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June 7, 2017
Opportunities for Gas Utilities in the Coming Distributed Energy Revolution
www.enovationpartners.com
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 1
On passing fads
“There’s no chance that the iPhone is going to get any significant market share. No chance.”
- Steve Ballmer, formed CEO of Microsoft – 2007
“There is no reason anyone would want a computer in their home.”
- Ken Olsen, co-founder of now defunct Digital Equipment Corp. – 1977
“Rooftop solar is a fad.”
- Commonly held view circa 2009 and prior
“Solar ‘not a fad’” produces 60,200 unique hits on Google since 2010
Are gas-fired DERs the next fad that becomes reality?
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 2
• Utility electric sales are shrinking, due to energy efficiency and increasing DER penetration
• Economics in the gas and electric utility industries are trending toward possibly significant distributed energy resource (DER) adoption by end users
• Rooftop solar gets all the press, but distributed natural gas generation is becoming increasingly attractive
• Natural gas utilities are positioned very well in the fast evolving DER environment
What we want to discuss today
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 3
Since 2007, U.S. gas demand has grown significantly, while electric demand has actually fallen
0
5
10
15
20
25
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Residential Commercial Industrial
Vehicle Utility - Electric
Annual Gas Consumption (Tcf) by Sector
0
500
1000
1500
2000
2500
3000
3500
4000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Residential Commercial Industrial
Annual Electric Consumption (TWh) by Sector
2007 – 2014 CAGR: 1.97% 2007 – 2014 CAGR: -0.11%
This trend will continue, driven by market fundamentals
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 4
Electric load growth has fallen steadily, due to declining electricity intensity - load growth now going negative in most states
Growth in US Resi. Load5y Moving Average
Growth in US C&I Load5y Moving Average
1960 1970 1980 1990 2000 2010 2020-2%
-4%
0%
4%
2%
8%
6% Electric Intensity
Real GDP
C&I Load
1960 1970 1980 1990 2000 2010 2020
10%
5%
-5%
15%
-10%
0%
Resi. Load
Households
Electric Intensity
Source: EIA, BEA, US Census Bureau, EP analysis
-4%
US Resi. Load and Households US C&I Load and Real GDP (2009 USD)
0
2
4
6
8
10
12
14
1960 1970 1980 1990 2000 2010 2020
140
100
60
80
20
0
40
120Households
Electric Intensity
0
50
100
150
200
250
1960 1970 1980 1990 2000 2010 2020
5
20
10
0
15
Electric Intensity
Real GDP
MW
h/H
ouse
hold
Million H
ouseholdsM
Wh/
milli
on $ Trillion U
SD
-10%
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 5
Projected vs. Actual
(percent difference)
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
AEO 1994 -0.6 -1.5 -2.8 -4.5 -4.5 -6.9 -7.3 -9.0 -7.3 -8.1 -7.6 -8.0 -9.9 -9.2 -10.5 -8.8 -4.6 -7.6
AEO 1995 0.6 -1.5 -3.8 -3.8 -6.3 -6.9 -9.2 -7.7 -8.6 -8.3 -8.4 -10.3 -9.5 -10.8 -9.0 -4.6 -7.4
AEO 1996 -1.3 -3.3 -3.4 -5.8 -6.2 -8.3 -6.5 -7.2 -6.6 -6.5 -8.1 -7.1 -8.2 -6.1 -1.2 -4.0 -2.4 0.7 2.3 2.4 4.1 5.7
