Navigant Research Blog

AESP Conference Makes DSM Gumbo in the Big Easy

— March 22, 2018

I hadn’t attended the Association of Energy Service Professional’s (AESP’s) annual conference in 10 years. I hadn’t been to New Orleans in 20 years. When the two came together in February, I decided it was time to kill two birds with one stone. Neither disappointed. I’ll focus on the conference here, but the beignets, bands, and Bourbon Street were as epic as I remembered.

Buzz-Worthy Presentations

The conference was twice as big as the last time I was there, and the topics have become much broader, reflecting the maturation of the industry. The opening session, Business Models – The Evolving Role of Demand-Side Management (DSM) in Utilities, was a shot across the comfort zone bow that most DSM professionals have settled into. Val Jensen, Senior Vice President of Customer Operations at ComEd, stated that while the energy efficiency group is now a driver of revenue for the company, he would like to see the end of energy efficiency programs as we know them today. He views it as an inefficient cottage industry that is not as unique as we think and is really more of a commodity. Energy efficiency program design is more a reflection of program evaluation than serving customers in a useful way. He believes that the utility should become a platform, where energy efficiency is a high value application that can be offered. The notion that utilities should make money from energy efficiency has been viewed as dirty, but being incented financially to do something is a powerful motivator.

After that wake-up call, I enjoyed seeing some of the presentations that were on the leading edges of DSM. There was a notable smattering of natural gas presentations—a field historically dominated by the electric side of the house. Integrating natural gas and electric DSM programs plays a growing role as utilities try to find more cost-effective ways to meet their goals. Converting fuel oil heating customers to natural gas, and natural gas HVAC applications to electric (like heat pumps) holds promise in saving energy and emissions.

Another buzz term I focused on was customer engagement, in part because I am working on a report covering that topic. A panel with three utility marketplace offerings, energyOrbit, Enervee, and Simple Energy, showed how customers could be enticed to make more efficient purchases by providing information and comparisons on product ratings and costs. It was even posited that traditional energy efficiency rebates could be rendered obsolete through superior data sharing, but that point was hotly contested by the panel.

Not Just a Bystander

I also participated in my own panel, Non-Wires Alternatives: The New Model to Integrate and Target DSM and DER, but that wasn’t nearly as intriguing as the talk on using drones for energy efficiency site visits!

All in all, it was great to get back to the AESP crowd and see some familiar faces as well as new, innovative companies and young, enthusiastic industry players carrying the mantle for the next generation of DSM.


America Movil Enters the Residential Solar Market

— March 20, 2018

On February 26, Mexico-based America Movil, one of the world’s largest telecom companies, announced the launch of a solar product in Mexico, becoming the first leading telecom company to fully embrace distributed energy resources (DER). America Movil currently serves 363.5 million access lines, including 280.6 million mobile subscribers in Latin America and Central and Southeast Europe.

Its fixed-line subsidiary, Telmex, will provide the service to customers who own a roof. Telmex will install the modules and file all its customers’ paperwork. A 3.3 kW system will cost MXN 166,844 (US$8,957 or US$2.7/W) paid in cash or up to MXN 236,000 (US$12,600 or US$3.8/W) when financed. Payments will be made through an existing Telmex invoice.

Telmex will target high consumption residential customers currently paying the regulated domestic high consumption (DAC) tariff, which in February 2018 was US$0.24/kWh. A user pays this tariff if they consume more than 250 kWh per month in temperate regions or up to 2,500 kWh in the hottest areas.

A Need to Diversify

America Movil already offers mobile, fixed-line, broadband, Internet of Things, and television services in Mexico, but its 61% market share is at the limit of what regulators allow. In addition, after regulatory reform in 2014, Mexican mobile competition increased significantly, cutting margins at America Movil’s cash cow. In April 2017, Mexico’s telecoms regulator put America Movil on notice to legally separate its Telmex fixed-line division from its cellular and retail divisions, putting even more pressure on the company’s finances.

DER: A Tool to Capture the Energy Market

With no room to expand in the telecoms sector, America Movil needs new markets where it can leverage its infrastructure and large customer base. Residential solar fits this description perfectly. Telmex must create new solar installation teams, but other infrastructure already exists: sales, retail partners (Carlos Slim, America Movil’s majority shareholder, owns a large Mexican retail empire), finance (Slim also owns a local bank), customer service centres, billing, etc.

Both Telmex and customers will benefit. Solar improves customer stickiness (finance contracts run for up to 6 years), while reducing electricity costs for its customers.

The America Movil Case Is Unique, but Some Drivers Are Global

America Movil’s situation is unique. Few telecoms are permitted a 61% market share, or have an owner that also owns a bank and a retail empire, or are entering a market with one player not used to competing. But other drivers are global. All telecoms have a large customer base and the infrastructure to serve and bill them once DER is installed. Many also operate in regions with regulated electricity tariffs and abundant sunshine.

Other telecoms are already exploring DER. Last year in the US, Sunrun and Comcast partnered to offer Comcast customers Sunrun’s DER services. In Europe, O2 Telefonica has tip-toed into DER through smart home energy devices like smart thermostats, albeit with mixed results.


The US ITC Was Reinstated for Fuel Cells: Is It Enough to Recharge the Industry?

— March 20, 2018

In an 11th hour move, the US federal Investment Tax Credit (ITC) was reinstated for certain orphaned generating technologies in February’s congressional tax bill. Among the technologies extended, fuel cells have the highest incentive: as much as 30% of the system cost can be taken as a tax credit. For stationary systems made by the likes of Bloom Energy, Fuel Cell Energy, and Doosan, the credit can be worth around $0.02/kWh on a levelized cost basis—a significant amount that can decide whether a project gets built.

