Navigant Research Blog

Philippine Typhoon Highlights New Disaster Risks

— November 15, 2013

An odd combination of distance and familiarity allows people living comfortably in the West to shrug and turn away from the devastation of Typhoon Haiyan in the central Philippines.  An island country on the other side of the world is, once again, struck by a massive natural disaster, apparently the act of a wrathful God.  What’s new?  Like earthquakes in Central Asia, the incomprehensible scale of the destruction provokes a brief outpouring of compassionate aid, and not much else.  The modern world goes back to getting and spending.

Two things are changing, though, that make that “What can you do?” response less tenable.  For one thing, there’s a growing realization that such disasters are not just “natural.”  Second, they are coming soon to a coastline near you.

In the Red Zone

Drawing on a 2003 book titled At Risk: Natural Hazards, People’s Vulnerability, and Disasters, by Ben Wisner and three co-authors, Tim Kovach writes, “Let me be blunt: there is no such thing as a ‘natural’ disaster.”  A disaster requires at least three variables: a powerful natural event, a vulnerable population living in a hazardous area, and socioeconomic factors that increase the risk of exposure and limit the ability of the affected communities to recover.  If a typhoon levels an uninhabited island in the South China Sea, it’s not a disaster; it’s a noteworthy meterological event.  When it affects more than 11 million people, most of them living in flimsy wooden houses with no protection from powerful weather (and little help from their central government, housed in a modern city on a distant island), it’s a disaster.

The Philippines, with its 7,000 islands, volcanoes, mountainous jungle, exposure to the South Pacific, and endless, tropical coastline, is basically one big hazard zone.  On the other hand, as The Huffington Post, pointed out in a lengthy report one year ago, the United States has by choice funded rampant development in coastal “red zones” that are vulnerable to increasingly violent storms, as the $65 billion in damage from Tropical Cyclone Sandy amply demonstrated.  The inevitable pointless debate over whether Typhoon Haiyan or other extraordinary natural events are “caused” by global climate change misses the point; the fact is, storms are generally getting more powerful even as we continue to build our homes and office parks in harm’s way.

So Long Miami

This was brought home forcefully to the inhabitants of the Front Range, in Colorado, where I live, last month when a “100-year flood” hit Boulder and the surrounding towns, inundating Jamestown and Lyons and destroying many of the roads into the canyons below the Continental Divide.  Years of hot summers, moderate winters, and drought conditions have parched the forests of the Front Range, resulting in massive fires like the 2010 Four Mile Fire; and the burnt-over hillsides are unable to soak up or slow down torrential rains, which overwhelmed the area’s watersheds.

“In the past two decades, a quarter million people have moved into Colorado’s red zones – the parts of the state at risk for the most dangerous wildfires,” observed I-News, in an report titled Red Zone: Colorado’s Growing Wildfire Danger.  “Today, one of every four Colorado homes is in a red zone….”

The biggest red zone is South Florida, where hundreds of miles of low-lying coastal areas could be inundated by the end of the century by rising seas.  “At two to three feet,” of risen tides, “we start to lose everything,” Harold R. Wanless, the chairman of the geological sciences department at the University of Miami, told The New York Times in an alarming story on Miami’s future.

Sandy, Haiyan, the Australian brushfires, the Colorado flooding: all just foretastes.  We all live in the red zone now.


In China, Smart Windows Shine Through

— October 25, 2013

Pursuing the long-held goal of turning transparent windows into energy generators, scientists at the Chinese Academy of Science said this week they have developed a window that not only regulates infrared radiation from the sun, but can also act as a collector of solar energy.

The new smart window incorporates vanadium oxide (VO2), which self-adjusts its properties based on temperature; below a certain temperature, it is transparent to infrared light and acts as an insulator; above that point, it becomes reflective.  VO2 can also scatter photons to solar cells along the window frame, which can generate power from the ambient light.  Published in Nature Scientific Reports, the work has developed a concept smart window device for simultaneous generation and saving of energy,” said co-author Yangeng Gao.

