Navigant Research Blog

East Coast Heat Wave Triggers Demand Response

— July 25, 2013

During the week of July 15, the U.S. East Coast experienced a severe heat wave, breaking a record in New York on Friday, July 19 when average peak load reached 33,955 MW, topping the previous record of 33,939 MW set in August of 2006.  The National Weather Service issued heat advisories throughout the week in major cities, including New York City, Washington, D.C., Philadelphia, and Boston, and an “excessive heat warning” when the heat index climbed into the triple digits on Friday.

To help manage demand on the system, the New York Independent System Operator (NYISO) activated its demand response (DR) programs every day during the week to relieve congested areas around New York City, ensure reliable grid operation, and avoid any power outages.  On a statewide basis, DR was also called upon on Thursday and Friday as a growing number of households and businesses cranked up their air conditioning systems.  NYISO can call on approximately 1,250 MW of DR statewide from customers who receive payments when they reduce their electricity use.

More to Come

Thanks to these DR efforts plus an unprecedented amount of generation resources (including a large supply of available wind power) and interregional coordination, NYISO prevented any outages (with a few minor exceptions).  The RTO’s CEO remarked: “This is truly one of the great success stories of New York’s competitive energy markets.  With the correct market signals, we are seeing much greater levels of asset availability and performance.”  Competitive wholesale electricity markets provide strong incentives for generating plants to operate during periods of peak demand, and on Friday every generator in New York was online.

Although the heat wave also affected the New England area, ISO-NE did not break its all-time peak demand record of 28,130 MW in August 2006, reaching a high of 27,377 MW on Friday.

Given the high demand for power, day-ahead prices for certain peak hours hit above $200 per MWh in New England, above $300 per MWh in New York City, and $350 per MWh in Long Island – considerably higher than the typical prices for these areas of around $30 to $60 per MWh.

Climate scientists warn that these types of extreme heat waves are likely to become increasingly common in the United States.  This latest event may just be a warm-up, as it were, for what residents and businesses must prepare for in the coming years. If utilities and grid operators can continue to find ways to avoid power outages and large-scale blackouts through various demand-side resources, such as energy efficiency and DR initiatives, the human and financial impacts will be less severe.


High-End German Models Will Power the EV Market

— July 23, 2013

BMW this week announced that the upcoming i3 battery electric vehicle (BEV) will be priced at $41,350 in the United States.  This can be viewed from two perspectives – either as yet another EV priced well above an average sedan or as a competitively priced BMW that happens to not use any gas.

Like other premium brand customers, BMW drivers are accustomed to spending $40,000 or more for a performance-oriented sedan, and the i3 is likely to convert some car shoppers for whom a 100-mile range is not an issue to electric driving, largely because of the nameplate.  (BMW’s 3 series starts at a similar price.)

The i3 is likely to gain traction in China, where BMW is a coveted and thriving brand.  At this price point, the i3 must live up to the fit-and-finish standards of conventional BMW models (Autoweek provides a preview here).  BMW has chosen to reduce the weight of the i3, using a carbon fiber body, which maximizes the driving range while also decreasing the 0-to-60 acceleration time.

As I wrote in our white paper, “Electric Vehicles: 10 Predictions for 2013,” the i3, which is slated for availability in early 2014, is one of the high-end German brands (others include Audi and Mercedes) that will expand demand for EVs.  While the vehicles are fundamentally different, the price tag is similar, which will often be an easier sell than convincing fiscally conservative customers to pay more upfront to bypass the gas pump.

Catching Up Fast

Also due soon from Germany are the Audi A3 e-tron and Mercedes SLS E-Cell and B-Class, which will eventually be available to global customers.  The German manufacturers are also likely to boost demand for fast charging, as they have agreed with the American car companies to support the SAE’s combo charger standard.  The German EV market has been slow to develop due to the paucity of domestic vehicles, but that is quickly changing.

As forecast in Navigant Research’s 2013 Electric Vehicle Market Forecasts report, sales of BEVs in Germany will grow by nearly 32% annually through 2020, when they will surpass 108,000 in sales.  Worldwide sales of BEVs will surpass 1 million annually starting in 2018.

Annual Light Duty BEV Sales by Region, World Markets: 2013-2020


(Source: Navigant Research)

Premium car makers will be eating their own lunch to a degree with their EVs, as some customers will forego similarly priced gas or diesel vehicles of the same make.  The expectations for premium EV sales will be lower, since they don’t sell in Toyota Camry or Ford F-150 volumes; selling 2,000 per month would be a much larger share of the companies’ overall totals.

Daimler and Audi’s parent Volkswagen are also competing in the more challenging entry-level EV category, with the Smart fortwo ED and soon-to-be-released Volkswagen e-Up.

While Mitsubishi, Nissan, Renault, and Chevrolet, which are dropping the sale and lease prices of EVs to broaden the audience, have blazed the trail with their EVs, BMW and other prestigious German automakers will help push the market into second gear during the next year, while adding variety and volume to the fledging EV industry.


