Navigant Research Blog

Will We See a Silicon Valley of Smart Energy?

— April 9, 2012

We all know that Silicon Valley is the beating heart of the tech industry, with large corporations, tiny start-ups, entrepreneurs and the finance community all living, working and drinking coffee together.   (This last bit isn’t a throw away reference to our increasing addiction to the black magic bean, but to an article I read in Harvard Business Review in 2010 which said that you are as likely to start up a conversation with a potential investor or tech start-up CEO in the local coffee shop as over a formal meeting in an office.)  This melting pot of groups and interest is the key to the success of the Valley.  The key players are all there breathing in the same idea.

Do we need a Silicon Valley of Smart Energy?  And if so, will we see one emerge?  I believe that yes, we do need one.  By bringing all the actors together in an environment conducive to change, change happens.  Smart Energy is stronger than the sum of its parts, but right now its parts are like hissing cats in a sack, as quick to fight each other as to work together to foster innovation.  Just throwing them together won’t enable this change, but it should help them to understand the value of united action.  Secondly, investors are still quick to run to the more traditional markets of the old energy paradigm and high tech.  Investment in cleantech is still patchy and piecemeal with little evidence of a long term sustainable shift in focus to the Smart Energy sector.  A focused geographical region that comprises all the elements of a thriving tech sector would help draw in investors and generate investment.

If the Smart Energy Valley appeared, where would it be? As a European it pains me to write this, but it’s unlikely to be Europe.  Even though the European countries compose one of the biggest, if not the biggest, market for Smart Energy in the short to medium term, we are simply too institutionally risk-adverse to celebrate the successes, but critically also the failures, that a thriving Smart Energy Valley would need.  Micro valleys (let’s call them “Corries,” from the old Scots word for a round hollow) are springing up all over Europe.  These Silicon Corries though tend to promote a regional activity rather than a market.  So even though they can be very successful in promoting growth in their regions, their impact on the overall market is limited.

Asia Pacific? More likely than Europe, but still an outlier.  In energy at least the focus is still on regional growth and with the markets in Indonesia and China exploding this global focus is still, possibly, on the back burner.  Here I could be wrong.  If the Smart Energy Valley does appear in Asia Pacific it could well be in one of the younger countries – specifically Australia.

Africa or Latin America?  Even with the massive surge in liberalisation of energy investment in Africa and the huge strides that Latin America is making to develop deploy Smart Energy technology, there is simply too much going against them for either to be a realistic candidate.

We are left with India, the Middle East, and North America.  These are my front runners.  I believe a Smart Energy Valley will emerge.  Where will it be? In India, the Middle East or North America.

 

With Regulations Looming, Shipping Industry Weighs Biofuels Options

— April 9, 2012

While aviation biofuels have become a hot topic in the advanced biofuels industry, old-fashioned emissions regulations and escalating diesel costs are making marine shipping’s dependence on bunker fuel seem outdated.  If aviation is the hare, than marine shipping may very well be the tortoise that could emerge the winner in integrating renewable fuels in this decade.

Aside from enjoying an easier path to broader market integration, marine shipping is faced with one very large incentive driving demand for alternative fuels: MARPOL.  Originally signed in 1973, MARPOL (short for “marine pollution”) is an international convention creating a verifiable, enforceable regime to prevent pollution discharges from ships.  It has been one of the key drivers of sustainability in the marine shipping industry.

Among other things, MARPOL sets limits on nitrogen oxide (NOx) and sulphur dioxide (Sox) emissions from ship exhausts as well as particulate matter, and prohibits deliberate emissions of ozone depleting substances.  Emission Control Areas (ECA) – coastal areas, regulated by national governments, have more stringent requirements.  In 2011, the International Maritime Organization (IMO), the UN agency that regulates the shipping agency, adopted mandatory measures to reduce emissions of greenhouse gases (GHGs) from international shipping, including new requirements on energy efficiency for ships.

Shippers’ Options

According to industry representatives speaking at World Biofuels Markets held in Rotterdam, Netherlands in March, the new regulations dictate that by 2015, vessels must reduce their sulphur footprint in certain ECAs, including North America.  The impact of these restrictions will be to spur the adoption of biofuels such as lignin, algae, and biomethane based fuels, as shipping lines will not be able to route vessels away from key markets to avoid regulation.

Shipping lines have three options: 1) manage fuel use by switching among options to burn the “right” fuel in the “right” place; 2) incorporate scrubbers to clean SOx and NOx from the exhaust; or 3) switch to alternative fuels such as biofuels and liquefied natural gas (LNG).

To the first and last points, biodiesel is an especially good candidate for replacing shipping fuel since it is biodegradable, non-toxic, and essentially free of sulphur and aromatics.  It can also be dropped into the existing fuel supply chain with little or no need for engine modification and its biodegradability reduces the risk of marine pollution in case of spills.

Two key developments demonstrate that a shift is already underway:

  • Maersk Line, one of the world’s largest shipping companies, is testing algae-based biofuels in anticipation of 10 percent of the world’s shipping fleets utilizing biofuels by 2030.
  • Solazyme currently has a contract to supply 450,000 gallons of algal biofuels for U.S. Navy testing ahead of its plan to deploy its “Great Green Fleet” by 2016.

As discussed in Pike Research’s upcoming biogas industry report, biomethane – upgraded biogas that can be mixed with natural gas – is also attracting interest in the maritime industry and driving investment in liquefied natural gas (LNG) infrastructure at ports.

As I noted in a recent post, with access to concentrated demand centers and no viable alternative to liquid fuels, the aviation industry is gaining traction as a potential near term “win” for biofuels.

