Navigant Research Blog

EV Future Depends on U.S./China Bond

— April 29, 2011

While Americans are preoccupied with the recent introductions of the Nissan Leaf and Chevrolet Volt, the long term success of the plug-in vehicle (PEV) market may rest on the development of a robust market in China. According to Pike Research, the two nations are forecast to be neck-and-neck in PEV sales during the next five years, and together will comprise nearly 60% of the global market. Sales of PEVs in the two countries in 2015 will total almost 600,000.

Like in the United States, the government of China is strongly encouraging the adoption of PEVs through incentives and publicly-funded projects aimed at reducing emissions in urban centers. Although hybrid and PEV sales in China have been slow to start, in looking to become a global automotive power, China will largely leapfrog the established ICE industry by focusing on producing hybrid and electric vehicles. As gas prices climb in China and around the globe, consumers are likely to increase their interest in hybrid and electric vehicles.

Even more important than their combined market share is the extensive collaboration and dependency between the United States and China. China plays an important role in American PEV auto and component makers’ manufacturing and sales efforts. Ford has three PEVs planned for China as part of its expansion into the region, while GM is partnering with SAIC on a new electric vehicle platform.

Other examples of the intercontinental collaboration include Coda Automotive sourcing batteries and the body for its upcoming EV from China, and Johnson Controls-Saft supplying batteries to Beijing Electric Vehicle Company.

Government agencies are also integral to the market develop, as both the city of Denver and Ford have an Eco Partnership with the city of Chongquing and Chang’an Motors, and the city of Los Angeles is sharing EV data with China.

While automakers have been reluctant to buy batteries from China due to quality concerns, these initiatives are bringing necessary intellectual property to China’s massive manufacturing capacity, which should enable the country to compete with battery makers in Japan, Korea, and the United States. Automakers are challenged by balancing the desire to participate in the lucrative Chinese market with protecting their IP so that the technology is not copied.

For EV and battery prices to come down through larger scale manufacturing volumes, both the U.S. and Chinese markets need to be vibrant and competitive. Joint ventures and technology sharing agreements is the chosen course today.


Cyber Security’s Poor Stepsister

— April 29, 2011

Last week there was a well-publicized outage at an Amazon Elastic Cloud Compute (EC2) center in Washington D.C. area. A number of companies – some small, some well-known social networking sites – were offline while the outage persisted through most of two business days. Amazon claims to have not yet identified the root cause of the outage and promises a detailed post mortem.

Another casualty of this outage may be cloud computing itself, at least for a while. While many smaller companies run their entire business in a cloud – some were founded upon that expectation – Pike’s research indicates that larger companies are still reluctant to put mission-critical applications into a cloud. Fair or not, there remains a perception that cloud computing is not quite ready for prime time. The EC2 outage will not have allayed that fear.

Security is a balance among three competing aspects: Confidentiality, Integrity, and Availability (note the handy CIA acronym). Absolute and perfect security is impossible to achieve – the objective is to attain the optimum balance among the three aspects. Of those, Confidentiality has received the lion’s share of the attention – think of encryption, biometric authentication, data leak prevention, intrusion prevention, and so on. Availability has often been the neglected poor stepsister of the three.

A typical IT security expert knows a lot about confidentiality, a reasonable amount about integrity, and availability is often someone else’s job. Although “Business Continuity and Disaster Recovery” is one of the ten domains required of anyone pursuing a CISSP certification, it is often held separate from “security” in many companies.

This separation may explain part of the IT/Operations contrast at utilities. Utilities exist to reliably deliver commodities to their customers and security experts are often unaccustomed to focusing on availability. Many have entered the utilities industry with experience that focused on security in the CIA sequence – confidentiality first, availability last. I certainly did. Fortunately, I was given an early and mercilessly quick initiation into the realities of Smart Grid Cyber Security.

