Building Value in the Energy Cloud: Strategies for Utilities

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1
BUILDING VALUE IN THE
ENERGY CLOUD
Jan Vrins
Global Energy
Practice Leader
THE ENERGY TRANSFORMATION AND
TECHNOLOGY-ENABLED VALUE CREATION
JULY 2017

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2 / ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2
TIPPING POINTS
INDICATORS THAT THE ENERGY TRANSFORMATION IS ACCELERATING
Power Forward: 215 Fortune 500 companies (43%) investing in GHG reductions,
sustainability, and renewable energy initiatives. Also, 53 Fortune 100 companies report
savings of $1.1 billion annually through energy efficiency and renewable energy.
RE100 has over 100 large, influential businesses (incl.30 Global Fortune 500), with a total
revenue of US$2.5 trillion, transitioning to 100% renewables across their global operations.
Shell Plans to Spend $1 Billion a year on Clean Energy by 2020.
Investment in electricity (718B) surpassed investment in oil and gas (708B) in 2016, for the
first time in recorded. history - IEA’s World Energy Investment report.
US monthly renewables generation surpasses nuclear for first time in 33 years (March).
In 2016, natural gas, solar, and wind represented 93% of U.S. generation additions.
Distributed Energy Resources (DER) are growing 3 times faster than central station
generation between 2015-2019 in the US (168 vs 57 GW).
Electric vehicles have another record year, reaching 2 million cars in 2016. Volvo Is first
automaker to offer Electric or Hybrid only by 2019. By 2018 Tesla will be able to produce
500,000 cars per year, with range > 215 miles at 35K (20,000 will be produced in Dec.‘17).

STATE & FUTURE OF THE POWER INDUSTRY SURVEY 2017
REGULATORY MODEL AND LOAD GROWTH ARE CURRENT ISSUES… AND
DER WILL BE MORE DISRUPTIVE THEN RENEWABLES GOING FORWARD
Which one of the following trends is the
most disruptive to traditional utility business
models over the next decade?
Source: State & Future of the Power Industry 2017 (report)
Navigant Consulting/Public Utilities Fortnightly
Which one of the following legacy issues is
the greatest challenge for utilities today?
1
1
2 2

©2016 Navigant Consulting, Inc. All rights reserved. Source: Navigant
THE ENERGY CLOUD
TOWARD AN INCREASINGLY CLEAN, DECENTRALIZED, INTELLIGENT AND MOBILE GRID
EMERGING: The Energy Cloud
Distributed, Two-Way Power Flows
TODAY: Traditional Power Grid
Central, One-Way Power System
Source: Navigating the Energy Transformation: Building a Competitive Advantage for Energy Cloud 2.0 (white paper)

ENERGY CLOUD SCENARIOS - 2030
BUSINESS AS USUAL GRID REFORM ENERGY CLOUD
• Revenue allocation across
value chain remains mostly
unchanged
• Traditional forms of baseload
generation lead (i.e., nuclear,
natural gas replacing some
coal, moderate uptake of
utility-scale renewables and
DER penetration)
• Smart grid digitization efforts
focused mostly on improving
utility efficiency
• Incumbent utilities control a
sizeable percentage of the
value chain
• Revenue allocation across
the value chain shifts
toward the edge of the grid
• Utility/Community-scale
renewables and distributed
energy resources account
for 50%-100% of generation
• Highly distributed,
networked, and dynamic
grid facilitated by transactive
energy
• Energy value chain
controlled by network
orchestrators and
prosumers.

ENERGY CLOUD SCENARIOS
VALUE SHIFTS TO T&D, RETAIL AND BEHIND-THE-METER (BTM)
Business As Usual
(Conservative)
GRID REFORM
(Moderate)
ENERGY CLOUD
(Aggressive)
Generation T&D Retail/BTM

VALUE CREATION IN THE ENERGY CLOUD
STRATEGIC PATHWAY 1: ENERGY-AS-A-SERVICE
• EaaS has the power to change the way customers view and meet their energy
needs: customized, scalable, flexible – complexity managed by partners –
3rd party owned.
• The EaaS market represents ~$17B in spend and is expected to grow to +$40B
over the next decade.

