Navigant Research Blog

Climate-Related Risks and Opportunities for Corporates

— July 18, 2017

Climate change and the transition to the low carbon economy are creating risks and opportunities for businesses. Investors want to understand these risks and opportunities to inform their investment decisions. This need for greater transparency is illustrated by recommendations made by the Task Force on Climate-related Financial Disclosures under the Financial Stability Board, which continues a drive by the investment community for greater transparency:

  • Three out of four investors use climate-related risks and opportunities to underpin financial decisions (CDP Climate Change Report 2016, CEE Edition).
  • Some of the biggest index providers in the world, including S&P and STOXX, have created low carbon indices to help investors direct their portfolios towards sustainable companies (CDP Climate Change Report 2016, CEE Edition).
  • CDP collects climate performance information annually from listed companies. It recently started also asking questions addressing climate-related risks and opportunities.
  • European Union (EU) directive 2014/95 requires larger publicly listed companies to report on non-financial information like environmental and social issues starting in reporting year 2017.

Climate-related risks are related to physical risks and transition risks like policy & legal actions, technology shifts, and changing markets. Companies that thrive will communicate how these risks will affect their direct business operations and supply chain. They will also develop strategies to capitalize on opportunities. Consider the different types of risks and the potential financial impacts and benefits for companies:

  • Policy & legal: The Paris Agreement provided the international political signal that the global economy needs to transform towards a low carbon economy. It is likely that policy measures will be implemented to accelerate the transition. Carbon pricing will increase production costs that can be passed along the supply chain, leading to higher prices and eventually changing consumer demand. Energy and emissions-intensive industries must consider the potential impacts of carbon pricing on business revenue. Product policies like the EU Energy Label and the US ENERGY STAR require products to achieve a better environmental performance. Such policies help level the playing field for low carbon products, like energy efficient dishwashers and computers, which can be used by companies to differentiate their performance and products.
  • Technology: There is growth potential for low carbon technologies like solar cells, insulation, EVs, low carbon materials, plant-based alternatives for animal-based food products, smart digital solutions, and so on. This could mean risk or opportunity for your product portfolio. Companies active in producing such technologies can differentiate themselves by showing investors this growth potential. They can also start searching for solutions or diversify their product portfolio to mitigate risks and capture opportunities. A car company can diversify its product portfolio by including EVs and energy utilities can diversify their energy mix by introducing renewable energy.
  • Markets: The changing energy generating mix and shifting demands for raw materials will mean changes to operating costs throughout a company’s value chain. Circular products and business models will be beneficial and digital solutions will gain market share. Consumer demand for certain products may change depending on the physical environment and/or an awareness of the effects of products on climate change.
  • Physical risks: Extreme weather events can lead to higher capital costs due to supply chain disruption. Changed precipitation and droughts can affect the cultivation of agricultural products and production of food and beverages. Products that enable companies to adapt to climate change effects could experience an increase in demand. The chemical industry, for example, sells products that help consumers to adapt to a changing climate.

Climate-Related Transition and Physical Risks

(Source: Navigant Consulting, Inc.)

Each climate-related risk brings opportunity. Whether opportunities can be materialized depends on awareness of risks and opportunities, the type of business, the ability of the organization to change its governance system, and the moment of acting. It is therefore beneficial to start with assessing and monitoring the risks and opportunities of your company and its product portfolio using accurate metrics. This enables you to anticipate changes and inform investors about your company’s growth potential.

 

The Future of Analytics in the Utilities Industry Lies in Strong Partnerships

— July 18, 2017

The utilities industry presents some unique issues for analytics specialist SAS, as I witnessed during a recent analyst event. The industry is no stranger to large volumes of data or analytics, and as it undergoes a digital transformation, it should present a huge opportunity. However, the industry’s approach to the procurement of analytics means that there are few low hanging fruit, and SAS must work hard if it is to dominate utility-focused analytics.

