EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

EVOLVING BUSINESS MODELS FOR RENEWABLE ENERGY: 2014 INDUSTRY REVIEW  JUNE 2014 

  AMERICAN COUNCIL ON RENEWABLE ENERGY (ACORE)

ACORE,a501(c)(3)nonͲprofitmembershiporganization,isdedicatedtobuildingasecureandprosperousAmerica withclean,renewableenergy.ACOREseekstoadvancerenewableenergythroughfinance,policy,technology,and marketdevelopmentandisconcentratingitsmemberfocusin2014onNationalDefense&Security,Power Generation&Infrastructure,andTransportation.Additionalinformationisavailableat:www.acore.org

POWER GENERATION & INFRASTRUCTURE INITIATIVE

PowerGeneration&InfrastructureInitiativebringstogetherleadersfromtheutility,business,investment, regulatory,publicandnonͲprofitsectorsto:(1)examinethechallenges,opportunitiesandappropriatestrategies relatedtotheexpandeduseandeffectiveintegrationofrenewableenergyinthepowergenerationsector;and(2) explore21stcenturybusinessmodelsthatwillallowforthisrenewableenergyscaleͲup.Additionalinformationis availableat:www.acore.org/programs/memberͲinitiatives/powerͲgeneration

 COPYRIGHT

©2014ACORE

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AmericanCouncilOnRenewableEnergy(ACORE) 1600KSt.NW,Suite650 Washington,DC20006 202.393.0001

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1 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW 

POWER GENERATION & INFRASTRUCTURE INITIATIVE ADVISORY COMMITTEE AUTHORS



  ACORE AbengoaSolar AmericanCleanEnergy RESAmericas ToddFoley,JamesHewett, PaperCoͲAuthoredby SteveMorgan ShaliniRamanathan LesleyHunter,and ConcentratingSolarPower   MichaelBrower AllianceandPerkinsCoieLLP  FredMorse(Abengoa),Kate Maracas,Frank(Tex)Wilkins, andArthurHaubenstock   

 ScottMadden,Inc. SiemensSmartGrid Sullivan&WorcesterLLP  ChrisVlahoplus,CristinLyons, Services JimWrathall,EliasHinckley andPaulQuinlan ChrisKing andJohnFrenkil  

POWER GENERATION & INFRASTRUCTURE INITIATIVE SPONSORS



2 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW  TABLE OF CONTENTS



ExecutiveSummary...... 4 EvolvingBusinessModelsforRenewableEnergy...... 5 RenewableEnergyDriversofChangeandOverviewofActionsfromtheUtilityPerspective, ScottMadden,Inc....... 5 DistributedEnergy:UnderstandingandMitigatingCommercialandRegulatoryRisks, Sullivan&Worcester,LLP...... 11 RevisitingtheElectricitySystem:LeveragingDistributedGeneration,AmericanCleanEnergy...... 15 RoleofIndustrialandCommercialEnergyUsersinChangingUtilityBusinessModels, RESAmericas...... 20 MarketSpotlights...... 24 GridIntegrationChallengesandtheRoleofConcentratingSolarPower,ConcentratingSolar PowerAlliance,PerkinsCoie,LLPandAbengoaSolar...... 24 ElectricVehicles:Flexibility,Creativity,andProfitPotentialforUtilities,SiemensSmart GridServices...... 28   

3 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

EXECUTIVE SUMMARY



Renewableenergycontinuestogrowasashareof challenges,opportunitiesandappropriatestrategies ournation’soverallelectricityportfolio,now relatedtotheexpandeduseandeffective responsiblefor14%oftotalU.S.powergeneration. integrationofrenewableenergyinthepower Acombinationofprivatesectoringenuity, generationsector;and(2)explores21stcentury investmentandgovernmentpolicycertaintyhave businessmodelsthatwillallowforthisrenewable drivensignificantcostreductions,technology energyscaleup. improvements,andscaleupoftherenewable energyindustryoverthepastseveralyears.In2013, PURPOSEOFTHISREPORT nearly40%ofallnewU.S.electricitygenerating ThisIndustryReviewexploreskeyissuesand capacitycamefromrenewableenergy. providesrecommendationsrelatedtotheevolving Atthesametime,developmentsinnaturalgas powersectorandincreaseduseofrenewable extractionoffergameͲchanging,buthighlywaterͲ energy,particularlyrelatedtodistributedgeneration intensiveopportunities;stringentenvironmental andtheeffectiveintegrationofadvancedgrid standardsraiseperformancerequirements;the technologiessuchassmartgridsandmicrogrids.This centralcoalandnucleargenerationfleetisrapidly reportprovidesaseriesofindustryperspectiveswith aging,foretellingaverycostlyreplacementscenario; usefulanalysis,data,andinsightforrenewable andthetransmissionanddistributionsystems energyandutilitystakeholders,including: requireexpansionandupgrade.Anupdatedpolicy  Insightintohowdistributedgenerationand frameworkandsignificantcapitalinvestmentare advancedgridtechnologiesarechangingthe requiredtomodernizethepowergenerationsector powergenerationsectorandtraditionalutility andassurereliableservice.Technological businessmodels innovations,regionaldifferencesinresource availability,thechangingnatureofcustomer  Suggestedoutcomesforthesuccessful relationsandusepatterns,emergingfinancing integrationofrenewableenergyatscale structures,theelectrificationofthetransportation sector,andamurkypolicycertaintyoutlookpresent  SpotlightsonhowCSPandEVsarechangingthe challengesandopportunitiesforthissector. wayutilitieslookatgeneration,integration,and storage Buildingontheconsiderableprogresspower generationcompaniesacrosstheU.S.aremakingto Agroupofprominentrenewableenergydevelopers, integraterenewableenergy,ACORE’sPower professionalservicefirms,energyservicecompanies, GenerationandInfrastructureInitiativebrings andothergroupsauthoredthesixarticlesinthis togetherleadersfromtheutility,businessand Review. investment,regulatory,public,andnonͲprofit sectorstodefineaviablearchitectureforthescale Theviewsandopinionsexpressedinthisreportare upandsystemsintegrationofrenewableenergy thoseoftheauthorsanddonotnecessarilyreflect resources.Thecollaboration:(1)examinesthe theviewsofACORE. .

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RENEWABLE ENERGY DRIVERS OF CHANGE AND OVERVIEW OF ACTIONS FROM THE UTILITY PERSPECTIVE

ChrisVlahoplus,CristinLyons,andPaulQuinlan ScottMadden,Inc.

Renewablegenerationresources,coupledwiththe InitiativesTaskForce(EITF),havetakena innovationofenablingtechnologyonthe conservativeapproachtostateregulatoryriskby distributiongrid,arecreatingthepotentialfor includingrequirementsinrequestsforproposals disruptivechangeforelectricutilities.WhileutilityͲ (RFPs)thatthebiddercomplywithallstateutility scalerenewablestrategiescanbesimilarto laws.Understandingthenuancesofstateregulation traditionalutilityͲscalegeneration(i.e.,largeͲscale mayprovideanopportunityforpowerpurchase assetswithpurchasepoweragreements(PPAs)),the agreements(PPAs)tobeexecutedthatmight utilitybusinessmodelmayfacesignificantchanges otherwisenotbeconsideredreadilyfeasible. fromcustomerͲsiteddistributedresources, especiallydistributedsolarphotovoltaics(PV). FederalregulationofpublicutilitiesbytheFederal EnergyRegulatoryCommission(FERC)isrelatively Utilities’responsestodistributedgenerationhave wellͲunderstood,andthereforeisnotthefocusof varied,rangingfromfinancingprojectsoutsideof thisarticle. theserviceterritorytoowningandoperating distributedgenerationwithintheserviceterritory. DRIVERSOFCHANGE Regardlessofdirection,utilitiesarefacedwiththe Resourcesthathavethepotentialtoshifttheutility needtorethinkhowdistributedresourcesaffect businessmodelaregenerallyappearingonthe theirapproachto:realͲtimeoperations;system customersideofthemeterandprovidingutility planning;customerengagement;andstrategy, customerswithalternativestosupplytheir regulatory,financial,andstakeholdermanagement. electricityneedsthatdidnotpreviouslyexist. Inresponse,utilitiesshouldtakeproactiveactionto: PrincipalselfͲsupplyenergyresourcesincludesolar  Renewtheregulatorycompact PV,combinedheatandpower(CHP),demand  Market,test,orpilotalternativeresources response,andmicrogrids.Theprimarydrivers  Defineadjustmentstotheoperatingmodel propellingthegrowthofdistributedgeneration  Defineadjustmentstothebusinessmodel resourcesinclude:

Despitesomerhetorictothecontrary,utilitieswill  TechnologyandDistributedGeneration continuetoexistandplayavitalroleinproviding Advances:AdvancesinPVtechnology,coupled valuableservicestocustomers.Therefore,utilities withcommoditypricedeclines,areintroducing musthaveroomtobecomevaluablepartnersto unprecedentedlevelsofnonͲtraditional ensurethatdistributedgenerationbecomesalongͲ generationtothegrid.Inaddition,distribution term,positiveenhancementoftheelectricgrid. automation,advancedandaggregateddemand response,energyefficiency,andautomated Inrenewableenergyprojectdevelopment, meteringinfrastructureareimprovingthe regulatoryriskcanoftenbeoneofthemore reliabilityandefficiencyofthegrid. frustratingissuesthatrenewableenergydevelopers mustaddress.Todate,U.S.DepartmentofDefense  PublicPolicyandRegulatorySupport:Policies (DoD)officials,inparticular,theU.S.ArmyEnergy drivingadoptionincludenetmetering,

5 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

renewableportfoliostandardswith EXHIBIT1:PROSPECTSFORDISTRIBUTEDGENERATION distributedgenerationrequirements, authorizationtoallowthirdͲparty ownershipmodels,andincentives. Statesarebeginningtoexplorethese dynamicsandtheirimpactonelectric utilitiesandcustomers.Policiesbuilt aroundthe“valueofsolar”orother distributedgenerationmaybecome moreprevalentandmayreplacenet metering.Regulatorsarealso encouragingutilitiestoexplore advancedtechnologiesandnewbusiness thelongͲhaultransmission.Theissuesrangefrom models.Examplesoftheseeffortsinclude thestrategictotactical,forexample: Minnesota’svalueofsolar,gridmodernization  ThirdͲpartysalesofelectricitymaydisplacethe inMassachusetts,and“utilityofthefuture” utility’srolewiththeretailcustomer. discussionsinMarylandandNewYork.  Microgridsintroducethequestionoffranchise  CustomerPreference:Businessesare rightsandthedefinitionofautility. demonstratingagrowinginterestin incorporatingdistributedgenerationintheir  Utilitiesmayneedtoupgradedistribution energysupply.Forexample,Walmartgenerates infrastructure(relaying,reclosers,conductors, 1%ofitselectricityor174GWhperyearfrom andtransformers)toaccommodatetwoͲway 1 onͲsitebiogas,solar,andwind. Inaddition, powerflowsthatcomefromtheseinstallations. residentialcustomersareconsidering distributedgenerationingrowingnumbersas  Theutilityneedstobeableto“see”where costscontinuetodecline.Demographicswill resourcesarelocatedonthegridandmanage increasethistrendasyoungercustomershave intermittencyatthedistributionlevel. strongerpreferencesforgreensolutions.  Distributedresourcesanddemandresponse Theadoptionandimpactofthesedriverswillnotbe havethepotentialtochangetheloadcurveofa consistentacrosstheUnitedStates.Instead,states utilityinspecificnetworksinthedistribution withmorefavorableenvironments(e.g.,more system. lucrativenetmetering,thirdͲpartysolarleasingand  Duetonetmeteringprovisions,distributed PPAs,higherelectricityprices,etc.)aremorelikelyto generationcustomersmaynotparticipatefully haveasignificantinfluxofdistributedresources.The inpayingforthedistributionupgradesrequired majorityofthesestatesareinthenortheastand tointerconnecttheirrooftopsolarinstallation. southwest.  SomearguethatcrossͲsubsidizationofrate ISSUESANDCONSEQUENCES classesistakingplaceinthedeploymentof Distributedresourcesintroducecomplexityto distributedgeneration(beyondexistingcrossͲ traditionalmodelofcentralͲstationgenerationand subsidizationoflowͲincomeandbetweenother

 1U.S.EPA,“Top30OnͲsiteGeneration,RevisedJanuary27, 2014,” http://www.epa.gov/greenpower/toplists/top30onsite.htm

6 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

rateclasses,i.e.betweenindustrial,commercial services,whileIESremainstheownerofthe andresidential). solarassets.

