Navigant Research Blog

Electricity Landscape: Expanding Demand

— January 30, 2018

On January 16, 2018, I attended the US launch of the International Energy Agency (IEA)’s World Energy Outlook (WEO) 2017 at the Center for Strategic and International Studies. Dr. Fatih Birol, Executive Director of the IEA, presented findings from the WEO and highlighted four megatrends in the global energy system:

  • Rapid deployment and falling costs of clean energy technologies
  • Growth in electrification of energy
  • China’s shift to a more services-based economy and a clean energy mix
  • The US’s position as the biggest oil & gas producer globally

Taking these megatrends into account, as well as projections on where existing policies and announced intentions may lead the energy systems, WEO’s New Policies Scenario expects global energy needs to increase by 30% between 2018 and 2040. This growth is mainly driven by India, whose share of global energy use is expected to rise to 11% by 2040. Southeast Asia also contributes immensely to overall growing demand. Developing countries in Asia Pacific are expected to account for two-thirds of global energy growth.

Growing Demand for Electricity

With a rising standard of living in many developing countries, more people will want to buy appliances and electronic devices powered by electricity. Innovative transportation technologies are gaining momentum and are projected to increase electricity demand as well. For example, China will need to add the equivalent of today’s US power system to its infrastructure by 2040 to meet rising electricity demand; India needs to add a power system the size of the current European Union. In fact, global investment in electricity overtook that of oil & gas for the first time in 2016. Dr. Birol emphasized the importance of China and India’s future energy decisions. Their decisions will play a huge role in determining global trends due to the scale of investment and deployment.

WEO Electricity Demand Projections to 2040

(Source: International Energy Agency)

Heating and Cooling Demand Ramping Up

The growing demand for heating and cooling is among various drivers for electrification of energy. In particular, consumers in warmer regions will increasingly install cooling systems. There is great potential for energy savings with energy efficient HVAC products, but that market remains largely untapped at present. According to the recent Navigant Research report, Market Data: Energy Efficient Buildings – Asia Pacific, the energy efficient HVAC market in Asia Pacific is expected to reach $25.6 billion in 2026. Specifically, China’s market is expected to grow at a 10.5% CAGR between 2017 and 2026; and 11.4% in India. Today, heating and cooling in buildings account for approximately 40% of energy consumption.

In addition to demand for heating and cooling, the EV market is expected to grow rapidly. EVs can lead to a major low-carbon pathway for the transportation sector. Notably, Europe and China are aggressively promoting EV deployments. Navigant Research projects global plug-in EV sales to reach 8.3 million by 2026.

Increasing Electricity Demands

Overall, end-use electrification is expanding. The IEA expects the share of electricity in final energy demand to increase from 18% today to 26% in by 2060. So, what does the growing electrification of energy mean? Electrification creates environmental benefits by shifting many end uses of electricity away from fossil fuel sources. It also creates opportunities for boosting energy efficiency.

While there are still many challenges to overcome, such as enforcing energy efficiency regulations and developing EV infrastructure, the electrification of large sectors of the economy holds great growth potential. This growth will be driven by rapidly evolving technologies, emerging innovative business models, and shifting regulatory environment. Together, these are referred to as the Energy Cloud, disrupting the traditional electricity landscape. To learn more about how industry stakeholders can prepare and manage their organization to maneuver through the Energy Cloud disruption and position themselves for long-term success, see Navigant Research’s white paper, Navigating the Energy Transformation.

 

Cities and Businesses Care about Smart Buildings: Part 2

— November 14, 2017

With 238 proposals in hand from cities and regions across North America vying to host its second headquarters, Amazon plans to make a decision next year. Cities trying to lure Amazon should turn this occasion into an opportunity to strengthen their business environments to both complement and drive investment in smart buildings.

Regulatory Certainty and Standardization of Business

In order to attract investment in smart buildings, governments should work toward offering certainty and standardization for investors. Certainty refers to predictable outcomes or guaranteed returns. Governments can establish policies that set expectations for the building sector. Cities that adopt and enforce building energy codes, for example, can quickly increase local demand for energy efficiency technology. Stable demand means a stable market for finance.

In addition, having common standards for assessing risks will be helpful. For example, many stakeholders are already familiar with existing green building standards like Leadership in Energy and Environmental Design (LEED). If governments use policies such as financial incentives to encourage broader adoption of such standards, that will make it easier for investors to assess a project and ultimately increase the likelihood of investment.

Leading by Example

As a start, enforcing policies like building efficiency codes and fostering voluntary programs to pursue LEED certification can offer certainty and standardization. Cities can lead by example, ensuring that their own buildings adhere to the policy goals, unleashing the power of information and communication technology in public buildings. In its recent report, Smart Buildings and Smart Cities, Navigant Research expects the global smart public buildings market revenue to grow from $3.6 billion in 2017 to $10.2 billion by 2026 at a compound annual growth rate of 12.1%.

One of the leaders in this area is Washington, DC, which was named the first LEED for Cities Platinum city in the world in August 2017. Washington, DC requires all new public sector buildings to achieve a minimum of LEED Silver certification. And starting in 2012, all new private buildings over 50,000 square feet were required to achieve LEED certification. Once the regulations kicked in, the private sector responded by competing for LEED certifications—developers wanted to achieve higher levels of certification against their competitors.

