Webinar: Alternative Business Models for Distributed Energy Resources

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  1. 1. Barcelona, Spain October 29-31, 2013 2014Parker, Van Alstyne & Choudary Webinar: Alternative business models around Distributed Energy Resources Geoffrey Parker Director, Tulane Energy Institute Fellow, MIT Center for Digital Business gparker@tulane.edu, gparker@mit.edu @g2parker The Rise of Networks and Platforms
  2. 2. + Big data & the cloud emerge Digital Age Age of Platforms + Age of Networks Networks, Data, and Platforms 2015 Peter Evans, Geoffrey Parker
  3. 3. Age of Networks
  4. 4. Source: GE, Global Strategy and Planning, 2013 Land-based pipelines networks Expanding global gas pipeline network
  5. 5. 547 bcm of LNG traded 42 buyers, 25 sellers Source: P. Evans and Mike Farina, Age of Gas and the Power of Networks, GE, 2013 LNG trade a view to 2020 Expanding global gas pipeline network
  6. 6. Strategically located liquefaction plant investment of $15 to $20 billion could displace up to 30% of transport diesel Fueling infrastructure a key to linking networks Micro-LNG plant Natural gas liquefaction plant producing up to 250,000 gallons per day Sources: EIA, Office of Oil & Gas and CSX, 2013 Rail + natural gas + trucking Expanding network synergies 2015 Peter Evans, Geoffrey Parker
  7. 7. Meshed networks integration of physical, digital and social Electrical infrastructure + Gas infrastructure + Digital infrastructure @ Growing interconnections
  8. 8. Digital Age
  9. 9. Intelligence about energy is dramatically expanding Source: John Canny, Designing with Data, UC Berkeley, EECS, July 2013 New dynamics 1. Volume and velocity of data growing at - machine level - facility level - fleet level - network level 2. Expanded monitoring/automation 3. Shift from the reactive to the predictive 4. Rise of matching platforms 5. Experimentation with app stores Forces reshaping energy markets 2015 Peter Evans, Geoffrey Parker
  10. 10. 10 Applications of the industrial internet 2015 Peter Evans, Geoffrey Parker
  11. 11. US power plant fleet Data source: Platts, 2013 6,670* Natural gas plants less down time better fuel economy Improved system coordination Digital benefits * Out of a total of 23,290 power plants Improved asset productivity 2015 Peter Evans, Geoffrey Parker
  12. 12. Digital technologies will augment field service engineers Source: P. Evans, Big Data Innovation Summit, Boston, MA, September 2013 Transformation of work & the Crew Change 2015 Peter Evans, Geoffrey Parker
  13. 13. 1 Determine key building parameters and begin load disaggregation. DETECT ATTRIBUTES Generate unique models of how the buildings is, and could be, performing. 2 CREATE ENERGY MODELS Compare building to efficient model. 3 COMPARE PERFORMANCE Target best prospects, automate audits and track efficiency savings Data Sources: Meter + Weather + Building info Source: Retroficiency, MIT Platform Strategy Summit, July 2014 Analytic steps Big Data Analytic Approaches
  14. 14. Age of Platforms
  15. 15. Platform companies are found in a growing number of industries Source: CGE Platform Database, 2014 CompaniesSectors Platforms new business models 2015 Peter Evans, Geoffrey Parker
  16. 16. Platform provider Components Rules Architecture Users Demand side Users Supply side Match service providers to customers Source: Eisenmann, Parker, Van Alstyne 2009 Leverage networks Mobile Device Platform Ecosystem Source: Rahul Basole, 2009 Digital enables platforms 2015 Peter Evans, Geoffrey Parker
  17. 17. 17 Utilities Industrial facilities Commercial Residential Emerging platforms tap different sources information Meters Other sensors Thermostats People Data sources 2015 Peter Evans, Geoffrey Parker
  18. 18. Variability of Wind, Solar, GeoThermal CAISO data August 2008
  19. 19. Traditional Response
  20. 20. Platform provider Components Rules Architecture Consumer Users Supply side Users User Flexibility Meets Distributed Energy Resource Variability Supply Side participates: Storage Load shift Micro generation Platform coordinates through DLMPs Contracts Financial flows Technical Standards One integrated framework for different resource types
  21. 21. Age of Networks Digital Age Age of Platforms New business models that leverage networks and intelligence Mesh networks linking physical, digital and social Surge in information about energy for insight and improved decision-making Energy system Rise of energy intelligence 2015 Peter Evans, Geoffrey Parker
  22. 22. THANK YOU QUESTIONS & DISCUSSION gparker@tulane.edu Twitter: @g2parker
  23. 23. Financing DER Lessons from Home Solar Webinar: Alternative Business Models for Distributed Energy Resources April 30, 2015 Sierra Peterson Director, Business Development
  24. 24. 24 What Well Cover 1) Context on Clean Power Finance 1) U.S. Residential Solar Market Trends 1) Finance Products for Residential Solar 1) Does Solars Success Translate to Storage? 1) Mass Market Demand Drivers: Win on $/kWh 1) Transactive Energy Markets Proprietary
