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Energy Intermediary talk by Nalin Kulatilaka, BUILDE meeting, May 10, 2007
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New Business Models toAccelerate Adoption of Clean
Technologies
A 2nd Green Revolution
Nalin Kulatilaka
© Martha Amram and Nalin Kulatilaka
PrimarySources
Solar
Wind
Geo thermal
Tidal
Fission
Fusion
Hydro
Fossil Fuel
Bio
Energy ConversionEnergy Transport Energy Storage
Fuel Cells
HydrogenWater
Heat
Light
Motion
Human Uses
Processing
Electricity
Photovoltaics
Windows / Housing design
solar hot water, heating
MarketsIntermediariesOrganizations
© Martha Amram and Nalin Kulatilaka
Adopting Complementary SystemsTakes Time
© Martha Amram and Nalin Kulatilaka
The Ignored Opportunity
Source: U.S. Energy Information Administration statisticsGraphic Published first in Metropolis Magazine, October 2003 Issue.
The Familiar Cut
© Martha Amram and Nalin Kulatilaka
The Ignored Opportunity
An Unfamiliar Cut
© Martha Amram and Nalin Kulatilaka
Efficiency Investment Risk and Return
0%
5%
10%
15%
20%
25%
30%
0% 5% 10% 15% 20% 25% 30% 35%
Energy Efficiency
U.S. T-Bills
Long-Term Corp. Bonds
Common Stock
Small Company Stocks
© Martha Amram and Nalin Kulatilaka
• Profit Opportunity: Avoided cost of energy 13¢ /kwh RPS premium 2¢/kwh Carbon credit 2.5¢/kwh Less energy efficiency cost of 2¢/kwh Equals 15 - 16¢/kwh
The Economics of Conservation in theBuilt Environment
Who can capture the value?
• Utilities can’t do it. In 48 states regulations preventutilities from profiting from energy efficiency investments
• Consumers don’t act by themselves. High upfrontcosts, information fragmentation, and small dollar impacton the energy bill have prevented consumers from actingon their own
© Martha Amram and Nalin Kulatilaka
Brown Building -- Energy Bill
Appliances
WeatherOil Price
Behavior
?Features
© Martha Amram and Nalin Kulatilaka
Green Building -- Energy Bill
© Martha Amram and Nalin Kulatilaka
First Step: Energy ServiceCompanies
• Analogous to IT services
• Can bridge expertise/knowledge gaps, overcome customer inertiaand change the marketplace.
ESCOs exist, but we need them to flourish.
© Martha Amram and Nalin Kulatilaka
Needs an Ecosystem
Design, install, and operate
Monitor andvalidate
energy use
Interface withutilities and
contract withcustomers
Evaluate risksand provide
financingE-Inter
Opportunity
© Martha Amram and Nalin Kulatilaka
Business Model
E-Inter
Lender
Customer 1
Performance Risk
Credit Risk
Utility
Rate Risk
Securitize annuities
Customer 2 …………… ………….. Customer N
Monitoring & Verification
© Martha Amram and Nalin Kulatilaka
Up-Side Potential:Peak Shifting Programs
PJM is AcceptingReserve Servicesfrom Load Since July2006. Experience sofar indicates loads aremore reliable.
ISO-NE is conductingpilot to Investigateload participation inreserve services.
Source: Courtesy of EnThes Inc., March 2007
Example of Generator providing Super Fast Reserves:Frequency control and ± 60MW of Secondary Reserves on AGC
Frequency Control
Secondary Reserves320MW±60MW
© Martha Amram and Nalin Kulatilaka
Business Model
E-Inter
Lender
Customer 1
Performance Risk
Credit Risk
System Operator
Rate Risk
Customer 2 ………….. ……………. Customer N
Monitoring & Verification
• Load control• FCM• RECs• etc. Utility
© Martha Amram and Nalin Kulatilaka
The Cyber Infrastructure
• Real-time metering at individual “edge user”
• Communications infrastructure to convey price signals– Users and smart appliances
• Control systems to adjust load– Central pool
• If distributed generation (wind, solar), then 2-waymetering.
© Martha Amram and Nalin Kulatilaka
Conclusions
• Built environment ready for immediate adoption of demandreduction and distributed generation
• Opportunities for service and financing model innovations
• Vital need for measurement, monitoring, and verificationservices.
• Up-side opportunities through pooling and controlling load --need a cyber infrastructure