Navigant Research Blog

Tesla Tries Out Battery Swapping

— June 24, 2013

Fresh on the heels of the demise of Better Place, Tesla Motors says it will begin offering battery swapping as an option alongside its Supercharger network.   That’s a somewhat surprising decision, as Better Place’s play in battery swapping burned through $800 million with little to show for it, a fact that should be alarming to Tesla’s investors.   Despite the fact that this appears to be a questionable idea, there could be opportunities.

Tesla plans to install battery swap stations at its pre-existing Supercharger network locations, which includes eight stations: six in California and two on the East Coast.   When Model S owners pull into a Supercharger station, they’ll choose between charging their battery from a Supercharger for free (which may take as much as 30 minutes), or swapping their battery for a service fee (which can take as little as 90 seconds).  The service fee is equivalent to 15 gallons of gas at local rates; currently about $60 to $80.

Ideally, the Model S owner will return to the station and retrieve the original battery pack when finished with the replacement pack, once again paying the service fee.  The owner may choose not to go to the station and have the older pack delivered to them for a fee, or choose to simply keep the replacement pack and Tesla will submit a bill for the value difference of the battery pack based on its age.  Each station will have around 50 battery packs on hand (3 to 4.25 MWh of energy).  The first battery swap stations should come online by the end of 2013.

Solar + Swaps

The Supercharger network has never seemed like a sound business model, as Tesla offers extremely high power charging for free. According to Tesla, the solar installations paired with the Supercharger stations reduce marginal energy costs to near-zero after the installation; therefore, the company can afford to offer charging for free. That’s hard to credit, unless the stations and solar panels are paired with an energy storage device, like a battery.  In that case the excess energy provided by the battery packs could present additional revenue streams through participation in electricity ancillary service markets.

As with Better Place, the major challenge is to recoup the capital cost of the stations.  Tesla estimates the cost per battery swap station to be around $500,000.  Better Place wound up paying a similar fortune for each station, and acquired only a smattering of subscription members (the one vehicle compatible with the system was the Renault Fluence Z.E., which is not exactly a top-selling model).  The Model S, on the other hand, is to date this year’s best-selling EV in the United States.  Still, battery swaps are costly, and given that the company is already offering free charging at the same location, Model S owners may be content to wait 15 to 30 minutes instead of utilizing the battery swap stations.

In the worst case scenario, Tesla’s bet on battery swapping will cost the company but won’t bankrupt it.  Tesla is dipping a toe into battery swapping; the company has not declared whether future models will be battery swap compatible.  In the best case scenario Tesla makes a marginal profit paying back the costs of the stations from enthusiastic Model S owner participation. Few who were on the fence about the Model S will buy it solely because battery swapping is now a possibility.  Battery swapping, though, could lead Tesla to other alternative recharging models, such as battery leasing – which would significantly cut the initial purchase price of the Model S and possibly spike orders.


Dublin Digs Deep with City Data

— June 24, 2013

Cities that want to take advantage of new technologies to improve their operations should be ready to embrace both top-down investment in new management and control systems and bottom-up innovation from a wide range of stakeholders.  Dublin provides a good example of a city that is taking advantage of both approaches to attack some critical city issues.

The Irish capital faced a serious congestion problem as its economy boomed before the credit crunch.  Some estimates suggested that congestion was costing the economy over 4% of GDP.   While the economic downturn has eased the pressure on the traffic system in the short term, the city realizes it has to get smarter at dealing with the underlying problems.

The city’s transportation managers have been working with IBM’s Smarter Cities Technology Center, which is based in Dublin, to understand how they can use data analytics to help optimize traffic management and improve the operation of the city’s bus system. Dublin has no metro, so the bus system is particularly important for transportation in the city.

