Author: hshusterman

What does it take to compete when energy costs go to zero?

Recently, a client asked DNV GL Energy’s CEO, Ditlev Engel, “What does it take to compete when the cost of energy goes to zero?” The question was rhetorical of course, but contained an element of sincerity. Why? Because now that the efforts to make energy cleaner, less costly, and more reliable are coming to fruition, this prospect is viewed as an exciting challenge to some energy service providers, and terrifying to others.

The energy sector is going through deep transformation. Changes in the way energy is generated, priced, and used is creating an environment that doesn’t just encourage but demands innovation across the sector. The industry has responded, and the pace of innovation is staggering. What’s more, the number of directions and solutions being proposed and tested is almost overwhelming. There is no shortage of winners and losers, and as one drops out several more join in. There’s no one answer to the question posed above, but at the upcoming Energy Executive Forum, a panel of speakers on the leading edge of innovation are grappling with how to invest and innovate in anticipation of a cleaner, more reliable grid and a zero marginal cost environment. Here is how they are approaching the challenge and finding success:

OhmConnect’s innovation is an app that pays utility customers to not use energy. While demand response programs have been around for a long time, they have generally been targeted toward large commercial and industrial customers. However, this app is for the residential market. It monitors energy markets for spikes in power demand, and uses that information combined with data from a home’s smart meter to ask its users to use less energy.

Much like OhmConnect, Advanced Microgrid Solutions is also managing energy demand, but from a completely different angle and on a much larger scale. They are using energy storage technologies to save commercial/industrial customers energy from behind the meter and tap into it when demand is high. It combines real-time energy use, market pricing and data, and storage to create an energy management system for an entire building or portfolio of buildings.

While innovation isn’t the first thing most people think of when it comes to utilities, Southern Company in partnership with Energy Impact Partners is one of several electric utilities in the US testing new R&D strategies, with programs like their Energy Innovation Center and Smart Neighborhood initiative. Innogy New Ventures, LLC, a venture capital arm of one of Europe’s largest utility companies, is established in Silicon Valley and investing in digital innovations transforming the energy industry. Meanwhile, Constellation is actively collaborating with many global energy service providers to ensure innovations in blockchain enable more efficient and effective relationships with customers.

Each of these companies is shaping the future of energy through innovation, investment, and unusual partnerships as that marginal cost of energy trends towards zero. As Ditlev responded to our customer, “The best way to predict a business is to develop it yourself,” and the same goes for the energy future. What innovations do you see shaping our energy future? We’ll talk more about them at the Energy Executive Forum. Register now and don’t miss out on the conversation!

Clint Johnson
Director, Renewable Energy

Why transportation is the energy market you’ve never thought of

A 1% shift in energy demand in transportation can tip the US economy into recession

Back in 2011 I published an analysis with Prof. Carey King at UT Austin looking at the impact of the use of automotive fuels on the US economy. As we were digging ourselves out of the 2008 market catastrophe, we were trying to understand how and why oil prices spiked, and what it meant for the economy overall.

One piece of our analysis shocked me. The world is very sensitive to an oil production cap associated with global refinery production. As demand squeezes production limitations, the price for oil spikes, and in some cases that is enough to crush the national economies. There appeared to be very little tolerance for error, +/- 1%, in the undersupply constraint globally.

In contrast, for every electric vehicle on the road, it can displace hundreds of gallons of gasoline. A vehicle achieving 20 mpg and driving 12,000 miles per year will consume 600 gallons of gasoline. An EV attaining 3 miles per kWh will consume 4,000 kWh.

There is a direct relationship – 600 gallons of gasoline becomes 4 MWh of variable utility demand.

Let’s scale that. 600 gal per 4 MWh = for every MWh of utlity load transferred to EVs, 150 gallons of gasoline are saved annually.

This means two things. It is depressing for the oil & gas sector. For the utility sector, it is both exciting and terrifying. EVs are enormously transformative to the energy mix. The petroleum refined products into fuels sector represents 40 quadrillion BTU of energy. If it were all transferred to electricity, it would represent 11.7 billion MWh or 11.7 million GWh or 11,700 TWh. For reference, the US has approximately 1 TW of generating capacity. If these generators were on all year, this would be 8760 TWh. We would need to add another 1.3 electric grids to the US to support transportation. More if it was not operating at 100% capacity factor.

Yikes!

