VPP 14 Executive Summary

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Peter Asmus

Principal Research Analyst

Mackinnon Lawrence

Research Director

Executive Summary:

Virtual Power Plants

Demand Response, Supply-Side, and Mixed Asset VPPs:

Global Market Analysis and Forecasts

NOTE: This document is a free excerpt of a larger report. If you are interested in

purchasing the full report, please contact Navigant Research at

[email protected].

Published 2Q 2014

RESEARCH REPORT


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2014 Navigant Consulting, Inc. Notice: No material in this publication may be reproduced, stored in a retrieval system,or transmitted by any means, in whole or in part, without the express written permission of Navigant Consulting, Inc.

1

Section 1

EXECUTIVE SUMMARY

1.1

Virtual Power Plants and the Emerging Energy Cloud

Much has been made of how changes in the way energy is bought, sold, and managed could

spell trouble for utilities. This is also known as the much ballyhooed theory of the utility death

spiral. Though some dinosaurs may indeed fail, the vast majority of utilities will still be around

for quite some time. Those who will profit the most will be those who understand sooner

rather than later how new technologies and new markets are transforming the electricity

business.

The evolution of energy markets is accelerating in the direction of a greater reliance upon

distributed energy resources (DER). The technologies and new frameworks necessary to

manage this increasing two-way complexity remain unclear. Nevertheless, successfulstrategies are being deployed today all over the globe. One such strategy is a virtual power

plant (VPP). As a result of the wide divergence of what constitutes a VPP, Navigant Research

has come up with its own definition, which has been modified and updated this year:

A system that relies upon software and a smart g rid to remotely and automatically

dispatch and optimize DER via an aggregation and optimization platform linking retail

to wholesale markets.

VPPs can be viewed as one mani festation of the concept of transactive energy, whereby new

technologies such as demand response (DR), solar photovoltaic (PV) systems, advanced

batteries, and electric vehicles (EVs) are transforming formerly passive consumers into active

prosumers. In essence, prosumers are active participants in delivering services tailored to theirown needs and preferences that also serve the larger grid. Another way to describe the VPP

vision of the future is the energy cloud, a term Navigant Research uses to describe how DER

can be managed virtually via software that can deploy hardware in a dispersed network. In fact,

a growing number of smart grid vendor s now offer asset performance software for managing

assets and operations, and smart grid analytics are now available as cloud-based software as a

service (SaaS), the ultimate virtualization of energy services. In essence, the energy cloud

business model revolves around the ability of anyone , anywhere being able to sell energy

services into an open market, typically on a forward-looking basis, anticipating shifting demand

and supply. If these committed resources come up short, another market allows for spot

purchases to fill in the gaps. However, in order to make both of these markets work, rules need

to be hammered out to allow these transactions to flow back and forth through a common

carrier grid.

The keys to making it all work are new aggregation and optimization platforms. Perhaps the

ultimate example of the energy cloud and/or transactive energy is the VPP, which represents an

Internet of energy, tapping existing grid networks to tailor electricity supply and demand

services for a customer, utility, or grid operator. VPPs maximize value for both the end


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user/asset owner and the distribution utility through software and IT innovations. Without any

large-scale fundamental infrastructure upgrades, VPPs can stretch supplies from existing

generators and utility demand reduction programs (and other forms of DER). They deliver

greater value to the customer (e.g., lower costs and new revenue streams) while also creating

benefits for the host distribution utility (e.g., avoidance of capital investments in gridinfrastructure or peaking power plants), as well as the transmission grid operator (e.g.,

regulation ancillary services such as spinning reserves). As a result, VPPs deliver benefits to a

broad array of energy market stakeholders.

The primary goal of a VPP is to achieve the greatest possible profit for asset owners, while at

the same time maintaining the proper balance of the electricity grid. From the outside, the VPP

looks like a single power production facility that publishes one schedule of operation and can be

optimized from a single remote site. From the inside, the VPP can combine a rich diversity of

independent resources into a network via sophisticated planning, scheduling, and bidding of

DER-based services.

In this report, the VPP market is analyzed by way of three primary segments: DR, supply-side,

and mixed asset VPPs, with the last segment representing the end goal of this entire market.