 Largecorporations,whichareutilities’largest  Provide“Green”OptionstoCustomers:Utilities customers,arefacingpressurefromproduced maymeetcustomerneedsbyproviding productsandservices. communitysolarinitiativesorgreenrates.For example,SaltRiverProjectofferscustomers TODAY’SUTILITYACTIVITY accesstoa20MWcommunitysolarproject. Meanwhile,DukeEnergy,NVEnergy,Dominion, Utilitiesarecontemplatingthedegreetowhichthey GeorgiaPower,andothersprovidecreditsor wanttoownoroperatedistributedgeneration tariffsforcustomerstopurchaserenewable assets.ThereisparticularinterestinsolarPVassets energy,therebyeliminatingtheneedfor andthatisthefocusofthissection.Approachesto customerͲsitedinfrastructurefromtheir thistechnologyfallbroadlyintothefollowing perspective.Theutilitybenefitsbecausethese categories: resourcesaregenerallyutilityͲscaleandhave  FinanceOutsideofServiceTerritory: minimalimpactonthedistributionsystem. Companiesmaypursueopportunitiesby  Own/OperatewithinServiceTerritory:UtilityͲ providingprojectfinancingorequity owneddistributedsolarmaybecomea investmentsincompanies.In2010,Pacific regulatedassetwithinacompany’sservice EnergyCapital(asubsidiaryofPG&E)agreedto territory.Thisapproachmitigatesissuesrelated fundSolarCitytoinstallsolaronhomesand tonetmeteringwhileprovidingoperational businesses.Examplesofequityinvestments, benefits,astheutilitycanpotentiallysitethe whichappeartobethepreferredapproachin solarinthepartofthesystembestequippedto recentyears,includeDukeEnergy’sinvestment accommodateit,andwhereitmayhelpsolve inCleanPowerFinanceandEdison congestionorreliabilityissues.Dominionis International’sacquisitionofsolarinstaller testingutilityͲowneddistributedsolarina30 SoCoreEnergy. MWpilotprogram.  Own/OperateOutsideofServiceTerritory: Inaddition,someutilitieshavebegunto NumerousutilitieshaveinvestedinutilityͲscale contemplatearoleakintoadistributedregional solaroutsideoftheirserviceterritoriestolearn transmissionorganization(RTO).Inthisscenario,the aboutthetechnologywhilepotentially utilitybecomesamanageroftransactionsacrossa increasingearnings.Directownershipof diversesetofresourcesincludingdistributed distributedsolarhasbeenmorelimited. generation,demandresponse,energyefficiency,and However,IntegrysannouncedinJanuary2014 customerloads.Thismodelpresupposeschangesto thatitssubsidiary,IntegrysEnergyServices(IES), ratedesignandsignificantadvancesinutility wouldinvest$40to$50millionperyearin operations. commercialandresidentialsolar.CleanPower Financewillprovideoriginationandoperation

7 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

EXHIBIT2:BENEFITSANDCHALLENGESOFCURRENTUTILITYACTIVITY TypesofUtility Benefits Challenges Involvement

FinanceOutsideof  Allowsforparticipationingrowingmarket  Technologiesand ServiceTerritory andpotentialreturnoninvestmentthrough regulationsoutsideofthe direct(energyrevenues,renewableenergy serviceterritorymaynot certificates)andindirectbenefits(taxcredits, provideadequateknowledge Own/OperateOutside diversification) transferforfutureservice ofServiceTerritory  Facilitatesanunderstandingoftechnology territoryinstalls andmarketconsiderations

Provide“Green”  ProvidesanopportunitytogainfirstͲhand  Requireslargerinvestment OptionstoCustomers knowledgeofhowtomaximizeresource incapitalandresourcesto value acquireandmanage  Understandingtechnologymayprovide  Needstobecoordinated Own/Operatewithin ancillarybenefits(e.g.,voltageregulation) withotherfacetsofthe ServiceTerritory  Morelikelytobeeligibleforraterecovery company   OVERVIEWOFUTILITYCOURSESOFACTION x CreatinggridͲreliabilityinterconnectand operatingprotocols Autilityshouldbeginbyevaluatingthepotential marketsizeofdistributedgenerationinitsservice x Creatingflexibletariffstoservedistributed territory.Keydriverswillbethelocalrenewable generationcustomers resources,installationcosts,andpolicystructure.  MarketTestorPilotAlternativeResources: Withanunderstandingofthepotentialmarket,a Markettestsandpilotsallowutilitiestodevelop utilityshouldfollowthestepsbelow. operationalexperiencewithnewtechnologies.  RenewtheRegulatoryCompact:Thecurrent Utilitiesmayalsotestpricingprinciplesthrough ratemodelwasdesignedforadifferent marketexperimentsanddifferentiatedpricing. environment.Theconvenienceofcostallocation Markettestsorpilotswithinaserviceterritory toafewmajorrateclasses,usingvolumetric mayestablishaprecedentforfullͲscale rates,breaksdowninaworldofvariedand implementation. distributedcustomers.Ifdistributedresources  DefineAdjustmentstotheOperatingModel: aretoseelongͲterm,viablepenetration,this Utilitieswillneedtorefineoperatingmodelsto modelmustberethought.Theutilityriskprofile, accountforthelessonslearnedthroughmarket businessmodel,andfinancialstructureall testsandpilots.KeyareasoffocusincluderealͲ dependontheregulatorycontract.Keyactions timeoperations,systemplanning,andcustomer torenewtheregulatorycompactinclude: engagement(seeexhibit3). x Addressingnetmeteringinequalityissues  DefineAdjustmentstotheBusinessModel: x Immunizingreturnsagainstflattodeclining Utilitiesmustalsorefinebusinessmodelsbased consumptionthroughratedecouplingor onthelessonslearnedfromthemarkettestor othermechanisms pilot.Keyareasoffocusincludestrategy, regulatory,financial,andstakeholder x Protectingfranchiserightsand engagement(seeexhibit4). responsibilities

8 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

EXHIBIT3:OPERATINGMODELADJUSTMENTS

Areasof Implications Considerations Concern

RealͲTime  Amarkettestorpilot will  Considerexpanded,moregranularvisualization Operations allowoperatorstoseeand tools operatenewresources  DeterminehowcoordinationwithnonͲutilityentities connectedtothegrid thatoperateassetsshouldwork  Protocolsdictatingtheavailabilityofresourcesmay becomeimportantiftheyaretoberelieduponby operations

System  Centralstationgeneration  Modelsneedtoaccountfornewresources Planning andlongͲhaultransmission  Locationandtimearenowimportantvariablesand planningwillneedto needtobeconsideredbothintransmissionand incorporateamarkettest distribution orpilot

Customer  Amarkettestorpilot  Theutilitywillbecalledupontointerconnectto Engagement allowsutilitiestoprovide variousentities;therolesandresponsibilitiesinthat customersnewservices interfaceneedtobeclear  Customersmayrequireadditionaltypesofservice

 

EXHIBIT4:BUSINESSMODELADJUSTMENTS

Areasof Implications Considerations Concern

Strategy  Theutilitywillface  Theutilityneedstoconsiderwhichbusinessesit competitionandlossof wantstobein revenue  Isthereanopportunitytobecomethe“singlepoint  Alternativebusiness ofcontact”tothecustomer? opportunitiesmayexist  Arethereotherlinesofbusinessestheutilityshould enter?

Regulatory  Utilityloadswilldecline  Considerratedecoupling,riders,andother withtheinfluxof strategiestoprotectrevenuestoday resources;theexisting  Openthedialoguewiththeregulatoronchangesto rateconstructmaybe thebusinessmodelandthe“valueofthegrid” insufficienttoaddress  Considerfurtherbifurcationofcustomersandrate decliningdemandgrowth classes andcustomergeneration

Financial  Customersareusingless  Clarifyapproachtonetmetering electricityorselfͲ  Considernewgrowthstrategies(e.g.,electrification supplying ofinfrastructure,etc.)

Stakeholder  Astrategytomanageall  Theutilityneedstomanageandcommunicatetoall Management stakeholderswillbe stakeholdersthroughtransition critical  Thisapproachshouldbecoordinatedwithother strategies

9 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

Despitesomerhetorictothecontrary,utilitieswill CristinLyonsisapartnerandleadsthefirm’s continuetoexistandplayavitalroleinproviding transmission,distribution,andSmartGridpractice. valuableservicestocustomers.Therefore,utilities Shejoinedthefirmin1999andhassinceconsulted musthaveroomtobecomevaluablepartnersifwe withamyriadofclientsonissuesrangingfrom aretoensurethatdistributedgenerationbecomesa mergerintegrationtoprojectandprogram longͲterm,positiveenhancementoftheelectricgrid. management.CristinearnedanM.B.A.from SouthernMethodistUniversityandaB.A.inpolitical ABOUTTHEAUTHOR scienceandSpanishfromGettysburgCollege.

ChrisVlahoplusisapartnerandleadsthefirm’s PaulQuinlanisaCleanTechSpecialistwiththefirm’s cleantechandsustainabilitypractice.Hehasbeena cleantechandsustainabilitypractice.Heearneda managementconsultanttotheenergyandutility masterofpublicpolicyandamasterof industryformorethan20years.Chrisearnedan environmentalmanagementfromDukeUniversity M.B.A.fromtheUniversityofNorthCarolinaat andaB.S.fromtheUniversityofNotreDame. ChapelHillandanM.S.innuclearengineeringfrom theMassachusettsInstituteofTechnology. 



10 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

DISTRIBUTED ENERGY: UNDERSTANDING AND MITIGATING COMMERCIAL AND REGULATORY RISKS

JimWrathall,EliasHinckleyandJohnFrenkil Sullivan&Worcester,LLP  Improvingtechnology,combinedwithhighercosts substantiallyinthemarketforcommercialand oftraditionalgridͲdeliveredelectricityand industrialDERsystemsrangingfrom1megawatt increasinglystringentenvironmentalrequirements, (MW)to3MWinscale.Forexample,distributed havecreatednewopportunitiesforonͲsitepower solarenergycapacitywasthethirdlargestsourceof andotherdistributedenergyresources(DER). newgenerationin2013,andisexpectedtogrowata rateof22%annuallythrough2020.3WhilesolarPV AccordingtotheU.S.EnergyInformation hasbeenattheforefront,theDERopportunityis Administration,42gigawatts(GW)ofnewpeak muchlargerthansolar,encompassingavarietyof powergenerationcapacitywillbeneededinthe distributedgenerationtechnologies,including 2 nexttwentyyears. Muchofthiscapacitywillbe modularwind,combinedheatandpower,biomass, metwithDER,drivenbyenergyconsumersseeking biogas,fuelcellsandmicroͲturbines,aswellas, improvedperformance,reliability,powerquality, otherresourcessuchasenergystorage,microgrids, andcostsavings.SeveralFortune100companies, demandresponse,andadvancedenergy includingWalͲMart,GoogleandApple,have managementinformationtechnologies. committedtosupplyingalloftheirenergyneeds throughrenewableenergyresources. Ontheotherhand,electricutilitiesandbroader nationalorganizationshaveincreasinglysoughtto Anumberofstatesarepursuingaggressive restrictandimposeadditionalfinancialchargeson programsprovidingincentivesandregulatory DER.Theyarguethatconsumersobtainingpower reformssupportingadoptionofDER.Mostrecently, throughtheirowngenerationassetsarenotpaying onApril25,2014,NewYorkStateGovernorAndrew enoughforgeneralgridservices. CuomoannouncedthattheN.Y.PublicService Commissionwilloverhaulthestate’senergymarket TheshifttowardDERiscreatingmajoropportunities regulationswiththegoalofincreasingdistributed forinvestors,althoughinacontextofincreasing generation,smartgrid,anddemandresponse uncertainty.Innovativefinancialmodelscanbeused technologies.PublicutilitycommissionsinCalifornia, tostructureDERinvestments,particularlythose Arizona,Colorado,Minnesota,Florida,Hawaii,and focusedonaggregatingpoolsofassetsfor IowahaveopendocketsaddressingDERadoption investmentandsecuritization.Giventhe andrelatedratemakingissues. complexitiesofDERandthechangingregulatoryand marketlandscape,identifyingrisksandopportunities Thesemarketandpolicydynamicsareleadingto tomitigatetheseriskswillbeincreasinglyimportant increasedadoptionofDER.Growthhasaccelerated inthecontextofDERinvestments.

