Strategy & Operation Consulting

Series
Renewable Integration

Solar Energy Integration - an

opportunity or threat?

Vrinda Inc.
Business Consulting, Technology Solutions
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Renewable energy goes mainstream

With 2.8% per annum growth in new additions, renewable energy has
become the fastest growing source of energy in the world. Renewable
energy is becoming the mainstream energy source with $214 billion
investment worldwide, declining solar technology costs and increased
climate change concerns.

Renewable energy is contributing nearly half of worlds new energy capacity. In

United States alone solar photovoltaic generation has increased 6-7 times of
annual capacity additions in just last 4 years to ~ 13000 MW.
Renewable energy is becoming the mainstream Solar Industry and utility sector players can
technology. With cost of renewable sources reaching translate these challenges into opportunity by
grid parity (wind) or approaching grid parity (solar), devising long- term strategies.
this sector is on the cusp of path breaking growth. This paper provides current trends and identifies
Declining cost of technology, climate change challenges and actions for stakeholders to
concerns and disruptive technologies provide leverage opportunities with the solar energy
significant opportunities for all sector players. development and integration. It details

However there are significant headwinds from
policy uncertainty (ITC expiry in 2016),
regulatory framework limitations (RPS Caps,
SREC limits), integration issues (70% in industry
believe integration is the biggest challenge), utilities
slow pace of readiness (lack of technology to
manage distributed generation) and inexperience of
technology/ service providers (Lack of utility
operations knowledge).
Renewable Energy sector trends
Understanding headwinds to solar
development
Leveraging solar opportunities
Though data analysis in this paper is mostly
focused on US energy sector, headwind
implications and recommendations are valuable
for developing and developed markets alike.
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Renewable Energy Sector

Trends

Renewable energy is contributing

nearly half of worlds new energy
capacity
With 43.6% of all new capacity added world wide,
Project Growth in renewables (EIA 2014 Energy
renewable energy share of world energy
Outlook) generation reached to 8.5%. $214 Billion was
300 25% Renewable invested in renewable energy markets in 2013,
Generation which is slightly lower than previous years but
Renewable Generation

20%
(GW) largely due to reduction in the prices of
200 15% renewable technologies. As shown in figure 1, per
Renewable as the Energy Information Administration (EIA)
10% % of total
generation
Annual Energy Outlook 2014 projections,
100 5%
renewable energy is constantly growing at 15-20%
0% Growth in rate until 2040, while growth in conventional
0 -5%
conventional generation is significantly lower (negative till
2011 2015 2025 2035 Generation 2020). It is projected that renewable energy will
Years reach 16% of the total energy mix by 2040.

Figure 1: Renewable Energy is fastest growing source of new

generation

Renewable Energy reaching grid parity

Investment in renewable energy has an emerging pattern. Developing economies (China, India) with
investment of $93 billion, are rapidly reaching investment levels of developed economies which still leads
with $122 billion in 2013. China for the
Renewable Investment by Country($ Billions)
first time surpassed Europe in the
investment while Brazil and India remain 60
markets with high potential. Figure 2 shows
country wise investment in renewable 50

energy in 2013. 40

30
The US Department of Energy (DoE) and
Federal governments around the world are 20

aggressively supporting research and 10

development to reduce the cost of
0
renewable technologies For example, US China Europe Asia (Ex. United Americas Middle East India Brazil
DoE Sun Shot Initiative is expected to bring India &
China
States (Ex. US & & Africa
Brazil)
total life time cost of solar generation at
0.06 cents/ kWh there by achieving the Figure 2: Renewable energy investment by country in 2013
grid parity by the end of this decade.
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As shown in Figure 3, the EIA Energy

