UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
) Electric Storage Participation in ) Regions with Organized Wholesale ) Docket No. AD16-20-000 Electric Markets ) )
COMMENTS OF ADVANCED ENERGY ECONOMY On behalf of itself and its members, Advanced Energy Economy (“AEE”) submits these comments regarding the applicability of Regional Transmission Organization (“RTO”) and
Independent System Operator (“ISO”) market rules to electric storage resources.
I. Overview
AEE is a national organization of businesses making the energy we use secure, clean, and affordable. Thanks to technological advances and innovation, we now have more options for meeting energy needs than ever before in history. We call these options “advanced energy.”
The advanced energy market grew 29 percent in just the last five years, and is now at $200 billion in revenue, outpacing the pharmaceutical market and approaching the consumer electronics market.1
AEE strongly supports the Federal Energy Regulatory Commission’s (“FERC” or the
“Commission”) efforts in this proceeding to identify barriers facing energy storage’s participation in the RTO/ISO markets, and urges the Commission and the RTOs/ISOs to move expeditiously to remedy such barriers. Energy storage is a prime example of the wide variety of advanced energy technologies that face barriers to participation in the organized wholesale markets. While remedying barriers faced by energy storage may incidentally remove some
1 See Attachment A, Advanced Energy Economy, Advanced Energy Now: 2016 Market Report 1 (2016).
1 obstacles faced by other advanced energy technologies, other barriers will likely remain. For this reason, AEE asks that the Commission initiate a separate, broader inquiry encompassing a wider range of advanced energy technologies to ensure that these barriers are comprehensively addressed.
In these comments, AEE outlines the barriers that its members, including energy storage and other advanced energy resources, have experienced in the wholesale markets. Given time constraints in this proceeding, AEE focuses primarily on barriers in the PJM Interconnection,
L.L.C. (“PJM”) markets. This is not to suggest, however, that the barriers in PJM are unique or more numerous than those in other organized wholesale markets.
AEE has identified three characteristics of tariff, market rules, and product definitions that act as barriers to participation of advanced energy technologies in wholesale markets.
Tariffs, market rules, and product definitions can impair the participation of advanced energy technologies in the markets when they:
1) Assume—and effectively require—that all grid resources resemble (and have similar risk
profiles to) traditional generation resources, and favor procurement of resources that have
characteristics similar to traditional thermal generation.
2) Impose restrictions intended for traditional generation on advanced energy technologies
without taking their unique characteristics into account, or limit the eligibility of these
resources based on what they are, rather than what they can do.
3) Restrict resources classified as “behind-the-meter” to participating in the markets as
“demand response,” creating an artificial barrier to behind-the-meter technologies that are
not, or not solely, load reduction measures.
2
AEE and its members intend to engage with the Commission and industry to forge constructive solutions to these issues and others that inhibit the ability of advanced energy technologies to participate in the RTO/ISO markets.
II. Introduction
AEE and its state and regional partner organizations, which are active in 26 states across the country, represent more than 1,000 companies and organizations that span the advanced energy industry and its value chains. Technologies represented include energy efficiency, demand response, natural gas, solar photovoltaics, solar thermal electric, ground-source heat pumps, wind, storage, biofuels, electric vehicles, advanced metering infrastructure, transmission and distribution efficiency, fuel cells, nuclear power, combined heat and power, and enabling software. Used together, these technologies and services will create and maintain a higher- performing energy system—one that is reliable and resilient, diverse, cost-effective, and clean— while also improving the availability and quality of customer-facing services. AEE promotes the interests of its members by engaging in policy advocacy at the federal, state, and regulatory levels, by convening groups of CEOs to identify and address cross-industry issues, and by conducting targeted outreach to key stakeholder groups and policymakers.
Advanced energy technologies are diverse, and new innovations are constantly emerging.
The advanced energy market is now one of the biggest in the United States and the world, and it continues to grow rapidly.2 Many of AEE’s members offer energy storage products and services.
Some are large consumers of energy that are working to break down barriers that inhibit them from using advanced energy technologies to meet their energy needs. Other members design, manufacture, and deploy advanced energy technologies that, like energy storage, have unique
2 Id.
3 operational attributes, and face similar barriers to accessing the organized wholesale markets.
Interconnecting these technologies with the grid can provide multiple benefits, including additional operational flexibility and resiliency.
Some of the technologies and products offered by AEE’s members share the following attributes that, if not accounted for, can inhibit participation in wholesale markets under current rules:
Distributed Renewable or alternative fuels3 Low or zero-emissions Can be located either behind or in front of the customer meter Not dependent on “just in time” fuel delivery Instantaneous or rapid start/ramp Networked/Remote operated Modular Facilitated by information technology advancements
A number of these attributes will be needed to integrate variable resources and provide additional needed resiliency to respond to system emergencies.4 But often these technologies cannot provide their full range of benefits to the RTO/ISO markets because existing market rules do not properly value their contributions. This concern drives our comments.
Over the past twenty years, organized wholesale electricity markets have played a critical role in fostering technological innovation on both the supply and the demand side, lowering barriers to market access, and improving transparency in market operation. AEE applauds the
Commission and the industry for these accomplishments. Yet, as the Chairman and
Commissioners noted during the April 2016 Commission Open Meeting, the grid has changed
3 Alternative fuels include unconventional and efficient, but not necessarily renewable, options such as fuel cells. 4 The Chairman and Commissioners, when discussing this inquiry at their April 21, 2016 Open Meeting, all noted that additional system flexibility will be needed in the future. FERC, Transcript of April 21, 2016 Commission Meeting at 13:24-18:18 (2016), http://www.ferc.gov/CalendarFiles/20160509131051-transcript.pdf.
4 considerably since the birth of RTOs/ISOs two decades ago.5 The Commission’s rules and regulations, and the RTO/ISO tariffs and market rules, must keep pace with these changes to capture the operational benefits and flexibility provided by advanced energy technologies.
In these comments, AEE highlights certain overarching issues that tend to serve as barriers to participation in the organized wholesale markets for both energy storage and a broader suite of advanced energy technologies that share similar operational attributes. As explained in more detail below, barriers to entry for these technologies are often less obvious than those the
Commission has addressed in the past. Rather than explicitly excluding certain technologies from the market, tariffs, market rules, and product definitions in many cases create unreasonable financial or operational risk for advanced energy technologies. Specifically, tariffs, market rules, and product definitions have the potential to create such risks when they:
1) Assume—and effectively require—that all grid resources resemble (and have similar risk
profiles to) traditional generation resources, and favor procurement of resources that have
characteristics similar to traditional thermal generation.
2) Impose restrictions intended for traditional generation on advanced energy technologies
without taking their unique characteristics into account, or limit the eligibility of these
resources based on what they are, rather than what they can do.
3) Restrict resources classified as “behind-the-meter” to participating in the markets as
“demand response,” creating an artificial barrier to behind-the-meter technologies that are
not, or not solely, load reduction measures.
Through these comments, AEE members seek to share with the Commission their experiences with barriers to participation in the RTO/ISO markets. These experiences are
5 Id.
5 representative of both energy storage and other advanced energy technologies. Because of the short time to comment in this proceeding, the comments that follow focus on barriers to participation of advanced energy technologies identified by AEE members in the PJM markets.
This is not to suggest, however, that PJM is unique, or poses more barriers than the other organized wholesale markets. AEE appreciates PJM’s current efforts to address some of these barriers in its stakeholder process.6 Even so, additional work needs to be done in PJM and the other RTOs/ISOs.
III. Barriers to Participation Are Often the Result of Rules That Do Not Account for the Unique Characteristics of Advanced Energy Technologies
The Commission has taken significant steps to address barriers to participation faced by new and emerging advanced energy technologies in organized wholesale markets, including its efforts in recent years with regard to demand response (“DR”) and energy storage.7 Those efforts have borne fruit in the form of increased access for DR and energy storage to RTO/ISO markets, but—as the Commission recognized in launching this inquiry with regard to energy storage—barriers remain for advanced and innovative resources.
6 PJM Data Request Response at 3, 24-25. 7 Frequency Regulation Compensation in the Organized Wholesale Power Markets, Order No. 755, FERC Stats. & Regs. ¶ 31,324 (2011), reh’g denied, Order No. 755-A, 138 FERC ¶ 61,123 (2012); Demand Response Compensation in Organized Wholesale Energy Markets, Order No. 745, FERC Stats. & Regs. ¶ 31,322, order on reh'g and clarification, Order No. 745-A, 137 FERC ¶ 61,215 (2011), reh'g denied, Order No. 745-B, 138 FERC ¶ 61,148 (2012), vacated sub nom. Elec. Power Supply Ass’n v. FERC, 753 F.3d 216 (D.C. Cir. 2014), rev’d & remanded sub nom. FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760 (2016); Wholesale Competition in Regions with Organized Elec. Markets, Order No. 719, FERC Stats. & Regs. ¶ 31,281 (2008), order on reh’g, Order No. 719-A, FERC Stats. & Regs. ¶ 31,292 (2009), order on reh’g, Order No. 719-B, 129 FERC ¶ 61,252 (2009).
6
Such barriers to participation by advanced energy technologies can be found in tariffs, market rules, product definitions, business manuals, and other RTO/ISO practices (such as interconnection and transmission and capacity planning). In many cases, such barriers to entry for advanced energy technologies are a side-effect of rules established for conventional generation resources, and often predate the entry of the affected technology into the market. In other cases, market rules were drafted with storage and other alternative technologies in mind, but did not envision how these technologies would mature and become capable of providing a wider range of services.
A. Market rules of general application can result in barriers for advanced energy technologies
Tariff provisions and market rules developed with the intent of applying generally to all resources can end up posing unnecessary barriers to the ability of advanced energy technologies to participate in wholesale markets. AEE’s members have witnessed an increasing trend towards market rules, constructs, and product definitions that assume, and effectively require, that all grid resources resemble (and have similar risk profiles to) traditional generation resources.
Shoehorning all resources into this “generation bucket” fails to account for the unique attributes and characteristics of advanced energy technologies and the unique benefits they can provide.
Even where these market rules and definitions do not explicitly exclude advanced energy resources, the financial uncertainty and risk created by these barriers can prevent an advanced energy technology project from obtaining financing and moving forward.
One example of this trend—discussed in more detail in Section IV below—is the recently adopted definition of Capacity Performance in PJM, which does not delineate the number of hours a resource can/should be available, but instead penalizes resources for not being available on short notice for indefinite lengths of time. This excludes most energy storage resources and
7 similar short-duration resources from the capacity market, because they may be unable to operate for the entirety of a performance event, even though these resources are reliable and can provide significant value for the period during which they are operating.
Similarly, some AEE members have encountered issues with must-offer requirements and other market power-related tariff provisions and rules, including Minimum Offer Price Rules
(“MOPR”).8 These rules are appropriately intended to limit market power, but were drafted with thermal generation resources, and their ability to exert market power, in mind. As a result, such rules can result in Catch-22 situations for advanced energy technologies. For example, a battery array that discharges when dispatched by the RTO/ISO (or while providing service to its host) should not be penalized for not offering service into the market while it is recharging. Similarly, advanced distributed energy technologies like fuel cells, given their relative small size and deployment for specific grid needs, should not be subject to a MOPR simply because they use natural gas as part of their process.9
Further, RTO/ISO operational rules and policies need to be more sophisticated to capture the significant value that advanced energy technologies can provide. Take RTO/ISO dispatch policies, as one example. RTOs/ISOs sometimes simultaneously call on-line all of the resources of a certain type, such as DR, located in a particular zone or sub-zone.10 Although this approach was reasonable for traditional DR resources that could not be individually dispatched, it is not efficient to use this method of dispatch for DR with advanced controls, or for other advanced energy technology resources that are fully dispatchable. This kind of mass dispatch restricts
8 PJM Tariff, Attachment DD § 6.6 (offer requirement for capacity resources); id. § 5.14(h) (MOPR). 9 One AEE member reports that PJM indicated the MOPR would apply to its fuel cell project because it used natural gas as a feedstock, forcing it to participate in the time-consuming unit-specific review process. 10 See, e.g., PJM Interconnection, L.L.C., 155 FERC ¶ 61,157, at P 119 (2016) (summarizing the PJM market monitor’s description of PJM’s dispatch procedures for DR).
8 much of the potential for these resources, and can impose unfair eligibility requirements. It is particularly problematic for energy storage resources, as they need to be dispatched in accordance with their charging cycles.
Moreover, as discussed in more detail in Section V below, PJM’s policy of categorizing behind-the-meter resources as DR similarly restricts the ability of such resources to provide a broad range of wholesale services. This categorization subjects such resources to rules and limitations that may not recognize the unique characteristics they have that differ from resources that operate by reducing customer demand. For example, even PJM’s Limited Demand
Resource product requires a minimum run-time of six hours.11 Most energy storage resources cannot meet this duration requirement, but, unlike many Limited Demand Resource products that operate by reducing customer demand, energy storage resources can be directly dispatched where needed and are suitable for targeted operational roles.
Dispatch policies that take full advantage of the characteristics of advanced energy technologies can benefit the market both financially and operationally, and can be implemented today. For example, ISO New England, Inc. (“ISO-NE”) states that it has developed a practice of using batteries to provide regulation service in a way that takes advantage of their charging cycles.12 Similarly, ISO-NE explains that it has adopted policies that allow for the dispatch of energy storage resources for non-economic reasons, if such dispatch is requested by a transmission owner.13 Although these policies are not perfect solutions, they represent the kind
11 PJM Reliability Assurance Agreement § 1.43A. Another example is Southwest Power Pool’s (“SPP”) requirement that a resource must be able to supply energy for 60 minutes, a restriction that is not logical with regard to regulation, which by definition is designed to deal with short-term imbalances. SPP Data Request Response, Att. No. 1, Qualification Criteria and Performance Requirements at 2. 12 ISO-NE Data Request Response at 8-9. 13 Id. at 27.
9 of sophisticated approach that RTOs/ISOs should pursue in revising their market rules to accommodate advanced energy technologies.
B. Tariffs and market rules should define products and services based on needed physical and technical characteristics
Market rules and product definitions can also effectively exclude advanced energy technologies when they determine eligibility to provide a given service based on what a resource is rather than what it can do.14 These kinds of barriers can be the result of rules that expressly require that a service can only be provided by a specified type of resource, or they can arise when definitions and rules fail to specify the technical attributes required by the system for that service. When rules do not describe exactly what technical attributes are required to provide a service, the eligibility of a resource to participate in the market may be left to the discretion of the RTO/ISO, which may choose to exclude novel technologies. Such barriers can be reduced or even eliminated by market rules and product definitions based on the technical, physical and electrical characteristics that the grid needs to maintain reliability and efficiency.
In addition, striving to establish market rules and product definitions grounded in the technical characteristics needed by the grid can reduce unnecessary variation in requirements between markets. For example, many of the RTO/ISOs have different minimum size and run time requirements for providing services such as frequency regulation, energy, and capacity, but it is unclear why those technical requirements would vary from one market to the next.15 For companies that want to design and manufacture advanced energy technologies, these divergent requirements pose a real challenge. To maximize their financial viability, they may seek to do
14 See, e.g., PJM Data Request Response at 7 (stating that energy storage resources cannot participate in PJM’s Reliability Pricing Model). The Midcontinent Independent System Operator, Inc.’s (“MISO”) market rules specifically exclude Stored Energy Resources from capacity accreditation. MISO Data Request Response at 7-9. 15 See, e.g., PJM Data Request Response at 10; MISO Data Request Response at 10-12; CAISO Data Request Response at 10-13; ISO-NE Data Request Response at 13-14; SPP Data Request Response, Att. No.1, Qualification Criteria and Performance Requirements at 1-3.
10 business in more than one RTO/ISO market. But, to do business in multiple markets, they must spend significantly more money to meet the requirements of each market, even when those requirements have little technical justification.
Many of these pitfalls could potentially be mitigated if advanced energy technologies are given more of a voice in the development of RTO/ISO rules. At present, advanced technologies are often shut out of the RTO/ISO stakeholder process until they enter the market; this poses problems for technologies that face barriers to entering the market in the first instance.
In this inquiry, and in future inquiries, the RTOs/ISOs and the Commission should consider that rigid rules and categorizations (or overly vague ones) in RTO/ISO tariffs and markets may hamper the creation of a more flexible marketplace focused on the technical characteristics needed to provide a given wholesale service and improve efficiency and reliability. Similarly, the Commission and RTO/ISOs should consider how rules designed for thermal generation, such as the MOPR and must-offer rules, can create barriers for advanced energy technologies that are not their intended targets. Energy storage, and other advanced energy technologies, can add operational value and flexibility. But to provide that value, they need a platform that recognizes their diversity and continuous innovation, and does not confine innovative technologies in rigidly defined categories or subject them to rules designed with traditional technologies in mind that prevent their full benefits from reaching the market.
IV. Recent Capacity and Energy Market Changes to Encourage Better Performance, While Well-Intentioned, are Discouraging and Excluding Advanced Energy Technologies with Significant Operational Value
As noted above, AEE members have noted an increasing trend in the markets to define products and services such that all resources must “look like” a traditional thermal generator.
This trend has been driven by concerns about resource performance, particularly during extreme
11 weather events. The Commission has strongly supported the efforts of PJM and other organized wholesale energy markets to address resource performance through changes in their capacity and energy markets. For example, the Commission approved PJM’s proposed “Capacity
Performance” market design, a new capacity market construct that features the potential for significant financial rewards—or significant financial penalties—based on performance during critical hours on the system.16 In the Capacity Performance proceeding and prior proceedings concerning DR,17 the Commission also approved changes proposed by PJM to the eligibility and performance requirements applied to DR resources participating in the capacity market.18 These changes include reduced notification times and requirements that resources operate for indefinite periods of time.
These changes are well-intentioned, and appropriately focus on ensuring that resources perform when they are most needed. However, a side-effect of these rules has been to singularly favor procurement of a homogenous set of resources that have characteristics similar to thermal generation. As a result, advanced energy technologies are often effectively excluded from the capacity market, not because they fail to perform, but because the performance they deliver is different from that offered by thermal generation. Such an approach trends away from a model that procures a variety of resources that can provide a given service at varying levels in a least cost manner, in favor of procuring a fleet of uniform resources that all provide the same level of service at potentially significant additional costs.
For example, as noted above, the lack of a defined duration for the performance obligation for a Capacity Performance resource creates uncertainty for energy storage and other
16 PJM Interconnection, L.L.C., 151 FERC ¶ 61,208, order on reh’g, 152 FERC ¶ 61,064 (2015). 17 Id.; see also, e.g., Docket Nos. ER14-504 and ER13-2108. 18 PJM, 151 FERC ¶ 61,208.
12 distributed energy resources that can provide significant capacity value, including during system emergencies, but may not be available for performance events lasting for more than a few hours.
Unavailability during those hours subjects the resources to large penalties, perhaps more than their yearly revenue from the capacity market.19 Traditional thermal generation technologies may be able to account for and manage their performance risk (at a cost) as PJM and FERC presumed in developing and approving the Capacity Performance construct,20 but advanced energy technologies with wholly different characteristics may be unable to effectively evaluate and manage such risks. The financial and operational risk that results often effectively excludes these advanced energy technologies from competing to provide the Capacity Performance product (which will soon be the only product procured in PJM’s capacity market). Penalties cannot incent extended performance from a resource incapable of providing extended performance; the risk of such penalties can only serve to exclude the resource from the market.
For example, a battery storage project cannot simply “firm up” its fuel arrangements; once it is discharged, it must take the time to recharge.
