Executive Summary
Over the last decade, there’s been an exponential growth in technology development. This has led not only to an increase in variability of technology solutions, but also to more efficient ones that different industries are starting to adopt. Energy production, being one of most important key drivers of society, is not indifferent to this trend. This scenario has defined the concept of distributed energy resources (DER) as the first step to reduce consumer’s dependency on utility companies. Conceptually, DER’s are energy production centers distributed everywhere that produce energy at the same time. This not only helps to decentralize the production, but empowers consumers and gives them independence over the utilities companies. Hence this DERs will lead to the division of cities in small half-depended smart grid or microgrids. These microgrids will supply the majority of the energy required for residential individuals and communities. However, this increase in availability of resources will not only increase the complexity of the total grid, but increase in the maintenance cost as well.
Therefore, our hypothesis establishes that, “In the next 10 to 15 years the massive adoption of distributed energy resource (DER) would lead to the division of cities into microgrids which, under this scenario, these microgrids will be supplied by energy wirelessly in order to reduce the complexity of the grid and the aging infrastructure”.
In this paper, we will first state what are the current problems Siemens and the energy industry are facing. Secondly, we will explain which are the current and future trends that led us to form our hypothesis. Thirdly, we will introduce our solution to the problems for the next 10 to 15 years. Lastly, we will describe our vision of the future energy industry’s business model and how our solution will benefit Siemens.
Problems faced by the energy industry
One of the most important problems in the national grid nowadays, comes from the aging infrastructure. This not only generates concerns about cost associated with the maintenance and replacement of the grid and all their components, but also the impact of those costs in the business around electric utility companies. For example, if the grid is maintained as it is today, this would incur in a $7 trillion dollar wasted in lost business and $4 trillion in lost GDP without mentioning the 2,5 million jobs and therefore $3,400 dollars in disposable income per capita for the household sector, translated into $1 trillion dollars in consumption or investments that would be evaporated in the next decade. Moreover, depreciated infrastructure, mainly based on wires in the United States up to today and worth about $1.5 to 2 trillion dollars (Rhodes, Joshua D., 2017), would take about $5 trillion dollars to replace (see exhibit 1).
Another important concern is, since there is a demographic expansion, the grid must align with the current spreading of urban spaces’ pace. Alongside the broadening of cities, utility companies often can’t reach locations that are distant from the cities, due to the significant cost of implementation. Nevertheless, as we establish in our hypothesis, microgrids will prove to be the solution for this complication, since they can allocate in any region outside the boundaries of the utility companies. However, since the expansion in resources and number of independent grids are rising, this would incur in the raise of the complexity of the grid itself.
Consequently, this phenomena is creating more than a concern to utility companies which must manage this scenario. Moreover, this increase in complexity due to the interconnection of multiple sources with multiple customer and the interaction of different prosumers simultaneously, would increase the vulnerability of the network to cyber attacks.
DERs & Microgrids
DERs
As we stated in our hypothesis, the increase in technology (see exhibit 2) leads to the massification of solutions, which increase the generation of electricity. For example, solar panels installation cost is constantly falling, and the efficiency of the production of solar energy is raising (see exhibit 3 & 4).
Due to those improvements in technology, the massive adoption of DER’s is imminent. DER’s will help residential individual and communities, in addition to universities and industries to gain independence from the utility companies. Therefore, we can establish DERs as one of the principal forces of the future. This scenario will pressure the utility companies to redesign their strategy and business model. Consequently, we can assume that microgrids will adapt accordingly, integrating DER’s and creating grids that while connected to the national grid are capable of being independent.
2) Microgrids
A massive implementation of DERs will produce changes in the electric market, and consequently microgrids will adapt. For instance, only the remote power systems represent a market opportunity for DERs, since this electric generation installation fulfill the necessity of remote areas that are not reached by utility companies. Moreover, Navigant estimates the overall value of the market for remote power systems to be in excess of $10.9 billion today. The market research company’s analysts forecasted that this industry will rise nearly 20-fold over the next decade to $196.5 billion. Nevertheless, not all the remote power systems will become independent microgrids which would fulfill the electric requirement of remote communities. Besides, here are some data related to the actual size of the microgrid market and the forecast for the next 5 years that show the microgrid concept is gaining territory.
The microgrid market opportunity in the U.S. is projected to double from $836 million in 2016 to $1.66 billion in 2020, according to GTM Research.
The Global microgrid market will expand at a 20.7 percent compound annual growth rate (CAGR) between 2014 and 2020. Pegging the value of the market at $9.8 billion in 2013, the market research provider expects it will reach $35.1 billion by the end of the decade.
Moreover, there are companies that have already seen in the microgrid concept, a market which helps increasing their revenues.
North America have the largest installed base of microgrids, leading today’s world in fixed O&M opportunities with an estimated $412.3 million in annual revenue. That fixed O&M revenue amount is expected to increase to $1.6 billion annually by 2026, with a compound annual growth rate of 15.9 percent (Navigant research).