Regulatory certainty and standardization of business together with government efforts to lead by example are key to encouraging investment in the smart buildings sector. As stated in my previous blog, cities wishing to remain competitive in the face of new emerging technologies and a new generation of top talent will want smart buildings as an action item.

 

Cities and Businesses Care about Smart Buildings: Part 1

— November 9, 2017

In September, Amazon announced plans to open a second headquarters in North America called HQ2. The company expects to invest more than $5 billion to build the facility and create as many as 50,000 high paying jobs. In its request for proposal, Amazon listed preferences to help find the perfect location for its new campus. It is looking for a city of more than 1 million people with an international airport, mass transit, quality higher education, an educated workforce, and a solid business climate. 238 proposals have been submitted by cities and regional governments. While Amazon will look at the most obvious incentives from governments such as donated land, tax breaks and subsidies, it will also need to consider which cities will attract best talent.

Attracting Top Talent from a Business Perspective

By supporting more agile ways of working and enhancing the work environment, smart buildings can play a key role in attracting and retaining employees amid increasing competition for top talent in business sectors. Smart buildings use internet-enabled technology to gather data and bring operating systems and services under central control in order to create a better workplace.

Smart buildings can not only reduce operational and energy costs, but can also create an enhanced in-building experience to help increase productivity and promote corporate brand values. They achieve this by analyzing data on occupancy, movement, and resources in real time and by adapting systems to optimize the performance of both the building and the people within it. This way, smart buildings provide opportunities to address the challenges of productivity and comfort that are at the heart of contemporary debates about workplace environment. Cities trying to entice Amazon to their streets should take a closer look at smart buildings—which can help Amazon recruit top talent.

Relevant technologies are already available, including building energy management systems, location-aware sensors and services, and mobile phone applications. In fact, Navigant Research is bullish on continued adoption of these technologies. In a recent report, IoT for Intelligent Buildings, Navigant Research projects the market to grow from $6.3 billion in 2017 to $22.2 billion in 2026 at a compound annual growth rate (CAGR) of 15.0%. The office segment is expected to grow at a 15.7% CAGR.

Attracting Businesses from a City’s Perspective

The evolution of smart buildings parallels the digital transformation in cities. Cities can now collect large volumes of high quality data from public infrastructure, such as government buildings and street light poles, that can transform a number of city service areas. For example, digital technologies are becoming an important element in traffic and transit management, public safety, social care, street lighting, and waste services. From sensors collecting data to developers building thousands of smart city apps, the Internet of Things movement is helping cities become truly smart.

Digital transformation of city services is certainly attractive to businesses, but cities can go the extra mile to enhance its competitive advantage. For cities to lure Amazon, the business environment that complements and drives investment in smart buildings should be enhanced. Smart technologies will further innovation, inclusion, and investment within a city. My next blog will explain what cities can do to spur investment in the smart buildings sector.

 

When 5G Meets Smart Street Lighting

— October 25, 2017

It is increasingly recognized that street lights are valuable city assets that can enable various smart city services and Internet of Things (IoT) strategies. Navigant Research expects the installed base of smart street lights to reach nearly 73 million globally by 2026. One of the many elements connected to realizing the value of smart street lights is supporting the deployment of cellular networks and, in particular, future 5G networks.

What About 5G?

With the continued expansion of IoT, the number of mobile users and connected devices will increase. As subsequent data consumption increases, there will be increasing pressure on network capacity. This has the potential to cause latency problems and possibly dropped services with a detrimental effect on many IoT applications. The next generation of wireless networks will therefore need to handle more traffic at high speeds than today’s LTE networks. 5G is hailed as the solution to these and other challenges, and it promises to bring speeds 20 times faster than the current 4G networks and deliver data with less than a millisecond of delay. Telecommunications companies are aiming to commercialize 5G networks by 2020.

However, the downside of 5G networks is that cellular signals do not travel far and are easily blocked by objects. Therefore, in order to prevent signals from being dropped, 5G networks require many more base stations to relay the signals than the current 4G networks. Fortunately, small cell base stations can solve that problem. These small low power nodes can be easily attached to existing infrastructure such as street light poles and buildings. Given their ubiquity and connection to the electricity network, street light poles are viewed as a particularly effective and increasingly important means to improve the network coverage.

Convergence of Smart Street Lighting and 5G

These requirements for 5G networks are converging with other drivers for smart street lighting. For example, in February 2017, Infineon (a German semiconductor manufacturer) and eluminocity (smart street lighting solutions provider) announced a partnership to develop connected street lights with a scalable sensor hub, connectivity with support for 5G deployment, and data processing.

More recently, Philips announced plans to develop 4G/5G-enabled LED smart light poles with American Tower Corp., a real estate investment trust (REIT) providing communication towers and other transmission real estate. The smart light poles will not only house 5G network gears, but also connect to the Philips’ City Touch, a smart street lighting management platform.

5G Opportunities Expanding

As the smart street lighting deployment increases and 5G networks expand, there will be more opportunities for the two markets to be complementary to each other. To learn more about how smart street lighting can contribute to other city services, see the Navigant Research report Smart Street Lighting for Smart Cities.

 

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