PJM recognizes the Capacity Performance rules as a barrier to the participation of energy storage, but views the problem as a “limitation” of storage technology.21 This view leaves out the fact that energy storage and other advanced technologies, while run-time limited, nevertheless have significant operational and reliability benefits to offer the grid that may be
19 Id. at P 110 (“PJM states that, if a capacity resource’s actual performance falls short of its expected performance, this shortfall will be subject to a Non-Performance Charge.”). 20 See, e.g., id. at P 466 (“An integral component of the two-settlement capacity market design is an expectation that capacity suppliers will include in their capacity offers the additional performance risk imposed on them by a more stringent performance standard. In fact, it is this expectation, and the likely higher clearing price for the Capacity Performance product that will result, that will help incent investments in maintenance, dual or firm fuel, or weatherization to improve capacity resource performance, particularly during summer and winter peak periods. If capacity resources price their performance risk into their capacity offers and obtain a capacity commitment, they will, in fact, be assured of compensation commensurate with the performance risk that they assume.”). 21 PJM Data Request Response at 2.
13 superior to traditional thermal generation. For example, many advanced energy technologies, like battery storage, are “instant on,” and because of their distributed nature, can immediately provide support to specified areas of the grid in a reliability emergency. These resources do not need to run for an unlimited duration to provide valuable services; their ability to respond quickly for short duration runs are valuable because they “buy time” for other resources to secure a fuel supply or come on-line, or allow those resources to preserve fuel for later use should an emergency, such as a cold snap or heat wave, continue. PJM’s current approach effectively defines these kinds of capacity benefits out of the Capacity Performance product, discouraging investment in these resources and denying the system access to their capabilities. This not only deprives the capacity market of their benefits, but in some cases may prevent their deployment in the energy and ancillary services markets as well.
Combining technologies—for example, combining a solar project with energy storage, aggregating resources, etc.—is also not a “cure all” solution for managing these risks.22 For example, PJM’s colocation rules minimize the extent to which complimentary resources can join forces.23 But technology now exists, and is provided by AEE’s members, to facilitate the dispatch and aggregation of dispersed resources, even those connected to the distribution system or located behind-the-meter. Free-standing advanced energy technologies can also provide real value that should be compensated in the market, even if they cannot provide that service 24/7.
22 Id. at 20-21. 23 PJM Tariff, Att. DD § 5.6.1(h) (“[F]or the 2018/2019 Delivery Year and subsequent Delivery Years, a Capacity Market Seller that owns or controls one or more Capacity Storage Resources, Intermittent Resources, Demand Resources, Energy Efficiency Resources, or Environmentally-Limited Resources located within the same modeled Locational Deliverability Area may submit a Sell Offer which represents the aggregated Unforced Capacity value of such resources.”) (emphasis added). See also PJM Interconnection, L.L.C., 155 FERC ¶ 61,157, at P 47 (2016) (“[T]he Commission declined to require PJM to allow eligible resources in different Locational Deliverability Areas to submit aggregated offers, finding that this proposal, which was raised by PJM and other parties in their comments, was not adequately supported.”).
14
To be sure, the ability to operate for long durations during stressed system conditions
(such as a severe cold weather event) is a valuable attribute that should be appropriately compensated. However, designing a market that pays only for this attribute excludes other resources with other valuable attributes that can cost-effectively contribute to a reliable system.
To address this problem, PJM (and other markets) may need to adopt market rules that allow for resources with different durational capabilities, start-up notifications, or other unique characteristics to be paid differently to reflect the different kinds of reliability value they provide.
It may be reasonable to provide less compensation to a resource capable of providing service only in two-hour blocks than to a resource capable of providing output for weeks on end.
However, adopting a “one size fits all” set of qualifications for capacity resources that effectively excludes advanced energy technologies from the capacity market will ultimately result in higher costs to consumers, deprive the system of the benefits these technologies can provide, and stifle innovation in the industry.
In addressing barriers arising from market rules like the recent Capacity Performance reforms, the Commission and the RTOs/ISOs should ensure that their capacity product and other products, and the requirements associated with providing them, are defined in a way that captures the valuable attributes of a variety of resources. Defining these products and underlying performance requirements more precisely, with an eye towards the range of technical characteristics and attributes needed to ensure efficient and reliable operations, would help address barriers faced by energy storage and other advanced technologies.
15
V. Absent Legitimate Technical Needs, Behind-the-Meter Advanced Energy Technologies Should Be Allowed to Fully Participate in Organized Wholesale Markets
Many valuable advanced energy technologies, including combinations of technologies, are most often installed behind the customer meter. For example, buildings may have rooftop solar installations combined with storage and/or active building management systems that can provide capacity and ancillary services to the wholesale grid, but are located behind-the-meter.
In addition, distributed technologies like fuel cells may be located behind-the-meter to address a specific customer need, but can also be dispatched to provide wholesale services at other times.
In PJM, resources interconnected behind-the-meter are able to participate in wholesale markets, but only under its “demand response” categorization.24 In other words, PJM’s rules label behind-the-meter resources as DR, regardless of what kind of resource they actually are or their technical capabilities. This creates an artificial barrier to participation in wholesale markets by advanced energy technologies located behind-the-meter that are not (or not solely) load reduction measures, since “demand response” is only eligible to participate in certain of PJM’s markets.
AEE members operating these kinds of technologies have reported being excluded from certain RTO/ISO markets as a result of this artificial classification. For example, a combined rooftop solar and storage installation was informed by PJM that it was ineligible to provide frequency regulation because of its location behind the customer meter. PJM’s determination was not based on any conclusion that the technologies in question were not technically capable of providing frequency regulation, but instead was purely based on the categorization of its location as behind-the-meter. PJM’s interpretation of the eligibility of behind-the-meter
24 PJM Data Request Response at 3-5.
16 resources to participate in its markets has had ripple effects. Several projects that received grants under programs in Maryland and New Jersey to install energy storage or distributed generation resources could not move forward after it was determined they could not participate in the frequency regulation market because they would be located behind-the-meter.
PJM states in its Response that a resource operating behind a customer’s meter must go through the interconnection queue if it wants to inject power “past the meter” into the PJM grid.25 Not only must the resource incur the time and expense to go through the interconnection queue, but it may also need to construct a costly new interconnection, adding costs to the developer while providing no additional operational or reliability benefit.26 As noted above, when resources do not establish this costly additional interconnection, they are forced to participate as DR,27 which inherently limits the products they can provide in the wholesale market. PJM does not identify this requirement as a barrier, and does not identify technical or reliability needs that require this approach. Rather, PJM explains that this approach is simply a regulatory requirement, stating that it is required by Order No. 2003. Order No. 2003, however, applies only to large generators of 20 MW or greater,28 whereas most behind-the-meter installations of advanced energy technologies are significantly less than 20 MW. AEE is unaware of any FERC order that mandates this approach, including Order No. 2006, which applies to small generation facilities. Several other ISOs, including the New York Independent
25 Id. at 5. 26 PJM Tariff § 36.1A.1 (“Any Behind The Meter Generation that desires to be designated, in whole or in part, as a Capacity Resource or Energy Resource must submit a Generation Interconnection Request.”); see also PJM Manual 14A § 1.11 (Behind the Meter Generation) (same); id. § 4.2.4 (listing “Specific Process Flow and Timeline” for interconnection and noting possible required “Attachment Facilities, Local Upgrades and Network Upgrades . . . to complete construction of the facilities and upgrades”). 27 See supra note 24. 28 PJM Data Request Response at 5, 19-20. Confining resources behind-the-meter to a DR role is not unique to PJM. Members participating in other markets, such as that operated by the California Independent System Operator Corp., have reported similar restrictions.
17
System Operator, Inc. (“NYISO”), do not appear to categorically prohibit the injection of electricity into the grid from behind-the-meter in this manner.29
PJM states in its Response that it is conducting stakeholder processes regarding distributed energy resources in PJM, focusing on interconnection to the transmission system and participation in PJM markets, the ability to provide seasonal capacity products, and other issues.
AEE fully supports these efforts and urges that they continue.
The eligibility requirements for behind-the-meter resources to participate in the wholesale market should, just like product definitions, focus on the technical requirements and physical attributes necessary to provide the service needed by the grid. Focusing solely on where a resource is located could exclude valuable technologies from the market and stifle innovation.
To avoid jurisdictional disputes or uncertainty, the Commission should coordinate with the states to ensure that artificial jurisdictional barriers are not erected that prevent these advanced energy technologies from participating in the organized wholesale markets.
VI. Conclusion
AEE thanks the Commission for the opportunity to submit these comments. To address the barriers noted here, AEE asks that the Commission ensure that market rules, practices, and product definitions address the technical characteristics and attributes the system needs to function reliably and efficiently. As explained above, focusing on these characteristics and attributes will guarantee that explicit as well as effective barriers to participation by new and emerging advanced energy technologies are reduced.
29 In fact, the Commission recently approved a NYISO proposal that will provide a foundation for increased participation by behind-the-meter resources in the wholesale capacity and energy markets. See N.Y. Indep. Sys. Operator, Inc., 155 FERC ¶ 61,166 (2016).
18
AEE strongly supports the Commission’s efforts in this proceeding to address energy storage issues, and believes that addressing the barriers facing energy storage can aid other advanced energy technologies that are negatively impacted by the same barriers. However, given that issues affecting other advanced energy technologies are beyond the scope of this proceeding, AEE asks that the Commission also begin a separate inquiry into barriers to participation faced by the broader set of advanced energy technologies.
Respectfully submitted, /s/ Suedeen G. Kelly Suedeen G. Kelly J. Porter Wiseman Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Avenue, N.W. Washington, D.C. 20036 Tel: (202) 887-4000 Fax: (202) 887-4288 [email protected] [email protected]
Dated: June 6, 2016 Attorneys for Advanced Energy Economy
19
CERTIFICATE OF SERVICE
I hereby certify that I have this day served the foregoing document upon each person designated on the official service list compiled by the Secretary of the Commission in this proceeding.
Dated at Washington, D.C. this 6th day of June, 2016.
/s/ J. Porter Wiseman Akin Gump Strauss Hauer & Feld LLP
20
Attachment A ADVANCED ENERGY ECONOMY the business voice of advanced energy
ADVANCED ENERGY NOW 2016 MARKET REPORT Global and U.S. Markets by Revenue 2011-2015 and Key Trends in Advanced Energy Growth
Prepared by Navigant Research
Marchwww.aee.net 2016 @aeenet Washington DC San Francisco Boston ADVANCED ENERGY ECONOMY the business voice of advanced energy
About Advanced Energy Economy
Advanced Energy Economy (AEE) is a national association of businesses and business leaders who are making the global energy system more secure, clean and affordable. Advanced energy encompasses a broad range of products and services that constitute the best available technologies for meeting energy needs today and tomorrow. AEE’s mission is to transform public policy to enable rapid growth of advanced energy businesses. AEE and its State Partner organizations are active in 26 states across the country, representing roughly 1,000 companies and organizations in the advanced energy industry. Visit Advanced Energy Economy online at: www.aee.net.
About Navigant Research
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Advanced Energy Now 2016 Market Report Copyright 2016 Advanced Energy Economy
This publication was prepared by Navigant Research (“Navigant”) for Advanced Energy Economy (“AEE”) on terms specifically limiting the liability of Navigant. The publication has been provided for informational purposes only and does not constitute consulting services or legal advice. Navigant’s conclusions are the results of the exercise of Navigant’s reasonable professional judgment, based in part upon materials provided by AEE and others. Navigant makes no claim to any government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication), and makes no express or implied warranty, guaranty, or representation concerning the information contained in this publication, its merchantability, or its fitness for a particular purpose of function. Any reference to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply an endorsement, recommendation, or favoring by Navigant. Navigant makes no representations or warranties, expressed or implied, does not assume, and hereby disclaims, any liability that may result from any reliance on or use of any information contained in this publication, or for any loss or damage caused by errors or omissions in this publication.
www.aee.net @aeenet Washington DC San Francisco Boston ADVANCED ENERGY ECONOMY the business voice of advanced energy
TABLE OF CONTENTS Highlights (p. 1) Forward (p. 3) Introduction and Methodology (p. 4) Overview and Summary Findings (p. 7) Transportation (p. 13) • Lower Cost Li-Ion Batteries Boost Electric Vehicles (p. 15)
• Clean Diesel – or VW at least – Faces Identity Challenge (p. 17)
• Natural Gas Vehicles Slow Down due to Low Oil Prices (p. 18) Fuel Delivery (p. 20) • Hydrogen Infrastructure Needed for Fuel Cell Vehicle Growth (p. 21)
• As Vehicle Sales Lag, Natural Gas Vehicle Infrastructure Sags (p. 23) Fuel Production (p. 25) • Biofuels Continue to Confront the Blend Wall (p. 26)
• Renewable Natural Gas: a Fuel of the Future? (p. 28) Electricity Generation (p. 30) • Solar PV Poised for Long-Term Growth (p. 33)
• China Drives Nuclear at Home and Abroad( p. 34)
• U.S. Wind Build-Out Continues; Will Offshore Follow? (p. 35) Industry (p. 38) • CHP Holds Appeal for Commercial and Institutional Buildings (p. 39)
• IEMS Deliver – and Expand – Worldwide (p. 40) Building Efficiency(p. 43) • From Energy Management to Connected, Comfortable Buildings (p. 45)
• Integrated Data Center Management is the Next Frontier (p. 47)
• Internet of Things Comes to Life at Home (p. 49) Electricity Delivery and Management (p. 52) • UAVs and Robotics Offer Utilities Improved Safety and Cost-Effectiveness (p. 53)
• New Era of Demand Response (p. 55)
• Renewables, Grid Services Drive Energy Storage Growth (p.55)
www.aee.net @aeenet Washington DC San Francisco Boston ADVANCED ENERGY ECONOMY the business voice of advanced energy
ADVANCED ENERGY MARKETS ARE BIGGER THAN EVER
Advanced energy is a $1.4 trillion global industry, as big as fashion, twice the size of airlines, and nearly equal to worldwide spending on media. If global advanced energy were a country, it would be equal to Mexico in GDP. GlobalGlobal Revenue Revenue by Industry,by Industry, 2015 2015
$1,600 B
$1,351 B
$1,200 B
$710 B
Airlines Fashion Advanced Energy Media
The U.S. advanced energy market is $200 billion, nearly double the revenue from beer sales, more than pharmaceutical manufacturing, and approaching wholesale consumer electronics. If U.S. advanced energy were a state, it would be nearly equal to Oregon in economic activity.
U.S. RevenueU.S. Revenue by Industry,by Industry, 2015 2015
$223 B
$200 B $190 B
$102 B
Beer Pharmaceutical Advanced Consumer Manufacturing Energy Electronics
www.aee.net @aeenet Washington DC San Francisco Boston Over the past five years, advanced energy in the United States has grown 29%. Growth U.S. Building Efficiency* over last year was 1%, dampened by the effect of 60 $52.8 B low oil prices on ethanol revenue data. Without $47.7 B $43.6 B Ethanol, U.S. advanced energy revenue grew 10% $39.2 B over last year, four times faster than U.S. GDP. $35.5 B
Advanced Energy Economy’s Advanced Energy Now 2016 Market Report contains five years of revenue, starting with 2011. Highlights from the U.S. market include: 0 2011 2012 2013 2014 2015 • Building Efficiency is the largest advanced *Revenue shown only for product categories with energy market segment, with $63.6 billion *Revenue shown onlyrevenue for product data categories for all with years revenue 2011-2015. data for all years 2011-2015. in revenue and 50% growth over 2011, counting only products for which we have all U.S. Energy Storage five years of data. $734 M • Solar continues to be a dynamic growth story 800 in the U.S. Even as costs have declined by nearly 50%, revenue from Solar PV reached $22.6 billion, up 21% over last year and nearly triple 2011 revenue.
• Wind showed strong growth for the second
year in a row, continuing to climb back from $58 M a low point in 2013 to reach $14.4 billion in 2015, up 75% over last year. 0 2014 2015
• At $743 million, revenue from Energy Storage U.S. Plug-in Electric Vehicles grew 12 times over 2014. This game-changing technology can provide grid support services, U.S. Plug-in Electric Vehicles
meet peak demand needs, and store variable $4,935 M $4,798 M renewable energy generation until it’s needed. U.S Total Hybrid • Ethanol revenue declined by a third over last $3,571 M year. The price of ethanol in the United States tends to follow the price of gasoline. Historically low oil prices brought Ethanol revenue from
$40.9 billion in 2014 to $27.3 billion in 2015. $1,623 M
• Revenue from Plug-in Electric Vehicles in 2015 $707 M grew seven times over 2011. At nearly $5 billion, revenue from PEVs in 2015 was nearly half that of hybrids, a more established class of advanced vehicle. 2011 2012 2013 2014 2015
Prepared by Navigant Research, Advanced Energy Now 2016 Market Report is the fourth annual report of market size, by revenue, of the advanced energy industry, worldwide and in the United States. As defined by Advanced Energy Economy (AEE), a national business association, advanced energy is a broad range of technologies, products, and services that constitute the best available technologies for meeting energy needs today and tomorrow.
Download the Advanced Energy Now 2016 Market Report at info.aee.net/reports ADVANCED ENERGY ECONOMY the business voice of advanced energy
FOREWORD
Advanced Energy Economy (AEE) is the pragmatic voice of business leaders who are working every day to make the energy we use secure, clean, and affordable. AEE also represents a dynamic industry consisting of corporations with global impact, growth companies, and start-ups. All these companies are delivering energy technologies, products, and services across our country and around the world.
Advanced Energy Now 2016 Market Report is our fourth annual report on the size, growth, and trends in the advanced energy market, globally and in the United States. It traces the growth of our industry since publication of Economic Impacts of Advanced Energy in 2013. Beginning with that report, Navigant Research has been tracking global and U.S. revenue for AEE, with 2011 as the baseline. Five years in, it is clear that advanced energy’s trajectory is up – way up!
This year’s edition shows global growth of 8% from 2014 to 2015, three times the rate of the world economy overall. U.S. advanced energy grew 1%, only because the total was dampened by a big decline in revenue from ethanol. Without counting ethanol, U.S. revenue was up 10% last year – four times the rate of U.S. GDP.
In 2015, advanced energy represented a $1.4 trillion global market and a U.S. market of $200 billion.
Worldwide, the advanced energy market was nearly twice the size of the airline industry, bigger than fashion and apparel, and close to global spending on media, from newspapers to movies to video games. In the United States, advanced energy was nearly twice the size of the beer market by revenue, bigger than pharmaceutical manufacturing, and nearly as big as the wholesale market for consumer electronics.
If the global advanced energy industry were a country, it would be equal in GDP to Mexico. If U.S. advanced energy were a state, it would be almost equal to Oregon in economic activity.
What’s more, advanced energy is a thriving industry made up of a wide variety of businesses delivering all sorts of products to utilities, businesses, and consumers. For more detail on 52 specific advanced energy technologies and products – what they are, how they have been deployed, and the benefits they provide – see AEE’s new catalogue, This Is Advanced Energy.
We are seeing a transformation in the way we make, manage, and use energy in this country and around the world. AEE, its member companies, and our partner organizations around the country are working to make the most of this transformation, for the benefit of consumers, the economy, and the nation.
