Israel Microgrig: The Global Prospective for Microgrids by LUX Research

1. The Global Prospective for Microgrids
Steve Minnihan
SeniorAnalyst
Lux Research, Inc.

2. 2
About Lux Research
Helps clients find new business opportunities from
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Offers ongoing technology and market intelligence,
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Materials
Efficient Building
Systems
China Innovation

3. 3
Agenda
Confirming and Debunking MicrogridClaims
Three Drivers for Microgrids
An international framework for energy opportunities
The emerging options for rural and commercial electrification
Conclusions

4. 4
Microgrid advocates make tall promises
Claims
Fuel savings
Reduced Energy consumption
Reduced CO2 emission
Cost effective renewable
integration
Improved power quality and
reliability

5. 5
Microgrid advocates make tall promises
Claims Utility Industry Customer No grid
Fuel savings
Reduced Energy consumption
Reduced CO2 emission
Cost effective renewable
integration
Improved power quality and
reliability

6. 6
Microgrid advocates make tall promises
Claims Utility Industry Customer No grid
Fuel savings
Reduced Energy consumption
Reduced CO2 emission
Cost effective renewable
integration
Improved power quality and
reliability

7. 7
Microgrid advocates make tall promises
Claims Utility Industry Customer No grid
Fuel savings
Reduced Energy consumption
Reduced CO2 emission
Cost effective renewable
integration
Improved power quality and
reliability

8. 8
Microgrid advocates make tall promises
Claims Utility Industry Customer No grid
Fuel savings
Reduced Energy consumption
Reduced CO2 emission
Cost effective renewable
integration
Improved power quality and
reliability

9. 9
The true drivers for microgrids
Microgrids offer questionable value in utility applications
Industrial customers deploy microgrids to improve power quality;
additional benefits are secondary in the decision making process
Customers with no grid access or poor grid reliability benefit
tremendously from primary electrification

10. 10
Agenda
Confirming and Debunking MicrogridClaims
Three Drivers for Microgrids
An international framework for energy opportunities
The emerging options for rural and commercial electrification
Conclusions

11. 11
Three Drivers for Microgrids
Disaster security
Industrial Corporate Consumer

12. 12
Supplier vulnerability
Multi-billion
company
Site A
Site B
Site C
Site D
Supplier A
Supplier B
Supplier C
Supplier D

13. 13
Supplier vulnerability
Multi-billion
company
Site A
Site B
Site C
Site D
Supplier A
Supplier B
Supplier C
Supplier D

14. 14
Datacenters offer the best target market for
microgrids
Total capital investment
SecMinHrDayIndefinite

15. 15
Datacenters offer the best target market for
microgrids
Total capital investment
Electricitysupplysecurity
SecMinHrDayIndefinite

16. 16
Industrial customers securing their supply in response to increased rate
of natural disasters and utility failures
Reliability = survival
Reliability and security become line items on the balance sheet
Lesson learned

17. 17
Three Drivers for Microgrids
Disaster security
Industrial Corporate Consumer
Revenue loss

18. 18
Commercial customers intolerant of Indian grid
Daily power outages are the norm
Larger outages emphasize true
vulnerability of the grid
Directly factored into revenue and cash
flow projections

19. 19
Lessons learned
Private “backup” microgrids thrive while charging inflated electricity
rates
Improved reliability directly factors into revenue and cash position
Inflated electric rates are an investment in company growth

20. 20
Three Drivers for Microgrids
Disaster security
Industrial Corporate Consumer
Revenue loss
Primary electrification

21. 21
Conventional utilities are disinterested in rural
electrification
Electricity Statistics
Electricity consumption 771 kWh/capita
Power outages 50 days/year
Reliance on generators 20% of consumption
Population with electricity
access
20%
Cost recovery 39%
Source:World Bank
Utilities are unable to recover cost of power
generation, transmission, distribution and retail
No incentive to expand grid to rural population

22. 22
A long list of ventures attempt to innovate on the
business model

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Lessons learned
The developing world is proving to be an avid adopter of microgrid
technologies
Utilities are largely disinterested in improving electrification
Primary electrification and improved electricity reliability are motivating
residential and commercial customers

24. 24
Agenda
Confirming and Debunking MicrogridClaims
Three Drivers for Microgrids
An international framework for energy opportunities
The emerging options for rural and commercial electrification
Conclusions

25. 25
By continent:

26. 26
By GDP:

27. 27
Potential new framework based on energy
infrastructure needs
Classifies countries specifically for energy infrastructure
Accounts for technological needs
Accounts for potential for market adoption

28. 28
A new framework
Foreign
Industry
Presence
GDP Per
Capita

29. 29
Centralization of generation and demand dictates
the best technology
Foreign
Industry
Presence
GDP Per
Capita

30. 30
Grid Health indicates the status of existing grid
infrastructure
Foreign
Industry
Presence
GDP Per
Capita

31. 31
GDP per capita indicates availability of capital
Foreign
Industry
Presence
GDP Per
Capita

32. 32
Industry indicates the key beneficiaries of enhanced
infrastructure
GDP Per
Capita
Foreign
Industry
Presence

33. 33
The 40 lowest countries by GPD per capita

34. 34
Agenda
Confirming and Debunking MicrogridClaims
Three Drivers for Microgrids
An international framework for energy opportunities
The emerging options for rural and commercial electrification
Conclusions

