Navigant Research Blog

As U.N. Climate Talks Falter, Nations Progress

— December 26, 2012

The 2-week long U.N. Framework Convention on Climate Change in Doha, Qatar ended on December 8. The delegates from nearly 200 nations managed to make little significant headway in meeting an international goal of limiting the ultimate warming of the planet to 3.6 degrees Fahrenheit, established 3 years ago in Copenhagen – a goal that increasingly seems unattainable.

After many heated discussions, the delegates managed to agree to extend the Kyoto Protocol, to support a previous decision to adopt a new global climate pact by 2015 that applies to both rich and poor nations and to offer promises of financing, albeit vague, to help poor countries address the effects of climate change.  The latter remains one of the most contentious and controversial issues in the climate change debate.  However, the consensus is that, despite the fact that recent data shows that global CO2 emissions keep rising, the delegates failed to deliver a meaningful deal to help us move closer to reducing carbon emissions on a global basis. Although emissions are declining in the developed countries, including the United States (in part due to increasing use of natural gas and renewables and in part because of slow economic growth), the continued rise of emissions in the developing nations, particularly China and India, far outstrips these gains.  According to scientists, global emissions rose as much as 3% in 2011 and are expected to jump 2.6% in 2012.

The Real Struggle

The widening gulf between rhetoric and reality of these climate talks has led some to suggest that we should simply ignore any further international discussions on this topic.  As Michael Jacobs argues in The Guardian, these U.N. negotiations are merely a “sideshow,” while the real struggle is “being waged in energy and finance ministries around the world, and in the boardrooms of energy companies and their bankers.”  With a few exceptions, governments around the world have shown little inclination and will – despite a formal treaty to limit global warming – to adopt the kinds of controls necessary to accomplish the goals that they have pledged.

Perhaps we can console ourselves with a few victories.  Old coal-fired power stations in the United States are being decommissioned and new ones are not being built thanks to federal regulators, environmentalists, and investors who no longer believe that “coal is cheap.” Moreover, renewables are playing an increasing role in supplying electricity, accounting for almost 15% of total installed U.S. operating generating capacity today.  The European Parliament has recently adopted a new energy efficiency directive that will impose mandatory energy-saving measures on member states at all stages of the energy chain.  Most important, the Chinese government has made a $1.7 trillion commitment to invest in clean technology, including alternative energy, smart manufacturing, alternative fuel cars, and an array of other energy efficient technologies.  China’s recent decision to curb its coal production may have more impact on the world’s carbon emissions than any multilateral talks.


For Energy Storage, A Low Cost, Low Margin Future

— December 26, 2012

On December 12, one day before SolarCity had a successful initial public offering, the Solar Energy Industry Association released its third-quarter installation numbers for the United States.  Through the first 9 months of the year, more than 1.9 gigawatts (GW) of photovoltaic systems were installed.  SEIA expects that, by the end of the year, that number will be above 3 GW.

So are we in the midst of a solar bubble?  Hardly.  Most module and inverter manufacturers are just barely profitable or losing money right now.  Even installation aggregators like SolarCity are having their share of financial struggles, thanks to potential conflicts with the Internal Revenue Service.

The solar industry, nevertheless, is expanding rapidly: Pike Research forecasts that more than 31 GWs of solar power will be installed globally in 2012.  It just isn’t the type of success that many venture capitalists expected when they first invested in the sector.  They wanted Facebooks and Googles.  Instead they got First Solars and Suntechs: big manufacturing giants that didn’t exist a decade ago but that are now scraping by on minuscule margins.

The paradoxical situation of suffering solar market players who are treading water in the midst of a boom market is a good lesson for battery manufacturers to study.  The industry once featured brilliant MIT professors building future manufacturing giants around darling chemistries.  Now, its news cycle is dominated bankruptcy hearings and empty factories.  The last time that happened was when the solar industry appeared to have finally exhausted its ninth life, back in 2005.  What happened next was a decade-long super expansion that saw the solar industry grow by about five orders of magnitude.

Curving Downward

That could still happen with the battery industry.  But it won’t as long as investors and battery company executives still buy into the concept of a miracle technology.  In the energy field, miracles don’t happen very often.  But new energy industries do rise up from seemingly nowhere and disrupt existing players.  It happened with wind power.  It happened with solar power.  It happened with natural gas.  And it can happen in energy storage too.

But it won’t happen with expensive, high-margin battery cells.  For energy storage on the grid and in electric vehicles to reach the inflection point, the batteries themselves must get significantly cheaper.  We expect that to happen: According to an upcoming Pike Research report on automotive batteries, current lithium ion cells have already reached the $400/kWh cost level, and that cost should drop over the next decade.  Additionally, balance-of-system parts for battery packs—from the inverters to the insulation to the busbars—are on a similarly declining price curve.

When the glory days of batteries for grid storage and electric vehicles arrive, it will means that the batteries themselves have gotten cheap enough to allow buyers to afford them.  This also means that the battery manufacturers will endure an inglorious business environment—much like the current lead acid industry players that pull in enormous revenues and very little profit.  In other words, the future of cleantech energy storage companies looks more like East Penn or Exide than Facebook.  But, as the solar industry has taught us, just surviving in the energy industry can, in itself, be a worthwhile endeavor.


With Escape, Ford Faces Small Engine Challenges

— December 18, 2012

Ford has issued the second serious recall of its new 1.6 liter turbo engine, used in the 2013 Ford Escape and Fusion.  In July (prior to launch of the Fusion), the Escape was recalled due to potentially damaged fuel lines that could cause engine fires.  In this recall, Ford has said that overheating can lead to fluids igniting on hot exhaust components, also causing engine fires.