Will it be enough to reignite an industry that largely treaded water in the US in 2017? That depends on whether industry players can address certain key issues.

Capital Costs Must Be Lowered

The high capital costs of fuel cells remain the biggest hurdle to mass adoption. Installed capital costs vary widely but typically range from about $4,000/kW to $8,000/kW. By contrast, turbines, microturbines, and reciprocating gensets are significantly cheaper per kilowatt—as low as $1,000 or less for certain gensets and turbines. Fuel cells make up for this with high efficiency, but that advantage is hobbled in a world of low natural gas prices. Cost declines in recent years have been promising, but more must be done. Incentive certainty should help drive investment, volume, and thus economies of scale, but more must be done with manufacturing process improvement and the use of lower cost assemblies and materials.

Flexibility and Load Following Must Be Improved

The US electrical grid is experiencing increasing volatility thanks in part to fast growth among intermittent renewables. This has led to demand for flexible, dispatchable technologies like battery storage. The higher temperature fuel cells popular in the +500 kW range tend not to follow load well. This is a disadvantage, especially for applications like microgrids that value islanding from the grid. Pairing the fuel cell with battery storage (a la Bloom Energy) can help overcome this lack of flexibility

Carbon Emissions Still Represent a Liability

Despite super-low levels of criteria pollutant emissions, fuel cells using natural gas still emit carbon dioxide. This can be a significant liability when compared with, for example, the emissions-free PV-plus-storage systems that continue to fall in price. Though fuel cell emissions per megawatt-hour tend to be lower than most electrical grids right now, those grids are focused on decarbonizing. This is of special interest among corporate buyers thinking increasingly about sustainability. Low carbon fuels like biogas are a key decarbonizing pathway. Some programs, like California’s SGIP, encourage biogas market transformation by requiring increasing amounts of biogas in covered systems. Using biogas as a fuel is a strategy for fuel cells to compete better on system carbon emissions.

Fuel Cell Technology Needs More than Just the ITC

The reinstatement of the ITC gives a welcome boost to the stationary fuel cell industry in the US. It lowers both uncertainty and costs to the end user, and enhances economies of scale. But more yet is needed to truly scale the industry. Cost cuts have been aggressive in recent years but must continue. The ITC is scheduled to phase out over 5 years, dropping to 22% before ending in 2022, giving fuel cell companies a clear timeline for hitting lower cost targets. Pairing up with other dispatchable technologies like batteries may help fill the gaps in load following capability. And to limit carbon emissions, alternative fuels like biogas and green hydrogen will become increasingly important fuels. Fuel cell technology still shows great promise, but there is much yet to be done.


Ford Goes All-In on Trucks, Utilities, and Hybrids

— March 16, 2018

At January’s North American International Auto Show, almost all of the significant product announcements were about new pickup trucks and SUVs from Ford, General Motors, and Fiat Chrysler Automobiles (FCA). Maintaining sales of those high margin vehicles will be crucial to funding the development and introduction of new and often pricey electrified propulsion and automation technologies. This week, Ford executives led a briefing at the company’s product development center where they provided more details on how they plan to handle that transition.

Core to Ford’s revamped product lineup is a range of new SUV nameplates as the company shifts away from passenger cars. The subcompact Fiesta will likely be discontinued from the North American lineup and Focus sales have dropped to a level where the next model for North America will imported from China. By 2020, Ford expects 86% of its sales in North America to come from trucks and utilities.

That doesn’t mean Ford is giving up on fuel efficiency. Quite the contrary. Ford intends to become the hybrid market leader in North America by 2021, overtaking Toyota. While Toyota is most associated with hybrid technology, Ford introduced the first hybrid SUV in 2004 and plans to leverage this position to offer hybrid or plug-in hybrid powertrain options on every utility model from the Ford and Lincoln brands. That’s in addition to the 300-mile range battery electric crossover it will launch in 2020.

Selling Performance and Power

FCA is branding its mild-hybrid system as eTorque on Jeeps and Ram pickups and marketing based on performance enhancement. Since most North American customers show little interest in green vehicles, Ford wants to appeal to them by using electrification to boost capability and speed. While most details aren’t yet available to the public, previous announcements give a clue as to where Ford is going. The automaker has talked repeatedly about its new F-150 hybrid having a power take-off capability that will enable contractors to get power for their tools without needing to carry a generator. Similarly, the upcoming Mustang hybrid will use electrification to enhance performance and efficiency.

Ford is not sharing many technical details of its next-generation hybrids yet, but most are expected to be high voltage systems that can also support plug-in capability. The automaker is already one of the top purveyors of plug-in hybrid systems; it has sold nearly 100,000 Fusions and C-Maxes with a plug since they were introduced in 2012.

Even the electric crossover will be targeting a more premium customer than something like today’s Escape or Edge. With hints of its 300-mile range and performance at the auto show, Ford President of Global Markets Jim Farley positioned this vehicle as a melding of the desire for crossovers with the passion the Mustang inspires in some customers.

So Why the Massive Shift from Cars to Trucks?

It’s all about the money. Farley explained that since the current-generation F-150 debuted in 2014, average transaction prices have jumped $6,700 while the new Expedition SUV that debuted last year is getting $11,000 more per sale. The F-150 alone generates $41 billion a year in revenue and a significant chunk of Ford’s profits.

In 2015, when Farley was still president of Ford of Europe, he discussed the burgeoning market there for crossover utilities, with many of the offerings being less truck-like. While details of the seven new Ford and Lincoln utilities are still under wraps, a similar segmentation is expected in North America, replacing many of the soon-to-be outgoing car models. It’s too early to tell if the automaker can overtake Toyota in total hybrid sales, but Ford is making a strong push.


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