AEO 1997 -0.8 -1.0 -2.9 -2.5 -3.8 -2.0 -2.5 -1.6 -1.4 -3.2 -2.0 -3.1 -1.0 3.9 0.8 2.4 5.5 6.9 6.9 8.6 10.0
AEO 1998 -1.3 -1.8 -1.7 -3.0 -0.2 -0.8 -0.2 0.0 -1.6 -0.3 -1.3 1.1 6.4 3.3 5.0 8.1 9.3 9.0 10.4 11.6
AEO 1999 -1.8 -1.5 -2.6 0.2 -0.3 -0.1 -0.4 -2.1 -0.8 -2.0 0.3 5.4 2.4 4.0 7.1 8.5 8.4 10.0 11.4
AEO 2000 -0.7 -1.8 0.2 -0.1 0.8 1.1 -0.4 0.8 -0.3 2.1 7.3 4.1 5.5 8.6 10.0 9.9 11.4 12.8
AEO 2001 -1.7 1.3 1.9 3.3 3.8 2.7 4.6 4.1 7.1 13.1 10.5 12.3 16.0 17.9 18.2 20.3 22.2
AEO 2002 1.4 1.1 3.6 4.6 3.6 5.4 4.9 7.7 13.7 11.1 13.4 17.2 19.3 19.8 22.1 24.2
AEO 2003 -1.5 1.0 2.0 0.6 2.5 2.2 5.6 11.6 9.2 11.5 15.5 17.4 17.9 20.1 22.2
AEO 2004 0.0 1.0 0.2 2.2 1.7 4.7 10.6 8.0 10.2 14.0 16.1 16.6 18.9 21.0
AEO 2005 0.0 -0.3 1.4 1.3 4.8 11.1 8.4 10.5 14.2 16.1 16.4 18.4 20.3
AEO 2006 0.4 0.8 0.1 3.1 8.7 5.9 7.9 11.4 13.0 13.2 15.1 16.7
AEO 2007 0.6 -0.2 2.8 8.2 5.3 7.1 10.5 12.1 12.2 14.1 15.7
AEO 2008 -0.6 1.1 5.8 3.0 4.7 7.7 7.8 6.4 6.8 6.9
AEO 2009 -0.2 1.7 -0.5 1.2 4.1 4.8 4.1 4.9 5.6
AEO 2010 -0.2 -3.7 -0.6 2.8 3.2 2.6 3.8 4.9
AEO 2011 -0.2 -1.5 1.1 2.1 1.0 2.2 3.1
AEO 2012 0.4 0.9 0.5 -0.1 0.7 1.2
AEO 2013 0.5 -0.7 -0.9 0.7 1.9
AEO 2014 -0.1 -1.0 1.2 2.7
AEO 2015 0.0 0.6 1.9
AEO 2016 0.0 0.4
AEO 2017 0.0
Average Absolute Percent Difference 0.6 1.0 1.9 3.1 2.8 4.3 3.8 4.9 3.0 3.2 3.0 3.1 3.3 3.4 3.4 4.1 6.9 5.3 5.9 8.1 8.8 8.3 9.3 10.1
National-level forecasts haven’t registered this trendAnnual Energy Outlook Electricity Sales Projections vs Actual (Percent Difference)
Consistent pattern of over-estimating future
growth since ~2001
Impact of 2009 Recession reverberates through
subsequent years
Source: EIA AEO
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 6
These forecasting errors don’t yet reflect potential impact of DER, which we believe is likely to accelerate…
Key Assumptions
Exported energy Current
ITC 10%
PV cost decline 6%
Key Assumptions
Exported energy Wholesale
ITC None
PV cost decline 6%
Wholesale Export – Sized at 90% of Total Load, with Storage if Economic
Status Quo
Source: EP analysis
2026 Residential PV Project Economics
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 7
15
6
7
4
2
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4
2
11
3
5
0
1
2
3
4
5
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8
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14
15
… or of the dramatically increased pace of new efficiency standards19
94
1992
1993
1996
2001
2008
2000
2007
1998
2005
2006
2016
1995
2004
2012
2003
2013
2011
2010
2014
2015
1997
1999
2002
2009
Number of Final Standard Issued by DOE – 1992-2016
Pre-Obama-Era Average:0.6/year
Obama Administration Average: 5.2/year
2019
2021
2020
2023
2022
Vending MachinesUPSPre-Rinse Spray ValvesRefrigeration ProductsDehumidifiersCeiling FansCeiling Fan Light KitsSmall AC and Heat
Large RefrigerationC&I Pumps
Portable ACPool PumpsBoilers
Compressors
Central HVACComm. FurnacesComm. CAC and HPComm. Ice Makers
Future Standard Effective Dates
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 8
• Economic activity• Population• Electricity intensity ( C&I - MWh/$ GDP; Resi. - MWh/ person)
Total Regional Consumption