 2 3EdisonElectricInstitute,DisruptiveChallenges:Financial http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2014&s ImplicationsandStrategicChallengestoaChangingRetailElectric ubject=0ͲAEO2014&table=9ͲAEO2014®ion=0Ͳ Business,Jan.2014(citingBloombergNewEnergyFinance). 0&cases=full2013fullͲd102312a,ref2014Ͳd102413a  

11 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

RISKCATEGORIESINDISTRIBUTEDENERGY andifthesponsorsarereliedon,includingfor TRANSACTIONS ongoingoperationsandmaintenance,these risksbecomemoreimportant. Distributedresourceinvestmentsbringuniqueareas ofrisk.Anumberofthesetypesofrisksare 4. CreditRisk:Wherereturnsaretobeprovided commercialinnature,andwillbeaddressed throughanarrangementwiththecounterͲparty primarilyonthebusinesssideofthetransaction. topurchaseandtakethepowerproduced,the Othertypesofriskarestructuralandregulatoryin termsandconditionsoftheoffͲtakeagreement natureandwillgenerallybehandledwith willbecriticallyimportant.Indebttransactions, contractualprovisions. thelenderalsomaytakeasecurityinterestin thesuppliedpowerandresultingcashflows. CommercialRisks RegulatoryRisks Akeyinitialissueistheproposedstructureofthe DERinvestment.Financingmayeitherbedirectly Distributedgenerationprojectsarestructuredwithin providedtotheprojectsiteownerortothirdͲparty acomplexsystemofstateandfederalregulatory providers.TransactionsmayemployamixofnonͲ requirements.Eachstateregulatespower recoursedebt,taxͲequityfinancing,andequity. generationandutilityinterconnectionandoffͲtake Sponsorsareabletoachieveperformance separately.Achievingfinanceableandsuccessful advantagesandcostsavingsthroughaportfolio transactionsrequiresaclearunderstandingofthese approach,andcaneffectivelymonetizethe regulatorymatters. economicbenefitsrealizedthroughgovernment Forexample,akeyquestionforaDERinvestmentis incentives,taxcredits,anddepreciation.Portfolios whethertheprojectwouldbelocatedinstatesthat andtheassociatedrevenuestreamscanthenbe permitthirdͲpartyleasingofonͲsiteenergy packaged,securitized,andofferedtoinvestors.Each resources–referredtoas“retailchoice”programs. transactionmodelmustbeevaluatedinconsidering Currently,suchprogramsareallowedintwentyͲ thepotentialrisksandexpectedupside. threestatesandtheDistrictofColumbia.Instates ParticularlyinthecontextofthirdͲpartyfinancing, whereretailchoiceisnotauthorizedbystatute, thereareanumberofsignificantcategoriesof thirdͲpartyfinancingisnotanoption,andproject commercialrisks,including: proponentsmayberequiredtoenterintodirect discussionswithregulatorstoobtainnecessary 1. TechnologyRisks:Understandingtheexpected approvalsforDERtransactions. performanceandreliabilityoftheproposed technicalsolutioniscriticallyimportant.This Federalandstatefinancialincentiveprogramsalso includesboththedirectoperationofgenerating mustbefullyconsidered.Thespecifictermsofthe assetsaswellasrelatedremotesensingand applicablenetͲmeteringorfeedͲintariffprovisions informationtechnologies. willgreatlyimpacttheeconomicsofthetransaction. Severalstateshavepassedlegislationauthorizing 2. DeveloperQualifications:Thehistoryand programssuchasPropertyAssessedCleanEnergy capabilitiesoftheprojectdevelopercanmake andonͲbillfinancing.Theseprogramshave thedifferenceinachievingasuccessful substantialimpactsoninvestmentriskprofiles. outcome. Anotherissueistheabilitytomonetizerenewable energycredits(RECs)andthepotentialforchanges 3. SponsorRisk:Thedutiesandcapabilitiesofthe inRECvaluesovertime.Inanumberofstates, sponsors/hostsoftheprojectassetsshouldbe renewableportfoliostandardsareunderattackby assessed.Iftheunderlyingassetsmustbe opponentsseekingrepeal.Inthosestates,theriskof accessedovertimeformaintenancepurposes,

12 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW achangeinlawcouldhaveasignificantimpacton equipmentselection,design,engineering,reliability, thevalueofRECs. andsystemdegradationprojections;installation qualitycontrolhistoricaldata;operationsand Finally,astheindustryitselfhasrecognized,the maintenanceproviderandagreementterms; adoptionofdistributedenergyresourcesis inspectionreportsfromsitevisitsatselected challengingtheelectricutilityindustrybusiness representativefacilities;performanceofsponsor 4 model. Someutilitiesandcompaniesinvolvedin portfoliosinpriorDERinvestmenttransactions;and fossilfuelͲrelatedsectorsarerespondingtothese warranties,performanceguarantees,andinsurance. developmentsinratemakingcases,requesting modifiedratestructuresthatrequireDERusersto Potentialinvestorsandtheircounselshouldconsider payadditionalamountstocover“gridservices”and retainingindependenttechnicalandengineering “standby”andbackupservices.Also,DER consultantstoaidindesigningandconductingdue opponentsareincreasinglyseekingrepealor diligencereviews.Theseexpertscanbeparticularly modificationoftheunderlyinglegislationcreating helpfulinassessingthereasonablenessand renewableandDERvaluestreams,suchasstate uncertaintyofpowergenerationforecasts,cost renewableportfoliostandards(RPS)andtaxcredit assumptionsandprojections,andreviewofthe programs.Thepotentialforfuturechangesinlaw O&Mplans. andtheextentofresultingimpactsonDERfinancial returnsshouldbecarefullyassessed. Similarduediligencemodelswillneedtobe developedforotherDERtechnologyportfolios, DUEDILIGENCEANDCONTRACT includingfuelcells,modularwind,and FRAMEWORKSINDISTRIBUTEDGENERATION biogas/biomassapplications.Increasing TRANSACTIONS standardizationwillbeimportantasthemarketsfor DERprojectsemployingthesetechnologiesmature. Investinginaggregatedpoolsofdistributed generationassetsposesuniquetransactional Thecapabilitytostandardizetheduediligence challenges.Comprehensiveduediligence,including processandprovideeffectivereviewsinacostͲ inspectionsofeachoperatinginstallation,maynot effectivemannerwillbeakeytoincreased becostͲeffective.Inthesekindsofprojects,thegoal investmentinDER.Theultimategoalisdevelopment istodesignandimplementduediligencereviews andapplicationofduediligencetemplatesthatwill thataresufficientlyrepresentativetoachieveoverall reliablyachievetheassessmentofthesignificant riskassessment,atalevelofexpensethatis variablesinaDERportfoliotransaction. consistentwiththereturnsofferedbytheproposed Unlockingthevalueindistributedresources investment. investmentsrequiresauniqueblendofcreativity Keyitemsforreviewincludetheinvestmentfinancial andstandardization.Atypicaldealpackagemight model;applicableregulatoryframeworkaffecting includesomecombinationofthefollowing: interconnection,offͲtakeandpricing,aswellas  Projectcompanydocumentsandequity potentialforfuturemodificationstothatframework; agreements whethertheprojectdeveloperhasprovided consistentanduniformdocumentationofthe  Loanandcreditagreements underlyingcontractualarrangements,includingoffͲ takeandinterconnectionagreements;structureage  Taxequityagreements andphysicalcondition,ownership,andsecurityof  Developeragreements theassets;resourceforecastdataandmethodology;  4Id.

13 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

 Leaseagreements cleanenergyandcleantechleaderfortwo AmLaw100lawfirms.Healsoisaprofessorof  Powerpurchaseagreements internationalenergypolicy,aregularcontributor toseveralenergyforumsandfrequentspeaker  RECownership onenergypolicyandfinance.  Collateralsecurityagreements  Mr.Wrathall’spracticeincludesenergyand  Revenuedistributionwaterfall environmentalpolicymattersandtransactions. PriortojoiningS&Winlate2011,hehadover  O&Mandbackupserviceagreements twodecadesofexperiencewithAmLaw20law firmsandservedasSeniorCounselwiththeU.S.  Insurancepolicies EnvironmentandPublicWorksCommitteefrom Thenature,scope,andstructureofeachprojectwill 2007through2011,handlingcleanenergyand necessarilydeterminetheprecisecontract climatechangelegislationandoversight framework.Earlyandcarefulstrategicassessment, activities. andcreativeuseandmodificationoftheavailable  Mr.Frenkilisanenergyfinanceattorney contractstructures,willbecriticallyimportantto focusingontherepresentationoflenders,equity mitigatingtheprojectandregulatoryrisks,and investorsanddevelopersindomesticand achievingsuccessfulfinancialoutcomes. internationalenergyprojects.Priortojoining ABOUTTHEAUTHOR S&W,herepresentedenergyclientsintheLos Angelesofficeamajorinternationallawfirm. JimWrathallisacounsel,EliasHinckleyapartner S&W’sEnergyFinancePracticedesignssolutionsfor andDavidJohnFrenkilanassociatewiththeEnergy complexfinancingchallenges,includingthe FinancePracticeGroupofSullivan&WorcesterLLP. integrationofnewtechnologiesandrelatedfinancial  InadditiontoheadingS&W’sEnergyFinance innovationforthepowergenerationindustry,aswell Practice,Mr.Hinckleyhasbeentheleaderofthe asthedeploymentandcommercializationof alternativeenergypracticeforoneoftheworld’s advancedenergytechnologiesanddistributed largestprofessionalservicesfirmsaswellasthe generationprojects. 

