Navigant Research Blog

Better Buildings Initiative Achieves Big Savings, But Is It Enough?

— June 21, 2013

New Energy Secretary Ernest Moniz, in one of his first speeches in his new role, recently recognized the first year of progress of the landmark Better Buildings Initiative (BBI).  Announced by President Obama in December 2011, aimed to mobilize $2 billion worth of energy efficiency improvements, half in the federal sector and half in the private sector.  It represents one of many ways that the federal government aims to “lead by example” on best practices in energy efficiency.

In his speech, Secretary Moniz highlighted the progress of the BBI’s private sector partners, which include companies like Legrand, Schneider Electric, and Briggs & Stratton.  Over the course of the last year, the partners have improved the energy intensity of their building space by 2.5%, reducing energy costs by $58 million per year, with 1,300 facilities achieving over 20% energy reductions through energy efficiency retrofits.  These represent significant gains in the private sector, which is plagued perennially by challenges such as a lack of capital availability and the fact that many commercial spaces are rented, leaving little incentive for building owners to engage in energy efficiency improvements that benefit tenants.

Feds Fall Behind

Unfortunately, the other piece of the Better Buildings Initiative, which involves federal buildings, has fallen behind on its targets.  At the outset, the program aimed to deploy $2 billion worth of energy savings performance contracts (ESPCs), which allow building owners to finance energy efficiency improvements using the future energy savings as debt service against loans for capital expenditures, by the end of 2013.  By the end of 2012, however, less than $200 million in ESPCs had been awarded.  Many federal agencies, not well versed in the complexities of ESPCs, delayed in selecting projects and releasing RFPs in the initial months following the Better Buildings Initiative announcement.  And as a result of the multi-quarter sales cycle for ESPCs, few contracts had been awarded by year end.

Will the federal government reach its $2 billion goal by the end of this year? With 6 months left to go, only $50 million of ESPCs have been booked, and signing almost $1.8 billion worth of additional contracts seems unlikely.  However, many of the ESCOs I’ve spoken with recently report a flurry of federal RFP activity, and it’s likely we’ll see a lot of progress later this year.  Hopefully there will be good news to report at the end of the year on the federal side of the Better Buildings Initiative, too.


Industry Centers Target Threat Awareness

— June 15, 2013

Chris McDougall, in his excellent book Born to Run, describes his participation in a Kalahari persistence hunt.  Hunting on foot a kudu capable of reaching 45 mph may sound futile, but even the swiftest animals can only sprint for short bursts.  Meanwhile we humans are well adapted to endurance running.  So the Kalahari strategy is to isolate one individual animal and trudge relentlessly after it until it collapses of exhaustion.

Critical infrastructures may find themselves in similar dire straits.  The most effective form of attack against critical infrastructures has been Advanced Persistent Threats (APTs).  Hostile nation-states adopt the same tactic as the Kalahari:  identify a target, isolate it, and attack it persistently until it collapses, as in the “Night Dragon” attacks that targeted oil and gas production systems.  This tactic preys upon a company’s lack of knowledge.  In isolation, one utility may be unaware of current threats and therefore not alert to potential danger.  It is to the attackers’ advantage that information about threats is not widely circulated.

Herd Mentality

ICS Cybersecurity Inc. and the Industrial Control Systems (ICS)-ISAC are out to change that.  Information Sharing and Analysis Centers (ISACs), born of Presidential Decision Directive 63 (PDD-63) issued by President Clinton in 1998, are vertical industry-focused bodies that analyze and share threat information for member companies in their specific industry.   Within the critical infrastructure sector, there are several ISACs, such as electricity, water, maritime security, and surface transportation.  These distinct industries often use the same technologies – such as SCADA – so a threat to one type of infrastructure is potentially a threat to all of them.   But the vertical ISACs distribute information only within their own industry.  They protect only part of the herd.

As the diagram on the right shows, ICS-ISAC was developed to draw membership and share threat information across all critical infrastructures.   This has several advantages: a wider membership base can supply a broader set of threat inputs, with more and varied sets of eyes scanning the horizon for new threats; threat analysis can be more thorough when more industries participate; and the resulting threat intelligence will reach a wider audience.  Those industries without their own ISAC can participate in ICS-ISAC.

Though still in its formative stages ICS-ISAC is already issuing alerts and is enthusiastically supported.  ICS Cybersecurity has even set itself a mission to develop ICS-ISACs for developing economies, with a success story already in the Republic of Yemen.

Even the membership cost isn’t really a catch, ranging from $100 per year for a startup to $15,000 per year for companies over $5 billion annual revenue.   And hey, any organization that publicly posts its entire fee structure must be committed to transparency.

So in the midst of all the bad news, let us celebrate the good news that industry has ways to talk and share information – and not become victims of isolation.


