That piece of power electronics plays a vital role in switching the battery's electricity from DC to AC so it can be used in the house or sold back to the grid. The first Powerwalls required a separate inverter, adding time and expense to an installation. Putting Tesla's in-house inverter in the box amounted to a significant advance in the customer experience.
It turns out, the situation is a little more complicated.
The Powerwall 2 actually comes in two different versions: an AC-coupled model that includes the inverter and a DC-coupled one that does not. That's a departure from the company's product website, which says the new Powerwall is an “all-in-one” product that “uses an internal inverter to convert DC energy to the AC energy required for your home.”
Tesla didn't advertise its decision to offer both types of battery, but doing so gives installers more options in designing the best system for a given house. And Tesla says it will charge the same price either way.
A choice of architectures
By quietly offering Powerwalls with or without an inverter, Tesla is providing installers options to customize the product for homeowners, without asking the customer to think through the details of power electronics.
“Tesla is trying to simplify the information that it’s providing to the end customers, whereas other companies will specifically say, 'This is an AC-coupled system or a DC-coupled system,'” said Ravi Manghani, energy storage director at GTM Research. “It's probably an information overload in some cases.”
So far, Tesla has only authorized its batteries to pair with SolarEdge and SMA inverters, although more are expected eventually. That meant plenty of customers who already had rooftop solar PV couldn't attach a Powerwall to their already-installed inverters. The new AC-coupled Powerwall, though, will be able to drop seamlessly into those systems.
The market of households with solar on the roof, by the way, totals more than 1 million in Australia, the U.S. and Germany. That constituted a major driver for Tesla's addition of the inverter in the Powerwall 2.0.
Tesla is not alone in moving toward AC-coupled batteries. Sunverge launched one this month; Enphase built its new battery system around its distributed AC microinverters; and Sonnen does AC-coupled as well, to name a few.
That AC-coupled Powerwall would work with a new solar system, too, but the solar generation cannot flow directly to the Powerwall's inverter. The solar array needs different DC voltage capabilities and a power-point tracker.
That's where the DC architecture comes in. In this design, the PV system and an inverter-less Powerwall connect to one hybrid inverter, potentially streamlining the system.
Some electricity gets lost in conversion, so a DC system benefits from sending solar generation straight to the battery to be converted later, before it's used, rather than going through an inverter on both the solar and the battery sides. The DC Powerwall has a roundtrip efficiency of 92 percent, compared to the AC model's efficiency of 89 percent, according to Tesla.
On the other hand, hybrid inverters tend to have lower efficiency than the dedicated inverters AC systems use. In other words, the DC and the AC Powerwalls optimize for different use profiles, depending on how much electricity is consumed as it's generated versus how much is stored for later.
“The AC one maximizes efficiency for self-consumption in real time or export to the grid,” Manghani said. “The DC system maximizes efficiency for customers who are less likely to consume during the daytime when the solar is producing — customers who need time-shifting to evening hours.”
All for one low price
The Powerwall 2 ships in early 2017, although the company has not yet confirmed if that's the timing for both versions. The integrated inverter makes the AC Powerwall more of a step forward from the first generation, so it could take a little longer to roll out than the DC version.
Tesla will offer both versions of the Powerwall at the same price, which is surprising given that such inverters can sell for a few thousand dollars on their own. The company is leveraging the scale and engineering innovation over at Tesla's electric-car manufacturing wing to cut costs for its storage inverters.
The DC system comes with a built-in DC/DC converter, which takes care of the voltage issues noted above. That could more or less even out the cost of production for the two types of Powerwall, Manghani said.
Setting aside the complexities of differing storage architectures, the 14-kilowatt-hour Powerwall starting at $5,500 clearly leads the field on listed price. When customers ask for it, that's what they're looking for, not the options for the type of current it holds.
A residential storage competitor like Sonnen would jump in at this point and say Tesla's emphasis on battery pricing distracts from the overall system costs. Indeed, at some point since the product launch, Tesla's website has added $1,500 as the estimated base price for installation and supporting hardware, bringing the overall price up to $7,000. Those costs vary wildly from install to install, though, so real-world costs look different.
Installing a DC- versus an AC-coupled system looks different too, so the actual price a customer pays could vary based on that decision, even if the cost of the battery does not.
As homeowners get more familiar with energy storage, companies may see a benefit in explaining to consumers that installing this product requires a lot more than plugging in a metal box. Right now, that approach might just fry their circuits.
Climatescope, a new report from BNEF, was released last week, and while many news outlets highlighted the finding that solar is now cheaper than wind, the report contains numbers that signal another major shift in renewable energy.
The report focuses on “clean energy market conditions and opportunities in 58 emerging nations in South America, Africa, the Mideast, and Asia” and contrasts the progress of these poorer nations against the achievements of the OECD countries — the wealthier nations of the world that are members of the Organization for Economic Co-Operation and Development.
And for the first time, the developing nations are winning.
The center of the clean energy universe has shifted from north to south
The 58 emerging-market economies aggregated in the Climatescope report set a record for clean energy deployed in 2015 with 70 gigawatts built, compared to the 59 gigawatts of clean power deployed in the 35 wealthier OECD countries. Cumulatively, the developing nations have won $154.1 billion in cleantech investment and added more clean energy capacity, with faster growth rates than the OECD nations using both those metrics.
According to the report, 80 percent of the developing nations studied now have national clean energy targets, while three in four have set CO2 emissions reduction goals.
China played a big part in this, but “less-developed nations also played a role.”
There is a downside to record rates of renewables being added to existing grids, and that's integration challenges. The report notes that some nations have built wind or solar projects despite not having the “associated transmission to deliver power” along with “grid operators [prioritizing] delivery” of power from fossil-fuel plants over those from renewable sources.
Solar is now as cheap as wind
Fixed-tilt utility-scale solar system costs in the U.S. are approaching $1.00 per watt, according to GTM Research. This same price decline is happening across the globe.
The chart below shows the average cost of new wind and solar from 58 emerging markets, including China, India and Brazil. And while solar costs have been plummeting, the solar-wind cost crossover has occurred sooner than expected or predicted.
According to the report, in 2016, “It’s likely that the total amount of solar photovoltaics added globally will exceed that of wind for the first time.” The latest BNEF forecasts expect 70 gigawatts of newly installed solar in 2016 compared with 59 gigawatts of wind.
Ethan Zindler, head of U.S. policy analysis at BNEF, was quoted by Bloomberg as saying, “A huge part of this story is China, which has been rapidly deploying solar” and helping other countries finance their own projects.
Source: Bloomberg New Energy Finance
“The world recently passed a turning point and is adding more capacity for clean energy each year than for coal and natural gas combined,” according to the report. “Peak fossil-fuel use for electricity may be reached within the next decade.”
“Renewables are robustly entering the era of undercutting” fossil fuel prices, BNEF chairman Michael Liebreich said in a note to clients this week.
One could argue that 2016 was one of the most tumultuous years in recent history. Certainly since 2001.
