Columbia Energy Symposium Explores Disruptive Innovation

New York CityThis year’s Columbia Energy Symposium on Feb. 2-3 in New York City covered technologies and business models that are disrupting the traditional energy system. The main takeaway was that the energy-system landscape is shifting. Panelists said they anticipate changes to the electric grid and the way in which energy products can be packaged.

Sessions covered the future of the electric grid, financing options for energy storage, energy policy in the United States, clean energy investing in emerging markets, and the shifting geopolitics of petroleum.

Power Grid in Flux

While distributed generation, demand-side management, and energy efficiency are viewed as desirable technologies, these opportunities must connect to legacy electric-grid infrastructure.

On the demand-management side, which refers to the control aspects of energy demand as well as energy reduction, the industry is focusing on fine-tuning the system. On the supply side, utilities are investing in software to incorporate distributed generation.

Utilities are also investing in hardware to advance the grid so that it can handle multi-directional flow. These investments will help to increase the amount of allowed intermittent renewable-energy sources.

Previously, demand response was on an industrial-building level, which would be shut on and off due to the grid’s needs. Now, demand response in the suburbs requires an aggregation model. An individual house’s energy demand can be both more variable and lower than that of an industrial building.

Orchestrating the grid’s connectivity and communication will be required for demand-side management.

Maria Fields, managing director of Joule Assets, said there is an increasing need for micro up-and-down management of the grid. She said buildings will require technologies that will “talk to the grid, control and shift load automatically, and be interoperable with other communication systems.” This could happen at the building level or via aggregation of individual homes.

Fields said distributed generation should be extended into the system and broadened to include car charging, energy storage, and solar power.

With an increase in distributed generation and demand response, utilities are responding by balancing investments in software and hardware. Joseph Oates, president and CEO of Con Edison Transmission, said his company has “started to invest more heavily in new IT systems because those are the things [we] need to effectively manage the grid.” These systems provide information on the grid in real time, help the utility to plan on where investments need to be made, and interact with third parties in a robust way.

New York City

Financing Opportunities for Storage

One main difficulty expressed by the panelists was that there need to be more transparent revenue streams for energy storage.

The business case for energy storage is that it offers stack services such as transmission and distribution investment deferral, frequency regulation, voltage support, and backup power. Due to these diverse revenue streams, project financing for storage can be challenging.

Since there is uncertainty around storage, aggregating storage projects helps to mitigate risk.

For storage to be financed, “there needs to be, beyond a typical warranty, a capacity maintenance understanding, since batteries degrade very quickly,” Will Demas, senior vice president of Macquarie Capital, said. “That allows you to ensure that there is a minimum amount of capacity that gives you a baseline to get to project financing.” Other important aspects of project financing include a good warranty from an investment-grade party and an insurance policy against certain costs associated with a battery.

Storage projects can either be large-scale storage that regulates the intermittency of generation before it goes into the grid or storage plus distributed solar. The market might be competitive in the near term since it remains to be seen whether there is a large enough market to justify so many firms attempting to install storage plus distributed solar, said Travis Bradford, professor of professional practice in international and public affairs at Columbia University.

Energy Investment in Emerging Markets

A major theme discussed in the “Driving Clean Energy Investment in Emerging Markets” panel was risk mitigation.

Some international utilities have invested in emerging markets because they are willing to take on the risks, said Connor McKenna, managing director of Cohn Reznick Capital Market Securities.

In addition to having a higher risk tolerance, renewable-energy developers will need a greater yield than what is required in an established market. This is where offtake guarantees are necessary to prove to investors that there will be secure cash flows coming from the projects.

Another issue is the bidding war for renewable-energy projects in emerging markets. Some companies are bidding too low. So the projects are ultimately being abandoned because the electricity rates don’t offset the costs.

Private developers can drive prices so unreasonably low that the winning bidders abandon the projects if their financing falls through, said Michael Eckhart, managing director and global head of environmental finance and sustainability at Citigroup. “They have bid low into a high-risk situation in India, Brazil and Mexico.”

If projects fall through because these developers cannot put the financing packages in place, then the actual number of operating renewable-energy projects in emerging markets will drop.

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