Energy Efficiency
DER
Electrification
• Electricity and gas price and tariff structure, subsidies• DER technologies cost, performance, economics*• DER adoption propensity
• Electricity, motor fuel, natural gas price• EV costs, performance; electric appliance, C&I equipment costs• Adoption propensity
Future Utility Load
• Programmatic savings (efficacy x spending)• Non-programmatic savings (standards, technology)
• Consumption and peak load, by rate class, through 2031• By scenario
“Envelope”
Dec
rem
ents
/ In
crem
ents
* DER analysis driven by Enovation’s proprietary DER analytics data base and tool set
Enovation employs a proprietary load forecasting methodology to incorporate changing fundamentals
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 9
EVs and electrification may partially offset DER, but increasing efficiency will dominate electricity sales trends
-19%
-14%
-17%
DER 2031 Forecast (after additions)
Electrification2031 Forecast (before
additions)
Energy Efficiency
2017 Load Economic and Demographic
Drivers
EV
PV Electrification (low)CHP Electrification (high)EVRecipNon-Prog. EEProg. EE
TWh
Base case load range with electrification impacts
EVs and net electrification were not analyzed in detail, but could counterbalance only a small portion of the EE/DER decrement, even given optimistic assumptions.
Illustrative
“Sanitized” Client Example of Load Forecast – 2017 to 2031
Over five scenarios of varying economic growth and relative gas vs. electric prices, utility electric sales declined by 15-30% by 2030
Declining sales will put significant upward pressure on electric rates, and push electric utilities to seek new growth engines
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 10
Solar PV’s growth has received the greatest attention…
$0
$5
$10
$15
0
2
4
6
2000 2002 2004 2006 2008 2010 2012 2014
Avg.
inst
alle
d co
st
($/W
att)
Annu
al in
stal
latio
ns
(GW
)
Installations
Solar Installed Capacity and Installation Cost
Source: SEIA / GTM Research Solar Market Insight (Q2 2015), EP analysis
23
56
8
12
02468
101214
2011 2012 2013 2014 2015E 2016E
Annu
al in
stal
latio
ns
(GW
)
CAGR 2013–201651%
24%34%
Residential
Utility 35% CAGRCommercial
Forecast Additions
• Strong early growth (CAGR 2005-09 = 37%) attributable to rebates
• Accelerated recent growth (CAGR 2010-14 = 49%) due to price decrease spurred by PV oversupply
• Commercial sector had its first decline in 2014, but growth appears to have resumed in 2015
• ITC extension through 2020 creates foundation for sustained growth
Observations
• Longer term GHG constraints (and shorter term in selected regions)
• Continued regulatory reforms to drive DER vs. overturning net metering
• Cost improvements
Drivers of Future Growth
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 11
… supported by increasingly economic energy storageDemand Management for Storage*Frequency Regulation for Storage
*Available market for demand management BTM offerings are dependent on tariff-specific demand charges and terms. Volume (GW) in horizontal axis of graph is based on assumed C&I contribution to peak ISO capacity, NOT likely BTM storage market sizeSee Appendix pages for assumptions behind regional revenues and storage costs by use caseSource: Enovation Partners analysis
