Associates Founder/CEO Andy Klump, "as long as you partner with the right state-owned entity [SOE] or local company. But expect a much lower margin. And the payment terms are horrific. There are competitors out there willing to not take any payment for two years, and sometimes it is four years before they get 100 percent of the payment. You really have to know who your partner is. It takes years and a long-term focus.”April 24, 2013
Is there a relationship between the "tier" of a solar company and the quality and reliability of its module?
“The tier structure became a way for buyers to differentiate the rapidly proliferating multitude of manufacturers, particularly those from China,” explained SolarBuyer Managing Director Ian Gregory. The tier was primarily defined by the manufacturer’s size and balance sheet and by brand awareness. “It was used to make default bankability assessments. It didn’t look at the quality or reliability of the finished product. There was no information on that.”
SolarBuyer has made an assessment of tier versus manufacturing quality, he said. “We have not found a clear correlation. In fact, we’ve audited one manufacturer six times and each time the picture is different. The relationship between quality and tier structure seems to change every six months.”
And lastly, the GTM Solar Analyst team distills the huge week's ideas into eight takeaways here.