Graham Richard CEO, Advanced Energy Economy
www.aee.net @aeenet Washington DC San Francisco Boston ADVANCED ENERGY ENERGY SUPPLY ECONOMY Electricity Delivery the business voice of advanced energy Electricity Generation & Management
• Hydropower • Transmission INTRODUCTION & • Gas Turbines • Distribution • Solar • AMI METHODOLOGY • Wind • Micro-grids • Geothermal • EV Charging The Advanced Energy Now 2016 Market Report • Marine Infrastructure is the fourth annual report of market size, by • Waste • Energy Storage revenue, of the advanced energy industry, • Biomass • Enabling IT worldwide and in the United States. • Nuclear • Fuel Cells and Other DG As defined by Advanced Energy Economy (AEE), a national association of business leaders with the goal of making the energy we use secure, Fuel Production Fuel Delivery clean, and affordable, advanced energy is a broad range of technologies, products, and services • Ethanol & Butanol • Fuel that constitute the best available technologies • Biodiesel Transportation for meeting energy needs today and tomorrow. • Biogas Infrastructure Defined in this way, advanced energy is not static • Synthetic Diesel & • Fueling Stations but dynamic, as innovation and competition Gasoline produce better energy technologies, products, • Bio-oil and services over time. Today, electric and plug- • CNG & LNG in hybrid cars, natural gas-fueled trucks, high- • Hydrogen performance buildings, energy-saving industrial processes, high capacity wind turbines, on-site ENERGY DEMAND and utility-scale solar power, and nuclear power Building Efficiency Transportation plants are all examples of advanced energy, as they diversify energy sources, reduce health and • Building Design • Propulsion environmental costs to communities, and use • Building Envelope Systems energy resources more productively. • HVAC • Vehicle Design & • District Energy, CHP, Materials Advanced energy represents an opportunity for CCHP • Freight Logistics U.S. companies and workers not only to serve • Water Heating • Land Use & the domestic market but to export goods and • Lighting Infrastructure services into the global energy markets. • Appliances & Electronics Design • Enabling IT/Demand • Enabling IT Advanced energy consists of seven broad Response industry segments and 41 subsegments, each of which contains multiple product categories. The segments and subsegments of advanced energy Industry are enumerated in the figure right. • Manufacturing Machinery & Process Equipment • Industrial Combined Heat & Power
Download the Advanced Energy Now 2016 Market Report at info.aee.net/reports www.aee.net @aeenet Washington DC San Francisco Boston Sizing Advanced Energy Markets
The first attempt to quantify the size of the global and U.S. advanced energy markets wasEconomic Impacts of Advanced Energy, prepared by Pike Research (now Navigant Research) and published in January 2013. Economic Impacts of Advanced Energy presented revenue data across the 41 subsegments of advanced energy for 2011, and estimates for 2012. Beginning with Advanced Energy Now 2014 Market Report, Navigant Research has continued to track global and U.S. advanced energy revenue annually. Advanced Energy Now 2016 Market Report contains final annual revenue from 2011 to 2014 and estimated revenue for 2015 to provide both a snapshot of market size at the present time and growth trends over the past five years.
Advanced Energy Now 2016 Market Report draws on more than 60 previously published Navigant Research studies on specific industry categories for the most comprehensive assessment of advanced energy markets to date. However, the results presented in Advanced Energy Now 2016 Market Report must be viewed as a conservative assessment of advanced energy market size. Though this is the most comprehensive study yet performed, it is not exhaustive, due to limitations in available data, and it is purposely conservative in methodology:
• Identified subsegments or product categories that have not been independently studied by Navigant Research are not included, leading the size of some segments to be significantly understated.
• The market revenue for most subsegments is based on the total installed cost of the technology. However, some subsegments only measure vendor revenue from equipment sales excluding revenue from installation and other services, and other subsegments exclude revenue from multiyear projects still in development.
• The focus of the market data is primarily on new investments, capital improvements, and the sale of products and services – not, for example, the sale of electricity generated by installed technologies in the Electricity Generation segment. Sales of advanced fuels such as ethanol and biodiesel, however, are included in the Fuel Production segment.
• In some product categories, such as Hydropower, Nuclear, and Gas Turbines, projects can take between two and 10 years to complete, making tracking of annual capital investment difficult. For this analysis, the full total installed plant cost was assigned to the year in which orders were placed for the main components (e.g., turbines, reactor, generator equipment).
• Operations and maintenance revenue is not included, nor is refurbishment revenue, which can be substantial for certain subsegments.
• U.S. market revenue counts only domestic sales of advanced energy products and services and does not include revenue from exports, understating the economic scope of the U.S. advanced energy industry.
It should also be noted that Navigant Research has utilized strict definitions within product categories, in order to distinguish advanced energy from conventional energy products. For instance, in the Building Efficiency segment, not all Heating, Ventilation, and Cooling (HVAC) installations are counted, only HVAC installations associated with energy-specific commercial retrofits, new HVAC systems that exceed local code compliance, ground-source heat pumps, and systems deployed in high-efficiency homes. The parameters for advanced water heating are even more restrictive: This category includes only residential water heating as specifically used in high-efficiency homes. For more detailed information on individual subsegments and product categories, see Economic Impacts of Advanced Energy. Also, for a more complete picture of 52 individual technologies and products, in terms of description, current deployment, and economic and system benefits in the United States, see AEE’s new catalogue, This Is Advanced Energy.
5 It is the goal of the annual Advanced Energy Now market reports to include new data as they become available, in order to better characterize the true scope of advanced energy markets. Thus some editions have quantified product categories that were not included in Economic Impacts of Advanced Energy or in prior editions of the market report. In cases where that has occurred, revenue from the new categories has been included in data tables for the years those data are available. For that reason, care must be taken in comparing results from different years.
In Advanced Energy Now 2016 Market Report, growth rates between 2011 and 2015 are calculated (and depicted in accompanying graphs) using only those product categories for which market data are available for all years. No new products or categories have been added in the 2016 edition, so 2014 and 2015 estimated revenue are directly comparable for all segments and subsegments.
6 ADVANCED ENERGY ECONOMY the business voice of advanced energy
OVERVIEW AND SUMMARY FINDINGS
For 2015, the advanced energy market totaled nearly $1.4 trillion in estimated global revenue, up 8% over 2014 and 17% higher than 2011, counting only products for which we have five years of revenue data. The global market for advanced energy in 2015 was twice as big by revenue as the airline industry,1 bigger than the global fashion industry,2 and approaching worldwide spending on media and entertainment.3 (Figure 1.1) From 2014 to 2015, advanced energy revenue grew at more than three times the rate of the world economy overall.4
Global RevenueGlobal Revenue by Industry,by Industry, 2015 2015
$1,600 B
$1,351 B
$1,200 B
$710 B
Airlines Fashion Advanced Energy Media
Figure 1.1 (Source: Navigant Research)
Five of the seven advanced energy segments saw growth over 2014, with only Fuel Delivery (down 64% to $983 million) and Fuel Production (down 18% to $121.6 billion) showing declines. (Table 1.1) For the second year in a row, Electricity Generation remained the largest advanced energy segment with $441.3 billion in revenue (up 9% over 2014), led by growth in Solar, Wind, and Hydropower, followed by Transportation with $413.3 billion (up 13%), led by Clean Diesel Vehicles. The largest year-on-year growth was in Electricity Delivery and Management, growing 19% to $94.4 billion, led by Transmission investments.
1. http://www.iata.org/pressroom/pr/Pages/2015-12-10-01.aspx 2. https://maloney.house.gov/sites/maloney.house.gov/files/documents/The%20Economic%20Impact%20of%20the%20Fashion%20Industry%20--%20 JEC%20report%20FINAL.pdf 3. https://www.mckinsey.com/~/media/McKinsey/dotcom/client_service/Media%20and%20Entertainment/PDFs/McKinsey%20Global%20Report%202015_ UK_October_2015.ashx 4. www.worldbank.org/en/publication/global-economic-prospects
www.aee.net @aeenet Washington DC San Francisco Boston Global Revenue by Segment (millions)
2015 Segment 2011 2012 2013 2014 (estimate)
Transportation $325,914 $315,865 $343,577 $365,095 $413,345
Transport and Non-transport $110,667 $138,644 $141,855 $148,062 $121,596 Fuel Production
Fuel Delivery $2,207 $1,926 $2,606 $2,718 $983
Buildings $117,981 $133,710 $147,100 $207,746 $236,260
Industry $30,576 $33,325 $38,495 $40,828 $43,403
Electricity Generation $461,729 $408,674 $333,882 $404,428 $441,285
Electricity Delivery and $35,410 $65,403 $51,151 $79,527 $94,354 Management
Global Total $1,084,484 $1,097,547 $1,058,666 $1,248,403 $1,351,227
Table 1.1 (Source: Navigant Research)
In the United States, the advanced energy market reached $199.9 billion in 2015, an increase of 1% over 2014, and up 29% since 2011. The U.S. advanced energy market in 2015 was nearly double the U.S. beer market,5 larger than pharmaceutical manufacturing,6 and close to the wholesale market for consumer electronics.7 (Figure 1.2)
U.S. Revenue by Industry 2015 Growth in the U.S. advanced energy market overall was impacted by persistently low oil prices in 2015. Ethanol pricing is highly correlated with oil prices. So, while production increased slightly, $223 B from 14.3 to 14.7 billion gallons as the federal $190 B $200 B Renewable Fuel Standard was fulfilled, ethanol revenue dropped 33%, from $40.9 billion to $27.3 billion. $102 B Without counting ethanol, the U.S. advanced energy market grew 10% in 2015, or four times Beer Pharmacuetical Advanced Consumer the growth of U.S. GDP. 8 Manufacturing Energy Electronics
Figure 1.2 (Source: Navigant Research) Four of the seven U.S. advanced energy segments experienced growth over 2014. (Table 1.2) Accounting for more than 30% of total U.S.
5. https://www.brewersassociation.org/statistics/national-beer-sales-production-data/ 6. http://www.firstresearch.com/Industry-Research/Pharmaceutical-Manufacturing.html 7. http://www.cta.tech/News/News-Releases/Press-Releases/2015-Press-Releases/New-Tech-to-Drive-CE-Industry-Growth-in-2015,-Proj.aspx 8. http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
8 advanced energy revenue in 2015, Building Efficiency led all segments for the second year in a row, reaching $63.6 billion, up nearly 11% over 2014. Electricity Generation was the second largest advanced energy segment, at $52.3 billion in 2015, and also experienced the second largest year-on-year growth, at 18%, led by Solar, Wind, and Natural Gas Turbines. Following the global trend, Electricity Delivery and Management experienced the largest year-on-year growth, 24%, reaching $18.2 billion in 2015, similarly led by Transmission investments. Reductions were seen in Fuel Delivery (down 31%), Transportation (down 9%, primarily driven by lower sales of Hybrid Vehicles, which were, like ethanol, affected by low gasoline prices), and Fuel Production (down 28%, primarily due to lower prices for ethanol).
U.S. Revenue by Segment (millions)
2015 Segment 2011 2012 2013 2014 (estimate)
Transportation $11,709 $18,045 $25,106 $24,848 $22,546
Transport and Non-transport $43,164 $47,337 $48,390 $49,048 $35,384 Fuel Production
Fuel Delivery $227 $378 $252 $283 $195
Buildings $35,271 $39,229 $43,604 $57,386 $63,550
Industry $4,202 $5,452 $6,733 $7,186 $7,703
Electricity Generation $38,813 $43,943 $30,404 $44,537 $52,343
Electricity Delivery and $8,055 $14,144 $10,599 $14,636 $18,165 Management U.S. Advanced Energy Growth by Segment U.S. Total $141,441 $168,528 $165,088(% change, 2011 $197,923 - 2015) $199,886
Table 1.2 (Source: Navigant Research)
Five-Year Trends – Global Global Growth by Segment, 2011-15* 120% Over the past five years, five of the seven 100% advanced energy market segments have seen 80% growth worldwide, counting only products for 60% Transportation which we have five years of revenue. Growth has 40% Fuel Production been led by Electricity Delivery and Management 20% Fuel Delivery (111%), Building Efficiency (60%), Industry (42%), 0% and Transportation (24%). (Figure 1.3) -20%
-40% Building Industry Electricity Electricity Efficiency
-60% Generation Delivery and Management Within individual segments, significant growth in -80% Transmission (334%), Electric Vehicle Charging Infrastructure (303%), Energy Storage (1,706%), Figure 1.3 (Source: Navigant Research) - *Revenue shown only for and Enabling Information and Communication product categories with revenue data for all years 2011 - 2015 Technology (40%) led the Electricity Delivery and Management segment over the five years of
9 tracking. Following the global financial crisis, China, the United States, and countries in Europe and elsewhere invested in transmission and smart grid infrastructure with stimulus funding. These regions have also led the deployment of large-scale generating assets, including the massive deployment of renewables since then, requiring significant investment in smart-grid transmission upgrades, high voltage transmission systems, and submarine transmission systems. As a result, electricity delivery and management investments have begun to build out the grid that will be required to accommodate electricity consumption and production in the 21st century.
Building Efficiency has seen modest but steady annual growth worldwide, becoming a force over the five- year period. Substantial growth has occurred in Building Envelope (100% growth), Appliances and Electronic Equipment (542%), Demand Response and Enabling Information Technology (70%), and Lighting (66%). As the nexus for multiple industries, Navigant Research expects Building Efficiency to continue to be one of the leading sectors of growth, as companies build out the next wave of clean, comfortable, connected buildings.
The 6% market decline in Electricity Generation between 2011 and 2015 is explained by two important trends. First, 2011 was dominated by massive hydroelectric projects in China. Though rebounding from a low of $84.3 billion in 2013, Hydro revenue in 2015 was still $40 billion below the 2011 level of $185.3 – a gap that, by itself, more than accounts for the $20 billion decline in Electricity Generation overall. Second, solar PV has seen a doubling of annual deployment since 2015, but also almost a halving of price – meaning that revenue numbers, while impressive enough (22% growth from 2011 to 2015), understate the remarkable growth of the worldwide solar industry. Wind (54%), Geothermal (155%), and Fuel Cells and Other Distributed Generation (61%) saw increases globally between 2011 and 2015, while declines were marked in Biomass (82%), Nuclear (56%), and Gas Turbines (16%).
With coverage limited to Natural Gas Vehicle Fueling Stations, Commercial Natural Gas Vehicle Fueling Stations (for trucks and other large vehicles), and Hydrogen Fueling Stations, Fuel Delivery is the smallest segment by revenue, and especially subject to annual fluctuations, largely tied to oil prices. In 2011, when oil prices hovered around $100 per barrel, Natural Gas Fueling Stations looked promising – and Fueling Station revenue hit a peak. However, with a 70% drop in oil prices since mid-2014 (to mid-$30 per barrel in early 2016), natural gas fueling stations have become far less attractive, and took an especially sharp fall last year. Additionally, China, as the leading market for natural gas fueling stations, has seen an economic slowdown, further explaining the 55% decline in revenue since 2011. U.S. Advanced Energy Growth by Segment (% change, 2011 - 2015) Five-Years Trends – U.S. Growth by Segment, 2011-15* United States 100% 80% In the United States, five of the seven advanced 60% energy market segments have seen growth over the past five years, led by Transportation 40% (91%), Industry (83%), Electricity Delivery and 20% Fuel Delivery Management (72%), Buildings (50%), and 0% Fuel Production Electricity Generation (29%), counting only -20% products for which we have five years of revenue. Building Industry Electricity Electricity -40% Efficiency (Figure 1.4) Generation Delivery and Management Transportation
Building Efficiency, the largest segment of the Figure 1.4 (Source: Navigant Research) - *Revenue shown only for product categories with revenue data for all years 2011 - 2015 U.S. advanced energy market, saw 50% growth *Revenue shown only for product categories with revenue data for all years 2011 - 2015 over the past five years, with steady increases
10 across all subsegments. Notably, Appliances and Electronic Equipment saw 350% growth, followed by Building Envelope and Demand Response & Enabling Information Technology, each at 61%. Lighting grew 54% over the five-year period, counting only categories for which we have five years of revenue.
Electricity Generation, the second largest U.S. segment, also experienced strong five-year growth, at 29%. Solar stood out for market growth, with Solar PV nearly tripling, from $8.2 billion to $22.6 billion – all the more remarkable given the decline in solar prices during this period. Revenue from Natural Gas Turbines grew 160% over this period, with a particularly big jump in 2014, followed by 14% growth last year. Growth in Wind of 11% masks a rollercoaster over the five-year period, with revenue as high as $25.5 billion (2012) and as low as $2.1 billion (2013). But 2015 was strong (up 75% year-over-year to $14.5 billion) and the long-term extension and phase out of the federal Production Tax Credit should provide the type of policy certainty that facilitates growth over the coming years.
Showing the biggest percentage growth, the U.S. Transportation segment is made up of a variety of advanced vehicles, as defined by their propulsion systems. (Figure 1.5) All experienced significant growth over the 2011- 15 time period. The largest category, Hybrid Electric Vehicles (HEVs), declined 19% in both 2014 and 2015, from $15 billion to $9.9 billion, as gasoline prices fell, but the category still achieved five-year growth of 38%. Plug-in Electric Vehicles (PEVs) had the fastest growth over the past five years (598%), though starting from a smaller base. Sales U.S.of PEVs haveAdvanced been less affected Vehicle by low gasoline Market prices, as customersGrowth choose (2011 these vehicles - 2015) not for incremental improvements in gas mileage, but as “statement” cars that are a true break from gasoline-powered car ownership.
U.S. Advanced Vehicle Market Growth, 2011-15
700%
600%
500%
400%
300%
200%
100%
0
Plug-in Hybrid Natural Gas Clean Natural Gas Fuel Electric (light duty) Diesel (medium & Cell heavy duty)
Figure 1.5 (Source: Navigant Research) - *Revenue shown only for product categories with revenue data for all years 2011 - 2015
By 2015, PEVs accounted for $4.9 billion, or half as much revenue as the far more-established hybrid vehicle class, and a third of total Electric Vehicle (EV) sales. Though not as dominant in the United States as they are in
*Revenue shown only for product categories with revenue data for all years 2011 - 2015
11 Europe, Clean Diesel Vehicles made steady progress, reaching $6.1 billion in revenue in 2014, before declining 2% last year. Clean Diesel Vehicle revenue rose 83% over the five-year time period, but prospects for these vehicles in the United States remain uncertain in the wake of the Volkswagen emissions-cheating scandal. Also growing robustly over the 2011-15 period were heavy-duty Natural Gas Trucks and Buses (510%), and light-duty Natural Gas Vehicles (100%).
The Industry segment experienced the second largest growth between 2011 and 2015, at 83%. Within that segment, Industrial Energy Management Systems (IEMS) and Industrial Combined Heat and Power (CHP) experienced growth each and every year since 2011. Industrial CHP Systems grew from $1 billion in 2011 to $3.4 billion in 2015 (232% growth), while IEMS grew from $3.2 billion to $4.3 billion (36%) in the five- year period.
Electricity Delivery and Management also experienced strong five-year growth, increasing from $8.1 billion in 2011 to $13.9 billion in 2015 (up 72%). Following the global trend, leading subsegments for growth included Energy Storage (807%), Transmission (560%), and Electric Vehicle Charging Infrastructure (510%).
Due primarily to low oil prices, which drove down ethanol prices and hindered the takeoff of advanced biofuels, Fuel Production reached a five year low in 2015, with $35.4 billion in revenue, down 18% since 2011. For the upcoming years, EPA is proposing a slight increase in the Renewable Fuel Standard. Most of the growth is expected to come from advanced biofuels, which are set to increase 35% in 2016, while conventional biofuels (grain-based ethanol) are expected to grow only 6% in the same period. Similar to the global trend, Fuel Delivery, the smallest segment, declined 14% over the five-year period.
