Navigant Research Blog

Utilities Enter the Era of Distributed Generation

— March 31, 2014

From the “Internet of energy” to the “utility death spiral,” the causes and effects related to the distributed generation (DG) transformation go by many names.  Faced with what is increasingly recognized as DG’s inevitability, utilities and the companies that supply DG technologies are faced with the difficult challenge of defining viable business models in a multi-dimensional technology landscape.

Former Energy Secretary Steven Chu and outspoken NRG CEO David Crane have loudly pointed out the futility of business-as-usual thinking in the face of DG’s advance.  It’s a mistake to think the power sector is oblivious to the changes enveloping it, though: most utilities do not actually have their heads in the sand, as recent headlines suggest.  According to Utility Dive’s 2014 State of the Electric Utility survey, 67% of U.S. utility professionals believe their company should take a direct role in supplying DG to their customers ‑ either by owning and leasing distributed assets or by partnering with established DG companies.  At the same time, key suppliers like GE, recognizing a dawning opportunity, are positioning themselves for growth.

Tip of the Iceberg

Although solar PV has provided a blueprint of sorts, a suite of technologies – collectively called distributed energy resources (DER) – is primed to usher in a reimagining of DG’s value proposition.  Composed of renewable and fossil-based generation, diverse fuel sources like the sun and biogas, power generation and storage assets, and applications from microgrids to combined heat and power (CHP), DG’s multi-dimensionality suggests that existing business models are just scratching the surface.  An estimated 37 million homes in the United States, for example, now have natural gas lines running directly to them, which opens up the possibility of micro-combined heat and power and fuel switching.

For utilities, the challenge is fairly straightforward.  Demand-side generation is leading to death by a thousand cuts, as the cost of maintaining and operating the grid is spread over a gradually declining revenue base due to eroding customer demand.

In its widely-cited Disruptive Challenges report, published in 2013, Edison Electric Institute lists the financial risks created by DG: declining utility revenues, increasing costs, and lower profitability potential.  Simply charging higher rates – one solution offered by the most entrenched utilities – risks accelerating the revenue ”death spiral,” as rising rates make it increasingly attractive to adopt otherwise expensive DG technologies.  Recent experiences across Europe have demonstrated that utilities must adapt (see RWE) or risk obsolescence, at least in the traditional revenue sense.

Transforming is Grand

On the supplier side, companies like GE are positioning for what is an inevitable expansion of DG globally.  The company announced last month the creation of a new business unit called GE Distributed Power, targeting the global distributed power opportunity.  Merging three existing business lines – Aeroderivative Gas Turbines, Jenbacher Gas Engines, and Waukesha Gas Engines – GE will invest $1.4 billion to combine formerly niche generation products into a cohesive distributed power offering.

The move coincides with the publication of a recent white paper, “The Rise of Distributed Power,” in which GE forecasts that distributed power will grow 40% faster than overall global electricity demand between now and 2020.  The trend, according to GE, is nothing short of a “grand transformation.”  The company estimates that globally, about 142 gigawatts (GW) of distributed power capacity was ordered and installed in 2012, compared to 218 GW of central power capacity.

Four key trends are driving the distributed power transformation, according to GE: the expansion of natural gas networks; the rise of transmission infrastructure constraints; the growth of digital technologies; and the need for grid resiliency in the face of natural disasters.  While these trends are playing out in the U.S., GE’s efforts are focused primarily on the fast-growing Asia Pacific market and the expansion of natural gas.

Big in Bangladesh

The momentum behind DG is especially strong in the developing world, where electricity demand outstrips the pace at which centralized power stations and transmission infrastructure can be financed and built.  The IEA estimates that in 2009, 1.3 billion people lacked access to electricity, representing around 20% of the global population.  A significant proportion of this population lives in Asia Pacific.

While the DG era represents a degree of complexity that has yet to be fully grasped, initiatives from both utilities and their suppliers point to increasing acceptance of its inevitability.


Targeting Aviation, Dedicated Energy Crops Take Root

— March 10, 2014

In our forthcoming report on aviation and marine biofuels, we forecast that global nameplate production capacity will reach 2.3% of global jet fuel demand.  This is just shy of 2.5 billion gallons of installed production capacity, up from just under 750 million gallons in 2014.  Depending on whom you speak to, this would be either a significant achievement or an abject disappointment.

For the optimists, surpassing a critical threshold of 1% is viewed as an important milestone in the emerging aviation biofuels market.  Experience with the commercialization of new technologies demonstrates that 1% to 2.5% market penetration often represents a technology inflection point, leading to accelerated market acceptance and diffusion.  Current nameplate production capacity for aviation biofuels stands at 1%, beating Boeing’s target to do so in 2015 by nearly 2 years.

For the pessimists, 2.3% in 2020 falls well short of aspirational industry targets.  The International Air Transport Association (IATA) has set a goal of meeting 6% of aviation fuel demand by sustainable aviation biofuels by 2020; Boeing’s primary competitor in the aircraft manufacturing business, Airbus, is targeting 5% by 2020.

