Navigant Research Blog

Great Britain Plan Scuppers Iceland Interconnect

— August 23, 2013

Iceland’s abundant geothermal and hydro resources make it an energy powerhouse. For example, energy-hungry greenhouses can be powered by geothermal energy, producing tomatoes, bananas, and other fruits in a cold climate.  It’s been proposed that Iceland could build out more generating capacity and lay a submarine high voltage direct current (HVDC) transmission line to export clean, low-cost energy to power-hungry cities in Great Britain.

According to Askja Energy, Hörður Arnarson, the CEO of Landsvirkjun (the power company that operates 13 hydropower stations and two geothermal stations across Iceland) said recently that a submarine interconnector to Europe represents “one of the biggest business opportunities Iceland has faced.”  However, Great Britain might take a pass on the opportunity to tap Iceland’s abundant resources.

How About a Datacenter?

On July 12, the U.K. Department of Energy and Climate Change (DECC) published a memorandum that lays out requirements for the geographical location of generating units that can participate in Britain’s Capacity Market.  “It is currently intended to restrict the Capacity Market to units located in Great Britain,” the memo said, “but this is subject to further consideration.”

Evidently the DECC wishes to build out Britain’s own infrastructure of smart grids and renewable generation first. The DECC recently announced plans to roll-out smart meters in 30 million homes. And according to the U.K. government’s Round 3 of offshore wind license announcements, the country aims to have 18 GWs of offshore wind by 2020.

At minimum, this will delay any plans for Iceland to build new generating units and an HVDC interconnector. In the meantime, perhaps Iceland will build more power-hungry datacenters that run efficiently on arctic cooling and cheap, clean energy.


In Energy Storage, Power-to-Gas Seeks a Market

— August 22, 2013

There are no clear technology winners when it comes to energy storage for wind and solar (ESWS) integration.  This is partly because the energy storage sector hasn’t seen the mass-manufacturing, low cost, and commoditization to be expected from a leading technology.  That could change with the expansion of materials-based storage, specifically systems that rely on gas instead of electrochemistry (electrolysis is an electrochemical reaction, but the product, gaseous hydrogen, is the energy carrier).

Gaseous storage – specifically compressed air and hydrogen – accounts for a little more than one-fifth of the total energy storage market, with 4,616 megawatts (MW) forecast to come online in the next 10 years.  This assumes a business-as-usual scenario; if the demonstration projects in Germany and other parts of Europe prove successful, we could see much more accelerated market growth for these technologies.

New Installed Capacity of Energy Storage for Wind and Solar Integration by Technology, Base Scenario, World Markets: 2013-2023


(Source: Navigant Research)

With power-to-gas technology (wherein the hydrogen generated is pumped directly into the natural gas grid, or is methanized into syngas and then pumped directly into the gas grid), hydrogen has an advantage over other technologies because the cost of actually storing the energy is at, or close to, zero.  Most of the hydrogen market will be composed of the power-to-gas variety; however, passive electrolyzers paired with small wind and solar PV will also take an increasing share of the ESWS market toward the end of the forecast period.

On the other hand, because the benefits of hydrogen storage are absorbed by the entire gas system, building a business case for power-to-gas systems may be more challenging.  Under the base scenario in Navigant Research’s report, Energy Storage for Wind and Solar Integration, hydrogen will account for 9% of ESWS installed capacity in 2023 and 6% of market revenue ($574.84 million) in the same year.  The market will be led by Europe and parts of North America, which are already funding power-to-gas projects.

The compressed air energy storage (CAES) market, meanwhile, will be led by a handful of promising startups with modular or cavern-based technologies, including SustainX and General Compression, that require little to no natural gas.  Although CAES will take 13% of the market in terms of installed capacity by 2023, the technology’s low marginal cost of energy means its market share in terms of revenue will be about half that of installed capacity – coming in at 5% of the market ($549.05 million) in 2023.

That said, gaseous storage has a low marginal cost of storage, is comprised mostly of inexpensive components (particularly in the case of modular CAES), and offers the benefit of bulk storage without an unwieldy footprint.  If these companies can devise financing and business models for the ESWS market, gaseous storage could overtake advanced batteries.


Power For The 20 Percent

— August 21, 2013

According to the World Bank, people worldwide spend about $37 billion annually on kerosene for lighting, biomass (typically wood or charcoal) used in open fires, and polluting traditional stoves for cooking.  These inefficient energy pathways not only cost too much, but they also impose severe health risks on indigenous populations and increase carbon emissions contributing to global climate change.

