Navigant Research Blog

Boston Leads the Way on Energy Efficiency

— October 10, 2013

With a few exceptions like San Diego, U.S. cities have been slower than their counterparts in Europe and Asia to adopt the smart city label.  That doesn’t mean they don’t understand the important interplay between economic development, sustainability, and quality of life that define many smart city programs.  A new report from the American Council for an Energy-Efficient Economy (ACEEE), a nonprofit organization that works to advance energy efficiency in the United States, highlights the progress that U.S. cities are making toward a range of energy efficiency measures.  The 2013 City Energy Efficiency Report Card assesses energy efficiency programs across the 34 largest U.S. cities and ranks them across five areas: transportation, local government operations, buildings, energy & water utilities, and general community initiatives.

At the top of the rankings is Boston.  The report draws particular attention to Boston’s community initiatives and above all to its relatively strong showing across all five categories.  The ACEEE report also singles out Portland for its progress on transportation and local government operations, Seattle for its lead in building policies (see also the work Microsoft is doing with the city in this area), San Francisco for its utility programs, and Austin for energy efficiency policy.

Only Connect

Overall the report shows a strong commitment among U.S. cities to improve energy efficiency as part of broader initiatives around the environment, quality of life, and economic renewal.  As cities build on these efforts, one opportunity is to develop more connected thinking across diverse projects, which when brought together can provide a strong basis for a smart city vision.

Boston provides an example of how cities might make progress here.  It has strengthened its commitment to improving its energy performance through its decision to implement an enterprise energy management system (EEMS) for all city operations. Based on Schneider Electric’s StruxureWare solution, the Boston system will help monitor energy use, greenhouse gas emissions, and related conservation projects including those spanning city buildings, traffic systems, and street lighting.

It’s not surprising to find Detroit at the other end of the rankings in 33rd position (only Jacksonville scored lower).  City leaders and citizens in Detroit can make a strong case for having more important concerns at the moment.

Meanwhile, the progress other cities are making suggests that a commitment to energy efficiency and other environment programs is becoming central to the vision of the modern U.S. city.  Hopefully, energy efficiency will be a key part of Detroit’s rebuilding strategy.


The Case for Utilities

— October 8, 2013

Long-time electric utility employees must be feeling a bit like Rodney Dangerfield these days.  No respect.  Seems like everybody thinks they can be a utility now.  All you need is a big wad of cash so you can buy and sell energy.  That makes you a utility.  Or at least that’s the take from a popular article making the rounds, “Google is on the way to quietly becoming an electric utility.”

Not so fast.

Google is on the way to becoming an energy trader.   Whether or not that’s a good thing is debatable.  Here in Texas, our Wild West deregulated energy market even allows multilevel marketing (MLM) companies to sell energy.  At our house we’ve had more offers to sell electricity than cosmetics.  Thankfully I live in a cooperative area so I have a valid excuse to politely decline.  I have yet to understand how MLMs add competitive impetus to a market that already has the likes of TXU, Reliant, and Green Mountain Energy fighting for the same customers.

The point is: trading energy is not the same as being a utility.  Utilities do some incredibly complex things that really are life or death.  I was on the Big Island of Hawaii in 1992 when a thunderstorm knocked out all power to Hilo, including all traffic lights.  For reasons that I do not understand, all drivers that day assumed that the absence of traffic lights means the same thing as a green light.  Life or death situation.

The Hard Stuff

Utilities do the really difficult work, like balancing grids.  Here at Navigant Research we have a thriving Smart Energy program that covers renewable energy.  But as any reader of our coverage knows, there is more to smart energy than simply feeding it into the grid.  Too much power can destabilize the grid, resulting in over-voltage events.  Utilities have to predict and manage distributed inputs to keep grids stable.  Would you rather have a market economist or an electrical engineer solving that problem for your neighborhood?   How about for your factory?

