william tokash, research analyst, navigant consulting

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1

©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

OUTLOOK ON GLOBAL STATIONARY ENERGY STORAGE: KEY DRIVERS AND MARKET FORECASTNY-BEST ANNUAL ENERGY STORAGETECHNICAL CONFERENCEOCTOBER 20, 2016

NAVIGANT RESEARCH

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2 / ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2

OVERVIEW

• Navigant Overview

• Energy Cloud Technologies

• Applying Energy Storage to Solve Problems

• Project Delivery Chain

• Energy Storage Software Platform

• Mixed-Asset Virtual Power Plants

• Global Drivers by Region

• Global Advanced Battery Forecast by Segment

• Key Takeaways


WHY NAVIGANT? TURNKEY DEPTH WITH UNIQUE PERSPECTIVE

Navigant’s multidisciplinary approach enables us to assess, position, and monetize the Client’s value and competitive position.

StrategicAssessment

Post TransactionSolutions

SOLUTION PROVIDERS

Market research, competitor studies Strategic review, positioning, and plan

development Company core-competencies and

SWOT analysis / competitor analysis Performance improvement initiatives

review and implementation Development of valuation and debt

capacity analyses Cash management and controls /

liquidity analysis / cash flow forecasting

Buy-side advisory & sell-side advisory

Private capital raises and placements

Mergers, acquisitions, & divestitures support

Valuation services and fairness opinions

Real estate transaction services

Strategy support and negotiation leadership, including constituency management

Fiduciary support and analysis Integration Cost structure reductions and active

liquidity management Plan execution Formulation of management retention and

incentive programs

Consulting Firms

Accounting Firms

Investment Banks

NAVIGANT SERVICES

Our clients can choose from a turnkey set of solutions to solve their problems

TransactionExecution

Consulting Firms

Accounting Firms


BUILDINGINNOVATIONS

Intelligent Building Management SystemsEnergy Efficient BuildingsLighting InnovationsSmart Cities

NAVIGANT RESEARCH AREAS OF FOCUS

TRANSPORTATIONEFFICIENCIES

UTILITYTRANSFORMATIONS

ENERGYTECHNOLOGIES

Wind EnergyGrid-Tied Energy StorageAdvanced BatteriesMicrogridsDistributed Natural GasDistributed Renewables

Electric VehiclesAdvanced Transportation TechnologiesMobilityTransportation Forecast

Grid Networking and CommunicationsGrid IT Systems and AnalyticsGrid T&DResidential Energy InnovationsDemand-Side ManagementUtility InnovationsUtility Technology Disruption


Emerging energy infrastructure is far more integrated, dynamic, and complex

DISTRIBUTED GENERATION (DG)Includes the generation of electricity from many small energy sources, including renewables; typically mass-produced, small, and less site-specific

MICROGRIDS AND VIRTUAL POWER PLANTSApplications or groupings of distributed energy resources (DER) that operate either connected or independent from a traditional centralized grid

ENERGY STORAGEDevices or physical media that store energy to perform useful operation at a later time; balance the supply and demand of energy; improve power quality

DIGITALIZATION OF THE GRID:• Smart inverters• Smart meters• Advanced sensors, controls,

and operation systems• Behind-the-meter (BTM)

technologies and solutions• Demand response (DR)

BUILDING ENERGY MANAGEMENT SYSTEMSDigital control systems installed in buildings; enables energy efficiency, DR, and automated DR

ENERGY CLOUD IS MADE UP OF A DIVERSE SUITE OF DISTRIBUTED ENERGY RESOURCES (DER) TECHNOLOGIES

(Source: Navigant Consulting)


ENERGY STORAGE DRIVERS

Increased Battery Energy Storage

Adoption

Industry changes are driving demand for energy storage, while policy, technology, and cost advances are making it a more attractive option.

Utility Transformation from Centralized to

Networked Grid

Aging Grid Infrastructure

Increasing Intermittent Renewable Generation

Increased Customer Expectations and

Engagement

Strong Demand for Energy Storage

Policy Initiatives

Technology Performance

Cost Reductions

Increased Performance at a Decreased Price

Technology Demonstration

Installed Global Energy Storage Capacity (2016-2025)


ENERGY STORAGE APPLICATIONS AND BENEFITS

The grid location, regulatory structure, and ownership approach will determine whether ESS application benefits can be realized.