Outlook (2014), Average Levelized Cost
Hydro
of Energy (LCOE) for renewable sources
are reaching, or in some cases (wind) Solar PV
surpassing LCOE from conventional
sources for the plants expected to be Wind
Average LCOE 2040
commissioned in 2019 and 2040. Average LCOE 2019
The cost of crystalline silicon Conventional Combined
Cycle
photovoltaic (PV) cells has fallen by
roughly 85 percent over the past decade. Conventional Coal
Between 2011 and 2012 there were
0 20 40 60 80 100 120 140
decreases in utility-scale PV system costs
of around 40 percent and nearly 30 Figure 3: LCOE from various energy sources 2019, 2040
percent in residential PV systems. With
all these technological advances
renewable energy sources are becoming LCOE for wind energy is already
viable even with reducing subsidies.
below that of conventional
coal and CCGT. Solar is fast
reaching grid parity too
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Solar Energy Integration
Understanding headwinds to solar
development
Key Solar development challenges
Sun, an abundant source of energy is
available everywhere which challenges
traditional model of energy generation and
delivery where central station plants were
constructed away from load centers and
connected through transmission lines to
deliver electricity to customers using one
way passive distribution networks. For the
first time solar power has created a
compelling business case for self-
generation and hence making energy value
chain decentralized. However reliability
and stability considerations, which is core
of utilities operations, are inherently
complicated by variable renewable
sources, especially solar power, creating
fundamental questions about long-term
role of utilities in energy generation and
delivery. Excitement of the technology
developers from Silicon Valley to Beijing's
Zhongguancun district and Bangalore in
India has really challenged traditional
business models. However this
excitement would be short lived if
industry as a whole doesnt quickly
understand challenges, opportunities and
develop business models and strategies to
address them.
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Policy Challenges
Although solar technologies have come a long way,
more than 90 % of solar development is driven by
incentives from federal and state governments and
policy makers. It is predicted that markets, which
are looking to provide saving opportunities with
solar will be wiped out if the Investment Tax
Credit (ITC) is withdrawn. Biggest impact is
projected in utility scale solar projects where
contracted capacity with commissioning date in
2017 has fallen by nearly 90% from 2016 levels.
Further, with the RPS targets being met and
collapse of State Renewable Energy Credits (S-
RECs) prices, developers and investors need to
evaluate their strategies with longer-term
investment horizon. Developing countries with
weak policy and regulatory frameworks pose
special challenges for international investors, as
they demand significant premium for their
investment thereby making solar less attractive.
Tariff & Regulatory Challenges
Achieving grid parity for solar projects has biggest
impact from tariff structure changes. In a recent
order, regulator in Wisconsin has allowed utility to
charge increased fixed charges to its customer (in
some cases increase of nearly 75%), disallowed
third party generation and ruled to pay wholesale
energy rate for excessive generation from solar
self-generation. This order has made grid parity
roadmap for solar uncertain. Utilities around the
world have concerns about loosing revenue and
unduly burdening their energy customers who are
not self generating. While Wisconsin order is
closely watched, there is a need to evolve a
rational approach where utilities concerns are
addressed while supporting growth of renewable
energy. There may be a need to change structure
of regulated / unregulated business and allow
utilities to provide certain services which they can
be better suited but not traditionally allowed.
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More than 90% of solar development is viable due to 30% ITC

credits, Utility scale solar market will decline by 90%.
Regulatory uncertainty created by Wisconsin tariff order has
potential to derail residential solar market

Integration Challenges
70% of survey In a recent solar energy conference nearly 70% of the respondents
identified renewable integration and net metering as a biggest barrier to
respondents in a development of the solar projects. Evolving standards (Rule 21 in
California), lack of industry experience with high penetration of solar as
recent solar is evident from issues in Hawaii and state of Smart Grid development
conference identified which is largely focused so far on smart metering with limited
investment in Grid modernization involving PMU, DMS, Volt/ Var
integration and net Controllers and self healing features are some of the reasons for this
barrier. While working with some leading utilities in North America, we
metering as the observed that while renewable integration is a growing challenge, utilities
biggest barrier to are still not prioritizing smart grid investments to deploy technologies
such as advanced DMS and grid automation.
solar development
Business Model Issues
As it is evident from discussions about tariff order in Wisconsin and
utility wide concerns about techno- commercial feasibility of solar as the reliable source of energy, clearly
utilities are not prepared for the changes perpetuated by disruptive solar technologies and business models
created by service providers. Utilities are seen as a barrier to entry of renewable in the grid. However there
is a need to examine present utility business models, opportunities of renewables and provide a transition
path for utilities to new business environment, which may not involve sale of electricity as the core business.
Utilities need to think of services, which they can add to their portfolio to gain lost revenue. Utilities may
need to be more service organizations. Models such as Utility ownership of inverters similar to ownership of
meters may allow utilities to add new services which utility may develop. Any change in business model will
lead to change in the utility organization and type of skills required to operate.
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Technology Challenges
Solar technology has made significant advances and constant decreasing prices make it more
competitive, however solar technology is still evolving. Variability of the solar power output due to
inherent solar source constraints reduces value of the Solar. Further ancillary services requirement to
support solar power variations creates operating cost uncertainty. In a recent report, largest solar
plant Ivanpah in US based on CSP technology is producing 40% lower output than expected and would
need to burn 60% more natural gas for auxiliary boilers thereby putting viability of the CSP technology
in the largest power plant in question. These examples point to challenges with the evolving solar
technologies. Storage technologies are considered as ultimate solution to address solar viability but it
may take a while before battery technology breakthrough.

