Navigant Research Blog

As Demand Falters, Biodiesel Industry Chases Power Generation Applications

— January 30, 2014

In the next few months, the Argentinian government is likely to impose a 10% biodiesel blending requirement for power generation, alongside an increase in biodiesel blending in its transportation sector from 8% to 10%.  Publicly, the announcement is hailed as an effort to boost the nation’s rapidly expanding biofuels industry while increasing the use of green fuels.  In reality, it represents a desperate pivot for the fast-rising biodiesel exporter to ramp up domestic consumption of biodiesel production as global export markets collapse.

Although demand for its use as a transportation fuel in recent years has risen, biodiesel is economically feasible for power generation in only the narrowest of circumstances.  The use of liquid biofuels in Argentina’s power generation fleet, however, is another ominous signal of the shrinking market for biodiesel exports.  Despite efforts like those in Argentina, globally, biodiesel’s role in power generation applications is likely to remain limited.

Ongoing debate in the European Commission (EC) has resulted in an increasingly conservative outlook for the biofuels market in the EU.  Driven by efforts to protect market share for steadily increasing domestic production and to sidestep difficult sustainability issues related to foreign producers, the EC has reevaluated liquid biofuels’ role in the EU transport sector several times.  The resulting policy uncertainty has led to a dramatic slowdown in biofuel project investment across the EU, according to a recent report from Agra CEAS Consulting, a joint venture between Imperial College London and Informa Plc.

WTO Complaints

Corresponding legislation to impose antidumping tariffs on Argentina and other biodiesel exporting nations has caused exports from those countries to plummet in the past year.  According to the Wall Street Journal, the taxes on Argentine biodiesel range from €217 to €246 ($298-$336) per metric ton, “having the direct and immediate effect of closing the European market to Argentine biodiesel and affecting exports worth over $1.5 billion per year,” according to the country’s foreign ministry.

In mid-December, Argentina’s government filed a formal complaint to the World Trade Organization (WTO), challenging the imposition of 5-year antidumping tariffs.  The complaint is the third from the leading biodiesel producer.

Argentina has relied on the EU for 90% of its biodiesel sales, worth nearly $2 billion in revenue in 2012.  Built on the back of a highly efficient, modern, and large-scale soy industry, Argentina’s biodiesel output increased nearly 14-fold between 2007 and 2012.  With heavy investment resulting in a fleet of production plants already in the ground, the government is anxious to find new markets for the nearly 1 billion gallons of production capacity in place if the antidumping tariffs are upheld.

Plan B

Faced with the prospect of high production capacity and no outlet for its products, Argentina is trying to force excess biodiesel into its power generation sector.  This may not be the worst outcome, according to a 2009 study published in Science in which the use of biofuels to produce electricity to power electric cars was deemed to be a more efficient use of farmland than producing liquid biofuels.

But while the connection between electrons derived from biodiesel-based power generation and their end-use in electric vehicles remains tenuous, the direct use of biodiesel in generator sets (gensets) is not.  This makes crediting such use – such as in Renewable Portfolio Standards in the United States  – more straightforward.  Since many developing economies that rely heavily on refined petroleum products for primary energy use face rising diesel costs, alternatives such as biodiesel produced from domestic resources may provide an inexpensive alternative for gensets used for distributed power generation.

Still, Argentina’s power generation sector is not lacking in raw inputs.  According to the Energy Information Administration, 93% of domestic generation comes from hydroelectricity and natural gas.  Estimates suggest that the country holds the third-largest shale gas reserves in the world, behind the United States and China.  In a country flush with resources, the channeling of biodiesel into Argentina’s power generation sector is likely to be a temporary stopgap measure to soak up fuel from the country’s growing production base.

For the time being, Argentina’s industry may be stuck between a rock and hard place.  As discussed in Navigant Research’s report, Market Data: Biofuels, the EU’s biofuel broodings are likely to result in tepid demand for imports in the coming years.  Meanwhile, Argentina’s heavy reliance on soy-based feedstock means that sustainability issues may hamper longer-term expansion into emerging end-markets, such as aviation biofuels.