Generation T&D Residential C&I

Behind the Meter (BTM)In Front of the Meter (FTM)

Regulatory Structure

What is the regulatory structure? • Deregulated market• Regulated market• Municipal/Co-op, etc.• Wholesale/retail rules

Location

Where is asset located?• Generation• Transmission• Distribution• Behind the Meter

Owner

Who will own the system?• T&D Utility• Vertically Integrated Utility• Non-Utility Merchant/IPP• End User• 3rd Party


ENERGY STORAGE PROJECT DELIVERY CHAIN

• Cells• Packs• Battery

Management System (BMS)

• Component level modeling, design and testing

• Warranties / Guarantees

• Power conversion equipment

• HVAC systems • Software and controls algorithm development

• System management

• Controls and optimization

• Communication

• Lead generation• Site control/

acquisition• Secure permits• Develop pro-

forma financials• Structure,

negotiate financing (debt, equity)

• Negotiate offtake agreements / PPA

• Understand and navigate regulatory requirements

• Obtain incentives

• System Integration

• Hardware Software • Grid

interconnection• Testing &

Commissioning

• Engineering and Procurement

• Installation• Civil Eng.• Mechanical Eng.• Electrical Eng

• Construction• Provide

construction wrap (performance guarantee)

Operation• Monitor

performance of system

• Ensure software is working correctly

• Reporting requirements

Maintenance• Work to be in

compliance with warranties

• Spare parts inventory

Aggregation• Develop and

operate portfolio

Investment

Storage TechnologyManufacturer

Software & Controls Vendor

Operator & Maintenance Provider

Power Conversion

Manufacturer

Thermal Management

Manufacturer

Balance of System

Project Developer

System Integrator and EPC

Development & Integration

Upstream DownstreamOwnership• Equity Investor• Legally entity

responsible for the ESS

Financing• Provide debt to

the project

Vendors in the project delivery chain are now playing multiples roles


OVERVIEW OF ESS SOFTWARE MODULES

Project Analysis

Project Analysis Features

Analyzing Grid Applications

Analyzing Customer

Applications

Analyzing FTM & BTM Load &

Tariff Data

System Operation

Operating FTM Grid Storage Applications

Operating BTM Customer Storage

Applications

Operating Battery Storage Technologies

Operating DG Systems

Interacting with BTM Load &

BAS

System Optimization

Integrated Algorithm Approach

Consideration of External

Data (Weather, Markets)

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The lines between energy storage, DER and VPP software platforms will blur


THREE CLASSES OF VIRTUAL POWER PLANTS

(Source: Navigant Research)

Classes Description Strength Weakness

Demand Response (DR) VPP

• Traditional DR markets• Software aggregation • Low cost, flexible • Uneven markets

• Policy uncertainty

Supply-side VPP

• Renewable generation • Smart grid enabled• Software aggregation

• Large, stable vendors • Niche markets (EU)• Few projects

Mixed-asset VPP

• Unites DG + DR• Resource flexibility • Enhanced by storage

• Large pool of solar assets

• IT innovation• New business models

• Controls standards• Immature ancillary

services markets

Mixed-asset VPPs enhanced by battery energy storage are poised to spur DER market growth


KEY MESSAGES: NORTH AMERICA

• Energy storage heavily concentrated in select states and regional power markets• Patchwork of regulatory structures and market rules exist between within states.• Key drivers for energy storage in North America

1. High Demand Charges: High, volatile electricity prices and demand charges for customers improve the business case for distributed energy storage

2. Innovative Third-Party Ownership Models: includes a wide range of agreements between vendors and their customers allowing for a growing number of customers to benefit from energy storage without significant upfront expenses

3. Progressive State Policies: Aggressive mandates to deploy renewable energy and modernize the grid have made the state a key market globally for utility-scale and distributed storage systems (e.g. California).

Market New Installed Market Size

Distributed Li-ion (2021) 2,045 MW Utility-scale Li-ion (2021) 1,328 MW



WHAT IS HAPPENING WITH STORAGE IN NORTH AMERICA: UTILITY SCALE VS DISTRIBUTED STORAGE SECTORS

Technology ProviderPower Capacity

(MW)Energy Capacity

(MWh)

Convergent 35 140

Tesla 20 80

AES Energy Storage 37.5 150

Altagas Pomona ES 20 80

Western Grid Development 5 20

Grand Johanna (Powin) 2 8

Totals 119.5 478

Recent ACES RA Announcements

California • Aliso Canyon Energy Storage Resource Adequacy (ACES RA Only)

• Emergency energy storage procurement to address electrical reliability risks due to a moratorium on natural gas injections into the Aliso Canyon Natural Gas Storage Facility

• RFOs for Design, Build, Own & Operate (DBBO) and Design, Build, Transfer (BTO) installations• All awards are additional to AB 2514 Mandate

• Outside of the ACES RA RFO, the AB 2514 mandate and SGIP being expanded now

Massachusetts• The Massachusetts DOER now has

legislation requiring an energy storage procurement goal

• Roadmap of policy recommendations contemplating a procurement target between 600 to 1,776 MW

PJM Frequency Regulation (FR)• Dispatch signals and market pricing

mechanisms for fast and slow responding merchant FR now being re-evaluated



KEY MESSAGES: EUROPE

• Energy storage cost effective for many applications in European countries• Two markets are emerging

1. Dedicated, single use case: Enhanced Frequency Regulation is a valuable but finite market with good revenue certainty, deployment accelerates price declines for Li-ion.

