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Utilities see first hints of revenue issues
It may be early but we’re getting close to the inflection point where distributed solar starts to have a slight impact on utility revenue. There have been some disparate data points showing that year-over-year utility revenue is down a percentage in sun-rich states like Arizona.
Not coincidently, Arizona is the focal point of one of the more acrimonious fights over net metering, the program under which states require utilities to buy pack power from solar customers. While utilities could dismiss distributed power generation for some time, it’s looking more and more like they understand that it’s a real competitive threat. In places like Germany we’re seeing Toshiba step in and installing megawatt scale rooftop solar projects at large residential buildings because the company thinks it can sell more price competitive electricity than utilities.
And while soft costs remain stubbornly high for rooftop solar, the overall installed price per watt will continue to creep down as retail electricity rates creep up, creating a situation where rooftop solar installation rates should continue to grow and shave revenue from utilities.
What are the utilities to do? Well, many will continue the push to eliminate or throttle back net metering programs as they attempt to get public utility commissions to accept more lucrative “connection fees” targeted at homes that install solar and use the grid for power at night. They may have some success here, and will argue that they must shoulder the burden of energy transmission and distribution. But what happens when technology comes along — like battery storage or gas powered fuel cells — that when paired with solar allows for total grid independence?
Home energy management evolves
While home energy recommendation leader and cleantech success story Opower bats down recent reports that it’s nearing an IPO, the stage is set for a truly competitive growth market in home energy management. And the trend will center around home energy management players like Opower, Nest and Ecofactor, all of whom are building closer relationships with utilities.
Look for the first area of closer relationship to center around demand response. Opower has launched what it calls “behavioral demand response.” The company has made its living through simple energy recommendations that it distributes via mailed reports, texts, and emails. But it was inevitable that it would need to grow beyond this low-hanging fruit and is attempting to use similar avenues of communication to get residential customers to curb power use during peak power events, something it can do with highly developed smart meter analytics tools.
While Opower remains a software-focused company, hardware design leader Nest will itself continue to work with utilities. We’ll know in 2014 whether the company can execute its own demand response program, dubbed “Rush Hour Rewards,” which gives utilities direct control over customers’ thermostats during peak power usage. Nest also acquired MyEnergy in May, a company that has a platform to aggregate utility energy data and deliver energy efficiency services.
So, yes, Nest and Opower will start to compete against in each other, though these are early days with a massive market where much of the growth is actually in Asia and abroad, not just the U.S. From my perspective, the interesting part will be whether software- or analytics-only solutions like those of Opower prove sufficient to succeed at demand response, or whether hardware solutions like connected thermostats are more effective.
Solar in Asia is a bright spot
At this point we’ve exited the bottom of the solar market as the panel price plunge has ended and we’re actually seeing some stability in pricing. In fact, the MAC Global Solar Energy Stock Index increased by a whopping 130 percent over the past 12 months.
So what’s next? I continue to believe that domestically we’ll see continued growth in utility scale and residential solar, even though the 2016 expiration of the Investment Tax Credit looms in the distant future as an issue. Its expiration will mark a point when financing costs for rooftop solar could spike.
But in terms of the year ahead, East Asia could prove a very promising focal point for continued solar deployment. In December The Chinese Bureau of Energy increased the 2014 solar forecast for China to 12 gigawatts, including 8 gigawatts of distributed PV and 4 gigawatts of ground-mount systems. I wouldn’t be shocked if, over the next 12-24 months, we see revisions keep going up as the government attempts to stabilize Chinese solar manufacturers and avoid bankruptcies by enforcing larger quotas for solar deployment.
Total Asia-Pacific (APAC) forecasts are up to 24 gigawatts. Many see upsides as high as 32 gigawatts. Part of that upside is China, but part of that is also Japan, which post-Fukushima has become a hot market for solar. In fact some analysts have already predicted that Japan will be the largest solar market by revenue this year.
Are East Asian markets tough markets to crack for North American and European manufacturers and developers? Often, but where there’s growth lies opportunity.
Share economy regulatory battles
When many share economy business models are considered, I tend to hear two concerns. First, what’s the liability and how does the startup get insurance? Second, what about regulators and the market that’s being disrupted?
Markets and economics tend to address the first issue: Some brave insurance company takes the leave of faith at a hefty premium. But the second issue is often less clear, and we hear a lot of noise about how everything from ride sharing to vacation sharing is just a government decision away from non-existence.
While I think we’ll continue to see grumbling from regulators in states like New York, where the Attorney General has subpoenaed Airbnb for transaction information about many of its New York City hosts, I also think that in the next year or two we’ll begin to move toward a tacit cultural acceptance that the share economy is here to stay. What this will mean is that governments will stop fighting these companies over their mere existence. It will also mean that governments begin to do what they have always done, and begin regulating these businesses.
If you’re thinking taxes, then you’d be right on the money.
Internet of things keeps growing
The internet of things probably where big data was three years ago in terms of buzz, but as the ease with which sensors come online and devices are connected increases, we’ll see a few trends. First, more consumer devices will get connected, from wearables to thermostats. Second, startups will continue to learn the lesson that it’s not what you connect but what you can do with the data that you collect. Finally, sectors in industries like manufacturing, industrial and health care, which have historically lagged in terms of their engagement with the internet of things, will begin to deploy solutions.
The big IT players, ranging from Microsoft to GE to Cisco, will go after the industrial IoT space with newfound focus that starts by connecting legacy sources of data to the network. From there software vendors can jump in and attempt to drive business intelligence from all of this data, and hopefully operational efficiency. For companies like Cisco, this’ll mean selling hardware that has embedded software.
For cleantech, much of the early value revolves around better monitoring. Waste management will start tracking garbage cans so that collection routes save money, solar-PV monitoring and optimization will grow, smart grid analytics will lower costs for utilities, connected appliances enter the consumer space, and we’ll even see the beginning of smart agriculture or the integration of weather data to produce predictive analytics for farming.
In the end, cleantech isn’t all that different from other internet of things applications that span industries from manufacturing to health care. The goal is always efficiency. And in the case of devices like smart thermostats, the efficiency opportunity lies in reducing power consumption.