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Google Invades the Car Space

— January 30, 2014

Google’s acquisition of Nest has already pushed its automotive announcements from CES 2014 out of the news.  But Google continued to make inroads into the connected car environment through specific Android partnerships with original equipment manufacturers (OEMs) and the Open Automotive Alliance.  Through the Alliance, GM, Hyundai, Honda, and Audi will work together with Google to bring the Android platform to their cars.

If you tie this to the Nest acquisition, it looks like Google will soon have the ability to track you everywhere: online, at home, and in your car.  This may be the paranoid version of what Google is after, but it’s not crazy to think that is a driver for entering these markets, given how Google has built its business on the customer-as-the-product model.  However, at least in the automotive arena, it’s not quite so simple.  Google is working with the great immovable force that is the auto industry, a business with a product development timeline that’s longer than in consumer electronics, and a relationship with its customers that’s different than Google’s.

CES 2014 did show continued advancement in the ways that automakers are thinking about connectivity, with greater openness to direct integration with outside apps and operating systems. It also showed how much more of a role that telecom providers are playing in the automotive sector, with cars increasingly becoming Wi-Fi hotspots.

Skeptics Disagree

But automakers disagree on how to integrate these outside systems and how to use the massive amounts of data they are going to be collecting on driver behavior.

From conversations with auto industry executives at CES, as well as from presentations at the Consumer Telematics Show, I see a spectrum of views on the topic of using consumer data to drive new revenue.  Some executives are confident that connectivity and driver data will open up promising new revenue opportunities.  These include offering insurance products that match customer’s actual driving habits and records, connecting them with local restaurants or other businesses as they are driving, or simply reporting back diagnostic information to the dealership or local repair shop, which can then connect with the driver to tell them when they need an oil change.

Other industry officials are skeptical of these ideas, noting that customers find it creepy when other businesses know what their oil change schedule is.  Some of the luxury car company executives, in particular, emphasize that their customers expect not to be harassed by coupons or ads, and they would never pass along their customer’s information.  In one example of how OEMs will want to control this data, Mercedes previewed its new predictive user experience system, which can learn from the driver’s habits and adjust the telematics systems accordingly.  Mercedes stressed that this personal data will only be stored on the vehicle.  Even automakers who plan to take advantage of the new revenue opportunities note it must be an “opt in” procedure.

A Protected Environment

Right now, the automakers are still the gatekeepers on how Google, Apple, or application providers like Pandora will interact with their drivers through any in-vehicle system.  So, I think it’s premature to assume that Google will have the same ability to track and target connected car drivers as they do with web users, other than as they can do already, via the driver’s cell phone.  I’ve seen some suggestions that automakers should hand over the user interface to the tech companies, like Google, but I see very little evidence they are interested in doing so. Every automotive executive I spoke with believes that the interface with the customer must be a protected environment, where they want to compete against other automakers.  However, the manufacturers themselves are showing more interest in moving into motorists’ homes.  See Ford’s MyEnergi Lifestyle, which lets a customer integrate the C-MAX Energi plug-in hybrid with solar panels by SunPower and, you guessed it, the Nest smart thermostat.  While Ford is ahead of the pack in bringing this concept to market, expect to see more automakers pursuing similar home-vehicle integration models.


Timely Launches Fuel EV Market

— January 29, 2014

According to Navigant Research’s free white paper Electric Vehicles: 10 Predictions for 2014,  the global electric vehicle (EV) industry is poised to grow by 86% this year, surpassing 346,000 new vehicles sold.  Additionally, our report Electric Vehicle Market Forecasts  predicts compound annual growth rates (CAGRs) for hybrid electric vehicles (HEVs) (9.6%), plug-in hybrid electric vehicles (PHEVs) (28.5%), and battery electric vehicles (BEVs) (29.3%).  In order to achieve these growth rates, new EV model releases will have to closely align with market expectations.  Unfortunately, in the past many EV makers have not had a stellar record of launching new models on time.

