1. Grid-based Technology and Business Model Innovation: DG, DR, and EE How will Disruptive Challenges in Electric Markets Impact Michigan’s Energy Decisions? Presented by Lisa Wood Executive Director, IEE Vice President, Edison Foundation June 26, 2013

2. Disruptive challenges in electricity  Demand side: >“negawatts” or energy efficiency (EE) >Smart grid related technologies / networked homes  Demand & supply side: demand response (DR) >Flattens peak demand >Firms variable renewable energy sources  Supply side: Distributed generation (DG) >Increasing role of renewable energy in supply mix >3 rd party suppliers of rooftop solar 2

3. 2012 AEO reference case from 2010-2035: Increase of 710 TWh over 25 years 3

4. Demand-side: Energy efficiency and Smart Grid Technologies

5. Cause: Policies driving energy efficiency (“negawatts”)  Regulatory policies  Fixed cost recovery mechanisms/decoupling (27 states). In Michigan, DTE has a revenue decoupling mechanism.  Performance incentives (23 states). DTE has a performance incentive for EE in Michigan (earn up to 15% or program spending if energy savings targets exceeded)  Energy efficiency resource standards (EERS). In Michigan, 1% for electric utilities in 2012 and beyond.  Energy codes and national appliance/equipment standards becoming more stringent 5 Source: IEE, State Electric Efficiency Regulatory Frameworks, July 2012. www.edisonfoundation.net/IEE.

6. EE programs and codes & standards are major contributors to “negawatts” 6

7. Cause: Smart grid technologies driving energy management (EE, DR, DG)  Smart meter deployment (networking customers) >40 million deployed; 65 million expected by 2015 >In Michigan, about 866,000 smart meters deployed as of EOY 2012. Over 1 million expected by EOY 2013 (about 50% of DTE electric customers).  Networked customers opens door to possibilities >Energy management and demand response >Smart technologies in home or business; smart appliances >Smart charging of EVs 7

8. Smart meter installations in the US: 2007- 2015 (millions) 8

9. Effect: Energy efficiency flattens energy consumption growth in the US (IEE forecast based on AEO 2012 reference case) 9 Source: IEE, Factors Affecting Electricity Consumption in the U.S. (2010-2035). March 2013.

10. Effect: Correlation between GDP and electricity sales appears broken 10 Source: EIA, Annual Energy Review, September 2012; BEA

11. Business models when demand is flat  Xx  xx 11

12. Supply side: Distributed Generation

13. Projected electricity generation by fuel source: Renewable energy growth (TWh) 13 Source: EIA, Annual Energy Outlook 2013 Early Release

14. Growth in renewable energy in US  How much can renewable energy contribute to future U.S. electricity supply. >AEO forecast of 16% by 2040 is too conservative. >NREL Renewable Electricity Futures Study (2012) shows 80% renewable energy by 2050 possible in the U.S.  With DR and storage, electric power system can accommodate higher levels of variable generation from wind and solar?  In recent past, high growth in wind energy. Now at 3%.  Now, high growth in solar PV expected. Now at 1%. Could grow to 3% by 2016. 14

15. Cause 1. Policies and pricing driving DG  29 state plus DC have RPSs, 17 with mandates/programs for solar and other DG  Net metering in 43 states  Feed-In Tariffs – adopted/proposed in a few states (common in Europe)  Reverse auction mechanism (CA & CT)  Subsidies, rebates, tax incentives, financing.  Zero net energy goals  Critically important to price DG right - cost of access to grid; cost of energy (e.g., Virginia standby charge) 15

16. Is solar DG becoming a disruptive technology?  Annual PV installations grew 76% in 2012 in US, reaching 2,816 MW (2.8 GW)  Greentech media forecasts 30% growth in US market in 2013  Cumulative 2012 solar capacity in US: 6,175 MW (6.2 GW)  Cumulative solar capacity in US projected to be 28 GW by 2016 >[28,000 MW/1,171,000 MW] = 3% of total US capacity 16 Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review. 2013

17. Annual PV installed capacity in US (MW): growing exponentially 17 Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review and Q1 2013 Note: Assumed 85 percent DC to AC conversion efficiency

18. Cumulative PV capacity in US reached 6.2 GW in 2012 (utility owned is not DG) 18 Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review. 2013 Note: Assume 85% DC to AC inverter efficient.

19. Cumulative PV capacity projected to be 28 GW 2016 (4x 2012) 19 Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review and Q1 2013 Note: Assumed 85 percent DC to AC conversion efficiency

20. Possible scenarios and effects  Outcomes >Utilities lease rooftops and own solar PV >Disintermediation: 3 rd party owns solar PV and sells contract to customer >Customers own solar PV

21. Is solar PV the “wireless” technology for the electric power sector? 21 Source: SEIA and GTM Research, U.S. Solar Market Insights 2012 Year in Review. 2013  Wireless transformed telecom sector >Decline in landlines (traditional cash cow for telecom) >Wireless developed in places without landlines  DG today >So far, DG is not utility owned (utilities own large solar PV) >Top states today: CA, AZ, NJ >Subsidies galore  What is the biz model for DG? >Own solar panels and lease rooftops – comm, resi >Combined business – solar DG and efficiency and utility supplied power. Is this a regulated or non regulated business?

22. For more information, contact: Lisa Wood Executive Director, IEE Vice President, Edison Foundation IEE 701 Pennsylvania Ave., N.W. Washington, D.C. 20004-2696 202.508.5550 lwood@edisonfoundation.net www.edisonfoundation.net/IEE