Navigant projects worldwide microgrid for communities vendor revenue will increase from $4.3 billion in 2013 to nearly $20 billion in 2020.
Navigant sees the microgrid for residential individual market being much larger than that for microgrids for communities. Since the total market revenue will reach $8.5 billion in 2015, driven by demand in developing world countries, particularly from mobile telecoms providers. By 2024, Navigant predicts annual microgrid for residential individual market revenue will grow to $17.5 billion. A mix of public and private sector funding to increase energy access will fuel growth.
Therefore, these numbers and forecasts confirm that the microgrid market represents the disruptive force of the future which will adapt accordingly to the new necessities and challenges of the electric industry. For instance in New York, “the New York Power Authority, the nation’s largest state owned electric utility, has laid out a new strategy to create a “reimagined” electric grid that focuses on microgrids and local generation.” Another example comes from the Department of Energy in January 2014, which issued a solicitation offering grants for microgrid research, development, and system design (Microgrid Knowledge, 2014). Therefore, we can establish that governments are starting to recognize the potential of this market, since they already are approving regulations to incite the implementation of this new concept. States like California, Connecticut, Maryland, Massachusetts, New Jersey, New York, have begun to implement programs to incentive the creation of microgrids. Exhibits 5 shows a map of the United States microgrid market divided in regions and states, with their respective energy production. The Northwest region has the largest microgrid capacity, 567 MV, which represent the capacity of 48% of country’s microgrids (exhibit 6). Consequently, it is safe to assume that the microgrid market is in expansion and represents an interesting opportunity for Siemens as governments’ regulations are evolving alongside the industry changes.
An international example that show us the today’s implementation of microgrid and the evolution of consumers to prosumers, is Brazil, more precisely in Rio de Janeiro. The city implemented an Energy Credit System in April 2012, following the Normative Resolution nº482/2012. The Brazilian Energy Agency (ANEEL) established a rule which stated that consumers should produce their own energy, meeting entirely or partially their own demand. Nevertheless, this rule allowed the consumers to have their generation of energy tied to the local public grid, enabling them to provide energy throughout the microgrid of their region. Furthermore, the Normative Resolution nº 414 from 2010 provisioned by the Energy Compensation System, stated that consumers who had a surplus would get a credit that could be used within years years in the same concession. These measures combined not only increased the quality of the energy, but also helped to increase the reliability of the energy distribution by allowing the consumers to “sell” the surplus of energy for a credit and inject it into to grid.
“THE DOME”
“The Dome” represents for Siemens, a commercial and energy efficiency opportunity. This disruptive innovation would not only help reducing technical losses due to improvements in the quality of the energy offered to consumers but also offer a better consumption schedule’s management on its installations.
“The Dome” would present Siemens as a technologically advanced and up-to-date company. This innovative approach would solve major issues, such as the aging infrastructure of the grid, but also energy distribution difficulties occurring on a daily basis and which are nowadays growing in importance. Implementing “The Dome” would represent a significant initial cost for Siemens. However, the company should focus on the advantages this disruptive innovation could bring in the future. For instance, once installed, such advanced technology would only require a low cost, centralized maintenance. Furthermore, as stated earlier and according to research from the University of Texas in Austin, the current depreciating and aging grid replacement would cost about US$5 trillion dollars (Rhodes, 2017), when its current value is estimated between US$1.5 to US$2 trillion dollars. Therefore, considering WPT as a long-term solution for the next 10 to 15 years rather than replace the overall aging grid, is an opportunity worth seizing.
Regarding “The Dome” and the technology required behind its implementation, there are a couple of ways already being developed such as the Zenneck Wave and the Dipole Coil System to transmit power wirelessly. However, we believe the Zenneck surface wave might be the best because it transfers megawatts of power from any point on earth to any point on earth with very high efficiency. A Zenneck surface wave is an electromagnetic wave that uses the surface of the earth as a waveguide enabling it to carry communications signals or electrical power efficiently over long distances. This breakthrough technology will enable smartgrids to be externally powered from a multitude of dispersed, secure, redundant generators, obviating the need for organic power generation internal to a grid, greatly reducing many of the vulnerabilities and limitations of conventional grid architectures. This technology employs a “transmitter probe” located near a power generation plant to launch a Zenneck carrier wave. Receiver systems appropriately positioned around the world will receive the signal and download the power into a local microgrid or conventional grid architecture.
To give feasibility to our hypothesis we analyzed case studies from two different countries. The first case we analyzed was a Japan Aerospace Exploration Agency (JAXA) alongside with Mitsubishi Heavy Industries. They conducted an experiment where they were able to transmit energy wirelessly. Jaxa transmitted 1,8 kilowatts of energy from point-to-point on a 55 meters distance. Meanwhile, Mitsubishi focused more on power than precision and successfully transferred 10 kilowatts of energy for 500 meters. However, in both cases, the same technique was used: energy transfer via microwaves. Furthermore, the efficiency reached at the time was of 80%. (CITE CASE) The intention behind both demonstrations and researches is to take solar power generation to the space, known as Space solar power systems (SSPS), and then transmit the energy wirelessly to the earth. It is predicted that by 2031, 1 gigawatt commercial pilot plant will be in operation, and a full commercial space-based plant at 2037.
