HOW ENERGY STORAGE WILL GROW

Energy Storage Systems for Ancillary Services; Frequency Regulation, Voltage Support, Spinning Reserves, Electric Supply Reserve Capacity, and Load Following: Global Market Analysis and Forecasts

1Q 2013 (Pike Research/Navigant)

“Ancillary services are…required to maintain safe, reliable, and secure transmission of energy on the grid. Designed to respond to the technical challenges of generating, transmitting and distributing electricity, these services…balance the grid regardless of the structure of the electricity market…

“It can be challenging for a new technology – such as energy storage systems (ESSs) – to make a compelling business case…even if on a technical level energy storage provides a compelling and competitive solution.”

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“Energy storage, however, is poised to take advantage of several global trends in this market. Demand for energy will continue to grow at a rapid pace, leading to more deregulation of the electricity market as well as more instability on the grid system as renewables penetration will also grow…

“…ESSs offer, in many cases, better quality ancillary services in addition to an alternative to using traditional generation assets. Pike Research forecasts that worldwide annual installed capacity of energy storage systems for ancillary services will reach 3,500 MW by 2023…”

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THE EMERGING VIRTUAL POWER PLANT OPPORTUNITY

Virtual Power Plants; Demand Response, Supply-Side, Mixed Asset, and Wholesale Auction Smart Grid Aggregation and Optimization Networks

1Q 2013 (Pike Research/Navigant)

“…[A] virtual power plant (VPP)…[uses] software systems to remotely and automatically dispatch and optimize generation, demand-side, or storage resources (including plug-in electric vehicles and bi-directional inverters) in a single, secure web-connected system. VPPs can provide extraordinary value and services to transmission and distribution (T&D) grid infrastructure, as well as revenue streams to myriad stakeholders engaged in the provision of electric power.

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“The primary goal of a VPP is to achieve the greatest possible profit for asset owners while at the same time maintaining the proper balance of the electricity grid…”

“From the outside, the VPP looks like a single power production facility which publishes one schedule of operation and which can be optimized from a single, remote site. From the inside, the VPP can combine a rich diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of distributed energy resource (DER)-based services…

“…Pike Research forecasts that vendor revenue from VPPs, in an average forecast scenario, will reach $3.6 billion in 2020…”

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YEILDCO, NEW ENERGY FUNDING W/O TAX CREDITS

Beyond Old Incentives: Unlocking A New Source Of Solar Project Capital

Andrew Redinger and Daniel Brown, 5 March 2013 (Solar Industry)

“…[T] he U.S. power market…[from 2008 to 2011] experienced a 1% compounded annual increase in installed capacity. Electricity sales statistics have been flat over the same period…By contrast, wind installations have increased by 21%, and solar installations have increased by 73%...despite the fact that the levelized cost of energy (inclusive of tax benefits) for renewable technologies is dramatically above that of conventional combined- cycle natural gas plants. In July 2012, the U.S. Energy Information Administration estimated the levelized cost of a conventional combined cycle at $66.10/MWh, wind at $96.00/MWh and solar photovoltaics at $152.70/MWh…In 2012, average wholesale prices at PJM West were $40.18/MWh, a decrease of 22% from 2011…[at MISO Illinois it was $32.06/MWh, down 17%.; at ERCOT Houston it was $35.91/MWh, down 43%; and at Palo Verde it was $30.03/MWh, down 18%.]…This decline in prices is highly correlated to declining natural gas prices, due to the shale gas phenomenon. In 2011, the average Henry Hub was $4.02/MMBtu, while in 2012, it was $2.75/ MMBtu, a decline of 31.5%....

“...[T]he average 2012 RPS target of the 31 states with RPS was 7.6%. As of November 2012, these RPS targets had been met, with 8.0% of eligible generation being renewable…[T]hese standards should continue to be a driver of growth, as the 2015 average target is 10.6% and the 2020 average target is 16.4%...In an era of marginal increases in required capacity, with the price of wholesale power across the country declining, when tax equity is increasingly constrained, how can the renewable energy industry sustain its growth?”

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“…For more than a decade, the public equity markets have been a tremendous source of capital for master limited partnerships (MLPs) and real estate investment trusts (REITs)…These assets typically generate significant cash flow from long-term revenue contracts. MLPs and REITs pay the majority of this cash flow out to investors as dividends…[P] ublic equity investors value these assets at 7% to 8% distributable cash flow yield, which is the equivalent of a levered equity discount rate…[Renewable power assets] are, in many ways, higher quality…[They are non-cyclical and typically have revenue contracts of 15 to 20 years with investment-grade counterparties. If investors value MLP and REIT assets at 7% to 8% distributable cash flow yield, there is good reason to believe they will value renewable assets at similar, if not lower, yields…

“Due to current Internal Revenue Service rules, renewable assets are not eligible for the tax-advantaged status enjoyed by MLPs and REITs…[W]e believe a vehicle for accessing this low-cost equity capital exists today…A YieldCo is simply a C corporation that acts as a holding company for renewable assets. Due to the myriad of tax benefits available to renewable energy assets - such as bonus or MACRS depreciation, investment tax credits, and production tax credits - the YieldCo vehicle can carry forward net operating losses and shield taxes for extended periods of time. As additional assets are developed and/or acquired, the tax shield period is extended even further…By allowing renewable energy projects to access mid- to high-single-digit costs of capital, YieldCos can enable the renewable energy industry to sustain the momentum it has been building.”

