Bridges to New Solar Business Models: Opportunities to Increase and Capture the Value of Distributed Solar Photovoltaics
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M OUN KY T C A I O N R I N E STIT U T BRIDGES TO NEW SOLAR BUSINESS MODELS: OPPORTUNITIES TO INCREASE AND CAPTURE THE VALUE OF DISTRIBUTED SOLAR PHOTOVOLTAICS 1820 FOLSOM STREET | BOULDER, CO 80302 PUBLISHED NOVEMBER 2014 COPYRIGHT ROCKY MOUNTAIN INSTITUTE DOWNLOAD AT: WWW.RMI.ORG 2 AUTHORS & ACKNOWLEDGMENTS Authors Acknowledgments Mathias Bell, Jon Creyts, Virginia Lacy, and James Sherwood The authors thank their colleagues at Rocky Mountain Institute who contributed valuable insights and perspectives to the work: * Authors listed alphabetically. All authors are from Stephen Abbott Rocky Mountain Institute unless otherwise noted. Albert Chan Editorial Director: Peter Bronski Mark Dyson Editor: Laurie Guevara-Stone Garrett Fitzgerald Art Director: Romy Purshouse Devi Glick Graphic Designer: Chris Rowe Lena Hansen Graeme Hoste Contact Paul Molta Jesse Morris For more information, please contact: James Newcomb Virginia Lacy ([email protected]) Graham Provost Mathias Bell ([email protected]) Samuel Ramirez Owen Smith Acknowledgment: This material is based upon work supported by the Department of Lindsay Willman Energy under Award Number DE-EE0005353. The authors also thank the following individuals for their review of this Disclaimer: This report was prepared as an account of work sponsored by an agency report and offering their insights and perspectives on this work: of the United States Government. Neither the United States Government nor any agency Galen Barbose, Lawrence Berkeley National Laboratory thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any Lori Bird, National Renewable Energy Laboratory information, apparatus, product, or process disclosed, or represents that its use would David Feldman, National Renewable Energy Laboratory not infringe privately owned rights. Reference herein to any specific commercial product, Stephen Frantz, Sacramento Municipal Utility District process, or service by trade name, trademark, manufacturer, or otherwise does not Jon Hawkins, PNM Resources necessarily constitute or imply its endorsement, recommendation, or favoring by the United Alexandra von Meier, California Institute for Energy and Environment States Government or any agency thereof. The views and opinions of authors expressed Christina Nichols, U.S. Department of Energy herein do not necessarily state or reflect those of the United States Government or any Mark Rathbun, Great River Energy agency thereof. Dan Seif, The Butler Firm Mike Taylor, Solar Electric Power Association All images courtesy of Shutterstock. James Tong, Clean Power Finance M OUN KY T C A I O N R | RMI.org I N E STIT U T 3 TABLE OF CONTENTS Executive Summary .................................................................... 04 01: Introduction ................................................................................. 11 02: Maximizing the Value of Distributed PV .......................... 15 Strategies to Optimize Value Continue Driving Down Costs Target Untapped Operational Benefits 03: Emerging Solutions to Capture Value ........................... 28 Building Blocks for Increasing and Capturing Value Building Block A: Increase Access to Distributed PV Building Block B: Optimize Deployment to Capture Operational Benefits Building Block C: Use Technology Bundles to Provide Expanded Energy Services 04: Foundation to Enable Solar Value Optimization and Creation ................................................................................. 49 05: Conclusion .............................................................................. 58 Endnotes ......................................................................................... 60 M OUN KY T C A I O N R | RMI.org BRIDGES TO NEW SOLAR BUSINESS MODELS: I N E STIT U T OPPORTUNITIES TO INCREASE AND CAPTURE THE VALUE OF DISTRIBUTED SOLAR PHOTOVOLTAICS EXECUTIVE SUMMARY ES 5 EXECUTIVE SUMMARY Over the past decade, distributed solar photovoltaics (DPV) have Creating a sustainable long-term DPV market will require aligning experienced unprecedented growth. DPV is now on track to the interests of utilities, solar companies, technology providers, achieve significant scale in many segments of the U.S. market. Yet, and customers. Aligning those interests means enhancing nationally, solar produces 0.2% of electricity generation, leaving legacy solar business models or building new ones by creating much room for further growth. Distributed solar’s continued growth an expanded value pool—one that makes DPV affordable and can and should play an integral role in building the affordable, accessible to far more customers, bridges beyond individual