HONEY, I SHRUNK THE GRIDS:

THE EMERGENCE OF
NANOGRIDS
MAKING SENSE OF NEW DER BUSINESS
MODELS
MAY 18, 2016

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 NAVIGANT RESEARCH INTRODUCTION

NAVIGANT RESEARCH PROVIDES IN-DEPTH ANALYSIS

OF GLOBAL CLEAN TECHNOLOGY MARKETS.
The teams research methodology combines supply-side industry analysis,
end-user primary research and demand assessment, and deep examination of
technology trends to provide a comprehensive view of the Energy Ecosystem.

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Energy Technologies Research Reports
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Forecasting Commercial Due Diligence
Primary Research Technology Evaluation
Go-to-Market Services

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 RESEARCH SERVICES

ENERGY UTILITY
TECHNOLOGIES TRANSFORMATIONS

Wind Energy Grid Networking and Communications

Grid-Tied Energy Storage Grid IT Systems and Analytics
Advanced Batteries Grid T&D
Microgrids Residential Energy Innovations
Distributed Natural Gas Demand-Side Management
Distributed Renewables Utility Innovations
Utility Technology Disruption

TRANSPORTATION BUILDING
EFFICIENCIES INNOVATIONS

Electric Vehicles Intelligent Building Management Systems

Natural Gas Vehicles and Infrastructure Energy Efficient Buildings
Advanced Transportation Technologies Lighting Innovations
Mobility Smart Cities
Transportation Forecast

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 WHAT IS A NANOGRID?

Navigant Research definition (grid-tied systems):

- A small electrical domain of no greater than 100 kW connected to the grid and limited to a
single building structure or primary load, representing devices capable of islanding and/or
energy self-sufficiency through some level of intelligent DER management or controls
- Most grid-tied systems are uninterruptable power supply (UPS) systems
Compete with microgrids
Rely upon old school diesel and lead-acid battery technologies
- Emergence of new grid-tied market
Pairing of rooftop solar PV with batteries
Lithium ion (Li-ion) technology of choice

Most nanogrids today are off-grid systems

- Often deployed in concert with microgrids in
developing world
- Majority of capacity today: off-grid cell phone
towers
- Off-grid solar PV is distributed generation
(DG) technology of choice (Source: Lawrence Berkeley National Laboratory)

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 HOW FAST IS THIS NANOGRID MARKET GROWING?

Solar PV plus Energy Storage Nanogrid Capacity,

North America: 2015-2025

2,000

1,800 ESS

1,600 Solar PV

1,400
(MW)

1,200

1,000

800

600

400

200

-
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

(Source: Navigant Research)

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 WHAT IS A MICROGRID?

U.S. Department of Energy definition:

- An integrated energy system consisting of distributed energy resources (DER) and multiple
energy loads operating as a single controllable entity in parallel to or islanded from the
existing power grid
Navigant Research also includes remote microgrids in its analysis
These off-grid systems exist primarily in the developing world
Primary segments (grid-tied):
- Campus/institutional
- Commercial & industrial (C&I)
- Community
- Community resiliencealso called public purpose microgrids
Supported by state programs
May include mixed customer classes, critical facilities
- Direct currentmay overlap with other applications
- MilitaryU.S. stationary base systems
Not off-grid forward operating bases
- Utility distribution microgridsrecent phenomenon

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 LARGEST MICROGRID MARKET TODAY IS REMOTE SEGMENT

Total Identified Operational Microgrid Capacity,

North America: 2Q 2016

Direct Current Commercial and Industrial 4%

0%
Community
6%
Utility Distribution
10%

Remote
50%

Institutional/Campus
22%

Military
8%

(Source: Navigant Research)

(Source: DONG Energy)

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 UTILITY DISTRIBUTION MICROGRIDS

Annual Utility Distribution Microgrid Capacity and

Implementation Revenue by Region, World Markets: 2015-2024
1,400 $6,000
North America
Europe
1,200
Asia Pacific $5,000
Latin America
1,000 Middle East & Africa
Total Revenue $4,000

($ Millions)
800
(MW)

$3,000
600

$2,000
400

$1,000
200

- $-
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

(Source: Navigant Research)

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 HOW DOES PUBLIC POWER STACK UP ON MICROGRIDS?

UDM Capacity & Revenue, United States: 2015-2024

300 1,000.00
Public Power
900.00
250 IOU
800.00
Revenue
700.00
200
600.00

($ Millions)
(MW)

150 500.00

400.00
100
300.00

200.00
50
100.00

- -
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

(Source: Navigant Research)

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 THE EMERGING ENERNET LANDSCAPE

Enernet Links Up Nanogrids to Microgrids

(Sources: EMERGE Alliance, Navigant Research)

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 DISTRIBUTED SOLAR PV COSTS DECLINING RAPIDLY

Distributed Solar PV Installed System Prices (Non-Weighted Average)

by Component, World Markets: 2011-2024
$5.0

$4.5 Non-Module Costs

Module
$4.0
Inverter
$3.5
($/W)

$3.0

$2.5

$2.0

$1.5

$1.0

$0.5

$-
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

(Source: Navigant Research)

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 WHAT ABOUT RESIDENTIAL ROOFTOP SOLAR PV?