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WARREN BUFFETT, NEW ENERGY BARON

Buffett’s MidAmerican Has 6% of U.S. Wind, Will Own 14% of Solar

Will Wade, March 1, 2013 (Bloomberg BusinessWeek)

“Warren Buffett’s MidAmerican Energy Holdings Co. accounts for 6 percent of U.S. wind-energy capacity and will generate about 14 percent of the nation’s solar power when it finishes three solar farms under development.”

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“When the projects are complete, the company will have invested about $13 billion in its renewable-energy portfolio, Buffett wrote in his annual letter to shareholders…”

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WSJ GETS RENEWABLES WRONG

Fact check: WSJ goes astray on California's integration of wind

Michael Goggin, 2013 February 28 (Into the Wind/AWEA)

“…[A] Wall Street Journal piece by Rebecca Smith] on the growth of renewable energy in California and the effect on its electric utility system…makes several incorrect and unsupported assertions…Fact #1: It is unlikely that the state will experience a shortage of flexible power by 2017…Fact #2: Nuclear and fossil fuel power plants can go offline much more rapidly than renewable energy…which is a far greater challenge for grid operators and a far greater cost for the power system.

“…Fact #3: Integrating renewable energy will not negatively affect reliability in California…[T]o reach 33% renewable energy, the California grid operator will use slightly more of the flexible reserves that it has always used to accommodate fluctuations in electricity demand as well as sudden failures at large fossil and nuclear power plants…”

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“…Fact #4: Renewable energy output does not change significantly on a second-to-second time-frame, while the output of nuclear and fossil plants does…Dozens of wind integration studies, including many conducted in California, have confirmed that adding wind and solar to the grid only results in modest increases in total system variability...[A]n average household’s monthly electric bill of $100, the increase in reserve costs in the renewables case would work out to an increase of around 3-4 cents!

“…[California] is already implementing a number of market reforms to make its system work more efficiently and better accommodate large amounts of renewable energy. They are also implementing faster transmission scheduling to allow more efficient movement of power within California and between California and its neighbors…[M[]aking their market mechanisms work faster and more efficiently…Wind and solar energy have no fuel costs, and adding them to the grid displaces the most expensive power plant that is currently operating. Adding renewable energy to the power system drives down the energy costs, yielding consumers’ significant net savings…”

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EUROPE DROVE SOLAR IN 2012

PV in Europe represented 16.5GW of global 29GW demand in 2012

Tim Murphy, 1 March 2013 (PV Tech)

“For 2012, Europe retained its dominant position in global PV demand reaching 16.5GW, according to [Solarbuzz]…Strong demand from Europe was due primarily to premium incentives that remained in place during 2012, along with lower installed system prices (ISPs)…

“It was also a year in which European incentives declined in value, as administrators closely followed the downward trajectory in PV system prices…During 2013, the European market will continue to transition away from a premium-incentives PV environment towards PV electricity being driven on the grounds of competitive cost. During this transition period, major European markets will see declining PV demand…”

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“…[T]his transition phase will not be completed during 2013 in major European markets. Premium incentives will continue to decline (or disappear) in 2013, but additional retroactive impositions are expected (for example, in Greece)…In fact, various retroactive impositions on PV operators have emerged in Europe during 2012 and earlier…[I]n Spain, PV operators are realising 35% less revenues (compared to 2008 administrative ‘guarantees’)…

“While distributed PV electricity generation can make a compelling economic case in Europe, relative to higher retail electricity rates, emerging grid-access barriers will constrain growth. Utility companies will continue to provide barriers to PV, and are likely to undertake more lobbying related to grid-access fee schemes and smart-meter implementation.”

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PUBLIC TURNS TO NEW LIGHTBULBS

Nearly 30 Percent of US Homes Have Ditched Incandescent Light Bulbs; A new survey shows that Americans are changing their lighting habits. But awareness of new technologies is still mixed.

Katherine Tweed, March 1, 2013 (Greentech Media)

“…[A] new survey from Sylvania… shows that 29 percent of U.S. households are free of incandescent bulbs…[though] are unaware of the phase-out of energy inefficient light bulbs, even as concerns about energy efficiency increase…

“…The four most important considerations are: the amount of time the bulb will last; the bulb's brightness; the amount of energy the bulb uses; and the cost. Although people say they are more concerned about energy use than cost, less than half of the respondents say they care if there is an Energy Star label on the product they select.”

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“…[A]wareness of light-emitting diode (LED) options dropped in 2012, from 80 percent to 69 percent. At the same time, the number of homes with LED bulbs rose from 20 percent in 2008 to 35 percent in 2012…Sylvania says it is 95 percent confident about the figure showing that 29 percent of households go without incandescent bulbs.

“In coming years, as the incandescent goes extinct, LEDs will gain traction as they commandeer real estate on store shelves. Ikea announced last year it will phase out all non-LED lighting by 2016, and stores like Wal-Mart are increasing their LED offerings. More offerings on the shelves, coupled with falling prices and increased utility rebates, will mean that for the average consumer, LEDs will be a viable option…”

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