Below Threshold

Adding further fodder for the pessimists, actual bio-derived jet fuel (biojet) production at emerging advanced biorefineries will fall below nameplate capacity.  Note that petroleum jet fuel – a high-performance kerosene-based product tailored for turbine engines – represents roughly 10% to 15% of the refined gallons produced from a barrel of crude oil.  Based on forecasts, the actual production of biojet fuel in 2020 is likely to represent just 1% of total jet fuel consumption.  ASTM certification of green diesel as a blend fuel with jet fuel would increase this share to just below 2%, still a ways off from achieving a technology diffusion threshold.

One of the primary obstacles impeding growth in the aviation biofuels market is feedstock availability.  It’s a multifaceted problem with no single solution.  While aspirational targets may prove lofty, based on recent developments, they may have accomplished their primary purpose: to stimulate industry investment, innovation, and development.

Two developments, in particular, show significant potential despite scant attention in the U.S. media.

From Prairies to Desert

Brassica carinata, or simply carinata, is an industrial oilseed mustard crop with two subtle characteristics: its oils produce long carbon chain molecules (C22) that can be tailored to match the carbon length (C9-C15) of petroleum-based jet fuels (picture a sawmill using whole logs rather than scrap timber); and it produces more fuel per acre on semiarid lands than any other oilseed in existence today.  The result is better yields of finished fuel than soy or other conventional oilseed crops, a significant achievement for an industry aiming to reach a production threshold measured in the billions of gallons.

Agrisoma Biosciences, a Canadian-based crop company, currently has exclusive global rights to commercialize carinata.  This effort is gaining traction in North America.  Technology developed by Applied Research Associates (ARA) and Chevron Lummus Global is processing test batches of carinata into renewable fuels that are 100% replacements for petroleum based fuels.  In 2012, Canada’s National Research Council (NRC) flew the world’s first 100% biojet civilian flight powered by carinata-derived fuel.  While Popular Science magazine named the milestone one of the top 25 scientific events of 2012, the event was overshadowed by a surge of aviation biofuels tests and commercial flights logged that same year.  More than 15 individual aviation biofuels initiatives took place that year, each relying on a fuel blend of no more than 50% biofuels.

Halfway around the world, a team of researchers in Abu Dhabi led by the Masdar Institute, Boeing, and Etihad Airways is studying the potential of halophytes, a salt-resistant desert crop that can be grown on marginal land.  Scientists leading the effort plan to build an integrated aquaculture ecosystem in which waste seawater from a fish and shrimp farm will nourish halophyte crops, which in turn, act as a filter that cleans the water for discharge into mangrove swamps.  The consortium recently announced that halophytes show even more promise than originally expected as a source of renewable fuel for jets.


Up in the Sky, Drones Display Cleantech Potential

— February 12, 2014

Unmanned aerial vehicles (UAVs) – a.k.a. “drones” – are beginning to make the jump from the war front to a domestic application near you.  Amazon’s use of drones in its proposed Prime Air service is perhaps the most high-profile example.  This service aims to disrupt inefficiencies associated with delivering products to customers’ doors via truck with drone quadcopters that make the same delivery in a fraction of the time.  Drones have begun to gain traction globally as delivery vehicles for everything from dry cleaning to beer and sushi.

Recent announcements point to the use of drones for everything from data collection to expediting renewable energy project development to the physical generation of renewable power.

Bird’s Eye View

The U.S. Geological Survey (USGS), in partnership with NASA and two academic institutions, has begun using drones to explore the vast expanse of the western United States for geothermal anomalies.  Using an experimental system called payload-directed flight (PDF) – essentially autonomous flight – researchers have been able to study and map the underground fracture and fault systems of a geothermal field in California.  The technique is being deployed in other remote geothermal landscapes as well.

Geothermal power holds tremendous promise as a source of renewable baseload electricity.  Currently accounting for more than 11 GW of installed capacity globally, or just 0.2% of the global installed base of renewable generation, geothermal power remains a vastly underdeveloped resource.

Two of the key barriers to more extensive development are long development timelines and substantial upfront capital requirements.  Initial scouting of potential sites for geothermal power development typically requires geophysicists to lug heavy backpacks full of equipment to survey vast swaths of remote landscape.  More promising sites are often surveyed by aircraft as well.  According to researchers utilizing drones for surveys, “Unmanned aircraft are ideal for scientific surveys because they can fly much lower than would be safe for piloted craft and are much cheaper to operate.”

Already used overseas in agriculture, drones also have the potential to improve economics across the bioenergy supply chain.

In Louisiana, drones are being used to monitor the health of sugarcane fields, collecting data at the individual plant level.  Close monitoring of individual crops is typically achieved by farmers physically inspecting their fields, a costly and labor-intensive undertaking.  Traditional airplanes are unable to capture data at the same level of detail.