David Bowie, Prince and Harper Lee all died. So did Harambe the gorilla. Vine was shut down. Fake news took over social media. Facts no longer exist.
We had the most devastating mass shooting in American history at Orlando’s Pulse nightclub. A sniper murdered five police officers in Dallas, adding to tensions surrounding the Black Lives Matter movement.
Oh, Britain left the European Union. And Donald Trump became America’s president, to everyone’s surprise (including his own campaign).
Hey, at least the Cubs won the World Series and the Cavaliers scored their first NBA championship.
Throughout these strange 12 months, we’ve been following an equally tumultuous cleantech market — a year filled with bankruptcies, financial turmoil, uncertain policy, astonishingly low pricing records, and impressively high investment numbers.
This year, our editorial team sat down (over Slack) to discuss the most important stories that GTM covered.
What follows is an edited version of that discussion.
Stephen's pick: Tesla and SolarCity's marriage
Stephen Lacey: I could pick any number of stories this year. But the biggest, in my eyes, was Tesla’s acquisition of SolarCity for $2.6 billion. I’m not choosing it because I think Elon Musk just pulled off his grand vision. I’m choosing it because I think it raises a lot more questions than answers, many of them negative.
I do think there is a compelling narrative here. Elon Musk has been dreaming about space travel, electric cars and solar since he was a kid — and having Tesla, SolarCity and SpaceX fully under his control truly is part of his master plan. (If you haven’t read Ashlee Vance’s book on Musk, I recommend it.) I do believe he has a vision for integrating these companies and is working to build a dominant supplier of solar, storage and EVs all under one roof. I think Julia Pyper did the best job of anyone this year describing what that future company could look like.
With that said, there’s a very compelling case that this is a way for Musk to hide SolarCity’s financial troubles. It was also a chance to buy the company on the cheap, as SolarCity was acquired for around half its peak market cap since going public. The company’s debt burden continues to mount, its customer acquisition costs are climbing, its growth has slowed, and it continually changed its guidance. Oh, and SolarCity’s decision to become a solar manufacturer is under pressure due to module oversupply and record-low prices.
Instead of addressing any of this at the investor vote meeting, Musk only wanted to talk about his new solar roof — a product with a very small addressable market, and no performance details. At this point, it’s vaporware. And Musk is clearly using it to divert attention from bigger questions about the SolarCity acquisition. (Julian Spector had a very good article on the Orwellian reveal of the solar roof. Shayle Kann and I also talked about it on the Interchange.)
In 2017, credible sources tell me we can expect to see big layoffs at SolarCity (they have to make those “synergies” happen somewhere) and even more changes at the Buffalo facility.
I want to be clear: I’m not saying that Tesla’s SolarCity acquisition is necessarily a failed strategy. SolarCity is still the biggest residential solar installer. Tesla has marketing prowess and vision that can’t be rivaled. The combined companies could ultimately become the all-in-one clean energy provider that Musk envisions. And SolarCity will certainly become a more product-focused company under Tesla.
But it’s still unclear how effective vertical integration will be long-term in residential solar. Now, becoming a cross-sector vertical company adds more complexity — and a minefield of market risks and cost challenges. Those challenges were conveniently swept under the rug in all the pitches for this combined company.
This is definitely one of the more interesting stories for me this year — and certainly will be next year, too.
I have to admit I also agree that few customers actually want to participate in their energy production. Then again, I think it depends on how it’s marketed. My dad, who lives in cold, gray, bitter Hamilton, Ontario, has brought up the Tesla Powerwall several times during our chats — unprompted.
“When is that going to become available?” he asks. He likes the idea of controlling his own energy. He is not a techy. He can barely unlock an iPhone (sorry for calling you out, Dad). But he’s heard of the Powerwall and what it can do and is interested in pursuing it. The play for my dad — and presumably others — isn’t just to save money. It’s to have control and backup power. That’s a different way of marketing cleantech that I don’t think has been fully explored.
Consumers aside for a moment, I think the discussion around residential solar is going to have to broaden. In order to reach higher penetrations, solar is going to have to be married with other technologies so that it can serve utilities and customers at the same time. In California, where FERC recently allowed CAISO to integrate DERs into the wholesale market, customers could actually make money from their DER purchases.
I agree with Katie that there is still plenty of headroom for solar when you look across the country. But I think the conversation is already changing in leading states like California, New York and Arizona. I think SolarCity/Tesla are going to be at the center of deciding where solar-plus is headed. And it will be up to the marketing masters at the company to find a way to make it appealing to customers.
Stephen Lacey: I think you’ve both hit on something crucial here: the assumption that a wave of enlightened consumers will suddenly want to adopt solar, storage, EVs, load controllers, etc, en masse and participate in energy markets. This is the assumption baked into everyone’s belief in Tesla becoming a clean energy powerhouse. It’s pretty clear that this integrated service offering is pretty limited — because market rules and consumer interest/education is limited too.
Look at electric vehicles alone. Today's “booming” EV market represents 1 percent of total car sales. Tesla, the U.S. leader, sold 3,000 cars in November. We’re still talking about such an unsophisticated market, and I don’t think we should assume that an integrated package will somehow take off overnight just because someone like Musk has touched it.
Julia's pick: Climate action isn't about sacrifice — it's about competitiveness
The Paris Agreement wields both honor and air. It has mobilized the entire community of nations to stake their reputations on an unprecedented fight against a threat that faces them all. At the same time, if Trump says he doesn't care anymore, it starts to look more like air: It sounds good, but what force can it bring to bear on him?
Trump as a candidate showed minimal regard for the workings of the international system. The fact that he is the outlier here won't move him to change. The question then is, how can other elements, either around the world or in the U.S., pressure him to continue progress on climate without a real enforcement mechanism?
The Paris climate accord ended up being one of the defining stories of 2016. Even though it was a voluntary deal (that doesn’t do enough to avoid catastrophic warming), it was the first time that we got all the major countries to the table in agree on their responsibility to act. And most importantly for the sector we cover, it was the relentless cost reductions and investments in clean energy that made countries willing to act. The business community — particularly the largest multinational companies — was central to putting additional momentum behind the negotiations. For our audience, this is probably the most important part of the story to be covering.
However, most in the diplomatic community (and us in the press) operated this year under the assumption that America would shift from an Obama to Clinton presidency in 2017, and that the climate agreement would be built upon. Obviously, all that is in doubt under a Trump presidency.
But it’s important to remember two things going into 2017. First, the biggest countries (China, India, Brazil) see investments in renewables as a crucial important economic driver — and none have shown willingness to back away from their emissions targets. Secondly, corporate players say they plan to ramp up their own investments in wind, solar and efficiency because it makes economic sense. (We had a great conversation about this right after the election at an RMI corporate renewables event in Detroit, at General Motors’ headquarters.)
And Trump is still a wild card in this area. Anyone who says they know what’s going to happen with U.S. climate policy is delusional. We can only guess based on the clues we’ve been given.
