NAVIGANT RESEARCH / 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

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1 NAVIGANT RESEARCH OUTLOOK ON GLOBAL STATIONARY ENERGY STORAGE: KEY DRIVERS AND MARKET FORECAST NY-BEST ANNUAL ENERGY STORAGE TECHNICAL CONFERENCE OCTOBER 20, NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

2 OVERVIEW Navigant Overview Energy Cloud Technologies Applying Energy Storage to Solve Problems Project Delivery Chain Energy Storage Software Platform Mixed-Asset Virtual Power Plants Global Drivers by Region Global Advanced Battery Forecast by Segment Key Takeaways 2

3 WHY NAVIGANT? TURNKEY DEPTH WITH UNIQUE PERSPECTIVE Navigant s multidisciplinary approach enables us to assess, position, and monetize the Client s value and competitive position. Strategic Assessment Transaction Execution Post Transaction Solutions Consulting Firms SOLUTION PROVIDERS Investment Banks Consulting Firms Accounting Firms NAVIGANT SERVICES Accounting Firms Market research, competitor studies Strategic review, positioning, and plan development Company core-competencies and SWOT analysis / competitor analysis Performance improvement initiatives review and implementation Development of valuation and debt capacity analyses Cash management and controls / liquidity analysis / cash flow forecasting Buy-side advisory & sell-side advisory Private capital raises and placements Mergers, acquisitions, & divestitures support Valuation services and fairness opinions Real estate transaction services Strategy support and negotiation leadership, including constituency management Fiduciary support and analysis Integration Cost structure reductions and active liquidity management Plan execution Formulation of management retention and incentive programs Our clients can choose from a turnkey set of solutions to solve their problems 3

4 NAVIGANT RESEARCH AREAS OF FOCUS ENERGY TECHNOLOGIES UTILITY TRANSFORMATIONS Wind Energy Grid-Tied Energy Storage Advanced Batteries Microgrids Distributed Natural Gas Distributed Renewables Grid Networking and Communications Grid IT Systems and Analytics Grid T&D Residential Energy Innovations Demand-Side Management Utility Innovations Utility Technology Disruption TRANSPORTATION EFFICIENCIES BUILDING INNOVATIONS Electric Vehicles Advanced Transportation Technologies Mobility Transportation Forecast Intelligent Building Management Systems Energy Efficient Buildings Lighting Innovations Smart Cities 4

5 ENERGY CLOUD IS MADE UP OF A DIVERSE SUITE OF DISTRIBUTED ENERGY RESOURCES (DER) TECHNOLOGIES Emerging energy infrastructure is far more integrated, dynamic, and complex DISTRIBUTED GENERATION (DG) Includes the generation of electricity from many small energy sources, including renewables; typically mass-produced, small, and less site-specific DIGITALIZATION OF THE GRID: ENERGY STORAGE Devices or physical media that store energy to perform useful operation at a later time; balance the supply and demand of energy; improve power quality Smart inverters Smart meters Advanced sensors, controls, and operation systems Behind-the-meter (BTM) technologies and solutions Demand response (DR) MICROGRIDS AND VIRTUAL POWER PLANTS Applications or groupings of distributed energy resources (DER) that operate either connected or independent from a traditional centralized grid BUILDING ENERGY MANAGEMENT SYSTEMS Digital control systems installed in buildings; enables energy efficiency, DR, and automated DR (Source: Navigant Consulting) 5

6 ENERGY STORAGE DRIVERS Industry changes are driving demand for energy storage, while policy, technology, and cost advances are making it a more attractive option. Strong Demand for Energy Storage Increasing Intermittent Renewable Generation Increased Battery Energy Storage Adoption Increased Performance at a Decreased Price Policy Initiatives Increased Customer Expectations and Engagement Installed Global Energy Storage Capacity ( ) Technology Performance Aging Grid Infrastructure Technology Demonstration Utility Transformation from Centralized to Networked Grid Cost Reductions 6

7 ENERGY STORAGE APPLICATIONS AND BENEFITS The grid location, regulatory structure, and ownership approach will determine whether ESS application benefits can be realized. Location Where is asset located? Generation Transmission Distribution Behind the Meter Regulatory Structure What is the regulatory structure? Deregulated market Regulated market Municipal/Co-op, etc. Wholesale/retail rules Owner Who will own the system? T&D Utility Vertically Integrated Utility Non-Utility Merchant/IPP End User 3rd Party Generation T&D Residential C&I In Front of the Meter (FTM) Behind the Meter (BTM) 7 / 2016 NAVIGANT CONSULTING, CONSULTING, INC. ALL RIGHTS INC. RESERVED ALL RIGHTS RESERVED