Filling up your gas tank is like having a 2 MW power station in your hand

Look at it this way… a Tesla P100D is a 100 kWh battery.

You fill up your gas tank in about 3 minutes (0.05 hr).

If you could achieve the same speed with your gas pump, your charger would be rated at 100 kWh / 0.05 hr = 2000 kW or 2 MW.

This has other ramifications. Your normal gas station has ~10 or so gas pumps, and they are often operating simultaneously. AT today’s best charging time of 30 minutes (~50 kW) , that is still a half megawatt load for a “gas station”.

For large gas stations, there is likely no way that the existing distribution infrastructure can support that load. There is an argument to add storage on site, and buffer the EV load with a trickle charge from the grid.

That demonstrates how EVs drive demand for energy storage even more.

Davion Hill
Energy Storage Leader — North America
DNV GL Energy

Davion Hill is organizing and leading the panel “Transportation: hitting the electric gas pedal” at the 2018 DNV GL Energy Executive Forum on May 17th. Register today to meet Davion at the Forum to continue the discussion. 

Re-write the energy playbook before someone else does

Anyone who has spent time in London has ridden in a classic Black Cab—a knowledgeable driver, courteous and reliable service, reasonably priced. And a business model that’s in serious trouble: Despite a recent court ruling revoking Uber’s London license, the trend towards cheaper fares enabled by app-guided navigation may be unstoppable.

What are the parallels in today’s energy landscape? Some see utilities facing the same uphill battles as Black Cabs. Massive investments in generation and T&D infrastructure have enabled utilities to provide reliable service. Distributed energy providers are seen as disruptors eager to rip up the playbook, gaining access to customers without paying their fair share. The reliance on regulation to even the playing field is understandable. Unlike the world of London’s Black Cabs, however, the outcome here is far less certain.

The reason: Many utilities are not waiting for others to rip up the playbook. They’re doing it first, choosing a customer-centric value proposition.

Canada’s Alectra utility is offering its customers solar-plus-storage systems for backup power and rate arbitrage. Vermont’s Green Mountain Power has an eHome program that provides customized, holistic solutions that include everything from heat pumps and weatherization to solar, EVs and energy storage. In essence, these utilities are adding exciting new products to the Black Cab aspects of their business: Dependability and long-term relationships now combined with future-facing technology. It’s not cannibalization. It’s just what it takes to stay competitive.

What can London’s Black Cabs learn from Uber to beat them at their own game? As energy goes through a period of rapid transformation, what business models will put customers first—and win? Join the conversation below so we can find the answers together.

Best,
Ed Cuoco

Millennials are Powering Change in Energy

At our Energy Executive Forum in 2015, many of you may recall discussing millennials, referring to them as renters, cord cutters, digital natives, stay-at-home types, and preferring access to ownership. Millennials are the largest generation in US history (bigger than the “boomers”), with radically different value systems and behaviors than their parents. This generation is expected to have a huge impact on the economy and is poised to drive a world of changes in the energy space.

That day has arrived, and the current reality is more nuanced, demonstrating that consumer surveys may be good at finding blind spots, but this is not enough to fully understand what consumers want. Indeed, recent data show that millennials are moving out of mom’s basement and are embracing home ownership — half of all homes sold in the US are purchased by millennials. They’re buying everything else too, from SUVs, to voice-activated appliances, and the electricity that powers everything. In short, millennials have grown up. How can utilities and energy providers take action to capitalize on this new reality?

Consider that:

  • Millennials’ interest in energy-saving programs and offers far exceeds the interest of non-millennials. (1)
  • 47% of millennials find time-of-use rate offerings extremely/very motivating. (2)
  • 9 in 10 would view an energy dashboard from their utility. Over 50% would actually change their behavior because of it. (3)

Connecting to millennials will require utilities to offer: new products, new ways of engaging customers, and new ways to make energy use and monitoring easy. We need to meet millennials where they are, with choices that put them in the driver’s seat. A good example of this is PGE pilot that simultaneously tests 12 different Demand Response rate structures.

There are roughly 90 million millennials in the US, representing a massive opportunity for energy providers—or an equally large headache. Are energy providers ready to meet the expectations of a generation that is used to flexible products, to instant access to product information, price comparisons and peer reviews?

Navigating the energy Convergence, with many different industry sectors competing for the same customer, requires this kind of experimentation. Including millennials in the discovery process makes them less of a target for marketing, and more of a co-creator, opening the door to customer validation and permission.

