Navigant Research Blog

Does Vehicle Automation Need to Overcome the Uncanny Valley to Succeed?

— May 31, 2016

Connected VehiclesIn the world of digital animation, there is a concept known as the uncanny valley, which refers to a sense of unease generated in a viewer when something meant to replicate a human appears extremely close to being real, but subtle errors indicate that it is not. Automated driving systems are now approaching something similar in their development cycle. If the electronic control systems that are expected to drive our future vehicles can’t reach a sufficient level of reliability and robustness to cross this valley, it’s possible that consumers will never accept the technology.

Accident statistics indicate that up to 94% of all crashes are caused by human error; there is no doubt that the human decision-making process is deeply flawed. Nonetheless, human perception and visual processing have some unique qualities that make us able to detect incredibly subtle nuances. When audiences saw the 2004 film The Polar Express, it was not well-received due to characters in the movie falling into the uncanny valley. The microexpressions that are such an important part of human communication were missing from the characters in the film, leaving them with what appeared to be dead eyes.

(Dis)trusting the System

In my role as a transportation analyst, I have the opportunity to drive many new vehicles to evaluate the latest technologies. Despite usually knowing where I’m going, I try to utilize navigation systems along with voice recognition and human-machine interface and driver assistance (ADAS) features to aid my understanding of what works and, more importantly, what doesn’t.

Having spent more than 17 years developing electronic control systems including anti-lock brakes and electronic stability control, I’m constantly impressed at how far these systems have advanced. Nonetheless, I have yet to encounter a system that I completely trust, including Tesla’s Autopilot, which is arguably the most advanced ADAS system on the market today. For the most part, Autopilot and other ADAS features work well within their control domains. Using radar, they can track a vehicle ahead at a safe distance and automatically slow down or speed up in response. Lane keeping systems detect road markings and provide alerts or even adjust the steering to keep the vehicle from drifting out of the lane.

Unfortunately, the sensors don’t always detect what’s around the vehicle consistently, so drivers must remain alert and be ready to take control. There are enough control errors in normal operation that it’s impossible to completely trust the system. Even far more advanced fully autonomous systems that are currently being testing by many automakers, suppliers, and technology companies aren’t perfect. They have little or no ability to operate in areas that don’t have hi-definition 3D maps, clearly visible signage and road markings, or even in instances of poor weather.

Consumer Pushback

A recently released study from the University of Michigan Transportation Research Institute revealed that only 15.5% of respondents wanted fully autonomous vehicles, and nearly half wanted no self-driving capability at all. Navigant Research’s Autonomous Vehicles report forecasts that fewer than 5% of new vehicles sold in 2025 will have fully autonomous capability.

This low consumer interest comes despite the fact that almost no one besides the engineers working on the technology have actually experienced a self-driving car. If those engineers cannot find a way to cross the uncanny valley of automation and convince people to completely trust the technology, it will be very difficult for it to gain traction in the marketplace.


Toronto versus Austin: How City Regulations Can Make or Break Ridesharing

— May 31, 2016

Electric Vehicle 2Ridesharing apps such as Uber and Lyft are often less expensive and more convenient (i.e., faster responding) than taxis. This has resulted in an explosion of ridesharing businesses over the past several years; Uber alone is estimated to be worth over $60 billion. However, the rapid global expansion of ridesharing services has created a legal quandary in jurisdictions all across the world. In the United States alone, Uber is involved in over 150 lawsuits. While the conflicts between municipalities and ridesharing companies can be complex, the essential argument often boils down to this: Are ridesharing companies a distinct legal entity with their own set of rules, or should they be regulated like traditional taxi cab organizations?

A Tale of Two Cities

Two major cities with large ridesharing presences—Toronto, Ontario and Austin, Texas—were both recently met with threats of complete operational shutdown by ridesharing companies. Proposed regulations by both cities were deemed to be unfair by the industry if enacted. In Toronto, the regulations implemented ended up being reasonable enough for Uber to continue offering its services in the city. The same cannot be said for Austin, however, as both Uber and Lyft have completely ceased operations in the city, citing overly burdensome regulations.

To see how the regulations in Toronto were acceptable to the ridesharing companies and the ones in Austin were not, let’s examine some of the key measures instituted by both cities. In Toronto, numerous key regulations were introduced to level the playing field between Uber and established taxi services:

  • Taxis are now able to offer discounted rates (similar to Uber)
  • Taxis are now able to implement fare hikes during peak hours (similar to Uber)
  • UberX* fares will increase (must charge same base fare of $3.25 per ride as taxis, with a licensing fee of $0.30 per ride)
  • UberX drivers will have to pass a city-mandated background screening
  • UberX drivers need to have $2 million in insurance coverage and all-weather tires for winter
  • UberX vehicles must display some type of signage for identification (i.e., magnetic placard)

*UberX, where drivers use their private vehicles to transport passengers, is the cheapest and most common service from Uber. Some rules may differ for UberXL, UberSelect, UberBlack, and UberPool services.

