Navigant Research Blog

In Arizona, A Net Metering Truce

— November 27, 2013

The Arizona Corporation Commission (ACC) voted 3-2 on November 14 to approve a change to the state’s net metering policy, requiring that new solar panel owners (after December 13) be required to pay a surcharge of $0.70 per kWh of capacity, beginning January 1, 2014.  The average Arizona solar panel owner is expected to pay about $4.90 per month under the new rule, which came in response to a petition by Arizona Public Service (APS) filed last July to modify net metering policies in order to stop what the utility terms cost shift to non-solar customers.

The spin-meisters were out in force following the ruling, with solar advocates suggesting that APS is putting nails in its own coffin.  Meanwhile, APS executives suggested that the compromise is merely a step in the right direction.  In a statement, APS Chairman, President, and CEO Don Brandt said, “Having determined that a problem exists, we would have preferred for the ACC to fix it.  The proposal … falls well short of protecting the interests of the 1 million residential customers who do not have solar panels.”

Hastening the Change

But NRG CEO David Crane, in an article in the New York Times, said “The more they charge people who are generating most of their own electricity for backing up that self-generation, they’re going to encourage those people to find a solution that doesn’t involve the grid at all.”

Despite the still polarized views amongst the stakeholders in the net metering controversy, Arizona’s ruling will be watched closely as public utility commissions nationwide grapple with the problem of determining how to fairly treat solar and non-solar customers.

In my last blog I highlighted the recommendations made to commissioners by the ACC staff, which effectively acknowledged that net metering policy in the state is in need of reform, but which suggested the commission wait until APS’ regular rate hearing next year before making a determination.  In that filing, the staff supported a per-kWh rate of roughly $3, whereas APS’ original proposal suggested closer to $8 per kWh in surcharges.

Commissioners this month elected to put a toe in the water, choosing a compromise that institutes the surcharge immediately, but at much lower levels than APS, and even the commission’s own staff, had recommended.  Considering the ire that this controversy has raised, even a small step toward compromise is a step in the right direction.

Hold the Rhetoric

There are a multitude of reasons why the proliferation of renewables like solar (and wind) should be encouraged, but at the same time, technology is a long way from giving homeowners an alternative to the grid as a critical backup.  The electric grid represents public infrastructure that’s needed by consumers, businesses, government agencies and … well … everyone.

Finding a compromise solution, one that provides a roadmap to resolution for stakeholders all 50 states (not to mention in other countries) is paramount.  But one thing’s sure.  Inflammatory statements like this gem in the NYT article referenced above don’t help:  Bryan Miller, head of the lobbying group Alliance for Solar Choice, said, “Those fees are real and they’ll have a real impact on the industry, but they do not accomplish APS’s goal of destroying the rooftop solar industry.”  Sheesh.

 

Connected Cars Offer Safety Risks and Rewards

— November 27, 2013

Distracted driving is becoming an increasingly severe problem in nations around the world.  Texting and cell phone use while driving continues to rise, despite harsher penalties for cell phone use.  Teen drivers are especially notorious for this trend.  In addition, vehicle information and entertainment systems are becoming more engaging, thanks to connected-car technology offered by automakers in partnership with communications providers.  While the adoption of communications technologies in vehicles presents serious safety concerns, the promise of the connected car is to make the driving experience less stressful and less dangerous.

When connected vehicles communicate with other connected vehicles, they can alert each other to their presence on the road and avoid accidents.  As described in the Navigant Research report, Autonomous Vehicles, when communications systems are used in tandem with automated driving systems, the driving experience can be removed from the driver entirely – removing human error and therefore making driving more efficient and safer.

Danger Ahead

The road to achieve this transformation, however, is likely to become more dangerous before it becomes less.  While the necessary technologies exist to make connected/automated driving possible today, the legal and regulatory barriers to be overcome are significant.  Therefore, drivers are likely to become more connected before their vehicles do – creating more distractions in the near term.

While the process of connecting people via smart phones has been quick, the process of connecting all vehicles will be very slow.  If every new vehicle sold from today forward had both connectivity and automated driving systems that enabled autonomous vehicle operation, the entire fleet would not be connected for another 15 to 20 years.  Therefore, while there are some fully autonomous vehicles on roads via various test pilots, mass-market adoption of these technologies will not take place for years, and the safety benefits will take longer to realize.

The first step is allowing autonomous vehicles on roads, and various U.S. and European local and national governments are beginning to develop policies to open their roadways to limited autonomous technology.  The second step is defining who may liable in the result of an accident.  While autonomous vehicles have proven significant safety achievements over conventional vehicles, these systems will fail and accidents will happen, as was made clear at the Connected Car Expo this last week in Los Angeles.

The last and possibly hardest step is vehicle data access.  Outside of opportunities for increased safety, connected vehicles will provide companies with new targeted advertising opportunities, and will enable local and federal governments to better manage traffic congestion and to develop policies concerning road infrastructure development and taxation.  Privacy concerns are pivotal in this regard.  The most resistant stakeholders to the advances and benefits of connected vehicles are likely to be the vehicle owners themselves.

 

EPA Resets the Biofuel Industry

— November 27, 2013

Earlier this month, the EPA proposed revisions to biofuel blending quotas for 2014 under its controversial revised Renewable Fuel Standard (RFS2).  With a proposed reduction of an estimated 3 billion gallons – a volume roughly equal to 20% of current nationwide biofuels production – it’s the first time the agency is seeking to reduce the total biofuel requirements below the legislated targets.