Working with the IBM research team, the traffic department has combined data from bus timetables, traffic sensors, CCTV and real-time GPS updates for the city’s fleet of 1,000 buses.  This data is used to build a digital map of the city, overlain with the real-time position of each Dublin bus. This allows traffic controllers to see the status of the whole network, drill down into problem areas and make informed decisions on the best actions to reduce congestion.  The data also enables better optimization of traffic management measures and of the bus schedule.

The SPUD Effect

I spoke to Brendan O’Brien, Head of Technical Services, Roads and Traffic Department at Dublin City Council, about the impact of the system at an IBM-hosted event in the city in May.  I asked him how this data had changed the city’s approach to managing the city’s transport.  O’Brien said his team can now combine macro and micro levels of management much better, viewing problems in specific locations while also developing better informed strategic plans for the city.  The challenge is to find time to take advantage of these strategic insights.

Dublin is not only looking to the city’s control systems and big data analytics to improve insight into traffic and transport conditions, but also at the possibilities offered by open data. Dublinked, the city’s open data platform, provides an impressive range of public data sets and enables third parties and individuals to contribute data.  Dublin City Council and other local authorities in the Dublin region are working with the National University of Ireland Maynooth to explore the opportunities for service innovation and collaboration with other agencies and suppliers. Mapping of disabled parking spaces in the city, for example, has been done through crowdsourced information.  IBM has also been using the data to demonstrate the possibilities for data analytics on open data platforms with its Semantic Processing of Urban Data (SPUD) demonstration.

Dublin is a good example of how a smart city strategy should not depend on any single system or application, but rather on the innovative use of multiple tools and applications, shared data, and collaborative networks for innovation.


China’s Coal Conundrum

— June 21, 2013

International climate-change diplomats, who have had a rough decade, got some potentially exciting news in May when reports emerged that China will consider an absolute cap on carbon emissions in advance of the climate talks scheduled in Paris for 2015.

A hard emissions cap would be a dramatic policy shift for the People’s Republic, which has previously limited emissions reduction schemes to compressing the Chinese economy’s energy intensity (the amount of CO2 released per unit of GDP) and which has decried international efforts to limit the greenhouse gas (GHG) emissions – and thus the economic growth – of developing countries.

The shift was signaled by remarks made by Jiang Kejun, a carbon policy researcher at the influential National Development and Reform Commission in Beijing, who told the Financial Times, “I am sure China will have a total emission target during the 13th Five-Year Plan.”

The move could enable an achievement that has eluded the world’s major nations for years: a binding international agreement on carbon caps that includes both the developed economies of West and East Asia and rising economic powers like China and India.

If true, this move would mark the latest in a series of measures to reduce GHG pollution in China, the world’s largest producer of atmospheric CO2.  Seven Chinese cities plan to enact experimental carbon-trading programs, starting in 2014.  Already the world’s largest investor in renewable energy, China has set the goal of obtaining 15% of its power from nuclear power and renewables by 2020.  Since taking office in March, President Xi Jinping has made shifting to a less resource-intensive economy and reducing the country’s catastrophic air pollution major priorities.  In many respects China has leaped ahead of both the United States and the European Union in its efforts to shift away from fossil fuels.

There’s one problem with this scenario: any program to reduce carbon emissions on the mainland depends on shrinking China’s reliance on coal – and coal-fired power in China is not going away anytime soon.

No Peak Soon

“It is very unlikely that demand for thermal coal in China will peak before 2030,” said William Durbin, the Beijing-based president of global markets with Wood Mackenzie, an energy research and consulting firm, in a statement accompanying the release of a new report entitled “China: The Illusion of Peak Coal.”

“Despite efforts to limit coal consumption and seek alternative fuel options, China’s strong appetite for thermal coal will lead to a doubling of demand by 2030,” the report concludes.  Coal consumption in China, bolstered by a period of rampant construction of coal-fired plants that has only recently slowed, must rise to feed China’s explosive demand for power, which will nearly triple to 15,000 TWh by 2030.

Even existing goals for reducing coal consumption are sketchy, many analysts believe.  “Achieving these targets eventually would come at considerable economic cost,” John Reilly, an environmental economist at MIT, told New Scientist magazine.