12 ADVANCED ENERGY ECONOMY the business voice of advanced energy
TRANSPORTATION
Transportation was the second largest advanced energy segment worldwide in 2015, with $413.3 billion in revenue, an increase of 13% over 2014, and up nearly 24% since 2011 when counting only products for which we have all five years of data. (Table 2.1) The Clean Diesel Vehicles product category, with revenue of $288.1 billion, up 18% over 2014, continues to lead growth among advanced vehicles. Sales of Clean Diesel Vehicles dropped 2% in the United States, to $6 billion, as the impact of the Volkswagen (VW) emission scandal had not yet reached the global marketplace.
Global Transportation Revenue by Segment (millions)
2015 Transportation 2011 2012 2013 2014 (estimate)
Propulsion System $325,914 $315,865 $343,517 $365,068 $413,305
Freight Logistics $0 $0 $0 $0 $0
Land-Use and Infrastructure NA NA $0 $0 $0 Design
Enabling Information NA NA $60 $28 $41 Technology
Transportation Subtotal $325,914 $315,865 $343,577 $365,095 $413,345
Table 2.1 (Source: Navigant Research)
HEVs took more of a hit in the market in 2015. Hybrids remained the second largest product category, with $58.8 billion in revenue in 2015. But the global market for these higher fuel efficiency vehicles declined 12% from 2014 – likely the effect of low gasoline prices and greater competition from PEVs. Low prices at the pump did not have the same effect on PEVs, which capped five consecutive years of strong growth, jumping 58% in 2015 to reach $19.5 billion globally in 2015 – more than 10 times the 2011 market. In the United States, revenue from PEVs rose 3% in 2015, to $4.9 billion, but that total was seven times 2011 revenue of $707 million. (Figure 2.1) Consumers have a growing variety of EV options that are declining in price as battery costs have dropped significantly during this time.
www.aee.net @aeenet Washington DC San Francisco Boston U.S. Transportation Revenue by Segment (millions)
2015 Transportation 2011 2012 2013 2014 (estimate)
Propulsion System $11,709 $18,045 $25,075 $24,839 $22,532
Freight Logistics $0 $0 $0 $0 $0
Land-Use and NA NA $0 $0 $0 Infrastructure Design
Enabling Information NA NA $31 $9 $13 Technology
Transportation Subtotal $11,709 $18,045 $25,106 $24,848 $22,546
Table 2.2 (Source: Navigant Research)
Though from a U.S.very small Advanced base, Fuel Cell Vehicles Vehicle (FCVs) experiencedMarket theGrowth largest year-on-year (2011 growth - 2015) – 508% – to reach revenue of $3 million worldwide. And, in a milestone, Electric Bicycles surpassed $10 billion in worldwide revenue in 2015, up 8% over 2014, led by sales in Asia. (Table 2.1)
U.S. Advanced Vehicle Market Growth, 2011-15 700%
600%
500%
400%
300%
200%
100%
0
Plug-in Hybrid Natural Gas Clean Natural Gas Fuel Electric (light duty) Diesel (medium & Cell heavy duty)
Figure 2.1 (Source: Navigant Research)
Revenue from sales of light-duty Natural Gas Vehicles (NGVs) reached $30.7 billion globally in 2015, a 15% increase over 2014, though U.S. sales fell 9%. While low natural gas prices helped, revenue from NGVs was hurt by low oil prices,*Revenue and further shown by laggingonly for fuelingproduct infrastructure categories with in revenueplace for data light-duty for all years vehicles. 2011 A- 2015similar
14 story emerges for heavy-duty NGVs, with global revenue increasing to $5.9 billion, up 8% over 2014, but U.S. sales declining, down 7% to $623 million in 2015. Nonetheless, five-year U.S. growth for both classes has been significant – with light-duty vehicles at 100% growth and heavy-duty vehicles experiencing 510% growth compared to 2011. Similarly, while the overall U.S. Transportation segment was down roughly 10% in 2015 – it has experienced five-year growth of 91% when counting only products for which we have all five years of data. (Figure 2.1)
Lower Cost Li-Ion Batteries Boost Electric Vehicles
Despite lower prices at the gas pump, the prospects for EVs continue to be bright, in large part due to remarkable advances in EV storage technology. Early hybrid vehicles almost exclusively featured nickel-metal hydride (NiMH) batteries. Now, lithium ion (Li-ion) has taken over the hybrid sector, and dominates the Plug-in Hybrid Electric Vehicle (PHEV) and Battery Electric Vehicle (BEV) markets as well. Most new production hybrids, apart from the Toyota Prius, and all PHEVs and BEVs in 2015 were shipped with Li-ion batteries. While new battery chemistries are now being tested, and could make their way into market in the coming years, the focus through the early 2020s will remain on further lowering costs and improving the energy density (and resulting vehicle range) of Li-ion batteries.
While the market for Li-ion batteries for vehicle electrification is still developing, several companies have emerged as leaders. The most successful Li-ion battery manufacturers to date (LG Chem, Panasonic, Samsung SDI) are large and financially stable companies or their subsidiaries. These leaders provide Li-ion batteries to multiple markets, such as the consumer electronics and emerging stationary grid energy storage markets. But in the United States, Tesla Motors made news with its battery “gigafactory,” now under construction in Nevada, and its claims that, without it, the company might not be able to source enough batteries for its BEVs and new Powerwall home energy storage product.
15 Plug-in Share of Total Electric Vehicle Revenue U.S. Electric Vehicles
$18.6 B Plug-in Electric (PEV) Hybrid Electric (HEV) $16.9 B
$14.8 B
$12.6 B
$7.9 B
28% 33%
19%
13% 9%
2011 2012 2013 2014 2015
Figure 2.2 (Source: Navigant Research)
When designing electric or electrically assisted powertrains, automakers continue to tailor their design approach to each model, factoring in not only economy, but also power, energy, and range performance. Luxury brands have begun to focus on meeting the driver experience and vehicle performance bar that has been set in the BEV sector by Tesla’s Model S.
Navigant Research expects two distinct BEV market segments to emerge and mature over the next five years: a large capacity sector, often with premium vehicles, with larger energy capacities and longer-range battery packs, and a second segment with lower capacity, shorter range, and a lower-cost class of battery packs geared for local driving and daily commutes.
Original equipment manufacturers (OEMs) have continued their efforts to improve the supply chain cost structure for battery manufacturers with consistent battery performance standards. They are also taking advantage of a maturing supply chain and manufacturing capacity gains to help reduce costs. But vehicle manufacturers continue to require unique battery pack specifications, challenging the gains made to date from supply chain efficiencies. Lower battery costs for the industry during the next decade will likely remain a function of manufacturing and supply chain efficiencies and incremental chemistry improvements rather than new chemistries, as any breakthroughs in energy or power density are likely to be tested for several years before an automaker incorporates them into a vehicle.
Revenue from sales of battery packs to auto manufacturers rose 14% globally, to $6.3 billion, from 2014 to 2015. That total was seven-and-a-half times the battery-pack revenue of $824 million in 2011. In the United States, battery pack revenue fell 17% in 2015, to $1.4 billion, due to declining sales of HEVs, but was still five times 2011 revenue of $271 million.
16 The global market for Li-ion batteries for HEVs and PEVs in automotive applications is expected to grow at a 2015-2020 compound annual growth rate (CAGR) of 32% in energy capacity, to 61.3 GWh. The majority (72%) of demand for Li-ion EV batteries will come from BEVs due to the larger battery packs typical of those vehicle types.
Clean Diesel – or VW at Least – Faces Identity Challenge
In the wake of the VW clean diesel emission scandal, compression ignition engines for light-duty vehicles are undergoing enhanced scrutiny, though the market for these vehicles remains strong globally. Clean diesel vehicles dominate the advanced vehicle market in Europe in a way they do not in the United States. But as VW has struggled to update more than 11 million diesel-powered vehicles globally in response to revelation of its emissions cheating, the German automaker has expressed a newfound interest in a different form of advanced transportation: electric vehicles.
Since it was developed by Rudolf Diesel in the early 20th century, the compression ignition engine has had the advantage of being more fuel efficient while producing greater torque than comparable spark ignition engines. Today’s clean diesel engines are quieter, more efficient, more reliable, and cleaner than older diesel vehicles, thanks to innovations such as allowing for higher fuel-air mixing prior to combustion and the addition of re- circulated exhaust gas to the intake air stream.
Still, diesel engines produce higher emissions of particulate matter and nitrogen oxides. Over the past decade, tightening emissions limits in Europe, North America, and Asia have prompted the development of technologies to clean up these pollutants without sacrificing the benefits of diesel in performance and fuel consumption (and resulting CO2 emissions) compared with gasoline-powered cars.
In September 2015, the U.S. Environmental Protection Agency (EPA) announced publicly what had been alleged for some time: VW diesels were not as clean in the real world as they were in regulatory compliance tests. The resulting scandal has cost the jobs of numerous executives and managers within VW Group and will likely cost the company tens of billions of dollars in fines, lawsuits, and modifications to millions of cars already sold.
The “defeat device” revealed in VW diesel cars in 2015 has called into question the emissions performance of clean diesels more generally, though there is currently no evidence that other manufacturers have circumvented tailpipe emission standards in a similar manner. The use of this method by one manufacturer also does not entirely negate the significant improvements in recent years with diesel vehicles of all classes, including the 90% of heavy-duty vehicles powered by diesel, one-third of which is clean diesel. Companies including Daimler, BMW, and General Motors (GM) remain committed to diesel as part of their technology portfolios for reducing fuel consumption and CO2 emissions in a cost-effective and customer-friendly manner.
Despite the VW controversy in the United States, sales of Clean Diesel Vehicles globally grew strongly in 2015, with revenue up 18% – the biggest year-over-year increase of the past four years – to $288.1 billion worldwide. Revenue in the much-smaller U.S. Clean Diesel Vehicle market was down just 2% in 2015, to $6 billion, from a 2014 peak of $6.1 billion.
While any long-term implications of the VW scandal on the clean diesel market are as of yet unknown, it is clear that VW is now becoming the latest major automaker to show new enthusiasm for EVs. In a recent restructuring, VW has created a dedicated battery car division. VW has already committed to offering plug-in variants (both PHEV and BEV) of all of its mainstream models by 2020; its premium Audi division expects 25% of its sales to be PEVs by 2025.
17 Navigant Research projects that PEV sales will grow at a CAGR of 21% over the next decade, hitting more than 2.7 million annual sales by 2024. With GM launching the Chevrolet Bolt EV with a 200-mile range and $30,000 price (after incentives) in 2016, significant progress is clearly being made on making electrification appealing to mainstream consumers. VW has announced it will introduce a mass-market BEV as well, entering into competition not only with the Chevy Bolt but also the Tesla Model 3, when it goes into full production next year.
U.S. Natural Gas Vehicle, All Classes Natural Gas Vehicles Slow U.S. Natural Gas Vehicles, All Classes Down due to Low Oil Prices $1,682 M $1,542 M The unexpected collapse of world oil prices that
$1,337 M began in late 2014 persisted throughout 2015
$952 M and even accelerated late in the year, driving both manufacturers and consumers to reevaluate their alternative fuel strategies particularly $562 M around NGVs. With oil prices now expected to remain well below $100 per barrel for at least several more years, much of the operating cost advantage of NGVs that helped offset
2011 2012 2013 2014 2015 the acquisition cost premium has evaporated, particularly in North America. In other regions of Figure 2.3 (Source: Navigant Research) the world, natural gas still holds a cost advantage, although not to the degree it has in recent years. *Revenue shown only for product categories with revenue data for all years 2011 - 2015
Revenue from worldwide sales of light-duty NGVs grew 15% from 2014 to 2015, but at $30.7 billion barely surpassed the 2013 revenue mark of $30.5 billion. In the United States, revenue from these vehicles fell 9%, to $919 million, but was still double 2011 revenue of $460 million.
In Europe, the longtime leader in light-duty NGVs, Fiat Chrysler Automobiles (FCA), is being challenged by VW. While FCA has the expertise and technology to challenge Ford for leadership in the North American truck and van NGV markets, any expansion of NGV availability beyond the Ram 2500 is unlikely in the near- to midterm as a result of low gasoline and diesel prices. Even Honda, the most stalwart advocate of light-duty NGVs in North America, discontinued the Civic NG in 2015 after selling only about 16,000 units in more than 16 years on the market. Sales of conventional gasoline Civics consistently exceeded 300,000 units annually in the same period.
Which is not to say these automakers don’t see value in NGVs for themselves. At the same time the Civic NG was discontinued, Honda opened a large compressed natural gas (CNG) refueling station at its Marysville, Ohio, factory to supply trucks that deliver parts from suppliers daily. FCA also opted to convert its fleet of 179 class-8 trucks that deliver parts between plants in Michigan and surrounding states to CNG and install a CNG fueling facility at its Detroit terminal.
Refueling infrastructure is an issue for NGVs, in the usual chicken-and-egg fashion. Without a critical mass of vehicles on the road and reasonable prospects for growth, station operators are unwilling to invest in fueling equipment—and without ready access to refueling stations, retail customers do not buy NGVs. However, because natural gas is well-suited to larger vehicles, such as refuse trucks and buses, which are often used in limited geographies, fleet operators can take advantage of the low fuel cost by installing private stations in vehicle depots.
In addition to sustained low oil prices, several factors could dampen short-term prospects for NGVs, including slowing economic growth in Brazil, Russia, India, and China (the BRIC countries), and political tensions in various
18 regions, including the Middle East. Ongoing political tensions in Eastern Europe could also affect supply and the prices of gas exports from Russia to Western Europe. A significant economic slowdown in China is hurting overall consumer demand, particularly for new vehicles. Meanwhile, battery suppliers and OEMs, including LG Chem, GM, and Tesla, are demonstrating significant progress in battery cost and capacity, potentially giving BEVs a leg up over NGVs as alternatives to gasoline- or diesel-fueled vehicles.
Still, Navigant Research expects the global market for light-duty NGVs to grow at a CAGR of 4% from 2015 to 2025, surpassing 3.4 million vehicles by 2025. North American growth is expected to remain low compared to other global markets due to high acquisition costs for NGVs and a low price delta between natural gas and liquid fuels. Asia-Pacific is projected to be the largest regional market, accounting for over 45% of sales in 2025. NGVs are more affordable in Asia-Pacific where vehicles are typically equipped with less expensive but heavier type-1 gas cylinders rather than the lighter type-4 cylinders used in North America. Medium- and heavy-duty NGVs should continue to see more solid growth over the next decade, as they provide an alternative to diesel, and natural gas remains more practical in some ways than electrification for heavy vehicles. A global CAGR of just under 10% is projected to bring total sales of these larger NGVs to more than 676,000 by 2025, with Asia- Pacific accounting for more than 90% of that volume.
19 ADVANCED ENERGY ECONOMY the business voice of advanced energy
FUEL DELIVERY
Fuel Delivery is the smallest advanced energy segment, though, as in previous editions of this report, natural gas pipeline and liquefied natural gas (LNG) terminal construction are not included due to lack of available data. They do, however, represent significant advanced energy markets that fall under the Fuel Delivery segment, meaning that the total is therefore considerably understated. As one of the segments with the fewest contributing subsegments, comprised only of Natural Gas Fueling Stations for commercial- and light-duty vehicles and Hydrogen Fueling Stations, the annual total is especially susceptible to volatility. In 2015, the global market significantly declined, down 64%, to $983 million in revenue, from its five-year high of $2.7 billion. (Table 3.1)
Global Fuel Delivery Revenue by Segment (millions)
2015 Fuel Delivery 2011 2012 2013 2014 (estimate)
Fueling Stations $2,207 $1,926 $2,606 $2,718 $983
Fuel Transportation $0 $0 NA NA NA Infrastructure
Fuel Delivery Subtotal $2,207 $1,926 $2,606 $2,718 $983
Table 3.1 (Source: Navigant Research)
The largest subsegment globally remained light-duty NGV Fueling Stations, with $783 million in revenue, down 41% from 2014. Commercial NGV Fueling Stations, for larger vehicles, also faced substantial decline, down 94% to $87 million in 2015. After three years of declines, however, Hydrogen Fueling Stations took a leap, to $113 million in revenue, representing 623% growth over 2014’s $16 million, and more than double the previous high- water mark of $49 million in 2011.
U.S. Fuel Delivery Revenue by Segment (millions)
2015 Fuel Delivery 2011 2012 2013 2014 (estimate)
Fueling Stations $227 $378 $252 $283 $195
Fuel Transportation $0 $0 NA NA NA Infrastructure
Fuel Delivery Subtotal $227 $378 $252 $283 $195
Table 3.2 (Source: Navigant Research)
www.aee.net @aeenet Washington DC San Francisco Boston In the United States, Fuel Delivery faced a moderate decline of 14%, with $195 million in revenue in 2015, also down from its five-year high of $378 in 2012. (Table 3.2) Also following the global trend, investment in light- duty Natural Gas Fueling Stations was the largest source of revenue, with $108 million in 2015, followed by commercial Natural Gas Fueling Stations with $55 million, though down 40% and 45% respectively, year-on- year. Hydrogen Fueling Stations was the smallest source of revenue, with $32 million in 2015, but as was the case globally, that was a big jump from 2014, when U.S. Hydrogen Fueling Stations generated just $4 million in revenue – and the first time revenue for these fueling stations exceeded the previous five-year high of $27 million in 2012. (Figure 3.1)
As discussed in the following trend stories, navigating the chicken-and-egg conundrum of infrastructure build-out coming along with vehicle deployments is a critical element to market growth. EVs are successfully navigating that chasm, and natural gas can capitalize on the vast pipeline network in place. By comparison, hydrogen FCVs are at a disadvantage, with fueling infrastructure only just beginning to be put in place.
Hydrogen Infrastructure Needed for Fuel Cell Vehicle Growth
The global market for NGVs and BEVs has grown significantly over the past five years. This growth is a result of finding a viable path in navigating the chicken-and-egg problem of vehicles and infrastructure. FCVs are grappling with an even more difficult form of that challenge. While BEVs and NGVs built off of existing electrical grids and natural gas distribution systems, hydrogen fuel infrastructure is essentially starting from scratch.
Overall, the driver for FCVs among some major automakers is the search for a drivetrain that can enable a shift away from petroleum dependence, while meeting consumer and regulator demands. If BEVs reach an upper limit in range that is below that of a typical gas car, fuel cells could be an attractive, even necessary, option for longer drives, faster refueling, and/or larger vehicles. OEMs are making continued improvements in FCV performance, specs, and price, but will need fueling infrastructure for FCVs to gain consumer acceptance. The chicken cannot come before the egg; the two must arrive together.
In Hydrogen Fueling Station development, 2015 marked the high point of a bumpy five-year ride. After declining from $49 million for three years, and reaching a bottom at $16 million in 2014, worldwide Hydrogen Fueling Station Infrastructure leaped to $113 million in 2015. The U.S. market for Hydrogen Fueling Station Infrastructure has followed a similar pattern, sliding from $24 million in 2011 to $4 million in 2014, and then multiplying eight-fold, to $32 million, in 2015. (Figure 3.1)
21 U.S. HydrogenHydrogen Fueling Stations Stations
$32 M
H $27 M $24 M H
H
$10 M
$4 M H
H
2011 2012 2013 2014 2015 *Revenue shown only for product categories with revenue data for all years 2011 - 2015 Figure 3.1 (Source: Navigant Research)
Hydrogen Fueling Stations typically take 18 to 36 months to construct and cost approximately $1 million apiece, so significant scale-up of hydrogen stations will take time. Germany, the United Kingdom, Japan, and South Korea are all making commitments to deploy hydrogen infrastructure. The most commercially viable locations for hydrogen infrastructure are in dense city centers, where vehicle owners from surrounding areas can access them without significant inconvenience. These countries are all significantly smaller than the United States, making it much easier to construct a network of fueling stations that effectively covers the entire country.
