Navigant Research Blog

In Korea, Wireless Charging Takes the Bus

— August 29, 2013

Wireless charging is a technology that attracts more public attention than its actual use would seem to warrant.  This week saw breathless reports that the Droid 5 might include wireless charging capability and GM plans to put a wireless charging mat into its 2014 models for mobile devices.  In the electric vehicle (EV) market, Bosch introduced the first aftermarket wireless charger for EVs in the United States during July, the Plugless charging system.

In some ways, EV wireless charging seems superfluous.  We already have good charging technology: the plug and cord.  It works, it’s safe, it’s easy to use, and it’s affordable.  It seems counterintuitive to replace that with more expensive technology when you’ve got a market already limited by high prices for the cars themselves – unless that extra cost gives you some significantly higher utility.  As we have discussed earlier, developers argue that wireless charging can be a market enabler for EVs – by upending the range versus charging time dilemma.  EVs would be charged frequently, throughout the day, allowing OEMs to downsize the battery without sacrificing performance.  Once the initial investment in wireless capability has been made, adding new charge pads would be cheaper than adding more charging boxes.  But, as noted in the Navigant Research report Wireless Charging Systems for Electric Vehicles, it will likely take many years for the plug-in EV (PEV) market to make this shift.

A new demonstration project in Korea presents another angle in the wireless charging argument.  The Korea Advanced Institute of Science and Technology (KAIST) is running two electric buses equipped for wireless charging … while operating.  KAIST engineers built a 7.5-mile charging mat on a 15-mile transit route at a cost of $4 million.  The two buses reportedly have batteries that are just one-third the size of a regular electric car battery.

In this case, the argument is that wireless charging can extend the effective range of battery buses while lowering the cost of the buses, since they use smaller batteries.  Range and cost are serious limitations for battery buses, more so than in the passenger car market.  As forecast in Navigant Research’s report, Electric Drive Buses, battery buses will constitute well under 1% of transit bus sales for the next several years, with sales in the thousands from 2014 on.  Key reasons for this are the higher price, lower passenger capacity, and reduced range, all of which limit the utility of battery buses for transit operators.

Annual Battery Electric Bus Sales by Region, World Markets: 2012-2018 Lisa's blog C7.5

(Source: Navigant Research)

In effect, the KAIST wireless system would be like having a light rail or trolley line, only without the overhead lines that many consider an eyesore.  The drawback is that the wireless charging equipped bus is tied to an exact route.  The transit operator loses the flexibility that a battery bus can provide, compared to a trolley or light rail system.  For the near term, the best application may be on well-established transit routes that are not likely to shift over time – for example, routes in urban centers where cities want to reduce emissions and noise, such as downtown malls.  The technology may eventually be incorporated in the planning process for new roadways, allowing widespread deployment of the wireless charging that would give transit operators more flexibility in designing routes.  But this seems a long way off.  In the meantime, KAIST says it will add 10 more buses to the route in 2015, if this first trial is a success.


Shai Agassi’s EV Lessons for Big Auto

— August 28, 2013

Shai Agassi, founder of the now defunct Better Place, has published two articles on LinkedIn offering advice to the mainstream automotive market on beating Tesla in the battery electric vehicle (BEV) market.  In his first article, Agassi takes a bit of a jab at General Motors, which has set up a team to study Tesla’s success, ultimately offering four key lessons that the “Big Auto” manufacturers should be learning from Tesla:

An electric car is an object of desire.

This assertion is fairly easy to agree with, although, having driven a Mitsubishi I-MiEV and Think City, I think it’s safer to say that an electric car CAN be an object of desire, just as I’m sure Nissan believes its Leaf offers “more of a car for less cost than comparable gasoline cars.”

An electric car is a modern appliance.