STRATEGIC PATHWAY 1: ENERGY-AS-A-SERVICE – WHO IS PLAYING?
The vendor landscape is still evolving with significant M&A and venture capital
investment activity; larger companies push to provide comprehensive offerings.
Acquisitions Investments

STRATEGIC PATHWAY 1: ENERGY-AS-A-SERVICE – ROLE OF THE UTILITY
EaaS Solution
Architect & Project
Developer
• Project Engineering
• Procurement
• Contracting
• Installation
• Construction
• Commissioning
Component
Provider
Utilities can play several roles across the EaaS value chain to address
market needs; certain roles can be filled by partners.
Engineering,
Procurement,
Construction
Financing /
Equity Owner
Asset O&M
Market
Operations
• Construction
Financing
• Long Term
Project Debt &
Equity Financing
• Equipment
Leasing
• Sale of Energy to
Competitive
Power Markets
• ISO or Utility
Interface for DR
and other
ancillary services
• Invoice &
Settlement
• Operations &
Maintenance
• Service
Contracts
• Equipment
Manufacturer (e.g.
solar panels,
batteries, CHP
units, backup
generators)
Ongoing
Management
• Managed Energy
Services
• Benchmarking
• Sustainability /
Environmental
Compliance
• Risk Mitigation
• Centralized
reporting, analytics,
and metrics
• EaaS Solution
Strategy, Planning, &
Design
• Enterprise / Portfolio
Energy Strategy
• Energy Audits
• Project Development
& Management
• Power Purchase
Agreements
Energy as a Service Value Chain
0%
10%
20%
30%
40%
Gross Margin Estimate1
(IRR)2
Notes: 1 Gross margin estimates represent long-term potential based on comparable industry benchmarks;
current gross margins are uncertain given nascent emerging market status.
2 IRR is provided for “Financing / Equity Owner” as a more relevant metric.

STRATEGIC PATHWAY 1: ENERGY-AS-A-SERVICE – UTILITY EXAMPLE
1. On-Site DG/Storage as a Service Provider
(Orchestrator)
Value Proposition: Offer a comprehensive suite of on-site DG/energy
storage asset EaaS offerings directly to customers with “as a service”
bundled payment/management terms, delivered through a partner vendor
network with an option to deliver internally via existing or acquired
capabilities.
2. Load Management & Optimization Service
Value Proposition: Offer end-to-end energy management solutions that
integrate software-based load management & predictive analysis, enabling
components, and market operations elements to optimize supply
and demand at an enterprise-wide level; energy optimization includes
demand response participation and other opportunities to generate
incremental earnings for C&I customers from competitive electric markets.
3. Integrated Energy Manager
Value Proposition: Offer a full-suite service equivalent to a dedicated
corporate facility energy manager and energy procurement group to C&I
customers delivered as a service; support the customer’s team (up to 100%)
for a fee (i.e. remote monitoring and on-site FTE-based support) to manage
energy strategy (e.g. rate sustainability; equipment upgrades; asset
management; DER development and operation).
Three business models were selected based on overall market attractiveness
and strategic fit to Utility XYZ’s objectives.
Attractiveness (External Criteria)
Attractive overall market characteristics, including:
opportunity size, profitability, competitive intensity,
and market risk / uncertainty
Fit (Internal Criteria)
Alignment to Utility XYZ’s strategic objectives,
capabilities, and ability to implement; provides
knowledge transfer opportunities to utility business

STRATEGIC PATHWAY 2: ENERGY CLOUD PLATFORMS
Why should utilities think about Energy Cloud platforms:
• Margins on individual technologies will erode even faster going forward (e.g. rooftop solar, storage)
• Really hard to scale and build a sustainable business around individual technologies
• Need for utility to play orchestration role, to get full value out of these platforms and underlying
technologies

STRATEGIC PATHWAY 2: ENERGY CLOUD PLATFORMS - SCALE AND VALUE
• DER will grow 3-5x
faster than central
station generation giving
rise to virtual power
plants (VPP) and other
aggregation networks
iDER
• The smart city
technology market will
be worth more than
$600 billion over the
next decade with annual
revenues growing
almost 2.5x
SMART CITIES
• Residential and
commercial customers
will invest more than
$50 billion in behind-
the-meter integrated
energy assets to take
advantage of B2G
opportunities
BUILDING2GRID
• Electric vehicles will be
the single largest
addition of energy
demand to the grid
globally, exceeding 200
TWh
TRANSPORTATION
2GRID
• Annual global revenue
from IoT devices will
grow 4x generating
nearly $750 billion in
cumulative revenue
INTERNET OF
THINGS
• Utilities will invest more
than $75 billion in
their communications
networks
ENERGY
SUPERHIGHWAY
• More than 40 million
electricity customers
expected to participate
in transactive energy
markets
TRANSACTIVE
ENERGY
…and orchestrators
will be the fastest growing
and most profitable
business model category
across the utility value
chain by leveraging assets
and customer networks
ENERGY CLOUD
Source: Navigant Research

STRATEGIC PATHWAY 2: ENERGY CLOUD PLATFORMS – TRANSPORTATION EXAMPLE
Complicated matrix of stakeholders looking to monetize electric vehicles
and mobility services via a new emerging Energy Cloud platform.