14 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

REVISITING THE ELECTRICITY SYSTEM: LEVERAGING DISTRIBUTED GENERATION

SteveMorgan AmericanCleanEnergy

Aresurgenceoftherenewableenergyindustryhas Duringthissameperiodoftime,utilityderegulation takenplaceoverthelastdecade,fueledbystate orrestructuringoccurredin16statesplusD.C., mandatesandfederalpolicyincentives,aswellas verticallydisaggregatingtheutilitiesinthose significantreductionsinprojectcosts.Despitethe jurisdictions.6Tofurthercomplicatethepicture,34 recessionof2008Ͳ2009,growthintherenewables statesandD.C.partiallyortotallyparticipatein sectorparticularlyacceleratedthedeploymentof organizedwholesalemarketsforelectricpower windandsolarphotovoltaics(PV).5 transactionsthrougharegionaltransmission operator(RTO)orindependentsystemoperator Whatwasonceanichemarkethasgrowntobecome (ISO).7Theupshotofthesechangesinpolicyand abusinessconcernforutilitiesandregulators. regulationhasbeenthereturntorelyingonprivate However,theintermittencyandlowͲcapacityfactors investmentforneworreplacementgeneration ofwindandsolarPV,relativetobaseͲloadthermal assetsinmost,butnotallofthecountry. powerstations,hasraisedoperatingconcerns. Revenueerosionascustomersuselessenergyand Atthesametime,uncertaintyoverfuturecarbon capacityofthegrid,oractuallygeneratebackinto regulationshasallbutkillednewcoalͲfired,baseͲ thegrid,createsconcernsfortheutilitybusiness loadconstruction.Expectedfuturecapacitywill model. comefromnaturalgasandrenewableresources.In 2013,37%ofallnewelectricitygeneratingcapacity THESHIFTINGMARKETANDPOLICY camefromrenewableenergy,threetimesmore LANDSCAPE generationcapacitythanfromoil,coal,andnuclear combined.Whilethebulkofrenewableenergy Since1983,38statesandtheDistrictofColumbia additionsoverthepastdecadehadbeenfromgridͲ haveadoptedrenewableenergytargets,30ofwhich connectedwind,2013sawthelargestrenewable havemandatorycompliancerequirementsandeight powercapacityincreasefromsolarPV,both ofwhichhavevoluntaryrequirements.Inaddition, distributedandcentralized.8 43statesandD.C.haveestablishedvariousnetͲ energymetering(NEM)policies.TheRPS TheproblemsattendanttocentralͲstationpower requirementsareapatchworkofpoliciesthatvary sourcesaffectgridͲconnectedrenewableenergy fromjurisdictiontojurisdiction.Someincludeall projectsaswell,includinglongͲdistancetransportof formsofrenewables,and10ofthemcallforsetͲ theenergytotheloadcenters.Therearesubstantial asiderequirementsforsolarPVand/ordistributed benefitstobederivedbyplacingnewrenewable generation. sourcesclosertotheloadstheyserve.

 5Bird,L.,J.McLaren,J.Heeter,C.Linvill,J.Shenot,R.Sedano,and www.eia.gov/cneaf/electricity/page/restructuring/restructure_el J.MigdenͲOstrander.RegulatoryConsiderationsAssociatedwith ect.html theExpandedAdoptionofDistributedSolar.(2013). 7AD10,OrganizedWholesalePowerMarkets."137FERC¶61,064 6Council,InterstateRenewableEnergy.StatusofElectricity UNITEDSTATESOFAMERICAFEDERALENERGYREGULATORY RestructuringbyState.EIA.2014. COMMISSION." 8SolarMarketInsightReport2013YearinReview.SEIA.2014

15 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

THEPOWERMARKETTODAY:ANEW,OLD andinabilitytomonetizethevaluethatdistributed MODEL generationresourcesbringtothegrid.

SolarPVpenetrationhasgrownfromvirtually Manyprojectssitedinthedistributionsystemwillbe nothingin2000toabout12GWattheendof2013.9 below1MWofcapacity,limitedbybothspaceand Whilemanyofthepreviousadditionshavebeen customerloadaswellasdistributionsystemdesign. largeͲscale,gridͲconnectedprojects,smaller, Therehasbeensomeconcernthatprojectsofthis distributedsolarPVisexpectedtomakeupthe sizecannotscalebecausetheprojectfinancemodel majorityofadditionsincomingyears. generatesahighcostofcapitalandlegalexpenses, makingdevelopmenteconomicallyunattractive. Thepaceofdeploymenthasbeendrivenbyvarious Giventherelativelylowpenetrationratesthusfar stateandfederalincentivesavailabletodevelopers andtheragingdebateovernewfinancingtools,one andowners.However,growthisincreasinglydriven mustconcludethatthereissomemerittothis bysolarPVcostreductions.Since2007,PVpanel argument. priceshavefallenover80%.Solarpanelscanbe purchasedinvolumeatabout$0.70perwatt However,economiesofbothscaleandscopecanbe delivered,andcontinuedpricepressuresare createdonceasubstantialpipelineofprojectsis expectedintothefuture. established.Thereareeconomiesthatcomefrom boththesupplychainaswellaslessonslearnedfrom Totalinstalledcostsrangefrom$2.30Ͳ4.00perwatt, replication,andmosteconomiesareyettobe andlittlehasbeendonetoreducethebalanceof achievedinthismarket.Although,achievementof systemsorfinancingcostsforPVsystems.10 thesebenefitscannotberealizedwithoutabetter However,atexistingdevelopedcosts,assuminga fundingvehiclethanisnowinplace. 30Ͳyearlifeandaconservativeestimateoffuture operationsandmaintenance(O&M),theU.S.Energy Taxequityfinancinghasbeenanessentialtoolinthe InformationAdministration(EIA)calculatesthe financingofprojectstodate.Theexplosioninsolar levelizedcostofenergy(LCOE)tobearound deploymentsin2010Ͳ2012was,atleastinpart,the $0.13/kWh.11Marketbidshavealsocomeinaround resultoftheconversionofincentivesintocash $0.08/kWhallͲin,makingtheLCOEcomparableto paymentsunderthe1603federalcashgrant preͲrecession,wholesalepowerpricing.Evenatthe programimplementedtocompensateforthecrash higher,moreconservativeestimateoftheU.S.EIA, ofthetaxequitymarketfollowingthe2008Ͳ2009 LCOEisbelowexistingretailratesinhighͲcoststates financialcrisis.Thetaxequitymarkethasreturnedto likeNewJersey,NewYorkandCalifornia.Thenwhat preͲcrisislevelsbutthelimitedavailabilityoftaxͲ ispreventingrapiddeploymentofdistributedsolar equityinvestorsandthehighcostofcapitalthey generation,particularlyinhighͲcostserviceareas? commandwilllimittheindustry’sgrowthtrajectory.

Thebarriersarenumerous,butthemostsignificant Therapidgrowthoftheelectricutilityindustryinthe arethebalkanizationofmarkets,uncertaintyof postͲWorldWarIIerareliedupontheabilityof policy,overͲrelianceontaxͲequityfinancingand utilitiestosecuritizetheircapitaladditions.Accessto projectfinance,andagenerallackofunderstanding stable,predictable,longͲtermsourcesoffundingcan haveasimilarimpactontheemergenceofthe distributedgenerationmarket.Buttheabilityto  9Solar,U.S."TRENDS2012."(2013).,www.irecusa./publications 11"U.S.EnergyInformationAdministrationͲEIAͲIndependent 10Feldman,David,G.Barbose,R.Margolis,R.Wiser,N. StatisticsandAnalysis."U.S.EnergyInformationAdministration Darghouth,andA.Goodrich.Photovoltaic(PV)pricingtrends: (EIA).N.p.,n.d.Web.Apr.2014. historical,recent,andnearͲtermprojections.No.DOE/GOͲ . 102012Ͳ3839.NationalRenewableEnergyLaboratory(NREL), Golden,CO.,2012.

16 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW financefutureprojectswithbondproceedsis Laboratory(NREL)report,RenewableElectricity generallylimitedtoaveryfewlargedevelopers. FuturesStudy,concludedthat:“Thecentral Utilitiesareinapositiontoaccessthesecapital conclusionoftheanalysisisthatrenewable marketsatacostandtenorthatcanmakethe electricitygenerationfromtechnologiesthatare deploymentofdistributedgenerationgrow.Afterall, commerciallyavailabletoday,incombinationwitha theseresourcesarelongͲlived,utilityͲlikeassetswith moreflexibleelectricsystem,ismorethanadequate provenandpredictableoperatingcharacteristicsand tosupply80%oftotalU.S.electricitygenerationin lives. 2050whilemeetingelectricitydemandonanhourly basisineveryregionoftheUnitedStates.”12 Presenthistoryinthesolarrenewablemarketplace suggeststhatmosthostsprefertoacquiresolar Willtherebechangesandadaptationsrequired? energythroughapowerpurchaseagreement(PPA), Certainly,butthechallengescanbemetanddonot whereintheygetstable,predictable,longͲterm requireunknownorunavailabletechnologyfor pricingforelectricitywithouttheburdensofupfront success. capitalorfutureO&Mcosts.Thissuggeststhatthose familiarwithowningandoperatinglongͲlivedassets WhataboutcustomerobjectionstoutilityͲowned arebestpositionedtotakeadvantageofthemarket andoperatedassets?Frommyexperience, developmentphaseofgrowth. customerdissatisfactionstemsfromtwomain sources:priceandavailability.Customer Inorderforthissuggestedmodeltowork,two dissatisfactionovereitherorbothoftheseissues criticalingredientsarerequired.First,theutility generallytranslatesintoacallfor“competition”or mustbeconvincedofthevaluepropositionin “control.” movingtoamoredistributedgenerationplatform. Secondly,thecustomermustbeconvincedinthe Availabilityintheutilityindustryisgenerally longͲtermvaluepropositioninallowingthe measuredasanaverageforallcustomersovera distributedgenerationontheirsite/building. year,basedon8,760hoursperyear.Accordingtoa 2012reportfromLawrenceBerkeleyNational Muchofthecurrentpolicydebatehasfocused Laboratory(LBNL),theaverageoutagedurationand aroundtheeliminationofincentives,includingnetͲ averagefrequencyofoutagesforU.S.customersis energymetering,largelydrivenbytheconcernover increasingatarateofapproximately2%peryear.13 utilityrevenueerosionasmarketuptakeaccelerates. Asystemthatdoesnotachieve100%availabilityis Weareseeingtheevolutionofrenewable seenasinsufficientgiventhedigitalageinwhichwe distributedresourcesintheinterconnectedgrid.The live.WhiletheLBNLreportisnotconclusiveastothe currentdebatehasfocusedonwhowinsandwho causeofthetrend,thoseintheutilityindustryknow loses?Theredonotneedtobeanylosers.The thatcustomerperceptionofreduced challengeistocraftawinͲwinframework. reliability/availabilityhastranslatedintocustomer andregulatorypressureforchange. TRANSITIONINGTOFUTUREMODELS Tosome,thatchangerequiresmassivenew Somesuggestthattheintermittentnatureofsolar investmentincapacity,whichworksagainstthe distributedgenerationwillcauseoperationalissues primaryconcernofprice.Bysomeestimates, intheinterconnectedgridatevenmodest upwardsof$1.5trillionareneededtobringthe penetrationlevels.TheNationalRenewableEnergy systemtoalevelofperformancethatwouldsatisfy

 12Mai,T.,R.Wiser,D.Sandor,G.Brinkman,G.Heath,P.Denholm, NREL/TPͲ6A20Ͳ52409Ͳ1.NationalRenewableEnergyLaboratory D.J.Hostick,N.Darghouth,A.Schlosser,andK. (NREL),Golden,CO.,2012. Strzepek.RenewableElectricityFuturesStudy.Volume1: 13Eto,JosephH.AnExaminationofTemporalTrendsinElectricity ExplorationofHighͲPenetrationRenewableElectricityFutures.No. ReliabilityBasedonReportsfromUSElectricUtilities.(2013).