With ComEd Contracts, Chicago-Style Smart Grid Advances

— July 23, 2013

ComEd, the Illinois utility, has had quite a go of it over the past year, since announcing plans to pursue a $2.6 billion grid modernization project.  After the company said in early 2012 it will install more than 4 million meters over a 10-year period, beginning with 500,000 by the end of 2012, outcry by special interest groups and wary customers gradually increased, due to fears of rate hikes and privacy intrusions.  As a result, Senate Bill 9, which would have funded the project via rate increases over the installation period, was vetoed by Governor Pat Quinn in early May.  Shortly thereafter, the Illinois house and senate both voted to override the veto.  Meanwhile, consumers filed a class-action lawsuit demanding compensation of $182 million cost that was incurred in rate increases over the 1-year delay of the rollout.

Those last three events occurred over the course of a few days last May.  Does it get any more exciting?

With a thumbs-up from the Illinois state legislature to move forward, ComEd has started awarding vendor contracts for integrated grid solutions.  This week, both GE and Silver Spring Networks announced contract wins for the 10-year project.  For GE, the $200 million deal will include the delivery and installation of approximately 4 million meters in Chicago-area residences, while Silver Spring will provide smart grid infrastructure solutions and support.

What a Bargain

As the North American market for smart grid deployments (meters in particular) has leveled over the past year, a project of this size is represents a significant win on behalf of GE.  The advanced meters will provide hourly usage data, remote meter reading, and outage detection.  This offers both the utility and its customers the ability to better monitor personal and aggregated energy use.  As a result, ComEd hopes to gain increased reliability, savings and clarity in scheduling and planning for future generation assets, and more effective integration of smaller renewable sources into the grid.

Given these advanced capabilities, ComEd is getting these meters at a bargain rate.  At about $50 per meter, the price is substantially below the average selling price that Navigant Research foresees for advanced meters through the remainder of the decade, which is closer to $80-$100 per meter.

This comes back to the leveling off of the North American smart meter market, which is increasingly shifting toward smaller, specialized deployments as Smart Grid Investment Grant mega-rollouts came to an end in 2012.  Large utility contracts are increasingly scarce, leaving contracts for smaller batches of custom (translation: cumbersome) meters for municipal and cooperative utilities.  With the scope of ComEd’s smart grid upgrade, this alone seems like incentive enough to bid low and invest in a more efficient supply chain.

Now, if ComEd can manage to keep any Chicago-style hiccups and scandals at bay, it should do well on the deal.


With Sourcefire Acquisition, Cisco Bolsters Security Lineup

— July 23, 2013

Cisco announced today that it has agreed to acquire Sourcefire Inc. for about $2.7 billion in cash.  Both companies are publicly traded – their respective ticker symbols are CSCO and FIRE – and the purchase price represents a 29% premium over FIRE’s closing price yesterday.  Sourcefire is legendary in the security world for its pioneering Snort intrusion prevention system.  Snort is extremely popular with utilities for the same reason that it is extremely popular in other industries: it not only works, but it’s free.

Snort has a large and loyal cult following among security admins globally.  Network security rule sets are freely traded among utilities and maintained on the Snort website, which is hosted and maintained by Sourcefire.  Now those utility cyber security admins must ask themselves whether Snort will remain free after it becomes a Cisco product.  Martin Roesch, the original author and still code maintainer for Snort, said today on the acquisition conference call that Snort will remain free after the acquisition.  That is a bold claim to make unless one knows it to be true.  Monetizing free software is never straightforward, although Sourcefire has done a good job of that by building hardware appliances optimized to run Snort very fast and by adding ancillary network security software that integrates with Snort.  For the company, today’s announcement is the final step in monetizing the free software.

Still Free, For Now

Cisco said in its press release that the acquisition will “accelerate delivery of Cisco’s security strategy of defending, discovering, and remediating advanced threats.”  Fair enough.  Still, I have somewhere in my desk a ten-year old CD-ROM from my Cisco sales rep called, “The Self-Defending Network.”   How to put “accelerate” into the context of a decade-long program escapes me.  Regardless, this acquisition is likely to enhance Cisco’s cyber-security cred, notwithstanding the fact that it has had its own intrusion prevention product line for longer than I’ve had that CD-ROM.

Cisco is not the first company to be interested in Sourcefire.  Tel Aviv-based Check Point Software Technologies (another cyber security legend) attempted to acquire Sourcefire in 2005 for $225 million but was rebuffed by the Committee on Foreign Investment in the United States (CFIUS).  That move was widely seen as the U.S. Department of the Treasury saving face shortly after public disclosure that six major U.S. ports were managed by Dubai Ports World, based in the United Arab Emirates.   Now, eight years later, Cisco is paying 12 times as much to acquire Sourcefire.

All in all, a smart move by Cisco – as long as they keep Snort free to download.  Utilities that use Snort must keep an eye on the situation.  At the first sign of Snort becoming a purchased product, cyber security budgets all around the world would be rocked.  And Cisco would suffer a massive PR headache that it might wish to avoid.  For now, it’s keep calm and carry on.


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