Navigant Research Blog

Audi’s Strategy to Enable Carbon-Neutral Driving

— February 16, 2014

Audi recently announced that results from testing of the company’s synthetic liquid fuels, or e-fuels, indicate that e-fuels perform significantly better than conventional fuel counterparts in conventional vehicle internal combustion engines.  The company subsequently announced that it will broaden its e-fuels initiative through its partnership with French biofuels company Global Bioenergies.  Audi’s e-fuels initiative is unique, as no other major automaker has pursued the development or distribution of gaseous or liquid fuels – carbon-neutral or not – for the transportation market.

Audi plans to produce e-gas and, through a partnership with Joule, e-diesel and e-ethanol.  The company also intends to produce e-gasoline through a partnership with Global Bioenergies.  The purpose of this initiative is to provide drivers of Audi vehicles with carbon-neutral driving options as a selling point for its gasoline, diesel, and/or compressed natural gas (CNG)-powered vehicles.  However, Audi drivers worldwide may be physically unable to fill up with the carbon-neutral synthetic fuels developed by Audi due to a lack of refueling stations.  The automaker will enable Audi drivers to indirectly contribute to increased amounts of carbon-neutral synthetic fuels into the overall fuel pool through what amounts to offsets.

Powered by E-Gas

An example of how Audi’s strategy works is its production of e-gas, the e-fuel closest to market.  E-gas is produced from the electrolysis of water, which produces hydrogen, which is then combined with waste CO2, producing methane as a synthetic natural gas substitute.  The e-gas production facility is powered by wind turbines and uses concentrated waste CO2 from a nearby biogas plant.  The production and consumption of e-gas using this system generates no new carbon emissions.  The e-gas is then piped into the greater natural gas network at the e-gas production facility in Werlte, Germany.

Early adopters of Audi’s forthcoming CNG- and gasoline-powered vehicle, the A3 G-Tron, will be able to buy quotas of e-gas upon purchasing the car.  This allows them, through an accounting process, to say their Audi is powered by the carbon-neutral e-gas produced at the plant.  This offset option will only be available to European customers though, as light duty CNG vehicles have failed to catch on outside of Europe primarily due to a scarcity of CNG refueling stations.

Outside of Europe, similar programs are expected to emerge alongside Audi’s development of liquid e-fuels.  The end markets for these fuels are significantly greater than those for e-gas, since the vast majority of vehicles worldwide are powered by liquid fuels.  However, these e-fuels are still far from reaching the market.  Actual implementation of Audi’s carbon-neutral strategy outside of Europe is therefore limited in the near term, barring a significant increase in CNG infrastructure options.   But the promise of Audi’s and its partners’ work on liquid e-fuels may significantly speed development and adoption of carbon-neutral fueling options, holding  significant implications for the vast majority of vehicles in use powered by conventional petroleum-based liquid fuels.

 

EPA’s RFS Cuts Limit Ethanol Growth

— February 6, 2014

The public comment period on the EPA’s proposed rule change to the 2014 renewable fuel standard (RFS) – which would reduce oil refinery biofuels volume blending requirements by roughly 3 billion gallons – closed last Tuesday.  Understandably, the biofuels industry has been aggressive in its campaign against the proposal.  From the beginning of the public comment period in late November 2013 to its end, more than 15,500 comments have been filed, the majority by biofuels industry stakeholders.  The RFS covers a number of biofuels and the EPA has proposed cuts to all  – with conventional ethanol taking a cut of 1.4 billion gallons from the original 14.4 billion gallon target.

The crux of the EPA’s rule-making hinges on the agency’s estimate of what is realistic in terms of biofuels supply and demand given certain limitations; the most significant limitation being the E10 blend wall.  Given the recent plateau in annual U.S. gasoline consumption and anticipated declines in gasoline consumption as fuel economy rises and more alternative fuel vehicles are sold, the EPA estimates demand for ethanol will not meet the original 2014 14.4 billion gallon target set by the RFS.