17 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW customerdemands.Whatif,insteadofspending resourcesthat,particularlygiventhatsolarPVis moneytoreinforcethetransmissionanddistribution competitivewithnewsourcesofgeneration,we systems,weutilizeddistributedgeneration simplycannotignoreit. resourcesandsemiͲautonomous“smartgrid” architecturetoisolateanoutagecausetothe TheintrinsicvalueofsolarPVwillberealizedwhena smallestpossiblesetofaffectedcustomers? utilitydecidestoinstalldistributedresourcesinstead ofafossilͲfueled,centralͲstationgeneratororanew TheRockyMountainInstitute’sElectricityInnovation transmissionlinetoeliminateorreducecongestion. Labissuedareportsummarizingtheknownbodyof Assumingautilitymustmakeaninvestmentinnew workonsolarPVbenefitsandcosts.14Inall,15 generation,transmission,ordistributioncapacityto cost/benefitstudiesundertakenbyregulatory serveitsloadgrowthorreplaceretiringfacilities,the bodies,electricutilities,nationallabs,orother customersbenefitwhenthatdecisionisdisplacedby organizationswerereviewedandassessed. distributedgenerationresources.Ofcourse,this Differencesinmethodologyandassumptionsmake assumessignificantmarketpenetrationof directcomparisonsofthestudiesnotuseful. distributedresourcesareachieved. However,therewereanumberofobservationsthat supportaviewthatthebenefitsofsolarPVarenet Importantlythough,thedistributedgeneration positive.Thereisgeneralagreementthatenergy modelcanbeeconomicallyattractiveintheexisting costreduction,encouragedbylessenergy gridarchitecture.Thewidedevelopmentof production,energylossreduction,andavoided distributedgenerationresourcesisanessential,but capacitycharges,ispossibleandfairlyeasily incompletesolutionfortheestablishmentofthegrid quantified.Likewise,itisunderstoodthatdistributed ofthefuture.Theadditionof“smart”invertersand generationcanprovideancillaryservicestothe distributedenergystoragepromisestotakethegrid transmissionanddistributionsystembywayof toitsultimateperformance.Smartinverters,capable reactivesupply,voltageregulation,frequency ofautonomousorsemiͲautonomousoperation, response,andcongestionreduction,thoughthereis alreadyhavetheabilitytoprovidevolt/var nogeneralagreementastothevalueofsuch regulationandislandingcapabilitiesintheeventof services.OtherpositedbenefitssuchasavoidedT&D lossofthegridforoutageevents.Couplingthis infrastructurecosts,eliminationofcriteria capabilitywithdistributedenergystorage pollutants,waterandlanduse,carbonreduction, technology,whethercollocatedwithdistributed jobsandeconomicgrowth,nationalenergysecurity, solarPVornot,effectivelymakesthoseresources enhancedreliabilityand/orresiliency,andfuelprice “dispatchable.”Thedistributedenergystoragecan hedgingarestillbeingdebatedandarenoteasily beusedtomitigateoreliminateanyintermittency, monetized. providefrequencyregulationanddemandresponse services,andhelploadshapingtomaximizethe ThenetvaluenotedintheNRELRenewable valueofthesolarresources. ElectricityFuturesStudyamountedtoabout $0.28/kWhfordistributedPV,whichisinthemiddle Incombination,distributedsolarPVanddistributed ofthepackamongtheotherstudies.Whilethere energystorage,coupledwithsmartͲgridenabled continuestobemuchdebateabouttheproper equipment,canprovidesignificantreductioninboth methodologiesandassumptionstouseinmaking customeroutagefrequencyandduration,which thesecalculations,itshouldbeclearthatthereis helpsachievethelongͲsoughtͲafter“selfͲhealing” sufficientbenefitfromdistributedgeneration grid.

 14Branker,K.M.J.M.,M.J.M.Pathak,andJoshuaM.Pearce."A electricity."RenewableandSustainableEnergyReviews15,no.9 reviewofsolarphotovoltaiclevelizedcostof (2011):4470Ͳ4482.

18 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

Aviablebusinessmodelalreadyexists.Utility electrificationofwork,werethereason.Thenext ownershipofthesedistributedresourcesobviates 100yearscanachieveatleastthesamebenefit,all theneedtoeliminatebalkanizedpolicies,provide thewhilesecuringthenation’seconomic,energy neworrenewedfinancialincentives,orprovidenew andenvironmentalsecurity. toolstoaccesscapitalmarkets,allthewhileensuring rapiddeploymentandlongͲterm,stableownership UsingarateͲbased,rateͲofͲreturnapproach andmanagementoftheassetsforthebenefitofthe eliminatesmanyofthebarrierspresentlypreventing utility,itscustomers,andultimatelythenation. rapidscalingofrenewabledistributedresources. Providingtheutilitywithareasonablereturnand ThisisnotacallforutilitiestobecomelargeͲscale earningsonitsinvestmentovertheassetlife,in engineering,procurement,andconstruction(EPC) returnforusingitsbalancesheettoaccesscheap contractorsortoinsourcethedevelopmentprocess. capitalmarkets,isthemodelthatbuilttheexisting JustasutilitiesdonotdesignorconstructlargeͲ gridandprovidedtheenergythatfueledour centralͲstationgenerationandcontractoutT&D economicgrowth.Utilizationofthismodeltobuild designandconstructionwork,theycanrelyonthe renewablegenerationandeventuallystorage alreadyavailablepoolofdevelopersandEPC technologieswillallowustounlockthevalueof contractorsfortheessentialwork.Rather,thisisa distributedenergyresourcesinawaythatbenefits callforthem,inexchangeforallofthebenefits allconstituencies–utilities,customers,and enumerated,tobringtheirfinancingmuscletothe regulators–throughstableandaffordableenergy taskoffundingbuildoutandtoutilizetheirexpertise supply,amoreresilientandcapablegridforthisnext intheintegrationoftheseassetsintothegridofthe century,andasafer,cleanerandmoresecure future. world.

Nodoubtthereareskepticsofsuchamodel,butitis ABOUTTHEAUTHOR relevanttopointoutthatoverthelast130years, theelectricutilityindustryhascreatedoneofthe SteveMorganistheCEOofAmericanCleanEnergy,a greatestmachinesknowntohumankind:the NewJerseybasedsolardeveloper.Priortoforming interconnectedgrid.Accesstoreadilyavailableand thecompanyin2009,Mr.Morganspent33yearsin cheapenergyhasbeentheengineoftheU.S. theelectricutilityindustry,retiringastheCEOof economyforatleastthepast50years.AlookatU.S. JerseyCentralPowerandLightCompany,a EIAdataoverthatperiodrevealsthatthe“real” subsidiaryofFirstEnergyCorporation.Hewas priceofelectricitydeliveredattheendof2010was recentlyelectedtotheBoardofDirectorsofSEPA thesameasitwasin1960.Overthatperiodoftime, andhasservedsince2010ontheBoardofACORE electricitypriceswereeffectivelyindexedtoGDP andisactiveonanumberofotherboardsinNJ. growth,andthedataindicatesthatproductivity Moreinfocanbefoundatwww.amcleanenergy.com improvements,broughtaboutthroughthe 

19 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

ROLE OF INDUSTRIAL AND COMMERCIAL ENERGY USERS IN CHANGING UTILITY BUSINESS MODELS

ShaliniRamanathan RESAmericas  Commercialandindustrialelectricityusers smeltersorcementmanufacturingplantsbeingbuilt increasinglypurchaserenewablepowertosupport intheUS,retailers’aggregateloadsandtech sustainabilitytargets.PurchasesincludebehindͲtheͲ companies’datacentersaresignificantpower meterrooftopsolarandfinancialsettlementsfor customers.Whatthesecustomersdoisimportantto bulkwindpower.Theroleofelectricutilities,the utilities,toIPPs,andtotheelectricitysectoroverall. traditionalbuyersofrenewableenergy,variesin thesetransactions.Somecommercialorindustrial Whymightacommercialorindustrialcustomer electricityusersworkthroughutilities,whileothers workwithautilityinsteadofdirectlyprocuring directlyhandlepurchases.Thereareadvantagesand power?Electricityisacomplicated,highlyregulated disadvantagestoeachapproach.Utilitieswilllikely business,and,ifyourbusinessiswidgets,youmight reacttothistrendbyofferingproductsandservices prefertoremainfocusedonwidgets.Unlessthereis tocommercialandindustrialusersandbychanging anexistingpowermanagementprogram,livingupto thewaytheychargeforgridservices. thetermsofapowerpurchasecontractmayrequire newexpertiseandcompliancemeasures.Becausea RENEWABLEPOWERANDCOMMERCIALAND bigretailstoreormanufacturingplantwilllikelybe INDUSTRIALUSERS connectedtothegrid,evenifithassolaronitsroof, itmaybeeasiesttomeetallpowerneeds,including Formanyyears,ownersoflargewindandsolar renewableenergy,throughthelocalutility. projectshadjustonetypeofcustomer:electric utilities.Now,inadditiontosellingtoutilities,itis Accountingrulesmayalsoplayarole.Manypower possibletosellrenewablepowerdirectlytolarge purchasers,whethertheyareutilitiesorcommercial endͲusersofelectricity,suchasretailers, orindustrialusers,preferreceivingfixedblocksof manufacturers,ortechnologycompanieswithlarge powerinsteadoftakingunitͲcontingent, datacenters.Theinteractionbetweenindependent intermittentpowerasproduced.Structuringa powerproducers(IPPs),utilities,andcommercial powerpurchaseagreement(PPA)tobuyfixedblocks andindustrialusersischanging.Theroleofutilities ofpowermaymakeitaderivativeinstrument, variesineachtransactionasnewmodelsare triggeringcomplicatedmarkͲtoͲmarketaccounting developed. treatment.

Commercialandindustrialuserscanbemajor Furthermore,powercontractsarelongterm.While customersforutilities.Retailers’aggregateloadsand windandsolarpricesareatallͲtimelows,andthese technologycompanies’datacentersaresignificant technologiesareagoodhedgeagainstrisingpower powercustomers.Alargedatacenter,forexample, prices,itcanbechallengingforcompanieswhose mayrequire80MWofpower,equivalenttothe corebusinessisnotpowertotakealongͲtermview electricityusedbyapproximately80,000average onpowerpricecurvesinthismarket.Autilitymust households.15Becausetherearefewnewaluminum havealongͲtermviewonpowerͲpricecurves,andit  15JohnFinnigan,“BigͲBoxRetailersTurnToSolar,HowCan 2013),http://blogs.edf.org/energyexchange/2013/08/09/bigͲboxͲ ElectricUtilitiesAdapt?,”EnvironmentalDefenseFund(August9, retailersͲturnͲtoͲsolarͲhowͲcanͲelectricͲutilitiesͲadapt/ 

