Navigant Research Blog

Can America Avoid a Cleantech Collapse?

— April 19, 2012

In a sharply worded analysis that will cause fear and trembling in the U.S. cleantech industry, a group of three research and policy organizations have produced a report saying that a cleantech collapse is imminent in this country unless subsidies, incentives, and federal policies are extended and reformed.  Entitled “Beyond Boom & Bust,” the lengthy report from the Brookings Institution, the Breakthrough Institute, and the World Resources Institute argues that, according to many indicators, the cleantech sectors have achieved remarkable successes over the last half decade: “Renewable energy generation doubled from 2006 to 2011, the first new nuclear plants in decades are under construction, and prices for solar, wind and other clean energy technologies have fallen while employment in those sectors has risen by 70,000 jobs even during a deep recession.”

Unfortunately those gains are not enough to create a self-sustaining and thriving cleantech industry: “Despite this recent success, however, nearly all clean tech segments in the United States remain reliant on production and deployment subsidies and other supportive policies to gain an expanding foothold in today’s energy markets. Now, many of these subsidies and policies are poised to expire—with substantial implications for the clean tech industry.”

On both the glowing-success and the looming-chasm side, this echoes many of the themes we at Pike Research have been pointing out over the last year, including in this blog on the so-called cleantech bust.  The cleantech subsidies provided by the American Recovery and Reinvestment Act of 2009 (ARRA), which are now winding down, are not only the target of withering scorn from the opponents of President Obama, but also generally tend to be viewed differently than fossil fuel subsidies, which have been around so long as to have become an accepted feature of the energy landscape.

Whatever your political or economic point of view, though, there’s one fact that is incontestable: the United States stands to fall far behind other nations in its commitment to new energy technology and new business models for generating and supplying energy.  The “cleantech gap” is especially worrisome when it comes to China, which is shaping up to be both an economic and military revival to the United States in this century.  But a quick scan of Pike Research blogs turns up this theme repeatedly, whether it’s Denmark pledging to move to 100% renewable energy by 2050, smart grid development in Germany,  green data centers in Iceland, the United Kingdom becoming a leader in offshore wind power, or the European Union’s ambitious “20/20/20” initiative, which could impose stiff costs to businesses in the short run but is nevertheless an achievement in long-term, non-partisan policy thinking that the U.S. seems structurally incapable of today.

The “Beyond Boom & Bust” report makes several policy recommendations for avoiding the possible decimation of America’s cleantech industry, including “Reforming energy deployment subsidies and policies to reward technology improvement and cost declines,” and “Strengthen the U.S. energy innovation system to make clean energy cheap.”  Unfortunately those are the kind of sweeping ideals that tend to gather dust on policy makers’ shelves.  And the economic boom being powered, in some regions of the country, by cheap natural gas (which I cover in the current issue of Fortune) makes investment in clean energy technology an even more courageous effort.  A bipartisan energy bill that puts in place a far-sighted vision for the future of energy seems, more than ever, like a pipe dream.

There are small signs, though, that at least at the state level, politicians and businesspeople are waking up to the danger of letting the cleantech achievements slide off a cliff.  There’s nothing like the loss of tens of thousands of jobs and the erosion of national economic competitiveness to grab people’s attention.


Renewables in U.K. at a Turning Point

— April 18, 2012

The United Kingdom seems to always be trailing the European renewable energy starting line-up of Germany, Denmark, Spain, Sweden, and any one of Holland/Finland/Portugal.

As we’ve observed in our offshore wind, small wind, and marine and hydrokinetics reports, though, the U.K. has taken enormous strides to stimulate its renewable energy industries and is taking on some of the most difficult technological challenges in cleantech today.  (See this map to locate offshore wind and marine energy activity.)  Below are a few of the highlights:

  • The U.K. has a current target of 15% target for renewables across electricity, heat and transportation sectors and has enacted almost 50 policies and programs to achieve that goal
  • The U.K. has been at the forefront of offshore wind since 2000 and is one of the world’s leaders in terms of current installations, nearing 2 gigawatts (GW), and a potential pipeline of more than 40 GW
  • The U.K. is the clear leader in incubating marine energy companies with leases approved for 1.6 GW of wave and tidal projects; with Scotland aiming for 2 GW installed by 2020
  • The UK is home to one of the largest markets for small wind turbines, in large part thanks to a generous feed-in tariff scheme passed in April 2010 and great wind resources

Current events, including the recent announcement by German utilities RWE and E.ON that they are scrapping their plans to build two nuclear reactors in the U.K., plus The Economist’s apparent obituary on new nuclear plants in Europe (and the United States), seem to underscore the trend in favor of renewables.

At the same time, however, U.K. members of Parliament are increasingly scrutinizing the country’s renewable energy incentives, and there are even hints that the U.K. is moving closer to a “low carbon” strategy, opening the door to a wider role for nuclear which currently provides approximately 20% of the U.K. electricity mix.

No doubt the financial crisis has changed the equation for many U.K. political leaders, and each country will choose its own carbon reduction path – but members of Parliament must keep in mind that there are trade-offs.  The most critical trade-offs include the possibility that tying up precious capital on nuclear could reduce investment in smart-grid/transmission infrastructure required to realize the ambitious offshore targets and to enable distributed generation to succeed at scale.   Opting out of new nuclear, of course, is the path that Spain, Sweden, Denmark and Germany decided to take, instead doubling down on renewables (Germany’s reduction in solar feed-in tariff rates notwithstanding).  That’s why they’re in the starting line-up.