8 ENERGY STORAGE PROJECT DELIVERY CHAIN Vendors in the project delivery chain are now playing multiples roles Storage Technology Manufacturer Upstream Cells Packs Battery Management System (BMS) Component level modeling, design and testing Warranties / Guarantees Power Conversion Manufacturer Balance of System Power conversion equipment Thermal Management Manufacturer HVAC systems Software & Controls Vendor Software and controls algorithm development System management Controls and optimization Communication Project Developer Lead generation Site control/ acquisition Secure permits Develop proforma financials Structure, negotiate financing (debt, equity) Negotiate offtake agreements / PPA Understand and navigate regulatory requirements Obtain incentives System Integrator and EPC Development & Integration Downstream System Integration Hardware Software Grid interconnection Testing & Commissioning Engineering and Procurement Installation Civil Eng. Mechanical Eng. Electrical Eng Construction Provide construction wrap (performance guarantee) Operator & Maintenance Provider Operation Monitor performance of system Ensure software is working correctly Reporting requirements Maintenance Work to be in compliance with warranties Spare parts inventory Aggregation Develop and operate portfolio Investment Ownership Equity Investor Legally entity responsible for the ESS Financing Provide debt to the project 8

9 OVERVIEW OF ESS SOFTWARE MODULES The lines between energy storage, DER and VPP software platforms will blur Project Analysis System Operation System Optimization Project Analysis Features Operating FTM Grid Storage Applications Integrated Algorithm Approach Analyzing Grid Applications Operating BTM Customer Storage Applications Consideration of External Data (Weather, Markets) Analyzing Customer Applications Operating Battery Storage Technologies Analyzing FTM & BTM Load & Tariff Data Operating DG Systems Interacting with BTM Load & BAS 9

10 THREE CLASSES OF VIRTUAL POWER PLANTS Mixed-asset VPPs enhanced by battery energy storage are poised to spur DER market growth Classes Description Strength Weakness Demand Response (DR) VPP Traditional DR markets Software aggregation Low cost, flexible Uneven markets Policy uncertainty Supply-side VPP Renewable generation Smart grid enabled Software aggregation Large, stable vendors Niche markets (EU) Few projects Mixed-asset VPP Unites DG + DR Resource flexibility Enhanced by storage Large pool of solar assets IT innovation New business models Controls standards Immature ancillary services markets (Source: Navigant Research) 10

11 KEY MESSAGES: NORTH AMERICA Energy storage heavily concentrated in select states and regional power markets Patchwork of regulatory structures and market rules exist between within states. Key drivers for energy storage in North America 1. High Demand Charges: High, volatile electricity prices and demand charges for customers improve the business case for distributed energy storage 2. Innovative Third-Party Ownership Models: includes a wide range of agreements between vendors and their customers allowing for a growing number of customers to benefit from energy storage without significant upfront expenses 3. Progressive State Policies: Aggressive mandates to deploy renewable energy and modernize the grid have made the state a key market globally for utility-scale and distributed storage systems (e.g. California). Market Distributed Li-ion (2021) Utility-scale Li-ion (2021) New Installed Market Size 2,045 MW 1,328 MW (Source: Navigant Research) 11

12 WHAT IS HAPPENING WITH STORAGE IN NORTH AMERICA: UTILITY SCALE VS DISTRIBUTED STORAGE SECTORS California Aliso Canyon Energy Storage Resource Adequacy (ACES RA Only) Emergency energy storage procurement to address electrical reliability risks due to a moratorium on natural gas injections into the Aliso Canyon Natural Gas Storage Facility RFOs for Design, Build, Own & Operate (DBBO) and Design, Build, Transfer (BTO) installations All awards are additional to AB 2514 Mandate Outside of the ACES RA RFO, the AB 2514 mandate and SGIP being expanded now Massachusetts The Massachusetts DOER now has legislation requiring an energy storage procurement goal Roadmap of policy recommendations contemplating a procurement target between 600 to 1,776 MW PJM Frequency Regulation (FR) Dispatch signals and market pricing mechanisms for fast and slow responding merchant FR now being re-evaluated 12 Recent ACES RA Announcements Technology Provider Power Capacity (MW) Energy Capacity (MWh) Convergent Tesla AES Energy Storage Altagas Pomona ES Western Grid Development 5 20 Grand Johanna (Powin) 2 8 Totals (Source: Navigant Research)