20 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW hastheabilitytosocializethecostofrenewable  Appleannouncedearlierthisyearthatitsnew poweramongitscustomerbase.Utilitiesmayalso sapphireglassmanufacturingplantinArizona bemorecomfortablesteppingintorenewable wouldrunfullyoncleanenergy.Thecompany productionownershipifrequireddueto hasnegotiatedwiththeArizonautility,theSalt counterpartyfailuretoperformunderaPPA,arole RiverProject(SRP),forrenewablepowersupply. thatmaybetoofarremovedfromthecoreexpertise NeitherSRPnorApplehaveshareddetailson ofcommercialandindustrialusers. howmuchpowerthenewfacilitywilluse, thoughSRPhasrecentlyenteredintocontracts Ontheotherhand,somecommercialandindustrial for75MWofrenewablepower.17 energyusersmayprefertodirectlynegotiatepower purchasecontractswithIPPstosecurefavorable  Inarelatedexample,inNorthCarolina,Apple termsandusetheforceoftheirbrandandbalance andGooglehaveencouragedDukeEnergyin sheettodrivedownprice.CompaniessuchasApple NorthCarolinatoexpanditsrenewablepower andWalͲMart,withtheirstrongcreditratingsand procurement.Applehastwosolarprojectsof20 amplecashreserves,areattractivecounterparties. MWeachthatitownsandoperatestopowerits Andifacompanyisusinghedgestomanage datacenters,withonlyasmallroleforthe exposuretoenergyinputs,managingobligations utility.DukeEnergywonapprovalfromits underaPPAmaynotrequireadditionalstaffor regulatorsinlate2013toprocuremore expertise.DirectnegotiationwithIPPsreduces(if renewableenergy,andchargeapremiumif noteliminates)theneedforregulatoryapprovalof necessarytotechcompaniesandotherswilling purchaseagreements,whichcanintroduce topaythehigherprice.Inthiscaseasin uncertaintyintotheexecutionofadealwherethe Arizona,techcompanieshaveencouragedthe commercialtermshavebeennegotiated. utilitytoexpanditsrenewableenergyoffering, whilecreatinganewmodelthatchargesthose UTILITYROLES whochooserenewablepowerahigherpriceif necessary.Thisaddressesconcernsabout Theroleofutilitiesinthecommercialorindustrial affordabilityandimpactonautility’sother procurementofrenewablepowerhasvaried: customers.18  WalͲMarthasnearly89MWofrooftopsolar  Microsoftsignedacontractlastyeartobuy acrossitsfacilitiesandnowusesmoresolar powerfromawindprojectinNorthTexas.19The powerthan38U.S.states.ThirdͲparty companywillcontinuetoreceiveelectricitygrid companiesinstallandmaintainmostofthesolar servicesfromCPS,themunicipalͲownedutility systemsandsellthepowertoWalͲMartthrough inSanAntonio,foritslocaldatacenter.The PPAs.Thesearrangementslookalotlike financialsettlementcontract,whichmakesthe residentialsolar,withlimitedrolesforutilities.16 newwindprojectpossibleandaddstothe amountofrenewablepowerontheTexasgrid,  16TomRandall,“WalͲMartNowDrawsMoreSolarPowerthan38 18KatieFehrenbacher,“PushedbyInternetCompanies,Utility USStates,”Bloomberg(October25,2013), MakesProgresstoSellCleanPowerinNorthCarolina,”Gigaom http://www.bloomberg.com/news/2013Ͳ10Ͳ24/walͲmartͲnowͲ (November15,2013),http://gigaom.com/2013/11/15/pushedͲ hasͲmoreͲsolarͲthanͲ38ͲuͲsͲstatesͲdrinkͲ.html byͲinternetͲcompaniesͲutilityͲmakesͲprogressͲtoͲsellͲcleanͲ  powerͲinͲnorthͲcarolina/ 17MichaelGrahamRichard,“AppleWantsItsMassiveArizona  SapphirePlanttoRunonRenewableEnergyfromDayOne,” 19RobertBernard,“MicrosoftSigningLongͲTermDealtoBuyWind TreeHugger(February12,2014), EnergyinTexas,”Microsoft(November4,2013), http://www.treehugger.com/greenͲinvestments/appleͲwantsͲ http://blogs.msdn.com/b/microsoftͲ massiveͲarizonaͲsapphireͲplantͲrunͲrenewableͲenergyͲdayͲ green/archive/2013/11/04/microsoftͲsigningͲlongͲtermͲdealͲtoͲ one.html buyͲwindͲenergyͲinͲtexas.aspx 

21 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

allowsthecompanytobuyrenewablepower morecleanenergytothegridhasagreater fromalocationthatitbelieveshaspricingand environmentalimpactthandoRECpurchases. interconnectionadvantagesinsteadofbeing limitedtothelocationofitsdatacenter.No Additionally,techcompaniesaresourcingrenewable utilityisinvolvedinthedealwiththeIPP,and powerfortheirdatacenters.Thesecompanies,and CPScontinuestoserveMicrosoftinSanAntonio. theirconsumers,knowthatusingdigitaldevicesis onlyrenewableifthedatacentersbehindthemuse WHYTHECHANGE? cleanenergy.20TheNewYorkTimescalculatedthat, globally,datacentersconsume30billionwattsof Thereareafewreasonsbehindthechangingroleof electricity,theequivalentof30nuclearpower commercialandindustrialcustomersinprocuring plants.Onequartertoonethirdofthatpowerusage powerdirectly.First,theemergenceofderegulated istiedtoU.S.users.21 marketsallowsforcommercialandindustrial companiestoactasmarketparticipantsandbuy Finally,thedramaticfallinsolarpriceshasledto powertomeettheirneeds.Inmarketswhere commercialandindustrialusersbuyingpowerfrom utilitiesholdmonopolies,directpurchaseswithIPPs behindͲtheͲmetersolarinstallations,similarto canbedifficultorevenillegal. residentialusersadoptingrooftopsolar.Thefallin windpowerpricesmakesdirectprocurementby Second,largecompaniesaregreeningtheirpower commercialandindustrialusersattractivein purchasesaspartofoverallsustainabilityand deregulatedmarkets,wherethepoweraddedcan corporatesocialresponsibilitygoals.Manyhave renewabletheoverallgridwithoutnecessarilybeing adoptedclimatemitigationorrenewableenergy deliveredtothepointofpowerusage. targets.Forexample,IKEAhasannouncedthatitwill use100%renewableenergyby2020.Whilemany GOINGFORWARD companieshavemetgoalsbypurchasingrenewable Ascommercialandindustrialcustomersstepup theirrenewablepowerprocurement,itwillbe interestingtoseeifutilitiesofferspecialservicesto thesecustomers.Autilitycould,forexample,offer tohandlepowerdispatchingandmarketinterfacing forafee.Orautilitycouldoffersolarorwindtoits customerstoretainthem,eithercompetingor collaboratingwithIPPs.Increasesinfixedchargesfor beingconnectedtothegrid(evenifafacilityhas solarinstalledorprocureswind)seeminevitablefor commercial,industrialandresidentialsolar adopters,asdoesafreshlookatanynetmetering planthatautilityseesasharmingitslongͲterm energycredits(RECs),thereisgrowingrecognition interests. thatbuyingrenewablepowerinawaythatadds Utilitiescouldalsopartnerwithcityorstate governmentstoofferrenewableenergyaspartof  20Reuters,“Apple,Facebook,GoogleInternetDataCenters 21JamesGlanz,“Power,Pollution,andtheInternet,”TheNew GettingGreener,ReportFinds,”FoxBusiness(April2,2014), YorkTimes(September22,2012), http://www.foxbusiness.com/industries/2014/04/02/appleͲ http://www.nytimes.com/2012/09/23/technology/dataͲcentersͲ facebookͲgoogleͲinternetͲdataͲcentersͲgettingͲgreenerͲreportͲ wasteͲvastͲamountsͲofͲenergyͲbelyingͲindustryͲ findsͲ806649195/ image.html?pagewanted=all&_r=0  

22 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW economicdevelopmenteffortstoattract greatercollaboration,aswellasgreatercompetition investment.Teslahasannouncedthatitsbattery amongutilities,IPPs,andcommercial/industrial factory,plannedtobethelargestintheworld,will users,aresurelycoming. bepoweredbyrenewableenergy.Thefactory’ssite hasyettobeselected,andseveralstatesarevying ABOUTTHEAUTHOR fortheinvestment.Itispossiblethatanenterprising ShaliniRamanathanisVPOriginationforRES utilitywilloffertoprocurerenewableenergyata Americas,aleadingdeveloperandconstructorof low,fixedpriceaspartofabroaderefforttoattract utilityͲscalewindandsolarprojects.Ms. Tesla’sinvestment.Thesamedynamiccouldholdfor Ramanathanhasclosedmultipledealswithnearly carcompanies,largedatacenters,oranyother $2Bintotaltransactionvalue.Shecurrentlyleads sourceofnewloadandinvestment. thecompany’seffortsinsecuringrenewablepower Finally,someutilities(withtheirregulators’ andrenewableprojectsalesopportunitiesand approval)maydecidetoownprojectsthatsupply previouslyledSouthCentraldevelopmentefforts. renewablepowertocommercialandindustrialusers PriortojoiningRESAmericas,Ms.Ramanathanwas forthebenefitstheyprovide.Puttingprojectsina basedinNairobi,Kenyaandworkedonrenewable utility’sratebasewouldallowittoearnaregulated energyprojectsacrossEastAfricafortheBritish rateofreturnwhileprotectingmarketshare.Utilities companyCAMCO.Shepreviouslyworkedforthe wishingtodothiswillhavetoconvincetheir NationalRenewableEnergyLab(NREL). regulatorsthatpotentialincreasesinthecostof powerforallusersarejustifiedtoavoidthelossof SheholdsaMaster’sdegreeinEnvironmental customers,whichinitselfcouldleadtohigherrates ManagementfromYaleUniversityandaBAfromUT forthosenotoptingtosecuretheirownrenewable Austin.SheservesontheBoardofDirectorsof power. CleanTX,whichpromotesandsupportstheclean energyeconomyinCentralTexas. Weareintheearlydaysofbulkpowerusers procuringtheirownpower.Moreinnovationand 



23 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

MARKET SPOTLIGHT: GRID INTEGRATION CHALLENGES AND THE ROLE OF CONCENTRATING SOLAR POWER

Frank(Tex)Wilkins,ArthurHaubenstock,KateMaracas,andFredMorse ConcentratingSolarPowerAlliance,PerkinsCoieLLP,andAbengoaSolar

Concentratingsolarpower(CSP)withthermal meansCSPisdispatchable—i.e.,abletoprovideor energystorage(TES)canaddressmounting withholdpowerasneededbythegrid,thereby problemsassociatedwithintegratingrenewable enablingthegridtoabsorbmorerenewablesthat powerintothegrid,enablingrenewableresources’ arelessflexible. shareoftheenergysupplytogrowwhile maintaininggridreliability.Growingconcernsabout OfthemultipletechnologiesthatcompriseCSP,two overͲgeneration(projectedtoincreaseexponentially arenowbeingcommercialized:parabolictroughs asrenewablesapproach50%oftheenergysupply) andpowertowers.ThemostrecentCSP+TESplantin andsolarandwindvariabilitycanbemitigatedby theU.S.isthe280MWSolanaparabolictrough CSPwithstorage.CSPwithstorageactsasacatalyst, facility,inGilaBend,Arizona.Solanahassixhoursof allowingincreasedsolarandwindwithoutadding storage,allowingittoconvertheatstoredinmolten carbonorotheremissionsassociatedwiththe saltformtoelectricityatanytime,dayornight.Ona “peakers”thatmightotherwisebeneededfor typicalsummerday,forexample,ArizonaPublic reliability–whileprovidingsubstantialquantitiesof Service(APS)coulddispatchSolanatogenerate cleanpower. electricityforuptosixhoursafterthesungoes down,tosupplyairconditioningdemandthrougha BACKGROUND warmevening.Onacoldwinterday,APScould dispatchSolanatostartoperatingat4am,provide CSPusesmirrorstoconcentratesunlightona electricityuntiltheendofthemorningpeak,then receiver,heatingfluidstoupwardsof1,000°For comebackonlinefortheeveningpeak. more.Theheatedfluidcaneitherproducesteam immediately,drivingturbinesjustlikethoseinfossilͲ Aswithconventionalenergyresources,themarket fueledplantstoproduceelectricity,ortheheated forCSPandotherrenewableenergyresourcesis fluidcanbestoredtogeneratepoweratalatertime. driven,inpart,bygovernmentpolicies.Whilethese Theabilitytostoreandproduceenergyatanytime policieshavebeensuccessfulinencouragingprivate sectorinvestmentand deployment,reliability andcostissueshave arisenduetolackof attentiontotheneedto procureabalancedmix ofdiverseresourcesas renewables’shareofthe energysupplyincreases. Germany,withthe world’shighest renewableenergylevels, Solana,GilaBend,AZ,Source:Abengoa isgoingthrough“the worststructuralcrisisin

