Whole Foods on energy storage and other DERs - Smart Energy Decisions

Commercial, Demand Management, Distributed Energy Resources, Energy Efficiency, Energy Storage, Utilities, Commercial, Distributed Generation, Solar  -  November 18, 2016 - By Amy Poszywak

Views from the top: Whole Foods on new tech, utility barriers and energy as a service (part 2)

This is part two of our Q&A with Aaron Daly, Whole Foods Market's global director of energy management, about the company's current challenges in energy management — both on the supply and demand sides — and the increasingly complex environment for large commercial and industrial energy managers.

An early adopter of rooftop solar at its stores, Whole Foods Market has been considered a leader in corporate energy management for quite some time. And although the company's interest in its impact on the environment is rooted in its brand — "Since we opened our first store in 1980, we've not only been passionate about healthy food, we’ve been passionate about a healthy planet," its website reads — it has also found its efforts in energy efficiency, clean energy and distributed energy resources to be smart financial decision

In part one, Daly outlined the multitude of factors and challenges impacting Whole Foods Market's energy strategy. Part two addresses new technologies from refrigeration to energy storage; the interplay between them and the grid; the pros and cons of the evolving energy as a service business model and the influx of other suppliers to the C&I market; and the roadblocks to implementation of new technologies that Whole Foods Market has seen from the utility industry. 

Smart Energy Decisions: Is there a technology or topic that you're really excited about at the moment or that you think is the most promising in terms of helping your energy management strategy or the broader industry?

Aaron Daly: There is, it might not be relevant to all commercial companies but it certainly is to the food retail space. In our space, we're currently very heavily on refrigeration technologies and in essence we're still using the same technology that we were using in the very early days of refrigeration, back in the early 1900s.

So very little has changed in the form of technology. We've made incremental improvements along the way, and over the past number of years we've made changes in the type of refrigerant gasses that we use, to respond mainly to environmental pressure and regulations that have gone along with it. But all of that is to say that now there is a push toward natural refrigerants in refrigeration, and I think that is a game changer in the food retail industry. And that would affect anyone that might use a very small refrigerator in the front of their store to somebody who relies completely on refrigeration for their business.

But it also impacts the air conditioning industry, so to a lesser degree it also impacts retailers that do not sell food or do not rely on refrigeration. But these technologies, they're not necessarily a game changer from the point of view that if you're going to switch to natural refrigeration technologies, you're going to see a reduction in your energy bills or in your cost as a matter of course. But you will see a reduction in your environmental footprint, and as such, there is a lot of interest in going that route. And if you do it right, you can see a reduction in your energy costs and improved operational flexibility as a result of making the switch to natural refrigeration technologies. So it's a complex issue that will play out differently, and is playing out differently, in different subsections of the HVAC and refrigeration industries at large.

I think it's going to be, over the coming few years, a game changer in how we think about what is the largest load in our building. As such, it's going to be an energy management issue as well as a facilities issue and a refrigeration issue. As well as a utility issue, because utilities have the ability, as I mentioned earlier, through demand response and other programs, to interact with their customers now. And these technologies are going to play a role in energy storage, through demand response-enabled devices and other things to play a role in stabilizing the grid and providing alternative revenue sources. So I think that's going to be an area to focus a lot of attention on, and one as a company that we focus a lot of attention on.

You mentioned energy storage, something that is increasingly a large part of these conversations and is gaining a lot of attention in the broader energy industry. As financing gets more sophisticated around it and incentives pop up around the country, we were curious about how you're thinking about implementing it into your strategy or program?

The simple answer is yes, we're implementing energy storage we're enthusiastic about energy storage and we are actively engaging in trying to figure out how to integrate it in a coordinated manner into our operations. And there is so much change going on in the energy storage space as you mentioned. So to date, we've looked for those markets where there's a good combination of rate structures where we see high demand charges or we can use battery storage to reduce our demand changes, as well as incentives, such as in California, and they're starting to shape up in places like New York and Massachusetts and other markets. So right now it's a very market-specific incentive-driven technology, but we're seeing the costs come down dramatically, and there's an ongoing conversation about the value stack from storage growing over time. So right now there's a fairly simple demand charge mitigation strategy that we're deploying, and that providers in the space are bringing to us as a today opportunity. But there are a number of other fairly real opportunities that I think will become available to us, and a host of energy storage or an owner/operator of energy storage to be able to implement in the near future, such as grid services, being able to provide frequency regulation or other types of grid services and be able to make revenue from that, as a secondary benefit to reducing our own demand charges.

In addition, and we're just starting to get into this now, but we can use battery storage to firm our onsite renewable energy assets. We've got onsite rooftop solar and they're obviously going to produce a lot of power in the middle of the day when the sun is shining, but if a cloud rolls over or if there are times on the shoulders in the morning or afternoon when the sun is not right overhead, that power production drops off quite dramatically, and so we can use the battery to better match the renewable asset we have with the demand charges that we see from the utility. And I think that benefits the utility and it benefits us, and so that's something that we're interested in.

But ultimately, I think we're spending some time implementing and a lot of time looking and thinking about how this can shape up in the future, because we definitely see energy storage as a big play for us and for companies like us. But the exact business model and how it will shape up, whether it's a service base structure like it is today or whether it will be some other kind of business model that will come to play around energy storage, that remains to be seen.

I would say this is probably the single biggest game changer in terms of new technology coming to distributed energy management. It's going to have a profound impact on our business, and even more so, on the energy industry at large in the utility space. It's going to completely change the economics of power production and procurement. So it will be very exciting for us to keep an eye on it.