By 2020, cost declines will reduce the revenue required to meet desired returns, thereby drastically expanding economically viable markets for BTM storage
‘000 $/MW - Yr ‘000 $/MW - Yr
Available Market (MW)
0
50
100
150
200
250
300
350
0 500 1000 1500 2000
20162020
PJM
ISO NE
ERCOTNY ISO
CAISO0
50
100
150
200
250
300
350
- 50 100 150 200 250
2016
2020PJM
ISO NE
ERCOT
CAISONYCA
Legend
Available Market (GW)
Non CA
Non CA
CA-only
CA-only
2016 Required Revenue for Storage
2020 Required Revenue Storage
Non-CA
Non-CA
CA-only
CA-only
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 12
DEREconomics
• Number of opportunities, MW, and value potential
• By building/business type, utility, and state
Policies & Rate Structure• 55 utilities; 10 competitive• 3 -5 representative rate structures x
customer type x utility• Relevant RTO products• State & federal subsidies (e.g. NEM, tax
credits, upfront / annual incentives, etc.)Source: OpenEI, DSIRE, FERC
Load Curves• 10 Commercial Building Types• 3 Industrial Types• 1 Residential• 15 climate zones
Source: NREL, CBECS, RECS, DOE, ORNL
Use Cases• Use cases with a range of applications
• Net Meter – Solar PV• Demand Management– Recip & Fuel
Cells• Net Zero – Solar PV + storage
Source: EP
DER Costs and Performance• PV (rooftop, ground)• Storage (Battery)• Gas reciprocal engines• Fuel cell• Insolation by regional cities
Source: Lazard, EPA, GTM, PV Watts, EP
Enovation Partners recently has conducted a granular, bottom up analyses of DER economics for EEI and many gas or electric utilities
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 13
Solar DER may become ubiquitous in several parts of the U.S. by 2025…
Residential Rooftop
Residential Ground Mounted
Commercial Rooftop
Industrial Rooftop
2020 2025 2020 2025
2020 20252020 2025
12.5+ Years 10.0 – 12.5 Years 7.5 – 10.0 Years 5.0 – 7.5 Years < 5.0 Years Not Assessed
Source: EIA, EP analysis A significant long-term consideration in Southeastern U.S.
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 14
DER generation has been and is expected to be a significant if under-appreciated component of the US generation fleet
Distributed Generations Installs
Source: Power Systems Research, SEIA, EGSA, Navigant, EIA, Enovation Partners
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
US
Inst
alla
tions
(MW
)
Diesel Gensets NG Gensets Solar PV Fuel Cells Small Wind
Market Share Trends:■ Historical DG CAGR = 12%■ Forecast DG CAGR = 7%■ Solar PV is not the largest source of
DG growth■ DG is forecasted to grow to over 70%
of all generation capacity additions by 2020
New Market Participants:Aggressive non-utility players offering
an array of behind the meter products and services…but opportunity for utility
investment and creating stickier customers by bundling a new array of products and services that address reliability, power quality, environmental footprint and cyber security
How can natural gas gain DG market share from diesel, and encourage more base-loaded DG?