Do you have the millennials in mind when devising technological or business innovation initiatives? Do you believe millennials will shape the energy Convergence? Please share your thinking on our website, or contact us directly for a conversation.

Best,

Carole Barbeau

President, Energy Advisory Region Americas

(1) http://smartgridcc.org/wp-content/uploads/2017/08/SGCC-Spotlight-on-Millennials-Report-Executive-Summary-8-8-17.pdf

(2) https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-deloitte-resources-2017-study-energy-management.pdf

(3) https://cdn2.hubspot.net/hubfs/2224113/KSV_Millennials.pdf?t=1504702456070

Amazon – friend or foe for energy retailers?

As we’re navigating the Convergence, one company name keeps popping up into our conversations: Amazon.

Amazon’s achievement goes far beyond being a top global retailer. They have redesigned (i.e. disrupted) the direct-to-consumer business model and transformed the marketplace. Amazon’s fast delivery model (distribution), Prime program (consumer loyalty) and Fulfillment program (3rd party sellers/partners), are all enabled by a robust digital platform, advanced analytics and IoT—this is the foundation of its strategy. As a result, Amazon’s role has shifted from “seller” to “servicer,” seamlessly covering the end-to-end customer experience. This strategy triad, once in place, allows for instant access to new market segments at a near-zero marginal cost, further fueling the fast and lowest cost mantra. Consider the recently launched Amazon Fresh—less than 60 days after Blue Apron’s IPO. Almost overnight, Amazon Fresh started to sell out. Amazon “owns” the customer and is able to act quickly, giving them a huge advantage; almost impossible for competitors to overcome. Consider this:

  • Is there a player anywhere across the energy landscape equipped with the technology, distribution, wide customer pool, and sheer agility to compete at this level?
  • Are energy retailers with lots of customers and the willingness to take risks positioned to succeed in this changing energy landscape?
  • ​How can utilities adapt quickly, building on existing customer relationships to bundle and sell new services and products?
  • Will incumbents be willing to invest in new technology to lower their marginal cost, and thus thrive in a near-free electricity rate environment? Will they be willing and/or able to shift their model towards managing energy use more efficiently, and selling less rather than more electricity?

What can retailers, utilities, DER and IoT learn from a company like Amazon? No single company is going to have the answers, but I do know that conversations amongst executives of different backgrounds will help to illuminate how the energy industry can be more agile in the age of disruption. Please share your thoughts on our website, or contact us directly for a conversation.

Best,
Carole Barbeau
President of Energy Advisory - Americas
DNV GL

Should my mortgage include energy costs?

Sonnen recently announced a deal that brings the energy Convergence into sharp focus—on real estate. Through a contract with an Arizona homebuilder, Sonnen’s battery systems will be integrated with rooftop solar on new homes. Homebuyers won’t have to worry about getting separate financing for their solar panels or their battery as the related costs will be bundled into their mortgage.

The implications for the US real estate industry and other sectors may be just as significant as those for energy:

    • Will home solar + storage integrated systems become standard in new homes? For clues we can look to the automotive industry, where the concept of “standard” versus “options” has always been central to sales. In 1995, Mercedes-Benz was the first to equip a production model with electronic stability control. By 2012, the technology was standard in every brand of car sold in the U.S. If there is a similar time horizon for built-in home energy systems, this could force the hand of many incumbents currently dominating the energy space (utilities, manufacturers, retailers, etc.).
    • How would trends in home mortgage affect the deployment of integrated home battery systems?
      Will solar + storage become just another appliance included in the price of a home, or will it follow the Uber model of a platform for robust community trading?
    • How will these customers interact with the grid? What energy services will they be offered to maximize use of their assets? Offered by whom?

As with so many aspects of the Convergence, the timeframe of the change in real estate and energy will be driven by the people in charge. History has shown that in some cases this has been driven by consumer demand, but much of today’s rapid change and innovation can be attributed to the vision of business leaders.

What are your thoughts on the real estate market and energy? I invite you to share your perspectives to spark conversations among the energy executive community. Or contact us directly for a conversation.

Best,

Carole Barbeau
President of Energy Advisory – Americas
DNV GL

P.S. In the coming weeks we’ll be releasing video highlights and insights from this year’s Forum. You can visit our website to stay up to date on new content as it’s released.

We should all learn to think like Coca-Cola

I am convinced that the value in continuing the Convergence conversation is to understand not only the implications of events within our industry, but to look beyond the Energy space to form unexpected connections, identify unexpected opportunities.

