Navigant Research Blog

PHEV Conversions May Slow, but Imagination Will Continue to Fuel the Market

— July 15, 2009

Since about 2004 companies have been offering conversion kits for (mainly) Toyota Prius and Ford Escape hybrid owners to convert their vehicles to plug-in hybrid electric vehicles (PHEVs).  This is largely done by replacing the current batteries, management system, and charger in current vehicles.  While that’s simple to say, it is actually a fairly complex system, particularly the management system, which helps control the speed and amount of electricity flowing in and out of the battery.

There is essentially a two-tier system to this industry: the first tier includes the companies that actually make the equipment and develop the engineering for the conversion itself.  The second tier is the installers – the people that actually install the equipment into your vehicle.  In some cases these are all done by the same company, but several companies are now split between the tiers (for example Hymotion has certified several installers across the country to convert hybrids to PHEVs).  With these vehicles now converted they can travel for anywhere from 5 to 40 miles without using any gas, as long as the vehicles are plugged in and charged prior to use.

This market has been growing (some would argue slowly), but it is very difficult to size as there are no registration requirements and most companies do not publish their sales numbers.  However, an estimate of about 3,000 to 4,000 vehicles (including fleet vehicles) converted over the years may not be too far off.  The number of companies offering PHEV conversions is also somewhat tough to estimate because there are many do-it-yourself type operations that help advanced consumers convert their own vehicles.  However, the major players in the market are EDrive Systems, EETrex (formerly Hybrids Plus), Hymotion (part of A123 Systems), and OEMtek.  Overall the marketplace is still relatively new, largely because of the limited access to the conversions and high costs (conversions have been falling price but remain at least $5,000-$12,000 over the price of the original vehicle, and often higher).

But as automakers begin to join the PHEV marketplace with mass produced PHEVs (such as the Chevy Volt and Plug-in Toyota Prius both in 2010), what will happen to these conversion companies?  In most cases the trend has already been toward offering components, for example EDrive Systems is part of EnergyCS, a battery management system company, and Hymotion is part of A123 Systems a battery maker.  Additionally EETrex is offering a vehicle-to-grid product called the Inverger which manages energy flow from a vehicle to the grid – the smart grid technology that is widely expected to become more critical as the volume of PHEVs grows.

We anticipate the market for conversions will continue to last beyond the launch of the Volt and Plug-in Prius, particularly for fleet customers – though the launch of these vehicles will definitely have a dampening affect on the Prius conversions currently being completed.  Currently, there are a few companies that do conversions for pick-up trucks, large medium duty and heavy duty trucks, as well as full size vans.  As additional hybrids are brought to market in other vehicle segments, we expect that companies will continue to develop the engineering to convert them into plug-in hybrids.  Looking further into the future towards the latter half of the next decade, it would not be surprising to see conversion going the other direction, such as adding additional charging apparatus to full EVs (e.g. adding fuel cells or solar arrays) to provide vast or essentially unlimited range.  The one thing about the conversion and aftermarket business, imagination is essentially the only limitation.

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Grid Storage A Secure Solution

— July 14, 2009

While there has been much discussion about using batteries or other forms of storage to balance intermittent renewable wind and solar power on the grid, Jim Woolsey believes that distributed storage also helps to secure the grid from terrorists.

Woolsey, who directed the CIA under President Clinton and is a partner at Vantage Point Venture Partners, says the national power grid was developed “without a thought about security” and as constructed today is “Al Qaeda’s dream.” Speaking at the Storage Week conference, Woolsey unabashedly said that moving the grid from centralized to distributed resources was necessary to make the task of those who wish to disrupt the U.S. economy more difficult.

“As we look at public policy and energy, the problem is the fragility of our domestic grid, and dependence on oil. It is a step in the right direction to move towards renewables and distributed generation, and storage will play an important role,” Woolsey said.

The charismatic Woolsey drew chuckles from an otherwise stolid crowd of utility and energy services providers as he called for an end to American dependence on foreign oil. Energy storage is “one way out of it,” according to Woolsey. He warned of the dangers of the world’s reliance on eight of the nine largest exporting oil countries run by autocracies and dictatorships, and said that he encourage the use of plug-in hybrids so that Saudi princes “would have to get real work.”

Grid risks includes placing high voltage transformers and their backups within easy sniper range along highways “protected only by chicken wire,” said Woolsey. (A utility exec later in the day refuted Woolsey’s assertion, saying that backup transformers are not located adjacent to primary units.)

Microgrids, which include their own backup storage systems and generation resources and can island themselves from the grid enable organizations or homeowners to keep vital services going in the event of grid outages caused by accidents or terrorist activities, Woolsey said.