While Austin had proposed rules that are similar to the regulations instituted in Toronto, the city added additional measures such as the mandatory fingerprinting of drivers, restrictions on where drivers can pick up and drop off passengers, and a time-consuming data reporting scheme. These seem to have been the deal-breaking regulations for Uber and Lyft.

Finding the Right Balance

Ridesharing companies undoubtedly enjoy benefits that are absent to traditional taxi cab companies due to the inherent advantages of the shared mobility business model. However, ridesharing deserves some recognition for innovating in an industry that has been relatively unchanged and void of outside competition for decades. Ensuring that city regulations aren’t overly burdensome on ridesharing companies is important — thousands of residents in Austin have been deprived a source of income, while many more have been deprived of a service that was improving mobility, reducing incidents of drunk driving, and expanding transportation options to underserved parts of the city.

Conversely, it is important that ridesharing companies are regulated to ensure safety for passengers and so that traditional taxi companies aren’t operating on a completely different regulatory playing field. Toronto seems to have found a reasonable balance that allows both types of businesses to operate on a similar set of rules while also recognizing the clear distinctions in service delivery and organizational structure between ridesharing and traditional taxi services.


Interest in Electric Trucks Is on the Rise

— May 31, 2016

Electric TruckElectric vehicles (EVs) have been making steady progress in technology and popularity since the Nissan LEAF was introduced in 2010, bringing all-electric drive to the high-volume production car market. Ford debuted the all-electric Ford Focus Electric in 2011, Tesla made another step toward becoming a volume manufacturer in 2012 when it launched the Model S, and a year later, BMW introduced the i3. These are just some of the highlights, and now pretty much every major manufacturer has all-electric vehicles in their product portfolio either now or planned for the near future.

Batteries and Charging

Hybrid technology is also continuing to grow in popularity, and in some regions of the world, plug-in hybrids are selling well. Lithium ion batteries have become the preferred onboard energy storage option, and demand for the batteries from automotive producers is driving investment in new production facilities and bringing unit cost per kilowatt-hour down.

Another sign of progress supporting the growth in popularity of EVs is the development of fast charging and wireless charging. This is particularly important for fleet operators with vehicles in use all day and not parked during work hours; consumer vehicles can often be recharged slowly while not in use.

A recent Navigant Research report, Transportation Forecast: Medium and Heavy Duty Vehicles, identifies which vehicle types are more likely to adopt a variety of alternative powertrains. For the first time, this report looks at the differences between buses and trucks and between medium and heavy duty vehicles. Trucks are a significant contributor to global emissions, and governments in many countries are beginning to look at tightening legislation and setting more stringent targets.

New Options for Fleet Managers

Hybrid and electric drives offer OEMs and fleet managers options to lower their emissions and run cleaner vehicles. Systems have now been tested for many years and there is a lot of data available on reliability and long-term costs, but it is also clear from these tests that the suitability of any powertrain is highly dependent on the work duty cycle and must be optimized for a particular purpose. The longevity of commercial vehicles means that sales growth of these alternative powertrains will remain slow in the short term.

More government incentives to encourage fleet renewal and subsidize the necessary infrastructure would help to accelerate the rollout of cleaner powertrains for commercial vehicles. Lower prices for conventional fuels have had a negative effect in recent years. However, future increases in oil prices are expected to produce more incentive to electrify where it makes sense. Fleet managers would be well-advised to begin planning for the introduction of new technology now.


Take Control of Your Future, Part V: Delivering Shareholder Value through M&A

— May 27, 2016

Energy CloudIn my first blog in this series, I discussed seven megatrends that are fundamentally changing how we produce and use power. As discussed widely across the industry, the pace of transformational change in the utilities industry is accelerating. Low demand growth, increased carbon reduction policies and regulations, changing customer demands, the growth of distributed energy resources (DER), and other developments are shifting the value proposition for incumbent and new players alike.

It is no surprise that with so much change, mergers and acquisitions (M&A) are on the rise, with fascinating implications for the broader industry. We hear mostly about large acquisitions—Exelon’s acquisition of Pepco, Emera’s acquisition of TECO, Southern Company acquiring AGL Resources, and Duke Energy acquiring Piedmont Natural Gas Co, Inc.—but there is much more happening under the surface and on the periphery, underscoring the tectonic shifts reshaping the energy industry.

With the emergence of the Energy Cloud, which is driving broad and pervasive digitalization of the industry, utilities, manufacturers, technology companies, and other stakeholders are pursuing proactive initiatives such as M&A deals to retain customers, increase revenue, and improve market position. Recent activity points to three different flavors of M&A deals occurring with more frequency than others:

  1. Utilities acquiring other utility companies or assets
  2. Utilities acquiring energy technology companies
  3. Manufacturers or energy technology companies acquiring other manufacturers and energy technology companies

 Utilities Acquiring Other Utility Companies or Assets

The table below shows that the value of utility deals has more than quadrupled in 2014 and 2015 compared to 2012. In the first quarter of 2016 alone, 22 deals valued at more than $40 billion have already closed.