Following figure 4 identifies key policy, regulatory, integration, business model and technology
challenges present to solar industry stakeholders

Impacted
Challenges Key trends/ issues
Stakeholders

Expiration of Investment Tax Credits in US Investors/

RPS/ ERECs limits reached in states Developers
Policy Global Climate deals not stringent Technology/ Service
Uncertain procurement policies in developing economies providers
Utilities

No clear path to utilities for stranded cost recovery

Tariff & Net metering being challenged by utilities Customers/ service
Demand charges are allowed by regulator on self generation providers
Regulatory Regulated / Unregulated business limitations in US Utilities

Lack of standards or evolving standards (LVRT) Developers/ Service

Limited experience with solar integration providers
Integration Smart Grid investments are not prioritized Technology
Ancillary services/ voltage support/ storage evolving provider
Utility

Is there a business case for ancillary services to solar?

Role of utility in residential solar as service provider evolving Utilities
Forecasting, Monitoring of distributed resources by utility? Service provider/
Business Model Market mechanism for solar post RPS not evolved developers
PPA with Customer and third party solar development Customers

Solar cell and Balance of plant pricing are still decreasing

creating stranded cost issues for earlier projects Investor/ developer
Higher variability in the output of large projects delaying Technology
Technology expected returns providers
Inverters are critical components yet still maturing Customers/ utility

Figure 4: Headwinds to solar development challenges, issues and impacted stakeholders

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Leveraging solar opportunities - Business

models & Actions
As we have discussed in the previous section, while solar energy has come a long way to become fastest
growing renewable energy technology, significant headwinds remain. ITC issue, Wisconsin tariff order, Ivanpah
plant performance issues are real challenges to growth of solar market. In this section we suggest few business
model options and actions for each stakeholder to tap value of solar energy opportunity.

We believe developers and investors need to take a long-term view of the solar sector and opportunities.
While government incentives are required for any new technology but investors should prepare their business
case without them for a sustainable model. Industry is at a stage where an option of solar sustainability
without government support is achievable.

Regulators and policy makers should strive to bring certainty. At present, solar industry in US is hurt by
uncertainty around ITC decision more than ITC expiry itself. Regulators and policy makers should proactively
engage with utilities and other stakeholder to evolve a model, which addresses concerns and challenges of
utilities and solar developers/ technology providers.

Utilities have real opportunities with distributed solar development. First of all utilities need to acknowledge
that distributed self-generation is a reality. Utilities need to evaluate the impact on its value chain, identify
functions, which need to be added or changed. Utilities need to prepare its organization for this change. As
shown in figure 5, entire value chain of utilities is up for review and revamp. It is prudent to conclude that in
the next decade, growth in the utility business will not come from the sale of electricity, but from alternative
services. For example, the integration of smaller generators, monitoring services, and/or ancillary services for
distribution system-connected generators are some of the potential areas where new business models could
emerge.

