Navigant Research Blog

Making Fuel Efficiency Pay in Larger Vehicles

— May 30, 2012

Recent auto sales figures for the United States suggest that the market is continuing to recover, with strong April sales numbers and early indications are that May will be even hotter, especially for Chrysler.  The year’s strong sales are a reflection of improving consumer confidence and strong fleet sales.  Early projections for increasing demand in May suggest that demand for light duty trucks is a key factor as well.  It’s striking to see the increase in American-made pickups and SUVs.  GM’s full-size pickup trucks saw major increases in April even as overall GM sales faltered slightly.  Ford reports that F series pickup sales rose by 4% in April. However, U.S. consumers are showing increasing interest in many of the more fuel efficient vehicle models, like the Ford Fusion and the Prius line-up, which appears to be the major driver behind Toyota’s expected sales rebound this year.

But what about fuel efficiency for the light duty trucks and SUVs that are popular with fleets?  For fleets that are concerned about hedging their bets on fuel costs, there is increasing interest in some of the alternative fuel options, like hybrids.  The question is whether the payback on fuel costs will cover the price premium.  My recent report on the Total Cost of Ownership for fleet operators takes a look at some of the options in these vehicle segments and the results are mixed

The comparisons for the SUV vehicle class are limited by the availability of alternative fuel options in the United States.  Fewer OEMs produce alternative fuel options in their SUV brands, in part because the size of the SUV seriously limits the benefits of certain types of alternative fuels.  For example, hybridization has limited benefits for SUVs and pure electrification at present is not really viable for the SUV class.

The results of the total cost of ownership (TCO) analysis show that moving from a gasoline to a hybrid version of a large SUV does not reduce the TCO, even over 120,000 miles, because of the substantial price premium and relatively small fuel economy improvement of around 23%.  The smaller SUV class works better for the hybrid option.  While the price premium is still high – a sticker price for a hybrid SUV can be at least 25% more than a comparable gas model, in some cases much more – the fuel economy improvements are much higher, perhaps around 45% or more.  The smaller hybrid SUV shows lower TCO at both $4.00 and $5.00/gallon gas prices, suggesting that this option is a good way to hedge against likely fuel price hikes.

Estimated Total Cost of Ownership Comparison for Pickups and SUVs with 120,000 Lifetime Miles, United States and Europe: 2012

(Source: Pike Research)

For the pickup segment, the alternative fuel options again are very limited, and the TCO results are similar to those for the large SUV.  For these larger vehicles, it is very difficult to achieve major fuel economy improvements with hybridization.  Moreover, diesel options are more common in this vehicle class, making it challenging for hybrids to compete.

There is an opportunity for diesel in the SUV and crossover segments as well, if the diesel price premium is kept to under around $3,500.  While hybrids are still likely to be king of the small and mid-size fuel efficient vehicles in the U.S. for the near term, we could see more interest in diesel for fuel economy-conscious customers who are shopping in the SUV and crossover segments.


Despite Looming Recession, Smart Meters Multiply Across Europe

— May 30, 2012

Two major European utilities recently revealed new details of their smart meter roadmaps, in which some 1.3 million new devices will be deployed – evidence that smart meter deployments across the pond remain strong despite a weak overall economy.

In Spain, giant utility Iberdrola has awarded contracts to seven manufacturers to supply 1 million meters as part of Iberdrola’s STAR (a Spanish acronym for Remote Grid Management and Automation System) project through 2018.  The suppliers include Landis+Gyr, Elster, GE, ZIV, Sagemcom, Sogecam, and Orbis.  Iberdrola did not say specifically how many meters each vendor would supply.

With these contracts, the project’s accumulated investment to date has reached $397 million.  Overall investment in the STAR project is expected to total more than $2.6 billion when completed, comprising more than 10 million smart meters.

Notably, Itron did not win some of the new meter business with Iberdrola, despite being the supplier of 100,000 smart meters (for the city of Castellón) in the first phase of the STAR project, which began two years ago.  Itron has explained that while it did not have meters certified in time for this round of awards, it fully intends to compete for the remaining meter business as early as next year.

Elsewhere in Europe, one of the largest utilities in the United Kingdom, E.ON UK, selected Elster as its supplier for the first phase of its smart metering rollout.  The utility plans to deploy up to 100,000 residential smart gas and electricity meters by the end of this year, and up to 200,000 more in 2013.  The deal could pave the way for more business for Elster since E.ON UK has said it intends to install 1 million smart meters by 2014.  Moreover, the utility overall has more than 5 million residential electricity and 2.8 million residential gas customers across Britain, and like other British utilities, it must meet the national government’s goal of having smart meters for all gas and electricity customers by 2020.

These new announcements point to ongoing growth opportunities in Europe for meter manufacturers amid a slowdown in major deployments in the United States and Canada (see Pike Research’s recent report, Smart Meters, for details).  This is not to say meter vendors should take their eyes off the ball in North America, because there are millions of homes and businesses still to be supplied with smart meters in coming years.  But the large-volume deals involving millions of devices are becoming fewer and the regulatory push is not quite as strong as it is in Europe.  So it makes sense for manufacturers to have a solid Euro strategy, particularly for Spain and the U.K. in the coming few years.  Both countries are moving ahead with large deployments and smart manufacturers will have strong bids ready to win their fair share of deals.


Contradictory Winds as Cleantech Industry Matures

— May 30, 2012

For more than a decade Paul Gipe, the venerable crusader for government support for renewables, has been arguing that the United States’ tax-credit system for renewable energy as not nearly as efficient as a feed-in tariff.  He’s been joined by business executives such as Puon Penn, a senior vice president and head of cleantech and emerging technology at Wells Fargo Bank, one of the top financiers of solar and wind in the U.S.