In the United States, California is the first state to make a commitment to accommodate FCVs. AB 8 was signed into law in 2013 and requires the state to report on the availability of hydrogen fueling stations in the state in order to identify areas where more investment is needed. The state is co-funding many of the 45 retail hydrogen fueling stations currently under development in California. Outside of establishing the infrastructure, some automakers that are making a push for FCVs—Hyundai and Toyota, for example—are trying to ease adoption in the state by including hydrogen fuel cost in the vehicles’ lease. However, California is also an example of some of the challenges that the early FCV market will face. There are complaints about the availability of hydrogen in Southern California, as new fueling facilities for consumers are slowly added to the existing base of early research hydrogen stations.
Germany’s H2Mobility program is designed to build new fueling stations in the country to meet demand as FCVs are introduced. Currently, there are 18 public fueling stations in the country. Daimler and industrial gas manufacturer, Linde Group, have had 20 fueling stations in the pipeline, costing approximately €20 million ($21.5 million); at least five of the 20 opened in late 2015. Additionally, the Hydrogen for Innovative Vehicles project (dubbed “HyFIVE”) has the goal of expanding Europe’s hydrogen fueling network between major cities and is currently seeing stations being built in Austria, Italy, Denmark, and the United Kingdom.
22 In Japan, the automakers are partnering in a major effort to build out infrastructure for their hydrogen vehicles. Honda, Toyota, and Nissan are part of an agreement between 10 Japanese gas companies to jointly develop a 100-station hydrogen highway in Japan. In South Korea, there are now 11 stations throughout the country. The Hyundai-Kia Motor Co. has been working with the government to increase the availability of these stations.
From Europe to the Far East, the effort to bring hydrogen to the road continues.
As Vehicle Sales Lag, Natural Gas Vehicle Infrastructure Sags
In order for any alternative to gasoline or diesel to be viable as a transportation fuel, refueling infrastructure needs to be readily available. In the arena of alternative fuels for transportation, natural gas has proven to be one of the most popular alternatives to traditional liquid fuels in many global markets. Natural gas for use as a transportation fuel is available in two forms, CNG and LNG, with the former being by far the more common. CNG is primarily used for vehicles that operate within a limited geographic region, while LNG is more commonly used for long-haul trucking applications. CNG is stored in high-pressure tanks at 3,000–3,600 psi and can be stored for extended periodsU.S. of time. Natural LNG is stored inGas low pressure, Vehicle, cryogenic All tanks Classes at -259ºF.
Natural gas has a number of distinct benefits compared with other options, particularly for larger vehicles. As a resource, natural gas is widely distributed around the globe, and with newer extraction techniques, such as horizontal drilling and hydraulic fracturing, usable supplies have risen significantly in the past decade. As a result, prices have fallen to less than half of the peaks reached in 2005 and 2008.
However, in the last 12 months, low gasoline U.S. Natural Gas Vehicles, all Classes prices have begun to hurt demand for NGVs, $1,682 M which in turn discourages investment in $1,542 M infrastructure. As the price differential between the two fuels shrinks, the operating cost savings $1,337 M lag behind the premium in vehicle purchase $952 M price, which for light-duty NGVs is $7,000 to
$15,000 and for medium- to heavy-duty NGVs $562 M is up to $50,000. U.S. revenue from sales of light- and heavy-duty NGVs was down 9% and 7%, respectively in 2015, though the two still combined for over $1.5 billion in total. (Figure 3.2) 2011 2012 2013 2014 2015
Figure 3.2 (Source: Navigant Research) With NGVs struggling in the market, the U.S. U.S. Natural Gas Fueling Station, All Classes market for Natural Gas Fueling Stations serving U.S. Natural Gas Fueling Stations, long-haul trucks was down 45% in 2015, with *Revenue shown only for product categories with revenue data for all years 2011 - 2015 all Classes revenue of $55 million. For light-duty vehicles, revenue from Fueling Stations was down 40%, to $351 M
$108 million. In total, the U.S. market in 2015 was $279 M $243 M $163 million. (Figure 3.3) $202 M $163 M Despite facing difficult market conditions at the moment, natural gas still has its advantages. Where fueling stations are available, CNG and LNG are typically fast and convenient to use. 2011 2012 2013 2014 2015
Fast-fill CNG pumps and most LNG pumps can Figure 3.3 (Source: Navigant Research)
23
*Revenue shown only for product categories with revenue data for all years 2011 - 2015 be used to refuel a vehicle at speeds comparable to pumping diesel fuel. “Slow-fill” (low-pressure) systems, however, provide the convenience of filling lower duty cycle vehicles (vehicles that are less frequently used) wherever there is a connection to a natural gas distribution main. Compared to the batteries in EVs, natural gas has significantly higher energy density and longer potential range for larger, heavier vehicles. Natural gas-fueled engines also have reduced emissions of CO2 and other pollutants compared to gasoline or diesel-fueled internal combustion engines.
As a result, the drive toward fueling infrastructure for NGVs continues. Clean Energy Fuels of Newport Beach, California, is the largest developer and operator of natural gas filling stations in North America. With more than 500 public and private stations in operation throughout 43 states, Clean Energy Fuels accounts for more than one-third of the 1,669 stations counted by the U.S. Energy Information Administration (EIA). In addition to operating public stations, Clean Energy Fuels runs stations for private operators, such as refuse collection companies, construction firms, transit bus fleets, and more than 40 airports. The airport facilities are typically used to fuel NGVs for inter-terminal transport, rental car companies, and hotels.
Most infrastructure investment is being made in private stations used by large truck or bus fleets. In late 2015, FCA announced a $40 million investment in Detroit to convert 179 parts-hauling trucks to CNG. The switch will give FCA the largest private fleet of CNG powered medium- and heavy-duty vehicles in the state of Michigan. In addition, the company also built a $5 million on-site CNG fueling station that was built by TruStar Energy and is the largest private CNG station in North America.
Also not scared away by low oil prices, Honda opened a massive fast-fill CNG refueling station at its Marysville, Ohio, assembly plant in August of 2015. With a capacity of 440,000 vehicles per year, the plant is among the largest in the country. The fueling station, built by Trillium CNG, services existing CNG vehicles while also encouraging suppliers and logistical partners to adopt and expand the use of NGVs.
Navigant Research projects that the total number of global NGV fueling stations will grow from approximately 23,000 in 2015 to nearly 39,000 in 2025. More than 80% of these stations are expected to be CNG stations to support light-duty NGVs, which are projected to account for 90% of the NGV fleet at that time.
24 ADVANCED ENERGY ECONOMY the business voice of advanced energy
FUEL PRODUCTION
With $121.6 billion in revenue worldwide, Fuel Production was the fourth largest advanced energy segment in 2015, but it suffered an 18% decline, due primarily to a sharp drop in revenue from Ethanol sales. (Table 4.1) With growth of 21%, to $52.4 billion, CNG and LNG surpassed Ethanol and Butanol ($46.2 billion), for the first time. The global CNG/LNG market has grown 128% since 2011, compared to a 32% decline during the same period for Ethanol and Butanol, which is the result of persistent low oil prices in 2015. Biodiesel was the third largest subsegment in 2015, with revenue of $19.7 billion, down 8% compared to 2014. Synthetic diesel and gasoline declined 42% to $3.1 billion. Both Bio-oil and Biomethane markets experienced strong growth, at 20% and 67% respectively, though from relatively smaller bases. Despite mixed performance across these subsegments, the advanced energy Fuel Production market has increased 10% overall since 2011.
Global Fuel Production Revenue by Segment (millions)
2015 Fuel Production 2011 2012 2013 2014 (estimate)
Compressed Natural Gas $23,018 $31,486 $37,654 $43,302 $52,439 and Liquefied Natural Gas
Ethanol and Butanol $68,140 $84,240 $76,645 $77,956 $46,218
Biodiesel $17,882 $20,432 $21,993 $21,342 $19,692
Synthetic Diesel $1,580 $1,938 $4,693 $5,394 $3,142 and Gasoline
Bio-oil $1 $500 $805 $16 $19
Biomethane $47 $48 $65 $51 $86
Hydrogen NA NA NA $0 $0
Fuel Production Subtotal $110,667 $138,644 $141,855 $148,062 $121,596
Table 4.1 (Source: Navigant Research)
In the United States, Ethanol and Butanol remains the dominant alternative fuel, with revenue of $27.3 billion in 2015, though this represents a 33% drop compared to 2014 and a five-year low, due to lower ethanol pump prices. (Figure 4.1) The drop in U.S. Ethanol revenue contributed mightily to the global decline as well. According to Navigant Research, first-generation biorefineries concentrated throughout the Midwest currently account for just under half of global biofuels production capacity installed today. Looking ahead, EPA’s revised Renewable Fuel Standard (RFS) calls for larger increases to come from advanced biofuels (35% increase in 2016), while conventional biofuels are expected to increase 6.5% in the same period. With oil prices expected to remain low throughout 2016, however, prospects for significantly increased revenue are slim.
www.aee.net @aeenet Washington DC San Francisco Boston U.S. Fuel Production Revenue by Segment (millions)
2015 Fuel Production 2011 2012 2013 2014 (estimate)
Compressed Natural Gas $504 $581 $883 $1,016 $1,271 and Liquefied Natural Gas
Ethanol and Butanol $39,140 $41,730 $40,371 $40,932 $27,331
Biodiesel $3,135 $4,231 $4,751 $3,859 $15,336
Synthetic Diesel $372 $438 $2,368 $3,206 $3,564 and Gasoline
Bio-oil $1 $345 $2 $16 $0
Biomethane $12 $12 $16 $19 $18
Hydrogen NA NA NA $0 $0
Fuel Production Subtotal 43,164 47,337 48,390 49,048 35,384
Table 4.2 (Source: Navigant Research)
For the first time, U.S. synthetic diesel and gasoline, with $3.6 billion in revenue for fuel sales and infrastructure, surpassed biodiesel sales and associated infrastructure investment of $3.2 billion. Indeed, with zero infrastruc- ture investment revenue reported for either one in 2015, the synthetics beat out biodiesel on the basis of fuel sales, with revenue tripled over 2014. Biomethane experienced a 6% decline in 2015, to $18 million but is still 44% above 2011 sales. Meanwhile, Bio-oil declined 99% in 2015, to less than an estimated $100,000 in sales.
In total, the advanced U.S. Fuel Production market is down 18% compared to 2011, when volumes of fuels (especially ethanol) were similar, but prices were considerably higher.
Biofuels Continue to Confront the Blend Wall
On November 30, 2015, 12 months after its official deadline to propose the RFS levels for 2014 (that’s right, 2014), EPA released the final annual percent standards for 2014, 2015, and 2016, and for the 2017 Biodiesel volume.
For 2014, EPA played it safe, matching the annual percent standards with the actual consumption of biofuels in transportation fuel, heating oil, and jet fuel in the contiguous United States and Hawaii. EPA increased slightly the total mandate from 9.2% to 10.1% of U.S. fuel consumption in the next two years. Under the new mandate, there are separate carve-outs for advanced biofuels, which include biomass-based diesel (biodiesel or renewable diesel produced from vegetable oils or animal fats) and cellulosic fuels (biofuel including biogas that is produced from plant matter), and a general pool that can be fulfilled with other biofuels including grain-based ethanol (defined as starch-based ethanol). Most of the growth in the annual percent standards is expected to come from advanced biofuels, which are set to increase 35%, from 16.5% to 20% of the total mandate in 2016. Conventional biofuels, in contrast, will grow by 6.5% in the same period. The new annual percent standards make no one really happy – neither the biofuel producers, who wanted the standards higher, nor the petroleum industry, which wants them gone altogether – which was probably the intention.
26 U.S. Ethanol
U.S. Ethanol
$41.7 B $40.4 B $40.9 B $39.1 B
$27.3 B
2011 2012 2013 2014 2015
*Revenue shown only for productFigure categories 4.1 (Source: Navigant with revenueResearch) data for all years 2011 - 2015
RFS was first introduced under President George W. Bush and later revised and expanded in 2007. Iowa has benefited mightily from the mandate, serving up a sea of corn and soybeans, both commodities that have played a crucial role in America’s first-generation biofuels capacity growth. Since the revised standard went into effect, biofuels production in the United States has doubled. According to Navigant Research, conventional biorefineries (those that produce starch-based ethanol) concentrated in the Midwest currently account for just under half of global biofuels production capacity today.
For conventional biofuels, the new mandate is not good, but perhaps not surprising. In the original mandate, conventional biofuels had a target for 2015 of 15 billion gallons (1.6 billion gallons more than in the final mandate), but the increased use of ethanol has been limited by what the industry calls the “blend wall,” the limit of 10% ethanol by volume that older gasoline engines can use in their fuel. As consumption of transportation fuel has slowed, due in part to more fuel-efficient vehicles, the blend wall has limited the growth of biofuel consumption.
The Renewables Fuel Association reported June 1, 2015 that operating capacity of the industry was 14.9 billion gallons per year, which implies that the mandate covered 92% of its capacity in 2015 and 98% in 2016. The mandate is high enough to support all the plants currently operating (although some might have to reduce their production). Leading producers like POET, Green Plains Renewable Energy (GPRE), and Abengoa are expected to do well.
Revenue generated by the ethanol industry dropped dramatically between 2014 and 2015, driven by the falling price of ethanol. During 2014 wholesale ethanol in the United States sold, on average, at $2.75 per gallon, while in 2015, the price averaged $1.74 per gallon (36% less). Globally, ethanol was sold at $2.97 on average during 2014, and at $1.87 per gallon in 2015. As a fuel substitute, the price of ethanol is highly correlated to the price of crude oil. In years when ethanol production exceeded the RFS mandate, ethanol has traded at around 70% of the price of gasoline, due to its lower energy content. The other factor affecting ethanol margins is the price of feedstocks (corn, sugar beet, and sugar cane). When the price of these feedstocks is too high relative to the price of ethanol, it forces some plants to shut down as they become unprofitable.
27 Largely as a function of a drop in price, revenue from the Ethanol product category dropped dramatically in 2015 – down 40% globally, to $45.6 billion, and 31% in the United States, to $27.1 billion. In both worldwide and U.S. markets, Ethanol revenue hit its lowest point in the five years Navigant Research has been tracking the industry for AEE.
The picture for the rest of the biofuel industry is rosier. The new annual percent standard for biomass-based diesel is high enough to absorb the current capacity. U.S. consumers used a record of nearly 2.1 billion gallons of biomass-based diesel in 2015. U.S. revenue from Biodiesel, fell slightly from $3.3 billion in 2014 to $3.2 billion in 2015 in line with global revenue, which also fell slightly – 2% – to $19 billion. The new annual percent standard will benefit producers like the Renewable Energy Group and Neste Oil – both large producers of biomass-based diesel.
In the new standard, EPA did keep a large carve-out for cellulosic biofuels. The United States used 127 million gallons of ethanol-equivalent cellulosic biofuels in 2015, 4 million gallons above the 2015 mandate. Although a lot of investment has gone into technologies to produce liquid fuels from cellulosic material, this segment of the biofuels industry has yet to achieve true commercial scale. Rather, it is biogas producers that are benefiting most from this mandate. Biogas is the product of the process of decomposing organic material – typically sewage slurry, manure, and food residues – in an oxygen free environment, known as anaerobic digestion. Biogas producers are supplying virtually all the cellulosic biofuels – 125 million gallons of ethanol equivalent – while only 2 million gallons of cellulosic ethanol were actually blended, even though biogas was approved as a cellulosic biofuel just halfway through 2014.
Renewable Natural Gas: a Fuel of the Future?
Biogas for commercial use is a product of anaerobic digestion, a method in which microorganisms break down organic matter in an oxygen-starved environment, and one of the oldest processing technologies. It is captured in modern landfills (landfill gas, or “LFG”) and biodigesters, which treat a range of organic waste streams. While biogas is a combination of gases and other volatile impurities, its main component (50% to 70%) is methane
(CH4), the same as natural gas. As such, biogas can be combusted to produce electricity and heat. It can also be upgraded to pure biomethane or renewable natural gas (RNG) through the process of removing the impurities and other gases, making it suitable for transport by pipeline or compressed to fuel CNG vehicles.
Biogas power generation is widely utilized for on-site generation by industrial-scale facilities and distributed customers alike. Offering reliable baseload power to the grid, biogas enjoys favorable regulatory support in many national markets and is expected to play a significant role in meeting expanding renewable energy targets. The four main feedstock sources within the global biogas market are food waste, industrial, agricultural, and sewage.
Biogas feedstocks are available worldwide. However, logistical challenges associated with its collection, aggregation, transportation, and handling, coupled with poor energy density relative to fossil fuels, make power and fuel generation from biogas viable only where organic matter is available in large quantities and in continuous supply.
Overall, Biogas fuel production revenue and capital expenditures on processing equipment together was $86 million worldwide in 2015, up 67% from the year before and 83% over 2011. In the United States, Biogas revenue was down 6% from the recent peak of $19 million in 2015, but still up 44% from 2011, when it was $12 million. (Figure 4.2) But year-to-year variation is mostly due to the ebb and flow of capital investment in biogas facilities. Revenue from Biogas fuel production has risen steadily over the 2011-15 period, from $27 million to $57 million globally, and from $8 million to $13 million domestically.
28 In the United States, there are numerous companies that have formed in the last decade as biogas technologies have manifested. For example, Harvest Power operates an anaerobic digester in Orlando, Florida, in which food waste sourced primarily from the Walt Disney World Resort is used to produce enough electricity to meet the needs of 16,000 homes. 2G Energy Inc. is another U.S.-based company, which utilizes biogas for CHP plants. The company has over 40 biogas plants across North America ranging in capacity from less than 100 kW to over 2.8 MW. The Florida-based company utilizes LFG and sewage sludge from wastewater treatments as the primary sources of organic material for its CHP plants. Bluesphere, based in North Carolina, is currently building a 5.2 MW biogas plant in Charlotte, which is scheduled to be completed in 2016. The company is also building a biogas plant in Rhode Island, as well as multiple plants in Italy.
Driven by strong waste management and renewables integration policies, Europe is expected to hold its position as the leading region worldwide for the next decade, with Germany as the epicenter of global biogas production.
The European biogas market is currently led by on-farm U.S. Biogas digesters, with Germany accounting for 52% of total biogas U.S. Biogas production capacity, most of which is used for electricity $19 M production. In 2014, the country had 3,840 MW of installed $18 M capacity, the most biogas electricity generation capacity in $16 M the world.
$12 M $12 M In the United States, policies to enforce the composting and recycling of organic material are beginning to gain traction, which could spur more biogas development. Massachusetts is the first state to enact a food-waste disposal ban, which requires any entity that disposes of more than one ton of organic material per week to donate or re-purpose the material instead of sending it to a landfill. The material is 2011 2012 2013 2014 2015 to be used for a variety of applications including sending it Figure 4.2 (Source: Navigant Research) to anaerobic digestion facilities to convert it to renewable natural gas. Should other states follow suit, biogas could be in a position to gain a substantial foothold in the renewable
*Revenue shown only for product categories with revenue data for all years 2011 - 2015 energy market.