It will likely be years before the smart windows begin appearing in new buildings, but the work highlights the degree to which China is become a center for innovation in smart, energy-efficient buildings.  China’s huge building stock continues to multiply: The total area of buildings in China increased from 27.8 billion square meters (m2) in 2000 to 48.6 billion m2 in 2010, according to the Ministry of Housing and Urban-Rural Development (MOHURD).  It is estimated that China will add a further 10 billion m2 of commercial and public buildings by 2020.  Energy use associated with buildings will increase 70% by then, unless unless energy-efficient building technologies and practices become widespread.

Luminous and Low-Energy

Improving the energy efficiency of new buildings and accelerating the retrofit of existing buildings are two daunting challenges currently facing China.  These challenges will be explored in more detail in Navigant Research’s forthcoming report, Energy Efficient Buildings in Asia Pacific.

Already, western firms have begun to realize the enormous opportunity for innovative building design and energy efficiency in China’s buildings sector.  This week the American Institute of Architects awarded the Leatop Plaza, a skyscraper that forms a key part of the the Zhujiang New Town, in Guangzhou, a certificate of merit.  The 66-floor tower is sheathed in glass shingles that control the sun’s radiation, and it has a tubular structure of diagonal support braces that reduce the need for concrete in the core, adding floor space and making the interior more open and efficient.  “The building’s strong presence derives from the simplicity of its form, the clarity of its structural systems and the expressive values of the shingled façade; transparent, translucent, opaque, reflective and luminous.”

Those qualities, not synonymous with China’s buildings sector, will be critical to making China’s buildings smarter and more energy efficient.


Questions in Shale Gas Export Boom

— October 18, 2013

Boosting U.S. producers’ plans to export shale gas to the energy-thirsty nations of Asia, the U.S. Department of Energy (DOE) last month approved a plan by Dominion Resources to build a natural gas terminal at Cove Point, on the Chesapeake Bay in Maryland, to export up to .77 billion cubic feet a day (bcfd) to Japan and India.  Estimated to cost $3.8 billion to build, the facility could start shipping gas in 2017, the company said.

Cove Point is the fourth U.S. facility to receive federal approval to export liquefied natural gas (LNG) to countries that do not have a free-trade agreement (FTA) with the United States.  According to the Oil & Gas Journal, there are 19 other non-FTA export applications under review at the DOE.

The approval “is good news on many fronts,” Dominion CEO Thomas Farrell said in a statement, “including the thousands of jobs that will be created, the boost in government revenues that will result, and the support it provides to allied nations.”

Good For Everyone

Indeed, the natural gas industry sees the coming boom in exports to Asia as a windfall that will shore up the U.S. trade deficit, fuel a long economic boom, usher in a new era of energy independence and prosperity, and, who knows, maybe even end the conflict in the Middle East.  Earlier this month, the Energy Information Administration (EIA) announced that it expects the United States to be the world’s leading exporter of petroleum products, including oil and natural gas, in 2013, surpassing Saudi Arabia and Russia.

While that’s good news for the U.S. energy sector and for the U.S. economy in general, the brilliant scenarios being painted by natural gas proponents obscure some less comfortable realities.  For one thing, the Asian premium –  the elevated price paid by countries in Asia Pacific, particularly Japan and South Korea, the world’s two largest LNG importers – is unlikely to last.  “We do not want to pay the so-called ‘Asian premium,’ and the shale gas revolution will play an important role in narrowing that gap,” Jang Seok-hyo, CEO of Korea Gas Corp., told a Washington Post reporter at the 22nd World Energy Congress last week, in Daegu, South Korea.

Technology advances are likely to reduce the cost of liquefying and transporting natural gas, and as more gas gets shipped overseas, eventually, a globalized market of the sort that exists today for crude oil will emerge, normalizing prices across regions and eliminating the sharp cost advantage enjoyed today by U.S. producers.  Being “the Saudi Arabia of natural gas” is great, but you can’t expect importers to pay a 400% markup forever.