Utility M&A Deals (>USD $5M): 2012-2016 (Q1)

Jan Blog table

(Sources: S&P Capital IQ, Thomas Reuters)

The main driver for this increased level of M&A activity is a renewed search for growth, shareholder value, and diversification to offset some of the challenges facing the industry. Additionally, utilities are increasingly hedging against uncertainty and risk, as seen with Duke Energy and Southern Company acquiring natural gas companies as they pivot away from coal. As Southern Company stated after the acquisition was announced, “The addition of AGL Resources’ network of natural gas assets and businesses will provide a broader, more robust platform for long-term success and increase opportunities to invest in future infrastructure and energy solutions.”

Some utility analysts see these high-cost, high-debt acquisitions as unsustainable. Although the acquisitions are in regulated, low-risk businesses, utilities have had to pay a premium for these acquisitions and utilize debt financing, which could potentially put pressure on their credit ratings.

Utilities Buying Energy Technology Companies

We have seen an even greater uptick in the acquisition of technology companies by utilities. In particular, acquisitions targeting renewables, storage, and DER are on the rise.

A couple noteworthy transactions include Engie (formerly GDF Suez) taking a majority stake in Green Charge Networks, a provider of C&I energy storage solutions, and Southern Company acquiring PowerSecure. According to a press release, PowerSecure, a provider of distributed energy, utility infrastructure, and efficiency solutions, gives Southern Company the capability to help meet commercial & industrial (C&I) customers’ energy needs in the areas of individual reliability, energy efficiency, and green objectives.

Additionally, many utilities are acquiring and investing in companies offering IT/OT and data analytics solutions. The latest example is a $20 million investment in AutoGrid Systems from Energy Impact Partners (EIP), a utility group that includes Southern Company, Xcel Energy, Oncor, and National Grid, and Envision Ventures. According to Michael Donnelly of EIP, “Big data analytics and automated control of grid operations will allow utilities to adapt to the increasingly complex distributed energy environment.”

The rationale behind this wave of energy technology acquisitions by utilities reflects their willingness to play both offense and defense as the Energy Cloud takes shape. It also shows a willingness to protect their core business against new entrants looking to provide new products and services to their customers. At the same time, it suggests a willingness to look beyond their current customer base and target customers with a full suite of energy management solutions within the country and internationally.

In a recent announcement, Ted Craver, chairman and CEO of Edison International stated that, “[within] the New Energy Future … large energy users increasingly need a strategic partner to help them navigate through the diverse energy marketplace. Edison Energy will provide the expertise that will enable large commercial and industrial energy users to explore the many options available to them and to select the best portfolio of alternatives to power their operations.”

Duke Energy’s recent acquisition of Phoenix, a provider of energy management systems and services for commercial customers, offers a similar view. In the announcement press release, Greg Wolf, president of Duke Energy’s Commercial Portfolio, stated: “Duke Energy will continue to expand its offering of on-site, advanced energy solutions for commercial customers as the company finds opportunities in this rapidly growing market.”

These are just a couple of examples, and we expect similar acquisitions to accelerate going forward.

Manufacturers or Energy Technology Companies Acquiring Other Manufacturers and Energy Technology Companies

Of the three categories described in this post, this is perhaps the most active. We have seen solar companies buying other solar companies, solar companies buying storage companies, and technology companies buying other technology companies—the list goes on. From Google buying Nest to Oracle buying Opower and many more, everybody wants to get into the game and is looking for unique, differentiating technologies and capabilities to stay ahead of the competition with a focus on technology synergies and customers.

Additionally, there’s a significant rise in the number of new companies entering the energy space, selling new and innovative energy technology products and services. We don’t expect this trend to slow anytime soon. On the contrary, with the scale of investment pouring into newer, greener ways of producing, managing, and using power, we are at the beginning of a greentech tsunami.

So What Does This All Mean?

My advice to all these players: Be alert and think out of the box. Your clients today can become your competitors tomorrow—consider IKEA as one example. Technology companies have the potential to become network orchestrators and provide utility products and services. The risk for utilities is they end up with stranded, worthless assets.

Balancing today’s business with tomorrow’s opportunities is key. Thinking through strategy and future-case scenarios will help you understand the opportunities and threats as technology and customer choice drive new products, services, and business models. Stay close to your customers and innovate; partner where it makes sense and stay in the game. This is Energy Strategy 2.0 for the Energy Cloud 2.0.

This is the fifth in a series of posts in which I discuss each of the power industry megatrends and the impacts (“so what?”) in more detail. My next blog will cover the regionalization of energy. Stay tuned.

Learn more about our clients, projects, solution offerings. and team at
Navigant Energy Practice Overview.


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