At the other extreme, utilities ensure that grids meet their minimum power requirements, the base load.  What happens to solar inputs if we have a repeat of 1816, the Year without a Summer? We will look to utilities to keep the lights on, although energy traders could indeed have a role.  Again looking at my home state of Texas, we have remarkable wind generation capacity, but that capacity is usually absent on the hottest days of the year, when winds are calm in the Panhandle.  Such situations often require the grid balancers at ERCOT to find extra energy somewhere, often on expensive spot markets.

Don’t get me wrong, there is a role for energy trading and an important one.  The future of utilities is somewhat unclear, and market disciplines for buying and selling energy could have a positive economic impact for many parties.  However, we still need the handful of people who understand how electrons actually flow, the line workers who will climb a utility pole in a thunderstorm, and the load planners who look at long-range weather forecasts and make sure that the grid is always sufficiently energized.

Will we ever be completely off the grid so that there is nothing to balance?  It’s hard to imagine.  If nothing else, the absence of a grid would seem to make energy trading incredibly complex!


Energy Democracy Takes Hold

— October 8, 2013

One of the primary drivers of innovation around distributed clean energy is the obsolescence of fossil energy supply lines.  Simply put, the sprawling architecture associated with electrical grids and petroleum processing exposes consumers to disruptions outside their control.  Stakeholders across both the power industry (electricity) and the fuel industry (liquids) share in their goal to reduce their exposure to supply chain risk, and these shifts appear to be moving more quickly than many would have predicted just a few years ago.  Business models are beginning to capitalize on emerging technologies that democratize the supply of energy.

Historically, the growth of global energy markets has been marked by ever-increasing economies of scale.  Oil fields with daily output measured in millions of barrels, power plants with capacity in excess of a gigawatt, pipelines crossing international frontiers, and electrical grids carrying electrons hundreds of miles have been the engine of economic growth.

While these operations deliver the kind of cheap and ubiquitous security that comes with quantity and scale, they leave end users, as well as local and national economies, vulnerable to unpredictable disruptions.  The democratization of energy – as exemplified by the conversion of waste at forward operating military bases to biofuels that can be consumed onsite and the fast rise of distributed solar PV at the residential level – is a fundamental transition that is accelerating after many years in the making.  It’s the dawn of what Jeremy Rifkin called the Third Industrial Revolution.

Military-Biofuel Complex

As the largest organizational user of fuel in the world, the U.S. military is acutely aware of the vulnerabilities associated with energy supply lines.  Three-quarters of the U.S. Department of Defense’s (DOD) energy use is dedicated to “training, moving, and sustaining military forces and weapons platforms for military operations.”  Estimates have linked 10% to 20% of U.S. casualties in Iraq and Afghanistan to supplying fuel to forward operations.  As discussed in a recent Congressional issue brief, the DOD’s reliance on fuel can lead to financial, operational, and strategic challenges and risks.  Strategic initiatives focus on making U.S. forces less vulnerable to disruptions of fuel supply lines in the future, requiring “a smaller logistical footprint in part by reducing large fuel and energy demands.”

In pursuit of these objectives, the U.S. military has emerged in recent years as one of the most active stakeholders in the unfolding biofuels industry.  The Navy, which plans to deploy  its “Great Green Fleet” in 2016, has been actively testing advanced biofuels derived from non-food feedstocks like waste animal fat from food-processing operations.  Successful demonstration of biofuels, such as the recent RIMPAC exercises off the coast of Hawaii are attracting the interest of the advanced biofuel community, which aims to disrupt the centralized petroleum model by converting a range of distributed biomass resources into biofuels that are fungible with existing petroleum infrastructure.

One strategy involves converting solid waste – generated at forward operating bases in the form of solid waste from kitchens, packaging, latrines, and soldiers’ personal items – into useable energy.  Small-scale gasifiers can convert these materials into synthetic gas (syngas), which can then be fed directly to gas-led generators or converted to drop-in fuels that can offset reliance on diesel that otherwise would have to be transported to the facility.

