Navigant Research Blog

Will Insurance Become a Cleantech Lever?

— November 14, 2012

Among the events disrupted by Hurricane Sandy was the Fuel Cell Seminar at the Mohegan Sun.  I had been looking forward to the keynote address, from Tom Sullivan of Proton OnSite.  Instead I found myself sitting in my office in Edinburgh, Scotland and thinking about the long-range implications of the latest “storm of the century.”

Sandy caused more than 20,000 flights to be cancelled, but that was nothing when compared with the power outages, cell towers giving up the ghost, and local transport networks quite literally shutting down.  So soon after the event, it feels odd to be thinking of this in terms of the push it could give distributed generation.  But this Black Swan event could be what the United States needed to move its transmission and distribution networks into the new smart energy paradigm.

Ironically, the rather amazing New York State Energy Plan was released just days before the hurricane hit.  Even pre-Sandy, we knew that many states and countries around the world are increasingly looking to make their energy networks more resilient.  But those initiatives are mostly at the regional and national policy level.  Perhaps there is another, blunter, instrument that will change the current energy network.  Such as insurance.

The Tipping Point

According to InvestorWords, insurance is “designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.”  The problem for businesses at least is that we now live in a time when losses such as those caused by Sandy are no longer unexpected.  In fact, they’re not only predictable but also well known.  Power outages, especially, are increasingly yearly in the U.S., with the result that sales of backup power systems for commercial and residential use are rising quickly.  We are also seeing the rapid development of systems that can be islanded when the grid goes out to continue to provide power.  ClearEdge Power is just one such example, which I’ve blogged about before: unless the natural gas supply grid also goes out the system keeps on running.

In terms of insurance, we are surely reaching the point where business owners will not be able to insure their companies against losses due to power outages below a rather high threshold.  I say high because, according to the latest U.S. 2011 Blackout Tracker, from Eaton, the current average power outage in the United States is already 221 minutes, with the total duration of outages in 2011 in the United States reaching a truly staggering 2,039 hours.

So if you can’t get insurance even for the average duration of 4 hours, and your business losses are a highly conservative $10,000 per hour, you are looking at an average annual bill of $40,000, with the possibility of much higher losses.  For banks, airlines, and other essential 24/7 industries, the numbers quickly jump into the hundreds of thousands per outage.

There has to be a tipping point, where companies reach a level at which they cannot get insurance, and it becomes financially more attractive to adopt a form of distributed generation.

This could not only reduce insurance premiums for current risks, such as grid outage, but also reduce the risk of future liabilities, because most DG systems are lower in carbon emissions than conventional centralized power generation.  Carbon emissions are definitely another insurance target – right after catastrophic natural disasters.


Smart Street Lights Face Financial Hurdles

— November 14, 2012

In 1807, London’s Pall Mall became the first street in the world to be illuminated with gaslight.  Since then street lighting (first by gas and then electricity) has become so ubiquitous that few people give it a second thought (unless they see a broken lamp in their street).  But street lighting is once again becoming a focus for innovation and a priority issue for city managers as they try to reduce energy costs and meet their sustainability targets.  Smart street lighting can play a similar role in the development of 21st Century smart cities to the one played by gaslights in Victorian London.

Street lighting can account for up to 40% of a municipality’s electricity bill, not counting maintenance costs.  Some U.K. cities have tried turning off lights to save money (though this commonly leads to a public outcry and subsequent rethink).  The dimming of the lights can also stand as a potent metaphor for a city’s decline, as in the case of Detroit.  Many cities are now looking at alternative approaches to reducing the energy consumption of their street lighting.  The most attractive solution is to move to more efficient lighting technologies.  LED lighting is generally seen as the future for street lighting, as falling costs and improvements in quality are driving adoption in cities such as Seattle.  Our recent report, Smart Street Lighting, estimates that shipments of LED street lights will rise from fewer than 3 million in 2012 to more than 17 million in 2020.  Other cities, such as San Diego, have chosen to introduce induction lighting to replace their existing high-pressure sodium lamps, with the same aims – a significant reduction in energy use and maintenance costs and savings to the city purse that can reach millions of dollars (around $2.4 million a year for Seattle and $2.2 million for San Diego).

