Navigant Research Blog

In Asia Pacific, Green Buildings Gain Ground

— April 29, 2014

Recently, the World Green Building Council launched the inaugural Asia Pacific Regional Network Leadership Awards in Green Building.  The awards program will recognize organizations in the region committed to sustainability and green building.  Navigant Research’s report, Energy Efficient Buildings: Asia Pacific, found that the Asia Pacific region is home to about 40% of the world’s building stock, with great potential for both energy efficiency retrofits and more efficient new construction.

Across the region, individual policies and incentives exist to promote energy efficient development.  Additionally, a number of regional and bilateral programs have formed to share best practices and conduct joint projects.

Already, country-level energy reduction targets bolster the implementation of energy efficient building technologies throughout the region.  For example, after successfully achieving a 19% reduction in energy intensity between 2006 and 2010 under the 11th Five-Year Plan, China’s 12th Five-Year Plan targets an additional 16%  reduction between 2011 and 2015.   Similarly, the government of Japan announced a goal to reduce greenhouse gas emissions 30% from 2005 levels by 2020.  These ambitious goals encourage companies and other entities to retrofit or build more efficiently from the start.

Regional Efforts

In addition to individual goals, Asia Pacific nations have formed various regional and bilateral partnerships to promote energy efficient development and modernization.

Founded in 1990, the Asia Pacific Economic Cooperation (APEC) Energy Working Group promotes energy investment and clean energy technologies and policies.  In 2007, the group resolved to work toward a collective goal of reducing energy intensity by at least 25% by 2030.

There’s no question that both individual and group efforts are beneficial in that both increase the total stock of energy efficient buildings, but is there a way to use these congenial relationships to further motivate countries to build more efficient buildings?

Challenge Accepted

The U.S. Better Buildings Challenge, which my colleague Eric Bloom covered in a previous blog post, and Northern California’s Best Buildings Challenge provide examples.  These programs set energy reduction targets and participating companies commit to pursue those reductions.  The motivation to join can vary drastically, depending on the organization – from the desire to promote sustainability to the bottom-line savings offered by more efficient buildings.  The Better Buildings Challenge targets a 20% increase in energy efficiency by 2020, equivalent to about $58 million in energy savings each year.

A countrywide, or regionwide, challenge to meet an aggressive reduction target could help increase the energy efficient building stock in Asia Pacific.  In particular, developing countries seeking advice on best practices or technological implementation could capitalize on such an opportunity, as they go through high periods of building and construction.   The World Green Building Council’s Asia Pacific award could serve as such a forum for collaboration and leadership that will spur energy efficient building and development throughout the region.


Price Gap Challenges Transportation Innovation

— April 29, 2014

Renewable energy technologies such as solar and wind power are increasingly becoming cost-competitive alternatives to traditional generation sources.  The consulting firm Eclareon says that the levelized cost of commercial solar power has pulled even with retail electricity rates in Italy and Germany.  Navigant Research’s Solar PV Market Forecasts report states that by 2020, solar photovoltaic systems will have an installation cost in the range of $1.50 per watt to $2.19 per watt throughout the world, and will thus achieve grid parity without subsidies in almost all geographic locations.  When cost-competitive solar and wind are combined with existing hydropower resources and advances in energy storage capabilities, the electricity sector can and will continue to reduce emissions.

On the other hand, the transportation sector almost exclusively relies on high-carbon fuels like gasoline and diesel, and thus may become the sector where attaining major emissions reductions will be the most difficult.  The biggest obstacle is the relatively large cost gap that exists between zero emissions vehicles (ZEVs) and their internal combustion engine (ICE) counterparts.

Reasons for Optimism

This gap will have to be at least partially addressed by increasing investment from the world’s major suppliers and automakers into alternative technologies.  According to KPMG’s Global Automotive Executive Survey 2014, only 9% of automotive executives surveyed plan to invest the most in battery electric vehicles (BEVs), with 46% reporting ICE downsizing and optimization as the technology they plan to invest in most heavily.  This means that small improvements to ICE vehicles should be expected over major improvements in BEV performance and prices, at least from the major automakers.  The Intergovernmental Panel on Climate Change (IPCC) recently stated that, without the implementation of major mitigation strategies, transport emissions could double by 2050 to more than 13 gigatons of carbon dioxide, up from 6.7 gigatons in 2010, which represents 22% of the world’s total emissions.

With the demand for personal vehicles growing in economies like China, India, and Brazil, the challenge of significantly reducing transportation related emissions is huge.  Still, there are some reasons for optimism.  Hopes for viable ZEVs largely lie in the area of battery and hydrogen fuel cell technology advances.  One of these eight potential electric vehicle battery breakthroughs would be a great start.


Winners and Losers in EPA Fuel Economy Scores

— April 28, 2014

The U.S. Environmental Protection Agency (EPA) last week issued its first report detailing the performance of automakers in meeting fuel economy standards enacted in 2010.  The report shows the 11 companies that met the fuel economy standards and the 9 that didn’t, based on the performance of their own vehicles and on the net result after companies purchased credits from each other or transferred them from other years.

