renewable energy workshop: solar power and dg business models
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©2014 Navigant Consulting, Inc.
D I S P U T E S & I N V E S T I G AT I O N S • E C O NO M I C S • F I N A N C I A L A D V I S O RY • M A N A G E M E N T C O N S U LT I N G
May 5‐8, 2014
Solar and DG Business Models
AWEA WINDPOWER 2014AWEA Renewable Energy WorkshopLas Vegas, NVKarin Corfee| Managing Director, Energy Practice
1©2014 Navigant Consulting, Inc. 1©2014 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
Agenda
The Situation
Solar Industry Trends
DG Business Models
California Solar Initiative Case Study
2©2014 Navigant Consulting, Inc.
» Technology advancements have driven costs down.– PV module costs have dropped from roughly $4/watt in 2006 to less
than $1/watt.– Total installed cost is expected to reach $1.76‐$2.47/watt by 2018
(without subsidies).
» Regulatory actions differ from region to region.– Renewable Energy Targets (29 U.S. states)– Renewable Energy Certificates (RECs)– Feed‐in Tariffs (FiT‐HI, OR, ME, VT, LADWP, Gainesville, LIPA,
Ontario, Germany, Spain, Czech, Italy, Japan, Taiwan, China )– Net metering (40 U.S. states)– Other related mechanisms (e.g., CA storage mandate)
The distributed solar PV issue is complex, at the intersection of energy technologies, regulations, and markets.
The Situation
Technology
RegulationsMarkets
» Market evolution (revolution?) has accelerated.– Incentives (e.g., U.S. ITC) and financing alternatives like solar leasing and green bonds have
removed financial hurdles.– Residential “socket parity” (including incentives) is already reached in the U.S. Southwest.– In high‐cost retail electricity markets, such as Holland, Hawaii, the Philippines, the Caribbean,
and other island nations, distributed solar PV is at grid parity even without incentives.
Source: Navigant Research, Navigant Consulting analysis
3©2014 Navigant Consulting, Inc.
» A survey of over 500 U.S. electric utility professionals revealed concerns with current regulatory and revenue models and a focus on distributed generation.
Utility professionals view DG has a challenge.
The Situation
Source: “The State of the Electric Utility.” Utility Dive, 2014.
Related challenges
4©2014 Navigant Consulting, Inc.
» The majority of respondents identified distributed generation as the technology with the most disruptive potential, and that it would actually be an opportunity for their utility.
Opportunity or Threat?
The Situation
Source: “The State of the Electric Utility.” Utility Dive, 2014.
5©2014 Navigant Consulting, Inc.
» The majority of respondents anticipated minimal to zero demand growth for their utility in the next five years.
Addressing Demand Reduction
The Situation
Source: “The State of the Electric Utility.” Utility Dive, 2014.
6©2014 Navigant Consulting, Inc.
» How big is the “threat” of distributed solar PV over time?– Revenue model/tariff structure– Earnings impact under several demand reduction/PV penetration scenarios
o Revenue losso Grid integration costs
– Customer impact for those with, and without, solar PV– People/process impact… new skills/capabilities/roles, etc.
» What potential opportunities exist related to distributed solar PV?– Utility rate‐based solar PV on distribution grid– Developer/owner/operator of distributed solar PV assets (through Pepco Energy Services)– Role as a market “enabler” for grid users– Other business opportunities
» How should the impact (opportunities and threats) of distributed solar PV be incorporated into the business planning process for the 1, 5, and 10‐year time horizon?
Key Questions for Utilities
The Situation
7©2014 Navigant Consulting, Inc. 7©2014 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
Agenda
The Situation
Solar Industry Trends
DG Business Models
California Solar Initiative Case Study
8©2014 Navigant Consulting, Inc.
Solar Industry Trends
A vision of the future filled with distributed rooftop PV . . .
“Anyone flying into the airports of Southern California can catch a bird’s eye glimpse of the future of the electric power system. The vast region is dotted with the reflections from shiny solar panels on the rooftops of homes, schools, and businesses. Photovoltaic (PV) solar systems also can be found on some parking lots and warehouses. . . . In the electric power business we expect to see more change in the next 10 years than we saw in the last 100.”