24 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW thehistoryofenergysupply,"accordingtoPeter thenetdemand(load)thatCAISOmustmeetafter Terium,CEOofRWE,thecountry’ssecondlargest windandsolarpowerisaddedtothegrid.Inthe utility.22SimilarconcernshaveechoedinItaly, middleoftheday,generationcouldexceeddemand; Spain,andelsewhereinEurope.”HereintheU.S., whenthesungoesdownandnondispatchablesolar Californiahasmaderemarkableprogresstowardsits wanes,theneteveningpeaksoars,causinga 33%renewablesportfoliostandard(RPS)while particularlysevereupwardramprate.Recent maintainingreliabilityandminimizingcostincreases, analysisbyEnergy+EnvironmentalEconomics(E3) inpartduetothegridflexibilityprovidedbyits concludesthatoverͲgenerationwillbethelargest hydropoweranditsmildclimate.23Nonetheless, renewableenergyintegrationchallenge,estimating similarissuestothoseexperiencedinEuropeare that“overͲgenerationwillincreaseexponentiallyat beginningtoemerge;tomaintainanaffordable, RPSlevelsapproaching50%.”24OverͲgeneration reliablegridasrenewablesincrease,theirlessons wouldrequiregeneratorstoreduce(curtail)output, mustnotbeignored. reducingtheirincomeandbecominganeconomic threattothem.Whilesomesuggestthe“duck Governmentspromoterenewableenergytoachieve curve”andtheE3conclusionsrepresentworstͲcase severalimportantobjectives:energysecurity, scenarios,theseriousnessoftheriskstheyportray improvedairquality,andclimateprotection.To arewidelyrecognized. meettheseobjectives,whilemaintaininggrid reliabilityandminimizingunduecosts,adiverse Generationresourcescalled“peakers”have portfolioofrenewablesthatcollectivelysupportgrid traditionallyprovidedtheprecise,continuous needsisvital. balancebetweensupplyanddemandneededfor gridreliability.Withinthisdecade,increased INTEGRATIONOFRENEWABLEENERGY renewableswouldrequirepeakerstooperateator neartheirreliabilitythresholds,andtorampupand Thegridisahighlycomplexsystem.Asrenewable downatratesthatmaybedifficulttoachieve— portfoliostandardsincrease, severalgridͲrelatedconcerns emerge,includingoverͲ generation(whichcandestroy keygridelements),fluctuations inpower,lackofpredictability, andsteepramprates(i.e.,the rateatwhichthenetpowerload changes).

Figure1,sometimescalledthe “duckcurve”,portraysthe CaliforniaIndependentSystem Operator’s(CAISO)projectionof gridrequirementsasCalifornia approachesits33%RPS.Itshows Source:CAISO  22Steitz,“Germany'sutilitiesstruggletoadapttorenewable http://www.cpuc.ca.gov/NR/rdonlyres/F39A3D4CͲ6EE9Ͳ48AAͲ revolution,”(ReutersFeb.3,2014),availableat A0C9Ͳ03D6A3B3EF38/0/Section_399_19_Report_FINAL.pdf http://www.reuters.com/article/2014/02/03/ukͲgermanyͲ 24InvestigatingaHigherRenewablesPortfolioStandardin utilitiesͲidUKLNEA1200D20140203 California,EnergyandEnvironmentalEconomics,Inc.,January 23CaliforniaPublicUtilitiesCommission,“BiennialRPSProgram 2014,availableat Update,”(Feb.2014),availableat https://ethree.com/documents/E3_Final_RPS_Report_2014_01_0 6_with_appendices.pdf

25 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW increasingtheiremissions,aswellastheircosts.For conclusion,estimatingtherangeofadditionalvalue example,thehighestaverageramprateinCalifornia ofCSP+TESas$0.03to$0.04/kWh.28Notably,these ispresentlyabout30MWperminute.By2020,itis studiesfocusonlyontheflexiblereliabilitybenefits estimatedtobethreetimeshigher.25These thataremostcriticalasRPStargetsincrease;theydo challengesmayincreaseasintermittentrenewable notattempttocalculatethevalueoftheothergrid levelsincrease,andthreatentoundermine benefitsCSP+TESprovides. renewablepolicyobjectives–anderodepublic supportforthesepolicies.CSP+TEScanmitigate Inafurtherreport,NRELprovidedadditional theseproblemswhiledecreasingemissions. analysesofCSP+TES’abilitytoaddressemerging changestotheenergyloadcurves.29LiketheE3 CSPENABLINGHIGHERRPSLEVELS report,NRELfoundthatmarginalcurtailment increasedrapidlyafterthresholdlevelsof TheRegulatoryAssistanceProject(RAP)takesa nondispatchablesolarwereaddedtothegrid; 26 positiveoutlookonhighrenewablepenetration,  however,italsofoundthataddingCSP+TEScan indicatingCSP+TES,alongwithothercleanenergy significantlydecreasecurtailment,increasingthe resources—suchaselectricalstorage,demand effectivenessofthenondispatchablesolar. response,andenergyefficiency—cancostͲ effectivelyaddressgridreliabilityconcerns. NREL’schart(onthepreviouspage)showshowCSP andPVcomplementoneanother.NREL’sprojection CSP+TESoffersessentiallyalltheelectricpower showsthreecurtailmentrates:forPValone,PVplus productsandservicesprovidedbyfossilͲfueled CSP+TES,andPVplusCSP+TESassumingCSP+TESis plants,withouttheircarbonandotheremissions. notdispatchedtoprovidetheflexibilitybenefitsit CSP+TESprovidescapacityandoperational couldoffer.Thered“PV”curveshowssignificant attributesthegridneedsasrenewablesincrease, curtailmentoncePVreaches~14%ofgridpower suchasfastͲrampratesthatcanbesustainedfor (theprojectedPVlevelforCalifornia’s33%RPS).The multiplehours.Asasynchronous,steamͲcycle green“PVplusCSP”curveshowscurtailment resource,itcanprovideregulationservicesthat decreaseswhenPVandCSPprovidepowerduring “shoreup”intermittentgenerationresources,while contributingcarbonͲfreeenergy.CSP+TESalso providesothervitalgridservicessuchasvoltage support,frequencyresponse,spinningandnonͲ spinningreserves.

CSP’sabilitytostoreenergyaddsflexibilitytothe grid.Severalstudiesquantifythecomparativevalue ofpowerfromCSP+TES.LawrenceBerkeleyNational LaboratoryestimatesCSP+TESwithsixhoursof storagewouldprovide$0.035/kWhmorevaluethan 27 solarwithoutstorage. TheNationalRenewable Source:NREL EnergyLaboratory(NREL)cametoasimilar

 25FlexibleSupplyandRenewableEnergy:SolarandtheImpacton PenetrationLevels:PilotCaseStudyofCalifornia,Mills,A.,andR. LoadCurves,MarkRothleder,August2013,availableat Wiser,June2012b,LBNLͲ5445E(at10%solarpenetration) http://www.epri.com/AboutͲ 28APreliminaryAnalysisofConcentratingSolarPowerwith Us/Documents/Summer%20Seminar%20Presentations/3.2_Rothl ThermalEnergyStorageinaCAISO33%RPSScenario,Denholm, eder_CAISO_FINAL.pdf P.,etal,March2013,NREL/TPͲ6A20Ͳ58186 26Availableathttp://www.raponline.org/featuredͲwork/teachͲ 29EnablingGreaterPenetrationofSolarPowerviatheUseofCSP theͲduckͲtoͲflyͲintegratingͲrenewableͲenergy withThermalEnergyStorage,Denholm,P.,Mehos,M.,NREL/TPͲ 27ChangesintheEconomicValueofVariableGenerationatHigh 6A20Ͳ52978,November2011

26 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW thedayandCSPprovidesadditionalmorningand ABOUTTHEAUTHORS eveningpowertoreducesomecurtailment.The whitecurveshowstheimpactofCSP+TESwhenit Frank(Tex)WilkinsisExecutiveDirectorofthe providesadditionalflexibilityintheformofhigher ConcentratingSolarPowerAlliance.Texpreviously turndown.30Moreanalysisisneeded,butthisstudy ledDOE’sCSP,SolarIndustrial,andSolarBuildings suggestshighrenewableportfoliostandardscanbe Programs.Heholdsdegreesinmechanical implementedwithoutlossofgridreliabilitywhen engineeringfromtheUniversityofMaryland.Arthur CSP+TESisaddedtotheportfolio. HaubenstockisseniorcounselinPerkinsCoie’s Environment,Energy&Resourcespractice.Arthur CONCLUSION previouslyheldseniorpositionswithBrightSource EnergyandPG&E.HeholdsaJ.D.fromGeorgetown Currentapproachestoprocuringrenewableenergy UniversityandaB.A.fromWesleyanUniversity.Kate couldleadtoanunnecessarilyunstablegridand Maracasisanenergyconsultant,wasVicePresident increasedcosts,ultimatelystuntingrenewable ofDevelopmentforAbengoaSolar,andhaspracticed energygrowth.CSP+TEScouldprovideacostͲ intheenergysectorforover30years.Kateholds effectivemeanstoincreaserenewablespenetration degreesfromThunderbirdGraduateSchooland whilemaintainingastablegrid.Arevised ArizonaStateUniversity.FredMorseisSenior procurementprocess,intentionallytargetedto AdvisorofUSOperationsforAbengoaSolar.Fred achievealeastͲcost,leastͲemissionsandreliable previouslyservedasExecutiveDirectoroftheWhite grid,wouldenableCSP+TESandothersolutionsto HouseAssessmentofSolarEnergyandDirectorof contributetoacleanenergyfuture. DOE’sSolarHeatprogram.Dr.MorseholdsaB.S. fromRPI,anM.S.fromMIT,andaPhDfrom Stanford.

 30“Turndown”referstotheoperationofapowerplantbelowits plants,ontheotherhand,aredesignedtooperateatpartialload. ratedcapacity.Coalandnuclearplantshavehistoricallybeen Inthisreport,NRELassumedCSPplantscouldoperateaslowas designedtoprovidebaseloadpower.Theyoperateatleastcost 20%ratedcapacity(aturndownfactorof5)andthatcoaland andhighestefficiencywhenatfullcapacity.Theycan,however, nuclearplantscouldoperateaslowas50%ratedcapacity(a operateatpartialloadalthoughdoingsoacceleratesdamage.CSP turndownfactorof2).

27 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

MARKET SPOTLIGHT: ELECTRIC VEHICLES: FLEXIBILITY, CREATIVITY, AND PROFIT POTENTIAL FOR UTILITIES

ChrisKing SiemensSmartGridServices

Utilitiesneedgreaterflexibilityinordertosurvive resources—wouldpredictablycrestinthehours andthriveinaradicallyshiftingenergylandscape.As beforeandafterthispeak.Backthen,utilitieswould vastlymorerenewableresourceshavebeenadded rampupproductionfromconventionalpowerplants tothegrid(andevenmorearepoisedtocome tomeetmostofthisdemand,becausecontributions online),utilitiesareracingtoadapttheiroperations fromrenewableswererelativelymodest. topeakdemandpatterns,whichhavesignificantly changedinjustthelasttwoyears. However,asmorerenewableresourcesarebeing addedtothegrid,thispictureisbecominginverted. Electricvehicles(EVs)representoneofthegreatest Inparticular,solarpowerproductionpeaksfrom opportunitiesonthisfront.EVscanhelputilities midͲmorningthroughtheafternoon.Assolarenergy enhancereliability,implementdemandresponse, becomesmorecommon,theremaybetoomuch andevendevelopnewrevenuestreams—allwhile gridpoweravailabilityintheafternoonandmaybe meetingcrucialconsumertransportationneeds,and notenoughshortlyaftersunset. alsowhilehelpingtheenvironment.Pilotprograms andEVresearchintheU.S.andelsewhereare demonstratingthisvalueandyieldingpractical lessonsforlargeͲscaleEVdeploymentandvehicleͲ toͲgridstrategies.EVsalsoarecrucialtodeveloping anetworkofmicrogridstoenhancereliabilityand managedemand.

