Xenergy Distrib Power Study

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Xenergy, Inc., the consulting firm, is offering UFTO subscribers a special discount price for their Distributed Generation study, which was done as a companion to their ongoing Retail Energy Management (REM) multiclient program.

The deliverables include a report issued Nov 99, and two databases, which will continue to be updated. Excerpts from the report’s Executive Summary appear at the end of this note.

— The DP Competitor Database is an assembly of information on the competitors in the DP marketplace. This database highlights the activities of the utilities and ESPs which are selling products and services to the DP marketplace (generation that is sited at a customer location and driven by the needs of the onsite energy user). Data sources for the Competitor Database include corporate filings and financial data, product/service literature, personal communications, and other market data.

— The State Regulatory Database highlights regulatory conditions in nine key states that will likely have a strong positive (or negative) impact on the growth of DG capacity.

The two databases are both contained in a single Microsoft Access 97 database file.

The price, ordinarily $10,000, is reduced to $8,000 for UFTO companies. One or the other of the two databases can be purchased separately.

Contact:
Rebecca MacGillivray, 781-273-5700, x502 rmacgillivray@xenergy.com

Here is a portion of the press release which announced the study:
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XENERGY Study Identifies Strategies in Distributed Power Market (11/08/99)

A new study from XENERGY identifies 12 strategies for energy companies eager to enter the newly emerging Distributed Power (DP) market — from technology acquisition to product distributor to retail energy service provider — and profiles market player success stories to date. According to the report, while the market remains in its infancy, opportunities exist for competitors to establish a stake.

According to XENERGY’s Francis Cummings, who headed up the study, many companies are keenly aware of the potential for explosive growth in this market. Said Cummings, “We constructed the study and corresponding DP Market database with market entry strategies in mind. Based on our regulatory and competitor analysis, the study helps clients to identify the Distributed Power strategy that best fits with their business plan.”

Six U.S. electric utilities or their affiliates – Avista, DTE, Duquesne, Edison International, GPU and Idacorp — have adopted a New Technology strategy (#3) by testing and acquiring rights to new advanced technologies, primarily fuel cells, through joint ventures and investments. DTE Energy Technologies, for example, purchased a stake in Plug Power, which is developing and manufacturing fuel cells, a promising generation technology for automotive and residential markets. Plug Power recently launched its IPO, and expects commercial sales to commence in 2000.

A low-cost, low-risk strategy is Demand-Side DP Bundling (#1) — Equitable Resources, an integrated energy company, is adding or expanding DG technologies as part of a package of demand-side energy services through its existing performance contracting unit, NORESCO. In contrast, PSEG Energy Technologies is pursuing Strategy #1 but as part of a broader “Integrated Soup-to-Nuts” strategy (#7) as a competitive supplier of commodity grid power, as well as serving as distributor for AlliedSignal’s new microturbine.

Distributed Generation (DG), or onsite power generation by end-users, has been in use for years, but recent announcements of small scale microturbines and fuel cells could dramatically increase the Distributed Power (DP) market size for applications less than 100 kW, called “micro-DG.”

Sponsors of the study will have access to XENERGY’s new DP Market database with embedded Internet links, which provides quick, flexible access to data on 50 companies currently involved in the DP market. Featured DP competitors include 27 electric utilities and their affiliates and 19 companies manufacturing distributed generating equipment. The database also includes data on key regulatory issues affecting the feasibility of distributed generation, organized on a state-by-state basis.

The newly released study is a companion to a larger XENERGY study, REM ’99, which is a comprehensive analysis of retail energy markets in New Jersey, Illinois and Pennsylvania. Results are confidential and limited to the study’s sponsors.
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RESEARCH SCOPE: CUSTOMER-DRIVEN ONSITE GENERATION

This study focuses on the market for small generation that is sited at a customer location and driven by the needs of the onsite energy user. The primary emphasis of the study is micro distributed generation projects, those less than 100 kW, that are driven by the onsite customer’s need for power quality, reliability and/or cost savings and those driven by the existence of a thermal load. We focused on distributed generation in the context of existing and potential retail power markets, such as those in California, Pennsylvania, New Jersey, Maryland, New York, Massachusetts, Connecticut, Illinois and Texas.

EXECUTIVE SUMMARY (Excerpts)

To assess the status of this market, we first developed a database with information on companies active in the DP industry and on regulations affecting DG projects in states with retail electric markets. This “DP Market Database” accompanies this report as a free-standing product, providing a unique directory and market assessment tool covering the major players in the DP industry, their products and services, and the rules under which they operate. The classifications of DP competitors in the database are based on the portion or portions of the company which were the focus of this study. In some cases this covers a family of affiliated companies, and in other cases, we drill down to a single DP company. The database is also designed to serve as a “portal” to the internet web sites for each of the companies and to web sites with resources on key DG-related regulations.

There are a number of key unresolved regulatory issues that will have strong positive or negative effects on the growth of the DP industry, but these issues are just beginning to be addressed. Early market participants often invest significant time addressing these regulatory drivers in order to take full advantage of the emerging DP market. The DP Regulatory Database provides a summary and comparison of key regulatory drivers of the DP market in states with retail access.

With the current increased availability of these technologies, customer demand for products and services offering enhanced power quality and reliability as well as independence from the grid is rising. In industries where short outage periods mean significant losses, the demand is especially likely to increase. The ability to generate cost savings as well as an increased focus on the environmental attributes in markets where there is customer choice are also key factors driving customer demand. Strain on utility transmission and distribution systems is also driving the “distributed utility” concept and increasing utility demand for DG technologies. While we did not develop an independent estimate for this study of the potential size of the DP market, estimates of the market have ranged as high as 20% of new additions to generating capacity over the next 20 years, which would amount to 35 GW.