In its favor, SAS is unquestionably a market leader and continues to remain one step ahead of its competition. It is investing heavily in four areas, all of which will resonate with utilities’ changing requirements:

  • Platforms: In a similar vein to virtually every other enterprise data vendor, SAS is making a big bet on data platforms. While many will struggle to differentiate, SAS’ strength comes from its experience in data preparation, an area that many fail to discuss in detail. SAS’ strategy for its Viya product is to provide different types of user access to any type of data, from any source, using the most appropriate user interface.
  • Harness artificial intelligence (AI) and machine learning: Over the last couple of years, during which AI hype has hit peak volume, SAS has been relatively conservative. It is focusing more on machine learning and the benefits of massive compute—how analysts can interface with SAS in new ways, on new devices, using the most up-to-date algorithms.
  • Internet of Things (IoT). SAS wants companies to be smarter about their IoT data analytics. It discussed at length its partnership with Cisco—to embed SAS analytics within smart routers—which will take analytics to “the edge” much closer to the devices where the data is stored. It also promoted its event stream processing tool and announced the recent addition of Event Stream Manager.
  • Cloud analytics: Finally, SAS is investing heavily in cloud-based analytics, which will be increasingly important for utilities as their digital journeys mature. It is also important to note that SAS wants to offer a flexible approach to where analytics is performed. Cloud is just one option, among on-premise, in-database, in-stream, or in Hadoop.

SAS has a market-leading set of analytics products, it is investing in all of the areas utilities would want, and is not shy about discussing the issue of data governance. These are all messages that should resonate well with utilities. But should it expect a rich harvest of low hanging fruit in the utility orchard? In short, no. The biggest barrier SAS will face is utilities’ historic approach to analytics procurement, which is heavily siloed and task-specific.

Future Opportunities Lie in Partnerships

Many of the future opportunities for analytics within utilities lie in operations, where SAS has not historically had a strength. Operations typically procure analytics for a specific task, from a vendor with deep knowledge of the technical issues, but lacking the robust analytics engine SAS brings.

The answer for SAS lies in partnerships. SAS will never compete with large engineering companies for industry knowledge; likewise, these companies will never compete with SAS in terms of analytic capability. Unsurprisingly, SAS has begun conversations with all the global engineering companies. However, these conversations are at an early stage. Digitization and analytics will help utilities address their most pressing concerns: to improve operational efficiency, maximize customer experience and develop new products. The market needs a robust analytics platforms and algorithms designed by industry specialists. The market needs these partnerships sooner rather than later.

 

IT-OT Collaboration for Optimizing Commercial Buildings

— July 13, 2017

This article was originally published by Intel and appeared in the Realcomm Advisory.

Smarter Applications for Building Management

The internet of things (IoT) is shifting the facilities management paradigm. Highly functional yet lower-cost devices can be deployed with minimal business disruption, broader acceptance of cloud-based software is supporting investment in intelligent building analytics, and the growing understanding of the importance of cyber security for networked building systems is affording IT departments to add value to traditional operational and line of business problem solving. These market forces underscore a bullish outlook for IoT in commercial buildings. In fact, Navigant Research’s recent report, IoT for Intelligent Buildings, forecasts the global IoT for intelligent buildings market to grow from $6.3 billion in 2017 to $22.2 billion in 2026.

The idea of convergence between information technology and operational technology systems (IT/OT) has been the cornerstone of intelligent buildings (and other operational areas of the enterprise) since the market’s inception. The reality is, however, most teams responsible for information technology and facilities operations and management work in isolation – following separate and distinct goals and mandates thereby losing the opportunity to capitalize on cross discipline capabilities essential to crafting strong IoT frameworks.

IBcon 2017 presentations, panel discussions, and demonstrations on the show floor demonstrated how the internet of things (IoT) platform approach to building optimization offers a framework for collaboration that can bridge the gap between IT and OT. A successful IoT intelligent buildings strategy can even help the IT and OT teams align their efforts and more effectively reach their specific corporate objectives – cost savings, tenant satisfaction and retention, business continuity, and cyber security. Furthermore, IT departments can be valuable resources for operations teams looking to understand the technical specifications of IoT offerings and differentiate between ingredient, systems, and solutions options in the market.

IoT for Stronger Bottom Lines

Initially, energy management was the foundational application for the intelligent building technologies. The rationale is that estimating return on investment (ROI) through energy cost savings associated with equipment efficiency is straightforward and transparent. Today the configuration and use of IoT solutions can deliver energy efficiency while helping OT and IT teams meet goals in additional cost savings, business continuity, and cyber security by working together. As a result, OT and IT, the two key influencers on business operations, can find value by investing in IoT solutions.

Cost Savings

Energy management will continue to play a critical role in the business case for investing in IoT in intelligent building solutions because energy savings directly impact the bottom line and support corporate goals for sustainability, resilience, and climate change including a reduced carbon footprint. The data profile of the IoT-enabled intelligent building generates the information for the c-suite about how building performance is supporting or detracting from enterprise goals. This level of insight is critical to positioning IoT offerings as executive-level solutions. However, the success of an IoT deployment requires buy-in from and use by the business units running the facilities, namely operations and IT teams collectively. As a result, vendors are focusing on applications beyond energy management so that they can address the key objectives noted above.