In the utility operations world, confidentiality is frequently less of an issue than in IT situations. Consider each of the three security aspects in terms of a control network:

  • Confidentiality: Operations data does not necessarily have the same requirement to be confidential as business data. For example, lots of people know how to exploit your bank account but very few know what to do with a phasor measurement.
  • Integrity: PMU data must be correctly time-sequenced with other measurements from the same grid. If not then the data may be useless. However, many security professionals would consider this an application problem.
  • Availability: Stolen bank account or charge card details are sometimes held in reserve for months or even years before they are used. Latency is not important in many cyber theft scenarios. On the other hand, PMU data may be needed instantly in managing a grid or else it may too late to use it.

Utilities can take steps to avoid ending up with in-house or contractor security experts who focus on the wrong areas. Even if there are few security experts with a utility background, there are other industries where availability is critical. For example, securities trading: Most trades become public record within a few seconds of their initiation, so confidentiality is not the primary consideration. However, with so many ways to trade online, service availability is the key to retaining customers. Likewise, many websites survive on high availability, and die when response time is more than a few seconds.

Once a security expert is on-board, provide training: why does the utility exist, how does it succeed, what is most important to protect? While it is important for new employees to bring their skills and experience to bear on your service, it is equally important to remember that the utility industry is like no other. It is unfair to expect anyone to figure that out on their own.


Avoiding the U.S. Centric View of Fuel Cell Cars

— April 28, 2011

In a convenient bit of timing, my report Fuel Cell Vehicles, which covers the state of fuel cell cars, buses, and medium-duty vehicles, came out the same week as a two major news outlets published stories on fuel cell cars: — one on NPR and one at theWashington Post. Both reported on the dichotomy between major automakers’ continued investment in fuel cell cars and the U.S. DOE’s funding cuts on fuel cell and hydrogen technology. At some level, the articles seem designed to remind laypeople that, yes, fuel cell cars are still around and automakers are in fact moving ahead with development and commercialization plans. Unfortunately, in the United States, because DOE Secretary Stephen Chu is an avowed skeptic of fuel cells, this has created the impression among the general public in the United States that fuel cell cars, and indeed fuel cell technology in general, are a dead end.

My U.K. colleague Kerry-Ann Adamson, in her inimitable way, already gave the “outsider” perspective on what the U.S. DOE Secretary’s position does or doesn’t mean for the fuel cell industry. It is worth reiterating, though, that the fuel cell industry is a global one, and the U.S. DOE does not define this issue. Indeed, if U.S. companies and other stakeholders were to follow the DOE’s message on fuel cells, it would simply give other countries still aggressively investing in fuel cells the opportunity to overtake the United States.

In Pike’s fuel cell vehicle report, I note that Europe is still very bullish on fuel cell cars – with Germany and Scandinavia taking the lead on rolling out infrastructure. So are Japan (a coalition of Japanese gas utilities and automakers just announced plans to build 100 fueling stations) and South Korea. Pike’s forecast for sales of commercial FCVs from 2015-2019 project that Western Europe and the Asia-Pacific will far outstrip North America. This forecast is based in part on the currently planned infrastructure investment in each region, as well as the strength of the domestic automakers in fuel cell technology development. North America will still see substantial numbers of FCVs, but what Pike’s forecasts highlight is the need to keep a global perspective when assessing the health and future prospects for FCVs.

U.S. industry and some state and local governments are continuing to pursue FCVs. Of note, U.S. automaker GM is among the OEMs very publicly making the case that fuel cell cars will be complementary to plug-in vehicles, since they will give the autos a way to offer a zero emission vehicle in popular large vehicle platforms, with long range and short refueling times.

This is not to say that fuel cell cars do not face challenges to successful commercialization, but simply that reports of their death in the United States have been greatly exaggerated.


Putting a Local Lens on the Global Energy Sector

— April 28, 2011

Recently, I attended the Global New Energy Summit in Colorado Springs. The GNES covered diverse geographies and topics ranging from hydraulic fracturing to venture capital. What each of the panels had in common was a peppering of Colorado expertise in science, policy-making, and business, highlighting the state’s central role in the global cleantech industry.

The state is home to extensive university research and the National Renewable Energy Laboratory, which is working to commercialize these innovative technologies. As a traditional oil and gas state with a plethora of solar, wind, and biomass resources, Colorado understands the challenges faced when integrating renewable energy onto the electric grid and is striving to develop a policy environment that appropriately accommodates both industries. Colorado currently has the second highest Renewable Portfolio Standard (RPS) in the United States. These resources have attracted multinational corporations from around the world spanning various energy sectors, including Vestas Wind Systems, Abound Solar, IBM, and Lockheed Martin (just to name a few).