Julian Spector: Very true. I'm interested to see what the U.S. commitment to Paris looks like if you add up all the cities, states and companies that are still committed to taking action on it, regardless of what happens with federal policy. Chances are that could be enough — not enough to stave off serious warming perhaps, but enough to keep the process alive.
Julia Pyper: Yeah, while it’s important to call out that this one agreement isn’t enough to counteract dangerous levels of global warming, I definitely think it’s important to keep the momentum going. It was surprising and heartening to see conservative media personality Bill O’Reilly say Trump should accept the Paris agreement in order to “buy some goodwill overseas.”
Whether it’s for diplomacy, or combating local air pollution or spurring investments in cost-saving technology, there are a lot of reasons to like the Paris Agreement. The fact that fighting climate change comes with multiple benefits (community empowerment and poverty alleviation, among some of the ones I highlighted in the mini-doc I produced about clean energy in Haiti) gives me reason to believe humanity just might be able to tackle this enormous challenge. But it requires world leaders — in politics and business — to recognize those benefits.
Katie's pick: Distributed energy as a non-wires alternative
Katie Tweed: Somewhere between NRG ousting David Crane, SunEdison filing for Chapter 11 and the Tesla/SolarCity deal, it’s easy to forget about the quiet-but-revolutionary work happening at the edge of the grid.
Utility programs are slow-moving, but it’s very possible that we look back at 2016 as the year that distributed energy resources as grid assets got real — well, at least in California and New York.
At the beginning of the year, California utilities announced the winners of the first ever Demand Response Auction Mechanism. DRAM contracted for about 40 megawatts total of C&I demand response, behind-the-meter energy storage and smart thermostat aggregators to provide both resource adequacy for utilities and allowing these smaller resources to be bid up into the wholesale market.
Across the country in New York City, Consolidated Edison held an auction for its Brooklyn Queens Demand Management project that needs to leverage homes and businesses across Brooklyn and Queens to defer a $1.2 billion substation.
The auction paid impressive prices, about $985 per kilowatt-year for the assets, which also ranged from energy storage to demand response. The auction only serves 2017 and 2018, but there is a possibility the auction could be run again or become a more permanent part of Con Edison’s way of doing business.
Back in California, the Aliso Canyon gas emergency has also brought distributed energy resources to the forefront. Southern California Edison will spend millions more on demand response, seek out energy storage and invest in smart thermostat programs to help cover any shortages of natural gas availability next summer.
By utility standards, each of these programs are not huge, but if successful, they highlight to investor-owned utilities — and regulators — a cost-effective way to meet new demand.
For example, even though San Diego Gas & Electric decided to replace the shuttered San Onofre nuclear power plant largely with natural gas, there is still a gap, and much of that could be met by renewables, energy efficiency, demand response and storage. Earlier this year, SDG&E put out an RFO for up to 140 megawatts of these resources to help meet the shortfall from the closed nuclear plant.
In the coming years, grid edge resources will increasingly be called upon to meet specific utility issues in a given neighborhood. Many utilities, for example, are seeing flat growth, but growing peaks only in limited sections of their grid.
For other utilities, such as Avista’s Urbanova project in Washington, it’s about staying ahead of the curve and better understanding how to leverage renewables, batteries and smart buildings on their network.
But for many utilities, it will be mandated from their regulators that they look at these assets in a new way. Non-wires alternatives projects have been around for decades, but they were often about system-wide efficiency, and not surgically applying novel technology to reduce or adjust load in a certain pocket.
As lessons are learned, primarily from New York and California, there is a real opportunity for this to become a new way of doing business across the U.S., and not just at a select few cutting-edge utilities. No longer does some “utility of the future” group within the utility run these just projects as technology pilots; they are emerging as market solutions to meet pressing needs of planning and operation.
And it’s not just individual utilities. Just last month FERC proposed a rule concerning energy storage in wholesale markets that directed grid operators to allow for distributed energy resource aggregators to be able to participate in wholesale markets.
Stephen Lacey: This is one of those developments that people have long talked about, but which has never really materialized. Finally, in 2016, we saw actual proposals and bids for using demand-side management tools to offset expensive grid investments.
As is the case in nearly every sector, California and New York are the test cases. California is the most interesting test case for me. With the Aliso Canyon gas crisis and PG&E’s closure of the Diablo Canyon nuclear plant in 2025, utilities and regulators are turning to demand-side management and distributed generation as actual grid resources — it’s forced them to think differently about how the resource mix needs to change, and needs to fill in for traditional power plants. PG&E said that storage, efficiency and renewables are simply cheaper than keeping Diablo Canyon open. I think 2016 will be remembered (in small, geeky circles anyway) for sparking this shift.
Julia Pyper: This discussion reminds me of a panel I moderated at a SunPower event this fall where David Olsen, a member of the CAISO Board of Governors, said: “We think the future of electric service is decarbonized, decentralized and regionalized.”
In California, where there’s a 50 percent renewable energy mandate by 2030, and with renewable energy levels expected to go even higher, “it becomes essential to have access to a much larger pool of resources than currently available because we have to have reliable service every minute in every part of the state,” Olsen said. While CAISO is generally focused on large-scale projects operating in the wholesale market, the system operator is also taking DERs seriously as an important part of the future resource mix. CAISO's request to aggregate DERs to serve in the wholesale market underscores this.
This SolarCity graph also comes to mind. The company envisions replacing bulky centralized deployment with targeted, distributed deployment — pretty much entirely. The examples Katie gave are evidence of this in action. But I wonder just how far this concept can go.
Can DERs really replace conventional generation at a mass scale and in different types of markets? I reckon this will become a prominent policy issue as more and more large-scale, conventional generating plants age and near retirement in states across the country.
Julian Spector: The success of these distributed programs this year really is remarkable. The key element here is incentive structures. In much of the country, big capital upgrades to the grid could be more lucrative for utilities, because they can rate-base it. New York and California passed policies that put greenhouse gas reductions, renewables expansion and grid optimization into the planning mix. What we learned is when utilities have a nudge to use non-wires alternatives, they can be very effective at leveraging all these distributed technologies that are far cheaper by comparison — BQDM is spending $200 million to avoid $1.2 billion in transmission upgrades. That's big!
Julian's pick: The specter of commoditization
Julian Spector: Moving from utilities to cleantech companies, the big story I've been thinking about lately is what I'll call the “specter of commodification.” This year, we saw the surprising success of solar manufacturers turn into chaos for the industry. As module production ramped up and costs came down, it set off a chain reaction through the industry as people in each step of the value chain scrambled to keep up with those plummeting prices. As Shayle Kahn has discussed, the macro trends for solar look great — more units are going up than ever before — but underneath that a lot of big players are struggling to cut costs and switch up their business models.
There's something scary in this story, because it shows that succeeding at your manufacturing goals actually makes each unit less valuable. Moving out products at scale for cheap is not sufficient to ensure long-term success. I've lost count of the number of conversations I've had with companies working on other aspects of the grid edge who are haunted by this, and pitch their product strategies as a way of making sure the commodification of solar modules doesn't happen to them.