Utilitiesandregulatorscanworktogethertorealize thefullpotentialofEVsinthesmartgrid.ThirdͲparty providersofchargingͲstationinfrastructurealso haveanimportantroletoplayinexpanding consumerEVadoption.Together,thesestakeholders canbuildamoreresilientenergysystemintheU.S. andaroundtheworld. Above:The“duckcurve,”updatedMarch2014basedonactual systemdata,showsthatinthelasttwoyearspeakdemand THEEVOLVINGSYSTEMPEAK:EVSFOR trendshaveshiftedradicallyinCalifornia,largelyduetothe DEMANDRESPONSE impactofasignificantincreaseinrenewablegeneration. Source:CourtesyCaliforniaISO Peakdemandisnotwhatitoncewas.Traditionally, systemdemandwouldpeakduringhotsummer DatafromtheCaliforniaISO31showsthefirst afternoons,andnetload—actualdemandonthe appearanceofthisshiftin2013,andithasquickly systemminusgenerationfromvariablerenewable grownmorepronouncedtodate.Projectingahead,

 31DemandResponseandEnergyEfficiencyRoadmap:Maximizing December2013,p.7(“TheDuckCurve”): PreferredResources.CaliforniaIndependentSystemOperator, http://www.caiso.com/Documents/DRͲEERoadmap.pdf

28 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW by2020,thistrendcouldyieldcostlyandriskyspikes residentsinthestatehavesignedupfortheserates. andtroughsinnetload—whichsystemoperators ItisunknownhowmanyresidentsalsoownEVs,but wouldstruggletoaddressthroughconventional thosewhodocouldeasilysavemoneybycharging means. suchasignificantloadduringoffͲpeaktimes.

Thegridneedstobefarmoreflexible,mostlyonthe EVSINTHEREALWORLD:PILOTPROGRAMS demandside,inordertorespondtosuchgrowing 33 fluctuationsinavailablepower.WidelydeployedEVs Recently,inDenmark,theEDISON pilotproject cansupplymuchofthisflexibility.EVscanhelp demonstratedthatEVscanfunctiononalargescale, minimizetheneedtobuildnewpowerplants, yieldingpracticallessonsandtechnicaladvances.In enhancelargeͲscaledemandresponse,and thisproject,thelocalutilitymanagedthedistributed ultimatelyevenreducewholesalepowerprices. resourceofafleetofEVs(drivenbyresidentsonthe DanishislandofBornholm)asasinglevirtualpower AslongasanEVispluggedin,itcanbechargedat plant.Thisprogramexploreddemandresponse anytime—especiallyduringoffͲpeakhours.Also, strategies(includingtheimpactofTOUrates)and thecar’sbatterycouldbeusedasapowerresource optionsforchargingstationinfrastructure.Italso byutilitiesduringtimesoflowerpoweravailability, evaluatedtheutilitybusinesscaseforEVs.34 orforemergencyhomepowerduringoutages.And allofthiscanbeachievedwithoutsacrificingthe TheU.S.DepartmentofDefense(DoD)ispilotingan paramountconsumerpriorityofonͲdemand extensiveprogramwithplugͲinEVs,incooperation transportation. withlocalutilitiesandindependentsystem operatorsservingsixmilitarybases.DoDisusing Pricesignals,suchastimeͲofͲuse(TOU)rates,are fleetmanagementsoftwareasaprimaryinterface thekeytotappingEVsasaflexiblegridresource. formonitoringandmanagingEVsasaresource.The Rightnow,TOUratesarenotavailabletomostU.S. softwaredispatcheschargingsignalsfromthelocal consumers—butwithstrongerregulatorysupport, utilityorsystemoperatortochargingstations,to theycouldbe. optimizevehiclechargingpatterns.Sometimes,the EVsfeedpowerintothegridthroughvehicletogrid Thepotentialforpricesignalstohelpaddressmany (V2G)technology.AccordingtoDoD,V2Gstrategies ofthemostpressingchallengesfacingpower are“anessentialelementtosatisfyfinancial systemsisoneofthemostintriguingopportunities constraintsonourfleetelectrificationefforts.”35 thatregulatorscanexplore,andwithwhichutilities canexperiment.Consumersarealreadyusingsmart Inanotherproject,researchersevaluatedthe thermostatstorespondtopricesignals–andsome economicpotentialoftwoutilityͲownedEVfleets aretranslatingthistoEVs,whereEVTOUratesare andfoundthat“V2Gpowercouldprovidea available. significantrevenuestreamthatwouldimprovethe economicsofgridͲconnectedelectricͲdrivevehicles Forinstance,forseveralyearsnow,Commonwealth andfurtherencouragetheiradoption.Itwouldalso EdisonandAmeren32haveofferedtheoptionfor improvethestabilityoftheelectricalgrid.”36 theirIllinoiscustomerstosignupforrealͲtime marketpricingforelectricity.Sofar,about10,000  32IllinoisresidentialrealtimepricingprogramsatCommonwealth 35U.S.Dept.ofDefense,PlugͲinElectricVehicleProgram. EdisonandAmeren,anoverviewbyPlugInIllinois: Overviewpresentation,2013: http://www.pluginillinois.org/realtime.aspx http://sites.ieee.org/isgt/files/2013/03/Camron5C.pdf 33EDISONprojectexecutivesummary.DanishEnergyAssociation, 36“UsingeetsofelectricͲdrivevehiclesforgridsupport,”eby July2013:http://www.edisonͲ JasnaTomicandWillettKempton,UniversityofDelaware.Journal net.dk/Project%20Details/Executive%20Summary.aspx ofPowerSourcesvol.168,2007: 34“Casestudy:Electricvehiclesusingsustainableenergyandopen http://www.rmi.org/Content/Files/Fleetsforgridsupport.pdf networksͲͲtheEDISONproject.”EͲBusinessW@tch,2009.

29 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

Furthermore,thisresearchrevealsthatlargeroverall EVenergyconsumption.Thiscanbeusedin profitswereyieldedwhenutilitiescouldsellpower calculatorappstohelpconsumersunderstandthe fromEVsbacktothewholesalemarketwhenprices valueofEVsandmakesmartdecisionstosave,or werehigh,sharingthebenefitswithEVowners. perhapsevenmake,money.InMichigan,Consumers Power39hassuchacalculator,andPEV4me40created THEFUTUREOFEVSINTHEU.S. onethatusesGreenButtondata.

Chargingstationinfrastructurestillneedstobe EVSFORRELIABILITY:MICROGRIDS substantiallybuiltoutinordertosupportU.S. consumeradoptionofEVsatascalethatwould Whenahomeorbusinesshassolarpanels,EVs,and enablepowerfuldemandresponse.Thisincludes chargingstations,theycanbeusedtogetherto publicchargingstations(eitherutilityͲowned,or functionasamicrogrid.Amicrogridisanelectrical operatedthroughthirdͲpartypartnerssuchas systemthatincludesmultipleloadsanddistributed ChargePoint37)aswellasonͲpremisecharging energyresources–bothgenerationandstorage– stationsathomesandbusinesses.Developingmore thatcanbeoperatedinparallelwiththebroader charginginfrastructureisasignificantinvestment, utilitygridorasanelectricalisland.Thiscombination butitalsorepresentsasignificantlongͲtermrevenue oftechnologiescanevenhelppreventoutagesby opportunityforutilities. providingflexibilitytoquicklyshiftlargeloadsin timesofgridstress,andgenerallymaintaingrid InFosterCity,California,aChargePointstationwas balance. installedattheheadquartersofeMeter,aSiemens Business.EmployeesuseitonafirstͲcome,first Thesolarpanelsproducepowerduringtheday, servedbasis.SomeemployeesownEVs,andeMeter storingexcessproductionintheEVbatteries,which, alsoownsaNissanLeafEV.Havingthischarging inturn,providepowertothehomeatnight. stationattheofficeisnotmerelyanemployment perkforeMeterstaff;italsomeansmorerevenue Tomakethisreliabilitystrategywork,theremustbe forlocalutilityPacificGas&Electric. asafewaytodisconnectthehomefromthegrid becauseitwouldcreateasignificanthazardto MosthomeͲchargingstationsuseastandard220 powerahousefromthebatterywhileitisalso circuit,justlikewhatisneededforanelectricclothes connectedtogridpower. dryerorresidentialairconditioningunit.ThirdͲparty chargingstationproviderstypicallyprovidetheir Intheeventofanoutage,controlatthehome’s ownTOUpricingtocustomers.Utilitiescommonly smartmeter—providedautomaticallybydemand assistwith,oratleastpromote,theinstallationof responsemanagementsoftware,aswellasbya chargingstationsduetotheirrevenueͲgenerating manualswitch—coulddisconnectthehomefrom potential.Sometimespermittingforcharging thegridandactivatethelocalmicrogrid.Themeter stationscanbeahurdle,butusuallythiscanbe wouldalsosensewhengridpowerisrestored, easilyaddressed. deactivatethemicrogrid,andreconnectthehometo thegrid.Thisconceptisrelativelysimple,butthis TheGreenButton38energydatastandardallowsU.S. strategystillneedstobetestedthroughpilot consumerstodownloadtheirenergydata,including projects.

 37ChargePointEVchargingstationprovider: http://www.consumersenergy.com/apps/pev/index.aspx?ekfrm= http://www.chargepoint.com 3751 38GreenButtonenergydatastandardinfo: 40PlugInElectricVehicleforMesavingscalculator: http://www.greenbuttondata.org http://www.pev4me.com.ThisprojectwasafinalistintheU.S. 39PlugͲInElectricVehicleinteractivecalculator,byConsumers Dept.ofEnergy751x?ekfrm=3751"gan:2013:project.bcontest. Power,Michigan:

30 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW

CONCLUSION ABOUTTHEAUTHOR

Thoughthemarketisstillinitsinfancy,consumers ChrisKingisGlobalChiefRegulatoryOfficerfor arebuyingmoreEVsataneverͲincreasingrate. SiemensSmartGridServices.Aninternationally recognizedauthorityonenergyregulationand ForwardͲthinkingutilitiesandregulatorsarealready competitiveenergymarkets,Chrisiswidelyrecruited gettingaheadofthistrendwithpilotprogramsand byregulatorsandlegislatorstoconsulton innovativerates.Smartgridtechnologyandsoftware technologyissuesinelectricrestructuring,smart allowEVstobemanagedasacoherentyetflexible meters,andgridmanagement.Hehastestified gridresource. beforetheU.S.Congressandwasinstrumentalin craftingtheEnergyPolicyActof2005thatpavedthe InvestmentsinEVsandtheirassociated wayforadvancedmeteringandSmartGrid infrastructurearelikelytodomorethanjusthelp initiativesintheUSA.HechairstheBrusselsͲbased utilitiesstaycompetitive.Theyarelikelytoyield SmartEnergyDemandCoalitionandtheSilicon considerablereturns,whilealsogivingconsumers ValleyLeadershipGroupEnergyCommittee,andis valuableoptionsandpeaceofmind,andwhile ontheExecutiveBoardoftheDemandResponseand addressingenvironmentalconcerns. SmartGridCoalition.Chrisalsowasoneofthe Thebestpartaboutdeployingsuchaflexible foundersofeMeter,nowaSiemensBusiness,focused resourceasEVsisthatitcanbeusedcreatively.Itis onsmartmeterdatamanagementandapplications. likelythatevenmorepowerfulandprofitableV2G strategiesremaintobediscovered.

31 AmericanCouncilOnRenewableEnergy(ACORE) EVOLVINGBUSINESSMODELSFORRENEWABLEENERGY:2014INDUSTRYREVIEW



32 AmericanCouncilOnRenewableEnergy(ACORE)