It isn’t easy to transform a century’s worth of electricity infrastructure from the ground up, particularly in the face of climate-change-induced firestorms.
In looking back at 2019’s most important developments on the grid edge — GTM's term for the interface of the traditional utility enterprise with rooftop solar panels, behind-the-meter batteries, plug-in electric vehicles and other distributed energy resources (DERs) — it’s hard to overstate the impact of California’s wildfires and power outages on the U.S. market.
Over the course of 2019, we’ve seen California, the country’s leader in most DERs, wracked by a climate-change-induced emergency that’s bankrupted its largest utility, Pacific Gas & Electric, and forced millions to go without power during fire-prevention blackouts. The crisis has left the future of PG&E as an investor-owned utility in doubt and forced the state to confront the costs of transforming its energy infrastructure to decarbonize its economy and prevent future disasters.
At the same time, California’s crisis has emerged as a major opportunity for DERs. State regulators have responded not only with orders for multibillion-dollar grid-hardening investments but also with policies to promote battery-backed solar systems for those most at risk from fires and blackouts.
California’s community-choice aggregators, a growing force in the state, have also taken distributed solar-storage projects to protect their most vulnerable customers.
As California goes, so goes the national trends, and that seems especially true of energy-related issues. Wood Mackenzie projects that California’s crisis will drive a significant increase in the “attach rates” of batteries to California home solar systems next year, boosting prospects for key vendors such as Sunrun, SunPower, Enphase and even possibly Tesla.
There are many moving parts when it comes to the transformation of the grid edge. But here are three of particular importance.
The move toward aggregated DERs
Solar-plus-storage as backup power is proving its worth across the country, including places where you might not expect it. Vermont utility Green Mountain Power’s fleet of Tesla Powerwall batteries in homes kept more than 1,000 customers powered through blackouts this fall.
Blackouts remain rare in most places, which means that in order to pay their way over time, backup batteries must be able to contribute even when the grid is running — shaving peak loads, cutting capacity charges, arbitraging on-peak versus off-peak rates or performing other tasks.
Such functions can become even more powerful when DERs are allowed to act in concert. But not all regions and utilities offer DERs the opportunity to aggregate.
That is changing. We’ve seen early examples of the possibilities for aggregated DERs in energy markets in California, where solar-battery systems and smart thermostats are being enlisted to store and shift energy. Hawaii unveiled its first large-scale, third-party DER aggregation this year, starting with Sunrun solar-battery systems.
Other regions are starting to see opportunities for DERs to participate at the wholesale market level. Grid operator ISO New England made changes to its market rules last year that opened up opportunities in 2019 for battery, solar and demand-side DER aggregators in Massachusetts.
There's still a long road ahead, however, and other key DER-integration initiatives saw less success in 2019.
For example, regulatory efforts in California, New York, Hawaii and Minnesota to get utilities to contract for DERs as non-wires alternatives to grid investments are struggling to yield workable models for matching projects to third-party providers. Such stumbles, while perhaps inevitable in such complicated regulatory efforts, underscore the slow pace of change at many American utilities.
That’s not to say that utilities aren’t keenly aware that DERs will define their future. In Arizona, regulators have given utilities permission to impose demand charges and fixed fees on solar customers, while also funding some of the country’s most advanced DER integration projects.
In the Carolinas, Duke Energy is building up a utility-owned distributed battery portfolio from kilowatt to megawatt scale in hopes of adding 300 megawatts to its system by the decade’s end.
M&A to reach utility scale
The European and U.S. energy companies and oil majors that have driven a wave of consolidation over the past few years continued to snatch up DER startups and commercial-scale competitors in 2019.
Royal Dutch Shell, one of the more prolific acquirers, racked up three different DER acquisitions in the first three months of the year — U.S.-based EV charging network provider Greenlots in January, German battery-solar contender sonnen in February, and U.K-based demand response provider Limejump in March.
Shell also took stakes in retail energy markets, rebranding U.K. energy supplier First Energy as Shell Energy Retail in March and acquiring renewable power retailer Hudson Energy in October. This month, it closed its purchase of Australian retailer ERM Power, giving it access to one of the world’s fastest-growing solar-storage markets.
Other European giants made significant acquisitions this year. Engie acquired Genbright, a U.S. solar, storage and demand response startup, and took a majority stake in Tiko, a Swiss DER aggregator seeking to expand from Europe to the U.S. and Australia.
Centrica made a similar investment in GreenCom Networks and Mixergy; it also acquired U.S. energy services company SmartWatt.
Beyond covering the bases for likely DER growth, acquisitions like these give startups the financial backing to reach utility scale. That’s the logic behind this summer’s creation of Uplight, a private equity-backed merger of Tendril and Simple Energy, two U.S. startups with many utility customers, adding in three other startups Tendril had recently acquired: EEme, EnergySavvy and FirstFuel Software.
Google and Amazon taking over the grid edge
Speaking of Uplight, the company is a participant in another interesting development on the grid edge: a partnership between Google and AES Corp. announced this fall, meant to tap the search giant’s computing might to modernize the grid and support new renewables projects.
Tech giants like Google, Amazon, Apple and Facebook have become a major driver of corporate renewable energy procurements in the U.S., with their constant demands for clean data-center power.
They’ve also made inroads into other parts of the energy ecosystem that look more like what utilities do. Beyond breaking new renewable portfolio standard records and promising millions of dollars for clean-powered manufacturing this year, Google took the unusual step of joining two regional transmission organizations, an indication of its clout as a power buyer.
But it’s behind the meter where Google and Amazon may find the greatest grid edge traction — through their conquest of the voice assistant device market. More than 66 million U.S. households have VADs, and Wood Mackenzie Power & Renewables predicts that they will become the dominant home energy management interface in years to come.
Amazon and Google, which hold roughly two-thirds and one-quarter of the U.S. VAD market, respectively, both have extensive partnerships and investments in technologies to serve the "smart home" market, including energy management.
Some of Google’s efforts this year included work with Tendril/Uplight and several U.S. utilities on enabling VADs to respond to spoken questions about utility bills into data-informed answers, rather than canned responses, as well as partnerships to tap Nest thermostats for grid revenue in California.