The Rise of the Consumer Generator

Recent developments in the civilian power industry also suggest that electron decentralization is advancing.  When utility CEOs like David Crane describe their business model as caught in a death spiral – as utilities remain on the hook for maintaining grid architecture while losing revenue from consumers adopting distributed generation (DG) – it is difficult to ignore the fact that the disruption is well underway.

The falling per unit cost of DG technologies like solar PV, which is declining much more quickly than predicted just a few years ago, coupled with advances in energy storage technologies and the recent success of Tesla’s Model S, indicate that consumers are increasingly embracing opportunities to reduce their dependence on grid architecture.

Homeowners, for example, have many more tools at their disposal, ones that can be integrated behind the meter to more effectively gird against high utility costs and supply disruptions, than they did just a few years ago. Recent events like the California Rim Fire, which threatened San Franciscan’s power supply nearly 150 miles away, are reminders of the vulnerabilities associated with sprawling energy supply lines much like those experienced by the military.

Innovative oil majors and utilities are beginning to take notice.


In China, EVs Find a Growing Market

— October 8, 2013

Light_Ladder_webChina has implemented a new incentive program for alternative fuel vehicles for 2013 to 2015 with generous subsidies for electric vehicles and fuel cells.   Passenger car subsidies are pegged to the technology’s price premium and range.  For battery electric vehicles (BEVs), the largest subsidy is for cars with ranges of over 155 miles– not exactly common – at 60,000 yuan ($9,800).  A car with over 90-mile range receives around $8,100, and a BEV under 50 miles receives around $5,700.  Fuel cell cars are eligible for up to 500,000 yuan ($81,670 dollars).

The scheme is intended to help China meet its own aggressive goals for clean vehicle production and adoption.  Under China’s New Energy Vehicle (NEV) Industry Development Plan, which governs the years 2011 to 2020, China aims to have 500,000 BEVs and plug-in hybrid electric vehicles (PHEVs) on the road by 2015.  By 2020, China projects having a production capacity of 2 million BEVs and PHEVs, with cumulative production and sales of 5 million vehicles – including hydrogen fuel cell vehicles.  At present, China is far from reaching these aggressive goals: as of 2012, it had around 28,000 EVs on the road.

China wants to promote clean vehicles for economic, energy security, and environmental reasons.  The economic rationale for promoting plug-in electric vehicles (PEVs) is clear, as a large, well-established PEV market will support China’s lithium battery industry and secure long-term demand for China’s lithium reserves.

The Coal Question

China is also coming to grips with the fact that its growing energy consumption is not sustainable, both because of the country’s limited domestic energy supplies and growing pollution problems.  Coal provided a whopping 78% of China’s 4.2 trillion MWh of electricity consumed in 2010, according to China’s current Five-Year Plan, an increase of 44% from the previous 5 years.  In 2010, hydroelectric was 17%, while natural gas and nuclear were each 2%.  The country has minimal crude oil capacity; hence its interest in transportation options like batteries and fuel cells.

In its 12th Five-Year Plan, which covers 2011-2015, China made a dramatic shift away from simply driving economic growth toward creating a more efficient and sustainable economy.  The plan aims to slow energy consumption growth, increase the use of non-fossil fuel energy and natural gas, and set limits for energy consumption per unit of GDP.

Increased use of natural gas and non-fossil fuel energy will, of course, also help China combat its growing pollution problem.  Unfortunately widespread use of BEVs will work against China’s sustainability goals because of the country’s reliance on coal.  This problem may be the rationale behind the new fuel cell vehicle subsidies.  In Navigant Research’s report, Fuel Cell VehiclesI noted that the twin pressures of growing demand for passenger cars – annual sales are already almost 20 million, and Navigant Research forecasts steady growth through 2020 – and urban air pollution present an opportunity for fuel cell vehicles in China.  Even with new energy investments, coal will remain the primary source for electricity for the near future; this substantially reduces the emissions benefits of BEVs, and it is one reason why I forecast China as one of the top countries for fuel cell vehicles adoption from 2015 to 2030.  The new subsidies suggest that China’s leaders also see fuel cell vehicles in the country’s future.


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