As seen in the table below, Toyota generated the most credits for reducing greenhouse gas emissions, which is unsurprising since it sold the second most vehicles after General Motors (GM) and sells by far the most hybrids.  Honda, Ford, and GM also earned more than 1 million credits, which can be pushed forward to future years or sold to competing automakers.

Chrysler led the list of losers, with a deficit of nearly 1.9 million credits, which is not shocking considering the company’s lack of fuel efficient models and total void of plug-in or hybrid models offered.  Also with a substantial credit deficit were Mercedes-Benz, Nissan, and Volkswagen.  Nissan had a negative tally despite offering the all-electric LEAF and several high-mpg hybrids.

(Source: U.S. Environmental Protection Agency)

A Market Emerges

The EPA designed the credit system to encourage the private sector to trade credits or make up for deficits in subsequent years to minimize the likelihood that automakers would actually pay penalties to the EPA.  Three companies – Honda, Nissan, and Tesla Motors – sold credits between 2010 and 2012, while Chrysler, Ferrari, and Mercedes-Benz purchased them.

For low-volume automaker Tesla Motors, the credits represented a substantial contribution to the company’s bottom line.  Between 2011 and 2013, Tesla pocketed more than $237 million in credits from sales through this EPA program, as well as through California’s Zero Emissions Vehicle program and the National Highway Traffic Safety Administration’s Corporate Average Fuel Economy (CAFE) standards.  That’s a significant boost for Tesla, which had total revenue just shy of $2 billion in 2013.

Overall, automakers surpassed the EPA’s requirement for reducing carbon dioxide emissions, which indicates that the companies are taking the rules seriously in their vehicle design plans and will make significant efforts to continue to meet or surpass the increasingly stringent requirements in future years.

The EPA program, which allows automakers to trade credits and shift them between years, provides flexibility and creates revenue for companies that are leaders in fuel economy.  At the same time, it penalizes those that continue to operate with indifference toward the environmental impact of their products.  With the recent report from the United Nation’s Intergovernmental Panel on Climate Change (IPCC) providing greater clarity on humans’ contribution to climate change, it’s encouraging to see that the U.S. government and the automotive industry are doing something to mitigate the environmental impact.


mPower Pullback Stalls Small Nuclear

— April 25, 2014

Nuclear technology supplier Babcock & Wilcox (B&W) has slashed funding for its Generation mPower program, an effort to develop a small modular reactor (SMR) for power generation and other applications.  The pullback represents a major blow to the development of SMRs, which have been hailed as the next step forward for the nuclear power industry.

B&W, which had a cost-sharing agreement with the U.S. Department of Energy (DOE) and a reactor construction contract with the Tennessee Valley Authority (TVA), has cut funding for the program from $60 million to $80 million per year to less than $15 million, let go the head of the mPower unit, and will lay off up to 200 employees who worked in Tennessee and Virginia on the project.  The TVA mPower reactors were to be built at the Clinch River site in northern Tennessee, once slated to be the home of the similarly ill-fated Clinch River Breeder Reactor, which itself was terminated in the 1980s after around $8 billion in investment.  Clinch River has become the place where nuclear power innovation goes to die.

Smaller, Simpler, Safer

For nuclear power advocates who point out that nuclear is the only generation technology that can supply low-cost, zero-carbon baseload power, the demise of mPower is keenly disappointing.  SMRs offer several advantages over traditional large-scale nuclear power: they could be manufactured in factories, assembled onsite, and arrayed in multiple reactor configurations to scale up capacity incrementally.  Small enough to be deployed in remote locations, they are nominally safer than big reactors because they can be built in sealed underground chambers.

With lower upfront capital costs and an easier path to licensing, SMRs should, in theory, offer a more attractive proposition for investors – which proved not to be the case with mPower.

In our report, Small Modular Reactors, Navigant Research developed two forecast scenarios for worldwide SMR capacity in 2030. Under the base scenario, total capacity would reach 4.6 GW in 2030; the conservative scenario projects 18.2 GW by the same year.  Even the lower forecast seems optimistic now.

Dead End

All told, B&W, the DOE, and partners have spent around $400 million on the mPower program.  Another $600 million was needed just to get the technology ready for application to the Nuclear Regulatory Commission for licensing.

mPower was done in by investor mistrust of nuclear power, low prices for natural gas in North America, the backlash from the Fukushima Daiichi disaster in Japan, and the difficulty of licensing unconventional nuclear technology in the United States.  B&W said last year it would seek a majority investor in the project but was unable to secure a buyer.  The company had also hoped to secure additional utility customers, but power utilities in the United States are focused on low-cost generation from coal and natural gas in an era of flattening demand for electricity.

B&W plans to continue low-level R&D on the mPower technology with a view to commercial deployment in the mid-2020s, said CEO James Ferland.  But without a major shift in the business environment and in investor perceptions of the risks and rewards associated with nuclear power, that seems fanciful.


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