November 2017 - Jan Vrins - Navigating the Energy Transformation

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1
NAVIGATING THE
ENERGY TRANSFORMATION
Jan Vrins
Global Energy
Practice Leader
BUILDING A COMPETITIVE ADVANTAGE
THROUGH BUSINESS MODEL INNOVATION
NOVEMBER 2017

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2 / ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2
INTRODUCTION TO NAVIGANT
OVERVIEW

 50 largest electric and gas utilities
 20 largest independent power generators
 20 largest gas distribution and pipeline companies
 Leading oil & gas companies
 International, federal, and state government organizations
 Multiple new energy market entrants and investors
 With over 600 consultants globally we are one of the
largest energy management consulting teams
 Consultants average 15 years of experience
 60% have an advanced degree
 More than half have an engineering degree
 Among Top 10 in Vault’s 2016 Best Consulting
Firms for Energy
 Named "Best Advisory – Renewable Energy" in 9th
and 10th Annual Environmental Finance and
Carbon Finance Market Surveys
CLIENTS
TEAM
NAME
+
OUR ENERGY PRACTICE
• We collaborate with clients to help them thrive in a rapidly
changing environment

Technologies
Strategy
Implementation
• Distributed generation
• Demand-side management
• Energy Storage
• Electrification of transportation
• Building automation (residential/C&I)
• Information & communication technologies
• Flexibility/demand response
• M&A/growth/go-to-market
• New energy products and services
• Customer engagement
• DER/renewables
• R&D/innovation
• Grid modernization/technology
• Sustainability and climate risk (SBT)
• Strategy implementation
• Renewable procurement and auctioning
• DER products/services implementation
• Grid modernization
• Compliance and security
SOME EXAMPLES OF RECENT PROJECTS
Client Recent Projects
Global energy company Smart cities strategy and roadmap
US vertically integrated utility DER market assessment and strategy
UK DNO DSO strategy
Canadian electricity distributor Strategic merger and due diligence support
European energy company Transactive energy market assessment
US utility New energy products and services
European energy company DER acquisition support - North America
Middle East utility R&D Center strategy/implementation roadmap
US utility
Technology innovation roadmap and
implementation
US vertically integrated utility DER architecture design
Global manufacturer Connected home strategy
US vertically integrated utility Microgrid strategy and roadmap
US vertically integrated utility EV integration architecture and design
US Utilities in New York Renewable strategy

ENERGY TRANSFORMATION IS ACCELERATING
THREE FORCES UPENDING THE STATUS QUO
Technology
Innovation
Regulation and
Policy
Market
Demand
Multiple megatrends underpin utility
industry transformation:
1. Greater customer choice and demand for
more (sustainable) energy options
2. Increased policies and regulations to
reduce carbon emissions
3. Shifting power-generating sources
4. Search for shareholder value: new
ventures and increased M&A
5. Regionalization of energy
6. Merging of mega industries around growth
opportunities
7. Replacement of old infrastructure and
transition toward an increasingly clean,
decentralized, and intelligent grid
architecture: the Energy Cloud
Disruption is a prevailing and
uncompromising threat to our industry.

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

ENERGY CLOUD SCENARIOS
BUSINESS AS USUAL
(Current)
GRID REFORM
(Emerging)
ENERGY CLOUD
(Future)
• Revenue reaches $3.6 trillion
by 2030 (5% CAGR)
• 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
• Between $1-$1.5 trillion in
additional annual revenue by
2030 globally
• Revenue allocation across the
value chain shifts toward the
edge of the grid
• Highly distributed, networked,
and dynamic grid facilitated by
transactive energy
• Utility-scale renewables and
distributed energy resources
account for 50%-100% of
generation
• Energy value chain controlled by
network orchestrators and
prosumers.
THE OPPORTUNITY:
The Energy Cloud has
the potential to
generate more than
$3 trillion in
cumulative revenue
growth globally
through 2030 for the
utility industry.