The simplest formulation of this is “energy as a service.” Don't sell a battery, or an inverter, or a thermostat; sell the new abilities you can work with a customer to unlock thanks to this tool.
This makes a lot of sense. If a company makes its expertise essential to the usefulness of the product, it can maintain a relationship with the customer long past the exchange of purchasing some metal box. But I wonder if it's also a bit too easy. Maybe some grid edge products are better suited to commodity status, rather than long-term service contracts. And if everyone gets on this service-rather-than-commodity bandwagon, won't it turn into a race to deliver the most value at the lowest cost? It could just delay the price wars, not eliminate them.
Have y'all seen any notable examples of companies trying to avoid the commodity trap? Do you think the excitement about energy as a service is justified, or in need of some tempering?
Julia Pyper: I remember reading a GTM article about the 2013 Solar Summit conference where virtually the entire conference session agreed that solar was not yet a commodity. I wonder what that survey would look like now.
Solar companies in particular have already put a lot of work into distinguishing their solar products and building up services around them, and its difficult to see the big players stepping back from that. Sunrun, for instance, recently rebranded with a logo called “Brilliant Home” that represents a comprehensive energy solution. So you see them doubling down on the services approach. You also see SolarCity talking more about becoming a distributed energy services “platform,” which is part of what makes the Tesla discussion so interesting — how will they advance the energy services concept now that they have more assets and capabilities under one roof?
I think it’s going to be tough, but there is still reason to be excited about the energy-as-a-service concept. Particularly when solar is combined with other technologies. I think there is value in offering a suite of customer-centric energy solutions that provide savings, reliable operations and peace of mind. Also, don’t forget the utilities. There is value in designing these solutions to provide services to the grid and the customer at the same time.
Stephen Lacey: This is one of the big questions going into 2017. Can distributed energy companies finally start executing on the “energy-as-a-service” model, particularly in the residential space? I don’t think sectors like solar, storage or efficiency have been totally commodified. But they’re getting there. And I think everyone agrees that customizing services — and using those customized offerings to “stack” revenue streams — is necessary for companies to differentiate themselves. I just don’t see it materializing in a big way yet.
I think we can go back to SolarCity/Tesla for an example. SolarCity is finding it difficult to compete on price with local installers. Rooftop solar is an increasingly commodified business. After the Tesla acquisition, Musk wants SolarCity to focus on the solar roof and manufacturing. This is making SolarCity a product-based company, not just a services company. And that’s a really important shift.
Storage is another example. When you look across the broad range of behind-the-meter storage providers, they’re all looking at how to expand revenue streams and customer benefits, while possibly selling other distributed energy assets on top of the storage. However, this type of cross-selling is still very difficult, and most companies haven’t found their footing yet. “Energy-as-a-service” is still largely a talking point, not a proven business model. We’ll see if that changes in 2017.
Julian Spector: That's interesting about the solar roof as a turn back to a product-focused business model. It's almost like Musk is accepting the commodification of solar modules by entering a related field, solar roofing, where nobody has succeeded at scale. There are no huge factories pumping out solar shingles or French slate. Maybe there will be some day, but Tesla could corner the market before others have a chance to ride. That offers a period of respite from the fierce competition in the module world.
More broadly, Tesla seems quite comfortable selling products rather than energy-as-a-service. Even its clean energy platform of electric car/Powerwall/rooftop solar is more of a collection of products than a service that you need Tesla in particular to operate. That might be the benefit of pushing out volume — they can sell commodities on the cheap and maybe still beat out more expensive but higher-value competitors.
That concludes our 2016 editorial roundtable. Want to know how right or wrong we are? Keep reading GTM in 2017.
The energy storage asset class puts a single label on a dizzying variety of technologies and applications. It's hard to compare a cavern full of pumped air with a lithium-ion battery, even if they perform similar functions. This makes it difficult to gauge progress across the entire industry.
The financial analysts at Lazard make it easier with their Levelized Cost of Storage Analysis, the second annual installment of which was released Thursday. They standardized costs for 10 prevailing storage technologies to show how they stack up for 10 particular use cases.
The picture that emerges is of an ecosystem of technologies rapidly trending down in cost, especially for the larger-scale projects. The old grid-scale stalwarts, pumped hydro and compressed air, still beat the newcomers on cost, but the advanced technologies are closing the gap quickly, and they can operate in many more settings.
Lazard's model takes data from storage manufacturers and developers to determine the levelized cost of storage for a particular use, and then compares that with the best available incumbent alternative. The model steers clear of systematically determining value, a most elusive quality that changes from place to place.
For instance, pumped hydro boasts a very low price per megawatt-hour, ranging from $152 to $198 in this report. That won't make it competitive, though, for a project in the middle of a flat desert, where there's no pumpable body of water to use. This report gives the cost and lets users apply that to their own use cases, and offers a few value snapshots at the end.
Outside of those snapshots, the authors steer clear of modeling “value stacking,” the strategy employed by storage vendors when any single use doesn't make economic sense. However, readers with data on the stacked values of a storage application can compare it to the levilzed cost of storage (LCOS) to determine if it makes financial sense.
The researchers at Lazard have been tinkering away since last year to upgrade their storage model. They've narrowed the LCOS ranges, better tailored the use cases to real-world applications, divvied up the flow batteries category into the different key technologies and included costs in terms of power, not just energy.
The changes in methodology require caution in making one-to-one comparisons with the previous edition of the study, because not all of the categories mean the same things now.
Ride the cost curve
The use cases examined will be familiar to storage industry observers. In front of the meter: transmission assistance, peaker replacement, frequency regulation, distribution substation and distribution feeder. Behind the meter: microgrids, island grids, commercial and industrial systems, commercial appliance (sized smaller, not meant for grid services) and residential.
Lithium-ion costs have dropped noticeably since last year's report. For peaker plant replacement, which holds tremendous potential both for decarbonizing the grid and reducing overall capital costs, lithium-ion now ranges from $285 to $581 per megawatt-hour; last year it was $321 to $658 per megawatt-hour. That's a 12 percent drop in the median cost in one year.
Lithium-ion also fell 24 percent for the transmission use case and 11 percent for residential. Its lowest-cost use is for frequency regulation, where the minimum cost fell from $211 per megawatt-hour last year to $190 per megawatt-hour.
The cost ranges for flow batteries got more expensive since last year but also tightened, reflecting a more precise modeling of reality.
The range for flow batteries in peaker displacement and transmission last year exceeded $600 per megawatt-hour. This year that range was considerably reduced; zinc-bromine flow batteries have the most precise range, $434 to $549 per megawatt-hour for transmission and $448 to $563 for peaker replacement. That reflects the ongoing maturation of this technology and the increase in available data on it.
Lazard and partner Enovation predict capital cost declines will continue across the board in the next five years, with the strongest declines in lead acid batteries, lithium-ion energy applications, sodium and long-duration flywheels. The vanadium flow batteries clock in with an impressive 24 percent average predicted cost decline as well.
