Navigant Research Blog

Drought Won’t Dry Up U.S. Biofuels

— September 4, 2012

The worst drought in half a century across the U.S. Midwest is having a devastating impact on agricultural production.  Conditions have deteriorated such that the USDA is forecasting the 2012-2013 harvest to be the lowest in 17 years, with corn prices up by more than 60% over the past two months.

Rising corn costs, a key ingredient in animal feed in the U.S., are expected to drive up the cost of meat, dairy, and eggs.  As a result, the corn starch ethanol industry – a favorite punching bag for just about everyone who doesn’t make a living off of it – finds itself in the crosshairs, with opposition building amongst a diverse group of domestic and international stakeholders.

Admittedly, all this seems to paint a grim picture for biofuels.  In our forthcoming Biorefinery report, Pike Research has slashed its U.S. corn starch ethanol production forecasts for 2012 and 2013.  At the same time, we maintained a strong growth projection for the industry in the U.S. and abroad over the next decade.  The drought matters, but its long-lasting effects will be small.

Corn Starch Ethanol Growth Plateaus

Long before the drought, momentum behind corn starch ethanol had deteriorated in the United States.  Currently accounting for more than 46% of global biofuels production, the industry expanded rapidly over the last decade, due in part to an annual subsidy worth $6 billion.  That subsidy was scrapped at the close of 2011, as industry proponents shifted their focus to expanding end-market access.

What’s more, under the EPA’s revised Renewable Fuel Standard (RFS2), the volume of ethanol derived from corn starch that can be blended into existing gasoline supplies is capped at 15 billion gallons starting in 2015.  This policy has already sent a clear market signal that corn starch ethanol’s future will be significantly restrained, thus diverting industry investment to advanced alternatives over the last few years.

As a result, the corn starch ethanol boom of the 2000s has given way to a next wave of advanced conversion technologies.  In our forthcoming Biorefinery report, we project that 50+ new advanced biorefineries – using non-food feedstocks – will be built annually in the U.S. by 2022.

Regulatory Backlash to Nowhere

Fearing a global food crisis caused by the U.S. drought, the United Nations called for an immediate cessation of government-mandated U.S. ethanol production, a directive that is likely to be repeated many times throughout the next decade.  On the domestic front, decreasing corn supplies have stoked debate about whether the RFS2 corn starch ethanol mandate should be scaled back.

Backlash in the U.S. and abroad is unlikely to materialize into regulatory action, though.  International organizations like the U.N. have no legal authority to compel the United States to adopt or abandon specific policies; meanwhile, the ethanol industry annually contributes more than $45 billion to U.S. GDP and helps ensure some semblance of global equilibrium between liquid fuel supply and demand.  Despite its shortcomings, corn starch ethanol is a mature industry with steel in the ground and an established track record of revenue generation.  Although RFS2 may be up against the ropes, Big Corn is a heavyweight in the Washington political arena, and ethanol is a primary beneficiary.

Consolidation Improves Industry Health

Ultimately, as my colleague, Alex Lauderbaugh, commented earlier on this blog, industry consolidation bodes well for advanced biofuels.  Companies like Gevo and Butamax, which are currently embroiled in a contentious patent dispute, are among those next generation biofuel companies particularly advantaged by the troubles of the first-generation ethanol industry.  These companies aim to retrofit existing biorefineries to produce isobutanol, a molecule that qualifies as an advanced biofuel under RFS2.

While the current drought will put a dent in U.S. ethanol production for 2012 and 2013, the biofuels industry will emerge leaner and better-positioned to expand both conventional and advanced production capacity over the next decade.  Although our recent forecasts show U.S. biorefinery infrastructure attracting nearly $60 billion over the next decade, only a fraction of this total is expected to be the result of new corn starch ethanol capacity.


Small Fuel Economy Advances Deliver Big Benefits

— September 4, 2012

Fuel economy has become one of the most important considerations for OEMs in recent years, driven by rising fuel prices and more challenging legislation on emissions and fuel economy.  Major technological advances, such as plug-in electric vehicles, tend to grab most of the attention around reducing fuel use and carbon emissions.  But often less visible, incremental changes can have equally large effects, and in shorter timeframes.

Stop-start technology is one of the systems being used to meet targets, and Pike Research will shortly release a new report on this topic.  Downsizing the engine volume along with forced induction – either turbocharging or supercharging – is another approach being used to increase efficiency.  At higher speeds, better aerodynamic design can also pay dividends.

OEMs have also been investing for some time in lowering the vehicle’s mass.  In an average car, reducing the weight by 220 pounds translates to a fuel economy improvement of about 3%.  Tires with lower rolling resistance and installing electric power assist steering also have small but measurable benefits.