ENERGY CLOUD SCENARIO’S
VALUE SHIFTS TO T&D, ENERGY AS A SERVICE, ENERGY CLOUD PLATFORMS
Business As Usual
(Conservative)
ENERGY CLOUD
(Aggressive)
Source: Navigant, global figures
Generation
Transmission &
Distribution
EaaS, Energy
Cloud Platforms
Value
2030
$ 4.7
trillion
$ 6
trillion
Disruptors are cash heavy, thriving, in-house R&D engines, often own customer relationship
Energy Tech Telecom Oil & Gas Retail Manufacturer Security DER Auto

ENERGY CLOUD SCENARIOS
DER WILL BE MOST DISRUPTIVE TO OUR INDUSTRY
Observations
• DER deployments
will reach ~30 GW
this year in the US,
versus new central
station generation
(19.7GW)
• On a five-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

IMPACTS ON UTILITIES
UNDERSTANDING THE IMPACTS OF THE ENERGY CLOUD

IMPACTS ON UTILITIES: THE REAL PROBLEM
FINANCIAL FAULT LINES
Provider of
generation capacity
TSO and DSO regulated
(rate-based) investments
Energy sales
Provision of
ancillary service
Planning and operating the
grid (scheduling/balancing)
Other?
Traditional Utility
Functions under threat
• Traditional generation asset devaluation, driven by decreased load growth, renewables, and DER
• ROE of transmission and distribution assets under pressure because of decreased load growth and DER
• Utilities looking for growth through grid modernization, acquisitions, and new revenue opportunities
• Key question: how to scale a new energy business delivering client and shareholder value?

IMPACTS ON UTILITIES: STAY IN OR CHANGE THE GAME
PREVALENT UTILITY BUSINESS MODELS (PUF SURVEY 2017)
• What business model should utilities pursue to harness the full value
(financial, operational, or otherwise) of DER?
Source: State & Future of the Power Industry 2017 (report)
Navigant Consulting/Public Utilities Fortnightly

STAY IN OR CHANGE THE GAME
TWO EMERGING STRATEGIC PATHWAYS FORWARD – BUSINESS MODELS
1. Stay in the game
2. Change the game
Energy as a Service
EaaS
Platform
Orchestration
• Move from asset owner to services
• Integration of several technologies
• Bundled devices
• Enable collaboration and transactions
• New economy trading on platforms
• Dynamic services
• New revenue streams and business
models
?

1. STAY IN THE GAME: EAAS
MOVE FROM ASSET OWNER TO SERVICE PROVIDER
Supply Services
• Solar, wind, bioenergy
• CHP, fuel cells, H2
• Backup generation
• storage, microgrids
Demand Services
• Energy efficiency
(lighting, HVAC etc.)
• Building optimization
and commissioning
• Demand response
Energy Optimization
Services
• Energy monitoring &
load management
• Waste/water/energy
nexus
• Robotics / AI / ML
Today
2030
$63B
$221BIntegrated
Deployments
Bold & Digital
Moves
Source: Navigant, global figures
EaaS
Applications
Industry
Evolution
and Growth
Point
Solutions

OVERVIEW
• EaaS has the power to change the way customers meet their energy needs
• New businesses emerging with partner network providing customized, flexible solutions
• The EaaS market for commercial and industrial (C&I) customers is expected to reach
$221.1 billion by 2026

VALUE CREATION BY UTILITIES
• Utilities can play several roles across the EaaS value chain to address market
needs; certain roles can be filled by partners
EaaS Solution
Architect & Project
Developer
• Project Engineering
• Procurement
• Contracting
• Installation
• Construction
• Commissioning
Component
Provider
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.

UTILITY EXAMPLE
• Three business models were selected based on overall
market attractiveness and strategic fit to Utility XYZ’s
objectives:
1. On-Site distributed generation (DG)/storage as a service provider
(orchestrator)
Value Proposition: Offer a comprehensive suite of onsite 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 and 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).
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

LARGE-SCALE DEPLOYMENTS
ENGIE North America Inc. and Axium
Infrastructure US have won a 50-year
concession valued at $1.165 billion 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 US 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.

2. CHANGE THE GAME: ENERGY CLOUD PLATFORMS
UNLOCKING NEW AND ADDITIONAL VALUE
ENERGY
CLOUD
PLATFORM
Products &
Services
Applications
Comm. and
Data
Technology
Data &
Analytics
Infrastructure
(Physical & Data)
Customers
(needs/value
proposition)
What Is an Energy Cloud Platform?
• Connect customers and partners
• Reduce cost of value creation
• Economies of scale
• Not a traditional business model
Enable scalable disruptive energy
technologies
Unlock multiple new energy services
and revenue opportunities, dynamic
pricing
IT/OT convergence, data analytics on
steroids
Customers will determine how value
is created, quantified, and distributed
Energy Cloud Platforms - Value Created
Business Model Scale Factor Profit Margin
Asset Builder 1.5x 27.9%
Service Provider 2.5x 47.1%
Technology Creator 4.7x 61.6%
Network Orchestrator 5.8x 69.5%