resilient, low-carbon electric grid of the future. For example, the customer-centric DPV value to include value delivered to the grid U.S. Department of Energy’s SunShot Initiative is targeting 14% of and society, and allows the electricity grid’s myriad stakeholders electricity generation from solar by 2030 and 27% by 2050. to share in that value. Supportive federal, state, and local policies have to date spurred This needed shift in the DPV market is in many ways similar DPV’s development in many U.S. markets. However, many to a nascent shift currently under way with thermostats. For of these policies were designed for early market support of decades, thermostats’ value proposition was customer-centric an emerging technology, not as long-term solutions. Thus as focused on the building occupant only, and manufacturers the DPV market has grown, so too has conflict around early- responded with business models and products that met that market policies. In many states, regulators and policy makers need. The more recent advent of smart, connected thermostats are now reexamining the policy environment as solar adoption and the new opportunities they create has greatly expanded the reaches net energy metering (NEM) market caps or incentive potential value pool across the utility meter, such as by enabling program funding is exhausted. Further, at the federal level, the customers to shift the timing of their load relative to system peak. business investment tax credit is set to decline from 30% to 10% But as with DPV today, new solutions, including new business at the end of 2016, and the residential investment tax credit for models, require broad stakeholder alignment to deploy and then homeowners is set to expire. The confluence of these pressures share value among customers, utilities, technology providers, could pose a significant barrier to DPV’s market growth. and other participants. The need has become clear for additional strategies that If done well—necessarily bringing both solar companies and support DPV’s continued growth into the future in line with utilities together around the table—new solar business models SunShot targets. Solar policy frameworks to date have typically can successfully accelerate, optimize, and sustain DPV adoption. focused on customer-centric DPV value accruing primarily to the individual customer and/or third-party solar companies who install DPV systems. Meanwhile, under existing business models, utilities have negatively associated DPV with transaction costs, grid operation challenges, and revenue loss. M OUN KY T C A I O N R | RMI.org BRIDGES TO NEW SOLAR BUSINESS MODELS: I N E STIT U T OPPORTUNITIES TO INCREASE AND CAPTURE THE VALUE OF DISTRIBUTED SOLAR PHOTOVOLTAICS EXECUTIVE SUMMARY 6 Aligning the interests of these stakeholders will involve two operational benefits and costs of integration into the grid—has major threads: been a significant solar market development strategy. Further • Maximize the delivered value of DPV to customers and the cost reductions are possible, especially related to DPV’s soft electricity system by further decreasing costs and increasing costs, but the most significant of them will require involvement benefits (see Figure ES1), and from both solar companies and utilities together to achieve. Similarly, currently untapped operational benefits that occur • Create new business models that enable and incent solar post-interconnection can create additional value streams for companies, utilities, and customers to optimize and capture customers, solar companies, and utilities that evolve from that expanded pool of DPV value through win-win-win maximizing value for individual customers with DPV to optimizing opportunities. value more broadly across such customers and the system as a whole. However, defining, valuing, verifying, and capturing those To date, reducing solar’s upfront capital cost to achieve low- value streams will require cooperation among stakeholders. cost deployment onto the grid—without accounting for the FIGURE 1: FIGURE ES1: OPPORTUNITIES FOR INCREASING SOLAR VALUE OPPORTUNITIES FOR INCREASING NET VALUE TOTAL RESOURCE BENEFITS AND COSTS $/kWh COSTS BENEFITS VALUE TOTAL RESOURCE BENEFITS AND COSTS [$/kWh] Baseline Cost Eect of Cost Baseline Increased Benefits Eect of Baseline Increased Costs Savings Savings Benefits w/Optimized Optimized Value Value Production Production OPPORTUNITY AREAS: OPPORTUNITY AREAS: TARGETING AND CAPTURING • Site identification • Optimize for capacity value: • Customer acquisition THESE OPPORTUNITIES WILL • Increase correlation of production with load • Permitting, inspection, and interconnection PROVIDE REAL VALUE TO • Target locations where the system is constrained • Financing CUSTOMERS AND THE SYSTEM. • Provide additional grid services • Billing