Specific financial metrics have become the backbone of the investment proposition for IoT. Characterized as the 3:30:300 rule of thumb, this guideline was the topic of conversation several times at IBcon because it provides more depth to the analysis of cost savings – a paramount goal for operations teams. The rule explains that if energy costs average $3 per square foot, then real estate costs average $30 per square foot, and employee costs run up to $300 per square foot. IoT vendors aim to demonstrate how their solutions reduce the significantly more impactful costs of space and people.

Speaking to the $300 per square foot metric, occupant satisfaction has become an influential consideration for investment in IoT intelligent building solutions. With the insight IoT offers, building owners and operators can improve their occupants’ experiences in multiple ways, such as:

  • Streamlined customer service in retail
  • Data-driven “wayfinding” for hoteling or collaboration space in commercial offices
  • Optimized repairs, diagnostics, preventive, and even prescriptive equipment maintenance for occupant comfort

Regardless of which sector a facility supports, occupant satisfaction is a priority for building owners. In education, multi-family residential and commercial/corporate offices, owners want to attract and retain the best students, tenants, and employees. In retail, owners want to keep shoppers happy and in their stores, longer and more often. IoT intelligent building solutions provide the framework for ensuring owners meet these objectives. The argument is that improved customer satisfaction ties to employee cost. When wayfinding and faster support provide a more productive experience, “employee cost” per square foot drops.

Another idea that arose on several occasions at IBcon was healthy spaces as a use case for IoT intelligent building investment, another way to lower the $300 employee cost. The principal is that if IoT-intelligent building solutions can improve indoor air quality and maximize comfort – and lead to healthier environments – occupants can be more productive employees, more satisfied tenants, better students, or more efficient operations/facilities managers.

Business Continuity

A combination of IT hardware, middleware, communications/networks, cloud/datacenter, and domain specific applications & analytics is the set of ingredients for an IoT solution that can integrate building systems in new ways. These components can be deployed with minimal disruption in comparison to the rip and replace process for traditional automation and controls retrofits. It is important to note that integrating an IoT offering with existing automation and control systems should amplify the ability to optimize facilities and not just simply replace legacy investments. This approach ensures that building owners and manager are making strategic investments in the right technology to utilize and even enhance existing technologies instead of deploying more technology for the sake of more data. The objective should be to invest in the mix of hardware devices and communications infrastructure necessary to support the software analytics that deliver actionable insights with minimal impact on the business operations within the facility.

Cyber Security

IoT is enabling a transformation of the approach to facilities management through networked controls and automation. The ubiquitous connectivity of the IoT intelligent building approach requires that corporate real estate (CRE) make cyber security a top priority. Any breach in security through the IoT solution will impact the other business objectives of cost savings and business continuity. CRE customers, therefore, need to understand the security of the solutions they choose to invest in to protect devices, data, and company IP using a layered security model. IT teams can further support the operations teams through their cyber security expertise rooted in their core responsibilities supervising and maintaining data centers, networks, and devices. The rules, best practices, and metrics IT departments have established can be extended to secure new IoT platforms designed to optimize commercial buildings.

Identifying the Right IoT Intelligent Buildings Solution

IBcon also showcased how investing in the right IoT solution can deliver cost savings, and ensure business continuity and cyber security. In fact, the right solution will be offered by technology partners that bring domain, technology, and service expertise to deliver these integrated OT/IT customer objectives. Furthermore, an IoT approach provides flexibility to deploy applications that meet customer expectations today and can evolve with users over time. IoT intelligent building solutions future proof the automation and controls infrastructure by allowing for enhanced analytics, applications specific to customer challenges, and greater computing power.

At IBcon, Intel was one of the high-profile vendors from the IT industry presenting partnerships that bring market-ready solutions to CRE or offer the critical ingredients to IoT offering development such as networking hardware, middleware, or niche intelligent building software applications. The table below provides links to video snapshots of the partner offerings including the full solutions from Prescriptive Data, Daintree (Current by GE), and Yanzi Networks.

