Grid edge highlights from Q4 2019

Last year, utilities, grid operators and grid edge vendors all continued to grapple with their evolving roles in delivering and managing power. The grid edge space witnessed major transformations in 2019, right up through the end of Q4.

In our quarterly grid edge Executive Summary, we reflect on key events in the last months of 2019.

Progress in transportation electrification

A total of 4.8 million EV charging points were installed globally in 2019, we found in Q4, increasing to 18.3 million charging points globally by 2025.

By then, more than 38 million EVs are expected to be on the road worldwide.

China, North America and Europe will continue to lead in the electrification of transportation, with China capturing around half the market by 2025.

But smaller global markets will prioritize specific vehicle subcategories. Latin America will see particular growth in medium- and heavy-duty EVs, while India will see the most growth in two- and three-wheelers and buses.

A building electrification crossroads

In the latter half of 2019, a wave of U.S. municipalities — mostly in California but also a few on the East Coast — took steps to decarbonize the building sector.

As of mid-December 2019, 23 cities in the U.S. had adopted some form of natural-gas ban to either mandate or strongly encourage all-electric new construction. New England traditionally relies on fuel oil for heating, and the region is at a crossroads in terms of deciding whether electricity or gas should replace fuel oil in the long term.

The challenge of leaving natural gas behind was clearly illustrated by the standoff between National Grid and New York state in Q4. National Grid ultimately relented on its planned gas-hookup moratorium and paid fines to meet customers’ short-term needs.

But the state still has not provided guidance on a long-term plan for meeting customers’ energy needs without more gas.

Our takeaway: Without a resilient network of distributed generation and storage in place, building electrification may not succeed — particularly in light of future potential public safety power shutoff (PSPS) events.

Grid edge and the power shutoffs

California’s PSPS events in October and November are beginning to drive significant demand for home solar and battery energy storage in the state.

Even more importantly, the power shutoff events are beginning to show that residential and commercial customer segments alike are willing to pay a premium for resiliency.

Customers requiring high power reliability are expected to demand resiliency solutions such as microgrids over the next five years. We projected that the West Coast’s share of annual microgrid capacity additions will rise from 13 percent in 2019 to 25 percent in 2021, driven in large part by California’s response to power outages and wildfires.

Demand response needs outside peak seasons

Demand response has been around a long time, but the importance of demand-side resources in parts of the U.S. is shifting, with major implications for program design.

Demand response resources need to play differently in the market as generation and weather patterns change. In Q4, We're seeing more examples of how the need for demand response outside of non-peaking seasons is growing.

On October 2, high temperatures, planned maintenance during the shoulder season, and unexpected equipment failures led PJM to deploy 395 MW of emergency load reduction.

The Midcontinent Independent System Operator has experienced several similar incidents the last few years, a result of aging and retiring generation equipment, increasing distributed renewable generation in neighboring areas, and greater frequency of outages outside of the summer months.

MISO has made tariff changes that, among other things, extend visibility and access to behind-the-meter distributed energy resources year-round. These should help provide access resources outside of summer months.

Technical hurdles for residential flexibility

Demand response isn’t the only game in town anymore.

There is a bright future for residential and commercial flexibility via grid-connected devices such as smart thermostats and EVs. However, sometimes technical hurdles get in the way. One example: A few technical changes to how traditional water heaters are designed would enable them to interact with the grid, but so far adoption of grid-connected water heaters has been limited.

Last quarter saw progress on grid-interactive water heaters in Washington. The state is establishing appliance standards for water heater manufacturers that would include a design requirement that enables grid-interactivity. The legislation will not go into effect until 2022 at the earliest.

The design requirements determined in Washington would prompt water heater manufacturers to comply with the new requirements for the entire U.S. market, adding a significant source of flexibility to the U.S. grid.

The challenge of deferring traditional grid investments

The use of distributed energy resources to defer, mitigate or eliminate the need for traditional utility transmission and distribution investments — a type of project known as non-wires alternatives (NWAs) — stagnated in 2019. Utilities across the U.S. identified only 54 NWA opportunities in 2019, according to one of our recent reports, compared to 98 in 2018.

It's not possible for utilities to execute on every opportunity. In Minnesota, Xcel Energy identified nine potential NWA opportunities in 2019. However, Xcel doesn’t plan to open a solicitation for those opportunities, as its preliminary analysis found that wired solutions would be more economical than NWAs.

The complexity and cost-competitiveness of distributed energy resources compared to traditional solutions have prompted us to adopt a cautious outlook on the growth of the NWA market over the next few years.

However, the number of NWA opportunities identified in 2020 will be higher than in 2019. New NWA opportunities are expected out of New York in 2020, when the state's utilities submit their biennial Distributed System Implementation Plans.

The global grid edge market

The U.S. and Europe were responsible for most grid edge activity last year, but there were also crucial developments in other regions in 2019.

The State Grid Corporation of China outlined its roadmap for the internet of things in electricity in Q4 2019. SGCC has pilot projects focused on value-added services for customers and flexibility orchestration, illustrating a broader push globally for interactive demand, in addition to continued expansion of advanced metering infrastructure worldwide.

There was also progress in flexibility deployments in Japan and Australia in 2019.

Resiliency, electrification and flexibility will be key themes in international markets for grid edge technology in 2020.

(Download sample figures from the Q1 2020 Grid Edge Executive Briefing, which contains research highlights from Q4, using the form at the top right.)