Newcomers Flock to the Energy Efficiency Services Market

— April 18, 2012

In the 1980s and 1990s, vendors of HVAC equipment, oil and gas, and others entered the energy service company (ESCO) market, using end-to-end energy efficiency solutions as a platform to sell “stuff.”  In the early 2000s, many of these service providers divested their service lines to re-focus on their core businesses, leaving integration up to others.

In recent years, however, a range of new players are entering – or re-entering – the energy efficiency services market.  In our report, Energy Efficient Buildings: Global Outlook, Pike Research forecasts that the market for energy efficiency technology and services will grow to $103 billion by 2017, up from $68 billion in 2011.  As the market for energy efficiency services grows, many players are finding that to compete for energy efficiency business – whether through procurement procedures in the public sector or outsourced energy efficiency services for commercial property owners and managers – they need to move further down the value chain and not only sell products, but also integrate those products into a complete solution.

One way to make the transition from manufacturing to integration is through acquisition.  Eaton Corporation, for example, made its move into the energy efficiency services space with its 2010 acquisition of EMC Engineers.  That paved the way for Eaton to achieve a certification as a Qualified ESCO by the U.S. Department of Energy in 2011, allowing it to access the federal energy efficiency services market as well.

Meanwhile, a number of other firms that don’t necessarily fit the traditional HVAC or property services profile have also been building on their product lines with new energy efficiency service businesses.   In February, Hess, the Woodbridge, NJ-based oil and gas giant that’s better known for selling gallons of gasoline, announced the launch of Hess Energy Solutions.

The motivations for getting into energy efficiency services relate mostly to the opportunity to expand further down the energy efficiency value chain and to bring in higher-margin work.  When sales of stuff plateau, or gaining market share becomes increasingly difficult, some firms see services as the logical extension of existing product lines.  The global economic downturn encouraged the development of service lines as many manufacturing firms have had difficulty maintaining product sales levels at pre-recession levels.  In addition, many services offer higher margins than product sales do, so folding a service business into a business’ broader portfolio can yield a higher average profit margin for the business as a whole.


Virtual Power Plants Go Commercial

— April 18, 2012

A Microsoft/OSIsoft survey released in early 2012 ranked renewables integration (43%) as the second most important reason for implementing a smart grid, behind smart metering (71%).

A forthcoming report for Pike Research will show how microgrids are leading the world today in terms of revenues derived from smart grid renewables integration, but recent market activity has intensified in regards to the concept of a Virtual Power Plant, a smart grid optimization platform that still faces skepticism.

The company that first introduced the term to the world, Siemens, is taking the concept of a VPP to the next level in terms of actual market commercialization.

Given that Germany is phasing out nuclear power, the 23 megawatt (MW) “Regenerative Combined Power Plant” (RCPP) experiment carried enormous implications.  A total of 36 wind, solar, biogas, CHP, and hydropower generators were operated as if a single power plant was supplying 24/7 power to the equivalent of 12,000 households.  Project leader Dr. Kurt Rohrig of Kassel University was awarded the German Climate Protection Prize 2009 for his work on this cutting-edge renewable supply management experiment.  While it generated the equivalent of only 1/10,000 of Germany’s total supply, this successful R&D venture has convinced academics and a partnership featuring Enercon GmbH (whose wind turbine provides a unique suite of grid services), SolarWorld AG (a major manufacturer), and Schmack Biogas AG that the entire country of Germany could be completely powered with a diverse blend of complementary renewable energy resources.

Doubters have pointed out that the RCPP project failed to account for grid congestion challenges that might frustrate this sort of VPP under real market conditions.  That’s why Siemens’ recent announcement to work with German utility RWE Deutschland AG (RWE) to fully commercialize this VPP model is so important.

Siemens’ VPP commercial offering is based on is its Decentralized Energy Management System (DEMS), which is designed to enhance both wholesale and distributed generation operations according to pre-defined economic, environmental, or energy-related priorities.  A variety of combinations of supply- and demand-side resources can be optimized, whether the generator is a large wind farm or an on-site biogas unit.  DEMS was first deployed at a small Austrian paper and pulp mill in 2003.

Siemens was one of the first private companies to explore the concept of VPPs, playing a key role in providing the management system for another pioneering effort in Germany.  Since October 2008, this project has aggregated the capacity of nine different hydroelectric plants ranging in size from 150 kW up to 1.1 MW, with a total VPP capacity of 8.6 MW.  The VPP framework opened up new power marketing channels for these facilities that would not have been viable if these distributed energy resources (DER) were still operating as standalone systems.

Operated by RWE from a centralized control room based in Dortmund, the Siemens/RWE project will grow to 20 MW this year by adding combined heat & power (CHP) units and emergency back-up power systems to the existing hydro portfolio.  It will be expanded to 200 MW by 2015 by further integrating biomass, biogas and wind resources into the network, making this an official commercial offering in Germany, where recent market changes have created fertile ground for VPPs.

Since February of this year, power from this VPP has been sold at the Energy Exchange (EEX) in Leipzig, Germany under new amendment terms of the Renewable Energy Sources Act. This is the first direct marketing of renewable power under this new program. Given the proposed reductions in Feed-In Tariff (FIT) rates, the EEX is being viewed as a key new innovation to help optimize growing renewable energy resources in Germany.


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