Revenue forecasts, which track spending on software networking products and ser vices,

represent just over a $1 billion market today, but are expected to reach more than $5 .3 billion

over the next 10 years under a base scenario developed by Navigant Research.

Chart 1.1 Total Annual VPP Vendor Revenue by Region, Base Scenario, World Markets: 2014-2023

(Source: Navigant Research)

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

($Millions)

North America

Europe

Asia PacificLatin America

Middle East & Africa


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Section 8

TABLE OF CONTENTS

Section 1 ........................................................................................................................................................... 1

Executive Summary .......................................................................................................................................... 1

1.1 Virtual Power Plants and the Emerging Energy Cloud ........................................................................... 1

Section 2 ........................................................................................................................................................... 3

Market Issues .................................................................................................................................................... 3

2.1 Virtual Power Plants: Definitions and Market Segments ........................................................................ 3

2.1.1

Navigant Research VPP Definition ................................................................................................. 4

2.1.2 Three Primary VPP Segments ....................................................................................................... 5

2.1.2.1 DR VPPs ................................................................................................................................. 5

2.1.2.2 Supply-Side VPPs .................................................................................................................... 6

2.1.2.3 Mixed Asset VPPs .................................................................................................................... 8

2.1.3 VPPs versus Microgrids ................................................................................................................ 9

2.1.3.1 Case Study: Lessons Learned from Denmark on VPP and Microgrid Overlap ............................. 11

2.2 The Business Case for VPPs .............................................................................................................. 12

2.2.1 Better DER Asset Utilization ......................................................................................................... 13

2.2.2 Synergy with ADR ........................................................................................................................ 14

2.2.3 Emergence of New Utility Business Models ................................................................................... 16

2.2.4 Tipping Point Value Propositions for VPPs .................................................................................... 16

2.3 Current Market Drivers ....................................................................................................................... 17

2.3.1

Maturing Smart Meter Markets ..................................................................................................... 17

2.3.2 Utility Distribution and Substation Automation Trends .................................................................... 20

2.3.3 Global Growth in Variable Renewable Generation ......................................................................... 22

2.3.4 Utility and Regulator Pushback on Renewables Incentives ............................................................. 23


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2.3.5 Emerging Organized Markets for Grid Ancillary Services ............................................................... 24

2.3.6 FERC Orders on DR .................................................................................................................... 25

2.4

Implementation Challenges ................................................................................................................ 26

2.4.1 Lack of Dynamic Energy Pricing ................................................................................................... 26

2.4.2 Pushback against the Utility Smart Grid ........................................................................................ 27

2.4.3 Lack of VPP Standards, Certifications, and Property Rights ........................................................... 28

2.4.4 What Is the Best VPP Business Model? ........................................................................................ 29

2.4.4.1 Business Model Case Study: How Ventyx Leverages the Cloud for VPPs ................................... 30

Section 3 .......................................................................................................................................................... 31

Technology Issues ........................................................................................................................................... 31

3.1 VPP-Enabling Technology Overview ................................................................................................... 31

3.2 DG .................................................................................................................................................... 32

3.2.1 Pros and Cons ............................................................................................................................. 34

3.2.2 Commercial Time Horizon ............................................................................................................ 35

3.3 Smart Meters ..................................................................................................................................... 36

3.3.1

Pros and Cons ............................................................................................................................. 36

3.3.2 Commercialization Time Horizon .................................................................................................. 38

3.4 DR .................................................................................................................................................... 38

3.4.1 Pros and Cons ............................................................................................................................. 39


3.5 Smart Inverters .................................................................................................................................. 41

3.5.1 Pros and Cons ............................................................................................................................. 42


3.6 Advanced Energy S torage .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. .. ... . 44

3.6.1 Pros and Cons ............................................................................................................................. 46


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3.7 PEVs ................................................................................................................................................ 47

3.7.1

Pros and Cons ............................................................................................................................. 48


3.8 Smart Grid Networking Software ......................................................................................................... 50

Section 4 .......................................................................................................................................................... 51

Key Industry Players ........................................................................................................................................ 51

4.1 The VPP Competitive Landscape........................................................................................................ 51

4.2 Utilities ............................................................................................................................................. 51

4.2.1 DONG Energy ............................................................................................................................. 51

4.2.2 Duke Energy ............................................................................................................................... 52