Overall, the industry still has a lot of work to do. There's a clear trend of the costs being lower across the board for bigger-scale projects: median costs for transmission projects are lower than distribution projects, which are lower than residential. That's to be expected given economies of scale, but it creates an ongoing challenge for all of those residential vendors trying to convince homeowners to buy.
That's not all bad for residential suppliers, though. Cost parity with incumbent technologies can be reached more quickly on the grid-scale side, and the supply chain work there should also lower capital costs for smaller storage applications. In other words, residential storage benefits from the industry's overall success.
Mateo Jaramillo, VP of products and programs at Tesla Energy, is leaving the company, as confirmed by GTM. With Tesla since 2009, Jaramillo spoke at GTM's Energy Storage Summit earlier this month. Here are a few excerpts from the conversation.
“Maybe it's our perspective informed from the vehicle side, but as Carla Peterman, one of the commissioners here in the California [Public Utilities] Commission likes to say, electric vehicles are the gateway device for energy literacy. Everybody can tell you what the price of gas is for their conventional car — and almost nobody can tell you what the marginal price of electricity is that they pay in their home. But, when they switch over to an electric vehicle, guess what? They know exactly what rate tariff they're on, they know exactly what their options are available to them, and they start to take on these other activities like energy efficiency and solar and other stuff. I think with that sort of mind shift, you do get people who want just an easy, reliable, integrated experience.”
“The energy market dynamics will certainly shift. The network operators, however, are not going away anytime soon. The natural monopoly function, and that regulated natural monopoly function is also not going away.”
“That's sort of the beauty of the 50 state laboratories that we have, different models pursuing different paths. Texas being an energy-only market, Germany looks a lot like Texas. It's probably the only way in which Germany looks a lot like Texas, [with] highly competitive retail markets, highly competitive generation markets, and then sort of established network operators. The state of Texas has done some good things to really incentivize renewables, and the output, and specifically transmission build-out. The result is that, of course, they have a lot of renewables, and now you're seeing merchant solar come for the first time in a major way in any U.S. market. I think that a lot of states are looking at Texas.”
“The important thing to keep in mind is that energy storage will participate no matter what the structure of the market is. No matter what path on regulation is taken, you can come up with a solution that works for incorporating energy storage because it provides value to the market.”
Prior to Tesla, Jaramillo was COO at Gaia Power Technologies. (The full transcript of the conversation with Jaramillo and Sonnen CMO Philipp Schröder, as well as the video archives of the Energy Storage Summit, are available to Squared members.)
John Woolard, VP at Google, has left the firm. Woolard, the former CEO of BrightSource Energy, joined Google as VP of energy in 2014. While at BrightSource, Woolard led the development, fundraising and construction of the $2.2 billion, 392-megawatt Ivanpah solar thermal power plant, a first-of-its-scale power tower project. Google was an investor. In April 2013, BrightSource pulled its IPO due to unfavorable market conditions.
We suspect we'll see both clean energy industry vets return to these pages in 2017.
Anne Smart was promoted to VP of public policy at EV charger firm ChargePoint. As Jeff St. John just reported, “After years of fighting over the details of Pacific Gas & Electric’s plan to bring up to 7,500 electric-vehicle chargers to Northern California, EV-charging providers and consumer and environmental groups are praising a new compromise plan that has just received approval from state regulators. On Thursday, the five-member California Public Utilities Commission unanimously approved a decision directing PG&E to move ahead with what will be the country’s largest utility-led EV charging deployment.”
“We believe that the commission accurately reflected our concerns on competition and customer choice,” said Smart, adding, “This really does create a national model that other utilities and states should look at.” California currently leads the country in electric vehicle ownership, and Gov. Jerry Brown has set a goal to have 1.5 million EVs on the road by 2025.
Jed Dorsheimer, previously a lighting market analyst with Canaccord Genuity, is now VP of the commercial office vertical at Acuity Brands. Way back in 2009, Acuity bought Sensor Switch, a maker of motion-controlled and programmable sensors, for about $205 million. Acuity Brands also bought Lighting Control and Design, a maker of light-dimming devices, digital thermostats and related software. Adura Technologies, a startup in the networked lighting space, was acquired by Acuity Brands in 2013. Acuity also purchased eldoLED, a maker of LED driver electronics, in 2013, and acquired Distech Controls, a maker of energy management and building controls, for approximately $252 million, in 2015. Acuity now has about 15 brands under its roof, all involved in some aspect of the lighting ecosystem.
Enertech Search Partners, an executive search firm with a dedicated cleantech practice, is the sponsor of the GTM jobs column.
Among its many active searches, Enertech is looking for a Head of Data Analytics — Distributed Energy
The client is one of the world’s leading integrated energy companies looking to expand the team for an internal startup. The parent company expects to invest about $1 billion into this early-stage business focused on distributed energy for large energy users. By combining traditional and renewable power, energy efficiency, demand response, generation, advisory services and big data and other digital assets, they help their customers capitalize on the new and more flexible energy landscape and move from consumers to prosumers and even grid service providers.
The client is seeking a Head of Data Analytics who will be responsible for setting the global strategy/vision and establishing data analytics capabilities. This individual will be a key member of the Technology & Product Development team and will have a significant role in building and maintaining world-class data analytics and business intelligence.
This is a rapidly growing team with tremendous leadership and fantastic technology solutions, backed by a global energy company.
Yoky Matsuoka was hired by Apple to help run its health-tech business — but, just six months after joining, she has left the firm, according to Bloomberg. Prior to Apple, Matsuoka was VP of technology at Nest.
David Crane of Pegasus Capital Advisors (and former CEO of NRG Energy) has joined the board of directors of Vote Solar, a national nonprofit solar advocacy organization. He joins Danny Kennedy, Kate Gordon, Kris Mayes, Sheridan Pauker and Sanjay Wagle on the board.
Amit Rosner is now the venture developer at innogy's Innovation Hub. Previously, he founded Yeloha and was an early employee at SolarEdge. With a $3.5 million investment led by Carmel Ventures, Yeloha was a peer-to-peer network that let people participate in solar, whether or not they owned their roof.
From the previous jobs column:
Steven Chan is the new CEO at inverter firm Sungrow North America. Chan has had executive stints at Suntech, Andalay Solar, NRG Residential Solar and GCL Solar Energy. In July of this year, Sungrow allied with Samsung SDI in a joint energy storage effort.
London-based Telensa, a maker of networked LED street lighting with smart city applications, named Will Franks as CEO. The firm provides connectivity and control for over a million streetlights worldwide, competing against firms such as Silver Spring Networks, Current/GE and Philips. In January 2016, the company raised $18 million in equity and debt from Environmental Technologies Fund and Silicon Valley Bank.
SolarCity has started the hiring process for its $900 million solar module factory in Buffalo, New York by holding “workforce information sessions” in advance of hiring 1,460 workers, 500 in manufacturing jobs starting at $12.50 an hour, according to reports by local TV news station WGRZ. But according to The Buffalo News, the hiring is happening “amid recent scandal that contractors working on the Tesla-SolarCity plant in Riverbend have not been paid by the state since September. This comes after New York state officials said payments have been held up because of extra scrutiny they are receiving in the wake of the corruption charges that have been filed over the process used to select the general contractor for the SolarCity project.”