13 KEY MESSAGES: EUROPE Energy storage cost effective for many applications in European countries Two markets are emerging 1. Dedicated, single use case: Enhanced Frequency Regulation is a valuable but finite market with good revenue certainty, deployment accelerates price declines for Li-ion. 2. Multi-use case/value stacking: Use cases include grid upgrade deferral, demand response, reduction of retail electricity costs and grid efficiency improvements. Ultimately these are larger markets, but require value stacking, and will grow as financing options mature and Li-ion prices drop thanks to EFR deployments. We expect the European energy storage market to grow significantly Market Distributed Li-ion (2021) Utility-scale Li-ion (2021) New Installed Market Size 1,165 MW 1,214 MW 13

14 WHAT IS HAPPENING WITH STORAGE IN EUROPE: UTILITY VERSUS DISTRIBUTED European Utility-scale ESS Utilities and regulators are driving the growth of large-scale energy storage in Europe Germany is the largest storage market in Europe, with over 354 MW of non-hydro currently installed Italian grid operator Terna deployed 41 MW of BESS since 2013 for grid stability and modernization UK grid operator National Grid awarded contracts for 201 MW of enhanced frequency response These systems will automatically respond to grid signals in < 1 sec to maintain system frequency European Distributed ESS Retail customers driving distributed storage Europe is leading market for distributed storage given high levels of solar PV installations and high retail electricity prices Germany the leading market to date Feed-in-tariff rates for excess solar PV are below retail residential rates, incentivizing customers to store energy onsite German subsidy for residential storage 14 National Grid EFR Tender Contract Awards Developer Capacity (MW) Avg. Tender ( /MW) EDF Energy Renewables Vattenfall Low Carbon Storage Investment Low Carbon Storage Investment E.ON UK Element Power RES Belectric (Source: National Grid)

15 KEY MESSAGES: ASIA PACIFIC Two different types of power markets present different opportunities for energy storage in Asia Pacific 1. Developed/Advanced Grids: Countries such as South Korea, Japan, China, and Australia have sufficiently advanced grids that can utilize advanced storage technologies 2. Intermittent/Developing Grids: Several nations in the region are still developing fundamental infrastructure systems and have limited and/or unreliable power grids The expanding manufacturing capacity, growing sales volumes, and increased technological capabilities of large Li-ion companies will contribute to the dominance of Li-ion batteries within the region in the coming decade. (Source: Navigant Research) Market Distributed Li-ion (2021) Utility-scale Li-ion (2021) New Installed Market Size 2,246 MW 1,836 MW 15

16 WHAT IS HAPPENING WITH STORAGE IN ASIA PACIFIC REGION: UTILITY VERSUS DISTRIBUTED South Korea South Korea has undertaken ambitious grid modernization and smart grid initiatives KEPCO is aiming to deploy 500 MW of battery ESSs to provide frequency regulation by 2017, and has already announced numerous large-scale projects around the country An estimate that three recently announced ESSs totaling 56 MW of capacity can result in an annual savings of $13 million in fuel costs, as well as reduced emissions and improved power quality Japan Japan s retail utility deregulation is expected to establish competitive markets for power generators and electricity retailers, as well as competitive ancillary services markets China Large increase in new variable generation capacity installed globally over the next several years Much of the renewable generation installed to date has not been deployed efficiently Up to 20% of the total wind power generated in the country (33.9B kwh) lost to curtailment in 2015 Energy storage can greatly improve this situation without the need for new transmission infrastructure 16

17 MARKET FORECAST: GLOBAL BATTERY ENERGY STORAGE Global Annual Battery Energy Storage Power Capacity and Revenue by Region, World Markets: (Source: Navigant Research 17

18 KEY TAKEAWAYS RULES + REVENUE + SOFTWARE = FINANCING INNOVATION Battery energy storage has become a grid tool that is being applied to solve problems. Additional work is needed on a local basis to align rules governing power markets to better quantify the value that battery energy storage can provide. The maturation of these rules will enable more predictable revenue flows to project developers and asset owners. More predictable revenue flows will enable new business models and financing asset classes that will drive technology adoption. Software platforms that can analyze, operate and optimize battery energy storage systems across aggregated sites via VPPs will be critical. These developments will enable project developers and owners to recognize bankable multiple revenue streams to capture the full value proposition.. 18

19 WILLIAM TOKASH Senior Research Analyst COLETTE LAMONTAGNE Director ANISSA DEHAMNA Principal Research Analyst