Ted Craver, EIX
Solar energy will eventually “takeover everything” because its costs keep on falling. Add storage, and its pretty much “game over” for traditional forms of power generation.
Jon Wellinghoff, outgoing Chairman FERC at the 2013 National Clean Energy Summit
9©2014 Navigant Consulting, Inc.
Solar Industry Trends
News sources have contained startling messages about DG solar in 2013.
Companies Unplug From the Electric Grid, Delivering a Jolt to UtilitiesWall Street Journal, September 17, 2013
Why the U.S. Power Gridʹs Days Are Numbered: Homegrown Green Energy Is Making Power Utilities IrrelevantBloomberg BusinessWeek, August 22, 2013
Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric BusinessEdison Electric Institute, January 2013
An Epic Battle Between Solar Firms and Power Utilities Could Leave One Side UnpluggedPhoenix New Times1, July 11, 2013
1. Phoenix News Times used to illustrate local news that utility executives will pay attention to in their own service territories.
10©2014 Navigant Consulting, Inc.
» Learning rates (i.e., price drop for every doubling of production) for PV modules could range from 22% to 40% going forward.
» According to EEI, installed system prices are now “in the money” for approximately 16% of the U.S. retail electricity market, and expected to reach 33% by 2017.
» In high‐cost retail electricity markets, such as Holland, Hawaii, the Philippines, and the Caribbean, distributed solar PV is at grid parity even without incentives.– In other markets, such as parts of California, New England, South Africa, Germany, and Italy,
solar PV is reaching grid parity with incentives.
Solar PV module costs (and total installed costs) have dramatically declined over the past 5 years, a trend that is expected to continue.
Solar Industry Trends
Solar PV Module Price Trend Distributed Solar PV Installed System Prices
11©2014 Navigant Consulting, Inc.
2,300 2,500 3,500
4,400 2,900
3,600 4,000 4,300
2,400 3,100
3,100
3,400
2,100
2,400 2,500
2,700
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2013 2014 2015 2016 2017 2018 2019 2020
Sola
r PV
[MW
]
CentralizedDistributed
4,700
5,6005,000
7,800
6,6006,000
6,5007,000
Navigant expects PV to be a 7 GW market in 2020, despite the market dip caused by the ITC reduction in 2017.
Solar Industry Trends
1 Distributed is defined as projects < 1 MW whereas centralized is defined as projects ≥1 MW.
1
Source: Solar PV Market Forecast, Navigant Research, 2013.
U.S. PV Installed Capacity Forecast (Annual Additions)
12©2014 Navigant Consulting, Inc.
U.S. PV Installed Capacity Forecast (Cumulative)
6,500 9,000 12,50017,000 20,000 24,000
28,00032,000
6,0009,000
12,000
15,50017,500
20,000
22,000
25,000
0
10,000
20,000
30,000
40,000
50,000
60,000
2013 2014 2015 2016 2017 2018 2019 2020
Sola
r PV
[MW
]
CentralizedDistributed
12,500
18,000
37,50032,500
24,500
44,000
50,000
57,000
Navigant forecasts the total U.S. installed solar capacity to be just shy of 60 GW by end of 2020; over 50% distributed.
Solar Industry Trends
1 Distributed is defined as projects < 1 MW whereas centralized is defined as projects ≥1 MW.
1
Source: Solar PV Market Forecast, Navigant Research, 2013.
13©2014 Navigant Consulting, Inc.
Source: SEIA Website, 2013. Source: “Solar Means Business : Top Commercial Solar Customers in the U.S.”, SEIA, August 2013.
In April 2013, Walmartannounced its goal of : “Producing or procuring 7 Billion kWh of renewable energy globally by 2020 –an increase of over 600% versus 2010.”
Solar Industry Trends
In the C&I DG market, companies are installing solar as they realize multiple benefits, including cost savings.
14©2014 Navigant Consulting, Inc.
ArizonaCaliforniaColorado
ConnecticutDelaware
HawaiiMaryland
MassachusettsNew JerseyNew YorkOregon
PennsylvaniaTexas
Washington D.C.Washington
A growing number of companies in the
residential leasing market . . .
. . . are collectively expanding their footprint
across the country . . .
