Which grid edge trends will continue into 2019, and what kind of disruption is on the horizon in the coming year?
From advanced metering infrastructure endpoints to electric-vehicle chargers, grid edge venture capital investments to demand response events, hundreds of data points go into tracking new trends at the edge of the grid.
Trends across these variables tell a story of transition, but perhaps not yet transformation. Customers hold more power than ever before in 2019, with utilities and vendors innovating to take advantage of new opportunities behind the meter. Meanwhile, external factors can always throw things off-course, and reliability is top of mind in light of last year's extreme weather events. What does the 2018 data say about 2019?
For one thing, demand response evolved, enabled by new information and communications technology. Last year, wholesale market operators increasingly sought to leverage the dispatch of distributed energy resource flexibility in close to real time. Three independent system operators and regional transmission organizations called on demand response five times in total for relief in the summer of 2018, including the NYISO.
The demand response events called in the last 18 months send a clear message: Grid operators will continue to call events year-round. This story unfolds as reserve margins continue to tighten, fossil baseload generation retirements continue, and system operators are increasingly faced with proving the resiliency and reliability of their systems.
In 2019, the total amount of flexible demand response capacity for wholesale market participation will remain about the same. However, the way operators and aggregators are using demand response is changing as information and communications technology systems improve, allowing the behavior of resources to be more accurately forecasted, monitored and controlled.
These improvements are allowing customer-sited resources to offer flexibility services closer to real-time operations and become more reactive to system needs. At the same time, traditional demand response will continue to evolve toward the orchestration of DERs as an aggregate flexible resource to better enable growing levels of renewable energy on the grid.
Cumulative Potential for Behind-the-Meter Residential Flexibility, 2017-2023E
Source: Wood Mackenzie Power & Renewables
More virtual power plants are likely to form in 2019 on the foundation of intelligent software platforms, which can increasingly provide real-time access to resources for grid operators. This trend will dovetail with ongoing evolution in market design at the ISO/RTO level that better utilizes and values demand-side flexibility.
Venture capital trends can help set the tone for a sector. In 2018, grid edge VC and private equity investment reached $2.5 billion across 85 deals ― a historic high ― and investors doubled down on customer energy management and EV integration.
Last year, grid edge investors focused their attention on firms that are making it possible to shape customer load or developing the infrastructure necessary for transit electrification. Amazon was one of several companies and investors that invested $155 million into two Alexa-enabled, late-stage smart thermostat startups, ecobee and Tado. Meanwhile, ChargePoint brought in $240 million from several investors in the oil and gas, car manufacturing, and electric utility industries (Chevron, Daimler and American Electric Power, respectively).
Tado and ecobee now compete directly with Google’s Nest in the connected-home space. These investments from Amazon’s Alexa Fund are escalating competition between Amazon and Google in voice technology innovation, which will continue into the foreseeable future.
In grid edge mergers and acquisitions, Hitachi announced late last year that it plans to buy ABB’s Power Systems business. This is an important move as it underscores Hitachi’s strategic focus on renewables, grid solutions and services.
For Hitachi, the move delivers an increase in market share, a customer base outside Japan, and a subsidiary with historical profit margins higher than Hitachi’s ― all key components of the company's strategy to reorient its portfolio and further develop digital services.
Overall, European energy majors were especially active in grid edge M&A and VC in 2018. Distributed practices (such as Enel X and Centrica Business Services) have been forming through acquisitions over the last few years. Enel, as Wood Mackenzie Power & Renewables noted last year, is full speed ahead on the energy transition. In 2019, these distributed practices will start to formalize, scale up and expand, leveraging the international footprints of their new owners.
Grid Edge and Storage Venture Capital and Private Equity Investment, 2010-2018
Source: Wood Mackenzie Power & Renewables
In 2018, utilities tried to use and gain access to more customer data via customer engagement platforms and smart home devices. As more utilities rely on advanced customer analytics and voice technology to engage customers, utilities are inching toward orchestrating customer flexibility via voice control in the connected home.
Fifteen utilities (mostly in North America) were developing Amazon Alexa skills or Google Assistant actions last year to allow for customer interaction via voice. BC Hydro and Indiana & Michigan Power (an AEP company) announced plans to offer customers voice-activated personalized insights by partnering with customer analytics vendors Ecotagious and Tendril, respectively.
While customers bought up their own smart home devices at a record pace, utility-owned advanced metering infrastructure stayed relatively stable year-over-year, though not quarter-to-quarter. 2018 was a lumpy year for AMI deployment, with most endpoints contracted in Q3. However, Q3 saw a whopping 16.8 million AMI endpoints, the biggest single quarter for AMI in several years. A majority of these were contracted by the French utility Enedis.
Finally, customer energy use is poised to transform as vehicle electrification takes off over the next couple of decades. With 40 million electric-vehicle charging points expected by 2030, some utilities, vehicle manufacturers and tech companies are focusing their energies on assessing the potential to bring in revenue from EV grid services, and early pilots are in progress. Best practices for EV grid services may emerge in 2019 as companies discover how best to monetize the rate or pattern of EV charging (and potentially excess capacity as well).
Non-wires alternatives opportunities grew 96% in 2018, driven by new project activity in California and Minnesota, as well as continued activity in New York. This underscores the time it takes to see these projects play out, even once states and utilities decide to embrace them. For example, analysts are just now starting to see concrete results from a Minnesota regulatory initiative that kicked off in 2014.
Microgrid Capacity Since 2010 by Project Size and Project Count
Source: Wood Mackenzie Power & Renewables
In energy storage, the megawatts deployed in the U.S. grew 44 percent year-over-year through Q3 2018, with California once again leading the pack.
It was an inconclusive year for blockchain. Tech vendors continue to announce projects that are running in a simulated environment, with no concrete definitions of how they are plugging into utility back-end systems. Overall confidence is a bit lower than the year before, with some key vendors not raising the necessary capital to continue expanding their platforms; 2019 may break with this trend.
Meanwhile, in the microgrid space, a milestone: 2018 was the first year since WoodMac began tracking projects that the majority of microgrids were not owned by the end user. This is driven by many small projects leveraging third-party ownership to finance new installations. In the coming year, offtakers may be more willing to take advantage of third-party financing to avoid upfront capital requirements.
Looking ahead, the increasing frequency of extreme weather events adds a note of uncertainty to predictions about grid edge headlines in 2019. In 2018, natural disasters threw a wrench in some of utilities’ best-laid plans and underscored the importance of grid edge technologies.
For instance, events in California are throwing the business risks of extreme weather into sharp relief. These devastating weather events are leading utilities to examine a full range of solutions, including the development of better weather and wind forecasting, microgrids, operational practices and advanced fault detection and isolation systems to predict and respond to conditions in which electrical systems could start fires in poor conditions. 2019 could bring more challenges and change in this area.
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