The Piggyback Approach

The biggest challenge for cities looking to change their lighting systems is one common to many smart city innovations: finance.  The long term savings may be indisputable, but cities still need to find the upfront investment.  In the United States, stimulus funding has played a significant part in getting smart lighting pilots underway.  However, in many municipalities street lighting is provided by the local utility, so building the business case for energy efficiency depends on the incentives set for the utility by regulators.

The adoption of LED lighting is only the first step: the real revolution comes when intelligence is added to lighting systems.  Networking the street lighting system can further improve energy efficiency and introduce more adaptive local lighting without reducing public safety.   The network infrastructure can also be used to support additional services, such as traffic monitoring and even local Wi-Fi.  A pilot in San Francisco, for example, is looking at smart street lighting in this broader context.

But if building the business case and finding the investment funds for LED lighting is hard, justifying an advanced control network is still a step too far for many cities.   The additional costs and complexity have slowed the adoption of networked street lighting systems, behind that of LED lighting.  Cities must be able to leverage that network investment for other services or piggyback street lighting systems onto other systems.  This, of course, presents a chicken and egg problem as to which application can provide the initial cost justification for the network.

Most cities still struggle to develop investment models for new technology that take the holistic view of city operations.  Pilots in areas like Barcelona’s 22@ district show what can be achieved by taking an integrated view on energy, communications and city operations, but scaling such projects up to city-wide deployments requires innovations in city financing as much as in technology.  The implementation of smart street lighting will depend on new forms of private-public partnership based not on cost-saving models of traditional outsourcing but new approaches to long-term energy efficiency and improved operational effectiveness.


LightSail Catches Funding Breeze

— November 14, 2012

Defying the reports of cleantech funding’s demise, LightSail Energy, a California-based maker of modular compressed air energy storage (CAES) systems, has raised $37.3 million in a series D round of funding.

Materials-based energy storage systems store energy using air or water, materials that are either easy to come by or free.  These technologies typically provide good value for money in terms of energy (dollars per kilowatt-hour), making them suitable for long-duration applications such as load-leveling, peak-shifting, integrating wind assets, and optimizing grid assets such as power plants.

However, these types of systems are typically large – pumped storage systems can clock in at 1,000 megawatts (MW) or larger, and the two existing CAES installations are 290 MW and 110 MW, respectively.  The price tags for such installations are also high.  The logic behind these oversized projects is that the marginal cost of an additional unit of storage is very, very low.  Both of these technologies are also limited by geography, and they frequently deal with extended permitting cycles that can take up to 2 years to complete.

What makes LightSail’s technology distinctive is that it’s flexible and modular, has a low marginal cost of energy, can store energy over a long period of time, and, because it’s a mechanical system, it should benefit from a long lifetime (20-25 years).  LightSail, which plans to ship its first systems around the end of 2013, is targeting its systems for bulk storage for wind and solar integration, targeting grid operators seeking to shape wind and solar generation to match load.

The opportunity for next-generation CAES companies, such as LightSail, SustainX, and Bright Energy Storage, lies in targeting customers that are looking for a geographically flexible, high-value energy storage solution.  These customers include power plant operators who would rather run their plants at a consistent output instead of cycling up and down, industrial customers sensitive to increases in their retail electricity rates, wind farm operators who want to take advantage of higher prices for energy supplied during peak load, and others.


Where the Green Jobs Are

— November 9, 2012

Now that the dancing and denials of reality are over, for the moment, it is time to look ahead at the task of creating a sustainable economy for the 21st century.  In the last 2 years, the notion of the “cleantech bust”  has overtaken earlier projections that the clean energy sector can act as an economic engine.  It would be good, moving into Barack Obama’s second term, to have some clear data on the relation between the cleantech sector and job creation.