Let’s take a look at 2013 (model year 2014) and see what EV models were released as scheduled in North America.  All EVs that were expected to be released in 2013 are currently available, with the exception of the 2014 Nissan Altima Hybrid.  BEVs such as the Chevrolet E-Spark, Fiat 500e, and smart fortwo; PHEVs such as the Ford Fusion Energi, Honda Accord, VIA SUV, VIA Pickup, and VIA Van; and HEVs such as the Ford Fusion, VW Jetta, Lexus ES 300h, and the Acura ILX were all released as expected.  The recent pattern of releasing new models in a timely fashion will play an important role in the healthy growth of the EV industry.

In the luxury EV space in particular, new model releases will stiffen the competition like never before.  Tesla’s highly successful Model S will be challenged by BMW’s i8 and i3, the Cadillac ELR, the Audi A3 e-tron, the Mercedes B-Class Electric Drive, and the Porsche Panamera S E-Hybrid, assuming that they are launched on time.  Reliable model releases will encourage better competition and increase consumer confidence, hopefully leading to better products, lower prices, and overall more robust EV markets.

Expected HEV, PHEV, and BEV Releases, North America: 2014

(Source: Navigant Research)


Polar Vortex Sparks Wintertime Demand Response

— January 23, 2014

Polar vortex became the first catchphrase of 2014 in the United States.  It was no joke, though, as the phenomenon led to record low temperatures and several deaths around the country.  The cold snap also took its toll on the electric grid, leaving hundreds of thousands of people without power across a large swath of the nation.  There could have been even more outages had demand response (DR) not been at the disposal of system operators as a step in their emergency procedures.

PJM, ERCOT, and NYISO all set new winter peak demand records due to the heating requirements that the frigid temperatures required.  When you combine record demand with power plant and transmission line outages that can be caused by the cold weather, electric grids can quickly get into emergency situations where they need to call on reserves to prevent forced load shedding, otherwise known as brownouts or blackouts.

Prior to this winter, ISO-NE activated its DR system in response to grid and weather conditions during the winter in each of the past 2 years, and ERCOT called one winter event a few years ago, while PJM and NYISO have never had winter DR activations.  ISO-NE called an event this past December as well – on a Saturday night no less – due to generator outages, but it survived the vortex without having to implement DR.  The rest of the regions all dispatched their DR resources at some point during the vortex conditions, and all of them succeeded in avoiding further emergency steps like blackouts.

Load Spikes

ERCOT was the first region to call DR as the cold wave swept East across the country.  It activated its contracted DR customers and put out a general conservation notice to all consumers.

PJM actually deployed DR twice in 1 day due to higher-than-anticipated morning load ramp and an evening peak load spike, as seen in the chart below.

PJM Load Curves on January 7, 2014

(Source: PJM)

NYISO dispatched DR for a 6-hour stretch and took the additional step of encouraging consumers to conserve electricity by lowering thermostats and turning off major electric appliances.

It’s too early to get verified performance results, but the main test was passed by avoiding blackouts.

Year-Round DR

The winter is hardly over yet, so there could be more DR activity coming up this season.  The vortex may have been a rare event, but all ISO/RTOs will now take a much closer look at its DR performance requirements for the winter.  PJM is in the process of including an annual DR product that would require mandatory participation year-round, as opposed to its traditional summer-only program.  ERCOT will analyze whether it should increase payments for winter peak periods to incentivize more participation.  ISO-NE was preparing to handle winter grid reliability prior to this season due to the shortage of natural gas pipeline infrastructure in the region, which could lead to fuel shortages for gas-fired generators.  It developed a special winter DR program, which is intended to be implemented prior to the regular emergency DR program, to shore up the system before it reaches that stage.

This new reality will put a lot of stress on DR as an operational resource.  A large portion of typical DR is based on air conditioning curtailment, which is not much help in the winter.  Some large industrial facilities have stable load year-round, and some industries, like ski resorts, have more load in the winter.  However, the majority of commercial and residential customers will not be able to fully participate in an annual DR program.  DR providers will have to be cognizant of where customers’ limits lie, and create new technologies and strategies to minimize pain and maximize performance.


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