At the recent fifth annual Future Energy Conference, in Portland, Penn remarked, in only partial jest, that the current system mostly benefits lawyers and accountants.  Highlighting the role that small German communities have played in accelerating the deployment of renewables (and noting that, in some cases, individuals in Germany have installed more solar than the entire state of Oregon), Gipe emphasized the concept of solar democratization – the idea that individuals and communities should take an active role in developing their own renewable energy sources.

The industry is showing signs of moving in that direction, with community solar advancing in the United States via organizations like One Block Off The Grid, Tangerine Solar, and the growing number of “solar gardening” initiatives.  Furthermore, while U.S. solar PV manufacturing will continue to struggle, financing in the U.S. residential sector will continue to be a major driver for major growth in 2012, regardless of where the panels are made.  Solar leasing and power purchase deals offered by SolarCity, SunRun, and a growing list of companies enable homeowners to install solar for little to no money down.  The best SunRun deal in Oregon enables qualifying residential customers who pay $6000 up front to receive $6000 in state and federal tax credits back in $1500 increments in the following four years.

In many ways, however, the U.S. wind story at the Future Energy Conference sounded a lot like all the past energy conferences.  For the better part of the past decade wind companies have been dealing with the looming expiration of the federal production tax credit, passed only in two year increments.  Wind companies are adjusting accordingly, and in some cases, looking to generate more revenue from service contracts for existing wind farms, or even partner with natural gas developers to bid on utility RFPs.

This year and next will continue to see the seemingly contradictory trends of more company failures alongside growing installation totals worldwide.  We should interpret the continued shakeout among the least efficient manufacturers across all cleantech sectors as a sign of a maturing market that has largely delivered on its promise to dramatically reduce costs.  That’s why overall, despite the significant short term challenges, the discussions in Portland offered a glimpse into how the cleantech industry continues to mature.


Microgrid Boundaries Continue to Blur

— May 29, 2012

Wrapping up the latest update to the Pike Research Microgrid Deployment Tracker, which was published earlier this month, I had a very simple insight: What is and what is not a microgrid is really in the eye of the beholder.

The U.S. Department of Energy (DOE), guided by the perspective of academics from the University of Wisconsin and big thinkers at DOE’s Lawrence Berkeley National Laboratory, came up with a long-worded definition: “A group of interconnected loads and distributed energy resources (DER) with clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid [and can] connect and disconnect from the grid to enable it to operate in both grid-connected or island mode.”

To large extent, Pike Research adheres to this definition, but with one major exception.  One segment of microgrids included in our Tracker update is “remote microgrids,” networks of distributed resources that are not interconnected with a larger utility grid, primarily located in the developing world.

All told, Pike Research identified 87 new microgrids either planned, proposed or in current operation which now total over 2,574 MW in planned or operating capacity.  This compares to 1,626 MW of planned and operating capacity identified in the Pike Research 4Q11 update, a 63% capacity increase.

I had lunch with Gary Seifert, a business development executive at OSIsoft, at the recent OSIsoft Users Conference in San Francisco.  He opened my eyes to the perspective of a company whose data management systems are vital for the University of California-San Diego’s microgrid, whose 42 megawatts (MW) of total capacity generate over 84,000 data streams through the company’s “PI” system, a volume of data that keeps growing and can reach 100 bits per second.

From a company such as OSIsoft, the islanding requirement to define a microgrid is largely a false one proliferated by academics.  In the real world (I am paraphrasing here) it’s the organization, optimization and visualization of data for customers that really constitutes a microgrid.  “Don’t tell some of these military bases that they don’t have a microgrid if they cannot fully island yet,” he warned.

Data Architecture for UC-San Diego Microgrid

(Source: OSIsoft)

Seifert made a convincing case that the islanding threshold for a microgrid may be too stringent.  Nevertheless, Raj Chudgar, vice president of smart grid/microgrids for Power Analytics – whose modeling software is layered on top of OSIsoft’s PI system at UC-San Diego – claimed that only 5% to 10% of the projects listed in Pike Research’s MGDT published in the 4th quarter of 2011 met his vision of what constituted a bona fide microgrid.  Since his firm’s software is among the most sophisticated available, this assessment did not surprise me.  (Chudgar was a panelist on our May 22 webinar, “Renewable Energy Integration.”)

Outside the Lines

Indeed, not all of the projects profiled in the Tracker database meet the Pike Research and/or DOE definitions of a microgrid.  Some projects were included due to their noteworthy features and/or key contributions to the development of technologies critical to the success of the overall microgrid market.   Yet Pike Research still uses the ability to safely island as the key distinguishing feature for microgrids for very practical reasons.  If we followed the OSIsoft view, it would be impossible to track all projects labeled a “microgrid” due to the sheer numbers.

This is an even larger concern with remote systems.  Therefore, Pike Research screens these microgrid projects according to the following criteria: (1) inclusion of a renewable energy generation resource; (2) some network controls that allow for optimization of generation, loads and (in most cases) some form of energy storage.

At present, Pike Research does not include remote Direct Current (DC) telecommunications towers in this database.  These systems number in the hundreds of thousands, and so would be virtually impossible to track on an individualized basis.  Furthermore, Pike Research generally looks for a microgrid to feature at least two generation sources, two different buildings (and usually some human occupants of these building structures) as basic criteria for a microgrid.  As this market matures, these rather artificial screening functions may be revised.  The lines between microgrids, virtual power plants and smart grid renewables integration will continue to blur, making market segmentation of the microgrid market increasingly difficult.


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