Navigant Research Blog

The 21st “Great Wall” Construction in Chinese Power Grid

— December 30, 2010

Around December, 30 2010, State Grid Corporation of China (SGCC), the largest electric power transmission and distribution company in the world, plans to announce their plans for overall smart grid implementation in next decade. When I heard this news, I thought of Chinese “Great Wall” construction. Requiring huge resources and efforts by integrating human technologies into the Chinese national power grid already overloaded by a population of 1.3 billion in the 3rd largest country in the world.

The announcement will change and shape the industry structure for Chinese domestic and global markets as well as overall investors and stakeholders’ decision to embrace Chinese smart grid markets. While China has been announcing similar investment plans for smart gird in 2009 and 2010, the announcement is likely to include concrete and comprehensive roadmaps with detailed segments in Smart Grid, as well as Internet of Things services, heath care applications, and smart transportation. Many Chinese news media outlets have reported that China plans to invest CNY 4 trillion (US$601 billion) to develop the smart grid over the next decade.

In fact, China’s commitment to Smart Grid is not a “newly born” or current issue; rather China has been stepping up their roadmap in last few years. In early 2007, China started a feasibility study for smart grid technologies and relevant research. This series of preliminary studies to kick-off smart grid deployment were a foundation to establish the development of China’s own smart grid concept, so called – the building of “China’s Strong Smart Grid”.

In 2009, SGCC launched comprehensive development plans and research scopes in smart grid. In November, the company began the first and unprecedented procurement project for smart meter tender along with standardization for smart meters. In 2010, SGCC initiated smart grid deployment in China with various R&D programs through an actual construction and bidding process to procure more smart meters from 2009 and T&D infrastructure.

Smart grid has started to impact on China. For Chinese stakeholders in the industry, the smart grid will undoubtedly play a leading role in economic development and future growth. Many local governments are competitively unfolding smart grid projects to promote regional economic development. Central governments have been establishing relevant legislations in T&D facilities, construction, and new provision of smart grid. To accelerate its stance, SGCC has been introducing various activities: restructuring organization, planning standards and R&D scopes, and deployment of pilot projects. Further, Chinese equipments and IT software players have been moving forward in the value chains for smart grid to enjoy this huge and untapped opportunities for new revenue stream.

With the smart grid construction proceeding, product scopes adopted in Chinese smart grid structure at all levels have been gradually salient. The following may be the first scope: power facilities and equipment, electric power automation, information and communication systems in power grid, intelligent network operations, and value-added business services. In addition, market participants are starting to pay attention to smart appliances with energy saving features and home energy terminals. With different features against the exiting power grid such as bi-directional communication and integration of IT systems, smart grid construction means that new adoption of communication systems and peripheral equipments. As a result, Chinese market participants are actively seeking partnerships and business cooperation with other players who could fulfill the requirements and technology and functional gaps through down-and up- stream review in smart grid value chains. For instance, software vendors seek equipment and peripheral manufacturers, and industry automation players seek the partnerships with T&D facilities players. In addition, equipment manufacturers are considering extending their business scope to device and terminal fields. By working together, Chinese players are attempting to accelerate product innovation and capture comprehensive solutions in Chinese smart grid space. As time passes by, all of these market dynamics rising in China will build a sound and solid foundation to foster the Chinese smart grid market to lead Chinese power grid capabilities and industry growth for next decade.

What will be the most lucrative fields? Most investment priority in Chinese smart grid deployment in foreseeable future will be lying in T&D upgrades, especially in UHV/UHVDC construction. As a result, China has been scaling up continuously in the tender process to secure infrastructure and equipments in T&D scopes. This will be clear driver to make strong growth in Chinese smart grid market potentials in next few years.

In China, UHV grid refers to 1000 kV AC, whereas UHVDC indicates plus/minus 800 kV DC transmission network which is the backbone of its so called “Strong Smart Grid” with long-distance and large-scale power transmission capacity. In fact, China already became the sole country operating over 1000 kV transmission line as of 2009. Further, China was ranked as another record in this field with the only country operating over UHVDC +/-800 kV in Yunnan-Guangdong provinces recently.