This review of the present status of the DP industry and its regulatory context leads us to conclude that significant opportunities remain for energy companies to enter the competitive distributed power market and establish strong positions as innovators and leaders in these early stages of market development. These opportunities stem from the following factors:

* While many companies in the electric industry are assessing market opportunities, there are few that are actively marketing distributed power products in the regulated or deregulated gas and electric markets. * Product offerings of the firms that have entered the distributed power market are in early stages of development. Companies are still learning how to effectively market and price DP products and services. * While the supply of many distributed generation (DG) technologies remains low, many manufacturers are currently moving to commercial production and are planning to rapidly ramp up production.

We have developed twelve models of market entry strategies through which new entrants approach the DP market. These models are based on the examples of companies in the database, and on XENERGY’s discussions with representatives of these companies and with end-users and others familiar with the DP mark et.

News Watch – Not your Father’s utility industry

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This won’t be a regular UFTO feature, but I was awestruck by a couple of headlines today, and thought I’d pass along a comment. After the wild “dot com” style run up of a several fuel cell stocks lately (you know the drill — no earnings, huge valuations), another couple of amazing stories are breaking.

Gates Buys 5% of Avista

Avista’s stock has more than doubled this week, after it was announced that Bill Gates had taken a 5% stake in the company. It’s been trading in the mid to high teens for the last year, dropping below 15 at the beginning of January. Today it closed at 47. Of course, they were also benefiting from the fuel cell excitement, with their Avista Labs effort in PEM.

Sierra Pacific in Huge Telecom Deal

The other story was out late Friday in an article in Infoworld: a huge alliance of Hewlett Packard, Oracle, TelecommUnity Systems, and — are you ready for this — Sierra Pacific Power! The article claims that the utility is using $1/2 billion from the $1.6 billion sale of power plants to provide their stake in this huge plan to put fiber to the home and supply voice, data, and television services. (Recall that Sierra Pacific Power just merged with Nevada Power last July, and the new company is now buying Portland General Electric from Enron.)

The article was posted 6 pm Pacific time Friday, and I found it at
http://www.infoworld.com/

It will be very interesting to see how the companies respond to this “scoop”–and how much of it turns out to be right. (For example, the article says “Sierra Pacific Power Co.”, which is actually a regulated subsidiary of “Sierra Pacific Resources”, the holding company. One wonders what other details might be suspect.)

Since the story broke well after the markets closed, so no action on the stock (SRP closed very near its 52 week low, but we’ll see on Monday).

DOE Power Outage Study

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Power Outage Study Team (POST) Releases Interim Report

Bill Richardson initiated this effort last summer, on the heels of the various outages around the country. The team was assembled during September and went through its paces, coordinated by Paul Carrier in DOE headquarters. There’s no direct connection to the CERTS effort, though many of the same people are involved. The press release below explains all the key elements. In particular, note the workshops later this month, and the availability of the interim report in hard copy and on line. The team’s website was turned on 2 days ago, and has all the information: http://tis.eh.doe.gov/post/

Contact: Paul Carrier, 202-586-5659, paul.carrier@hq.doe.gov

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DOE PRESS RELEASE January 4, 2000

Energy Department Team Examines Summer Outage Problems in the U.S. Electric Power System

Power Outage Study Team Releases Interim Report

U.S. Secretary of Energy Bill Richardson today received an Interim Report on the department’s investigation of the power outages and disturbances that occurred last summer. The high temperatures and heavy demand strained electric systems, affecting millions of people and businesses.

“The lessons that we learned as industry and government worked together preparing for the Y2K rollover were a good step toward achieving a more reliable electric grid,” Secretary Richardson said. “However, Congress needs to pass the administration’s electricity competition legislation in order to address many of the uncertainties that exist as the industry transitions to a new restructured environment.”

The investigation’s findings warn that while the electricity industry is undergoing fundamental change, the necessary operating practices, regulatory policies, and technological tools for dealing with those changes are not yet in place to assure an acceptable level of reliability. A significant increase in electricity use, especially during times of peak demand, is stressing the electric system.

The team of academics and departmental experts, formed last September as part of the Secretary’s six-point initiative to address electric reliability concerns, investigated outages in New York City, Long Island, New Jersey, the Delmarva (Delaware-Maryland-Virginia) Peninsula, Mississippi, Arkansas, Texas, Louisiana, and Chicago, and non-outage disturbances in New England and the Mid-Atlantic States.

A final report, to be issued in March, will provide recommendations and will be followed by regional policy-level discussions across the country among industry leaders and federal, local and state government officials.

The team will be conducting a series of three technical workshops to obtain stakeholder input and comment on the Interim Report. The 38 findings detailed in the report have been grouped into five topical areas to facilitate discussion at the workshops. The workshop times, locations and primary topics are:

January 20
San Francisco, California
– Topic 1: Transition to Competitive Energy Service Markets (morning session)
– Topic 2: Regulatory Policy for Reliable Transmission and Distribution ( afternoon session)

January 25
New Orleans, Louisiana
– Topic 3: Information Resources (morning session)
– Topic 4: Operations Management and Emergency Response (afternoon session)

January 27
Newark, New Jersey
– Topic 5: Reliability Metrics, Planning, and Tracking

All interested parties are invited to register to participate in one or more of the workshops. A registration form is provided on the world wide web at http://tis.eh.doe.gov/post/.

The Interim Report is also available on that website. Printed copies of the report may be obtained from the Energy Department’s Public Reading Room at 202/586-3142.

Comments on the Report can also be submitted through January 31 via the Internet. These comments, as well as those received at the technical workshops, will help develop recommendations for the final report.