Navigant Research Blog

Incentives Needed to Drive EV Sales

— July 3, 2012

Despite being in the midst of a financial apocalypse, California continues to find money to support the sale of electric vehicles.  The California Air Resources Board just approved an additional $27 million in incentives to spur sales of hybrid and electric cars and trucks.  The car rebates ($2,500 per vehicle) will put the price tag of the Leaf and Volt a bit closer to the price of comparable conventional models.

The high cost of being an early plug-in electric vehicle adopter has been one of the factors limiting vehicles thus far.  As shown below, according to Pike Research’s consumer survey data, the optimal price point for selling a PEV where consumers would feel that they were neither too cheap nor too expensive is $23,750, which is $10,000-$15,000 or so less than current PEV price tags.  It will likely take a few years to get there, once the cost of lithium ion batteries (which can add as much as $10,000 to the cost of a vehicle) goes down appreciably.  According to DOE Secretary Steven Chu, that could take up to 10 years

Electric Vehicle Price Sensitivity Analysis


(Source: Pike Research)

Tax credits are only one of the incentives that are being used to spur PEV sales, and that’s the topic of a session at the upcoming Plug-In 2012 conference in San Antonio on July 23-26 that I’ll be participating in.

For example, California’s granting of HOV lane access to the Chevrolet Volt has prompted a surge in sales in the state this year.  Other incentives include providing preferential parking spots, and free or low-cost charging at retail locations or at campus parking lots, such as at the University of Texas.  These combinations of incentives are key to driving sales at a local level, and I expect to hear more on this at Plug-in.

Trying to boost its flagging sales of the Leaf, which sold just 510 vehicles in the United States in May, Nissan recently dropped the price of a Leaf lease to under $300 per month.  A rebound in sales in June would help the company, which plans to begin manufacturing the Leaf in Tennessee at the end of this year.  Manufacturing the vehicles and assembling the battery packs locally rather than in Japan should help Nissan lower the cost of the vehicles in the United States.

Unfortunately for those down under, the government incentive that could have made the Leaf more affordable for Aussies was terminated, leaving a hefty price tag of $52,000 to drive electric.  On the other end of the spectrum (and the globe) is Norway, which has sufficient incentives to make the Leaf a top-seller.

 

Cleantech Funding Springs Back

— July 3, 2012

It’s easy to become discouraged about cleantech when headlines focus on one company after another that fails to make it work.  Frequently the issue is not technology, but rather management, the supply chain, or the business model.  Cleantech companies often have the added burden of creating value where there was none before.  Being visionary is riskier than being mundane.  Frankly, it’s surprising that more cleantech companies don’t fail.

Thankfully, there are still investors that are willing to bet on visionary and innovative solutions, particularly in energy.  Two well-known venture capital funds have been active in this space recently.  Braemar Energy Ventures announced that it closed its third fund, Braemar Energy Ventures III, LP, at the maximum amount of $300 million on June 19, 2012.  Blue-chip Silicon Valley VC firm Khosla Ventures, meanwhile, said it’s raising a fund called Khosla Ventures Seed B.  The firm’s first seed fund raised $300 million and closed in 2010.

These are on top of Goldman Sachs’ May announcement that it will create a $40 billion fund for cleantech investments.

What’s promising about these announcements is that, while the Braemar fund is focused on relatively mature, venture and expansion-stage energy technology companies, the Khosla Seed B fund will be focused on what the company terms “a crazy idea that may have a significantly non-zero chance of working.”  Not exactly a vote of confidence, but the purpose of the Seed B fund is to target very speculative technologies, aiming to hit it big.

Why are venture capitalists still funding cleantech?  Because the big picture, global challenges and opportunities have not changed.  There are too many people and too few resources.  It’s time we shared our prosperity with the 1.3 billion people living in extreme poverty. (Current data is difficult to come by; this figure refers to 2008 World Bank data for people living on less than $1.25 per day.)  Energy is the engine of growth.  For most of the developed world, cyber security has surpassed physical security as a primary concern.  Venture capitalists understand these challenges.  The purpose of Braemar Energy Ventures III is to “help deliver cleaner, cheaper, more efficient and reliable energy solutions.” Khosla Ventures is focused on several cleantech sectors, including alternative energy, energy efficiency, energy storage, and advanced materials.

Are there solutions that could address these big picture challenges in other ways? Certainly.  They just won’t be getting funding from Braemar III or KV Seed B or Goldman Sachs.  Being visionary still pays.

 

Fuel Cell Vehicles: Not Dead Yet

— July 3, 2012

In spite of many efforts to declare fuel cell cars dead, top automakers are moving ahead with plans to produce commercial fuel cell vehicles (FCVs).  That was one of the key messages from the World Hydrogen Energy Conference, held last month in Toronto.