You have likely read about Volvo announcing to offer electric and hybrid car models only from 2019. This announcement hit the mark as brilliantly intended by Volvo, since it made headlines for a few days, with many speculating it to be an iPhone moment for EV. The reality is a bit different – only 3 of all models offered by Volvo starting in 2019 would actually be all-electric, indicating that this is not quite yet the tipping point of mass adoption of EVs. But perception is king and Volvo is now viewed as the first “large” car manufacturer committing to phasing out gasoline engine and boldly pushing EV offerings to the marketplace. Make no mistake about my previous comment, this tipping point is coming, most likely as other “large” car manufacturers are now fully prompted to follow suit and push EV platforms further.

Mass adoption of EVs will have a disruptive ripple effect on multiple industries. Coca-Cola, who is already preparing for the disruption, provides an excellent example of how we should test the readiness and adaptability of our enterprise/business model and find opportunities in ways we traditionally didn’t expected.

The gas station network in the US is quite extensive, with a whopping 150,000 locations. It’s not difficult to understand why gas stations have been a top 5 distribution point of Coca-Cola products. Yet with EV mass-adoption, drivers will more likely to be “filling up” on electric power at home, at work, i.e. in any mid-to-long term parking areas, while cars owners/drivers are busy doing something else and going on with their busy life. Nobody will be expected to wait beyond a few minutes to recharge a car battery as we do now to refill a gasoline tank.

Coca-Cola understands that gas stations will stand little chance in this transition, as BlockBuster did when online movies and video streaming came along. How are we in energy also preparing for this change? Distribution strategy is key for any retail business:

  • How will EV change the daily load curve? Will workplace be the new frontier for demand or will home remain where the recharging will mostly take place?
  • Will EV mass adoption shift customer thinking about the value and price of electricity (the idea of pumping gas directly from a parked car for refueling does not even cross our mind, but we don’t think twice of plugging our mobile phone for a “free” recharge while waiting for an appointment at the dentist office)?
  • Will the Tesla charging model (offering your home outlet to other fellow Tesla car owners traveling long distance) become an Uber moment, challenging the incumbent business model of Retailers and Utilities?

As I’ve said before, we are smarter together than any one of us is alone. No industry sector is immune to what’s coming. It’s only through an ongoing dialogue that we find the insights needed to chart our course through the Convergence. DNV GL’s commitment is to drive the energy transition, supporting you with these pressing questions and by establishing your enterprise/business model readiness, adaptability and emerging opportunities. What are your thoughts on the impact of EV on your business? Have you already consider different scenarios and/or identify opportunities and future revenue streams? I invite you to share your thoughts on our website or contacting us directly for a tailored advisory engagement.

Best,
Carole Barbeau
President, Energy Advisory
Region Americas

Is corporate energy procurement the new normal?

While the DNV GL 2017 Energy Executive Forum in Dana Point, CA has come and gone, what has remained top-of-mind for me is the importance of keeping the Convergence conversation going. In today’s disruptive energy environment, cross-sector perspective is a powerful advantage.

In the aftermath of the United States’ exit from the Paris Agreement, more U.S. businesses—from Apple to General Mills to Goldman Sachs—are leaning into corporate energy procurement, following in the path of the internet giants whom initially led the way. This further supports initial assumptions on the future of energy markets and raises some interesting questions, with implications for verticals ranging from utilities to DER:

  • Will corporations with large energy footprints and ambitious sustainability goals foster the convergence of energy markets with independent partners?
  • Are investments in clean energy projects (such as Apple’s recent additional $1B green bonds issuance) reaching a tipping point?
  • Will green tariffs and aggregation of low-volume PPAs enable utilities to meet the varying energy demand of C&I customers and help their retention?
  • Will big brand mass adoption of carbon-neutral energy supply transform to residential consumer purchasing habits and expectation regarding their electricity consumption as it does in other parts of their life?

Let’s keep the Convergence conversation going. Over the next several months, I will be sharing insights and observations from news stories that may have applications to your vertical through this semi-weekly “Convergence Pulse” email.

Though no one of us has all the answers as to what the future of energy holds, asking the right questions and exploring trends and probable scenarios together will help us all move our industries, verticals, and companies forward—with confidence—through the swell.

Best,
Carole Barbeau
President, Energy Advisory
Region Americas