Michigan Governor Rick Snyder plans to sign a set of sweeping energy bills passed by lawmakers this week that stand to significantly boost renewable energy investment in the state.
Senate Bills 437 and 438, which passed in the House of Representatives Thursday, will raise the state’s renewable portfolio standard (RPS) from 10 percent to 15 percent by 2021 and retain the state’s energy optimization standard (1 percent annual efficiency improvement for electric utilities) through 2021. It also boosts incentives for utilities to hit higher efficiency targets, and sets a nonbinding goal to meet 35 percent of Michigan's power needs through a combination of renewable energy and energy conservation by 2025, Crains Detroit reports.
Michigan achieved its 10 percent RPS target at the end of 2015, which led to the development of more 1,660 megawatts of renewable energy capacity and attracted nearly $3 billion in renewable energy investments to the state since 2008, according to the national business group, Advanced Energy Economy (AEE).
The vote “reaffirms to the advanced energy industry and their customers that Michigan is open for business,” said J.R. Tolbert, AEE’s vice president for state policy, in a statement. “By increasing Michigan’s RPS to 15 percent of annual retail electricity sales, the state has the potential to attract an additional $2.5 billion to 4.3 billion in renewable energy investment by 2021.”
Final versions of the bills also rejected utility-backed proposals to eliminate net metering and implement a buy-all, sell-all policy where distributed solar customers are required to sell 100 percent of the electricity they generate back to the utility. Solar advocates say this model creates hidden taxation for customers. The bill also directs the Michigan Public Service Commission to establish a distributed generation tariff process, according to the The Alliance for Solar Choice (TASC).
“We still have serious concerns over how the distributed generation tariffs will be calculated based on the language in the bill,” said TASC spokesperson Amy Heart. “It will be critical for the commission to take into account the benefits that individual investments in rooftop solar and other distributed resources provide, such as increasing energy security and reliability and reducing other utility spending.”
Michigan currently ranks 34th in the nation in terms of installed solar capacity with a total of 25 megawatts — 13 megawatts of which are residential, 11 megawatts are commercial and just 1 megawatt is utility-scale. With stable and fair policies TASC anticipates strong solar market growth, more jobs and lower energy bills for customers across the state.
The Michigan legislation also addresses the state’s “electric choice” market, which allows alternative and out-of-state energy suppliers to serve up to 10 percent of the electricity market, typically schools and large businesses. The state’s major utility companies, DTE and Consumers Energy, have spoken out against the electric choice program and sought legislative changes to impose a “capacity fee.”
The Detroit News reports: “Utilities have argued alternative suppliers are not helping to fund investments in the energy grid they rely on, leaving traditional customers to essentially subsidize the network. But critics feared proposed capacity fees could have made choice rates for business and schools uncompetitive or forced them back to DTE or Consumers.”
The new legislation retains the 10 percent cap on electric choice customers, and establishes clear parameters for utility regulators to determine if a fee becomes necessary. Eventually, the choice market could shrink below 10 percent if a large number of customers decide to leave it.
“We now have a statewide energy policy that will save Michigan residents millions of dollars on their electric bills, alleviate concerns about having enough capacity to power the daily activities of 10 million people and find new ways to use our existing energy grid more efficiently,” said Gov. Snyder, in a statement. “Our energy will be more affordable, more reliable and more green. This achievement continues sending the message that Michigan has a very bright future.”
Gov. Snyder helped to broker compromise on the energy bills in an overnight legislative session. He told reporters this week he would sign the legislation.
Over the past five years or so, Encycle has been putting its “swarm logic” technology to use in optimizing one of the built environment’s dumbest pieces of equipment — rooftop air conditioning units.
To date, it’s done this by adding networked sensors and controllers to these units, then managing them via the startup’s patented “adaptive duty cycle” algorithms, to get them to shift their on-off cycles to save energy, limit peak energy and take part in demand response programs.
But in the past year, the Toronto-based startup, formerly known as Regen, has expanded its swarm logic platform to Wi-Fi-equipped thermostats and building management systems (BMS). It’s also rolling up its combined technology offering in a software-as-a-service (SaaS) offering, dubbed “Energy as a Service by Encycle,” or EASE for short.
To fund this next stage of growth, Encycle announced this week that it has raised the first tranche of a planned $11.5 million venture capital round. The round was led by new investor Prelude Ventures and previous investor NGEN Partners. Previous investors BDC, Duke Ventures, Export Development Canada and EnerTech Capital also participated. The new funding comes on top of a $7 million Series B round in 2014, along with earlier investment of roughly $15 million.
The first tranche, of $7.5 million, will go toward supporting the rollout of Encycle’s new EASE platform to existing customers, which now account for about 35 million square feet of industrial and commercial space, as well as preparing for the commercial launch of its new thermostat and BMS integration offerings in mid-2017, CEO Robert Chiste said in an interview.
With its SaaS offering, Encycle will be moving away from making money by selling its rooftop AC control devices directly to customers and charging them ongoing maintenance fees, and replacing it with a services model that will cost customers much less upfront, he said.
“We’re charging on a very different basis,” he said. Customers “can get that device installed at little or no cost,” in exchange for paying Encycle a monthly subscription fee. Encycle will be working with financing partners and channel partners to cover the up-front costs, he said.
In return for signing up for the service, customers can reap the benefits of improved energy efficiency and demand charge management, he said. These have led to typical savings of 30 to 40 percent in AC-related energy costs, according to results from its existing customers that have been verified by the energy analytics software provider Nexant, he said.
Encycle's devices are networked via wireless mesh on rooftops, and communicate via cellular networks to the company’s cloud management platform. Some big existing customers include Sears department stores, Dave & Buster's restaurants, movie theater chains and distribution warehouses. The common trait among them is that they have buildings with big, flat roofs with lots of AC units, usually 10 or more, that provide a fallow field for energy savings, Chiste said.
With its new funding, however, “we’re moving into two different devices” that will expand Encycle's addressable market, he said. The first is its “SwarmStat” offering for wireless thermostats. Encycle announced Honeywell as its first partner last month, and has since added the Carrier Connect thermostat, using an application programming interface (API) developed by its internet-of-things partner Ayla, he said.
These commercial and industrial thermostats typically control three to five rooftop AC units at fast-food restaurants, retail stores and other smaller buildings, usually by sending them signals to turn on and off en masse. Encycle’s software takes readings every 5 to 15 minutes, and then analyzes that data to fine-tune thermostat settings in ways that will smooth out the AC unit operation, avoiding the sudden spikes in electricity usage that can lead to excessive demand charges and wasted energy, he said.
Encycle has three buildings testing out the SmartStat technology right now. Initial data indicates that they can yield 15 to 30 percent savings in consumption and demand-related energy costs, said Chiste — although he added that those results have not been put through the strict measurement and verification process that have proven out its direct rooftop AC control savings.
