De Martini - EEI Strategic Issues Forum Oct 19, 2013

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Information about De Martini - EEI Strategic Issues Forum Oct 19, 2013
Business & Mgmt

Published on February 5, 2014

Author: pjdemar



Presentation on the evolution of distributed energy resources in the US and the related business and policy considerations.

Distributed Energy Resources EEI Strategic Issues Paul De Martini 10.09.13

DER will reach 30% of Installed US Capacity by 2020 Effectively all incremental growth in capacity will come from customers 30% 2

Solar PV Reaching Tipping Point Across US “Over the next 20 years, distributed solar (and distributed natural gas fired gen) will do to grid power what cell phones have done to fixed line telephony over the past 20 years.” David Crane, CEO NRG May, 2013 Unsubsidized Solar PV (1no margins) Tipping Point SCE Avg Rate 16¢/kWh Cost of CA Solar w/o subsidies McKinsey & Co., 2012 Solar PV system installed in US every 7 minutes in 2012 Source: SEIA/GTM Research 3 3

CHP growth in US  The Shale Gas phenomenon is driving CHP growth in US  DOE & CHP Association extended their goals of 92 GW of CHP installations by 2010 to now target 241 GW by 2030 CHP Remaining Technical Potential by State (MW) White House targets 122 GWs of CHP by 2020 CHP Technical Potential = < 1,000 MW = 3,000 – 8,000 MW = 1,000 – 3,000 MW = > 8,000 MW Source: Oak Ridge National Laboratories (ORNL), Dec 2008 Source: Oak Ridge National Laboratories (ORNL), Dec 2008 4 4

Distributed Energy Storage Lithium-Ion Battery Pack Cost,  S. Korea, Japan, Germany & US have committed nearly $7 billion combined to energy storage R&D  Second generation technologies are emerging and research is continuing to be fruitful Total pack Cost ($/kWh) Annual production (MWh) Total size of batteries manufactured per year (MWh) Total cost of pack ($/kWh) Source: Bloomberg New Energy Finance  Japan, Germany and California are pursuing policies to encourage distributed storage adoption  Solar City – Tesla 19 kWh Home Battery Storage solution in trials 5 5

Backup Generation  Carnegie Mellon’s Electricity Industry Center reports that there are about 12 million backup generators in the United States with over 200 GW of generating capacity (growing at ~5 GW per year)  US Market leader Generac reported 36% annual sales growth in 2011 and 48% growth in 2012  Buckeye Power Sales, an Ohio distributor, reported growth of 48% in 2011, 110% in 2012 and 50% over the same period in 2012 during Q1 2013 6

Traditional Operation Controllable generation flowing power to deterministic aggregate load Grid like a water system – larger wires cascading to smaller wire at the customer 7 7

Virtual Power Plant: 2007-2020 Advanced Automation: Multi-direction and variability of DER power flows drive circuit design changes, new grid components and control systems 8 8

Operational Evolution: 1978-2001 Transactive: 2020+ Creation of local balancing & distributed markets to integrate customer DER 9 9

Customer – Grid Evolution Business opportunities exist on both sides of the evolution curve that require technology based platforms for success 10 10

Telecom Lesson: BAU is not a good strategy Market growth in mobile, ecommerce and related services 11

Electric Industry Competitive Landscape Electric Landscape - 1998 Electric Landscape - 2013 Non-Energy SPs NUGs Solar PV ADT Marketers Integrated ESPs ESCOs REPs REPs Utilities CSPs ESCOs Source: Newport Consulting 12

Example Customer Energy Budget Allocation Significant potential risk to loss of share of customer energy budget plus no participation in enhanced reliability and home energy automation Customer Monthly Energy Budget Yesterday - $75.00 EE Spending 9% Customer Monthly Energy Budget Today - $200.00 Home Automation 5% EE Spending 7% Grid Energy 4% T&D 15% Grid Energy 36% T&D 55% Solar PV 23% Back-up Generation 46% 13 13

Utility Economics Are Changing Economies of Scope Economies of Scale Network Economics 14

Business Strategies Sustainable competitive advantages are key to future success  Customer relationship is very valuable – strong position with customer is essential to compete for customers’ total energy and related spend Differentiated Energy Solutions  Distribution is becoming the hub in a future hybrid electric network – distribution grid is a natural position for enabling and participating in incremental value related to physical bi-directional energy flows DER Market Facilitator “The new clean energy business is not separate and distinct from conventional gridbased power system. The best companies will build the new and clean on the foundation of the old and reliable.” David Crane, 2012 Deutsche Bank Conference 15 15

Strategic Questions  Business Models? • Regulated vs Unregulated • Services models: • Highly differentiated services • Limited alternative services • Revenue models: • Cost of Service vs PBR vs Price caps vs other • Risk/Reward appetite: • Revenue/profit share with customers • Shareholder investment in new regulated services  Future Regulation Models? • “Ban It” – regulated utilities don’t get to play • “Regulate It” – utilities can offer expanded services under heavy traditional cost of service regulation • “Fixed Pie” – zero sum game” – business as usual – no need for change • “Competition Grows Pie” – competitive markets only - let utility holding companies compete on unregulated side with new entrants – best will survive/thrive • “Pricing Flexibility” – allow utilities the flexibility under price caps and related flexibility to offer differentiated services to customers 16

Take Action  Understand the changing market landscape – distributed energy resource technologies, competitive offers and customer expectations  Identify preferred business opportunities and related models  Focus on enabling & differentiating technology platforms     Define alternative regulatory models Evaluate alternatives under potential market scenarios Validate models through prototyping (pilots & partnerships) Define a development and implementation roadmap 17

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