4.2.3 RWE ........................................................................................................................................... 53

4.3 Large Technology Players .................................................................................................................. 54

4.3.1 Als tom Grid ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. .. ... .. ... .. .. .. ... 54

4.3.2 Bosch ......................................................................................................................................... 55

4.3.3

GE Digital Energy ........................................................................................................................ 56

4.3.4 IBM ............................................................................................................................................. 57

4.3.5 Schneider Electric ....................................................................................................................... 57

4.3.6 Siemens ...................................................................................................................................... 58

4.4 Pure Software Firms .......................................................................................................................... 60

4.4.1 ENBALA Power Networks ............................................................................................................. 60

4.4.2 Joule Assets ................................................................................................................................ 60

4.4.3 Power Analytics ........................................................................................................................... 61

4.4.4 Power Assure .............................................................................................................................. 61

4.4.5 Spirae ......................................................................................................................................... 62


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4.4.6 Ventyx/ABB ................................................................................................................................. 62

4.4.7 Viridity Energy ............................................................................................................................. 63

4.5

DR Aggregators ................................................................................................................................. 64

4.5.1 Comverge ................................................................................................................................... 64

4.5.2 Consert ....................................................................................................................................... 65

4.5.3 Cooper PowerSystems/Eaton ...................................................................................................... 66

4.5.4 Customized Energy Solutions ....................................................................................................... 66

4.5.5 EnerNOC .................................................................................................................................... 67

Section 5 .......................................................................................................................................................... 69

Market Forecasts.............................................................................................................................................. 69

5.1 VPP Market Forecast Overview .......................................................................................................... 69

5.1.1 Scenarios .................................................................................................................................... 70

5.1.2 Five Leading VPP Markets ........................................................................................................... 71

5.1.2.1 United States .......................................................................................................................... 71

5.1.2.2 Germany ................................................................................................................................. 72

5.1.2.3

Denmark ................................................................................................................................. 72

5.1.2.4 United Kingdom ...................................................................................................................... 73

5.1.2.5 Japan ..................................................................................................................................... 73

5.1.3 Revenue Forecast Methodology ................................................................................................... 73

5.2 DR VPPs ........................................................................................................................................... 75

5.2.1 North America ............................................................................................................................. 76

5.2.2 Europe ........................................................................................................................................ 76

5.2.3 Asia Pac ifi c ... .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. ... .. .. .. ... . 77

5.2.4 Latin America .............................................................................................................................. 77

5.2.5 Middle East & Africa .................................................................................................................... 77


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5.3 Supply-Side VPPs ............................................................................................................................. 78

5.3.1 North America ............................................................................................................................. 78

5.3.2

Europe ........................................................................................................................................ 79

5.3.3 Asia Pac ifi c ... .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. ... .. .. .. ... . 79

5.3.4 Latin America .............................................................................................................................. 79


5.4 Mixed Asset VPPs ............................................................................................................................. 80

5.4.1 North America ............................................................................................................................. 82

5.4.2 Europe ........................................................................................................................................ 82

5.4.3 Asia Pac ifi c ... .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. ... .. .. .. ... . 82

5.4.4 Latin America .............................................................................................................................. 82


5.5 Conclusions and Recommendations ................................................................................................... 82

Section 6 .......................................................................................................................................................... 84

Company Directory .......................................................................................................................................... 84

Section 7 .......................................................................................................................................................... 86

Acronym and Abbreviation List ....................................................................................................................... 86

Section 8 .......................................................................................................................................................... 89

Table of Contents ............................................................................................................................................. 89

Section 9 .......................................................................................................................................................... 94

Table of Charts and Figures ............................................................................................................................. 94

Section 10 ........................................................................................................................................................ 97

Scope of Study ................................................................................................................................................. 97

Sources and Methodology ............................................................................................................................... 97

Notes ................................................................................................................................................................ 98


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Section 9

TABLE OF CHARTS AND FIGURES

Chart 1.1 Total Annual VPP Vendor Revenue by Region, Base Scenario, World Markets: 2014-2023............... 2

Chart 2.1 ADR Power Capaci ty by Region, Wor ld Markets: 2014-2023 ... .. .. ... .. .. ... .. .. ... .. .. .. ... .. .. ... .. .. ... .. .. .. ... .. 15