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 15
Unlike some other U.S. regions, the electric vs. gas spark spread for commercial customers is not projected by EIA to widen in FloridaAverage Annual Florida Gas Prices
Average Annual Florida Electricity Prices - FRCC
But Enovation believes that gas sales will be higher and electric sales lower than EIA expects- so gas rates will continue to rise slower than electric rates
CAGR = 4.4%
-
5
10
15
20
25
30
35
1984
1985
1986
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2020
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2029
2030
($/M
CF)
Citygate Industrial Commercial Residential
CAGR = 3.2%
0
5
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20
1990
1991
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2029
2030
(nom
inal
cen
ts/k
wh)
Industrial Commercial ResidentialSource: EIA
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 16
Gas-fired DG has become highly competitive with electric prices in some states – but Florida is handicapped by high retail gas prices
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
$2.00 $4.00 $6.00 $8.00 $10.00 $12.00
Elec
tric
LCO
E/20
14 C
omm
erci
al R
ate
($/M
Wh)
Delivered Natural Gas $/MMBtu
Electric LCOE vs Delivered Gas Price
Recip Fuel Cell - CHP CT - CHP
City of Lake WorthClay/New Smyrna
Glades Electric Coop
Sumter Electric Coop
Source: EIA Form 861, Enovation Partners
Average 2017 Florida rates Industrial Commercial
Commercial Gas DG Heat Map
12.5+ Years
10.0 – 12.5 Years
7.5 – 10.0 Years
5.0 – 7.5 Years
< 5.0 Years
Not Assessed
Gas rate design changes to meet needs of high load factor customers would improve economics
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 17
Munis and coops in Florida service territory serve over 25% of Florida’s electric customers – and tend to have high commercial rates
IOUs Munis Coops
Assessment of potential gas DER market in your gas territory will require analysis of:• Population of large C&I customers by business segment (and energy profile)• Current gas and electric tariffs• Cost structure of incumbent utilities, and flexibility for tariff restructuring• Forward cost curves for DG equipment and installation, and gas commodity costs• Customer needs on reliability, power quality, footprint, environmental permits• Financing needs and options (abundant capital available for project financing)
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 18
C&I market size estimates indicate a significant technical potential as defined
7,042
3,764
1,770
1,1950
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Total Potential Non-TargetBldgs
<125 kW Target Market
Technical Potential Target Building (MW)
62 62 51 41
23797 73 60
222329
126 157
358 366
229 201
879 854
479 459
0100200300400500600700800900
1,000
State 1 State 2 State 3 State 4Hospitals HotelsSecondary School Supermarket
Technical Potential By Target Building / State (MW)
• Buildings with agency constraints (retail, offices, and apartments) make up over half of the building population
• Applications in target building types that are too small (<125 kW) are not included from the target set
• Secondary schools provide the largest average installation size at 1.5 MW
• Hotels are only 17% of the installations on a MW basis, but account for 38% of the potential customers
Sources: EP analysis
Technical Potential
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 19
Our economic model converts technical potential to economic potential
31 23
90
3318 15
10
90 13
222
110
5926
353
174
9261
0
50
100
150
200
250
300
350
400
State 1 State 2 State 3 State 4
Hospitals Hotels
Secondary Schools Lg. Supermarkets
State 1 State 2 State 3 State 4
Projects 456 254 112 105
MW 252 125 66 43
$MM 353 174 92 61
$MM Economic Capex Deployment Opportunity
1,704
247 205 184 22676
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
<5% 5%-10% 10%-15% 15%-20% 20%-30% >30%
MW
MW by Project IRR – Technical Potential
Economic IRR Range
Source: EP analysis
Economic
• Supermarkets and hotels offer very good initial C&I market entry points
• It is important to note that these economic IRR estimates are a snapshot; as time goes forward and rates continue to increase, the lower end of the spectrum will “move to the right”
NearEconomic
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 20
Our building population dataset is built up from the county level NAICS data, we use Google Places API to develop specific DER targets lists with contact and demographic information
12
4
2
• 19 Target Hospitals in the Omaha metro are– Douglas County – 12– Sarpy County – 4– Washington County – 2
• Google Places API provides access to information on 100 million buildings and points of interest