Bosch Goes Basic With EV Charger

— June 15, 2013

The news that battery swap pioneer Better Place has gone bellyup garnered more media attention, but a recent announcement from Bosch is actually a bigger story for the EV infrastructure market.  Bosch unveiled a new Level 2 home charger priced at just $449.

Bosch’s basic Level 2 charger costs a bit more than half that of the cheapest ones available at Home Depot or Lowe’s.  The $450 Bosch PowerMax is a stripped down unit; at just 16 amps, it charges at 3.3 kW and comes equipped with a 12-foot cord, which means its likely customer is a homeowner who parks her EV in her garage.   Still, the next step up is a 30 amp charger with an 18-foot cord, priced at $593.  Currently, the cheapest Level 2 home chargers start at around $750 (the Leviton and Legrand chargers, for example).

Price War Ahead?

Bosch’s move could mark the start of a price war in the EV charger market.  It seems likely that Bosch’s competitors in the basic home charger segment have taken note.  At this price, the PowerMax will compete against Level 1 chargers, which typically cost under $700.  Level 1 will still be attractive for customers who don’t have a 240V outlet available and don’t want to pay the installation costs.  But a charging rate of up to 3.3 kW, versus under 2 kW, for a charger that costs the same or less will be very appealing.

It will also be interesting to see if this unit, at the higher 30 amp levels, attracts interest from fleet owners and other commercial customers.  In the United States, to date, the Level 2 commercial charging market has been dominated by equipment like ChargePoint or Ecotality units that offer intelligent charging capability, network interfaces, and RFID card readers.  Some commercial customers need these capabilities, but there is also a market for stripped-down chargers, especially for fleet operators or even for workplace charging.  Navigant Research has been talking about the need for simplification in the electric vehicle supply equipment (EVSE) market for awhile, and Bosch’s charger is a move in that direction.

Finally, this move could indicate another trend in the EVSE market: hardware companies that focus on manufacturing EVSE at the best price possible, while other vendors focus on software innovation or service models.  This would be similar to the smartphone model, where Google offers the open source Android system, which can be incorporated into any (non-Apple) handheld device.  Essentially, EVSE manufacturers would be widget makers, while the companies that specialize in understanding the needs of the various EV customer segments continually innovate in the types of services or software that are offered with the EV equipment.  This model would allow the market to develop gradually toward systems such as vehicle-to-grid or vehicle-to-building capability, as the fleet of PEVs expands and makes such systems more attractive.  For now, however, simplicity is better suited to the current state of the PEV market and can help the market grow by offering lower cost charging equipment.


Shifting Chinese Policies Affect Global LED Supply Chain

— June 15, 2013

China plays an oversize role in the market for LED lighting, both on the demand side, with its massive consumer base, and on the supply side, with its huge manufacturing infrastructure.  China’s 1.3 billion citizens have begun to light their homes, workplaces, and streets with LED lights.  This trend has been encouraged by the country’s 12th Five-Year Plan, which sets aggressive targets for energy reduction.  On the supply side, Chinese government policies have been even more aggressive, subsidizing the purchase of LED manufacturing equipment to the tune of $1.2 billion in 2011 alone.  The government has been explicit about its desire to foster the growth of home-grown LED companies.

The year 2012 saw a large amount of consolidation in the LED industry, especially among Chinese manufacturers.  A global oversupply of LED manufacturing capacity, driven largely by Chinese companies but also by falling demand for other LED products such as backlit monitors, led to falling prices and numerous manufacturer bankruptcies.  Up to 20% of Chinese LED manufacturers are expected to face bankruptcy or liquidation.

Subsidy Slide

Now, the Chinese government has apparently reacted with a shift in policies.  A report by the Global Times in May shows drastic reductions in Chinese government subsidies for LED manufacturing equipment.  Chinese LED chip manufacturers, such as Elec-Tech International and Sanan Optoelectronics, have posted dramatically lower first quarter earnings, blamed largely on the reduction in government subsidies.

This shift in policy leaves open the question of the role that China will play in the global LED supply chain for lighting products going forward.  As described in a Navigant Research report, LED Supply Chain Dynamics, Chinese suppliers must improve the quality of its LED chip manufacturing in order to produce the high output chips needed for lighting applications, the LED segment with the strongest future growth prospects.  Currently, Chinese companies are forced to purchase high-output LED chips from foreign vendors, preventing them from vertically integrating their manufacturing process and truly competing with the global market leaders.

There have been signs that Chinese companies intend to bridge this gap: in November 2012, China-based San’An Optoelectronics said it will acquire a portion of Taiwan-based Formosa Epitaxy.  However, the reduction of government assistance through equipment subsidies and other policies may make it more difficult for Chinese companies to bridge the technology gap.  With LED lighting poised to take over significant market share from traditional lighting technologies in the coming years, there is a great deal at stake in determining which countries around the world will supply this expanding market.


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