Navigant Research Blog

Why Emerging Economies Are Not Cleantech Cash Machines

— March 26, 2013

In our recent white paper, “Smart Energy: Five Metatrends To Watch in 2013 and Beyond,” Navigant Research forecast that, in terms of economic development, the area in the Southern Africa Power Pool (SAPP) will be the next high economic powerhouse, akin to Brazil, Russia, India, and China (BRIC).  A March article in The Economist seemed to agree with me.  With booming economic growth, an appetite for energy and new technologies, fast liberalizing markets, and encouraging overseas investment, many companies are lining up to export to Africa.

However, Africa is not going to be just a passive adopter of overseas technology.  The governments of South Africa and Kenya, among others, aim to turn their countries into high innovation and IP generating economies, with local value-added manufacturing.

Innovation can be measured by a number of metrics, including IP generation, the amount of government funding allocated to R&D, the number of PhD students, and the number of limited liability companies created.  As each of these grows, in theory, the dependence on imported products decreases.  A prime example of this is the transformation of the South Korean economy from heavy importer to leading exporter in under two decades.

As more and more developing economies seek to follow this path, moving away from being passive importers of new technology (especially in the cleantech space), companies will need to develop long term market entry strategies that involve local partners, local offices, and, increasingly, local manufacturing.

The economics of the United States, Germany, South Korea, and Japan are “old world” examples of this type of market.  The new generation ‑ Brazil, Chile, India, Indonesia, South Africa, Kenya, and of course China – has a high potential for rapid adoption of cleantech, including renewable energy, fuel cells, and advanced batteries.

Together these Tier 2 economies represent billions of dollars in potential revenue for cleantech companies, but they are not pots of gold.  The people of these countries are looking for partners to create local wealth , not multinationals that want to leverage the market and export the wealth.

Shifting from exporting to local production will require extra resources, a deep and realistic understanding of the markets, strong IP protection, and a high degree of flexibility.  Those who succeed will find new partners, rapidly growing markets, and access to highly educated workforces.  Those who fail will have to face the economic reality of limited markets with limited growth potential.


New Technologies Boost Fuel Economy

— March 26, 2013

While battery electric and hybrid vehicles are slowly gaining in popularity, they show no signs of becoming a significant portion of vehicle sales in the next several years.  Automakers, meanwhile, are busy exploring other aspects of vehicle design that will improve fuel efficiency.  Below is an update on some of these approaches:

Better Aerodynamics.  At speeds of 30 mph or less, aerodynamic performance has a minor impact on fuel efficiency.  Once freeway speeds are achieved, though, the energy needed to push the vehicle through the air dominates other factors.  Because drag is proportional to the vehicle cross-sectional area, the coefficient of drag (Cd), and the velocity squared, less energy is needed to maintain speed of smaller and smoother cars.  Significant improvements were measured on VW’s new XL1 hybrid when the conventional door mirrors were replaced with tiny cameras that projected the rear side view on to a small screen on the door where the mirror would normally be.

Reduced Mass. The energy required to overcome inertia and accelerate a vehicle is a function of its mass, so heavier vehicles need more energy to get them moving.  They also have to dissipate more energy to slow down and stop, which means bigger and more powerful brakes.  Electric vehicles with large and heavy battery packs suffer particularly in this department.  Automakers seeking to produce lighter vehicles face two big problems: alternative, lighter materials such as aluminum and carbon fiber are more expensive and often harder to work with, and lighter vehicles have to be stronger to keep the occupants safe from impact with heavier vehicles.

ICE Technology. The internal combustion engine continues to get incrementally more efficient.  Turbocharging and supercharging are now used for economy as well as performance, and features such as direct injection and higher compression have migrated from diesel engines to gasoline.  Downsizing the engine’s volumetric capacity without sacrificing performance is now a realistic option, and cylinder deactivation allows fuel saving when cruising while maintaining full power for acceleration when needed.

Stop-Start. Sometimes labeled “micro-hybrid,” the ability to eliminate idling while the vehicle is stationary has the potential to save a lot of money for drivers in heavy traffic.  Stop-start technology requires other vehicle systems to be electrified, which in itself can improve fuel efficiency.  New stop-start systems in development will add an electric “crawl” mode to extend the fuel savings in slow-moving traffic jams.

All these technologies are being introduced as new models come to market, but the challenge for automakers is to incorporate features that offer customer benefits without the steep price premiums that hamper EV sales.

Some of these innovations face regulatory hurdles.  To launch its XL1 hybrid in Germany and Austria, Volkswagen had to get special government dispensation because it lacks conventional external mirrors. The XL1 is illegal to drive in other European countries and in North America.  For some new technologies to take hold, lawmakers must revisit certain existing restrictions on vehicle design.


Why California Will Lead the World on Microgrids

— March 25, 2013

Connecticut boasts the nation’s first law promoting the creation of microgrids.  But that small state is focused on microgrids that would run on fossil fuels, providing fuel cell companies with new markets for their products.  In California, the primary drivers for microgrids are aggressive plans for renewable energy deployment, both at the wholesale level and at the distribution level.  As a result, two of the state’s investor-owned utilities (Southern California Edison and San Diego Gas & Electric) view microgrids as a potential remedy for a future power grid that could be much less robust than today’s – one that is highly susceptible to swings in solar and wind power production and corresponding voltage spikes and sags.