Even so, targeting biofuels and bioLNG in maritime shipping could prove to be a much easier path for biofuel and biogas producers.  While supplanting fossil fuel dependence for commercial and military aviation has obvious benefits, the hurdles are generally more onerous given the scale of risk involved.  Engine failure caused by a bad batch of biofuels, for example, would have more dire consequences for the passengers on board a plane than a cruise ship.

Compared to ground and aviation transport sectors, the international maritime shipping industry, which carries 90 percent of world trade, has been a laggard in improving its sustainability profile.  Increased utilization of biofuels will go a long way to enabling the industry and its supply chains to become increasingly carbon neutral.

 

In Solar Trade War, China’s Not the Enemy

— April 9, 2012

The U.S. Department of Commerce (DOC) recently announced the first of two expected import tariffs on Chinese crystalline solar cell and module manufacturers.  This is the latest blow in a feud that has included local content requirements, two-way accusations of strategic underpricing at different points in the value chain, and political posturing that amounts to a clean-tech trade skirmish.  SolarWorld America and other unnamed U.S.  manufacturers initiated the suit claiming a 49-249% “Alleged Dumping Margin” by leading Chinese solar manufacturers which have gobbled up market share at the peril of many U.S. companies.

Here are the main takeaways: This is mostly a symbolic victory in an election year.  The first announcement was a countervailing duty that ranges from 2.9% to 4.73%, with the verdict of the second anti-dumping case expected in May.  This first duty was significantly lower than the 30% figure that many in the industry were expecting.  Even if the anti-dumping duty brings the total duty up to 20%, don’t expect this to cause a resurgence in U.S.  solar manufacturing anytime soon.  Nor should this have a major impact on the cost of installing solar in the U.S. or elsewhere (unless opportunistic installers conspire to do so and use the duty as an excuse to pad their profit margin).  Chinese companies may just ramp up manufacturing in Taiwan and other countries where they have manufacturing capacity to get around the ruling.

The suit and the DOC ruling have caused an antagonistic rift within the US solar value chain.  On one side you have solar manufacturers, led by SolarWorld America and seven other smaller companies that manufacture solar cells and modules.  These companies, despite receiving many tax incentives from state and federal governments in the United States and elsewhere, have witnessed a margin bloodbath and are fighting for dear life.  On the other side, the drop in cost has led to a doubling of installations for the past two years, leading in turn to a boom for U.S. installers, third-party financiers (think SunRun, SolarCity, et. al), and project developers who have seen tremendous growth during this time.  None other than the pioneer of the solar lease, Jigar Shah, founder of SunEdison and leader of Coalition for Affordable Solar Energy, has been the most visible advocate representing this group.

Meanwhile the polysilicon producers in the U.S. who fared well when prices were high in 2009 are now experiencing a race to the bottom on price.  Chinese polysilicon providers now allege that the American competition is selling at artificially low prices that is wiping out Chinese companies.  Go figure.

It’s true the Chinese government has provided an order of magnitude advantage to solar manufacturers in China, primarily through low-interest loans.  But that was a strategic decision by a country that has to figure out a way to raise standards of living for its 1.3 billion people – and is not concerned about ROI for Western investors, elections, and US jobs.  Plus, note that the leading U.S.  residential marketshare leader, SunPower, is not part of the suit.

For a number of reasons, China holds all the cards on this one – and that means the bottom line is that the country is going to play by its own rules. Western crystalline solar manufacturers’ “enemy” is state capitalism, not Chinese manufacturers, so companies (across all cleantech sectors) need to get used to it.  The United States lacks a coherent, let alone strategic, energy policy ‑ and this is one of the repercussions.

 

Energy Storage: Half Empty or Half Full?

— April 6, 2012

One of the difficulties of the energy storage market is that technologies have such diverse cost and performance characteristics that making fair comparisons across technologies is difficult (some would claim impossible). In building Pike Research’s database of energy storage projects globally, we take an application-based approach to evaluating the value of the market.

If we look simply at cumulative capacity by storage technology, pumped storage is the obvious winner.  (The energy in a pumped storage installation is stored as water in a reservoir.)  This is no surprise, as it has been commercial for a hundred years and is a materials-based energy storage technology, meaning that it’s cheaper on an energy basis than mechanical (such as a flywheel) or electrochemical-based storage (such as a battery).  That’s why traditional pumped storage installations dwarf newer, less mature technologies such as advanced batteries.

However, if we highlight the relatively small number of installations based on newer technology, it becomes clear that there is a great deal of diversity in the emerging portion of the energy storage market.  Advanced batteries, variants on pumped storage, compressed air, flywheels, and hydrogen all have significant niches, though collectively they’re still only a small percentage of the overall market.  Over time, as the markets catch up and begin to recognize the value that these technologies offer, this percentage will grow. The tipping point will likely be in the 2014-2015 timeframe, when the technology costs come down enough, and the markets structures allow the value of the technology to be commoditized.

For now, long lead times, even for battery systems, are holding up installations and delaying growth in these newer technology segments.

If we use a different metric than capacity, and focus on installations (or number of projects), the outlook is turned on its head. The chart below shows greater diversity and activity in the industry, particularly if we are comparing only “new” technologies.  This view offers a fairly optimistic view of market diversity.

These two charts demonstrate that, in the energy storage industry, there are so many measurable characteristics that it’s easy to take a pessimistic or an optimistic view of the market, depending on how your view the data.  Over the next few years the half-empty glass will undoubtedly start to look more than half-full.

 

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