Covering conventional ethanol produced primarily from corn starch and conventional biodiesel produced from food-based vegetable oils like soy, along with advanced biofuels derived from non-food feedstocks, RFS2 is the backbone policy driving biofuels production in the United States today.  The EPA has adjusted annual volumes for advanced biofuels in prior years, but the recent announcement is unprecedented both in the political dimensions and market ramifications.  It’s also the first time the agency has attempted to put the brakes on conventional ethanol production.  As described by Jason Bordoff, former special assistant to President Obama and senior director for energy and climate change at the National Security Council, the announcement marks a “drastic change in the Administration’s biofuel policy.”

Why the shift?  Below is a brief look at the key forces at play.

Big Oil’s New Swagger

Moving further offshore, mining heavy oils, and channeling investments into next-generation biofuels, oil majors have been scrambling for new growth opportunities in recent years.  In an unexpected reversal of fortune, these companies are positioned to ride a wave of new production from shale oil that has many analysts predicting the United States could become the world’s leading producer of oil within the decade.  Petroleum companies have recently slashed their biofuel investment portfolios while waging an all-out attack on the RFS2 in the courts and on Capitol Hill.  While not quite a “capitulation” by President Obama,  as some described it, the recent announcement by EPA represents a significant victory for the incumbent oil industry, which maintains that it should not be penalized under RFS2 when there is insufficient volume of biofuels to blend in the first place.

The EPA seems increasingly comfortable with facilitating a smooth commercialization glide path for biofuels rather than forcing a top-down overhaul of the liquid fuels market.  Biofuels Digest summarizes the EPA’s intent under the ruling this way: “The practical goal for the EPA is not to use the RFS2 renewable fuels schedules as a driver to produce investment in capacity-building or infrastructure for distribution.  Rather, the EPA opts for a more passive role of providing a market for those capacities that are, in fact, built – based on incremental, if any, changes in infrastructure.”  The onus for attracting investment has been placed squarely on the back of the emerging biofuels industry.

Crashing Ethanol’s Party

Higher pump prices in recent years, meanwhile, have resulted in consumers driving less.  At the same time, improved efficiency under CAFE standards means it takes less fuel to travel the same distance.  The rise of the Prius and Tesla’s recent success are harbingers of an emerging fleet of next-generation vehicles that will further trim consumption.  As a result, as biofuels production increases and oil demand flatlines, the headroom for absorbing supply has shrunk much faster than policymakers predicted when drafting the original RFS2 mandate.

Corn starch ethanol is proving to be a victim of its own success.  The United States currently produces roughly 50% of the total gallons of biofuel produced globally – mostly ethanol – which nearly exceeds the capacity of the U.S. gasoline market to absorb excess production (see blend wall issue).

(Source: EIA)

Policymakers, meanwhile, have shown a reluctance to incentivize demand in new consumer markets.  E15 (15% ethanol) has proven to be complex to implement and E85 (85% ethanol) has been a nonstarter.  This leaves the U.S. ethanol industry in an awkward position.  Either it must now initiate a grassroots campaign to attract billions in new investment for distribution infrastructure or look to export markets to offload excess supply.

 

Japan Fuel Cell Project a Big Step for Bloom

— November 27, 2013

Since coming out of stealth mode in 2010, fuel cell manufacturer Bloom Energy has never been far from the headlines.  Generating more press inches than most other fuel cell companies put together, Bloom has played a careful, and strategic, game with the press and the industry.

With rumors building, again, that Bloom will go public, the timing of this week’s press release stating that Bloom Energy is entering the Japanese market is attention-grabbing.  The installation, a 200 kW solid-oxide fuel cell Bloom Box, is located at SoftBank’s M-Tower in Fukuoka, Japan.  There are no details of follow on orders or scale-up in the country, so this announcement has to be taken at face value: a single initial installation in Japan.

With an investment of over $100 million by European utility E.ON earlier this year, the European market was ticketed by some as the likely first baby step out of the United States for the company.  E.ON, however, made a strategic investment, while Softbank earlier this year formed a JV with Bloom Energy, creating a separate company Bloom Energy Japan Limited.

A Hard Nut

To date Japan has proven a notoriously hard market for non-Japanese fuel cell companies to break into, with companies such as Ballard and Ceramic Fuel Cell having tried in the past.  Alongside South Korea, Japan is still ranked as the most open to fuel cell power generation of any country in the world, and Navigant Research, in the forthcoming white paper entitled “The Fuel Cell and Hydrogen Industries: Ten Trends to Watch in 2014 and Beyond,” forecasts that as of 2014 there will be over 70,000 homes in Japan with a residential fuel cell system installed.  Although the country has been actively developing larger systems, only Fuji Electric with its 100 kW phosphoric acid fuel cell system is currently commercially available in the country.

Going forward in 2014, we can expect more small-scale installations in Japan and a number of high profile announcements from the company.  Outside of Japan and with the resignation in July of Girish Paranjpe, the company’s head of its international operations, it’s anyone’s guess where next for Bloom.  Potential markets include Germany, Russia, and South Korea, alongside India – if another JV is in the cards.

Interest in the stationary fuel cell sector is climbing high again, and companies such as Bloom Energy are at the vanguard of establishing this industry. A successful project in Japan will validate both the technology and the business model.

 

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