Incremental improvements to existing technology have been made over many years, with little notice.  For example, a vehicle with a 1.6-liter diesel engine at Ford averaged 185 grams of CO2 emitted per kilometer (g/km) in 1998.  By 2012 that number has been reduced to 88 g/km.  Other manufacturers have accomplished similar improvements as they introduce features such as common rail fuel injection and stop-start technology.  Over the same period, a gasoline vehicle with a 1.6-L engine showed a reduction from 194 g/km to 139 g/km.  Replacing the naturally aspirated 1.6-L engine with its 1.0-L EcoBoost engine that delivers the same power rating, Ford has been able to reduce the CO2 emission to 109 g/km in 2012.

It is also important to note that stop-start may never become a standard feature on all vehicles.  On small city vehicles the extra cost, bulk, and weight may not be offset by the fuel savings.  But on larger vehicles with powerful internal combustion engines, stop-start is destined to become standard worldwide.  The drive for this will come from OEMs doing all they can to meet emissions regulations, and also from consumers and fleet buyers who recognize a feature that pays for itself.

Most OEMs will need to devote some resources to educating drivers about stop-start technology, though, first to get them to choose it when specifying a new car, and second to get the most out of it when driving.  One of the reasons for the slow launch of stop-start technology in North America is that the official EPA
test-drive cycle does not include much stationary time and so the benefits of stop-start do not show up in the comparison figures that are mandatory on a new car sticker.

While stop-start can save some fuel by not allowing the engine to idle when the vehicle is stationary, another approach is to tackle the issue of congestion and solutions that keep traffic moving.  Telematics and Smart Cities offer some new ways to tackle this problem, by helping drivers to find more efficient routes.

When considering the bigger picture, it’s important to recognize that high-volume, less noticeable technologies can have a much bigger effect on the environment than cost-intensive advanced concepts, even if the incremental benefit is smaller.


Microinverters Brighten Future of Distributed Solar

— September 4, 2012

The Achilles’ heel of solar PV has been its low efficiency.  Even the most efficient commercially available monocrystalline silicon PV panel is only 20% efficient; the majority of modules installed today range from 12% to 18%.  This compares with wind at 30% and fossil fuel generators at 80% to 95%.  However, this is only part of what determines the solar PV system’s overall output.  Shading, dirt, cabling, voltage drop, inverter efficiency, and heat also affect the overall energy harvest.  Breakthroughs in microinverters (which convert DC electricity to AC power) and DC optimizers (which provide a steady and “optimum” voltage level for the current fed to the inverter) are two of the most disruptive technologies in the solar PV sector today, as we describe in Pike Research’s recently published report Inverters for Renewable Energy Applications.  The main benefit of microinverters is an overall higher energy yield because they prevent one panel’s failure from affecting the overall system’s energy harvest (unlike solar PV installations that use string or central inverters).  At the installation site, microinverters are easily installed on the back of each panel, matching the rated capacity.

With microinverters, each panel is individually monitored, thus removing the need for DC cabling.  This architecture distributes the overall risk of failure among all the panels in the installation, and relies on information technology to identify and isolate failed panels.  By contrast, central inverters have a single point of failure, which can lead to longer periods of downtime if that inverter fails.  With maximum power point tracking (MPPT) at the panel level instead of the string level, microinverters are ideally suited for residential and small commercial systems that are likely to be shaded more often that centralized solar power plants in the desert.  Microinverter companies claim their technologies reduce the overall levelized cost of energy (LCOE) by 15% to 20% as compared to string inverters.  Individual modules can also be shut down remotely and, with AC electricity, safety is increased for installers.  Microinverter manufacturer Enphase Energy claimed to have 34% of the California residential market in 2011, based on wattage.

The downside of microinverters is that they are typically two to three times as expensive as string inverters and have lower efficiencies (although they do typically result in a better overall energy harvest).  While the distributed architecture removes the risk of a single point of failure, many more electronics are being introduced to the PV system.  Startup microinverter companies claim higher reliability than string inverters, but microinverters have not been used long enough to test this claim.  Furthermore, placing microinverters on the back of a panel and on a roof could increase the risk of heat damage to the inverter due to higher rooftop temperatures, compared to string and central inverters, which are normally housed elsewhere.

The future of microinverters could very possibly end up being with fully integrated AC panels, of the type that SolarBridge Technologies and SunPower are experimenting with.  Under this architecture, the microinverter is pre-installed on the module at the factory.  The main value-add is the reduction in installation time from not having to separately install the microinverter or AC bus cabling at the job site.

Despite the doom and gloom in the headlines, and as we describe in the recently published Renewable Distributed Energy Generation report, the future of distributed solar PV is bright. Microinverters will continue to play an increasingly important role in this future.


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