Grid-based Technology and Business Model Innovation: DG, DR, and EE

How will Disruptive Challenges in Electric Markets Impact Michigan’s Energy Decisions?

Presented byLisa Wood

Executive Director, IEEVice President, Edison Foundation

June 26, 2013

Disruptive challenges in electricity

Demand side: > “negawatts” or energy efficiency (EE)> Smart grid related technologies / networked homes

Demand & supply side: demand response (DR)> Flattens peak demand> Firms variable renewable energy sources

Supply side: Distributed generation (DG) > Increasing role of renewable energy in supply mix > 3rd party suppliers of rooftop solar

2

2012 AEO reference case from 2010-2035: Increase of 710 TWh over 25 years

3

3,730 3,763

3,929

4,099

4,282

4,440

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

2010 2015 2020 2025 2030 2035

TWh

Demand-side: Energy efficiency and Smart Grid Technologies

Cause: Policies driving energy efficiency (“negawatts”) Regulatory policies

Fixed cost recovery mechanisms/decoupling (27 states). In Michigan, DTE has a revenue decoupling mechanism.

Performance incentives (23 states). DTE has a performance incentive for EE in Michigan (earn up to 15% or program spending if energy savings targets exceeded)

Energy efficiency resource standards (EERS). In Michigan, 1% for electric utilities in 2012 and beyond.

Energy codes and national appliance/equipment standards becoming more stringent

5

Source: IEE, State Electric Efficiency Regulatory

Frameworks, July 2012. www.edisonfoundation.net/IEE.

EE programs and codes & standards are major contributors to “negawatts”

6

242277

249

420

0

50

100

150

200

250

300

350

400

450

2025 2035

Elec

tric

ity

(TW

h)

EE

C&S

Cause: Smart grid technologies driving energy management (EE, DR, DG)

Smart meter deployment (networking customers)> 40 million deployed; 65 million expected by 2015> In Michigan, about 866,000 smart meters deployed as of EOY

2012. Over 1 million expected by EOY 2013 (about 50% of DTE electric customers).

Networked customers opens door to possibilities> Energy management and demand response> Smart technologies in home or business; smart appliances> Smart charging of EVs

7

Smart meter installations in the US: 2007-2015 (millions)

8

7

13

27

36

42

51

59

65

0

10

20

30

40

50

60

70

Milli

ons

Installed Smart Meters

Projected Smart Meter Installations

Effect: Energy efficiency flattens energy consumption growth in the US (IEE forecast based on AEO 2012 reference case)

9

3000

3200

3400

3600

3800

4000

4200

4400

4600

2010 2015 2020 2025 2030 2035

TWh

Ratepayer Funded EE Programs

Moderate Codes and Standards

Aggressive Electric Transportation

AEO 2012 Reference Case

IEE Forecast

EE Programs (-249 TWh)

Codes &Standards (-420 TWH)

Electric Transportation(+147 TWh)

3,918 TWh

Source: IEE, Factors Affecting Electricity Consumption in the U.S. (2010-2035). March 2013.

Effect: Correlation between GDP and electricity sales appears broken

10

-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Elec

tric

ity

Cons

umpti

on (

TWh)

GDP

(Bill

ions

of

curr

ent $

)

Electricity GDP

Source: EIA, Annual Energy Review, September 2012;BEA

Business models when demand is flat

Xx Xx xx

11

Supply side: Distributed Generation

Projected electricity generation by fuel source: Renewable energy growth (TWh)

13

0

1

2

3

4

5

6

1990 2000 2020 2030 2040

History 2011 Projections

30%

16%

35%

17%

1%

25%

13%

19%

42%

1%

Natural gas

Renewables

Nuclear

Coal

Oil and other liquids

2010

1993

13%

11%

19%

53%

4%0

1

2

3

4

5

6

1990 2000 2020 2030 2040

History 2011 Projections

30%

16%

35%

17%

1%

25%

13%

19%

42%

1%

Natural gas

Renewables

Nuclear

Coal

Oil and other liquids

2010

1993

13%

11%

19%

53%

4%

Source: EIA, Annual Energy Outlook 2013 Early Release

Growth in renewable energy in US

How much can renewable energy contribute to future U.S. electricity supply. > AEO forecast of 16% by 2040 is too conservative. > NREL Renewable Electricity Futures Study (2012) shows 80%

renewable energy by 2050 possible in the U.S.

With DR and storage, electric power system can accommodate higher levels of variable generation from wind and solar?

In recent past, high growth in wind energy. Now at 3%. Now, high growth in solar PV expected. Now at 1%.

Could grow to 3% by 2016.

14

Cause 1. Policies and pricing driving DG

29 state plus DC have RPSs, 17 with mandates/programs for solar and other DG

Net metering in 43 states Feed-In Tariffs – adopted/proposed in a few states

(common in Europe) Reverse auction mechanism (CA & CT) Subsidies, rebates, tax incentives, financing. Zero net energy goals Critically important to price DG right - cost of access to

grid; cost of energy (e.g., Virginia standby charge)

15

Is solar DG becoming a disruptive technology?

Annual PV installations grew 76% in 2012 in US, reaching 2,816 MW (2.8 GW)

Greentech media forecasts 30% growth in US market in 2013

Cumulative 2012 solar capacity in US: 6,175 MW (6.2 GW) Cumulative solar capacity in US projected to be 28 GW by

2016 > [28,000 MW/1,171,000 MW] = 3% of total US capacity

16

Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review. 2013

Annual PV installed capacity in US (MW): growing exponentially

17

Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review and Q1 2013

Note: Assumed 85 percent DC to AC conversion efficiency

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sola

r PV

(MW

)

Installed PV Capacity by Sector

Residential Non-Residential Utility Projection (All Segments)

Cumulative PV capacity in US reached 6.2 GW in 2012 (utility owned is not DG)

18

Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review. 2013

Note: Assume 85% DC to AC inverter efficient.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2010 2011 2012

Capa

city

(MW

)

Cumulative PV Capacity by Sector

Utility

Non-Residential

Residential

Cumulative PV capacity projected to be 28 GW 2016 (4x 2012)

19

0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sola

r PV

(MW

)

Cumulative PV Capacity

Residential Non-Residential Utility Projection (All Segments)

Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review and Q1 2013

Note: Assumed 85 percent DC to AC conversion efficiency

Possible scenarios and effects

Outcomes> Utilities lease rooftops and own solar PV> Disintermediation: 3rd party owns solar PV and

sells contract to customer> Customers own solar PV

Is solar PV the “wireless” technology for the electric power sector?

21

Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review. 2013

Wireless transformed telecom sector> Decline in landlines (traditional cash cow for telecom)> Wireless developed in places without landlines

DG today> So far, DG is not utility owned (utilities own large solar PV)> Top states today: CA, AZ, NJ> Subsidies galore

What is the biz model for DG?> Own solar panels and lease rooftops – comm, resi> Combined business – solar DG and efficiency and utility

supplied power. Is this a regulated or non regulated business?

For more information, contact:

Lisa WoodExecutive Director, IEEVice President, Edison Foundation

IEE701 Pennsylvania Ave., N.W.Washington, D.C. 20004-2696202.508.5550

lwood@edisonfoundation.net

www.edisonfoundation.net/IEE