29 ADVANCED ENERGY ECONOMY the business voice of advanced energy
ELECTRICITY GENERATION
Electricity Generation maintained its status as the largest advanced energy segment in 2015, with an estimated $441.3 billion in revenue worldwide, up nearly 19% from 2014, but down 6% from 2011, counting only products for which we have five years of data. (Figure 5.1) The global market decline between 2011 and 2015 is explained by two important trends. First, 2011 was dominated by massive hydroelectric projects in China. Though rebounding from a low of $84.3 billion in 2013, hydro revenue in 2015 was still $40 billion below the 2011 level of $185.3 – a gap that, by itself, more than accounts for the $20 billion decline in Electricity Generation overall. Second, solar PV deployment has doubled annually since 2011 while prices have fallen by almost half – meaning that revenue numbers, while impressive enough (22% growth from 2011 to 2015), understate the remarkable growth of the worldwide solar industry. Wind (54%), Geothermal (155%), and Fuel Cells and Other Distributed Generation (61%) saw increases globally between 2011 and 2015, while declines were marked in Biomass (82%), Nuclear (56%), and Gas Turbines (16%).
Global Electricity Generation Revenue by Segment (millions)
2015 Electricity Generation 2011 2012 2013 2014 (estimate)
Solar $96,193 $87,672 $96,828 $94,800 $115,250
Wind $67,069 $82,111 $67,685 $94,575 $103,273
Geothermal $666 $1,730 $1,470 $1,500 $1,700
Hydro $185,260 $149,098 $84,328 $133,871 $143,650
Marine $300 $140 $0 $0 $0
Waste $4,700 $2,750 $5,910 $2,954 $3,223
Biomass $10,500 $7,200 $14,700 $13,500 $1,937
Nuclear $40,805 $34,210 $14,300 $15,950 $18,068
Gas Turbines $55,481 $42,755 $42,043 $40,199 $46,667
Fuel Cells and Other $755 $1,009 $6,618 $7,079 $7,517 Distributed Generation
Electricity Generation $461,729 $408,674 $333,882 $404,427 $441,285 Subtotal
Table 5.1 (Source: Navigant Research)
www.aee.net @aeenet Washington DC San Francisco Boston Despite variability, hydropower continues to be the largest subsegment of Electricity Generation, with revenue of $143.7 billion globally, up 7% over 2014, driven by large projects in China, Russia, and Latin America. Though several countries in Latin America may be pulling back from hydro following drought-induced reliability issues, opportunities for large-scale hydro development still exist, particularly outside the Organization for Economic Co-operation and Development (OECD) countries, such as the Democratic Republic of Congo’s proposed 40 GW Grand Inga dam.
Solar was again (after just edging out Wind in 2014) the second largest subsegment worldwide, with $115.3 billion in revenue, including both Solar PV and Concentrating Solar Thermal Electric power plants. China continues to dominate solar deployment by a wide margin, with an estimated 17-19 GW of solar PV installed in 2015, roughly double the Japanese market, and nearly 2.5 times the U.S. market.
At $103.3 billion, Wind power experienced another year of solid growth globally, at 9% over 2014, and 54% growth over 2011. Again, China, with a wind target of 250 GW by 2020, continues to lead the global wind market, supplied almost exclusively by Chinese companies such as Goldwind and Ming Yang.
U.S. Electricity Generation Revenue by Segment (millions)
2015 Electricity Generation 2011 2012 2013 2014 (estimate)
Solar $8,246 $11,850 $19,519 $22,110 $22,570
Wind $12,993 $25,461 $2,060 $8,252 $14,450
Geothermal $118 $723 $833 $450 $450
Hydro $0 $386 $0 $897 $488
Marine $30 $0 $0 $0 $0
Waste $640 $290 $550 $348 $524
Biomass $300 $600 $900 $882 $882
Nuclear $12,287 $0 $0 $0 $0
Gas Turbines $4,017 $4,542 $4,376 $9,204 $10,455
Fuel Cells and Other $182 $91 $2,165 $2,394 $2,524 Distributed Generation
Electricity Generation $38,813 $43,943 $30,404 $44,537 $52,342 Subtotal
Table 5.2 (Source: Navigant Research)
As global demand for coal has stalled even in countries such as China – home to half of global coal consumption – baseload power options such as natural gas are gaining market share. In 2015, the worldwide market for Gas Turbines increased to $46.7 billion, up 16% over 2014 after three years of decline.
31 Looking ahead, renewable energy is expected to make up the majority of net capacity additions in the near- term, with the International Energy Agency (IEA) forecasting as much as 700 GW by 2020.
In the United States, Electricity Generation was U.S.U.S. Solar Solar PV PV the second largest advanced energy segment, $22.6 B with $52.3 billion in revenue in 2015, a year- on-year increase of nearly 18%. Revenue in 25 $18.7 B $16.2 B 2015 represented a five-year peak, led by Solar ($22.6 billion), Wind ($14.5 billion), and Gas Turbines ($10.5 billion). These three $10.5 B $8.2 B technologies represented almost all new U.S. capacity additions in 2015, a trend that is expected to continue over the next decade. Within Solar, revenue from Concentrating Solar Thermal Electric dropped to zero, from $3.4 0 billion in 2014, but U.S. Solar PV continued on 2011 2012 2013 2014 2015 its impressive growth path, up 21% in 2015 – its Figure 5.1 (Source:U.S. WindNavigant Research) fourth straight year of double-digit growth – to $22.6 billion. (Figure 5.1) Wind revenue was U.S. Wind up 75%, as the industry continued to rebound from its nadir – $2.1 billion in 2013, due to 200000 $25.5 B the temporary lapse in tax credits. (Figure 5.2) Revenue from Gas Turbines, both simple and combined cycle, was up 14%. (Figure 5.3)
The multi-year extension of the production and $13 B $14.5 B Billions of Dollars investment tax credits in late 2015, combined $8.3 B with increasing renewable portfolio standards in states and continued price declines, have put $2.1 B wind and solar PV on an upward trajectory for the U.S. Natural Gas Turbines (Billions) next decade. Facing rapid growth in distributed 2011 2012 2013 2014 2015 generation in the residential, commercial, and Figure 5.2 (Source: Navigant Research) industrial markets, some utilities are challenging net metering credits, which could result in hurdles in states with strong solar adoption, U.S. Natural Gas Turbines but the market outlook overall is bright. Fuel $10.5 B Cells and Other Distributed Generation, which 200000 $9.2 B includes natural gas generator sets, increased an estimated 5% to $2.5 billion in 2015. Down from a five-year peak in 2014, revenue from U.S. orders $4.5 B for hydropower plants dropped 46% in 2015, to $4 B $4.4 B
$488 million, in a market that is highly variable. Billions of Dollars (Table 5.2)
Low-cost natural gas, high capital costs, and regulatory uncertainty have frozen orders for new 2011 2012 2013 2014 2015 nuclear power plants, with no U.S. revenue from Figure 5.3 (Source: Navigant Research) completed installations since 2011, when $12.3 billion was reported. In 2015, federal regulators approved an operating license for Tennessee
32 Valley Authority’s 1,150 MW Watts Bar 2 unit – nearly 43 years after its initial permit to begin construction was granted. U.S. EPA’s Clean Power Plan allows new nuclear to be credited as zero-emission generation, but whether states will commit to new nuclear plants as part of their compliance strategy remains to be seen.
With Lower Costs and Federal Backing, Solar PV Poised for Long- Term Growth
In a breakthrough year for the U.S. Solar PV industry, nearly 1 MW – enough to power more than 160 homes – was installed almost every hour in 2015. The cumulative solar PV installed capacity in the United States has now surpassed 27 GW. Revenue generated from installations of solar PV – across residential, commercial, industrial markets, and large utility power plants – reached an estimated $22.6 billion in 2015, a 21% increase over 2014, and growth of 174% since 2011. (Figure 5.4) Plus, the industry got an extension of the federal investment tax credit, with a gradual phase-down, through 2023.
The combination of technology cost reductions, renewable energy targets at the state level, business model innovation, and federal tax policy has made the United States one of the top three solar PV markets worldwide. The challenge to the traditional utility business model, particularly from on-site solar, continues to result in skirmishes at utility commissions across the country. Central to the debate is how much distributed solar should be allowed to be net metered (sold back to the grid), at what price, and how costs are allocated across ratepayers. These battles notwithstanding, Navigant Research forecasts more than 70 GW of new solar capacity additions, both large-scale and distributed, between 2016 and 2022, potentially bringing the cumulative installations above 100 GW, four times the current installed base.
U.S. SolarU.S. Solar PV PV
$22.6 B
25 $18.7 B
$16.2 B
$10.5 B $8.2 B
0 2011 2012 2013 2014 2015
Figure 5.4 (Source: Navigant Research)
33 With roughly half of the country’s installed capacity today, California remains the leading state for solar PV installations. California is also home to rooftop solar companies such as SolarCity, Vivint (acquired by SunEdison), and Sungevity, as well as large-scale developers such as SunPower and Recurrent Energy. Arizona’s First Solar completed the 550 MW Desert Sunlight project in California as well – while other states, including Arizona, New Jersey, Massachusetts, and North Carolina, are experiencing strong growth as well.
While residential solar PV installed prices have dropped nearly 50% since 2010, large-scale costs are reaching record lows. Power purchase agreements (PPAs) for solar electricity supplied from a utility-scale solar farm have reached prices below $.05/kWh – competitive with wholesale power in most markets. In solar resource- rich states like Texas, future PPAs could go even lower. Also on the horizon is the growth in “community solar” programs, which offer a potential pathway for utilities and third-party providers to reach the millions of U.S. households that want to purchase solar power, but do not have adequate roof-space.
New global Solar PV installations reached an estimated 58.8 GW in 2015, including those in the United States, reaching approximately $113.9 billion in revenue – a 26% gain over 2014, and up 22% over Solar PV’s previous peak year of 2011. China led all markets with more than 17 GW installed last year, as the country’s most recent five-year plan calls for 200 GW of solar by 2020. Japan’s thriving Solar PV market continued to grow apace in the wake of the Fukushima nuclear disaster and with strong, though declining, financial incentives. The United Kingdom and India continue to be strong markets as well, with an estimated 4 GW and 2 GW installed, respectively, in 2015.
China Drives Nuclear at Home and Abroad
China continues its highly ambitious deployment of electricity generation of all kinds domestically and continues to have a major impact by exporting its technology as well. China’s most recent 2020 energy targets call for 200 GW of solar PV, 250 GW of wind, and a steady rollout of nuclear power: 58 GW by 2021, 150 GW by 2030, and 400-500 GW by 2050. According to the World Nuclear Association, China currently is home to 30 nuclear power reactors currently in operation, an additional 24 under construction, and more about to start construction, which means the country is on track to hit its nuclear targets, just as it is with its solar PV and wind targets. By far, China is leading the global nuclear market, which totaled $18.1 billion in 2015, up 13% over 2014 – though still down from a five-year peak of $40.8 billion in 2011. (Table 5.1)
In addition to pursuing staggering domestic targets, the Chinese government is taking a “going global” approach to nuclear, exporting its nuclear technology, including heavy components in the supply chain. Deals to date for China’s nuclear exports include the following:
• EDF Energy and China signed a deal to build the 3.2 GW Hinkley Point nuclear power plant in Somerset, England, worth $26.2 billion in late 2015.
• Pakistan struck deals with Chinese vendors for four nuclear power plants at two sites totaling approximately 4 GW at a cost of nearly $12 billion.
• Chinese General Nuclear Power Corp. signed a deal worth $7.8 billion to construct two additional units at the Cernavoda plant in Romania, each with a capacity of at least 720 MW.
• Argentina signed deals with Chinese National Nuclear Corp. (CNNC) worth $5.8 billion for an 800 MW project.
Meanwhile, in the United States, in late 2015, federal regulators approved an operating license for Tennessee Valley Authority’s (TVA’s) 1,150 MW Watts Bar 2 unit – nearly 43 years following its initial permit to begin
34 construction was granted. According to World Nuclear News, construction of Watts Bar 2, a pressurized water reactor, began in 1972 but work was suspended in 1985 when the unit was about 55% complete. TVA restarted work on the unit in 2007, and awarded Bechtel the engineering, procurement, and construction contract.
Together, Unit 2 and Watts Bar’s already operating Unit 1 will have a rated capacity of 2.3 GW. Other notable developments in the United States include:
• EPA’s Clean Power Plan allows new nuclear to be credited as zero-emission generation and at least three states, Tennessee, Georgia, and South Carolina, appear likely to use nuclear as a significant part of their compliance strategies although it remains to be seen whether other states will take this path.
• There is growing interest in the so-called “modular” nuclear reactors being developed by companies such as NuScale, which has attracted investment by Fluor Corp. Nuclear equipment provider Westinghouse has also been conducting its own research on modular nuclear technology.
• Two Massachusetts Institute of Technology-trained scientists are pushing a type of nuclear power generation that is designed to consume its own waste. Nuclear physicists Leslie Dewan and Jacob DeWitte have founded separate but comparable startup companies – Transatomic Power and Upower, respectively – that focus on nuclear generators capable of operating on their own radiated waste, which removes the need for trucking and storing spent radioactive material.
• The Bill Gates-backed nuclear power company TerraPower has signed an agreement with China’s CNNC to work together on advanced nuclear technologies that tackle some of nuclear power’s toughest issues: waste, safety, and cost.
From financing to ensuring public safety, the role of government is more crucial for nuclear power than for any other power generation technology. As such, the prospect for growth of nuclear in the post-Fukushima world will remain highly dependent on the politics of each country.
U.S. Wind Build-Out Continues; Will Offshore Follow?
With expiration of the production tax credit (PTC), the wind industry in the United States raced to commence construction on projects before the 2014 end-of-year cutoff of eligibility. As a result, more than 8.5 GW of wind power was brought online in 2015, producing revenue of $14.5 billion (up 75% over 2014), with another 9.4 GW now under construction that qualified under the old rules. (Figure 5.5) Now, with the long-term extension and gradual phase-out of the PTC over the next four years, passed by Congress in December, the wind industry boom is expected to continue for the next several years. The momentum should build toward a likely PTC- driven installation peak in 2018 (due to projects that commence construction prior to January 1, 2017, securing the 100% PTC), after which PTC gradually phases out through 2019 (80% of the full PTC for projects that commence construction in 2017, 60% in 2018, and 40% in 2019). At that time, depending on natural gas pricing, the ability to further reduce wind installation costs, and the Clean Power Plan, the wind industry will likely be better able to compete head-to-head with other resources in the marketplace – as it is now already doing successfully in several regions of the country.
35 U.S.U.S. Wind Wind
200000 $25.5 B
$13 B $14.5 B Billions of Dollars
$8.3 B
$2.1 B
2011 2012 2013 2014 2015
Figure 5.5 (Source: Navigant Research)
Texas stands to be one of the biggest winners of the PTC extension with over half of the expected capacity in the pipeline being built in the Lone Star State alone. This is largely due to the robust transmission system now in place in Texas – specifically, the Competitive Renewable Energy Zone (CREZ) transmission system, which was completed in early 2014. With development of large amounts of wind generation in remote locations, a strong transmission system is needed to connect this power to population centers over the grid. CREZ leads the way, with the capability of transmitting up 18.5 GW of wind power alone and as much as 6 GW of solar that is expected to be online by 2017.
Companies such as Vestas, General Electric (GE), and Siemens are among those that are well positioned to capitalize on U.S. market growth – and beyond. Recent deals between major actors in the wind market point to consolidation and other alliances to make the most of new market opportunities. The Gamesa/Siemens merger, expected to be finalized in early 2016, will give the company a combined market share of 15% globally, which would surpass GE and Vestas. For its part, Vestas teamed up with Mitsubishi Heavy Industries in 2013 for a joint venture specializing in offshore wind turbines. Nordex also acquired Acciona wind power in late 2015 in a deal worth $880 million.
With the onshore wind industry expected to continue its boom, the question comes whether offshore wind will finally take off in the United States as well. Though rich with offshore potential along the northeast, gulf coast, and even in the Great Lakes, the United States still remains devoid of any operating offshore wind capacity. Currently, the 30 MW Block Island wind farm off the coast of Rhode Island, developed by Deepwater Wind, is the only project under construction in the United States. DONG Energy, one of the largest offshore wind developers in the world, has secured leases nearby, off the coast of Rhode Island and near Martha’s Vineyard in Massachusetts. Other projects, such as the Fishermen’s Energy Atlantic City wind farm or the massive Cape Wind project have made it far in the permitting process but have run into significant roadblocks – Cape Wind
36 losing its utility contracts in the face of unrelenting legal challenges and Fishermen’s Energy failing to get approval from New Jersey utility regulators.
Globally, offshore wind had a record year, adding 3.7 GW of capacity (up from 995 MW in 2014) and bringing cumulative installations worldwide to approximately 12 GW by the end of 2015. Over 65% of the 2015 capacity additions was installed in Germany. Other key markets, such as the United Kingdom, the Netherlands, and China, added capacity as well.
37 ADVANCED ENERGY ECONOMY the business voice of advanced energy
INDUSTRY
In 2015, the advanced energy Industry segment, the sixth largest globally, reached a five-year high of $43.4 billion, representing 6% growth over 2014, and 42% since 2011. Industry is made up of only two subsegments – Manufacturing Machinery and Process Equipment ($13.5 billion, up 9% over 2014) and Industrial CHP ($29.9 billion, up 5% over 2014). Both have seen steady annual growth since 2011 – 38% and 44%, respectively. (Table 6.1)
Global Industry Revenue by Segment (millions)
2015 Industry 2011 2012 2013 2014 (estimate)
Manufacturing Machinery $9,773 $10,513 $11,340 $12,315 $13,465 and Process Equipment
Combined Heat and Power $20,803 $22,812 $27,155 $28,513 $29,938
Industry Subtotal $30,576 $33,325 $38,495 $40,828 $43,403
Table 6.1 (Source: Navigant Research)
In the United States, Industry also remained the sixth largest advanced energy segment, with $7.7 billion in revenue, a 7% annual increase, and up 83% since 2011 – making it the third fastest growing U.S. advanced energy segment during that time. Following the global trend, Manufacturing Machinery and Process Equipment continued its steady growth, reaching $4.3 billion in 2015, up 9% year-on-year, and 36% since 2011. Industrial CHP reached nearly $3.4 billion in 2015, up 5% from 2014 and 232% since 2011. (Table 6.2)
U.S. Industry Revenue by Segment (millions)
2015 Industry 2011 2012 2013 2014 (estimate)
Manufacturing Machinery $3,184 $3,414 $3,669 $3,969 $4,325 and Process Equipment
Combined Heat and Power $1,018 $2,038 $3,064 $3,217 $3,378
Industry Subtotal $4,202 $5,452 $6,733 $7,186 $7,703
Table 6.2 (Source: Navigant Research)
www.aee.net @aeenet Washington DC San Francisco Boston CHP Holds Appeal for Commercial and Institutional Buildings
The use of CHP in large buildings has increased recently in the United States, Europe, and Asia-Pacific. This is due largely to technical improvements and cost reductions in smaller-scale (often pre-packaged) systems that match thermal and electrical requirements of buildings. Nevertheless, many owners of commercial properties, especially those of smaller facilities, are not aware of opportunities to install CHP, as they do not consider energy to be part of their core businesses. This educational gap presents a potential limitation on the continued growth in the number of CHP installations that are ultimately pursued.