STRATEGIC PATHWAY 2: ENERGY CLOUD PLATFORMS – TRANSPORTATION EXAMPLE
GRID SERVICE USES
- Real-time energy balancing
- Peak-shaving load shift
- Distribution peak capacity support
- TOU energy management
- Power quality
- Backup power
- Supply firming
- Frequency regulation
SECONDARY BENEFITS
- Reduced fossil fuel use
- Power factor correction
- Overgeneration management
- Faster regulation
- Faster build time
- Locational flexibility
- Multisite aggregation
- Grid/communications reliability
(Source: Navigant Research)
Load growth
Investments in Smart Charging
Services and Programs
InvestmentsinInfrastructure
Development
Low-cost
grid services
Renewables
integration
T&D
avoided costs
Spectrum of Potential Program Goals

KEY TAKEAWAYS FOR UTILITIES
 New utility and vendor business models will leverage digitally-enabled
products, services and energy platforms and bundle non-energy value in
the Energy Cloud.
 Network Orchestrator business model will emerge as the fastest growing
and most profitable business model.
 Accelerate engagement with customers and regulators to understand
customer choices vis-à-vis price and reliability.
 Decide in which Energy Cloud technology platforms you want to play.
 Redesign operations to be more flexible and facilitate the integration of
DER. Improve customer service and grid reliability at the lowest cost
possible.
 All core utility planning processes will fundamentally change (e.g. load
forecasting, distribution- and transmission planning, IRP, capital planning).

Energy Cloud
Playbook
navigant.com
CONTACT
JAN VRINS
Global Energy Practice Leader
305-341-7839
jan.vrins@navigant.com
Linked-In:
https://www.linkedin.com/in/janvrin
snavigant
Twitter:
@Jan_Vrins
#FurureUtility
RELEVANT
THOUGHT
LEADERSHIP
State & Future
of the Power
Industry
July 5, 2017
Navigating the
Energy
Transformation
August 2016
Defining the
Digital Future of
Utilities
April 2017
Utility’s Role in
Electricity’s
Future
Q1 & Q2 2017
RELEVANT
THOUGHT
LEADERSHIP
July 2016

DER GROWTH IS ACCELERATING
WE FORECAST STRONG DER PENETRATION GROWTH OVER THE NEXT DECADE
Observations
• DER deployments
will reach ~30 GW
this year in the US,
versus new central
station generation
(19.7GW)
• On a 5-year basis
(2015-2019), DER in
the US is growing
almost 3 times faster
than central
generation (168 GW
vs. 57 GW).
(Source: Navigant Research)
Annual Installed DER Power Capacity Additions
by DER Technology, United States: 2015-2024
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
(MW)
Distributed Generation
Distributed Energy Storage
Microgrids
Electric Vehicle Charging Load
Demand Response
Energy Efficiency

STRATEGIC PATHWAY 1: ENERGY-AS-A-SERVICE – MARKET POTENTIAL
• Market potential is based on total
addressable market for C&I supply
production, demand, and non-DR related
optimization services.
- Includes both installed capital and on going
service revenues
- Adjusted for assumed penetration of 3rd party
financing to enable “no-money down” deployment
• Over time, the mix of offerings is expected
to become more comprehensive and
cross-cutting across applications
- Current market size is driven by strong existing
ESCO and C&I Solar PV related revenues
- The fastest growing segments include C&I
building optimization and energy management,
energy storage and optimization, and other
energy software as a service offerings
The EaaS market represents ~$17B in spend and is expected to grow to +$40B
over the next decade.
0
5
10
15
20
25
30
35
40
45
2016 2017 2018 2019 2020 2021 2022 2023 2024
$Billions
Supply Services Demand Services Energy Optimization Services
EaaS Market Size Potential (North America 2016-2024)

C&I MARKET IS BEING TARGETTED FIRST WITH NEW PLAYERS
COMPETING FOR MARKET SHARE
ENGIE North America Inc. and Axium
Infrastructure US have won a 50-year
concession valued at $1.165 billion USD
to address The Ohio State University's
energy sustainability goals for its 485-
building campus in Columbus, Ohio, one
of the largest university campuses in the
United States.
ENGIE manages a range of energy
businesses in the United States and
Canada, including electricity generation
and cogeneration, natural gas and
liquefied natural gas (LNG) distribution
and sales, retail energy sales, and
comprehensive services to help
customers run their
facilities more
efficiently and
optimize energy
use and expense.
Edison International creates subsidiary to help large energy
users. Edison International is launching a business that will help
reduce energy costs, improve efficiency and offer more
environmentally friendly options for large energy users.
The company's new subsidiary,
Edison Energy,
aims to serve commercial
buildings, data centers,
retail centers, healthcare
operations and educational
institutions nationwide.
Tesla, SolarCity closer to creating solar, storage, EV
powerhouse
The establishment of an integrated solar and battery storage
offering was highlighted as one of the
key drivers for the merger, as well as
the offer of more integrated products
and grid related services to residential and
commercial customers.

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