Navigating the transition to a more distributed, decarbonized and digitized energy future will require new partnerships, new business models and a broader array of players.
This is the fundamental point of a new white paper from Guidehouse. A fresh approach is needed to facilitate the necessary responses to climate change and equity issues facing society today — especially in light of the current economic environment due to COVID-19.
Utilities and energy providers that operate in jurisdictions with aggressive renewable and distributed energy resources (DER) integration policies and regulations are likely to be further along the integrated distributed energy resources (iDER) adoption curve. What exactly is iDER? The concept revolves around platforms such as microgrids or virtual power plants that combine diverse and distributed DER assets such as solar photovoltaic, batteries and electric vehicles into aggregated portfolios to create shared value between asset owners and the larger surrounding grid. Without such integration, it is impossible to unmask the sometimes hidden value embedded in these increasingly popular energy choices.
Guidehouse forecasts the amount of new capacity coming online globally from DER assets such as rooftop solar PV, batteries, EVs and creative forms of demand response soon will exceed capacity from traditional and centralized sources such as coal and nuclear plants (see chart below). It’s likely that new digital platforms be necessary to manage these assets.
Centralized vs. DER Annual Capacity Additions, World Markets: 2020-2030
Without adoption of iDER platforms, the grid is likely to become chaotic and reliability may decrease as a result because the DER assets will not be orchestrated in a way that integrates new value propositions across the entire energy stakeholder ecosystem.
Although the journey of each stakeholder may be different depending on stakeholder category, region and regulatory factors, all paths lead to a more dynamic, networked and connected iDER landscape. Asset owners, the larger grid, society and the environment share the need for orchestration of DER assets to maximize economic and environmental value.
In the United States, FERC Order 2222 sets the stage for accelerated iDER adoption because it allows aggregated DER portfolios as small as 100 kilowatts in size to bid grid services into wholesale markets. Similar regulatory reforms are occurring in Europe, Japan and Australia. With the goal of shifting away from the traditional ratepayer model dominated by utilities, more mature iDER utility and new kinds of energy providers are investigating what role they can play in the new energy landscape.
The figure below highlights the diversity of players entering this new "energy cloud" landscape, which includes many non-traditional players such as Google, Amazon and Microsoft, as well as T-Mobile, Ikea and Toyota.
Retail Disruption Led by iDER in the Energy Cloud
Four leading examples
While the journey to realize iDER is a long and winding road, examples of innovation can be found all over the world:
- South Australia: AGL Energy (AGL) is aggregating the battery systems of 1,000 households with rooftop solar PV in Adelaide to create a virtual power plant (VPP) totaling 5 megawatts in capacity. The energy retailer is working with software provider Enbala to optimize DER coordination and maximize the overall benefits across utility customer, wholesale markets (energy and ancillary) and network service value streams. While AGL’s VPP is not the largest in terms of capacity or customer number, it is among the most sophisticated due to the variety of vendor assets involved (three kinds of batteries) and grid services rendered. Almost 25 percent of homes within AGL’s service territory (1.7 million prosumers) feature rooftop solar PV systems, illustrating the scope of potential assets available to include in VPPs in Australia, one of the world’s hotspots when it comes to DER innovation.
- Maryland: Montgomery County set an aggressive goal of an 80 percent reduction in greenhouse gases by 2027 and a 100 percent reduction by 2035, but the county’s public safety headquarters was also aware of the need for greater resilience. Over 250,000 residents and 71 county facilities went without power for multiple days due to a severe storm back in 2012. In the past, the default solution was backup diesel generators, but sole reliance upon such traditional solutions would have jeopardized climate change reduction targets. On top of that, the buildings’ aging infrastructure — some of which dated back half a century — needed to be upgraded. The solution was two microgrids installed in 2017. These microgrids help Montgomery County meet its policy goals to dramatically increase resiliency, efficiency and sustainability without exposing the local government to large capital expenses. The project was funded through an energy as a service arrangement that put the risk of performance on Schneider Electric, which provided electrical infrastructure that otherwise would have cost the county over $4 million. The investor was Duke Energy Renewables.
- New Mexico: A pilot project developed by Emera Technologies (ETL) in partnership with Sandia National Laboratories and Heila Technologies (with the latter providing a distributed microgrid control platform) is a glimpse into what a future sustainable and resilient power system neighborhood could look like. Located at Kirkland Air Force Base in Albuquerque, this direct current (DC) microgrid is designed to be a modular offering to serve new residential subdivisions. With solar and battery capacity in every home and additional resources at a small energy park, all generation and storage in the neighborhood become shared resources available to every customer. The ETL system can island indefinitely without a grid connection thanks to its DC configuration. When grid-connected, it can provide grid services such as channeling excess capacity back to the power grid. ETL’s primary business model entails the installation of all facilities in front of the meter. Thus, the entire system can be owned, operated and maintained by the utility, unlike the vast majority of microgrids deployed today, which are behind-the-meter, rely on alternating current grids and are developed by non-utility third parties. Utilities can retain customers with this unique DC front-of-the-meter utility distribution microgrid while also making progress to meet renewable energy mandates.
- South Korea: Jeju Island is exploring the nexus between smart transportation, smart electricity services and smart grid upgrades with iDER strategies such as microgrids and VPPs. Jeju Island’s plans to rely upon 100 percent carbon-free energy for electricity and transportation by 2030. The island began its iDER journey in 2009 with the deployment and optimization of plug-in EVs (PEVs). The PEV population is forecast to reach 371,000 by 2030, supported by 75,513 charging stations, a substantial potential grid resource. Thanks to iDER platforms, the PEVs and their ability to provide grid support will be managed by recognizing the state of charge of the mobile batteries while optimizing the market-responsive behavior of PEV aggregators. The lessons learned from these tests will help this PEV fleet become an integral part of the project’s strategy to address the variability of wind and solar energy as all fossil fuels are phased out.
Moving forward with a no regrets roadmap
While the devil is always in the details, Guidehouse recommends the following basic precepts to guide your organization’s iDER journey:
- Begin breaking down siloes while aligning culture to support cross-functional collaboration: Sponsor diverse teams focused on innovation across the company to form a coherent vision of the future, followed by a precise yet flexible implementation plan. Establish metrics to measure progress.
- Ready the organization to play both offense and defense: When it comes to iDER, utilities historically focused on a good defense, including protecting the core business. Positioning for long-term success around iDER also requires an offensive strategy designed to maximize revenue and value creation. Utilities should seek creative partnerships and transparent ways of banking value through orchestration, reinvention and renewal.
- Develop multiple planning scenarios: The coronavirus outbreak is a wakeup call. The world is more volatile, connected and interrelated than ever before. Contingency planning and optimizing the grid and business for continuous operations is a premium opportunity to transform a potential catastrophe or crisis into a stimulus for rapid change and transformation. iDER remains a significant opportunity to build resiliency and flexibility into an increasingly fragile infrastructure system.
- Commit to transform consumers into prosumers: IDER rests on the premise that asset ownership is just one path to value creation. With iDER, each consumer has the potential to become a prosumer. iDER is perhaps the ultimate win-win-win strategy, matching up clean energy with resiliency and affordability.
- Prepare to pivot away from asset ownership toward orchestrating distributed networks: The rise of DER capacity is a certainty. While the individual value of these deployments will decline over time, innovative business models will unlock stacked value across diverse iDER networks that will thrive in the new Energy Cloud landscape.
Peter Asmus will be a roundtable host on the topic of bottoms-up approaches to developing microgrids for community facilities partnering with the private sector at VERGE 2020 on Oct. 26.