  25. 25. 25 CPF Connects Supply and Demand Right Financing for the Right Customer Financial Services and Software for the Residential Solar Industry Solar Industry Sells, Installs and Maintains Systems Investors Provide Capital, Own Assets PPAs Proprietary Leases Loans PACE GEMS
  26. 26. 26 Residential Solar Cost and Financing Trends Before 2008, most solar was consumer-owned Bipartisan approval of ITC in 2008 spurred private capital flows Reduced cost of capital and hardware costs Galvanized competition, further reducing costs and scaling deployment Source: GTM Research
  27. 27. 27 Home Solar Finance Products: Leases and PPAs Lease and Power Purchase Agreement (PPA) Third-Party Owned or TPO Solar Solar Lease* Solar PPA* 20-year contract 20-year contract Payments fixed over life of contract Customer pays for electricity the solar system produces Production guarantee if consumer doesnt get power promised, company pays the difference No production guarantee customer only pays for electricity O&M, insurance and monitoring O&M, insurance and monitoring *Based on standard contracts from SAPC
  28. 28. 28 Home Solar Finance Products: Loans, PACE Solar Loan Solar PACE Product 20-year contract 20-year contract Customer makes loan payments over life of contract Customer pays for cost of system through property taxes In general, no production guarantee customer only pays for electricity No production guarantee Optional O&M, insurance and monitoring Optional O&M, insurance and monitoring Alternatives to TPO Solar Products Many TPO Companies Sell Loans and PACE
  29. 29. 29 Lessons from Solar Financing: Win on $/kWh Solars $/kWh savings proposition applicable to millions of homeowners Early adopters buy energy independence and novel technology Mass market buys $/kWh savings
  30. 30. 30 Barriers to Mass Market Financing for Storage Technology - Murky value prop: calculation of $/kWh value remains complicated Markets - Static pricing - NEM - NEM provides pricing signal for value of solar - Real-time pricing would accurately value solar, storage, other DER Graphic: Green Living Ideas Net Energy Metering 101
  31. 31. 31 Storage Finance Today: PACE, Purchase & Tesla Lease PACE Tesla Pilot Lease 5+ year contract 10-year contract; battery then returned to SolarCity Payments fixed over life of contract; repaid on property tax Purchase prices: $10K+ $1500 upfront; $15/month for 10 years Purchase price: $13K Manufacturer-specific warranty 10-year warranty Optional O&M, insurance and monitoring O&M, insurance and monitoring
  32. 32. 32 Regulatory Framework Trailing Market Trends 20TH CENTURY GRID 21ST CENTURY GRID Reliable, safe, & least-cost Clean, resilient, & customer choice Centralized hierarchy & monopoly Decentralized networks & P2P Cost-plus pricing Value-based pricing Ratepayers Customers & prosumers Waterfall development & price design set by utilities & regulators Agile development & dynamic pricing determined by markets
  33. 33. 33 Solution: Transactive Energy Markets Power prices should provide: Transactive energy markets enable new financing mechanisms and properly value costs and benefits of DER and the grid Flexibility - Signals real-time market conditions - Accurately values DER - Encourages optimization Use Buy Store Predictability - Guides investment - Enables planning Transactive energy markets enable: - Time-of-Use Rate Arbitrage - Solar & DER Optimization - Grid Services
  34. 34. 34 Power Market Reform Todays Grid Future Grid Power market reform enables accurate pricing of DER and large-scale investment in storage, generation and efficiency
  35. 35. 35 Thank You Questions? Sierra Peterson Clean Power Finance speterson@cpf.com
  36. 36. 36 The utility industry is changing New competition Rate pressureFlat demand AMI data Distributed resources Regulation RISE OF THE CUSTOMER
  37. 37. The key: transform the utility-customer relationship 37 Right message, right channel, right customer, right moment.
  38. 38. 38 DER will result in changing load profiles New competition Rate pressureFlat demand AMI data RISE OF THE CUSTOMER Distributed resources Regulation
  39. 39. 39 If it looks like a duck, quacks like a duck
  40. 40. 40 To meet this challenge, we first need AMI data New competition Rate pressureFlat demand AMI data RISE OF THE CUSTOMER Distributed resources Regulation
  41. 41. 41 With big infrastructure investment comes a bit of hype 1990s: INTERNET IPOs GONE WILD
  42. 42. 42 Commonly referred to as the hype cycle
  43. 43. 43 This hype cycle has held true for AMI in the US
  44. 44. What does the trough look like? 44 $37M spent to enroll the first 22k customers 77%of UtilityCo customers would benefit from a CPP rate 1.5%of UtiltyCos customers enrolled in CPP Rate
  45. 45. 45 So how do we move up the slope?