Workhorse of Smart Energy

Borrowing from Amazon’s vision, drones may also have the potential to collect, move, and aggregate biomass materials, slashing one of the more significant (and often prohibitive) cost drivers for bioenergy.  With agricultural feedstocks used to make biofuels (e.g., cellulosic biomass to ethanol) typically representing 75% to 85% of the finished fuel cost – due in part to the manpower required to aggregate and collect the material – the use of drones could help overcome a challenging hurdle to more widespread commercialization of alternative fuels.

Google is among those companies taking notice of the cleantech drone phenomenon, having bought a slew of robotics companies in recent years.  Included in its portfolio of acquisitions is Makani Power, a renewable energy technology innovator aiming to disrupt the traditional wind turbine market by deploying high-flying autonomous wind turbines.  Makani has designed its drone kites to automatically take off and adjust themselves to the windstream to maximize energy production.

So-called “RoboBees” – developed at Harvard’s School of Engineering and Applied Science –demonstrate the confluence of drones and clean technology.  Designed to behave like a swarm of bees to carry out search and rescue operations or artificial pollination, the RoboBees’ need for high energy density power sources to sustain extended flight remains a key limitation to their use.  Advances in battery technologies could one day provide a compact enough power load that could extend flight times for both RoboBees and other drone hardware.

While 2014 is unlikely to be the year drones disrupt cleantech, the profusion of applications across the smart energy landscape suggests we’re just beginning to scratch the surface of their potential.


Boeing Bets on Green Diesel

— January 31, 2014

The race for aviation biofuels has accelerated in the last couple of years.  More than 1,500 individual flights at least partially powered by biofuels have occurred since Virgin Atlantic powered the first commercial jumbo jet in 2008 with a blend of conventional jet fuel and biofuel derived from babassu and coconut oil.  More than 30 commercial carriers have flown with a blend of biofuels over this period.  Most recently, Boeing announced it would pursue ASTM certification for use of renewable green diesel for use in commercial aviation.

Despite aviation biofuels’ broad appeal among key commercial and military stakeholders, limited production and high costs have remained challenging barriers to the 3% to 6% share of global jet fuel consumption that the International Air Transport Association (IATA) believes is achievable by 2020.

Derived from diverse resources like algae, camelina, jatropha, and used cooking oil, the current pool of aviation biofuels is shallow due in part to a lack of production capacity – at least as measured against prevailing expectations just half a decade ago.  This is why Boeing’s recent announcement to pursue green diesel certification could change the game.  For the aviation industry, certification would enable green diesel to be integrated into existing supply chains at a cost that is competitive with petroleum-based jet fuel.

Plenty of Capacity

More chemically similar to fossil-based diesel than conventional biodiesel, green (or renewable) diesel’s advantage over incumbent biofuels is its compatibility with existing infrastructure.  This means that it can be dropped into existing pipelines, storage tanks, and most importantly, existing engine hardware.  This avoids the substantial costs associated with building out additional infrastructure, which conventional biodiesel and ethanol require – a bottleneck that has stymied conventional biofuels’ penetration into the global fuels supply chain.

Another advantage of green diesel relative to other advanced biofuels is availability.  In 2013, though green diesel contributed to just 2.7% of the total gallons of biofuels produced worldwide, it made up more than 95% of the advanced biofuels pool.  A recent International Energy Agency (IEA) report called green diesel the most successful advanced biofuels pathway with respect to scaling up production capacity.  According to estimates compiled for Navigant Research’s Industrial Biorefineries report, there is currently more than 900 million gallons of green diesel production capacity deployed across the United States, Europe, and Singapore.

Just two pathways – Bio-SPK and FT-SPK – have achieved ASTM certification for use as jet fuel.  At their current stage of development, both pathways have proven to be prohibitively expensive to use on a commercial basis.  Alaska Air and Horizon paid $17 per gallon in 2011; the U.S. Navy, meanwhile, has paid between $20 and $65 per gallon for advanced biofuels used in various non-combat operations.  While it is important to note that these prices are for relatively small quantities used primarily for testing, with green diesel’s wholesale cost in the range of $3 per gallon, it is currently available at price parity with petroleum-based jet fuel.  Jet-A wholesale costs are currently just under $3 per gallon.

Flight Path

Although ASTM approval for green diesel would be a boon for advanced biofuels and the aviation industry in the near term, the availability of sustainable feedstock to support a mature industry remains a hotly debated issue.

At best, green diesel certification provides a bridge to more scalable thermochemical conversion pathways for aviation biofuels: fuels derived from large-scale algae production, or more likely, the realization of industrial-scale non-food oil production from promising feedstocks like jatropha or camelina.  At worst, it buys the aviation industry a few more years to build on the difficult progress that has already been achieved.

While Boeing and commercial airlines are among the winners if green diesel certification goes through in the near term, refining stalwarts like Finland-based Neste Oil, Honeywell’s UOP, and Valero are also well-positioned to ride a surge in investor activity.


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