Other Avenues

Although the EPA’s reasoning makes sense, ethanol industry advocates point to higher ethanol blend levels of E15 and E85 as possible avenues by which the original mandate could still be achieved.  E15 has been slow to emerge, as automakers have been hesitant to announce vehicle compatibility with any vehicle of model year 2012 or earlier.  As such, few refueling sites have been installed and E15 is unlikely to drive ethanol demand in 2014.

E85, however, has been around since the beginning of the 2000s.  There are nearly 2,400 E85 refueling sites in the United States, and in the report Biofuels for Transportation Markets, Navigant Research forecasts that the number of flex-fuel vehicles (FFVs) on U.S. roads will grow to about 13 million in 2014.  However, E85 has failed to make significant contributions to ethanol demand, as data on historic FFV fleet size and E85 consumption in the United States indicate that E85 fuels less than 4% of the addressable market, which will be more than 7 billion gallons in 2014.

Gas Up, Ethanol Down

Given the existing U.S. vehicle fleet size and characteristics, Navigant Research forecasts that ethanol consumption from the road transportation sector will reach 13.9 billion gallons in 2014, with E85 accounting for about 1.5%.  To meet the original 2014 RFS volumetric requirement, E85 consumption would have to grow to account for over 14.5% of its 7 billion gallon addressable market, which would be more than 900 million gallons.

Some analysis indicates that E85 is likely to show a marked increase in consumption this year due to falling prices of ethanol against gasoline on a per-gallon basis.  Though E85 should be compared to premium gasoline blends due to its high octane rating, E85’s market acceptance has long been stunted by the fact that it is not significantly cheaper and has been more expensive than regular unleaded gasoline on a per-mile basis.  A marked price drop in E85 against gasoline would drive greater consumer awareness and acceptance.  However, even with a significant price drop, it is unlikely that E85 will reach the levels necessary to meet the original 2014 RFS.  While it’s apparent that some reduction to the conventional ethanol requirement is necessary, cutting the original target by 1.4 billion gallons is an over-correction that will hinder the ethanol supply chain.

 

Ethanol Growth Lies in Optimization, Not Mandates

— January 31, 2014

The last 2 years have been punishing for the ethanol industry.  In August 2012, the Environmental Protection Agency (EPA) and National Highway Transportation Safety Administration (NHTSA) revised the treatment of flex-fuel vehicles (FFVs) under CAFE standards so that manufacturers will no longer receive credit for FFV sales beginning in 2017 if they cannot provide data proving E85 (gasoline with up to 85% ethanol) use by the FFV.  Then, in November 2013, the EPA proposed a reduction of an estimated 3 billion gallons of biofuels blending quotas for 2014 under the Renewable Fuel Standard (RFS).  Additionally, while the EPA has approved the use of E15 (gasoline with up to 15% ethanol) in model year (MY) 2001 vehicles and newer, major automakers have been hesitant on the fuel, in some cases approving its use only in MY 2012 vehicles and/or newer.  As a result, there are few stations that supply E15.

All of these setbacks mean that the market for ethanol in the United States has peaked at 10% of retail gasoline consumption and has flatlined in recent years.  Additionally, Navigant Research forecasts in a forthcoming report, Biofuels for Transportation Markets, that retail gasoline consumption will fall before 2022 thanks to increasing fuel economy standards and interest in alternative fuel and light duty diesel vehicles.

Despite ethanol’s recent tribulations, though, there are opportunities for sustainable growth.

E30 = $

A report developed by researchers at Oak Ridge National Laboratory (ORNL) finds that the use of E30 (gasoline with up to 30% ethanol) can significantly improve vehicle efficiency in optimized engines, compared to a conventional internal combustion engine fueled with regular gasoline.  Efficiency gains are achieved through the high-octane properties of ethanol, which improve combustion, thus mitigating engine knocking and allowing for greater downsizing of the vehicle engine.