  46. 46. 46 Behavioral Demand Response: 1M HHs, 4 utilities
  47. 47. 47 Two flavors: Delivered with or without a price signal 2 Peak Reduction with Dynamic Pricing 1 Peak Reduction
  48. 48. 48 Record temperatures put BDR in the hot seat
  49. 49. 49 During this heat wave, 5% savings on the peak
  50. 50. 50 And 85% of customers were satisfied 64% 75% 85% Ice Cream The Beach BDR 64% 49% 58% 71% 59% 66% provides trustworthy EE information wants to help me save money provides useful suggestions to save energy, lower billsControl Group Recipient Group +7% +10% +8% My Utility.Im satisfied with
  51. 51. 51 5% savings and 85% satisfaction at 1/3 the cost $26
  52. 52. 52 Lets bring this back to distributed energy resources
  53. 53. 53 Lesson 1: AMI is necessary but insufficient
  54. 54. 54 Lesson 2: Utilities are critical to scale in residential
  55. 55. Lesson 3: As demand evolves, so must solutions 55 Demand management 1.0 Demand management 2.0
  56. 56. DNV GL SAFER, SMARTER, GREENERDNV GL Alternative Business Models for Distributed Energy Resources 56 Business Opportunities & Scenarios
  57. 57. DNV GL Changing the electricity supply value chain 57 Delivery End UseProduction Delivery End UseProduction (Independent Grid)
  58. 58. DNV GL Framing the pieces 58 Utility Distribution End UseProduction Energy Management Customer-Cited Generation Energy Efficiency Demand Response Customer Engagement DER Distribution TBD Shared services Production aggregation DER Wholesale In Progress
  59. 59. DNV GL Framing the pieces 59 Utility Distribution End UseProduction Energy Management Customer-Cited Generation Energy Efficiency Demand Response Customer Engagement DER Distribution TBD Shared services Production aggregation DER Wholesale In Progress Independent Grid Microgrid
  60. 60. DNV GL Drivers shaping DER business Utility. DER-based planning, procurement approaches & programs take form. Markets. Wholesale markets clarify rules and payment approaches. Distribution markets evolve. Customer. Customer value increase / DER cost decreases & ease of financing facilitates customer procurement.60 DER Growth & Mix Commercial & Physical Access to the Grid Mechanisms for Realizing Value Physical. Interconnection rule updating. Regulators prompting increased efficiency in negotiating access. IT systems facilitating DER integration deploying / maturing. T&D microgrid costs dropping & reliability demand growing. Commercial. (Virtual) Net metering and standby rules/rates being clarified & made consistent across U.S. as with measurement and verification approaches. Energy $. Technology cost reductions. Performance improvements. Grid $s up. Reliability. Severe weather, grid degradation or physical attacks prompt action. Emissions. Concern for air quality and climate change grows. Productivity. Automated control, monitoring & detection with matching services.
  61. 61. DNV GL Historical value realization mechanisms Incentives drive customer adoption Likely to continue though form may change societal value = emissions; energy security customer value = cost of energy, corporate targets Tariff adjustments drive customer adoption Residential tariff proposals are afoot societal value = grid capacity customer value = energy bill management Wholesale market access for provision of grid services Rules are changing societal value = lower cost resources; higher efficiency customer: direct or indirect payments Distribution grid services Increased regulator emphasis on DER & planning61
  62. 62. DNV GL How is value changing? Driving up demand & driving down costs Energy. PV and storage installed prices are forecasted to decline State initiatives support distributed renewable and energy efficiency Dynamic pricing programs are being considered for expansion Reliability. Expected increase in outages due to weather aging infrastructure State initiatives exist to incentivize customer reliability investments (e.g., NYSERDA CHP N+1 incentive) T&D. Microgrids are increasing their capability (Parallel trends on the utility distribution system (DERMs, VVO, DA, etc.)) Productivity (comfort / operations). Smart appliances, advanced controls Emissions. 62
  63. 63. DNV GL How access is changing? Rule 21 (CA) & IEEE 1547 Interconnection study (FERC) Individual net metering Virtual metering rules Default utility provider right to own DER integrated into planning CA DER rulemakings MA Grid Modernization NY-REV63
  64. 64. DNV GL Finding value: having access and exchanging services 64 MarketAdministrative Open Restricted Utility DR Programs NY-REV Initiative Utility DG Programs Access Value Transaction Approach TOU Tariffs Microgrid Community Microgrid ISO/RTO DR Programs
  65. 65. DNV GL Implications & Examples DER ESCO-type services are relevant across all scenarios. Value must come from: utility procurement (e.g., DR programs), tariff pain (e.g., storage; energy management or customer clean energy target (e.g., PV ownership or PPAs) where wholesale access (e.g., Viridity) does not exist There is an opportunity to bundle with additional services to leverage infrastructure and add value. Market examples include: o Vivint; ADT Energy Management & Honey...


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