And, as a matter of fact, there are copious studies and reports available on the topic.  Unfortunately they are often confusing or conflicting.

The Labor Department has produced four reports on green jobs in the last year: two from the department’s inspector general’s office and two from the department’s Bureau of Labor Statistics (BLS).  They paint a discouraging picture.

Last month the department’s inspector general, in a report titled “Recovery Act: Green Jobs Program Reports Limited Success in Meeting Employment and Retention Goals as of June 30, 2012,” stated that federal funded local training programs designed to fill green jobs have mostly been jokes: Half the trainees received 5 or fewer days of training, the number of trainees who found green jobs was less than 40% of the target, and the agencies couldn’t even document the outcomes for around a third of those who completed the program.

In an earlier report, “Employment in Green Goods and Services—2010,” the Bureau of Labor Statistics provided a more encouraging overview: The United States had 3.1 million green jobs in 2010.  That number, though, was based on a bureaucrat’s definition of a “green job. ” “For instance, according to the report, there were 33 times as many green jobs in the septic tank and portable toilet servicing industry as there are in solar electricity utilities,” noted the Heritage Foundation, acidly, “and more green jobs selling used merchandise (think the Salvation Army store) than in engineering services.”

Define ‘Cleantech’

It’s not hard to find contrary evidence.  In July 2011, the centrist Brookings Institution released a report (“Sizing the Clean Economy: A National and Regional Green Jobs Assessment”) that concluded, “The clean economy, which employs some 2.7 million workers, encompasses a significant number of jobs in establishments spread across a diverse group of industries.”  Cleantech employs more workers than the fossil fuel or bioscience industries, the study concluded.  The same caveat, though, applies: It depends on your definition of cleantech.  “Most clean economy jobs reside in mature segments that cover a wide swath of activities including manufacturing and the provision of public services such as wastewater and mass transit.”

So, if you don’t count hotel housekeepers and garbagemen as “cleantech jobs,” then things look pretty grim.  Right?  Umm, not quite.  “The clean energy sector in particular is growing very quickly,” reported Bryan Walsh in Time, citing the Brookings study.  “It grew by 8.3% between 2003 and 2010, nearly twice as fast as the overall economy during those years.”

What’s more, those mythical high-tech jobs in renewable energy are materializing, as well: The pace of job growth in solar power is 5 times as fast as that of the broader economy, reported the Solar Foundation in a jobs survey released last month.  Solar industry employment increased from about 105,000 to 119,000 in the last 12 months, a 13% jump.

Outside the Bubble

The realities of the cleantech economy are invisible to politicians inside the D.C. bubble, according to the authors of “Red, White and Green: The True Colors of America’s Clean Tech Jobs,” a report from DBL Investors, a socially conscious investment firm based in San Francisco.

“Outside of the capital, where governors (and mayors) are more concerned with creating jobs than scoring debate points, there is no controversy about the impact of cleantech. It is almost universally appreciated as the important engine for job development and economic growth that it is. Disregarding the partisan bickering in Washington, these local officials are using clean tech to bring high-quality jobs to their states, in the process reviving communities and winning the support of local voters in both parties.”

So your view of the cleantech sector’s potential for job growth largely depends on which lens you choose to look through.  A few points are inarguable, though:

  • Cleantech jobs are growing, just not in the places you might look first
  • Federal job training programs for mythical “green jobs” are largely ineffective
  • That money is better spent on R&D and bringing promising technologies to market
  • It’s time to shift from grandiose high-tech schemes to more grounded, affordable, and realistic green technologies and business models
  • Cleantech will never fully thrive without a coherent and publicly supported national energy policy

The Brookings authors summed up that final obstacle: “The fact that significant policy uncertainties and gaps are weakening market demand for clean economy goods and services, chilling finance, and raising questions about the clean innovation pipeline reinforces the need for engagement and reform.  Not only are other nations bidding to secure global production and the jobs that come with it, but the United States currently risks failing to exploit growing world demand.”


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