. . . and are significantly impacting market growth
and ownership composition.
Source: Navigant team analysis of PowerClerk data, February 2013.
Solar Industry Trends
In the residential distributed market, growth is increasingly driven by third party ownership (leasing and PPA) models across the country.
11%7%
12%
23%
45%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012
Share of Installed Capacity
Third Party Ownership Market Share in CA Residential Sector
15©2014 Navigant Consulting, Inc. 15©2014 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
Agenda
The Situation
Solar Industry Trends
DG Business Models
California Solar Initiative Case Study
16©2014 Navigant Consulting, Inc.
DG Business Models
It is clear that utilities must adapt their business models to incorporate distributed generation.
Utilities are “in a flat to shrinking business, and as solar and batteries get cheaper and cheaper, they’re going to see their customer base of the best customers” install solar…“So I’m telling utility companies, this is coming down the line, so let’s think of a new business model where you can profit from this.”
Former Energy Secretary Steven Chu
Source: McMahon, Jeff. “Steven Chu Solves Utility Companies’ Death Spiral.” Forbes, March 21, 2014.
“The power company of the future will own both centralized generation and distributed generation (i.e., residential solar) assets.”
Nat Kreamer, Clean Power Finance
“We are positioning ourselves to succeed during a prolonged period through which the traditional centralized grid‐based power system co‐exists with the fast‐emerging high‐growth distributed generation sector – much like fixed‐line telephony has co‐existed with the wireless world for a couple of decades.”
David Crane, NRG
17©2014 Navigant Consulting, Inc.
DG Business Models
Utilities are increasingly adding solar installation capabilities or related solar investments to their portfolios.
May 2013 – NextEra Energy Resources acquired Smart Energy Capital (a commercial solar developer).
April 2013 – Clean Power Finance completed a $37M equity round including Edison International, Duke Energy, Dominion, and Clear Sky (of NextEra Energy).
August 2013 – Edison International acquired SoCore (a Chicago‐based commercial solar developer).
September 2013 – Direct Energy created a dedicated investment fund with SolarCity for $124M in solar projects for commercial and industrial customers.
January 2014 ‐ Integrys Energy Services and Clean Power Finance partnered to create a residential solar finance fund through the CPF Market.
March 2014 – E.ON contributed to a Sungevity $70M equity round; they are also reportedly working together to expand Sungevity’s market reach.
March 2014 – NRG Energy purchased Roof Diagnostics Solar (the 8th largest solar installer in the U.S.).
November 2011 – NRG acquired Solar Power Partners (a San Francisco‐based commercial developer).
February 2010 – TXU Energy partnered with SolarCity to offer a solar program to customers.
Acquisitions Investments
Source: Company press releases and news coverage.
18©2014 Navigant Consulting, Inc.
DG Business Models
The Solar Finance Company (SFC) market is expanding with increased investment from the utility sector.» Investment announcements for 8 solar PV financing companies
− Clean Power Finance, One Roof, Solar Universe, SolarCity, Sungevity, SunPower, Sunrun, and Vivint.
$‐
$100
$200
$300
$400
$500
2010 2011 2012 2013
$ Millions
Equity Investments
Average Individual Equity FundingLargest Individual Equity FundingTotal Equity Funding
$‐
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2010 2011 2012 2013$ Millions
Project Funding Investments
Average Individual Project FundingLargest Individual Project FundingTotal Project Funding
Note: Data through November 20, 2013, sourced from company press releases and news media. Equity figures include SolarCity initial public offering (IPO) and subsequent issuances of stock and convertible debt, but exclude September 2012 Blackstone acquisition of Vivint, valued at $2 billion.
Source: Navigant’s California Solar Initiative Market Transformation Study (Task 2): Final Report, 2014
Equity Investments Project Funding Investments
19©2014 Navigant Consulting, Inc.
DG Business Models
From a regulatory perspective, a utility pilot project design in Maryland sets an example for the transition to electric services of the future. » Utility 2.0: A pilot project that would test the application of new technologies, business
models and strategies with the key objective to foster changes in utility business practices, reward structures, and the regulatory scheme for Maryland’s utilities.