While most of his speech was at a code orange in describing security threats, Woolsey said fears about switching from a risky dependence on Middle Eastern oil to an unhealthy reliance on lithium are unfounded. He said that while Bolivia, with which the U.S. government has concerns, is a significant supplier of lithium for batteries, Chile, Argentina, the U.S. and China also have reserves. Since lithium is also easily recyclable, “Don’t be scared about Bolivia,” he said.

During a spirited question and answer with the audience, when asked about the prospects for natural gas, Woolsey said he was disappointed in the energy security legislation recently passed by the House because it was “tilted towards coal” instead of natural gas because of pressure from lobbyists. Woolsey said natural gas “becomes an ideal partner for renewables,” because it is cleaner and easier to dispatch than coal.

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Energy Storage Market Charges Ahead

— July 12, 2009

The energy storage market is like a charging elephant: even if you can’t see what it looks like, you know it’s going to be big.

As energy shifts to become more distributed and with a greater emphasis on intermittent renewable resources, the need for temporary storage will expand significantly. Distributed storage increases energy efficiency by eliminating transmission losses, and wind and solar power require temporary storage to counteract the daily peaks and valleys in demand.

Entrepreneurs and researchers sensing the opportunity have been developing a wide variety of technologies to meet the expected surge in demand. Just like an elephant, which takes a relatively long time to gestate (22 months) the storage market has taken time to develop, but once it starts, it will keep growing and growing. According to Pike Research’s recent report “Energy Storage Technology Markets,” the market for stationary utility energy storage will grow by more than 10 fold between 2008 and 2018, to $4.1 billion.

Jim Woolsey, the former CIA director and current partner at Vantage Point Venture Partners, is one of the most vocal proponents of storage systems for renewable energy and will be speaking on the subject this week at Storage Week, which Pike Research will also be attending.

The wide-open field includes batteries, which are being adapted to be part of large energy storage systems, as well as compressed air, pumped hydro power, flywheel and supercapacitor systems.

Beacon Power just received a $43 million loan from the Department of Energy to continue work on a 20 megawatt flywheel storage system. Competing flywheel storage company, Pentadyne Power Corporation is expanding operations, raising $22 million last year, and making lists from Inc magazine and the Los Angeles Business Journal of fastest growing companies.

General Electric is taking another approach, betting that sodium batteries can play a role in energy storage. The company is partnering with New York to build a $100 million battery manufacturing facility.

While an open field encourages innovation, it complicates the task of grid operators on setting standards for adoption. According to the DOE’s National Council on Electricity Policy,
no cohesive plan exists as to how storage technologies will be incorporated into the grid.

These technical issues will be sorted out over the next few years as the shakeout occurs and dominant and niche players are identified. Battery technologies may have an advantage as they are receiving the most investment because of their use in electric vehicles.

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The Politics of Lithium Reserves

— July 8, 2009

Much of the next generation of automobile will be (at least initially) based on battery chemistry that currently is similar to that which powers laptops, mobile phones, and other consumer electronics – lithium ion (Li-ion).  This raises the question, where does all that lithium come from?

At the moment, China provides a lot of the batteries that go into consumer electronics, and Tibet is known to have a large source of lithium.  Additionally, estimates are that Bolivia has the largest reserves of lithium in the world with 36% of the global pie.  Currently, the U.S. holds about 3% of world reserves.

The good news is that most experts have come to the conclusion that there is not an impending lithium shortage as many suspected there would be.  There have been arguments put forth showing that lithium will actually run short within the decade.  However, many have refuted this saying that even with the development of electric vehicles, lithium will be around for much longer than a decade.

The bad news is that the politics of lithium are quickly likely to become a hot issue for battery builders.  Regardless of whether they believe lithium is running out sooner or later, most experts have come to agree that lithium’s greatest abundance is in Bolivia, Chile, and Tibet.  Bolivia’s president, Evo Morales, is already trying to avoid foreign investment, and talks consistently about the importance of Bolivia having state control over its natural resources.  Automakers approaching Bolivia have not received a warm welcome either.  The challenges China faces in Tibet (politically speaking) are already well publicized. 

As the growth of lithium usage in both auto and larger stationary batteries grows, the U.S., South Korea, Japan, and China are all going to be facing some complicated politics with lithium that may have a surprisingly familiar ring to it.  Estimates show that 75% of lithium is likely to come from South America.  Despite a history of tensions between Chile (about 20% of world reserves) and Bolivia, the politics between them have been growing more friendly since 2005.  A future governing body for South American lithium trying to set world pricing (similar to OPEC) would not be too much of a stretch of the imagination.

Once the consumer market has accepted plug-in hybrids and electric vehicles, the challenge facing battery and automakers, it seems, may be to see how quickly they can move to a new chemistry less reliant on lithium.  (Though, don’t be surprised to see politics surface with the “next big thing” as well…)

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