Chart 2.2 Smart Meter Unit Shipments by Region, World Markets: 2013-2023 ............................................... 18

Chart 2.3 Annual Solar PV Insta lled Capacit y and Revenue by Reg ion, Wor ld Markets: 2011-2020 .. ... .. .. ... .. .. . 22

Chart 3.1 Installed Energy Storage Power Capacity in Microgrids by Region, World Markets: 2014-2024 ........ 46

Chart 5.1 Total Annual VPP Power Capacity by Scenario, World Markets: 2014-2023 .................................... 70

Chart 5.2

Total Annual VPP Power Capacity by Region, Base Scenario, World Markets: 2014-2023 ............... 71

Chart 5.3 Total Annual VPP Vendor Revenue by Scenario, World Markets: 2014-2023................................... 74

Chart 5.4 Total Annual DR VPP Power Capacity by Region, Base Scenario, World Markets: 2014-2023 ......... 75

Chart 5.5 Total Annual DR VPP Vendor Revenue by Region, Base Scenario, World Markets: 2014-2023 ........ 75

Chart 5.6 Total Annual Supply-Side VPP Power Capacity by Region, Base Scenario, World Markets:

2014-2023 ................................................................................................................................... 78

Chart 5.7 Total Annual Supply-Side VPP Vendor Revenue by Region, Base Scenario, World Markets:

2014-2023 ................................................................................................................................... 80

Chart 5.8 Total Annual Mixed Asset VPP Power Capacity by Region, Base Scenario, World Markets:

2014-2023 ................................................................................................................................... 81

Chart 5.9 Total Annual Mixed Asset VPP Vendor Revenue by Region, Base Scenario, World Markets:

2014-2023 ................................................................................................................................... 81

Figure 2.1 VPP Conceptual Diagram .............................................................................................................. 4

Figure 2.2 Germanys RCPP .......................................................................................................................... 7

Figure 2.3 Cell Controller Hybrid Microgrid/VPP R&D Project ......................................................................... 11

Figure 2.4 Relationship of Financial and Physical Topology of VPPs .............................................................. 13

Figure 2.5 Hierarchy of Resource Costs ........................................................................................................ 17


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Figure 2.6 Smart Meter Deployment Penetration Levels, United States: 2012 ................................................. 19

Figure 2.7 Todays Bidirectional Prosumer Power System .............................................................................. 21

Figure 2.8

Subsidies for Energy Resources: 2008-2010 ................................................................................. 24

Figure 2.9 Denmarks Market Redesign for VPPs........................................................................................... 29

Figure 3.1 Key Sources of Flexible Consumption Candidates for VPPs, Denmark: 2015-2035 .......................... 32

Figure 3.2 Solar PV Cheaper Than Retail Utility Power in Southern Germany ................................................. 33

Figure 3.3 Cutting Peak Demand through Wide Deployment of DG ................................................................. 34

Figure 3.4 Duck Graph of Renewable Energy Integration: 2013-2020 ............................................................. 39

Figure 3.5 Smart Inverter Functionality ......................................................................................................... 42

Figure 3.6 V2G Linkages to Smart Grid Services ........................................................................................... 49

Figure 4.1 McAlpine Microgrid Schematic ...................................................................................................... 53

Figure 4.2 DER Schedule and Dispatch Evolution for VPPs............................................................................ 55

Figure 4.3 Schneider Electrics Analogy between Amazon and VPP................................................................ 58

Figure 4.4 DR Reinvented via Two-Way Communication Relationships into VPPs ........................................... 65

Table 2.1

DR VPP vs. Central Station Plant Comparison ............................................................................... 5

Table 2.2 DR VPP SWOT Analysis ............................................................................................................... 6

Table 2.3 Supply-Side VPP SWOT Analysis .................................................................................................. 8

Table 2.4 Mixed Asset VPP SWOT Analysis .................................................................................................. 9

Table 2.5 Comparison between VPPs and Microgrids ................................................................................... 10

Table 3.1 DG for VPPs SWOT Analysis........................................................................................................ 35

Table 3.2 Operating and Cost Characteristics of DG Technologies for VPPs: 2014 ........................................ 35

Table 3.3 Smart Meters for VPPs SWOT Analysis ........................................................................................ 37

