Europe is focused too much on expanding renewable energy generation, and is threatening to miss out on the huge opportunities in the energy market that are emerging behind-the-meter, says top influencer Jan Vrins, Managing Director at the U.S.-based global consultancy Navigant, in an exclusive interview with Energy Post. According to Vrins, who is leading a practice of 600 energy experts, North America is forging ahead of Europe. “We are seeing a tremendous value shift coming in the next ten years in the energy market. This should be a much bigger topic in Europe.”
“The energy transition? That has already happened. We have entered a new world in which growth will come from distributed energy resources. That means all the products and services behind the meter: energy efficiency, rooftop solar, EVs, smart meters, home storage, microgrids. Over the next ten years, distributed energy resources will grow 8 times faster than net central station generation. Globally. In North America and Europe growth may be even higher.”
Jan Vrins, a Dutchman who has led Navigant’s global Energy practice since 2014, and before that worked for Accenture and KPMG, has spent most of his working life in the United States. After Navigant (which has turnover of around €1 billion) took over the respected Netherlands-based consultancy Ecofys in 2016, he became more involved again in the European energy sector. When I speak with him at a Bloomberg Sustainable Business Summit in Amsterdam, he becomes enthusiastic talking about the rapid changes taking place in the energy market – the emergence of what Navigant calls the “Energy Cloud”.
Vrins believes – somewhat surprisingly perhaps from a European perspective – that the orchestrator role should ideally be performed by vertically integrated utility companies
In an interesting White Paper on the topic, Navigant describes the Energy Cloud as a “network of networks”. The White Paper – “Energy Cloud 4.0” – identifies seven of those networks or “platforms” which are connected to each other in various ways: Integrated Distributed Energy Resources (iDER), Building-to-Grid (B2G), Transportation-to-Grid (T2G), the Internet of Energy (IoE), Transactive Energy (TE), Smart Cities and the Neural Grid.
“This development will change our entire energy system”, says Vrins. “How it’s operated, who are the producers, who are the consumers – the whole dynamics. We project that it will create an additional $1.1 trillion in value by 2030 globally.”
The question is: who will capture that value? In that respect, Vrins has been surprised to find that European companies seem to be not fully attuned to the changes that are happening. “Europe does a lot to expand renewable energy, which is fine. But there seems insufficient awareness of how the system will change in its totality. Renewable energy is partly centralized generation. But the system will move to decentralization: distribution-level generation and a whole range of products and services behind-the-meter. The value will move downstream.”
Vrins adds, “When I talk to utilities in Europe, they often tell me, ‘we understand what you are saying, but we don’t see business in it’. At Navigant we think that’s a big mistake. We see an enormous value shift in the works.”
Vrins gives the example of EVs. “If all cars in the UK were EVs, together they will have enough capacity to supply the UK, France and Germany with electricity. It’s an enormous capacity for storage and even for generation. If I drive home from work with my EV, my battery may still be 90% full. Most EV owners will only need to charge once a week. So this becomes an enormously valuable resource.” (See footnote.)
Jan Vrins on EVs
“We see EV sales in 2022 around 10% of new cars. After that it will rapidly go to 50%. EVs will be cheaper and offer a better driving experience. Who will not want to drive electric? Mid-sized trucks will also quickly go electric. We are particularly bullish on electrification of car fleets.”
“Charging will mostly take place at home and at work. There is a lot of focus on public charging infrastructure at the moment, but you won’t need public charging a lot. In any case, in the future charging won’t take more than 5 minutes.”
Navigant calls this vehicle-to-home integration. “And this becomes even more interesting when you combine it with home energy management systems, including rooftop solar with storage, and demand response systems.”
Another potential new value stream will emerge around microgrids, says Vrins. “You don’t hear a lot about this in Europe, but in North America microgrids are hot. With microgrids it is possible to scale up and integrate decentralized assets, for example to the level of a neighborhood. We believe that there is value in scales between centralized and decentralized systems. If you have a microgrid with an EV-charging station in combination with utility-scale solar or wind and utility-scale storage, you will achieve important efficiencies.”