The commercial CHP market is a bright spot for CHP. It consists of a loose collection of building types ranging from hospitals and college campuses to high rises, prisons, and other categories within the built environment. In 2015, continued growth brought total installations to just over 33 GW of capacity, with an average capacity of approximately 3 MW per installation. Today, installations are mostly confined to developed markets in Northern Europe, South Korea, Japan, and the United States. Hospitals, universities, and other applications with nearly 24/7 heat load requirements represent the greatest share of the global installations.
Industrial CHP is still a bigger market, with $29.9 billion in revenue globally in 2015, $3.4 billion of that in the United States, with growth of 5% over last year in both. But commercial CHP is growing faster: up 17% globally, to $3.5 billion, USand up CHP 9%, to $925 million, in the United States Although hospitals and institutional buildings such as universities represent the largest installed base among application groups, small and large commercial buildings are expected to gain an increasing share of the market over the next decade.
U.S. Combined Heat and Power 200000 Commercial CHP $3,064 M $3,378 M $3,217 M Industrial CHP
$2,038 M
$1,018 M Billions of Dollars
$1,189 M $814 M $925 M $850 M $925 M
2011 2012 2013 2014 2015
Figure 6.1 (Source: Navigant Research)
39 The upfront capital cost associated with CHP systems is the primary barrier to continued market growth. In addition, a range of factors impact the prospects for CHP:
• High or volatile “spark spreads,” or the difference between electricity and natural gas prices on a $/MMBtu basis;
• Significant, year-round thermal requirements;
• Match between customer needs for thermal and electrical output;
• Favorable regulatory framework with utilities (i.e., interconnection standards, net metering or feed-in tariffs, demand charges, standby charges, etc.).
The relative importance of these factors depends on geographic location, building size, building function, and other site-specific factors. End users – from hospitals to schools to business parks – have installed CHP systems as a means of reducing operating expenses, improving power reliability, and capturing sustainability benefits monetized through credits, rebates, and increased sales or tenant occupancy based on market differentiation. The two primary motivations, though, are energy savings potential and guaranteed power supply to mission- critical operations (e.g., research institutions, hospitals, and data centers). CHP received an additional boost in 2012 when President Barack Obama signed an executive order to accelerate investments in industrial energy efficiency, including CHP. The executive order sets a national goal of 40 GW of new CHP installations over the next decade.
Among equipment suppliers, GE designs and manufactures a variety of components used in CHP systems including Waukesha gas engines, designed for isolated, mission-critical applications. 2G-CENERGY, an American subsidiary of German company 2G Energy AG, focuses on mass-manufactured systems, which reduce the cost and complexity of installation, as these systems can be manufactured, delivered, and installed in 15 to 21 weeks. Capstone Turbines’ microturbine systems are designed to work individually or in a series, on- or off- grid, and as prime power or backup units. Germany-based MWM, acquired by Caterpillar in 2010, produces turnkey CHP container systems that are designed to enable quick availability at low cost, maximize control over the entire system, encourage flexibility, require low maintenance, and provide high run-times. Using pre-manufactured components and a modular design, installation costs are kept to a minimum. To overcome the need for regular oil changes, Tecogen typically installs one extra module that allows customers to avoid exorbitant charges when they must rely on the grid for short periods of downtime.
Companies involved in developing, operating, and managing CHP institutional and district energy systems in the United States and around the world include Veolia, GE, Blue Delta Energy, and Invenergy.
Industrial Energy Management Systems Deliver – and Expand – Worldwide
The industrial sector accounts for roughly 50% of U.S. electricity consumption, and more than 30% in Europe. This presents a major opportunity for energy and financial savings are a major opportunity for the companies operating in this sector. Industrial Energy Management Systems (IEMS) analyze and manage energy consumption and operations data within an industrial facility, delivering actionable information to managers of industrial facilities.
These analytics-based tools help industrial customers make strategic investments and equipment improvements as well as monitor the impacts of energy efficiency measures, from capital-intensive system replacement to
40 no-cost operationalU.S changes. Industrial IEMS revenue Energy reached $13.5 Management billion worldwide in 2015, Systems up 9% from 2014 – a 38% increase over 2011, as a result of steady annual growth. The United States market reached $4.3 billion in 2015, up 9% over 2014, and 36% over 2011. (Figure 6.2)
U.S. Industrial Energy Management Systems
$4.3 B $4.0 B $3.7 B $3.4 B $3.2 B Billions of Dollars
2011 2012 2013 2014 2015
Figure 6.2 (Source: Navigant Research)
Major IEMS customers include manufacturers, food, textiles, transportation equipment, and many other sectors. IEMS are deployed on industrial processes including pumps, air compressors, fans, materials handling and processing, and refrigeration making up the majority of an industrial facility’s load profile.
Companies are increasingly realizing the financial business case for IEMS investment, as these systems increase budget certainty by providing tools for predicting potential maintenance, energy, and capital costs. The software and services provide insight into energy-related financial underperformance by analyzing operations against energy costs, including utility rates, demand charges, and wholesale prices.
Leading companies providing IEMS include Emerson Process Management, AECOM, and Schneider Electric. These solution providers serve a variety of industrial sectors, including chemical, oil and gas, refining, pulp and paper, power, water, mining and metals, food and beverage, and life sciences. As an example, Emerson Process Management offers Energy Advisor, a real-time energy management information system that automatically monitors and manages energy consumption across plants, mills, and refineries. Schneider’s StruxureWare is a platform of applications that gives clients visibility into energy consumption and other resource utilization across the organization, including electrical management, automation, building management, critical power and cooling, and electrical distribution services.
IEMS is also a viable solution to help energy service companies better manage and monitor industrial projects. Companies like Ecova, CLEAResult, and others partner with a utility to enact energy savings across the utility’s industrial client base. IEMS can support these partnerships with the tools for measuring and monitoring the impact of efficient measures and ensuring persistent savings. Because the industrial sector is such a large consumer of electricity, even minor improvements, enabled by real-time data and process improvements, can result in significant financial savings.
41 Navigant Research forecasts the global IEMS market will grow from $13.5 billion in 2015 to $35.6 billion in 2024, increasing at an 11.4% CAGR.
In North America, regulatory drivers are expected to have a less direct impact on the market. That said, the mid- and long-term impacts of EPA’s Clean Power Plan could accelerate interest and financial support of energy efficiency investment in the U.S. industrial segment. IEMS vendors can take advantage of this growing opportunity to engage customers with software and services to meet their energy management objectives. The North American market is expected to grow at a 10.9% CAGR through 2024.
Meanwhile, the European Union (EU) will continue to pressure industrial customers to improve energy efficiency and reduce greenhouse gas emissions under the regulatory framework of the EU Emissions Trading Scheme (ETS) and Energy Efficiency Directive (EED). Corporate commitments to sustainability and climate change mitigation are also expected to bolster opportunities for IEMS vendors in the region. Navigant Research forecasts an 11.5% CAGR for the region through 2024.
But the fastest growing market will be Asia-Pacific, projected to grow at a 13.4% CAGR during this time.
42 ADVANCED ENERGY ECONOMY the business voice of advanced energy
BUILDING EFFICIENCY
In 2015, worldwide revenue in the advanced energy Building Efficiency segment reached $236.3 billion, up nearly 14% over 2014 and 60% over 2011, counting only products for which we have five years of data. (Table 7.1) Building Efficiency is the third largest segment of the advanced energy market globally. All subsegments experienced growth in 2015, with Lighting as the top revenue source at $116.5 billion due to strong growth in both residential and commercial energy efficient lighting.
Global Building Efficiency Revenue by Segment (millions)
2015 Segment 2011 2012 2013 2014 (estimate)
Building Design $11,537 $13,039 $13,932 $15,544 $17,457
Building Envelope $13,017 $14,006 $15,855 $18,668 $26,187
Heating, Ventilation, and Air $44,383 $49,613 $53,923 $57,962 $62,337 Conditioning (HVAC)
District Energy and Combined Cooling, $2,229 $2,787 $3,023 $2,950 $3,458 Heating, and Power (CCHP)
Water Heating $1,467 $1,612 $1,773 $2,090 $2,237
Lighting $41,329 $47,212 $52,770 $103,613 $116,498
Appliances and Electronic $266 $613 $800 $1,200 $1,708 Equipment
Demand Response & Enabling Information $3,752 $4,829 $5,023 $5,719 $6,378 Technology
Building Efficiency $117,981 $133,710 $147,100 $207,746 $236,260 Subtotal
Table 7.1 (Source: Navigant Research)
Heating, Ventilation, and Air Conditioning (HVAC) was the second largest subsegment, with $62.3 billion (8% growth over 2014) worldwide, with increasing sales of both equipment and services from energy service companies. Building Envelope and Building Design were the next two leading subsegments, with $26.2 billion (up 40%) and $17.5 billion (up 12%) in revenue, respectively. (Table 7.1) Counting only products for which all five years of data is available, Building Envelope experienced impressive five-year growth, over 60% since 2011.
www.aee.net @aeenet Washington DC San Francisco Boston The fastest-growing subsegment globally, Appliances and Electronic Equipment, saw revenue reach $1.7 billion in 2015, up 42% from 2014 and 542% since 2011, showing that smart appliances and connected devices in the home and workplace are being deployed and saving money for residents and building owners.
Demand Response & Enabling Information Technology has seen steady annual growth, reaching $6.4 billion in 2015, up 12% from 2014 and 70% from 2011. Demand response (DR) is increasingly being integrated into utility resource planning – a mutually beneficial arrangement for building owners and utilities looking to meet peak demand cost-effectively.
District Energy and Combined Cooling, Heating, and Power (CCHP) reached $3.5 billion in revenue worldwide in 2015, up 17% from 2014 and 55% from 2011, as lower natural gas prices, expanded use of biomass, and increased awareness among cities contributed to market growth. Europe continues to be the leading market for these technologies. Water Heating also increased 7% in 2015 to reach $2.2 billion in revenue, a 52% increase from 2011.
In the United States, Building Efficiency was the largest advanced energy segment, with $63.6 billion in revenue, an increase of nearly 11% since 2014, and 50% since 2011, counting only products for which we have five years of data. U.S. Building Efficiency followed the global trend, with all subsegments increasing year-over-year, led by three subsegments each reaching $14 billion in revenue when counting only products for which we have all five years of data, including HVAC ($14.1 billion, up 7%), Building Envelope ($14 billion, up 11%), and Lighting ($14 billion, up 14%). (Table 7.2) Counting only products for which we have five years of data, both Building Envelope and Lighting have experienced five-year growth rates of over 50%, and HVAC experienced growth of over 30%.
U.S. Building Efficiency Revenue by Segment (millions)
2015 Segment 2011 2012 2013 2014 (estimate)
Building Design $2,819 $3,128 $3,351 $3,850 $4,336
Building Envelope $8,720 $9,645 $11,919 $12,766 $14,127
Heating, Ventilation, and Air $10,522 $11,532 $12,306 $13,184 $14,140 Conditioning (HVAC)
District Energy and Combined Cooling, Heat- $814 $925 $1,189 $850 $925 ing, and Power (CCHP)
Water Heating $1,133 $1,197 $1,357 $1,490 $1,639
Lighting $9,139 $9,992 $10,701 $22,024 $24,666
Appliances and Electronic $105 $148 $208 $227 $472 Equipment
Demand Response & Enabling Information $2,020 $2,663 $2,572 $2,996 $3,245 Technology
Building Efficiency $35,271 $39,229 $43,604 $57,386 $63,550 Subtotal
Table 7.2 (Source: Navigant Research) 44 Water Heating in the United States increased to $1.6 billion in 2015 (up 10% over 2014), and District Energy and Combined Cooling, Heating, and Power gained 9% year-on-year, with revenue of $925 million. Meanwhile, connected buildings, Internet of Things (IoT), and other smart technologies are starting to have a major impact in the residential and commercial sectors. Appliances and Electronic Equipment had the biggest year-on-year growth, at 108%, with U.S. revenue of $472 million, as well as five-year growth of 350%.
U.S. BuildingU.S. Building Efficiency* Efficiency*
60 $52.8 B
$47.7 B
$43.6 B $39.2 B
$35.5 B
0 2011 2012 2013 2014 2015
*RevenueFigure 7.1 (Source: shown Navigant only Research) for product - *Revenue categories shown only forwith product revenue categories data with forrevenue all yearsdata for 2011-2015.all years 2011-2015.
From Energy Management to Connected, Comfortable Buildings
The intelligent building is a facility that leverages information technology to improve system performance for energy savings and operational improvements. The market launched about a decade ago with new software, building energy management systems (BEMS), designed to deliver energy efficiency improvements by translating more data into better information and explicit action. BEMS combat the challenge of using and maintaining complex and proprietary control and automation systems. These new software solutions utilize a wider array of data including utility bills, smart meter interval data, weather, and sensor signals to identify opportunities for energy efficiency and operational improvements. BEMS are technology agnostic, so regardless of any existing control and automation infrastructure, the software applications can direct energy cost savings. For example, BEMS can detect anomalies in heating system operations and then direct a reset of setpoints or schedules. The result is better use of heating systems, which drives down utility bills. The energy efficiency story is straightforward and quantifiable. Customers see declining utility bills aligned with the performance improvements in their building systems.
A growing number of intelligent building applications are designed to maximize worker efficiency and satisfaction by improving responsiveness to heating and cooling complaints, easing the process of finding collaboration space, fine-tuning lighting to meet specific worker preferences, and showcasing energy, waste,
45 and water conservation improvements that support corporate sustainability commitments. The line between building algorithms and business algorithms is blurring as connected, comfortable buildings come to define the modern workplace.
BEMS are central mechanisms for making buildings more intelligent, comfortable, and efficient. They are data-driven decision support tools for facilities and operations management. BEMS enable the strategic improvements in operations and maintenance, help guide investment in building system upgrades, and improve resource utilization within a facility or across a portfolio. This wide array of benefits helps drive investment in BEMS worldwide.
Revenue from BEMS was flat in 2015, at $2.8 billion globally and $1.1 billion in the United States, as the market continues to mature. But growthU.S Buildingsince 2011 Energyhas been Managementsubstantial, up 50%, Systems from $1.8 billion, in global revenue and 45% higher than 2011’s $737 million in U.S. revenue. (Figure 7.2) Navigant Research forecasts that global BEMS revenue will reach $10.8 billion in 2024. 200000 U.S. Building Energy Management Systems
$1,066 M $1,062 M $936 M
$826 M $737 M Billions of Dollars
2011 2012 2013 2014 2015
Figure 7.2 (Source: Navigant Research)
An evolution in building technologies is reshaping how owners can leverage buildings as valuable assets. A couple of corporate moves that occurred in 2015 illustrate the kinds of changes that are happening in the building management business as BEMS and other technologies provide new capabilities in energy management and comfort:
• CBRE made two significant investments to deepen capabilities in energy management, engineering, and supply chain management with the acquisitions of Johnson Controls’ Global Workforce Solutions business (for a purchase price of $1.5 billion), and Environmental Systems Inc. CBRE and other major real estate management and outsourcing firms continue to broaden their capabilities around intelligent building technologies and energy management to meet the shifting demands of both tenants and investors.
• Energy and services provider Direct Energy completed the acquisition of Panoramic Power for $60 million. This transaction will enable Direct Energy to introduce device-level energy management to their customers.
46 The move reflects the opportunity for energy providers to deepen engagements with their commercial customers beyond specific demand side management programs and putting them into new positions as trusted energy advisors.
• The growing penetration of BEMS in commercial buildings provides greater insight and actionable information to stakeholders across the value chain including building owners, operators, and service providers. It is a win-win situation: BEMS drive energy savings that improve the bottom line, and at the same time make workspaces more comfortable and convenient.
Integrated Data Center Management is the Next Frontier
Intelligent buildings integrate software and services to maximize energy and operational efficiency across building systems—from HVAC to lighting and plug loads. Integrated data center energy management is the implementation of a unified intelligent building strategy to optimize both IT and facility resources. As building owners invest in intelligent building solutions to deliver comprehensive energy management, they have begun to look at on-site and enterprise data centers as key candidates for optimization because of data centers’ high levels of energy consumption.
By coordinating investment in energy conservation measures, equipment upgrades, and the use of software and services, integrated data center energy management promises to deliver greater energy and operational efficiency improvements to the facility or campus that hosts the data center. The idea is to leverage resources that can meet the needs of both the data center and the larger facility.
The deployment of intelligent building solutions and approaches across facility and IT systems will only increase over time, making the integrated data center the next frontier for the intelligent buildings market. A few examples of solutions that help customers manage their on-site data center resources framework include:
• BEMS
• Advanced cooling solutions and strategies
• Intelligent lighting controls
• Integrated monitoring and control hardware, such as electric submeters, occupancy sensors, and smart thermostats
• Building-integrated renewables
47 Integrated Data Intelligent Building Capabilities Representative Center Category Offering Benefits Vendors
Visualization and reporting, BuildingIQ, Daintree fault detection and diagnos- Networks, Honeywell*, BEMS tics, predictive maintenance Johnson Controls*, Pacific and continuous improve- Controls*, Schneider ment, optimization Electric*, Siemens*
Capacity planning, asset management, adds and 1E, CA Technologies, DCIM changes, resource manage- iTRACS, Modius, NetApp, Software & Services ment, operations manage- Raritan ment, alarms and reporting
Ameresco, CBRE/ESI*, Project design, implemen- EnerNOC*, JLL, McKinstry, Energy Efficiency Services tation, and management for Trane,* Johns Manville, energy efficiency measures Opower, CLEAResult
Data Center Electrical system efficiency, Eaton*, Emerson*, Viligent Energy Efficiency virtualization
Building automation for Aircuity, Delta Controls, Dis- Building Controls scheduling, equipment set- tech Controls, Entic, KMC tings, load management Controls
Cooling redundancy, con- Carrier, Daikin, Cooling trols, dynamic Lennox International cooling Equipment & Systems Acuity, Bridgelux, Cree, Intelligent lighting controls, Lighting Digital Lumens*, Enlighted*, software analytics GE Lighting, Philips
Leidos, RGS Energy, Renewables Integrated solar PV SunPower
Table 7.3 (Source: Navigant Research) – * Vendors with offerings that cross categories
Navigant Research tracks the development of specific intelligent building technologies and solutions, many of which are gaining significant traction in the market. (Table 7.3) The promise of the intelligent building is centered on fully integrated energy management enabled by software, services, and advanced automation and control technologies. The evolution of a traditional facility into this intelligent building framework also relies on collaboration across customer teams. This is important context for the integrated data center, as the IT assets represent not only an additional set of energy end uses but also business decision-makers.
Furthermore, these assets will continue to demand energy, capital, and business resources. The integrated data center energy management approach can ensure that data centers are optimized for savings and efficiency, and allow data center operators to leverage innovations already underway. A Microsoft natural gas fuel cell pilot
48 project reported a 30% efficiency gain by installing fuel cells directly onto server racks, bypassing the need to convert from direct to alternating current and thereby reducing conversion losses. Fuel cells play a small but growing role at data centers, with installations such as Apple’s 10 MW system at its North Carolina facility and Ebay’s 6 MW system in Utah.
The North American integrated data center energy management market is expected to grow from $46.9 million in 2015 to $119.7 million in 2024, representing a 43% CAGR. This aggressive outlook reflects the early beginnings today, but also the bullish expectations for broad adoption of intelligent building strategies including integrated data center energy management. As commercial facility owners become more comprehensive in their approach to energy management, on-site information technology resources such as servers and small data centers are essential assets to incorporate into their approach.