Frankly, I bristle at the thought of a vehicle targeting “appliance” as a status, even if we are specifically referring to its ability to be upgraded.  Having driven transportation appliances (a 1983 Dodge Aires K, anyone?), no “object of desire,” regardless of its upgradability, should be targeting appliance status.  At any rate, Agassi points to the car as more similar to a smartphone than a refrigerator, claiming that EVs will see both hardware and software updates (though by “hardware” he appears to mean only the battery).  But comparing a BEV to a cell phone is a double-edged sword: sure, they’re upgradeable, but ask anyone in line this fall for the new IPhone 5 S (or C or 6 or whatever they may call it) what they are replacing and you probably won’t find many (any?) first-generation iPhones.  The first-generation iPhone came out in 2007 with 2G speed.  A new battery and software update won’t make it comparable to the next iPhone.  In other words, a 10-year-old Model S may age well from the curbside, but even with a new battery and software updates, it will still be a 10-year-old car, with worn seats, dinged doors, older processors, and an aging road feel.

An electric car is Moore’s Law on wheels.

In his second article, Agassi argues that because of this Moore’s Law effect on the battery costs, the batteries should not be included in the cost of the car.  Although Moore’s Law is not really an apt comparison (I can’t figure out how a 8% price decrease per year is comparable to doubling computing power every 2 years), Agassi claims that batteries are more like gasoline and shouldn’t be part of the price.  This leads directly into his final point:

An electric car drives – and sells  differently.

This may be his most important point.  EVs require changes to consumer behavior, plus a sales force that understands the challenges in making comparisons to gasoline vehicles both in equipment and costs.  This is truly a different selling proposition than most dealers are used to, and the deck is stacked against EVs because the goal of dealers is to move the metal.  I agree with Agassi that the path of least resistance for traditional dealers is to push potential buyers to what they know (particularly as gasoline prices fall).  Unfortunately, as Tesla has learned, the legislative landscape isn’t as accepting of direct sales as Agassi would have one believe.  Additionally, manufacturers have dropped niche brands over the years at great expense, so it’s hard to picture the business case within Big Auto for building a new niche brand around a handful of products to sell directly to consumers.

Telsa has been on a roll with the Model S.  It’s an amazing vehicle that is clearly causing consternation in Detroit (and Tokyo and Stuttgart, for that matter).  But Agassi should recognize that Tesla’s success should not be confused with success for the entire segment.  I have confidence that Big Auto can build an object of desire, upgrade it, and figure out the economics to make it attractive.  What Agassi understates is that Tesla has done a very good job of identifying a niche that was open to new vehicle brand and product.  Big Auto will need to do the same.



As Markets Soften, EnerNOC Diversifies

— August 28, 2013

In early August, EnerNOC announced second-quarter revenue of about $36.2 million, up 8.7% from the same period last year.  The provider of demand response (DR) expects to generate between $360 million and $400 million in revenue for the full year of 2013, reaffirming its earlier guidance.  However, the company reported a net loss of $34.4 million, higher than the $29.3 million net loss in the same quarter in 2012.

Even though EnerNOC ended the quarter with $102 million in cash and anticipates that this will be its fourth consecutive year of positive cash flow, the expanding losses do not bode well for this major provider of curtailment services.  Are these losses a sign that EnerNOC is facing weakening business prospects?  Because of the company’s significant involvement as an aggregator in PJM’s capacity market, its revenues have been seriously affected by the sharp drop in prices in PJM’s capacity auction, held in May for the 2016/2017 delivery year.  Flat demand growth for electricity, new generation from natural gas, and substantially increased imports of power, primarily from MISO, resulted in lower capacity prices across most of PJM’s territory.  For example, in one region, the price decreased from $357 per megawatt-day (MW-day) in the 2015/2016 delivery year to $114.23/MW-day in the 2016/2017 delivery year.  According to EnerNOC, the company’s revenue opportunity from PJM declined as much as 55% this year compared to revenues cleared in PJM’s 2015/2016 auction in 2012.

On the Beach

Realizing the potential for continued profitability losses and sluggish revenue growth opportunities, EnerNOC has made a wise move to adopt a strategy to further diversify its business.   While the company is actively pursuing new DR opportunities in the United States and Canada, it has also been actively expanding its business internationally, more specifically in the United Kingdom, Australia, and New Zealand, to capitalize on these emerging and fast-growing DR markets.  To this end, EnerNOC has developed several new product features, such as the internationalization of its technology platform for non-English-speaking countries.  Navigant Research’s report, Market Data: Demand Response, estimates, for example, that Asia Pacific will have nearly 294,000 sites (residential and commercial and industrial) participating in DR in 2013 and will enjoy the fastest growth rate of any region with a 2013-2020 CAGR of 21%. Undoubtedly, EnerNOC will use its presence in Australia and New Zealand as a beachhead to penetrate other major countries in this region, such as China and Japan, which are actively pushing deployment of DR in their commercial and industrial sectors.