Table 3.4 DR for VPPs SWOT Analysis ........................................................................................................ 40

Table 3.5 Smart Inverters for VPPs SWOT Analysis ..................................................................................... 43


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Table 3.6 Energy Storage Ancillary Service Characteristics Relevant to VPPs ............................................... 45

Table 3.7 Advanced Energy Storage for VPPs SWOT Ana lys is. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. .. ... 47

Table 3.8

PEVs for VPPs SWOT Analysis .................................................................................................... 48

Table 4.1 DONG Energy SWOT Analysis ..................................................................................................... 52

Table 4.2 Siemens SWOT Analysis .............................................................................................................. 59

Table 4.3 Ventyx SWOT Analysis ................................................................................................................ 63

Table 4.4 EnerNOC SWOT Analysis ............................................................................................................ 68


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Section 10

SCOPE OF STUDY

Navigant Research has prepared this report to p rovide participants involved in the smart grid, microgrid,nanogrid, and utility service markets with a market forecast of VPPs. This market forecast and analysis

reviews varying formats of VPPs being deployed throughout the world. The reports objective is to assess the

market for three different segments of VPPs: DR, supply-side, and mixed asset.

This report contrasts the VPP aggregation pla tform with microgrids, an alternative platform used to aggregate

distributed resources, including DR, renewable DG, advanced storage, smart inverters, and PEVs. Navigant

Research evaluates the likely business models for future VPPs and tracks the progress of key components that

may make up any such aggregation. Analysis on the major vendors, including utilities, large technology

players, pure software providers, and DR aggrega tors, is included.

The reports purpose is not to provide an exhaustive technical assessment of the technologies and industries

covered, but rather a strategic examination from an overall tactical business perspective. Navigant Research

strives to identify and examine new market segments to aid readers in the development of their business

models. Five major global regions are included for capacity and revenue forecasts that extend to 2023.

SOURCES AND METHODOLOGY

Navigant Researchs industry analysts utilize a variety of research sources in preparing Research Reports.

The key component of Navigant Researchs analysis is primary research gained from phone and in-per son

interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are

diligent in ensuring that they speak wi th representatives from every part of the value chain, including but not

limited to technology companies, utilities and other service providers, industry associations, government

agencies, and the investment community.

Additional analysis i ncludes secondary research conducted by Navigant Resea rchs analys ts and its s taff of

research assistants. Where applicable, all secondary research sources are appropriately cited within this

report.

These primary and secondary research sources, combined with the analysts industry expertise, are

synthesized into the qualitative and quantitative analysis presented in Navigant Researchs reports. Great care

is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and

assumptions must be made, analysts document their assumptions and are prepared to explain theirmethodology, both within the body of a report and in direct conversations with clients.

Navigant Research is a market research group whose goal is to present an objective, unbiased view of market

opportunities within its coverage areas. Navigant Research is not beholden to any special interests and is thus

able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype,

political agendas, or emotional factors that are inherent in cleantech markets.


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NOTES

CAGR refers to compound average annual growth rate, using the formula:

CAGR = (End Year Value Start Year Value)(1/steps) 1.

CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given,

the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well.

Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and

sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2014

U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding.


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Published 2Q 2014

2014 Navigant Consulting, Inc.

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Boulder, CO 80302 USA

Tel: +1.303.997.7609

http://www.navigantresearch.com

Navigant Research has provided the information in this publication for informational purposes only. The

information has been obtained from sources believed to be reliable; however, Navigan t Research does not

make any express or implied warranty or representation concerning such information. Any market forecasts or

predictions contained in the publication r eflect Navigant Researchs current expectations based on market dataand trend analysis. Market predictions and expectations are inherently uncertain and actual results may differ

materially from those contained in the publication. Navigant, and its subsidiaries and affiliates hereby disclaim

liability for any loss or damage caused by errors or omissions in this publication.

Any reference to a specific commercial product, process, or service by trade name, trademark, manufacturer,

or otherwise, does not constitute or imply an endo rsement, recommendation, or favoring by Navigant

Research.

This publication is intended for the sole and exclusive use of the original purchaser. No part of this publication

may be reproduced, stored in a re trieval system, distributed or transmitted in any form or by any means,

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Note: Government data and other data obtained from public sources found in this report are not protected by

copyright or intellectual property claims.

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