The term "grid edge," as GTM sees it, incorporates the technologies, businesses, and regulatory frameworks surrounding the single biggest challenge facing utilities today. Simply put, that’s how to incorporate distributed, customer-controlled energy assets -- mainly, rooftopsolar but also behind-the-meter batteries, flexible demand-side resources, fleets of plug-in electric vehicles, or self-powered, system-integrated microgrids -- into an industry that wasn’t designed for them.
This year offered a lot of examples of how utilities, and their customers, are starting to invest in integrating these diverse distributed energy resources (DERs), and opening up new economic propositions to capture their value. States including California, New York and Hawaii are creating regulatory frameworks to support this work, and megawatts' worth of energy storage and microgrid projects are testing today’s incentive-backed value propositions on the customer side of the meter. Meanwhile, grid vendors are building new generations of technology that can support distributed analytics and real-time decision-making, to help support the complexities of managing the more DER-intensive parts of the grid.
At the same time, utilities and energy regulators are moving at their customary slow pace in turning these visions into reality. Smart meter markets are still in the doldrums, and cost-effective energy storage is limited to a few markets -- California and mid-Atlantic grid operator PJM, to be precise. And the more advanced stages of grid-edge integration, such as distributed energy resource management systems (DERMS) deployments, or data-driven customer energy analytics, or next-generation power electronics for distribution grids, are only now being deployed at a few leading utilities.
The past year has also seen certain setbacks, such as the uncertainty over a looming Supreme Court ruling on the legality of demand response, or NRG Energy’s recent retrenchment for its green, distributed and money-losing energy business. Maybe the late-breaking news of a possible solar and wind tax credit extension from Congress, and California’s proposed decision to keep net-metering rates intact for the state’s solar industry, will usher in a rosier new year.
The trends behind the numbers
According to GTM Research’s latest numbers, 2015 venture capital and private equity investment hasn’t yet added up to match 2014’s totals -- although it’s worth noting that last year was one of the industry’s best yet.
The first three quarters of 2015 have seen just shy of $600 million in grid-edge VC and private equity investment, down significantly from the $800+ million recorded through the same period of 2014. On the corporate M&A front, 2015 has so far had two big deals -- Honeywell’s $5 billion acquisition of metering giant Elster and General Electric’s $10 billion deal for Alstom’s power and grid assets -- to stack up against 2014 deals like Google’s acquisition of Next and Schneider Electric’s purchase of Invensys.
GE's purchase of Alstom also alters the balance of power among the world's grid giants -- companies like Siemens, Schneider Electric, ABB, Toshiba and Eaton Power Systems, which have been expanding their distribution management systems and other utility platforms to support more DER integration. Large-scale microgrids are also a big focus of these companies, which provide both products and services to allow factories or campuses to generate their own power and remain resilient to grid outages.
The biggest smart meter tenders this year have happened in Europe, South America, Asia and Australia, with Toshiba’s Landis+Gyr winning sizable contracts, and Silver Spring and Itron also landing deals. But U.S. markets continue to linger in the doldrums. Elster’s 1-million-meter contract with Memphis, Tenn.’s municipal utility is the first in nearly two years -- January 2014 saw the last million-plus endpoint contract signed in North America, GTM Research analyst Andrew Mulherkar noted.
The past year has seen some interesting technologies emerge from smart meter players like Silver Spring Networks, Itron and Landis+Gyr that turn their smart meters and communications nodes into platforms for distributed analytics and decision-making on the grid edge. These are almost, but not quite, ready for broader commercial adoption, at least on the utility scale. Interestingly, some of these technologies are getting their first test in LED streetlights, where they could eventually serve as nodes of future smart city wireless networks.
On the demand side of the grid edge equation, 2015 has seen some big activity on the home automation front, including the IPO from Alarm.com, the launch of Apple’s HomeKit, Nest’s new developments, and millions of customers for home security and broadband vendors. It’s still unclear how automated homes will translate into grid reliability and flexibility, however. Commercial and industrial (C&I) customers remain the main targets for new multi-system integrations behind the meter, such as EnerNOC’s work with SunPower and Tesla’s new battery business.
Tesla, of course, remains the biggest energy storage news of the year, with the launch of its Powerwall and Powerpack lithium-ion systems for homes and utility-scale deployments. On broader terms, U.S. energy storage deployments have boomed in 2015, according to our latest research, and while the lion’s share remains at the utility scale, behind-the-meter systems from companies like Stem and Green Charge Networks are booming for C&I demand-charge management. So is investment into energy storage management software providers like Greensmith and Younicos.
Much of this behind-the-meter storage is being deployed in conjunction with rooftop solar, to help shift and shape the overall load profile to better match grid and energy price imperatives. Out of all the U.S. states, California is arguably in the lead on this front, with dynamic duos like SunPower and Sunverge, SunEdison and Green Charge Networks, and SolarCity and Tesla targeting the market. But Germany is the world leader in solar-storage integration -- not surprising, since it’s experiencing the most radical disruptions from solar on its power grid.
California is also the state with the biggest grid-edge changes underway on the regulatory front, with two key proceedings to incorporate distributed energy resources into utility distribution grids, and invigorated support for net-metered solar, energy storage and cost-effective energy efficiency. New York's Reforming the Energy Vision initiative yielded some important pilot projects this year, though broader energy reform remains on the table.