2. Multi-use case/value stacking: Use cases include grid upgrade deferral, demand response, reduction of retail electricity costs and grid efficiency improvements. Ultimately these are larger markets, but require value stacking, and will grow as financing options mature and Li-ion prices drop thanks to EFR deployments.

• We expect the European energy storage market to grow significantly




WHAT IS HAPPENING WITH STORAGE IN EUROPE: UTILITY VERSUS DISTRIBUTED

Developer Capacity (MW)

Avg. Tender (£/MW)

EDF Energy Renewables 49 7.00

Vattenfall 22 7.45

Low Carbon Storage Investment 10 7.94

Low Carbon Storage Investment 40 9.38

E.ON UK 10 11.09

Element Power 25 11.49

RES 35 11.93

Belectric 10 11.97

National Grid EFR Tender Contract Awards

European Utility-scale ESS• Utilities and regulators are driving the growth of large-scale energy storage in Europe• Germany is the largest storage market in Europe, with over 354 MW of non-hydro currently installed• Italian grid operator Terna deployed 41 MW of BESS since 2013 for grid stability and modernization• UK grid operator National Grid awarded contracts for 201 MW of “enhanced frequency response”• These systems will automatically respond to grid signals in < 1 sec to maintain system frequency

European Distributed ESS• Retail customers driving distributed storage• Europe is leading market for distributed

storage given high levels of solar PV installations and high retail electricity prices

• Germany the leading market to date• Feed-in-tariff rates for excess solar PV are

below retail residential rates, incentivizing customers to store energy onsite

• German subsidy for residential storage

(Source: National Grid)


KEY MESSAGES: ASIA PACIFIC

• Two different types of power markets present different opportunities for energy storage in Asia Pacific

1. Developed/Advanced Grids: Countries such as South Korea, Japan, China, and Australia have sufficiently advanced grids that can utilize advanced storage technologies

2. Intermittent/Developing Grids: Several nations in the region are still developing fundamental infrastructure systems and have limited and/or unreliable power grids

The expanding manufacturing capacity, growing sales volumes, and increased technological capabilities of large Li-ion companies will contribute to the dominance of Li-ion batteries within the region in the coming decade.





WHAT IS HAPPENING WITH STORAGE IN ASIA PACIFIC REGION: UTILITY VERSUS DISTRIBUTED

South Korea• South Korea has undertaken ambitious grid modernization and smart grid initiatives

• KEPCO is aiming to deploy 500 MW of battery ESSs to provide frequency regulation by 2017, and has already announced numerous large-scale projects around the country

• An estimate that three recently announced ESSs totaling 56 MW of capacity can result in an annual savings of $13 million in fuel costs, as well as reduced emissions and improved power quality

Japan• Japan’s retail utility deregulation is expected to establish competitive markets for power generators

and electricity retailers, as well as competitive ancillary services markets

China • Large increase in new variable generation capacity installed globally over the next several years

• Much of the renewable generation installed to date has not been deployed efficiently

• Up to 20% of the total wind power generated in the country (33.9B kWh) lost to curtailment in 2015

• Energy storage can greatly improve this situation without the need for new transmission infrastructure


MARKET FORECAST: GLOBAL BATTERY ENERGY STORAGE

(Source: Navigant Research

Global Annual Battery Energy Storage Power Capacity and Revenue by Region, World Markets: 2016-2025


KEY TAKEAWAYSRULES + REVENUE + SOFTWARE = FINANCING INNOVATION

• Battery energy storage has become a grid tool that is being applied to solve problems.

• Additional work is needed on a local basis to align rules governing power markets to better quantify the value that battery energy storage can provide.

• The maturation of these rules will enable more predictable revenue flows to project developers and asset owners.

• More predictable revenue flows will enable new business models and financing asset classes that will drive technology adoption.

• Software platforms that can analyze, operate and optimize battery energy storage systems across aggregated sites via VPPs will be critical.

• These developments will enable project developers and owners to recognize bankable multiple revenue streams to capture the full value proposition..

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED19

WILLIAM TOKASHSenior Research Analyst+1 312.583.2125 [email protected]

COLETTE LAMONTAGNE Director+1 781.270.8340 [email protected]

ANISSA DEHAMNAPrincipal Research Analyst+1 [email protected]

mailto:[email protected]



william tokash, research analyst, navigant consulting

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