Nowadays technologies are being developed in the wireless energy transfer scheme, companies like Texzon Technologies and WiTricity Corporation are two different companies within the United States that are currently working towards a wireless world.
Texzon Technologies is a company based in Texas that is currently developing technologies in the wireless energy transfer field. They are proposing a wireless system called “Texzon Wireless Power™, allows the Earth itself to be used for clean, safe and efficient transfer of power between any two points on the globe, wirelessly”. (Texzon, 2016)
WiTricity Corporation on the other hand is a company based in Massachusetts that has been working on devices to be able to provide wireless energy inside the households. They have proven that “magnetic fields of two properly designed devices with closely matched resonant frequencies can couple into a single continuous magnetic field, enabling the transfer of power from one device to the other at high efficiency and over a distance range that is useful for real-world applications.” (WiTricity Corporation, 2017)
Business Model and segmentation
We believe that Siemens should focus on military installations, universities, island projects and smart communities. Our model brings an emphasis on the Department of Defense (DOD) installations, which represent about 52% of the total national microgrid capacity up to this year. As we can see in exhibit 6, the majority of the United States’ microgrids belong to the military. Furthermore, in addition to focusing on military projects, Siemens could expand its customer base and influence on the market by also targeting universities, island projects and communities. Costs reduction, high reliability of energy resource are considered as the main incentives for those users. It is essential for them to be able to perpetuate and preserve their activities while using renewable energies. Siemens is looking at a real opportunity for revenues and to broaden its consumers base.
Moreover, the reliability of the electrical system nowadays would strengthen the alignment between all the components of the smart grid: opportunities for local technological densification of networks and installations, asset management, generation planning and transmission, in addition to favorable circumstances for new business strategy.
The regulatory framework and economic structure of an electricity market determines the level of competition that exists at different levels of the electric power industry. Even if the energy sector is competitive, there are still possibilities of new technologies innovations in the same sector. Siemens can expect competition but smaller than in the old market. With our idea of “The Dome”, the company will be one of the precursors in this type of advanced renewable energy.
There are two main models for national smart grids, which are based on the amount of regulation and competition. In fully regulated markets, a single entity controls the generation, transmission and distribution. Therefore, most countries employ some hybrid version of these two models on a national level. In contrast, in our business model, each stage of the process will be led by new prosumers, under the supervision of the regulatory facilities.
With this new business model and Siemens being a pioneer in the wireless power transmission field, we believe that a new type of final customers is going to emerge in this new growing market. The wireless exchange zone system, alongside services performed and the ownership model, are going to evolve towards a new model where the new prosumers could generate a management for each utilities on the process, building a independent in the outflow. Finally, economic and environmental sustainability would be the result of diversification of business opportunities and innovations in a wireless smart grid zone. Therefore, equipment and value-added services offered by Siemens, could provide a better means of distributing energy in smart grids.
One thing remains however uncertain: how will Wireless Power Transfer affect health and the overall biology of the ecosystems? Research is still being conducted, although, the potential that it presents is outstanding. As far as we know, WPT reduces dangers associated with wire technology within houses (such as fire, for example), reduces battery production, in addition to fossil extraction and potential health advantages. For instance, if we take this technology to patients with implanted heart pumps, “using the wireless system means no power cord poking through the skin, dramatically reducing the risk of infection and improving the patient’s quality of life” (Hickey 2011).
Conclusion and Recommendation
In the United States and other countries, technology advancements are allowing cities to slowly replace wired energy transmission by Wireless Power Transfer technologies. We believe that WPT is the next level in the energy industry. By being a pioneer in this field, Siemens would not only increase its influence on the market, but also expand its consumer reach, in addition to establishing itself in the industry with a considerable competitive advantage. Moreover, Siemens would become a market shaper and trend maker.
By implementing our solution, based on the mixing of current trends, the microgrids and the embrionary technology of Wireless Power Transfer, Siemens would be disrupting the energy market completely. The utility companies would become an energy manager rather than a grid manager. In the sense that it would focus more managing the energy flow between the microgrids (from the ones with surpluses to the ones with deficits) than to just ditributing centrelized energy and mantaining the grid itself. Once the maintenance is centralized, the costs associated with it would fall tremendously.
The recommendation to associate with the Department of Defense is strategical, allowing for Siemens to test the service and implementation of “The Dome”, with the support of an institution with more than $200 billion budget annually. Moreover, the quantity of potential units spread across the country could represent a considerable market opportunity.
To conclude, we highly suggest Siemens to pursue this idea while the main technology is still at its infancy and while there are only a few players investing on it right now. The investment required is big but the costs associated with the status quo are bigger and the returns even bigger, paying-off the investments through market share and barrier to competition.