All of four Chinese spearheads for industry innovation and future plans: the Ministry of Industry and Information Technology, Science of Technology, Finance, and State Council of China selected UHV/UHVDC transmission as the next core technology that Chinese domestic manufacturers should achieve the completion of localized productions – “Made in China”. The crucial reason is related with its power imbalance issues. With robust UHV/UHVDC transmission capabilities, China hopes to solve its power imbalance issues and to provide consumers with affluent electric power generation from more than two-thirds of China’s developable hydropower located in the mountainous southwestern region as well as wind and solar resources concentrated in the northwestern regions.

In 2009, SGCC also commented on its short-term level investment plans in which total investment for smart grid will reach CNY 1.2 trillion (US$ 173 billion), accounting for 35% shares (US$ 61 billion) directly for power grid infrastructure advancements from 2009 to 2011.This can be translated into almost $ 20 billion amount per year at least by 2011. Future progress for nationwide scale smart grid in next 10 years is unprecedented cases in global IT industry as well as power grid space records and could be comparable with Great Wall construction built around 2000 years ago.


Ford to Spark Stop-Start Market in the U.S.

— December 29, 2010

Ford is atop a wave of auto manufacturers that will bring technology that eliminates idling to North America. Stop-start technology, which has long been a feature of hybrids, will appear in Ford vehicles starting in 2012.

Stop-start is relatively simple and inexpensive to implement. By adding an enhanced battery and upgraded starter, vehicles can turn off the engine when the brakes are applied or the vehicle comes to a stop. The total cost of a stop-start system can be as low as $300, or $500 or more if a regenerative braking system is also added. Vehicles with stop-start are not considered hybrids because they do not have an electric motor to assist in propulsion.

Ford has not said which models will add stop-start technology, which is used widely in Europe by Ford and most other automakers in that region. Ford claims to have 244 patents related to stop-start technology, which is currently incorporated into the Ka, Mondeo, Focus, C-MAX and Grand C-MAX vehicles in Europe. Ford will move the technology to other markets after North America.

Stop-start has proven to be an economical method of meeting increasingly stringent reductions in diesel NOx and particulate emissions in Europe. The U.S. has not made changes to diesel emissions regulations in many years, and is not likely to do so for several more years. Also, the EPA’s drive cycle test used to calculate MPG ratings does not reflect the savings up of to 15% from stop-start. With little incentive to do so, automakers until now have kept stop-start from the U.S. market.

Ford Powertrain Communications Manager, Richard Truett, expects the addition of stop-start technology to add 1-2 miles per gallon to the company’s vehicles. He said by 2015 up to 90% of Ford’s nameplates would have stop-start functionality. Truett said the company is “taking the long term view on fuel prices,” expecting them to trend higher, and stop-start technology is “low-hanging fruit” for reducing fuel costs.

Stop-start systems are available from the many Tier One automotive suppliers including Bosch, Continental AG, and ZF Friedrichshafen. The first vehicles with stop-start arrived in the U.S. in 2010 from BMW and Porsche. Pike Research projects that sales of vehicles with stop-start technology in North America will grow from 11,000 to more than 2.8 million by 2015 as automakers promote the fuel economy and reduced emissions yielded by eliminating idling.

The dawn of the stop-start market in the U.S. was one of the 10 key trends identified for the auto market for 2011 by Pike Research.


Green Building Code Recruited for U.S. Army

— December 28, 2010

The U.S. Department of Defense has historically been at the forefront of many of the innovative clean technologies of our generation—and for good reason. Distributed renewable energy installations have reduced the amount of liquid fuels being transported to remote bases, thereby minimizing the vulnerability of energy supplies to attack as well as the costs associated with their transport. Efficiency policies, moreover, have helped curb the DoD’s energy appetite and freed its budgets up for other defense needs.

The Army’s recent announcement that it would adopt ASHRAE Standard 189.1 continues this legacy. The code, which we’ve discussed in the past, behaves like a normal code with minimum requirements for construction methods and other standards, except the requirements go deeper into traditional green building areas such as energy efficiency, building siting, water, and green construction approaches.

