Navigant Research Blog

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.


Smart Water Meter Deployments Still Just a Trickle

— April 6, 2012

The deployment of smart water meters remains a slow-moving segment of the smart grid market when compared to smart electric meters, but recent moves by various water utilities are somewhat encouraging.  In the last few weeks, the following announcements highlight coming activity for this often under-the-radar segment:

  • Thames Water – Britain’s largest water and sewerage company – will extend its smart meter and smart grid trial from the town of Reading to the city of London.  Thames Water and SmartReach (a consortium comprising Arqiva, BT, BAE Systems Detica and Sensus) have been testing a long-range radio based network for communicating with water meters in Reading.  By extending the trial to London, Thames and SmartReach aim to assess how such a system works in a much larger city environment with different types of housing stock, where meters are often located in difficult-to-reach areas such as meter pits, cellars and basements.
  • Kennebec Water District in Maine is moving to full deployment of smart meters for its residential customers. Over the next 10 years, Kennebec will deploy Sensus’s FlexNet advanced metering infrastructure (AMI) across its service territory, and replace bronze-body water meters with lead-free Sensus iPERL models in approximately 7,800 homes.
  • The City of Sault Ste. Marie in Ontario, Canada, and the public utilities commission have won a grant of $101,470 from the Federation of Canadian Municipalities to test what effect smart water meters have on residential consumption patterns and attitudes toward conservation. The city will install approximately 500 smart meters in randomly-selected homes and then analyze data from those meters over the two-year trial timeline.

While all three of these programs should be seen as encouraging signs for the metering industry, the fact remains that smart water meters lag deployments for smart electric and gas meters.  Trials are still quite common, and deployments tend to come in smaller spurts.

Simply put, smart water meters lack some of the big drivers surrounding electricity and gas meters.  Pike Research’s most recent report on smart water meters, Smart Water Meters, explains why.  It notes that in the U.S. at least, stimulus money for projects has dried up, and many water utilities lack the capital to invest in the more expensive meters on their own.  So, they take a slower approach.  Also, many utilities lack the staff and skills to handle the increased volume of data that comes once smart water meters are installed. Moreover, regulators have been less aggressive in mandating smart water meters compared with electricity.

Clearly, smart water meters are the future as costs moderate over time and the know-how to implement them broadens and deepens.  But expect the rate for deployments to be more of a slow and steady trickle, not a fire hose.


Are Cyber Security Attacks Really Multiplying?

— April 6, 2012

The New York Times recently reported that there had been “86 reported attacks on computer systems in the United States that control critical infrastructure, factories and databases,” compared to 11 attacks in the same period a year earlier.  Data came from the U.S. Department of Homeland Security (DHS).  I’ve spent a week trying to decide whether or not this matters.  Even with such small numbers, a 781% year-on-year increase must indicate something ‑ but what?

Are there really more attacks or have companies simply realized that that there is no shame in being attacked?  Like temptation, being attacked is not a sin.  Does anyone believe that our critical national infrastructure (CNI) would not be attacked?  From my research it seems likely that some critical cyber assets (CCAs) are attacked 86 times per hour.  If this is a cultural shift by CNI asset owners, that’s promising.  It’s incredibly tough for the DHS to do anything about attacks that no one has told them about.

Alternatively, do companies now have better mechanisms to detect attacks?  Perhaps.  No new capabilities have been released in the past year that would obviously have increased detection eight-fold.  Then again, deploying a detection tool where there had formerly been none can make a huge impact.  This matters: undetected attacks have a higher success likelihood than detected.  Increased detection should portend decreased success.

Or perhaps there are simply more people attacking?  That is possible too:  the DHS has warned that hactivist groups are now more likely to attack the CNI.  That would spike the number of attacks in a hurry.  On the plus side, hacktivists tend to use mass distributed tools that are more easily defended than a hostile nation-state attack.   Cyber security recently enjoyed a Schadenfreude moment when it was discovered that an unknown hacker had tricked many hacktivists into downloading a compromised version of their attack tool.  The compromised version also contained the ZeuS Trojan Horse, designed to steal the hacktivists’ banking credentials.

There may also be other causes but still there remains the question, “How big is an attack, anyway?”  What am I measuring when I count the number of reported attacks?  The answer – an attack is about the same size as a piece of string; it can be any size at all.  This blog has previously discussed the dangers of metrics without thinking deeply about what is being measured.   If the number of attacks had only increased from 11 to 12, we could truthfully say that there had only been a 9% increase in attacks and feel really good about things.  And yet – that that one additional attack might have been Stuxnet, discovered a year after it had completed its mission.

So what does this all mean?  Does it matter that reported attacks are up eight-fold?  Absolutely.  Even if we can’t be totally sure of the cause, it’s a reminder that we need action now.  Regarding the Cybersecurity Act of 2012, currently in the U.S. Senate, Representative Jim Langevin (D-RI) recently wrote, “we must not allow the perfect to be the enemy of the necessary.”

When politicians feel more urgency than industry appears to feel… what does that mean?


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