Vrins notes that microgrids are also important to enhance energy security. “Extreme weather events are growing, and they can lead to gigantic damage. See what happened in Puerto Rico. To make the grid more resilient, it will become more segmented, more localized.”
A crucial role in the new system, in the vision of Navigant, will be performed by the “orchestrator” of the Energy Cloud. This will be “the fastest growing and most profitable business model category across the utility value chain”, notes the White Paper Energy Cloud 4.0.
“The network orchestrator will have the key role of optimizing the use of all the assets in the system,” says Vrins. “This includes linking the platforms with the centralized generation and distribution system.”
Vrins notes that there will still be a role for centralized assets. In fact, combining centralized with decentralized assets leads to the most efficient result.
Vrins believes – somewhat surprisingly perhaps from a European perspective – that the orchestrator role should ideally be performed by vertically integrated utility companies. Whereas the EU has mandated the unbundling of its energy companies, vertically integrated companies still exist in many states in the U.S. “I live in Florida, where FPL (Florida Power and Light) is our utility”, says Vrins. “I can’t switch suppliers.”
But according to Vrins that model could well be the best option in the new energy world. “The utility company is in the best position to decide, for example, where microgrids should be built and how best to connect them to the centralized system. If everyone makes their own decisions, the result will be suboptimal.”
In Europe we often think of the U.S. as a highly energy-inefficient economy, but that’s a misconception, says Vrins
In Europe, this role could be played by distribution system operators (DSOs) who would have to be allowed to also be active in generation and storage, says Vrins. But don’t we need competition? “Yes, we do, but it would take place in the products and services offered on the platforms. You would get a different kind of unbundling: horizontal instead of vertical.”
This is already happening in some states in the U.S., says Vrins. In Illinois, where unbundling is the law, the utility company, Con Edison in Chicago, has now been given permission to develop microgrids and community resources, which they were not allowed to do before.
The strict unbundling rules in the EU could, therefore, hamper the development of an efficient “Energy Cloud” system, says Vrins.
Energy efficiency programs
There are other ways in which European policymakers may not be taking the most forward-looking decisions, notes Vrins. For example, energy security is often still a national concern that leads to national reflexes, such as the decision in the UK to build a number of nuclear power stations. This kind of policy “is a risk”, says Vrins. “By the time the nuclear plants are built, the demand for centralized generation may not be there.”
He notes that in the new system “distributed energy resources are becoming baseload and central generation is becoming backup. But that’s not how most European countries are looking at it. They are still building a lot of centralized production, including renewables, as well as new transmission lines. They are just beginning to recognize and capture the value of what we call ‘non-wire’ solutions – local flexibility solutions – that may be much cheaper.”
Another interesting example concerns energy efficiency. In Europe we often think of the U.S. as a highly energy-inefficient economy, but that’s a misconception, says Vrins. “Europe has done well in improving the efficiency of household appliances. But many states in the U.S. have broad energy efficiency programs which impose stringent targets on utilities to achieve energy efficiency in their region with rigorous evaluation, measurement and verification to confirm the actual savings realized. For this reason, energy efficiency is often much more advanced in the U.S. than in Europe”, says Vrins. “And energy efficiency is also an important distributed energy resource.”
Vrins’s remark on the storage (vehicle-to-grid) capacity of EVs in the UK elicited some questions from readers. Navigant supplied the following additional information:
According to Navigant, the UK had roughly 39 million vehicles in 2017, primarily comprised of 32 million cars and 4 million light goods vehicles. Assuming 7 kW of V2G capacity for cars and 22 kW for light goods vehicles, these two categories as EVs would represent a V2G capacity of 313 GW. EVs in other categories, such as heavy good vehicles and buses and coaches, would provide an additional V2G capacity of 55 GW, bringing the total of potential capacity up to 368 GW. Peak demand for the UK system is around 60 GW, for France 90 GW, and roughly 80 GW for Germany, with a total non-coincident peak demand for the three countries of 230 GW. If even 50% of the total available capacity from EVs (184 GW) could be accessed to reduce peak demand, this would have a significant impact on the UK system and central station generation needed to support the peak load.