– Name, address, phone number– Pictures and property square footage
Source: SNL Maps, NAICS, Google Place API, EP analysis
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 21
The C&I gas opportunity varies by customer type, reflecting the interaction of rates and load shapes
IRR for Demand Management Using Natural Gas Recip. Engines
Muni Utility 1 - 2026 Muni Utility 2 - 2026 Muni Utility 3 - 2026
Building Type Load Factor Small Comm.Service
Large Comm. Service
Small Comm.Service
Large Comm. Service
Small Comm.Service
Large Comm. Service
S School/L Office 36% 9% 4% 10% 0% 6% 6%
QSR/FSR 52% 12% 5% 13% 0% 6% 6%
Supermarket/L Hotel 60% 12% 4% 12% 0% 5% 5%
M Office/P School 36% 10% 5% 10% 0% 7% 7%
Strip Mall/Warehouse 32% 10% 6% 10% 2% 9% 9%
S Office/Midrise Apt 40% 12% 4% 12% 0% 5% 5%
Standalone Retail 33% 11% 6% 11% 0% 8% 8%
Small Hotel 50% 12% 4% 12% 0% 5% 5%
Out Patient 47% 11% 5% 11% 0% 6% 6%
Hospital 67% 13% 5% 13% 0% 6% 6%
< 6% 6-8% 8-10% 10-12% 12%+
Helpful for reducing DER origination costs for larger utilities; more informed targeting
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 22
Rate Schedule HospitalUtility PPLTariff GS-3Customer Charge ($/mo.) 40Energy Charge ($/kWh) 0.109
Demand Charge ($/kW) 4.19
Effective Gas Rate ($/MMBtu) 5.5
Bill Growth (elec. / NG % p.a.) 3.2 / 2.2
DER ProfileStart Year 2016Size (MW) 0.6 (60% of load)Capital Cost (2020 $/kW) 1,710O&M ($/MWh) 10
SavingsBoiler Efficiency 85%Electric / NG Savings ($k/yr.) 715
FinancialsPayback (years) 3.2
CHPs for commercial segments likely even more attractive
Source: EP analysis
1,070 81 15 58 111 5…
129 22 598
$0$200$400$600$800
$1,000$1,200$1,400$1,600
$k
CHP Savings Comparison
Current With CHP
Observations• Financial analysis does not include potential upside of
selling excess steam to third parties• Additional benefit in avoiding capital for boilers and
potential chillers, with tri-gen design• Savings from CHP could fund upgrade of air handling
system to solve core infrastructure and reliability challenges
Illustrative Project EconomicsHospital Example
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 23
I. Revenue model
II. DER participation
III. DER integrationIssues
A.Decoupling (inc. PBR)
B. Rate structures
C. NEMreform
“Excessive” DER adoption
DER mis-located
Lost demand = lostincome
DER control
Electric utilities do have tools that could blunt the DER threat
Gas utilities should anticipate and address competitive responses
Policy Lever Fit
Primary Partial Not applicable
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 24
Gas LDC’s have long-standing access to attractive customers and could be valuable partners in delivering gas-fired DER Solutions
Gas for generation Gas transportation
Gas for everyday use Gas for heating
Gas conversion successes of LDC’s in the past few decades
• Increase demand for gas
• Enhance customer relationships
• Add to bottom line• Align with
company goals and capabilities
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 25
LDCs can increase revenues and valuation, and enhance brand; customers get cost savings and resilience/reliability
Benefits to LDCs
Operational• Increased gas
throughput• Potential
investments to support increase demand
Financial• Increased gas
revenues• Potential for
additional services and revenue
• Material impact on earning and growth
Customer & Brand• Stronger brand as
provider of best energy solutions
• Deeper relationships with most valuable customers (C&I)
Valuation• High ROE
investments to build “value growth” platform
• P/E multiple expansion
Benefits to Customers
Cost Savings• Lower total energy
bill• Ability to arbitrage
between electric and gas prices
Resilience & Reliability
• High reliability baseload energy
• Long-term back-up when grid is down
• Retention of grid backup
Revenue• Potential sales of
excess energy at a profit
• Potential revenue from other energy services (reserves, peak reduction, ancillary services)
Brand• Community visibility for
cleaner, more efficient energy through natural gas
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 26
Multiple participants across the value chain offer opportunities for partnering
• The CHG/DG space has a diverse set of customers• The players tend to be OEMs, industrial conglomerates, or DER-focused startups• LDCs have specific advantages over all these players namely gas expertise, brand, and
customer relationships
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 27
Business Model Description Utility Holding Company Examples
Typically commodity lead in deregulated markets with services as a value adder
Broad range of services – DG, EE, DR, system design, energy audit, etc.