Internet of Things Comes to Life at Home
The IoT concept, though much hyped for its future potential, is not just coming. It is already well on its way – into the home. Smart thermostats allow a user to remotely control household temperatures via a smartphone. Smart meters can connect to thermostats for DR. Some LED lights have embedded radios that allow the user to remotely control them from mobile devices. Smart appliances and security systems are able to connect via wireless or wired technologies and share status or other data for home automation, safety, and convenience. These devices enable customers to input data into behavioral efficiency software which can generate recommendations to lower energy use. Though still early, this trend is accelerating as device manufacturers add connectivity to more devices.
Navigant Research defines residential IoT as connected devices in the home that provide human or unaided control of functional systems that benefit residents in terms of comfort, security, energy efficiency, maintenance, and automation. This is carried out with intelligent devices and sensors that provide control, with or without human intervention, and relay data via wired or wireless connections and with intelligence from the Internet. The key drivers of the residential IoT include:
• Home security: Consumers get integrated home security systems that not only connect door locks and cameras, but also provide access via the Internet or mobile device to a smart thermostat and lighting and energy management tools.
• Energy management: A growing perception among consumers is that connected devices, like thermostats, LED lighting, and smart meters, coupled with services, can help them more efficiently manage energy consumption.
• Mobile devices and applications: The proliferation of smartphone applications has created the expectation among consumers that in-home devices embedded with a wireless radio interface can be monitored or controlled.
• In-home networks: Along with mobile devices, a home Wi-Fi network has enabled static devices like smart thermostats to connect to the Internet, share data, and be monitored or controlled remotely.
In related product categories followed for the Advanced Energy Now 2016 Market Report, revenue from Home Energy Management Systems (HEMS) has grown globally from $93 million in 2011 to $1.1 billion in 2015, and in the United States from $44 million to $495 million. (Figure 7.3) Smart appliance revenue has climbed from $266 million to $1.7 billion globally, and from $105 million to $472 million in the United States.
49 200000
U.S. HomeU.S. Home Energy Energy ManagementManagement Systems Systems
$495 M
$366 M
$275 M Billions of Dollars
$150 M
$44 M
2011 2012 2013 2014 2015
Figure 7.3 (Source: Navigant Research)
Already a wide array of companies is providing products and services to drive the residential IoT trend. These companies foresee a thriving market well into the next decade, and they include some well-known brands:
• Nest, a division of Alphabet, sells smart thermostats, connected smoke and carbon monoxide alarms, and connected cameras.
• Comcast’s Xfinity service can connect smart thermostats, smart locks, lighting, and sprinkler systems, among other things.
• Samsung’s SmartThings Hub connects an assortment of devices, including locks, thermostats, lighting, and cameras.
• Belkin’s WeMo offers a collection of Wi-Fi-connected devices such as light bulbs, switches, and small appliances that can be controlled from smartphones or tablets.
• Lowe’s offers the Iris platform, which enables users to connect thermostats, locks, cameras, and other sensors in a home.
• Apple’s HomeKit is a framework for controlling devices like smart thermostats, lighting, cameras, switches, and sensors through iPhones and iPads.
Despite the many drivers for the residential IoT, some significant obstacles stand in the way of a flourishing market:
• Protocols and standards: Multiple protocols and standards create an interoperability issue, confusing consumers and stalling adoption.
• Price of devices: Even with component prices dropping, the newest IoT gear is still more costly than traditional alternatives, and will be for the immediate future.
• Battery life: Some IoT devices like sensors or door locks will need to function reliably for a long time on batteries; there is still uncertainty about how long those batteries need to last.
50 Navigant Research expects global revenue attributed to residential IoT devices to grow from $7.3 billion in 2015 to $67.7 billion in 2025, which represents a CAGR of 25%. The North American market is expected to see revenue grow from nearly $2.5 billion in 2015 to $17.7 billion in 2025, with a CAGR of 22%. Shipments of smart meters, smart appliances, smart thermostats, and security and management systems are expected to be among the main revenue drivers.
As tempting as it may be to ignore the hype of “internet of… whatever,” in the residential and consumer markets, the Internet of Things is already here.
51 ADVANCED ENERGY ECONOMY the business voice of advanced energy
ELECTRICITY DELIVERY AND MANAGEMENT
In 2015, Electricity Delivery and Management was the fourth largest advanced energy segment worldwide with $94.3 billion in revenue, an increase of 19% over 2015 – and the fastest growing segment during the past five years – with 111% growth over 2011 counting only products for which we have five years of revenue. (Table 8.1) With increasing penetration of renewable energy worldwide, and stimulated by billions in government infrastructure spending in response to the financial crisis, global investment in the electric grid has grown substantially, especially in the past two years, with Transmission increasing 45% to $42.6 billion in 2015 (up 334% since 2011). Closer to end-users, Distribution, Advanced Metering Infrastructure (AMI), and Enabling Information and Communication Technology subsegments increased 9% to 15% in 2015, with revenue of $9.2 billion, $6.7 billion, and $13.1 billion respectively.
Technology cost reductions, new business models, and market opportunities have enabled Energy Storage to reach a five-year high of $2.1 billion worldwide for installations at the residential-, commercial-, and utility-scale, a 356% increase globally over 2014, and an 18-fold increase from 2011. New investment in Electric Vehicle Charging Infrastructure increased 7% in 2015, to $511 million, capping 300% growth over the past five years.
Global Electricity Delivery and Management Revenue by Segment (millions)
Electricity Delivery 2015 2011 2012 2013 2014 and Management (estimate)
Transmission $9,808 $17,894 $6,110 $29,288 $42,564
Distribution $5,998 $7,383 $3,404 $8,459 $9,186
Advanced Metering Infra- $6,273 $6,514 $5,805 $5,835 $6,684 structure (AMI)
Microgrids $3,737 $4,400 $5,479 $4,416 $422
Charging Infrastructure $127 $355 $417 $480 $511
Energy Storage $117 $791 $646 $462 $2,104
Enabling Information and $9,351 $28,066 $29,289 $30,588 $32,884 Communication Technology
Electricity Delivery and $35,410 $65,403 $51,151 $79,527 $94,354 Management Subtotal
Table 8.1 (Source: Navigant Research)
In the United States, Electricity Delivery and Management was the fifth largest advanced energy segment, with $18.2 billion in revenue, a 24% increase from 2014, and 72% increase from 2011 counting only products for
www.aee.net @aeenet Washington DC San Francisco Boston which we have five years of data. Similar to the global trend, Transmission was the largest subsegment, with $7.6 billion in revenue – a 125% increase over 2014, and 560% increase over 2011, with growth led by smart transmission system upgrades and high-voltage projects. Critical to integrating larger amounts of wind to the electric grid, and building on the success of Texas’ CREZ transmission build out that was completed in 2014, a number of additional high-voltage projects moved forward in 2015 such as the potentially 400 mile Illinois Rivers Project. Enabling Information and Communication Technology increased 4% in 2015, to $6.5 billion, led by a variety of smart-grid IT, software, and data analytics products and services, in addition to smart street lighting. The U.S. Distribution and AMI categories each showed a decline in 2015, with revenue down 9%, to $1.5 billion, and 5%, to $1.1 billion, respectively.
U.S. Electricity Delivery and Management Revenue by Segment (millions)
Electricity Delivery 2015 2011 2012 2013 2014 and Management (estimate)
Transmission $1,147 $2,133 $576 $3,357 $7,567
Distribution $1,064 $1,322 $250 $1,621 $1,481
Advanced Metering Infra- $1,648 $1,681 $1,387 $1,193 $1,134 structure (AMI)
Microgrids $1,012 $1,265 $1,623 $1,957 $548
Charging Infrastructure $27 $92 $154 $157 $164
Energy Storage $81 $360 $519 $58 $734
Enabling Information and $3,075 $7,291 $6,089 $6,293 $6,537 Communication Technology
Electricity Delivery and $8,055 $14,144 $10,599 $14,636 $18,165 Management Subtotal
Table 8.2 (Source: Navigant Research)
A number of energy storage projects came online in 2015 in the United States, with an estimated $734 million in revenue, a nearly 13-fold increase from 2014, and more than 800% growth since 2011 – a major milestone for this fast-evolving technology. (Figure 8.2) Electric Vehicle Charging Infrastructure grew a healthy 5%, with revenue reaching a five-year high of $164 million in 2015, up 510% over 2011.
Drones & Robotics for Utility Transmission & Distribution Offer Improved Safety and Cost-Effectiveness
While popular media highlights the controversy around unmanned aerial vehicles (UAVs, or drones) in public airspace, the drive toward commercial uses for drone technology is proceeding at a rapid pace. Private companies, grid operators, and public utilities across the globe are beginning to look toward drones to reduce costs, improve safety, increase reliability, and decrease response times across their systems.
53 Companies like Amazon are seeking airspace regulations that establish corridors for commercial drone-based delivery applications. Transmission and distribution (T&D) system operators and utilities in all regions of the world have been performing line inspections and maintenance, storm damage assessments, and vegetation management using traditional line crews for decades. They have also used helicopters to perform T&D line inspections in remote areas and inaccessible right of ways.
No matter how it’s done, working on high- and medium-voltage T&D systems is difficult, expensive, and dangerous. Indeed, the lineworker’s job is considered one of the 10 most dangerous occupations in the United States.
New UAV and robotics-based utility solutions can address major operations such as overhead visual transmission line maintenance inspections, storm damage assessments and outage management/response, and substation inspection. These solutions also assist with asset management and condition monitoring, as well as vegetation management.
Today, the drone and robotics technologies market for T&D is still at an early stage, with new developments and product releases occurring almost on a daily basis. The value proposition for T&D utilities to perform at least a portion of their inspection, maintenance, and damage assessment utilizing these solutions is strong. With more than 50 companies now in the market, consolidation and large-scale growth are expected as the technologies mature and the practice gains acceptance among utilities.
Navigant Research expects cumulative global UAV and robotics revenue for technologies, integration/analytics, and inspection services to reach $16.2 billion by 2024. The annual revenue opportunity is expected to grow from $132 million in 2015 to $4.1 billion in 2024, with accelerating growth in all technology categories.
T&D system operators across the world are conducting Forecast: Global Annual Revenue research and development (R&D) and limited demonstration projects with UAV and robotics. A number of U.S. utilities have provisional Federal Aviation Technology 2015 2024 Administration (FAA) licenses, including Florida Power & UAV & Robotics for Light (FPL), San Diego Gas & Electric (SDG&E), Xcel Energy, $132 M $4,100 M Utility T&D Duke, and Commonwealth Edison (ComEd). These utilities are currently testing either transmission line inspections Table 8.3 (Source: Navigant Research) or storm damage assessments using multi-rotor drones in limited geographic areas. In Italy, Enel is currently using drone technologies for inspection services.
Many utilities may ultimately opt out of maintaining their own fleets of drones, instead contracting with third- party inspection and maintenance services companies under a drones as a service (DaaS) license. These companies may supply drones, pilots, and cloud-based streaming data for the utility operations center.
Navigant Research expects Europe and Asia-Pacific to present the largest regional revenue opportunities, representing 44% and 28% of the current global market, respectively. As the market matures and airspace regulations become both well-defined and streamlined, the North American market will begin to grow. As new generations of UAVs, robotics, and analytics are introduced, the cost of UAV and robotics data analytics and integration can be expected to drop, while adoption and replacement rates accelerate. Notably, new UAV and robotics technologies may be introduced, updated, and replaced on an almost annual basis. Advanced analytics applications will likely be packaged into productized software and integrated with major utility systems, rather than being deployed on a custom basis. Drones will become part of the utility routine.
54 New Era of Demand Response
The amount of demand response (DR) capability in North America has grown considerably in the past five years, both at utilities and in competitive markets such as the PJM Interconnection (PJM) in the U.S. Northeast. How- ever, DR has generally been relegated to a role as a last-called resource, deployed only at times of maximum stress on the grid. However, that is changing.
The use of DR in grid planning and operations has solidified as utilities increasingly rely on DR to meet installed capacity requirements and sometimes even operating reserve requirements. Furthermore, independent system operators led by PJM have incorporated DR into procurement mechanisms for capacity, energy, and ancillary services. Industry acceptance of DR as an integral part of the future grid continues to grow, with states like Cali- fornia and New York rolling out major regulatory initiatives that enable a larger role for DR.
Hawaiian Electric (HECO), an investor-owned utility, has issued a request for proposals to DR aggregators for the provision of grid services, including ancillary services, from demand-side resources. As with other regula- tory initiatives in the island state, Hawaii’s innovative uses for DR to help manage the grid in real time come in response to massive customer investment in behind-the-meter solar PV. This could be the future for many utili- ties that are only now seeing the first effects of customer investment in on-site renewables, storage, and other distributed energy resources.
DR is also expanding from big commercial electric customers to residences. Opower recently announced results from its behavioral DR (BDR) program. The company reported that it sent over 12 million personalized com- munications to customers during 29 DR events last summer, delivering 3% average peak reduction and over 5% savings under peak time rebate pricing plans. Utilities involved included Baltimore Gas and Electric (BGE), ComEd, DTE Energy, Consumers Energy, Pacific Gas and Electric (PG&E), and Hydro Ottawa. BGE is able to bid its BDR resource into PJM’s capacity market to meet system reliability needs.
Even as its value to customers and grid operators was growing, DR has until recently had its fate in the hands of the courts. Power generators sued FERC over its Order 745, on DR compensation in the wholesale energy markets like PJM’s, and the U.S. Court of Appeals for the D.C. Circuit ruled that the Order was an interference in retail electricity markets, over which state regulators have jurisdiction. But on January 25, the Supreme Court reversed the DC Circuit’s decision on both parts of the case, meaning that DR does fall under FERC’s jurisdic- tion, and the payment of full Locational Marginal Price (LMP) in the wholesale energy markets is just and reason- able. It was a full victory for DR providers like EnerNOC, Comverge, and Johnson Controls, and generators will have to learn to live with competition from real-time demand reduction.
The global market for DR services surpassed $2 billion in 2015, up 17% from 2014, with the United States repre- senting two-thirds of that total.
Indeed, utilities will be entering a new era as DR technology further blurs the line between generation and demand-side resources, and not just in Hawaii. Looking ahead, emerging state policies and evolving market rules could drive DR to heights that would have been difficult to envision just five years ago.
Renewables, Grid Services Drive Energy Storage Growth
High penetration of renewables in markets such as Hawaii, California, Denmark, Germany, and China is one aspect of the ongoing changes in the electricity system that points toward rising opportunity for energy storage at the residential, commercial, and utility levels. Solar and wind, in particular, as rapidly scaling forms of variable
55 generation, could benefit from storing excess electricity generation – whether on the grid or in the home – until it is needed. At the same time, energy storage is emerging as an alternative to traditional sources of ancillary services, for voltage regulation and other grid supports. Ultimately, large-scale storage could replace peaking power plants that are needed to run only a few hours a year to meet peak demand, while also being used to provide other valuable grid services year-round.
As noted in last year’s Market Report, energy storage is transitioning from a large infrastructure market of pumped hydro and underground compressed air projects – which it still is, in much of the world – to a technology-driven market, with rising scale and falling prices. And it is taking off: global revenue from Energy Storage multiplied five-fold, from $462 million in 2014 to $2.1 billion in 2015, and in the U.S. more than ten-fold, from $58 million to $734 million. (Figure 8.1)
U.S. Energy Storage
$734 M 800
$58 M
0 2014 2015
Figure 8.1 (Source: Navigant Research)
Lower prices for advanced batteries and a flood of new systems integrators are opening up new use cases and geographic markets for energy storage systems situated on the distribution grid or behind the meter. Tesla’s Powerwall, a home battery storage system announced in May, is being marketed as a companion to PV systems as well as a back-up power source. It is being sold to customers by companies including SolarCity, and Vermont utility Green Mountain Power. Tesla claims to have taken enough reservations to account for the entire first years’ worth of estimated production. Sungevity, another distributed solar provider, is also offering a solar-plus- storage package in the United States, in partnership with Sonnen, one of Europe’s leading home energy storage firms.
According to Navigant Research, new installed energy storage systems for renewable energy integration are expected to grow from 196 MW globally in 2015 to 12.7 GW in 2025.
56 Several countries are forecast to see substantial growth in energy storage deployments in the coming decade. The two leading countries, the United States and China, are expected to have a balanced mix of utility-scale and distributed storage installations. Annual deployments of utility-scale energy storage in the United States are expected to increase from 184 MW in 2015 to 4.2 GW in 2025, and from 89 MW in 2015 to 2.6 GW of distributed systems. Even larger growth rates are expected for China, where annual utility-scale deployments are forecast to grow from 97 MW in 2015 to 5.5 GW in 2025, and from 60 MW in 2015 to 3.6 GW of distributed systems.
Growth in the U.S. to date has been led by California where market trends and legislative actions have combined to create a rapidly growing market for both distributed and utility-scale energy storage. In 2010, the state passed AB 2514 – the country’s first energy storage mandate – requiring utilities to procure 1.3 GW of energy storage by 2020, of which 875 MW must be distribution grid-connected or customer-sited storage. Southern California Edison (SCE) was the first utility to procure energy storage under these requirements and announced contracts for 261 MW of new energy storage capacity, five times the amount required under the new state law. SCE’s contracts for energy storage included a 100 MW battery system from AES Energy Storage and a 26 MW thermal energy storage system from Ice Energy.
Many of the energy storage projects procured to meet California’s energy storage requirements will be installed over the next five years, and additional procurements from utilities will continue. In 2015 the state passed SB 350, modifying the state’s RPS to require utilities to generate 50% of their electricity from renewable sources by 2030. More energy storage projects are expected to come online in order to help integrate variable renewable generation.
The majority of the market for advanced energy storage comes from battery technologies, which have seen significant reductions in price along with improvements in capabilities and functionality in the last two years. An average utility-scale Li-ion energy storage system, which could be installed for around $1,500/kWh in 2014 are now being built for under $1,000/kWh. Li-ion batteries have undergone technological advancements in recent years. But cost and operational life continue to present an obstacle to deploying Li-ion storage at utility-scale. New advancements in liquid metal batteries, pioneered by Ambri, are designed to help solve the problem of cost-effective, utility-scale battery storage. Ambri’s liquid metal battery is made from abundant materials, is designed to handle high voltage, and made to last for significantly longer than most Li-ion batteries. If successfully commercialized, Ambri’s batteries could also be made at a fraction of the cost of Li-ion batteries.
But batteries aren’t everything that’s hot in energy storage. Other interesting developments include advances in modular thermal energy storage from companies such as Ice Energy and Calmac. Their technologies are used to reduce the energy demand from air conditioners by freezing water at night to provide cooling during daytime peaks. Significant advances have been made in flywheel technology inecent r years by companies including Amber Kinetics, Temporal Power, and Beacon Power. New flywheel systems now allow energy to be stored for up to four hours. This technology has the advantage of a longer lifecycle with potentially lower operating costs compared to batteries.
While battery and other hardware improvements will continue, much of the industry’s focus is now on innovation in software and energy management controls. Many leading storage system integrators such as, Greensmith, Invenergy, RES Americas, AES Energy Storage, Stem, and Younicos offer proprietary software and controls that are designed to maximize the value of a system by providing multiple services to the grid or end-users, thereby capturing the maximum possible revenue.
Energy storage enabling technology – including power conversion (primarily focused on inverters), system-level software and controls, and systems integration services – is a portion of the energy storage value chain getting
57 intensive attention. While battery prices have fallen 40% to 60% in the past 18 months, thanks to manufacturing innovations and volumes, energy storage systems overall still vary wildly in terms of price. Now that battery prices have started to come down, the balance of plant—or the enabling technology portion of overall cost— needs to deliver on pricing. Once this happens, the industry will scale further and faster.
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