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The 2014 Retail Energy Industry Outlook in 3 Charts

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For today’s blog post, I’d like to take a break from all of the busy, but important, day-to-day activity of the U.S. energy markets, and instead pause to reflect on where the energy industry might be heading this year (and beyond).

For years, industry watchers, utility analysts, and energy retailers have been busy forecasting the evolving nature of the grid – how society will prefer to source and consume its energy needs. Three topics have tended to consistently make the top of the list in the recent past.

  1. Solar generation
  2. Emerging technologies, such as storage
  3. Lack of growth in total energy consumption

Let’s take a look at three related charts that point to how these forces of disruption and new opportunity will shape up in 2014.

1.  Solar installations will only speed up 

Installed solar capacity in all sectors grew nearly 20 times from 2002 to 2012, and last year was no exception. While final numbers are still rolling in, the Solar Energy Industries Association anticipates that more than 5,000 MW of new solar capacity was installed last year alone! Installations in Q3 2013 leap frogged those in the same period in 2012 by 35%, while at the same time, PV system costs (i.e. $/watt) fell by 16% to $3.

As the horizon nears on the solar investment tax credit (ITC) – it is set to fall from 30% to 10% in 2017, and then expire in 2018 – businesses are looking with increasing haste at how solar solutions can help them save money on energy and realize the benefits of achieving corporate sustainability goals through the use of renewable energy for 10 or more years at a time.

I expect the pace of installation to carry over into 2014 as the installed costs for solar PV continue to decline, SREC prices hold steady or return in some states, and businesses look to lock in savings from solar before the ITC runs out.

 Energy storage will jump into the limelight 

For the longest time, distributed energy storage belonged in the realm of university research and utility experiments. Today, however, there are at least 103 storage systems listed with the Department of Energy that are either online or under construction, half of which are owned by end-use customers or third parties (rather than utilities). In 2014, the proliferation of more storage will be driven by two important market conditions that continue to emerge: renewables and benefit stacking.

We are noticing that where there are on-site renewables (mostly solar) customers are finding a need to balance the intermittency of that generation resource with the desire to ensure operational continuity at their sites.

Benefit stacking refers to using a storage asset for more than one purpose at a time. Among systems deployed today, 84.5% make use of this technique to drive more value out of the asset and improve the economics of the project.  Aside from managing renewable generation, companies are seeing benefits by using their storage systems to reduce demand charges, which utilities charge all customers based on the maximum amount of power they use in a given period. By using batteries to supplement grid-sourced energy, businesses are able to lower their demand charges that can often account for 30% of their total energy bill.

I expect to see more interest from customers in storage applications throughout the year.

3. Energy consumption is moving in one direction…down 

According to the U.S. Energy Information Administration, growth in grid-sourced energy consumption has declined four out of the past five years. While this chart doesn’t explain why this is happening, it is a strong indicator of things to come. I believe that aside from slow economic growth, the rise of onsite solar generation and increasing energy efficiency are among the primary causes.

Focusing on the latter point, I found that the Consortium for Energy Efficiency believes utilities spent $8.3 billion on demand-side management services in 2012 (i.e. energy efficiency, optimization, and demand response programs). Considering that this figure is up from just $4 billion in 2008 (representing a 20% annual growth rate in spending) and doesn’t include demand-side management services offered by retailers and other energy service companies, one quickly realizes that energy consumption is simply not going to grow like it used to (notwithstanding the possible rise of electric vehicle adoption).

Businesses can find tremendous value from investing in energy efficiency for their offices, stores, and factories, as well as by getting savvier about how they consume electricity. For instance, demand response allows end-use customers to become market participants and earn money by shedding load during peak hours.

Energy efficiency and other demand-side management measures will continue to place downward pressure on energy consumption for 2014 and the foreseeable future.

Now is the time to consider whether your business’s energy needs are truly being served by basic electricity and gas contracts. Regardless of what industry you operate in, or what sort of facilities your company occupies, there are a variety of ways that businesses can respond to the evolving nature of the grid while ensuring they get the best price and consume in a way that makes the most sense.

Mike D’Aurizio, Business Strategy Manager, is responsible for providing insight, analysis, and resolution of commercial and strategic issues for the Direct Energy Business leadership team.

Posted: January 24, 2014