China Rising

At the same time, the elephant in the Asian gas market, China, is set to become a major producer of natural gas itself.  According to the EIA, China is second only to the United States in technically recoverable natural gas, and while much of that gas is trapped in remote geological formations even trickier to tap than the U.S. shale fields, the Chinese government is clearly determined to recover it.  In August, officials at PetroChina, the state oil and gas company, said they will accelerate domestic production of natural gas, largely by tapping abundant shale reserves in the interior.  In the first 6 months of this year natural gas production rose by 8.1% over the same period in 2012, and PetroChina President Wang Dongjin said unconventional gas production will reach 2.7 bcfd by 2015, according to Platts.  Aided by foreign oil majors, China could even become a net exporter of LNG.  Chevron is expected to begin production from the massive Chuandongbei field, in Sichuan Province, next year, and expects to produce some 3 trillion cubic feet there duringthe next 20 years.

China’s natural gas industry is still likely to trail U.S. production.  But profits from the expected gas-export boom probably shouldn’t be booked just yet.


For Utilities, a Dark and Darwinian Outlook

— October 11, 2013

The participants in a panel this week put on by the California Public Utilities Commission and En Banc, “The Business Model for the Electric Utility of the Future,” might have been mistaken for a bunch of aristocrats at a tribunal during the French Revolution.

The panelists included the top executives from California’s leading investor-owned utilities, including Southern California Edison, Pacific Gas and Electric Company, San Diego Gas & Electric, and Southern California Gas Company, and while the guillotine is unlikely to be in their immediate future, they are faced with an uncertain strategic future and a market landscape that is transforming far more rapidly than they, or most of their regulators and customers, grasped even a year ago.

That uncomfortable truth was underlined by this week’s release of a report entitled Energy Darwinism, produced by a star chamber of analysts and managing directors from the energy practice at investment bank Citi.  Its conclusions are stark: “A combination of energy efficiency and competition from new technologies … collectively could impact [utilities’] addressable markets by 50% over the next two decades.”  That’s right, one of the world’s major investment banks believe that the business of conventional power utilities could be cut in half by 2033.

Panic Attack

“Consumers face economically viable choices and alternatives in the coming years which were not foreseen 5 years ago,” according to the report, and the pace of change is likely to accelerate.  “Investors, companies and governments must consider the sea change that we believe is only just beginning.”

To be sure, today’s utilities have established customer bases and billions in infrastructure that could enable them to weather the coming storm: “There are opportunities for new avenues for investment and growth in terms of smart grid, storage, and downstream services,” the Citi authors maintain.  “The question is whether utilities grasp that opportunity and evolve themselves.”

Unfortunately, the evidence to date is discouraging.  As you might expect from an industry with a business model that has changed little in a century, utilities are mostly fighting a rearguard action to delay change, not adapting to capitalize on it.  A July feature in The New York Times described how “in almost panicked tones, [utilities] are fighting hard to slow the spread” of distributed renewable generation and the market mechanisms, in particular net metering, that are enabling it.  Standing athwart history and shouting “Halt!” is seldom a winning strategy in today’s globalized, technology-driven economy.

“We did not get in front of this disruption,” Clark Gellings, a fellow at the Electric Power Research Institute, told the audience at a panel discussion at the annual meeting of the Edison Electric Institute in June.  “It may be too late.”

Surf or Drown

Actually, it’s not.  Utility revenue streams are likely to decline gradually, not suddenly, and the big utilities’ unique capabilities (well-described in a recent blog by my colleague Bob Lockhart) give them the opportunity to become the service providers, architects, and delivery mechanisms for all of the new forms of energy transmission and generation, from rooftop solar panels to microgrids to virtual power plants.  Some utilities are trying to surf the waves of innovation and disruption rather than be swamped by them.

The municipal utilities in Los Angeles and Glendale, California have adopted decoupling mechanisms that should allow them to make money even as customers adopt energy efficiency measures and rooftop solar.  A group of utilities that includes Duke Energy and Edison International have backed Clean Power Finance, a San Francisco-based startup that offers financial services and software to providers of rooftop solar.  San Diego Gas & Electric has become a pioneer in the establishment and support of microgrids in its service area.

“But those are exceptions,” notes New York Times energy reporter Diane Cardwell.  And they are not nearly enough.


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