Larger on-site generation for backup, load mgt., CHP/process heat, etc.
HVAC services, lighting, EE/ER, etc.
Typically ground mounted solar PV or roof top PV for C&I customers
Asset/lifecycle management System performance optimization Reliability & restoration
Load management, demand response Performance contracting Building management / lighting solutions Audit, measurement, verification
“Islanding”, reliability / facility hardening System operation, reliability & restoration DER, DG, EE, DR
Utilities (both gas and electric) see the growth of behind the meter generation services and are also getting into the business
Retail Energy Services
C&I Energy Services
Distributed Renewable
EE/DR
DSO / O&M
Micro Grid
Energy Systems Group Power/Industrial Projects
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 28
… and IOUs/REPs rapidly building DER capability
Type Company Storage DateAmount
($MM) Description
Investments
8/2015 12.3 • A leading provider of grid-scale energy storage software and integration solutions
6/2015 • Developer of fast-charging systems for lithium ion batteries
1/2015 11.6 • Developer of learning software and energy storage
12/2015 18.3 • Provider of grid-scale energy storage software and integration solutions
1/2015 12.6 • Producer of power generation, smart-storage and distribution solutions for off grid applications
Project Development
7/2015 • 25.6 megawatts of BTM storage providing demand management in Southern California.
10/2014 • Partnership to deploy EV charging stations with integrated batteries
M&A5/2016 • 80% stake; incorporating storage into C&I and
public energy services offerings
2/2016 431 • General contractor EPC specializing in solar PV, but with storage and other DG experience
7/2013 • Integrated C&I solar and DER developer and service provider
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From a gas perspective, spectrum of risk/reward options available
PURE COMMODITY
• Provide customer acquisition interface
• Provide natural gas support
• Use 3rd party network to install, maintain, and operate solutions
HYBRID MODEL
• Provide customer acquisition interface
• Provide natural gas support
• Use 3rd party network to install, maintain, and operate solutions
• Participate in 3rd party network revenues by providing brand
FULL SERVICE PROVIDER
• Provide customer acquisition interface
• Provide natural gas support
• Leverage internal capabilities to install, maintain, and operate solutions capturing full revenue
Direction of increasing value
Dire
ctio
n of
incr
easi
ng
part
icip
atio
n an
d ris
k
Purely Regulated Participation
Non-Regulated Participation
ENOVATION PARTNERS - PRIVILEGED AND CONFIDENTIAL 30
DEPLOYMENT PERIODINSTALLATION PERIOD
Degr
ee o
f diff
usio
n of
the
tech
nolo
gica
l rev
olut
ion
Big-bang Crash Next Big-Bang
TimeInstitutional Recomposition
Next Great Surge
Previous Great Surge
Turning point
Bubble economyDivorce between paper and real valueAsset inflation
Production capital at the helmRecoupling of real and paper wealthCoherent growth
Financial capitalSearching on its ownDecreasing investment opportunities“Idle money” moving to new areas, sectors and regions
IRRUPTIONLove affair of FK with revolution
FRENZYDecoupling
FK-PK
SynergyRecoupling
FK-PK
MATURITYSigns of
separation
Solar PV has already gone through its turning point toward mass deployment – is gas-fired DER the next big surge?
Source: Carlota Perez, Technological Revolutions and Financial Capital. The Dynamics of Bubbles and Golden Ages. 2002
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• Explore how electric and gas rate structures affect economics of distributed generation
• Assess economic performance of DG/CHP by customer sub-segment
• Develop a market penetration outlook
• Identify regulatory/governance barriers and develop strategy for gas sector to engage with regulators and state/local legislators
• Explore partnering opportunities with other players in DG value chain
• Build the business case and execution roadmap for DG/CHP growth
Opportunities for the gas utility sector
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Energy + Innovation = Results
Bill Kemp, Senior Managing [email protected]