TODAY’S STUDY: CUTTING NEW ENERGY INTO THE GRID EDGE
Grid Edge; Utility Modernization in the Age of Distributed Generation
October 2013 (Greentech Media Research)
Solar energy growth accelerates power grid modernization. A new level of grid intelligence enables this trend, largely ﬁnanced by the American Recovery and Reinvestment Act (ARRA). In parallel, extreme weather events like Hurricane Sandy in 2012 have renewed public interest in grid reliability. From a business perspective, the push toward market-based value recovery will slowly but steadily put an end to renewable energy’s subsidy dependence.
Together, solar PV, smart metering, and public interest in reliability and value recovery make distributed energy resources (DER) more economically promising than ever. With the rate of smart meter penetration expected to surpass one-third of the U.S. by the end of 2013, as well as with continued investments in distribution automation, the smart grid has evolved past being a loose collection of technologies. It is now a system comprising stocks (e.g., meters and sensing devices) and ﬂows (data streams, further investments), including internal feedback loops and synergies. These synergies are key to achieving cost- eﬃcient methods of low-emission power consumption.
Why distributed resources? Because energy storage, demand response and energy eﬃciency make the grid more ﬂexible at the consumer level. This is where the market grows: While utility-scale installations dominated solar PV in the past, capacity additions in the residential sector will exhibit the largest growth between 2013 and 2017. This pushes challenges and opportunities toward the edge of the grid, where technology, business processes and regulations need to evolve together – a frontier that Greentech Media calls the grid edge.
The overarching trend is the decentralization of resources. Apart from generation, intelligence and control become more granular, because new complexities necessitate monitoring across many more power lines, feeders and substations. For utilities in deregulated markets, net metering tariﬀ s handicap traditional value recovery. Third-party providers of DER add a new level of decentralized competition.
The bottom line is that electricity markets diﬀ er from other markets in that someone needs to continuously maintain the supply chain, the distribution network, or power cannot be delivered. To allow the fair allocation of this cost as well as the value of DER, the utility business model must be modiﬁed.
The chief diﬃculty is that the evolution is still ongoing. DER penetration levels are rising at diﬀerent speeds in diﬀerent regions, and the outcomes of trends like customer engagement have yet to be seen. Moreover, use cases for new technologies, such as analytics of advanced measuring devices, are discovered out in the ﬁeld and need to be integrated into future decisions in an iterative way.
Clearly, the power industry is not the ﬁrst to undergo structural changes. The telecommunications industry has been restructured before, yet a truly smart grid integrates more networks and stakeholders than have previous paradigm shifts. This creates a need for extensive cross-industry collaboration, leading to strategic rather than opportunistic deployments. As the smart grid evolves from public relationships to network relations, policy and industry cooperation is more important than ever.
1. High growth expectations for analytics mirror the current grid-edge market situation, evolving from foundational hardware to value recovery orientation. Capitalizing the beneﬁts of early smart grid investments (such as meters) relies on high-usability information tools. With a CAGR of more than 14% in North America, analytics will be the fastest growing market segment between now and 2020. AMI analytics speciﬁ cally will be driven by performance targets for utilities, necessitating more transparency around metrics like power interruptions duration and frequency.
2. The GDP multiplier of smart grid investments has proven favorably high compared to other types of infrastructure investments. However, the long-term impact upon vendors has yet to be proven, as the recent slowdown in the advanced metering infrastructure (AMI) market indicates. Strategic targeting of emerging markets, both domestically and internationally, will be crucial along the way.
3. The goals of power grid modernization have become clearer in the past twelve months. Resiliency has emerged as a stepping stone for long-term reliability. The visibility of power ﬂows in the distribution network is the prerequisite of voltage and power stability at high DER penetration levels. Lastly, energy eﬃciency has emerged as the short-term goal of environmental sustainability.
4. Extreme weather events have shed new light on the beneﬁts of distributed automation (DA) and advanced metering infrastructure (AMI), but the full value recovery from AMI data remains a challenge. DA and AMI are among the most capital-intensive grid edge market segments, but their relative cost compared to power outages is small. Moreover, utilities can capitalize on their beneﬁts without waiting for behavioral changes at large. Not having to send crews to verify service restoration is about as obvious as a beneﬁt can get.
5. The new visibility in the distribution grid will require new approaches to project evaluation. In interviews with GTM Research, vendors highlighted the importance of technology deployment and feedback to make use of the whole variety of beneﬁts of sensing devices, including the data generated by these devices. Sustained growth of markets like AMI analytics will therefore require more vendor-utility education on product functionalities, as well as the business processes to incorporate that feedback.
6. Using standardized modularity to create a plug-and-play environment is one major growth opportunity for the grid-edge market, especially for microgrids, energy storage and solar PV. The current market is characterized by a lack of building-block technologies that oﬀer both standardized interfaces and individual parts that can be combined in a ﬂexible manner. The cost-eﬃciency of storage, microgrids (e.g., standards for microgrid integration and power electronic interfaces), and solar PV mounting structures could be dramatically increased if standardized modularity were to be incorporated into products.
7. Cross-sector companies that leverage the synergies between diﬀerent smart grid markets are growing rapidly. Among the Top 20 Energy companies selected by Inc. each year, there are more cross- sector companies on the 2013 list than in the previous ﬁve years. These ﬁrms conquer niches because they identify synergies, such as those between home energy management and demand response or between solar PV installation and energy auditing.
8. Customer engagement as a future market segment is not as clear-cut as early enthusiastic opinions suggested. Smart thermostats and detailed energy reports suggest very diﬀerent approaches to product design, but to date none of them have triggered the energy personalization trend that could create a similar push as smartphones did for mobile communication. In the end, the extent of customer engagement will depend on the progress of grid automation (e.g., the automation of demand response) relative to the progress of attractive energy-use personalization.
9. The future U.S. energy storage landscape will see more technological variety and more distributed installations. The upcoming years will see more battery, compressed-air energy storage (CAES), and thermal storage projects coming on-line, as well as more distributed storage. In the Department of Energy International Storage Database, projects with a rated power of less than 500 kW constitute a signiﬁcantly larger share in the planned and under-construction project categories than they do in the currently installed project category.
10. Standards for demand response communication help the technology advance from a niche to a mass-market application. OpenADR 1.0 was the ﬁ rst standard for a non-proprietary demand response communication interface; OpenADR 2.0 expands upon the original version’s capabilities. It creates opportunities for the veriﬁ cation of DR signals and DR adoption in new applications. Most importantly, OpenADR 2.0 is designed to connect utilities with commercial or residential control systems, which is a crucial step toward interoperability.
11. Microgrids are evolving from military applications to civilian facilities, but the outcome of this process depends on the proﬁtability of grid autonomy. One driver is the renewed interest in disaster resiliency; another is an enhanced opportunity to optimize the microgrid for speciﬁc end-user needs. Islanding control, however, remains a challenge. As bulk power grid modernization continues, microgrids will ﬁrst need to prove cost-eﬃciency, given that islanding capabilities create the need for advanced controls that increase cost.
12. Electric vehicles face an interesting market window, but grid integration projects remain scarce. In 2013, PHEV sales have increased. At the same time, the average duration of U.S. car ownership has increased in parallel to the improving fuel eﬃciency of new models. The conjunction of these trends could create a major wave of new car purchases, potentially of electric vehicles. As for grid integration, the limited number of EVs equipped with two-way chargers still creates an obstacle; the lack of standards creates another. Like many grid-edge markets, the EV space will need to undergo an evolutionary process of adoption and testing before large-scale grid integration becomes economically favorable.