China is by far the world’s largest importer of coal, and despite massive investments in nuclear, wind, and solar power, along with a crash program to develop domestic natural gas reserves, no other energy source can replace coal as a source of primary power in the next two decades.  China’s leaders are determined to replicate America’s shale gas boom, but “natural gas supplies will struggle to meet demand growth due to modest investment in conventional reserves and the very slow development of domestic unconventional shale gas reserves,” Wood Mackenzie states.

Gray Market, Black Fuel

The continued coal boom in China also reflects the provincial divisions that make enacting nationwide policies increasingly challenging for leaders in Beijing.  Most coal-reduction schemes are centered in the big cities of the coast, while the poorer provinces of the interior still rely on dirty, cheap coal.  Ambitious plans to build long distance ultra-high-voltage transmission networks, for example, won’t reduce overall coal burning; they’ll simply shift coal demand from the coast to the interior.  What’s more, official statistics on coal use in China significantly underestimate the true demand, because of the size of the gray market consisting of small, unlicensed mines and untracked sales.  A 2011 report on the Chinese coal industry produced by Stanford’s Program on Energy & Sustainable Development stated the problem clearly: “One important driving force underlying the existence of gray coal markets in China is the historic and chronic difficulty of compelling local officials to obey central policies.”

China’s evident intention to institute firm caps on GHG emissions is an encouraging sign.  But the grim reality is that such a cap has no chance of succeeding without a dramatic, and unlikely, reduction in power generation from coal.


EV Charging Follows Mobile Phone Evolution

— June 21, 2013

The fallout from the failure of Better Place last month demonstrates that the electric vehicle supply equipment (EVSE) industry is still trying to define itself.  Companies across the industry are trying to figure out how best to deliver services to clients, and failures are to be expected.  Given that, progress is inevitable and some of the inefficiencies to existing EVSE business models are being solved.  One limitation has been the hesitancy on the part of some EVSE manufacturers to adopt open standards, so that any management software can plug into any piece of equipment.

EVSE vendors to date have offered packages that include solutions for both charging equipment and back-end management software as a package deal.  As many EVSE installations are intelligent – i.e., their use can be remotely monitored and controlled through online portals – this software service is fundamental to the equipment’s operation.

Even while shopping their software to other EVSE manufacturers, EVSE developers have been reluctant to allow their hardware to decouple from their software.  While this tactic serves the interest of EV charging service developers, it doesn’t serve the interests of EV charging equipment owners.  This vendor lock-in scenario ties equipment owners to the equipment’s manufacturer.  Additionally, when an equipment manufacturer fails, the status of the equipment’s operation is in question – as is now the case with much of the infrastructure Better Place installed in Israel and Denmark.

Get Along, Please

EVSE software service providers are pushing manufacturers to develop equipment that works with other back-end service software.  This in essence would make the EVSE industry more like the cell phone industry, wherein Apple, Samsung, RIM, etc. provide the equipment, and AT&T, Sprint, Verizon, etc. provide the service.  In telecom, equipment owners benefit from service providers competing for their business.  The competition not only reduces the owners’ service costs (and the price of the devices), but also pushes innovation, as service providers seek to differentiate and improve their value add to the customer.

The EVSE industry has not yet made this jump, but it’s inching closer.  San Francisco-based Greenlots announced last month the introduction of its new EV network management platform, SKY version 3.0.  The platform allows equipment owners to use charging stations from a variety of manufacturers and to switch network management providers without replacing charging stations, and it provides innovative tools for network management, billing, fleet management, and smart grid/utility optimization.

All Greenlots needs is more manufacturers to develop their equipment so that any software service provider can easily plug into any manufacturer’s equipment.  Some manufacturers have come around to this concept, but many haven’t.  It’s only a matter of time until this shift occurs, as potential equipment owners will undoubtedly prefer options that empower rather than limit them.


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