The Microgrid World Forum, which took place in Irvine, California, provided further evidence that the Golden State may soon emerge as the hottest market for this technology platform in the United States and perhaps the world.  Bob Foster, chair of the California Independent System Operator (CAISO), which manages the state’s high-voltage power grid, noted that “microgrids are the answer” to the following challenges facing the world’s 9th largest economy:

  • A state Renewable Portfolio Standard (RPS) that requires 33% of the state’s total electricity comes from large-scale renewable resources by 2020
  • Regulations forcing the retirement of “once through cooling” fossil plants that pepper California’s 840-mile-long coast and that could help integrate variable renewables
  • The nation’s highest per capita deployment of distributed solar photovoltaic (PV) systems (in San Diego)

California is also expected to lead the United States in deployments of electric vehicles (EVs), with as many as 200,000 on the road by 2020 – each representing the equivalent load of one and half homes.

Consumer Benefits

As a new report entitled Market Data: Microgrids from Navigant Research points out, North America is expected to lead the global market for microgrids over the next 7 years.  Already, California hosts many leading microgrids in the region, including the ones at the University of California-San Diego and the University of California-Irvine.

Total Microgrid Revenue by Region, Average Scenario, World Markets: 2013-2020       


(Source: Navigant Research)

A former executive at Southern California Edison (SCE), Foster stated that, “Consumers must benefit financially from reducing their energy costs.  We want to meter everything, that’s the goal, and have state ratepayers pay as they consume.  If they don’t go down that path, utilities as we know them are dinosaurs.”  Unfortunately, microgrids face challenges in California that include strong resistance to dynamic pricing from the California Public Utilities Commission (CPUC), just one testament to an opaque state regulatory process.  California has four major state entities governing energy, and they often conflict over the best way to achieve aggressive policy goals.

Foster acknowledged that it may take another decade for the regulations to align for microgrids.   “Today’s California wind fleet often generates at peak capacity at 1 a.m. in the morning,” he pointed out.  “These facilities and sometimes get paid not to generate!”  Nevertheless, by 2020, he forecasts that the state’s EV fleet will be soaking up this clean capacity, and early investments in renewable and transmission capacity will start to pay off.  In the end, Foster concluded, what California’s microgrids need  is an innovative financial model for microgrids – “something similar to what the solar lease model did for solar PV.”


Simplicity, Lower Prices Keys to EVSE Sales Growth

— March 25, 2013

More than 7.5 million plug-in electric vehicles (PEVs) will be sold between 2013 and 2020, according to Navigant Research forecasts.  All of those vehicles need to be charged somewhere, which is why the electric vehicle (EV) charging supply equipment market has attracted more than 120 companies, large and small.

These vendors would like each new PEV owner to buy a home charging unit.  Due to a variety of factors, though, the percentage of consumers that choose to do so in future years will shrink.  According to Navigant Research’s 2012 Electric Vehicle Charging Equipment report, the portion of PEV buyers that will purchase a residential charging station will fall from 63% in 2013 to 47% in 2020.  The primary factors influencing this decline include:

  • Increasing sales of plug-in hybrid vehicles (PHEVs) with smaller battery packs that can be fully charged via a standard 110-volt outlet overnight
  • A greater share of PEV owners living in multi-unit dwellings without dedicated parking spots
  • Increased reliance on workplace and other public charging

As the relative sales of residential electric vehicle supply equipment (EVSE) go down, sales of commercial (non-residential) EVSE will by necessity rise.  The chart below illustrates that annual global sales of commercial EVSE will grow to more than 1.5 million units annually while residential EVSE sales will rise to less than 823,000 units.

Residential and Commercial EVSE Unit Sales, World Markets: 2013-2020


                                                                                                 (Source: Navigant Research)

To reach the forecast volume of residential EVSE sales, the cost of purchasing and installing a home charger must go down.  We are starting to see residential EVSE priced in the $600 to $650 range for basic units; the average selling price should fall below $500 by 2016.

Simplify, Please

EVSE maker AeroVironment is reducing the immediate financial impact of buying and installing a residential EVSE by working with dealers to bundle the EVSE cost into the vehicle’s purchase cost.  Through the program, dealers approve potential customers for financing above the price of the vehicle and the EVSE, warranty, and installation costs are added as a capital item.  AeroVironment is launching the program with dealers selling the Nissan LEAF and will expand it to dealers of other brands over time.  The company expects the installation to take 4 days or less, including the time for an inspection.  AeroVironment will also be busy installing residential EVSE in California.  The California Energy Commission recently granted AeroVironment $2 million to install 770 residential EVSEs across the state.

Depending on which state or city an EV owner resides, the permitting process can be a lengthy and onerous process for purchasers and electrical contractors.  According to Navigant Research’s recently published Electric Vehicle Supply Equipment Permitting report, some regions allow a permit to be filed online and offer same-day inspections.  In other places, differences in city and county rules can significantly slow the process.  Currently, very few states have attempted to standardize the process.  Yet, for sales of EVSE to grow as forecast, more states will have to simplify the process.


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