Distributed solar Self-Generation

Ancillary services Demand Response/
Utility scale solar HVDC, FACTS, PMUs Renewable monitoring Demand bidding
Energy Trading Customer PPAs
Smart Grid/ DA

Customer/
Generation Transmission Distribution Retail

Business model based

Conventional coal and One-way flow of power
Very large Long on pure sale of
Nuclear Passive networks
Transmission expansion electricity and related
Large central Station Manual operations
services

Out of trend or change

Figure 5: Changes to utility value chain with solar integration

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Solar energy provides significant opportunities for self-generation of

electricity at the large scale. However utilities need to evolve new
business model to support this fundamental shift. Investors/ developers
and technology providers need to develop better understanding of utility
issues to leverage opportunity provided by solar energy

Following are the recommended actions for each stakeholder to leverage opportunity from solar energy
development.

Evaluate Business model challenges especially if investing in developing markets

Develop long term investment perspective without ITC and state incentives
Developers/ Evaluate investments in technology development to reduce cost of solar & BOS
Investors

Facilitate alternative business models and service providers options for utilities to transition from
pure electricity sale to more service model
Provide certainity to Solar industry by lfirm long term policies such as ITC, RECs etc.
Regulators/ Policy Accelerate Standards development/ interconnection procedures implementation to addresss
makers integration issues

Review and develop new business models such as solar service, lease/ ownership etc.
Prioritize investments in Smart Grids from metering to more grid modernization
Simplify grid connection procedures and bring transparency in grid management
Utilities Acquire or retain workforce for meeting challenges of changing business models

Develop understanding and collaborative model to co-exist with utilities

Continously evolve service models for innovative customer acquisition and services
Technology/
Develop innovative financing and ownership models for residential solar
Service providers Develop technologies to address solar value issue (variability characterstics)

Figure 6: Actions for each stakeholder to leverage solar energy opportunity

In Conclusion
Solar energy development and integration provides unique opportunity for investors, developers,
utilities, and technology & service providers. Everyone can leverage opportunity presented by this
abundant source of energy. However there are significant headwinds due to evolving technology,
legacy infrastructure and business models and current policy and regulatory frameworks. All the
stakeholders need to take certain actions and evolve business models to unlock value of the solar
energy. If stakeholders take a long-term view of the sector and invest their resources strategically,
solar energy development will be a winner for everyone.
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Renewable Energy Integration is identified as the most important barrier

to solar development. We at Vrinda Inc. bring our utility sector
experiences to device practical solutions for developers and utilities.

About Vrinda Inc.

Vrinda Inc. creates success in your business through focus on value
creation by providing trusted, actionable advice and practical solutions.
We provide business and technology consulting services to Energy, Utility
and Transportation sector

Navneet brings 20+ years of energy and utility sector experience working in
seven countries with more than 100 utilities. Navneet has worked with worlds
largest Management Consulting and technology firms over 15 years.

Navneet has worked with policy makers, regulators, utilities, multilateral funding
agencies to develop power sector in both developed and emerging markets.

Navneet has passion for new business and market development with Strong
subject matter expertise across the utility value chain ranging from Strategy,
Navneet Trivedi
operations, renewable integration, Smart Grid/ Smart City development,
Co Founder and
analytics and utility performance improvement.
Executive Director
Vrinda Inc.
Navneet was in the North America leadership of the Global Smart Grid Practice
of Accenture. Navneet helped Accenture establish Smart Grid practice in Brazil
and helped Accenture in Japan, Singapore, China and Turkey with Smart Grid
initiatives.

Prior to joining Accenture, Navneet was with PricewaterhouseCoopers for 10

years in Management Consulting Services developing business in Asia and North
America. Navneet work in reform, restructuring, performance improvement,
trading, risk management and utility strategy implementation.

Before joining PricewaterhouseCoopers, Navneet held a number of positions in

industry ranging from design and implementation management of grid automation
to design, development and construction of power plants and transmission and
distribution networks.

Navneet holds a masters degree in renewable energy from Indian Institute of

technology, Bombay, a bachelors degree in electrical engineering and business
certification from Columbia University, New York.
Solar Energy Integration Vrinda Inc. 2015 proprietary & Restricted

Vrinda Inc. Navneet Trivedi

New York, USA Co Founder and Executive Director
+1 917 388 3695
www.vrindainc.com navneet.trivedi@vrindainc.com