Back in the early days of turbos, manufacturers used to recommend that vehicles that had been driven hard be idled for anywhere from 10 to 60 seconds or more to ensure fresh oil got into the turbo before turning the car off.  This was (and is) because the turbos run at very high speeds, using hot exhaust gases, which means the bearings operate at very high speeds and temperatures.  Idling prior to turning off the engine would ensure cooler oil got pumped through the turbo.  This is less of an issue these days due to improvements in synthetic oils and oil cooling technology, but serves as a reminder that turbocharged engines, particularly small engines, are operating at higher temperatures than non-turbo models.

That said, one of the cornerstones of meeting the new fuel economy requirements is to move to smaller turbocharged engines.  While in the past, turbochargers have mainly been used as a sporty engine option or to boost the performance of diesels, many automakers are now looking to turbos as a way to maintain high peak horsepower while reducing the overall size of the engine, thereby lowering the fuel consumption.

Hot & Complicated

The problems with Ford’s 1.6L turbo engine so far haven’t been directly related to the turbocharger.  However, the problems have likely been exacerbated by the heat that the engine has to deal with.  As automakers move even smaller, the production complexity and heat issues will likely only grow.  Ford’s stumble with the 1.6L Escape and Fusion seems likely to be quickly worked out for these vehicle owners.  The real question is whether these issues will ultimately color perceptions of Ford’s quality longer-term.

CarMD has issued a report based on “Check Engine” lights showing that Ford vehicles have fallen from 4th most reliable in 2011 to 9th in 2012, due to higher repair costs.  This report, combined with the high recall rate for the new Escape, (this is actually the fourth since July) points to potential dents for Ford’s green car image.  The fact is we have recent history (Toyota’s 2010 recalls) that shows how recalls can slow a company’s momentum.  I think Ford is doing everything right now that the engine is out in the wild (so to speak), but has the damage already been done?

Ford, while taking it slow on plug-in vehicles, has charged out of the gate on smaller gas engines.  As companies shift to smaller engines with potentially greater complexity and higher heat, they can expect to see more challenges on the production side.  What this means for consumers isn’t perfectly clear.  It seems likely that recalls will be lessened as OEMs and suppliers get used to the “new normal” of small turbo engines, but it also seems likely that smaller doesn’t always mean lower cost.  In other words, Ford is likely feeling some growing pains that followers may avoid, but consumers ultimately may pay that price.


Aviation Biofuels Start to Take Off

— December 18, 2012

In November the U.S.  Senate voted 62-37 to strike language from the annual defense appropriations bill that would have prohibited the Department of Defense (DOD) from buying alternative fuels if they cost more than conventional petroleum-based fuels.  Estimates of commercial aviation biofuel prices are around $5 to $7 a gallon, while conventional petroleum-based fuel is around $3 per gallon.  The DOD is the largest consumer of oil in the world and in recent years has been a leading advocate and investor in advanced biofuel development.  Had the restrictive language been permitted, it would have been a crippling blow to the domestic and international aviation biofuel industries, grounding their encouraging recent advances globally.

Unlike petroleum-based fuels, biofuels have many feedstocks that can originate from almost anywhere.  The costs of distributing a specific biofuel over a wide area, however, make any specific biofuel less competitive against petroleum-based competitors that have better price points and distribution networks.  Therefore, the standardization of one biofuel from one feedstock across the globe is unlikely.  Rather, many biofuels from varying feedstocks will emerge in regional markets.

Aviation biofuels add another variable in that the purpose of aviation is to travel to different regions of the world where departure point and destination may not have the same biofuel supply originating from the same feedstock.  The present issue, though, is finding the most sustainable feedstock at the most competitive price, something many are trying to do across the globe.  Below, a roundup of aviation biofuel initiatives in selected countries.

United States

In late May, United Airlines, Boeing, the Chicago Department of Aviation, the Clean Energy Trust, and Honeywell UOP created the Midwest Aviation Sustainable Biofuels Initiative (MASBI).  The Midwest offers the largest potential feedstock for biofuel development in the country.  The initiative is meant to evaluate challenges in biofuel development as well as potential Midwestern feedstocks.  A report on initial conclusions of varying feedstock viability is due later this month.


In late August, the Commercial Aircraft Corporation of China announced that it will collaborate with Boeing on refining waste cooking oil into jet fuel.  China produces 29 million tons of the waste oil while consuming 20 million tons of petroleum-based jet fuel annually.  Boeing claims price parity can be achieved within 10 years.  In addition, by 2020, the Chinese Civil Aviation Authority expects 30% of the country’s jet fuel consumption to be met by biofuels.


The long-time leading producer and consumer of sugarcane-based biofuels for the automotive market, Brazil is now taking steps to enter the aviation market.  In mid-2011 Boeing announced a partnership with Brazilian aircraft manufacturer Embraer to assess potential jet biofuels.  In April 2012, Boeing expanded its depth in the region by establishing Boeing Research & Technology-Brazil.  The center will be an innovation hub for public organizations, private sector companies, and universities to collaborate on an assortment of aerospace technologies including biofuels.


The National Research Council of Canada flew the first civil jet on 100% unblended biofuel in early November.  The jet was powered by biofuel created from a genetically engineered Ethiopian mustard seed produced by Agrisoma.  The seed will now be grown on 6,000 western Canadian acres on behalf of 40 commercial farmers.

Other significant advances in aviation biofuels are occurring in 18 other countries using a variety of feedstocks, from Camelina in Spain to woody biomass in New Zealand.  Most of these developments are in their initial research phases, and any significant penetration of biofuel into the aviation fuel supply chain is still distant.  The future of aviation biofuels is not a sure thing; however, it is conceivable to consider that airplanes will eventually fly around the world using sugarcane grown in Brazil, Ethiopian mustard seed grown in Canada, or waste cooking oil produced in China.


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