Even so, connecting to existing thermostats will be a lot cheaper than installing devices on each rooftop unit, he said. Encycle can also offer customers with lots of different buildings the ability to monitor and control them as a fleet — “we can schedule 500 stores with the push of a button.”
While SmartStat can address smaller buildings, Encycle’s third new offering can connect to larger, multi-story buildings by tapping directly into their building management systems, Chiste said. While the typical BMS can do simple scheduling and temperature setpoints, Encycle is working on tapping their data to enable them to synchronize the operation of their AC units, without adding sensors to each unit, he said.
Right now the startup is able to integrate with four different BMS vendors’ platforms, and expects to bring that technology to market in mid-2017, he said. It’s working with a few channel partners, including one that it’s publicly announced — BCC Japan, Ltd. — which is working with Asahi Shokuhin, one of Japan’s leading food and beverage producers, best known in the U.S. for its beer.
Beyond energy, Encycle’s platform can deliver valuable data on how well each AC unit is performing, and whether they need to be tuned up — a service the startup has wrapped into what it calls “HVAC assessment reports.”
“There are pretty good figures out there on the maintenance costs on a per square foot basis” for keeping rooftop AC units running, he said. “We’ve heard back from customers that with the visibility we’re providing, we’re saving them 10 to 20 percent of that. […] It has turned into a very important part of our business.”
On the demand response side of things, Encycle inked a partnership with Enbala in August, helped along by Chiste’s role as board chairman for the Vancouver, Canada-based startup. Enbala has built out a roster of customers using its platform to turn industrial pumps, refrigerators and other large energy-consuming devices into grid assets, and could tap Encycle’s technology to reach smaller-scale assets, Chiste said.
Encycle is far from the only company offering technology to monitor, analyze and improve the energy efficiency of building HVAC systems, of course. Heating and cooling represent the largest energy consumption in the built environment, making them a target for technologies ranging from large-scale BMS optimization to wireless control systems for small commercial and residential sites.
Even so, Chiste sees a big market for Encycle’s low-cost, high-value approach to energy optimization. “We calculate there are about 2 million buildings that we can target” with the combination of direct rooftop AC controls, thermostats and BMS integration, he said.
The company is also not shy about protecting what it sees as its intellectual property rights over the core concepts behind its swarm logic approach, as its September 2015 patent infringement lawsuit against rival startup eCurv indicates.
What do Gerald Ford, a fossil-fuel plant on the Houston Ship Channel, the second-largest utility in Vermont, and the California legislature have in common?
They each ushered in a major national market transformation in the U.S. power sector over the last 40 years, at a rate of one per decade.
And in 2016, right on schedule, that once-per-decade cycle repeated. This year, it was batteries that made a transformative advance into both the competitive and vertically integrated power markets.
A quick review of how competition entered the power industry, decade by decade:
- 40 years ago: Energy efficiency bills signed by President Ford established incentives to encourage demand management.
- 30 years ago: Generation competition launched as the AES Deepwater co-generation plant began operating in Houston under PURPA.
- 20 years ago: Retail competition launched with Green Mountain Power, then the second-largest utility in Vermont, offering renewable energy choices in the first retail pilot programs in New England.
- 10 years ago: Solar competition launched as California’s legislature passed SB1 supporting the California Solar Initiative, thus creating terminal market velocity for distributed solar to orbit across the U.S. — the ultimate form of retail choice.
- 2016: Battery competition hits early, widespread market penetration, culminating with FERC’s November efforts to establish national standardization for energy storage participation in organized wholesale markets.
With four momentous market transformations under our belts, what have we learned that can inform industry and advocates’ efforts on the next stage of power market design evolution including central and distributed storage? Here are five conclusions.
1. Market transformations reinforce each other
The combination of 40 years of market transformation creating customer choice, power market competition and renewable energy are now in an interactive dance in both restructured and regulated markets around the country. Energy storage delivers the linchpin — customers can move from synthetic 100 percent renewable energy products, as measured by annual energy use, to fully delivered, onsite renewable energy.
2. Choice can't be put back in the bottle
The perception of retail choice market stagnation 15 years ago is deceiving if you ignore the quiet advance of the Silicon Valley and big-box purchasers who, this year, established the Renewable Energy Buyers Alliance. In addition, with 2016 election victories in Nevada and Florida, customers and voters demonstrated that choice and solar access can be cracked open in deeply conservative, or even hostile, regulatory environments.
3. The pace of change accelerates with each transformation
Utilities, competitive new entrants and regulators learn from each market transformation and move more quickly with each market advancement. Consequently, exit fees from the PURPA days are recast to apply to net-metered solar customers, while power industry veterans working in solar look two chess moves further out to set up the ultimate threat: adding energy storage to solar systems and disconnecting load from the utility cash register, otherwise known as the grid.
4. Axiomatically, costs decline over time with mass-manufactured technology, including solar and batteries
Over time, cost per kilowatt-hour inevitably declines for mass-manufactured technologies driven by cycles of learning and economies of scale in capital expense, supply chain and distribution. Lower costs drive demand up, revving up the virtuous cycle of manufacturing scale, lower cost and higher demand.
However, equally important is the other side of the mass-manufacturing technology coin — the price axiom. A mass-manufactured product is generated by factories using multiple shifts per day, every day of the year, to allocate capital costs. Thus, a perturbation in demand will drop prices first to try to maintain factory utilization.
The result can be abrupt and stunning to power market participants unfamiliar with technology price cycles. During the third quarter of 2016, solar modules saw prices plummet by a third, devastating the earnings of solar manufacturers and driving accelerated development in emerging solar markets. And that wasn’t the first time — nor the last we’ll see that pricing dynamic.
The same effect will be seen in batteries. Both the consumer device and electric vehicle markets will dominate battery sales volumes for the next several years relative to stationary storage serving the grid or buildings. Thus, theoretically, a perturbation in EV battery demand a few years from now will quickly and potentially radically change stationary storage prices.
5. Markets can move faster than regulatory calendars
This point is the inevitable amalgamation of each of the points above. The velocity of market change is now determined by customer demand and how that relates to supply. Regulators operating on a schedule of years per proceeding end up playing catch-up after customers are already into the adoption curve. For example, in a recent AES/IPL filing at FERC over MISO storage tariffs, market participants argue that MISO’s market rules are ineffective for deriving the full benefit from storage technology.
This case reinforces the check-out-the-neighbors’ dynamics of the U.S. power markets. Laggard markets will be pulled toward the positive outcomes in the leading markets by the demands of customers and suppliers who can look across arbitrary market boundary fences.
So what do these conclusions suggest for the latest of our decadal market transformations? Energy storage will come to power markets faster than you think.
Why? Because storage markets build on the results and learning from prior market transformations. They use mass-manufactured technology that is scaling rapidly due to demand in other segments. Thus, storage adoption will push the regulatory community to catch up. It will also challenge the industry and advocacy communities to organize and coordinate — not just soon, today!