» Categories targeting improvement:
» Potential pilot project tasks for participating utilities:
Source: Utility 2.0: Piloting the Future for Maryland’s Electric Utilities and their Customers. Energy Future Coalition, March 15, 2013.
Reliability and resiliency
Residential customer optionality
Large customer optionality
Utility system upgrades
Utility business model changes
Regulatory model adjustments
Align utility compensation with needs and values expressed by customers, using five parameters.
Support utility investment in an interoperable, integrated suite of smart‐grid technologies.
Allow utilities to finance customer Smart Grid and efficiency investments.
Optimize automated system sectionalizing and reclosing, and facilitate microgrids.
Facilitate electric vehicle deployment and utility‐managed vehicle battery charging.
− Cost− Reliability− Customer service− Adoption of smart grid
technologies and services− Support for alternate energy
20©2014 Navigant Consulting, Inc.
DG Business Models
A new model in the U.K. sets an example for a performance‐based framework that rewards utilities for performance.Revenue = Incentives + Innovation + Outputs (RIIO)» RIIO is a performance‐based framework for setting price controls for energy network
companies in the U.K., regulated by Ofgem.− RIIO‐ED1 is the first electricity distribution price control, targeting the 14 Distribution
Network Operators from 2015 to 2023.» Model Objectives:
− Encourage energy network companies to fully participate in the delivery of sustainable energy. − Deliver network service with long‐term
value for money for existing and future consumers.
− Ensure the necessary investment in Britain’s energy network at a fair price to customers.
− Promote long‐term planning, reward innovation, and punish inefficiency in network companies.
Source: RIIO Handbook, 2010
» RIIO retains a price cap regime, and implements a system of rewards and penalties tied to performance on desired outcomes (outputs).
Illustrative Overview of a Balanced Scorecard
21©2014 Navigant Consulting, Inc. 21©2014 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
Agenda
The Situation
Solar Industry Trends
DG Business Models
California Solar Initiative Case Study
22©2014 Navigant Consulting, Inc.
California Solar Initiative Case Study
With nearly 1,200 MW installed in the IOU service territories as of the end of 2012, California leads the nation for installed capacity of distributed solar PV systems.
CCSE is the Program Administrator for the CSI Program in SDG&E service territory
23©2014 Navigant Consulting, Inc.
California Solar Initiative Case Study
The Third Party Ownership (TPO) market has grown rapidly due to a favorable policy environment, and will likely continue to grow.
Source: Navigant team analysis of PowerClerk Data, February 2013
CSI Installed Capacity by Year, Sector, and Ownership Type (Incremental)
24©2014 Navigant Consulting, Inc.
California Solar Initiative Case Study
TPO has particularly gained traction within the residential market.
Source: Navigant team analysis of PowerClerk Data, February 2013
CSI Residential Installed Capacity by Ownership Type (Incremental)
25©2014 Navigant Consulting, Inc.
California Solar Initiative Case Study
The Solar Finance Company (SFC) market is expanding under diverse business models.
Source: Navigant’s California Solar Initiative Market Transformation Study (Task 2): Final Report, 2014
Solar PV Finance Companies: Incremental Capacity Additions for TPO Residential Projects
26©2014 Navigant Consulting, Inc.
California Solar Initiative Case Study
Market Actor Integration Across the California Residential Solar PV Supply Chain
Source: Navigant’s California Solar Initiative Market Transformation Study (Task 2): Final Report, 2014
27©2014 Navigant Consulting, Inc.
California Solar Initiative Case Study
Effective Lease or PPA rate for TPO Systems compare favorably to offset rates.
Source: Navigant analysis, based on a sample of PG&E TPO contracts from CSI PowerClerk data (n=52)
28©2014 Navigant Consulting, Inc.
California Solar Initiative Case Study
Most residential customers benefit from their TPO system.
Source: Navigant analysis, based on a sample of PG&E TPO contracts from CSI PowerClerk data (n=97)
KeyC O N T A C T S
©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
KeyC O N T A C T S
©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
KeyC O N T A C T S
©2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy.
KeyC O N T A C T S
29©2014 Navigant Consulting, Inc.
Karin Corfee | Managing Directorkarin.corfee@navigant.com415.356.7178 direct
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