The findings are important because they identify an opportunity for ethanol to become an economic product for end consumers.  To date, E85 has failed to catch on in the United States because the fuel shows no significant improvement in reducing fuel costs due to the lower energy density of ethanol compared to that of straight gasoline.  While there are currently many FFVs on U.S. roads, on average FFV drivers rarely fill up with E85.  Reasons include a lack of available infrastructure and low driver awareness.  However, those reasons would evaporate if the cost of driving on E85 were significantly less than driving on E10.  If the latter were the case, E85 compatibility would be a more valuable selling point for automakers than it is now, consumers would be well aware of the cost savings, and demand for E85 would be robust and drive infrastructure development.

If it’s true that an ethanol blend above 10% can improve fuel efficiency given the right engine, then the cost savings to the end consumer will spur growth in a market that has stagnated.  Realizing this opportunity, though, requires significant buy-in from automakers that would have to develop the optimized engines and the assurance that fuel retailers will have the optimized blends available.  Those factors will likely require government support.

 

Plug-In Vehicles: For Utilities, More Opportunities than Challenges

— January 3, 2014

According to the Energy Information Administration’s latest Residential Energy Consumption Survey (RECS), the average U.S. household consumed 11,321 kilowatt-hours (kWh) of electricity in 2009.  If the average 2014 light duty vehicle is rated at 24 MPG and travels 12,000 miles a year, then the amount of energy consumed by the vehicle over the year is equivalent to about 16,000 kWh of electricity.  When the EV Project 2Q 2013 data is analyzed, it shows that 96% and 99% of the energy consumption for participating Nissan LEAF and Chevrolet Volt plug-in electric vehicles (PEVs), respectively, took place at the residence of the PEV owner from April to June of 2013.  That would seem to mean the transition from petroleum-fueled to electric-fueled transportation will present serious challenges for utilities, which face a drastic increase in demand from the residential sector.  This, however, is not the case, due to the efficiencies of electric drive, the charging behavior of PEV owners, and the ways in which individually owned PEVs can be used by utilities to help match electricity supply with demand.

PEVs are far more efficient than petroleum-powered vehicles.  With an average battery size of 40.1 kWh, battery electric vehicles (BEVs) have an average range of 124.2 miles.  For plug-in hybrids (PHEVs), the figures are 11.7 kWh and 27.2 miles for all-electric driving.  Using the same 12,000 miles per year metric, the average BEV consumes 3,869 kWh of electricity a year and the average PHEV (utilizing all of its electric drive capacity every day) 4,271 kWh of electricity.

Non-Peak PEVs

While these energy requirements are significantly less than petroleum-powered vehicles, they still represent a significant demand increase of around 33% for BEVs and 37% for PHEVs for an average U.S. household.  At the average U.S. residential electricity rate of $.12/kWh, utilities collect around $450 per BEV and $520 per PHEV, per year.  To reap such revenues, some modifications to the existing utility grid infrastructure are necessary, but not many.

The increased use of air conditioning has required utilities to develop a grid supply infrastructure that can meet the highest peak demand loads of summer afternoons, when AC units en masse are turned on.  Studies on the charging behavior of PEV owners have shown that few PEVs are plugged in during these times, fewer still in areas where PEV owners are enrolled in time-of-use programs.  Thus, peak electricity demand will not be greatly multiplied by PEV charging.  Further, using PEVs for demand response programs, for grid balancing, renewables integration, and demand charge reduction, will help utilities supply electricity and may actually reduce peak demand loads.

Where utilities are most vulnerable to PEV demands is at the local distribution transformer.  Residential customers are supplied electricity through a transformer that feeds a number of units.  If all or many of the units supplied by a transformer require increased load for PEVs, the transformer may need to be upgraded to increase peak capacity and use.  However, data from California utilities shows that local grids need upgrades to serve PEVs less than 1% of the time.  The net effect to utilities should be new revenue streams with few costs.

 

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