SESSION 1: EMERGING TRENDS IN ENERGY MARKETS

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1 SESSION 1: EMERGING TRENDS IN ENERGY MARKETS TRENDS IN THE U.S. POWER SECTOR KARIN CORFEE MANAGING DIRECTOR 1 JULY 3, 2016

2 MEGA TRENDS THAT DRIVE POWER INDUSTRY TRANSFORMATION The following megatrends 1 underpin the industry transformation: 1. The power of customer choice and changing demands 2. Rising number of carbon emissions reduction policies and regulations 3. Shifting power-generating sources 4. Delivering shareholder value through mergers and acquisitions (M&A) 5. Regionalizing of energy resources 6. Merging industries, new entrants, and colliding giants 7. The emerging Energy Cloud: Replacement of old infrastructure and transition toward an increasingly decentralized and smarter power grid architecture 1 Take Control of Your Future: Megatrends in the Utilities Industry The transformation includes a wide range of strategic, operational, technological, commercial, environmental, and regulatory changes that are transforming the traditional strategies and business models. 2

3 TIPPING POINTS INDICATORS THAT THE TRANSFORMATION HAS STARTED Power Forward: 215 Fortune 500 companies investing in GHG reductions, sustainability, and renewable energy initiatives DER growing 3 times faster than central station generation between in the US (168 vs 57 GW) In 2016, natural gas, solar, and wind expected to make up 93% of U.S. generation additions Paris Climate Agreement signed by 175 countries limiting global warming to <2 o C by 2100 AEP decommissions 11 coal plants (6,500 MW) and builds renewables (4,000 MW) Value of utility M&A deals quadrupled in (compared to 2012) CAISO saving $18.9M in first quarter of 2016 by using 113 GWH of surplus renewable energy across participants Tesla producing 500,000 cars per year (range > 200 miles, 30-40K) 3

4 POWER INDUSTRY TRANSFORMATION THE ENERGY CLOUD 1 TODAY: TRADITIONAL POWER GRID Central, One-Way Power System EMERGING: THE ENERGY CLOUD Distributed, Two-Way Power Flows 2016 Navigant Consulting, Inc. All rights reserved. (Source: Navigant Consulting) 1 The Energy Cloud: Emerging Opportunities on the Decentralized Grid (white paper) 4

5 ENERGY CLOUD TIPPING POINT Tipping Point Navigant projects that the Energy Cloud s evolution could result in nearly $1 trillion worth of global investment shifting downstream to the retail segment of the value chain. What s more, it could add an additional $1 trillion-$1.5 trillion in new value from investments in digital infrastructure and associated services by

6 STATE & FUTURE OF THE POWER INDUSTRY SURVEY BALANCED VIEWPOINTS ON DER Which will be the most prevalent distributed energy resource in terms of capacity by 2025? Which distributed energy resource will be the most useful to utility operations by 2025? 6

7 STATE & FUTURE OF THE POWER INDUSTRY SURVEY BALANCED VIEWPOINTS ON DER When will the growth of DER force a major shift in the utility business models? What is the most important tipping point for utilities to aggressively pursue owning and operating DER? 7

8 (MW) DER IN THE UNITED STATES WE FORECAST STRONG DER PENETRATION GROWTH OVER THE NEXT DECADE Annual Installed DER Power Capacity Additions by DER Technology, United States: ,000 60,000 50,000 Distributed Generation Distributed Energy Storage Microgrids Electric Vehicle Charging Load Demand Response Energy Efficiency Observation DER deployments will reach 30 GW this year in the US, versus new generation (19.7GW) 40,000 30,000 20,000 10, Drivers Declining System Costs Supporting Policies and Incentives New Business Models Reliability Concerns Product Availability Access to Financing (Source: Navigant Research) 8

9 ENERGY EFFICIENCY THE IMPACT OF DOE RULEMAKING ON LOAD GROWTH WILL BE SIGNIFICANT Since 2000, the DOE has published over 45 appliance standards Energy Efficiency savings from DOE rules issued since quads of energy savings 1 Equivalent to eliminating all U.S. residential energy consumption for 4 years 1 energy savings based on rules issued since 2000 over a period of 30 years after they were issued 9

10 DISTRIBUTED GENERATION RESIDENTIAL AND COMMERCIAL SOLAR PV CONTINUES TO GROW Solar PV Cost (installed) will continue to decline. The 5 year extension of the 30% federal investment tax credit (ITC) will drive continual market growth. Utility and Community scale solar most cost effective, but residential and commercial will continue to grow. 10