You talked about how there are a lot of companies or suppliers out there focused on energy efficiency and/or the changing energy needs of commercial and industrial corporations. Some of them are newcomers and some are being created from traditional utilities that see the need to adapt their business models. We're curious what you make of that business model shift in the market. Is it something you're finding useful or just adding to the complexity?

In some respects, I think it remains to be seen. But we're having a lot of conversations with companies about that pivoting business model from product to service. We've also already integrated a number of service-based platforms into what we do. I keep bringing up that term integrate, and that's one of the factors. When you're working with a company on a service basis, particularly in the energy management space, it requires integration or it requires an all-in strategy with a particular provider that can provide you with a soup to nuts approach.

So there are a lot of reasons to be cautious, in my view, to going into these contracts. Oftentimes they're hard to back out of, once you have deployed the technology that you need to deploy in order to gain the value from the services, it's difficult to go and say well, we're going to deploy a different set of technology in order to be able to enjoy a service from somebody else. So even though on an ongoing basis the fees may not be high, the transactional cost of shifting from one provider to another can be quite expensive. So it takes thinking through and it takes making sure that the provider is trusted, that they understand your business and are there for the long-term, that they're willing to work with you through the integration challenges and other challenges that you go through.

So it's certainly not a panacea, and I would caution businesses that have a good model in selling product to think that it is the be all end all to shift to an energy-as-a-service or other types of service-based platforms to sell to us, because it just is a more difficult integration process for us and therefore we're going to scrutinize it more carefully. Secondarily, service contracts hit our expense lines as a company. We don't have the ability to capitalize those costs and therefore depreciate them. So unless they're showing real value in real time, there is a lot of scrutiny on those costs and that just adds to the hesitancy, if you will, that I have seen in making those kinds of investments or building those kinds of relationships.

So it's a mixed bag. There's value to be had for sure, but I think we're pretty slow to move on those. Plus there are just so many offerings out there right now, and many of them overlap in different ways.

We hear from various end-users from different companies that they sometimes have issues with their utilities as they try to ramp up their renewable energy use, get into energy storage or other types of DERs or connectivity things related to those technologies. At Whole Foods, you have a unique perspective as you work with lots of different utilities across the U.S. How would you characterize that relationship as a customer?

Our relationships with our utilities vary dramatically. The area where we experience somewhat similar levels of service is around basic functionality such as interconnection of new load or new stores, and outage service and other things like that. Although that even varies sometimes.

But the areas that impact my work as an energy manager are those that you just outlined, there's energy efficiency: do they offer a program, or incentives or other kinds of energy efficiency services, how easy are they to use and do they reach out to us, or do we have to track them down and jump through a lot of hoops to get them, etc. So there's huge variation between utilities, generally in markets where there are mature energy efficiency markets like California, the Pacific Northwest, the Northeast, where we have some really good relationships with utilities when it comes to energy efficiency, versus some other markets, generally, the markets where there are fully integrated utility models, fully regulated utilities, such as the Southeast or Florida, but other areas also such as Texas, where we don't have good relationships with utilities on energy efficiency. They don't offer very much in the way of energy efficiency incentives or other services, and if they do have incentives, they're incredibly difficult to acquire, and can oftentimes not make the economic sense to go after them.

When it comes to the interconnection of say renewables, rooftop solar or battery storage, or other types of load-side generation assets, most utilities are unfavorable towards that, in my experience. The rhetoric toward that varies tremendously, again, based generally speaking on geography. But almost all investor-owned utilities are not friendly to load-side generation assets, storage assets or others. They're generally not favorable toward net metering and they're very concerned about, as they should be, issues of equity amongst their rate payers, and safety and those types of things. Which, absolutely, no one would ever argue is a bad thing for them to be focused on, but oftentimes it seems that they use those concerns as fallbacks to cover up, if you will, a lack of interest or desire in seeing customer-side resources being developed. They are, on that front, very difficult for us to work with, pretty much across the board.

It seems like the Edison Electric Institute, the industry group for investor-owned utilities, they've been working to change the rhetoric around those issues, I have noticed in the past year or so, toward something that sounds like the utilities are going to be more focused on their customers and more receptive to behind the meter technologies and distributed energy resources. Have you noticed an actual change in attitudes, or has that been mostly just talk at this point?

I would say what has changed is the sense that DERs are now an inevitability, and that there is significant interest from ourselves and other large customers but also from the industry at large, outside of the power sector, for customers at large, wanting to be able to access these resources. And many of these resources, whether it's IoT or battery storage or generation assets, are coming down in costs and the comparative value of them to just business-as-usual activity with the utility is improving. As a result, I think they are recognizing the fact that these things are coming. But I think there's a big difference between a recognition of the fact that they're coming and a rhetoric that supports customer engagement and support of customer initiatives. There's a big difference between that and an active role as a utility in helping customers to develop customer-side assets and resources and contribute to the grid in a comprehensive or bilateral manner.

There are some good case studies of utilities doing that, so I wouldn't say they don't exist. There are good examples of some publicly owned utilities that will engage in that way, we've done some projects with utilities in that way, and [Sacramento Municipal Utility District] comes to mind as one in particular. Investor-owned utilities have done some partnership pilots, but even in markets where one might expect there to be a real change in focus, we're still seeing challenges that utilities are kind of holding on to that prevent us from engaging more fully.

Another good example is metering infrastructure requirements for behind the meter storage and renewable generation when you're using net metering. If you're net metering your solar, but you want to use a battery to enhance the value of solar, the utility wants you to submeter the solar output so that they can verify that the net meter is only happening from the solar and you're not doing any kind of triage using the battery. That is certainly understandable but they put some requirements in there around how that's done, that makes it very expensive. So the impact is that it destroys the economics of the projects. That's just one example of multiple things like that, where the reason is put on safety or other matters but it ends up killing projects and momentum for customers.

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