FROM INNOVATION TO ORCHESTRATION – SEVERAL EVOLVING PLATFORMS
Why Energy Cloud platforms?
 Margins on individual technologies will erode even faster going forward (e.g. rooftop solar, storage)
 Difficult to scale and build a sustainable business around individual (siloed) technologies
 Need for orchestration, to unlock full value out of these platforms and technology ecosystems
iDER
Building2Grid (B2G)
Transportation2Grid (T2G)
Internet of Energy / Things (IoE)
Transactive Energy
Neural Grid
Smart Cities

By 2025...
• DER will grow 3-5x
faster globally than
central station
generation giving rise to
virtual power plants
(VPP) and other
aggregation networks
iDER
• 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
ENERGY
• Global revenue from TE
software used in VPPs
expected to exceed
$5 billion
TRANSACTIVE
ENERGY
• Global utilities will invest
more than $700
billion upgrading their
information technology,
communications
networking and
automation capabilities
NEURAL GRID
• The smart city
technology market will
be worth more than
$600 billion with
annual revenues
growing almost 2.5x
SMART CITIES
•…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
ORCHESTRATOR
Source: Navigant
ENERGY CLOUD PLATFORMS AT A GLANCE

TRANSPORTATION EXAMPLE
• Capture grid-related value streams on top of load growth and fleet management services
• Real-time energy balancing
• Peak-shaving load shift
• Distribution peak capacity support
• TOU energy management
• Power quality
• Backup power
• Supply firming
• Frequency regulation
+ Carsharing services, fleet management
Example
Customer-focused vehicle-to-grid (V2G)
system
Enable drivers and energy users to operate as
individual energy hubs with the ability to use, store,
and return excess energy to the grid. EV owners get
paid up to €1500 a year for parking their vehicle in
dedicated parking spots so that the DSO has access
to the battery. First trials in Denmark, followed by
Germany and the UK. If all UK vehicles were electric,
the virtual storage facility would be the equivalent of
370 GW of capacity - enough to power the UK,
Germany, and France. Enel just acquired
eMotorWorks to go after V2G market in North
America.
with
Value Streams

TRANSACTIVE ENERGY EXAMPLE
• Local community energy platform – enabling customers to choose local green power
Benefits Example
• Prosumers – additional revenue,
better than feed-in-tariff
• Consumers – choose local
renewable sources as suppliers
• Network operators:
o Reduce grid defection (e.g., by
allowing end users to participate in
green power without installing it
o Stay relevant, prepared, and
engaged during the massive grid
transformation
o Get valuable blockchain
deployment experience
• Matched energy production and consumption among
renewable power prosumers and end users
• An edge-centric technology
• Guaranteed transmission savings are passed along to
participants

MOVING FORWARD
KEY TAKEAWAYS – PLAY OFFENSE AND DEFENSE
Need to pursue two parallel tracks
Business model
evolution will be key
to survival
Network orchestrator
business model
emerges in energy
and beyond
First Track – Play Defense
Second Track – Play Offense
Competitors are
active, bold, and
digital
• More scalable, integrated, and cost-effective
services to optimize the current business
• Ensure core business remains resilient while
freeing up resources (human and financial)
to invest
• Departure from well-worn norms of strategic
planning
• Focus on lucrative, high-growth
opportunities around Energy Cloud
platforms and orchestration
• Cultural change + regulatory and
market change

HOW CAN WE HELP
 Strategy Planning and Execution Support
 Energy Cloud Playbook
 iDER Assessment and Strategy
 Technology Assessment and Roadmapping of Energy Cloud Platforms
 Investment Strategy, Analysis, and Decision Support
 Business Case Analysis to Support Investment Decision and
Regulatory Approval
 Performance Excellence, Business Process & Redesign, Program
Planning, and Implementation Planning
 Data Analytics: Customer and Operations
 Value Realization and Verification
Navigant can assist in a number of areas:

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED26navigant.com
CONTACT
JAN VRINS
Global Energy Practice Leader
+1.305.341.7839
jan.vrins@navigant.com
LinkedIn:
https://www.linkedin.com/in/janvrinsnavigant
Twitter:
@Jan_Vrins
Energy Cloud
Playbook
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 2017July 2016
RELEVANT
THOUGHT
LEADERSHIP

November 2017 - Jan Vrins - Navigating the Energy Transformation

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