11 DISTRIBUTED GENERATION C&I SOLAR PV AT GRID PARITY IN MANY PARTS OF THE U.S. 11

12 DISTRIBUTED GENERATION C&I SOLAR - TOP U.S. COMPANIES The Top 25 U.S. Fortune 1000 companies have installed nearly 500 MW of on-site solar PV; many of the leaders have mature supplier relationships. Top 15 Corporate Solar PV Companies (MW installed) Corporate Solar PV Relationships Sources: SEIA s Solar Means Business, 2014, Navigant 2015 Commercial Company Ikea Costco Fresh & Easy Walmart Walgreens Westfield Mall Kohl s Staples WholeFoods Market Macy s Johnson & Johnson Ford Motor Company Hertz FedEx Solar PV Partner(s) REC Solar, Inovateus Solar REC Solar, PermaCity REC Solar SolarCity SolarCity Solar City, Martifer Solar USA Sun Edison SunEdison Sun Edison Sunpower Sunpower Sunpower Martifer Solar USA BP Solar 12

13 DEMAND RESPONSE TECHNOLOGY IS ENABLING DR RESOURCES TO RESPOND MORE LIKE GENERATION Availability 24/7, year-round availability Dispatchable dozens or hundreds of times per year Speed of Response Spinning reserves (<10 min.) Frequency response/regulation services Performance Ramp-up and down ISO-qualifying precision of delivered MW Real-time visibility from control room Improved customer experience 13

14 DISTRIBUTED STORAGE COMMERCIAL & INDUSTRIAL Business case based around reduction of demand charges and energy cost management Vendors are now offering third party financing. - No money down installation - Shared savings model - Minimal risk or involvement required of customers Leading vendors include: Stem, Green Charge Networks, Coda Energy, Sharp Reduction of Demand Charge Source: Sharp 14

15 (GwH) ELECTRIC VEHICLES ALTHOUGH EARLY, ADOPTION WILL CONTINUE Electric Vehicles are large opportunity for utility load growth Workplace and home charging can be timed to grid requirements (peak load) Investments in charging infrastructure is beneficial for utilities EV adoption rates differs greatly by region and will depend on: Regulations Gasoline prices & battery costs Range & recharge time Charging infrastructure Electric resale rules Consumer preferences 18,000 16,000 14,000 12,000 10,000 8,000 6,000 Road Transportation Electricity Consumption, U.S. : ,000 2, (Source: Navigant Research) (Source: Navigant Research) 15

16 IMPLICATIONS FOR UTILITIES STRATEGY AND BUSINESS MODELS Customer choice and technology drive regulatory changes, new entrants, and business models Rate design must integrate DER to fairly compensate utilities and DER owners/operators for the value they provide More fluid, incentive-oriented frameworks needed to support innovation and modernization and operations investments Incumbent utilities can adapt to DER trends and incorporate into integrated resource planning and operations must do so without disrupting current model (safe, reliable, affordable power) 16

17 IMPLICATIONS FOR UTILITIES DIFFERING PATHS FORWARD Utility Grid Reform (going from maturity level 4 to 5) One example utility, that operates in what could characterized as a Grid Reform state i.e. aggressive renewable and distributed policies, has taken a decidedly Energy Cloud mindset. Anticipating a more networked grid, this utility has begun developing new services integrating EV charging with demand response, offering bring your own device programs to customers, etc. to serve an integrated, plug-and-play electricity system that it believes will enhance the value of individual assets across the network. With the goal of shifting away from the traditional ratepayer model, this utility is taking steps to provide customers maximum flexibility and choice in how they use energy in order to maximize value across the network. To accomplish this, this utility has proactively built collaborative partnerships with technology providers. Utility Business as Usual (going from maturity level 1 to 2) One example utility in a state representative of BAU, stayed the course on investing in traditional generation assets and was reluctant to even pursue AMI investments. However, disappointing load growth and increased federal regulations targeting fossil generation of late, have begun undermining long-standing assumptions, causing management to re-evaluate priorities. This includes surveying DER opportunities and contemplating shifting investments toward distribution automation assets and services. The questions remain whether these efforts will be too little, too late, as their customers increasingly become targets for third-party providers of energy services. 17

18 CONTACT KARIN CORFEE Managing Director Navigant Energy Practice Navigant Research navigant.com 18