35. 35
Electricity consumers can be broken into 3
categories by their ability to afford electricity
Category Activities Price range ($/kWh) Annual
consumption
(kWh)
Need-based
consumption
Lighting
Cell phone charging
$10/kWh + 5-10
Added value
consumption
Small commercial and
institutional operations
Extended lighting hours
$1/kWh - $3/kWh 30-100
Inelastic consumers Traditional residential,
commercial, and
institutional operations
$0.1/kWh - $2/kWh 1,000+

36. 36
Electricity consumers can be broken into 3
categories by their ability to afford electricity
Consumption
Easeofaddressing
Price$/kWh
Population
Inelastic
consumers
Value-add
consumers
Need-
based
consumers

37. 37
Conventional utilities are disinterested in rural
electrification
Industrial
Customer
Residential
Customer
Utility
Hardware
Multinational
Electricity
Services

38. 38
Value chain allows small ventures to circumnavigate
the national utility
Industrial
Customer
Residential
Customer
Utility
Local
Entrepreneur
ESCO
Small
Venture
Hardware
Multinational
Electricity
Services

39. 39
A long list of ventures attempt to innovate on the
business model

40. 40
A long list of ventures attempt to innovate on the
business model

41. 41
Business models are used to manage risk, while
technology is undifferentiated
Business model Description Example company
Low-cost Directly compete with
tier-2 and tier-3 Chinese
on low capex
SRE Solutions
Barefoot Power
Mera Gao Power
New business models Embracing models outside
capex purchase and
traditional pay-as-you-go
Egg Energy
Flexenclosure
Financing options Company finances system
capex under pay-as-you-
go model
Simpa Networks
Shared Solar

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Summary of barriers to market growth
Barrier Description Unique to developing
world?
Customers’ low access to
capital
Lack of savings or credit Yes
Corruption and
inadequacy in the supply
chain
Theft, exploitation, delinquency at small
and medium levels of business and politics
Yes
Lack of reliable data Non-existent information on
demographics or consumer behavior
Yes
Customers’ lack of
awareness/knowledge
Lack of centralized media increases cost
and time to educate and enlist customers
Yes
Difficulty of scaling sales Cash constraints due to pay-as-you-go
model
No

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Case Study: Simpa Networks
Barrier Score Approach
Capital
4 High-cost subscription, starting at $1/week, alienates portions of customer
base; higher cost than competing services, more affordable than purchasing a
system outright
Supply chain
3 Working with mixture of established multinationals and local entrepreneurs,
offering risk diversification in its partnerships
Market data
2 Invests heavily in demographic and usage data, but data is often inaccurate or
ineffective
Customer
knowledge
3 Customers familiar with subscription model, but the transfer model is foreign
Scaling sales
2 Company reaches simple payback on a system in 4 – 8 years, placing risk and
cash constraints on expansion
0
1
2
3
4
5
Capital
Supply
chain
Market
data
Customer
knowledge
Scaling
sales
Rely exclusively on existing sales
networks
Biggest struggles are high costs and
lack of information

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Case Study: Mera Gao Power
Barrier Score Approach
Capital 4
Low-cost subscription, $0.5/week, effectively overcomes financial concerns for
markets that need both lighting and charging services
Supply chain 5 Handles all sales, installation, and maintenance functions in-house
Market data 2 Lacks essential market data, including population and usage behavior
Customer
knowledge 3
Customers familiar with subscription model, but battery swapping introduces
novel element and unfamiliarity
Scaling sales 4
Low set-up cost allows company to break-even on an installation in one year;
company approaching profitability
0
1
2
3
4
5
Capital
Supply chain
Market data
Customer
knowledge
Scaling sales
Bringing all functions in-house
Seeing highest success rate
Still suffers from a
lack of information

45. 45
Case Study: Eskom
Barrier Score Approach
Capital 4
Pricing of $0.28/kWh is low enough to draw high subscription rates and drive
demand, but high volume consumers (>5kWh/week) pay more than they would
under competing service models.
Supply chain 5 Handles majority of functions in-house with a large and qualified staff
Market data 3 Populates its own data, but database is far from complete
Customer
knowledge 4
Customers are familiar and comfortable with traditional utility model, but
Eskom still invests in education and consumer engagement
Scaling sales 4
Deployment has proven profitable to date, and revenue from urban/suburban
population further sustains the utility. But increasingly remote areas become
increasingly costly to serve
0
1
2
3
4
5
Capital
Supply chain
Market data
Customer
knowledge
Scaling sales
Electrified 4 million off-grid homes since
the 1990’s
Commonly sees demand double in first
two years
Tolerates inevitable high cost of
customer management
Strong preference for “conventional”
generation

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Agenda
Confirming and Debunking MicrogridClaims
Three Drivers for Microgrids
An international framework for energy opportunities
The emerging options for rural and commercial electrification
Conclusions

47. 47
Conclusions
Multinationals have considerable interest in African innovation,
investment, and partnerships
• Confusion exists around framework
• Fear exists around shortage of data and lack of local network
A proper framework accounts for the specific market needs and the
condition of existing infrastructure in order to determine the best
solution
A long list of new ventures are attempting to address rural power issues
• Limited technological differentiation
• Moderate differentiation on business models
• Growth is slowed by poor integration with local networks

48. ThankYou
Steve Minnihan
Senior Analyst
steven.minnihan@luxresearchinc.com
+1 (617) 502 - 5334