It’s estimated that more than one-fifth of humankind lacks modern energy services.  While the cost of providing universal access to the electricity grid, or to decentralized electrification systems, would be in the tens of billions of dollars annually, these “costs” also represent potential revenues for vendors of smart grid and microgrid enabling technologies, such as distributed generation, energy storage, smart inverters and smart meters.  The United Nations has made the goal of universal energy access a major priority, viewing the development of microgrids as a key enabling technology.

The International Energy Agency (IEA) estimates that the annual cost of achieving universal energy access throughout the world would be approximately $48 billion.  Under a base case scenario, the gap between expected costs and available (primarily public sector) funding is $34 billion annually.  The majority of this latter figure represents household lights and cell phone chargers.  However, more than 10% of this total represents vendor revenues in the remote microgrid space, if private investment, policy reforms and technology advances can be marshaled to meet market demand.  This is double the market for traditional utility grid expansion in the developing world.

By comparison, Navigant Research estimates in a forthcoming report that the size of today’s entire remote microgrid market is approximately $3 billion, but the scope of that revenue includes substantial project portfolios in both North America and Europe.

Local Goods

Can vendors respond to this challenge while still turning a profit? The jury is still out.  To date, it appears that private sector models are providing the best results, both for vendors and the consumers being served.

While rural cooperatives in Alaska have proven that publicly owned utilities can successfully deploy remote microgrids, the experience in the rest of the world with the cooperative business model has been less inspiring.  This approach has been deployed in Bangladesh and Nepal with some success, but in India – probably the largest market for remote microgrids in the world – such endeavors have largely failed.

In contrast, the energy service company (ESCO) model, whereby a private company owns, installs and operates the remote microgrid and provides energy services to consumers, is, with certain caveats, looking like the most promising path forward.  This model has found success in countries such as Zambia, Kenya, Sri Lanka, and the Dominican Republic.  There appears to be a growing consensus, however, that 3 megawatts (MW) of electrical capacity is the minimum size to make these private sector projects work.

A few caveats on private sector models.  They often require either a clear regulatory framework or long-term subsidies (or the elimination of existing subsidies for incumbent technologies).  A review of existing remote microgrids in the developing world indicates that success for remote microgrid business models ultimately rests in designing creative ways to generate income for the local communities being served.  In other words, business models must serve not only the entity that builds, develops, or owns the infrastructure, but also the end users – in the form of less costly or reliable energy, local jobs, quality of life – in other words, the basics that citizens of the First World view as their birthright.


China Moves Beyond Solar

— August 21, 2013

Solar PV panel manufacturers, who have had a rough few years, have recently had reason to celebrate.  The European Union has reached an agreement with Chinese solar panel exporters to avoid the dumping of cheap, state-subsided panels from China in the European market. For years, European makers have charged that China is subsidizing the manufacture of panels, leading manufacturers to sell below cost and  making it impossible for non-Chinese companies to compete.

China is investing heavily in clean energy, and it doesn’t stop at solar PV.  Total electricity consumption in China was forecast to increase an average of 8% per year between 2010 and 2015.  Energy consumption as a portion of GDP is expected to decrease by 16% per year during the same period.  China has a binding target for renewable energy consumption – in 2010, this target was 8.4% of energy consumed; in 2015, this target is 11.8 % of energy consumed.  Considering the increase in overall energy consumption, this should be a windfall for renewables and technologies, such as wind forecasting and energy storage, that optimize renewables and make the grid more efficient.

China has no intention of importing these technologies; it’s building export industries.  The country is currently executing its 12th Five-Year Plan, and the State Council published the supporting Energy Development Plan in January 2013.  China’s R&D pipeline includes wind, solar thermal, distributed energy generation, and storage.

Only One Winner

China is looking to leverage its lithium ion battery manufacturing base to supply the grid storage market. Chinese energy storage vendor BYD already has 18 projects for its containerized, grid-scale, lithium iron phosphate energy storage product.

According to Navigant Research, the EU market for storage (including applications as varied as bulk storage, ancillary services, community/residential storage, and microgrids) will reach $736 million this year and is expected to grow 10-fold to $7 billion by 2018.  Germany Trade and Invest estimates that the market is much larger, and that the global market for energy storage solely for the purposes of solar PV integration will be worth $17 billion by 2019.  Regardless, the market potential is enormous, and China clearly aims to grab a major share.

Unfortunately for the global economy, everyone loses in this scenario except for China.  Under the recent agreement, Chinese solar PV will have a minimum price, or a price floor.  A price floor is less efficient than letting the market decide the best price for solar panels, but considering that dumping results in a market failure, this is the best Europe can hope for.

European, North American, and Japanese battery firms that are targeting the storage market ‑ including SAFT, Altairnano, and Sony ‑ should beware. China’s coming.


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