Fundamentally, energy storage will move quickly because customers want it now as prices are hitting the competitive price sweet spot in today’s bids and tomorrow’s planning exercises. Energy storage is a resource that utilities and grid operators intuitively understand: “Imagine pumped hydro that you can use anytime, anywhere, at any scale!” The response: “Can I order it today?!”
End-use customers, transmission and distribution planners, utilities with goals to serve the EV charging market, will all drive rapid energy storage market adoption.
Thanks to battery supply dynamics, which contrast sharply with the solar market a decade ago, stationary storage market adoption drafts behind two other large and fast growing markets: consumer devices and electric vehicles.
Today’s leading battery manufacturers are large, well-funded companies that can scale manufacturing without pushing an IPO through Wall Street’s pipeline, as was necessary for small-scale solar companies. Yes, the exact form factor of the battery pack may differ between market segments, but not enough to keep suppliers from pivoting within a quarter or so to move supply between segments to align with customer demand.
Thanks to 40 years of market transformation experience, we are well on our way to the inevitable dominance of renewable energy — not just in new capacity additions, but in the percent of annual energy consumption in the power sector.
Regardless of which party is in control of congress, the White House or the governor’s office, markets advance as customers seek to meet their preferences for affordable, clean, reliable power. Attempting to squash customers’ choices leads to backlashes like those in Nevada and Florida.
With energy storage, utilities and regulators have the experience to decide how to harness the opportunities that storage offers as incumbents navigate a path toward the next transformation, expected in 2026.
Julie Blunden serves as the board chair for CalCEF Catalyst and CalCharge, an executive in residence at the University of Colorado Denver's Business School's Global Energy Management Program, and advises clients through her consulting practice.
Over the next decade, roughly one-third of the utility industry workforce will retire, and 105,000 new employees must be hired by 2030. A nimble talent management strategy can help utilities capitalize on emerging technical and business opportunities, while also helping them keep on top of industry disruption.
Indeed, the aging of the utility workforce is a major concern.
“Utilities rely heavily on the knowledge of their internal subject matter experts — people who have worked for the organization for many years, perhaps for their entire career,” said Jonida Regi, a utility workforce and talent expert for PA Consulting Group. “This has happened in other major industries, such as manufacturing and telecom. But compared to those industries, the aging-out effect is huge for utilities, both in scale and impact.”
This looming knowledge gap is expected to hit utility operations departments especially hard.
“There are employees who started in field work and moved up through the ranks in operations,” said Regi. “Their accumulated knowledge of the inner workings of highly complex systems and operations is irreplaceable — and most of them are retiring in the next 10 years.”
Furthermore, utilities now need access to new types of talent. For instance, today’s utility workforce tends to be heavy on O&M personnel, skilled craft construction and line workers. But there’s a growing industry need for technicians, energy-efficiency advisers, data analysts, customer operations specialists, cybersecurity professionals and more. This shift is driven both by external forces (such as the growth of distributed energy resources and changing customer expectations), and internal forces (such as the need to find new revenue streams).
To get there, utilities must strategically recruit new talent at a pace that matches their business evolution. The goal is to cost-effectively add new skills as they become relevant, and capturing desirable competencies in a competitive market.
The competition for talent is fierce, especially for recent graduates and professionals with a background in science, technology, engineering or mathematics.
STEM skills are in demand in several booming, high-paying industries, from software to biotechnology to logistics. Many non-utility organizations that are aggressively courting STEM graduates are also nimbler and more technology-focused than utilities tend to be. They can provide a work environment and support career paths that might look far more glamorous than working for a utility.
“The challenge is that so far, most utilities don’t have a clear talent management strategy,” said Regi. “Often, they lack a clear understanding of their existing internal capabilities, as well as which capabilities they’ll need in the future. They need to do internal strategic work to craft a talent strategy that aligns with their capability model.”
Developing a capability model is the critical starting point. This should be part of any long-term strategic business planning.
For instance, a utility might decide that in the next five years, 90 percent of customers should be able to self-service their needs via various channels.
What kinds of in-house capabilities will be needed to create and support these channels, to realize this goal?
How might that impact departments such as information technology, marketing and communications, customer service, billing and business systems?
Building upon this, a talent management strategy is needed to cultivate a workforce that matches the capability model. This strategy is a framework for identifying employee abilities and development needs.
According to Regi, many utilities aren’t yet clear on who their existing internal subject matter experts are, what they know, and the value of this knowledge and context. Also, given the way that utility employees progress typically from the front lines to managerial roles, often they aren’t given adequate tools and experience to develop needed managerial skills.
Therefore, a talent management strategy should provide paths for employees to rise through the organization in ways that help them to develop more of the needed capabilities. These opportunities also should align with employees’ interests and career goals. Programs pursuing this strategy can be considered staff retention activities.
Offering opportunities to gain experience in several departments across a utility, rather than climbing the career ladder solely within one internal silo, can make a utility career far more appealing to STEM talent. This approach also benefits the utility, by ensuring that staff who progress into management roles have the needed breadth of knowledge and skills — and also, that more knowledge is shared, rather than siloed.
A recent report by PA Consulting Group, The Nimble Utility: Creating the Next-Generation Workforce, explores ways that utilities can move toward more integrated business functions with cross-cutting jobs. Under this model, a new worker who begins in one department would be able to gain exposure to the rest of the business. Internal programs would help them acquire new skill sets and understand how, say, grid operations directly impact customer service.
Such programs may involve rotating employees through several departments. However, this can also be handled on a project basis.
“Some utilities identify key talent early and offer them the chance to manage a strategic project, like improving estimates of restoration time after an outage,” said Regi.
Regi noted that outage and restoration efforts affect almost everything a utility does. A manager must consider what customers need and expect from the utility, what information the utility needs to supply to customers, how the utility gathers and verifies that information, and how this communication will happen.
“Being responsible for all of these elements helps employees think more strategically — how to manage the workload, coordinate between departments and with different customer classes, etc. This can spell the difference between a manager who knows how to run the outage process in one region, and a manager who can deliver change throughout an organization,” said Regi.
“Being in charge of a project like this can help employees get a better grip on getting the right results. Utilities have been doing this to some degree, but generally on an ad hoc basis, not as part of a concerted effort to develop needed skills,” she said.
A nimble utility must keep updating its capability model and talent management strategy as it updates its business strategy. “If they don’t stay on top of this, they’ll be able to compete but won’t have the edge on utilities who are thinking about business objectives, capabilities, and talent management holistically and strategically
Thus, advertising the innovative, cross-functional and managerial opportunities a utility offers for career development might prove especially appealing to Millennials and Generation Z (individuals currently approaching their late teen years). Some utilities are thinking ahead. They have partnered with colleges and are investing in cutting-edge research and creating a network of potential recruits.
“This is a battle of hearts and minds: It’s Google and Facebook vs. the utility industry. Utilities have an advantage in that they are going through major transformations such as the way they provide services to customers, and this can provide more opportunities for well-rounded, creative, strategic, nimble careers,” said Regi.