The GNES was an opportunity for all of these pieces to come together and for discussions on local, national, and international trends in the energy sector. After two days of panels and discussions with industry leaders, I came away pondering the following topics:

  • Natural Gas: A good partner with renewables for grid reliability, decreased capital expenditures, and lower greenhouse gas emissions from power generation
  • Transmission Infrastructure: High-voltage direct current equipment leading new transmission infrastructure
  • The Consumer and the Smart Grid: The home becoming like an iPad for the grid

In subsequent posts, I will highlight the activities taking place here in Colorado, but for now I will leave you with an overview of some of the key trends that were among the hot topics at the Global New Energy Summit and some of my thoughts.

Natural Gas: This isn’t something we discuss too frequently on the Pike Research blog, but any realistic discussion about the future of renewable energy needs to touch on it. Natural gas has supplied electricity since the 1940s and natural gas power plants operate approximately 30% more efficiently than coal-fired plants while emitting significant fewer toxins. Recent advances in drilling technology have unearthed substantial reserves and the redeployment of drilling rigs and more efficient practices have driven down the price of natural gas and initiated a revival of the industry.

Natural gas is frequently discussed as a backup source to renewable power, to ensure grid reliability. Less frequently we talk about the way natural gas can decrease the capital costs to develop renewable power. Integrated solar and natural gas facilities present an opportunity to create more favorable financial conditions for renewable project development. By combining gas and solar at one facility the need for duplicate equipment is eliminated. The costs can become even more favorable if existing combined cycle facilities are retrofitted with solar equipment or other renewable technologies. The first such facility was just completed and connected to the grid by Florida Power & Light (FPL), where 75 MW of solar was added to the 3,800 MW combined cycle gas power plant already in operation in Martin County, Florida.

Transmission Infrastructure:

Siting and constructing new transmission infrastructure is not only essential to the future of the cleantech sector, but it is also time-intensive and costly to achieve. There are few firms with sufficient political and financial capital to get the task done. However, technology advances and creative project development may provide a solution.

The future of transmission infrastructure is heading towards high-voltage direct current (HVDC) equipment. While the cost of converting power from DC to alternating current (AC) on the distribution system is high – costs can be roughly $250 million per inverter – the economics become more favorable when building lines over distances greater than 400 miles. Using HVDC is favored by some merchant transmission line companies like TransCanada, which is connecting 3,000 MW of wind generation resources in Wyoming to Southern Nevada, the gateway to markets in Southern California. Even smaller firms like Clean Line Energy Partners, another GNES attendee, are banking on the favorable economics, diminished land footprint, and power losses associated with HVDC infrastructure.

Direct current is likely to see more action for distributed locations as well. Companies like GE, Panasonic, and Sharp are looking at using DC equipment in homes and commercial buildings to power appliances and electric vehicles. GE recently acquired Lineage Power, which specializes in power conversion technology for the use of DC power at distributed locations such as telecom towers and data centers.

The Consumer and the Smart Grid: Pike Research analysts have covered the market that is (or will be) smart grid services, but there is no harm in repeating. The smart grid is a means to an end. The real market for the smart grid will be about the high tech innovations that are applied to the edge of the smart grid – think demand response, energy storage, and consumer-facing products and services.

The home is the key to accessing a variety of services that will eventually benefit consumers and optimize grid efficiency. Think of the home as an iPad for the grid (this was how Bryan Hannegan, VP of Environment and Renewables at EPRI encouraged us to think about it) where future services will be like applications plugged into the home and accessed via the home area network (HAN). Lucrative products and services will need to employ business models that allow them to seamlessly integrate with the HAN and deliver tangible and measurable benefits to the consumer. This will ultimately be what sells the consumer on the whole smart grid idea. There are many smart grid projects to point to, and the consumer aspect has been a stumbling block for some, but the consumer-focused approach is at the core of the Pecan Street Project in Austin, an interesting case study to check out.


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