Residential Solar PV Price Range, All Scenarios, United

States: 2015-2025

$4,500.0

$4,000.0

$3,500.0
($/kW Installed)

$3,000.0

$2,500.0

$2,000.0

$1,500.0 Base Case

$1,000.0
High Case

$500.0
Low Case

$-
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

(Source: Navigant Research)

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 DISTRIBUTED ENERGY STORAGE
FOLLOWING SIMILAR DOWNWARD COST TRAJECTORY

Average Installed Energy Storage System Cost for Distributed

Applications by Technology, World Markets: 2015-2024
$5,000

$4,500

$4,000

$3,500

$3,000
($/kW)

$2,500

$2,000 Advanced Flow Battery

Advanced Lead-Acid
$1,500
Advanced Li-ion
$1,000

$500

$-
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

(Source: Navigant Research)

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 VIRTUAL POWER PLANTS? DO THEY REALLY EXIST?

No widely acknowledged or precise definition of a virtual power plant (VPP)

The use of the term virtual connotes something not solid or something temporary,
which is (partially) accurate with a VPP
Navigant Research definition:
- A VPP is a system that relies upon software and a smart grid to remotely and
automatically dispatch and optimize distributed energy resources via an aggregation and
optimization platform linking retail to wholesale markets.

Many VPPs in the United States have no generation at alljust DR resources

Leading model in Europe has focused on supply-side renewables integration
The end goal of VPPs: Integration of all forms of DER into temporary solutions in
real time that bring value from distribution to transmission level networks
Latest trend: aggregation of solar PV plus energy storage nanogrids into VPPs
providing value to utilities and transmission system grid operators

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 IS THE VPP THE ULTIMATE EXAMPLE OF THE ENERGY CLOUD?

Emerging: The Energy Cloud

2014 Navigant Consulting, Inc. All rights reserved. (Source: Navigant Consulting)

(Source: DONG Energy)

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 FROM NANOGRIDS TO MICROGRIDS TO VPPS

Capabilities Comparison: DER Platforms

Capabilities Nanogrids Microgrids VPPs
Grid-tied Sometimes Sometimes Always

Islanding Usually Yes No

Storage Most of the time Often Sometimes

Geographic range Confined to load Confined to network Wide and variable

Resource mix Static Static Mix and match

Mostly behind the Mostly behind the Mostly transmission
Grid connection
meter meter node
Retail first then Wholesale first then
Market impact Retail
wholesale retail
(Source: Navigant Research)

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 WHY NANOGRIDS OVER MICROGRIDS?

Nanogrids face less regulatory issues

- Single buildings/single loads = less complexity
- Control schemes can be simplified, leveraging power electronics advances
Nanogrids do not challenge utility franchise issues since they do not send power
over public rights of way
- That is why Massachusetts has given priority to nanogrids over microgrids in community
resilience funding
Nanogrids can serve as building blocks for future microgrids
- Or can compete for resiliency services with microgrids today
Nanogrids can also serve as building blocks for VPPs
- Deployments already underway in the United States, Canada, Germany, Australia, and
Japan
Unlike larger networks, nanogrids can be deployed today without additional major
regulatory support (though barriers still remain)
- They also foster innovation with direct current applications for C&I customers

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 WHY MICROGRIDS OVER NANOGRIDS?

Microgrids can leverage efficiencies of aggregating and optimizing multiple and

diverse DER, reducing emissions by subbing renewables for diesel
Microgrids can capture economies of scale with networks as large as 100 MW-
200 MW in size
- And blend legacy assets with new and cleaner DG plus energy storage
Long list of major technology firms are active in the microgrid space, bringing
credibility and significant investment to the table
- ABB, Eaton, GE, JCI, Lockheed Martin, Schneider Electric, Siemens, Samsung, Toshiba,
etc.
Long list of smaller innovators accelerating innovation in controls and new business
models too
- Among them software innovators also active in VPP markets
Several states have launched specific programs promoting microgrids
- They range from New York and rest of eastern seaboard to California
Utilities are expanding their roles in the microgrid market, signaling commercial
opportunities among market players historically opposed to microgrid concepts

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 WHY VPPS OVER MICROGRIDS?

VPP model avoids the following concerns about microgrids:

- Safe intentional islanding
- Violations of utility franchise issues
- Allocation of costs/benefits between hosts, third-parties, and utilities
Some VPP segmentssuch as DRhave wide stakeholder support, including
among utilities and independent system operators (ISOs)/regional transmission
organizations (RTOs)
Increasing reliance upon variable renewable DG requires aggregation and
optimization schemes that provide value to the larger gridnot just onsite
consumers/producers (prosumers)
VPPs provide clear bidirectional value from the smart grid
- Countering the negative perceptions of smart grid technologies among skeptics
VPPs harness value from assets over wide geographies
- Microgrids are confined to a static set of resources within defined boundaries

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PETER ASMUS
Principal Research Analyst
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