Benefits of Representative IoT Partnerships, Intel Ecosystem at IBcon

Category Value Illustrative Partner
Distribution Market Adoption Arrow Electronics
Middleware Ease of Deployment with Device Provisioning and Data Collection CANDI Controls
Hardware Enabling Data Collection and Edge Analytics with Scalability Dell
Hardware and Software Monitoring and Analytics plus Ease of Deployment Yanzi Networks
Software Platform Ease of Integration plus Analytics Kodaro
Software Platform Ease of Integration plus Analytics Daintree (Current by GE)
Software Actionable Analytics Prescriptive Data
Services Integration and Deployment Volteo

(Source: Navigant Research)

CRE customers are looking for solutions that demonstrate domain expertise around facilities management, technical specifications that ensure ease of deployment and security, and services capabilities to support implementation and deployment. There is a wide range of technical skills in CRE organizations that may require deeper support from a IoT provider, and if IT and OT departments collaborate on the investment process, the likelihood of success for the project grows.

Siloes that once managed specific aspects of operating commercial buildings can now be broken down into a holistic and cohesive approach to facilities optimization. IT incumbents, including Intel, offer technical solutions—and specifically cyber secure solutions—that translate data into action, which can continuously improve facility operations for bottom-line benefits. These technology players can find a bigger seat in the facilities management market as they partner with other technology and channel partners to showcase market-ready IoT solutions. This year’s IBcon demonstrated the market momentum and the many opportunities customers can leverage through IoT partner platforms for building optimization.

 

48V Electrification Adoption Accelerates with 2018 Audi A8

— July 13, 2017

Adoption of 48V light electrification is beginning to accelerate in Europe with the debut this week of the fourth-generation Audi A8 at an event in Barcelona, Spain. After launching a 48V system on the high performance SQ7 SUV in 2016, the A8 becomes the first model from the brand to adopt the technology along with mild hybridization as standard fitment across the lineup. This comes just a week after Volvo announced that it would make 48V mild hybrid powertrains standard on all of its vehicles between 2019 and 2021.

48V Vehicle Sales

Navigant Research’s Low Voltage Vehicle Electrification report projects that more than 9 million vehicles will be sold annually with 48V electrical systems by 2025. Europe and Asia Pacific will be the primary markets.

Annual 48V System Sales by Region, World Markets: 2016-2025

(Source: Navigant Research)

The A8 becomes the first vehicle on the market to utilize the 48V architecture as its primary electrical system. It will still include a 12V subsystem to support the many components such as infotainment and lighting that have yet to be redesigned to support the higher voltage. While last year’s SQ7 used its 48V subsystem primarily to support the addition of an e-turbo to the diesel V8 engine, the A8 harnesses 48V technology much more deeply.

From the production launch in the coming months, all gasoline and diesel A8s will have a belted starter-generator mild hybrid system. In addition to providing some electric propulsion assist, the system provides enhanced auto stop-start at speeds up to 13.7 mph; it can recover up to 12 kW of power through regenerative braking. The system will enable sailing with the engine off at speeds between 34 mph and 99 mph. This technology will be applied through all five engines that are planned for the A8. Audi also plans to offer a high voltage plug-in hybrid variant with more than 30 miles of electric range and wireless charging capability, but no on sale date has been announced yet.

Fuel Efficiency and More

While mild hybridization will enhance the A8’s fuel efficiency, the increased electrical power of the 48V system will also enable several new features on Audi’s flagship sedan. Among those is a fully active suspension system that can move the wheels and dynamically change the ride and handling characteristics of the vehicle. Many OEMs offer variations of adaptive and semi-active suspension, but Audi has added a unique element to its system. When an impending side impact is detected by the sensors, the suspension automatically lifts that side of the vehicle, bringing the side rail up closer to bumper height and providing additional protection to vehicle occupants.

In addition to adopting 48V electrification, Audi is pushing automation in its latest vehicle launch. The A8 features what is claimed to be the first Level 3 automated system. The Traffic Jam Pilot can provide fully automated driving at speeds up to 37 mph in heavy traffic on divided highways. It utilizes radar, camera, ultrasonic sensors, and the first production lidar scanner in an automotive application. Like Cadillac’s upcoming SuperCruise system, the Traffic Jam Pilot is designed as a hands-off system and features a driver monitoring system to ensure the driver is ready to take over if needed. If the driver falls asleep or appears tired, the system will provide alerts. If the driver doesn’t respond, the car will automatically pull over and stop. The system only works in traffic; as soon as things clear up or speed rises, it returns control to the driver.

Increasing levels of driving automation and electrification are coming to market quickly, and the new Audi A8 is another step in that direction.

 

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