Distributed Generation Poses Existential Threat to Utilities

— August 24, 2013

To the list of industries at risk of complete obsolescence – which at the moment includes daily newspapers, government postal services, and men-only barbershops, among others – you can add U.S. power utilities.  The creeping sense of impending peril that has enveloped the power sector was made explicit earlier this year in a widely distributed, and remarkably candid, report from the Edison Electric Institute entitled “Disruptive Challenges.”

Warning of “irreparable damages to revenues and growth prospects” of utilities due to the spread of distributed power generation from renewable energy sources, the report foresees “a day when battery storage technology or micro turbines could allow customers to be electric grid independent.”  The result: a “cycle of decline [that] has been previously witnessed in technology-disrupted sectors (such as telecommunications) and other deregulated industries (airlines).”

A Bloomberg BusinessWeek story last week put an even finer point on it: “In about the time it has taken cell phones to supplant land lines in most U.S. homes, the grid will become increasingly irrelevant as customers move toward decentralized homegrown green energy.”  NRG Energy CEO David Crane told the magazine that microgrids, small wind and solar, and net metering constitute “a mortal threat to the existing utility system.”

In the Kubler-Ross end-of-life model, U.S. utilities are still mostly in the denial stage.  Utility executives spend a lot of time these days decrying government subsidies, particularly for rooftop solar.  To be sure, several big utilities have at least hedged their bets by investing in alternative forms of power generation; Duke Energy, for example, entered the renewables business in 2007 and has built some 1700 megawatts of renewable capacity since then.

Sabotage in the Suburbs

Gloomy prediction aside, it’s worth remembering that this transition is sure to be prolonged, that the utilities, in their respective regions, often enjoy quasi-monopolies, and that they have ample resources, both financial and political, to draw on to protect their positions.  Power from wind and solar still accounts for less than 1% of the electricity generated in this country.  Southern Company has a market cap of $37 billion.  This is not a sector that is going to meekly fold its tents and retreat.

Think of Big Oil.  The “End of Oil” has been forecast now for decades, and oil consumption in many developed countries peaked in 2007 and has not yet reached those heights again.  It may never.  Nevertheless, the shale gas boom has given petroleum companies an unforeseen boost and many major oil producers are enjoying record profits.  The forces at work in the utility sector are very different (for one thing, technology advances, which are fueling the current oil and gas boom, are likely to work against utilities, not for them), but in times of upheaval and transformation, incumbents tend to do well, at least for a time.

What’s more, the recent glowing news in the renewables business, which has seen prices for solar power approach grid parity as adoption by consumers, encouraged by no-money-down leasing arrangements, accelerates, is not guaranteed to last.  In fact, there are indications that solar markets in key states are slowing, as prices drop to levels unsustainable for providers.  “It is getting difficult to deliver a good product and still be profitable,” an executive with REC Solar told Greentech Media last week.

At the same time, the industry is fighting a delaying action on the policy front.  “The future of net metering in Arizona is under attack,” reported last week, “with the state’s largest electric utility Arizona Public Service (APS) proposing changes that undermine cost benefits for residential solar installations.”

Pushing back on net metering, investing in renewable capacity, and building new fossil-fuel plants are likely to buy the utilities some time.  And they may just figure out how to thrive in the new era of distributed generation.  But the threats they face are not going away – and they’re not just economic.  The FBI said last week it is investigating an act of industrial sabotage in Arkansas, in which an unknown monkeywrencher climbed a 100-foot transmission tower, cut a supporting cable, and brought down a 500-kilovolt power line.  That’s at least the second instance of destruction of utility transmission infrastructure this year.  When suburbanites putting solar panels on their roofs are joined by nighttime saboteurs, it might be time to rethink your business model.


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