While the General Services Administration (GSA), which oversees procurement for federal agencies, recently updated their long-standing green building requirements from LEED Silver to LEED Gold, the U.S. Army has a different approach. Starting in 2008, the U.S. Army Corps of Engineers, the main construction arm of the Army, had begun to require LEED Silver for Army building projects both in the U.S. and abroad. Army projects could pick and choose the LEED points they wanted to meet based on the specifics of the project.

The new Green Code policy goes one step further by beefing up the bare minimum green building requirements across the board. The policy will apply to both construction of new buildings as well as renovations in the U.S. territories, permanent overseas Army installations, Army Reserve Centers, and other Army buildings.

The impact of this requirement should not be underestimated, as the Army maintains nearly 1 billion sf of space worldwide. By comparison, the Federal government owns about 2.4 billion sf total of space in the U.S. CB Richard Ellis, the largest real estate services firm in the world, currently manages about 2.4 billion sf of space, as well. So, as the Army conducts new construction and renovation projects around the world, the Green Code will come into effect in a growing number of buildings.

This move also brings up another important question: What will be the future of green building certification programs if one of the world’s biggest landlords is taking the code-based approach rather than the certification-based approach? For now, the current LEED Silver policy will stay in effect (though ASHRAE 189.1 may produce greener buildings than the LEED policy alone would), so there will be no major slowdown in the number of LEED certified buildings. In the long term, it will be interesting to see which approach—code-based and certification-based—drives the most activity for green building products and services.


The Next Wave of Fuel Cell Buses in California

— December 22, 2010

As I’ve noted before, I am working on my first Pike report — our 2011 analysis of fuel cell cars, fleet vehicles and bus markets. As part of my research I had a chance last week to sit down with Jaimie Levin, Director of Alternative Fuels Policy and Marketing for AC Transit, to talk about the new fuel cell buses being delivered for revenue service this year and next. Jaimie has long been one of the most energetic and passionate advocates for fuel cell buses. He also has a realistic view of where the technology is right now and where it needs to go to become commercially viable, due to his “front row seat” in the development process.

AC Transit is leading a partnership of five Bay Area transit agencies demonstrating advanced zero emission buses under California Air Resources Board regulations. 12 new Van Hool buses, optimized for the fuel cell system, are being delivered to AC Transit where the fuel cell drivetrain (using UTC’s fuel cell powerplant) is integrated. AC Transit has been running three older Van Hool/UTC fuel cell buses, so the agency’s drivers and maintenance staff have accrued a lot of experience. Jaimie played a nice video of several AC Transit staffers talking about how easy the buses are to maintain and drive compared to diesels. Jaimie is a big proponent of the idea that the value proposition for fuel cell buses lies in the performance characteristics as much as the zero emissions and higher fuel efficiency. The new buses will undergo more evaluation by NREL’s excellent program – this data really makes fuel cell bus performance much more transparent than with light duty vehicles.

So, what needs to happen with this next generation of buses, both AC Transit’s and others? Well, the durability needs to continue to improve. Jaimie said that one of the first generation UTC fuel cells hit 8,000 hours, which is a big deal. Still, fuel cells probably need to hit at least twice that for the transit market. And this is directly related to another big challenge, getting costs down. The AC Transit buses reportedly cost around $2.5 million apiece. Jaimie thinks price could drop by 40-50% with the production of as many as 200 buses, and that the design of fuel cells, traction batteries, and hybrid-drive component systems make them very conducive to mass production and significant cost reductions.

From my research for our report to date, it is looking like the big challenge for this market is moving across the infamous “Valley of Death”. In the case of fuel cell buses, this is probably occurring now. Fuel cell bus orders are still at very low numbers and not coming with any predictability as they are dependent on government funding programs. For example, when AC Transit ordered 12 buses in 2008 and 2009, it was hailed as the largest single fuel cell bus order in U.S. history. BC Transit’s fleet of 20 buses, deployed earlier this year, was also one of the biggest single fleet orders, and Daimler is reportedly planning to produce just 30 of its next generation fuel cell Evobus. This puts fuel cell buses a long way off from the 200 vehicles per year that many in the industry say are needed to bring major cost reductions. The question is: what will help this industry travel across this rather wide Valley of Death successfully? This is a question I plan to explore further in the upcoming fuel cell bus market analysis.


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