Granted, it’s not surprising that a group of people willing to spend time and money to get together and talk about hydrogen are, in fact, bullish on hydrogen.  But from the automakers’ media panel, where representatives from Daimler, Toyota and Honda sat for a long Q&A with the press, and from the hydrogen plenary and a panel on hydrogen market demand that I participated in, it’s clear that companies are still committed to this effort even though there are real hurdles in the way.

The automakers once again stated their commitment to releasing commercial FCVs roughly in the 2015 timeframe.  Some are more specific than others.  Honda’s Steve Ellis said the Japanese maker has not announced a hard date, but the company is working on a full model change from its current offering, the FCX ClarityDaimler reiterated that it will have a next generation FCV on the road in the 2014/2015 timeframe, and Toyota gave 2015 as its target.

Even though they have been talking up this timeframe for a couple of years, to be honest, I was half expecting the manufacturers to start walking back their dates, since enthusiasm for FCVs in some parts of the world has waned.  But they did not.  What has been pushed back is the timeframe for large-scale uptake, which OEMs are now saying likely won’t happen until  close to 2020.

Daimler’s Christian Mohrdieck said his company plans to get the price of the fuel cell drivetrains down to around that of a diesel hybrid, through volume production and some materials cost reduction.  Here I think he is talking about platinum, and it would behoove the platinum industry to think about making that happen.  I don’t think Mohrdieck was including the cost of hydrogen tanks in this estimate, in which case you have to bump up the FCV price further.  Hitting a competitive price point is still a concern for OEMs, from what I see.

It’s clear that hydrogen infrastructure is still a thorny issue.  The three OEM representatives at the conference were unanimous that they should not have to foot the bill for infrastructure buildout.  Even though Daimler has partnered with Linde to build 20 stations in Germany, Mohrdieck referred to this a “triggering” signal of the company’s intent to produce cars that can use hydrogen fuel.  Toyota also noted that it’s partnering with energy and gas companies in Japan to build stations, which will be placed in the same regions where Priuses are popular.

From my conversations with hydrogen companies, it is clear that they’re enthusiastic about the potential market from fuel cells.  While they’ve been involved in building infrastructure, especially in terms of materials handling but also with early passenger cars and buses, the fact remains that distributed vehicle fuelling is not their traditional business.  Eventually retail gas station operators must step in if the FCV market is to become viable.  This is happening in Germany, where Total Germany is part of a new initiative to build 50 stations by 2015.

No one doubts the major obstacles ahead.  But the OEMs are spending a lot, in terms of money and reputation, to forge ahead with fuel cell cars.

 

Discreetly, Cleantech Policy Advances

— July 2, 2012

The Supreme Court (SCOTUS) and its role in the everyday lives of the America people has been on full display as the justices declined to hear the appeals case challenging the authority of the Federal Energy Regulatory Commission (FERC).  (Oh, and there was something about healthcare.)

What’s really on stage in the former case is the contrast between Congressional policymaking and the distinct authority of the FERC.  The Commission is driving innovation through relatively discreet policymaking that is developing new markets for the cleantech space, despite roadblocks and partisan wrangling in the U.S. Congress.

The strategic wielding of policy instruments, whether regulations, taxes, or subsidies, can encourage markets, and for cleantech technologies from solar to advanced batteries can change their value proposition dramatically.  The German feed-in-tariffs (FITs) – which were recently cut – developed one of the most robust markets for solar photovoltaics (PV) in the world; their success is likely to help PV reach grid parity in the next several years.  Conversely, subsidies in japan are just starting to kick off.

What’s unique about the United States’ approach is the long demonstrated preference for business-based market advances, rather than mandate-based advances (e.g., the European Union’s renewable energy directives).  The FERC’s role, and perhaps more accurately, that of chairman Jon Wellinghoff (as Forbes has rightly pointed out) is to open markets to competition and provide market parameters that reward technological innovation.  As a result, select segments of the power industry in the United States are undergoing dramatic changes through mechanisms like real-time pricing and pay-for-performance compensation.  While subsidies and government support aren’t completely absent in the U.S., these more discreet policy changes are enlivening the cleantech industry in more subtle ways.

Here is a highlight of recent developments that have resulted from the FERC’s regulatory authority:

  • The Electric Reliability Council of Texas (ERCOT) set a new wind power generation record, as wind supplied 17.64% of the system’s load.  (See FERC Order 888.)
  • Advanced batteries such lithium-ion chemistries are being deployed to provide frequency regulation services through lucrative business models – this AES Energy Storage project at Laurel Mountain Wind Farm is one of the largest installations in the U.S.  (See FERC Order 755.)
  • Energy efficiency is now counted as a viable generation resource and compensated as such through demand response programs.  Viridity Energy and others have spearheaded viable business models based on saving consumers energy.

The global cleantech industry is one still dependent on policy direction; but discretion is often the best policy.

 

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