Navigant Research Blog

Advanced Energy Is $1.13 Trillion Market

— April 11, 2014

The publication of the Fifth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC), Climate Change 2014: Impacts, Adaptation, and Vulnerability, made headlines recently with a familiar message: the climate is warming, people are causing it, and we are ill prepared to deal with the direct and indirect effects of climate change.

Indeed, it is a grim outlook, but when looking at one indicator not covered in the IPCC report – revenue from deployment of smart energy technologies – there are signs that things are moving in the right direction to reduce emissions.

One group, the Advanced Energy Economy (AEE), is a national association of businesses and business leaders who seek to make the global energy system more secure, clean, and affordable.  The group takes a big tent approach to clean energy.  It is bankrolled by one of the leading advocates and funders for the United States taking a leadership position in deploying clean energy, Tom Steyer.  AEE has identified seven core segments that make up the advanced energy industry: Transportation, Electricity Generation, Fuel Production, Electricity Delivery and Management, Fuel Delivery, Buildings, and Industry.

For the past 2 years, AEE has commissioned Navigant Research to quantify the advanced energy industry market sizes for the United States and globally.  We have identified 41 categories and 80-plus subcategories that meet the AEE definition and put the detailed findings and key trends in the recently released report, Advanced Energy Now 2014 Market Report.  Below are some key findings from the report that illustrate the breadth and depth of technologies that are capable of reducing emissions and U.S. activity in those markets.

Key Findings

  • The global advanced energy market reached an estimated $1.13 trillion in 2013
  • In the United States, the advanced energy market was an estimated $168.9 billion in 2013 – 15% of the global advanced energy market, up from 11% in 2011
  • Advanced transportation is booming: Navigant Research forecasts annual plug-in electric vehicle sales will reach approximately 467,000 vehicles in the United States and 80,000 in Canada by 2022 – slightly faster than hybrid electric vehicles sales grew in their first decade.
  • The United States accounted for an estimated 18% of the global solar PV market that approached $100 billion annually in 2013 and far surpassed 100 GW of cumulative installations in 2013
  • LEDs are expected to be the leading lighting technology over the next decade, with LED lighting products (including lamps and luminaires) in commercial building markets forecast to grow from $2.7 billion in 2013 to more than $25 billion in 2021
 

Innovation Is Booming in the Water Industry

— April 9, 2014

As part of the events to mark World Water Day, the United Nations (UN) has launched a new report highlighting the challenges of ensuring an adequate global water supply over the coming decade.  In particular, the World Water Development Report focuses on the growing interdependency of water and energy.  The report looks at the water industry’s energy requirements for production, distribution, and treatment, as well as at the growing demand for water resources from the energy industry.

We have written about the impact of the growing global demand for water before, but the World Water Development Report yet again highlights the challenges ahead.  According to the report, water demand will increase by 55% by 2050, with the biggest impact coming from the growing demand from manufacturing (400%), thermal electricity generation (140%), and domestic use (130%).  More than 40% of the global population is projected to be living in areas of severe water stress through 2050.

Countries, cities, and communities need to improve their ability to assess and plan for future water needs.  However, developing new water supplies, storage facilities, or treatment plants will remain a hugely expensive endeavor, and so the industry must look to technologies that can mitigate the need for capital investment by improving the efficiency of existing systems and maximizing the benefits of new investments.  For this reason, we are seeing a host of innovative technologies and solutions targeted at the water industry.  Entrepreneurs and developers from the IT, telecom, and smart grid sectors are now looking to water as the next industry where they can make a major impact on the way the business operates.  This opportunity is attracting a wide range of technology and service suppliers, including established water metering vendors, water network engineering companies, water service companies, infrastructure providers, IT software and service companies, and a variety of startups and innovators.

The recent World Water-Tech Investment Summit in London gave me a good opportunity to survey a range of companies.  Among a host of other innovators at the show were companies we looked at in our Smart Water Networks report, including TaKaDu, which has been pioneering the use of cloud-based analytics for leak detection.  Also present was i2O, which is providing water utilities with an intelligent pressure management solution that also uses cloud-based advanced analytics, but integrates them directly into the pressure management system.  Other companies new to me included Acoustic Sensing, a U.K. startup that has developed a new acoustic sensing solution to allow the rapid identification of structural defects and blockages in sewerage systems; Syrinix, another U.K. company that provides intelligent pipe monitoring systems for burst detection and pressure monitoring, among other applications; IOSight, an Israeli-based company providing advanced business intelligence and data management for the water industry; and Optiqua, which provides sensor networks for real-time water quality monitoring.

Keeping Afloat

While there is no shortage of innovation in the industry, it is still a challenge to find ways of investing in new technologies in a heavily regulated industry.  With no stimulus funding or mandated smart meter rollouts to boost the market, the industry needs to find other ways to finance innovation.  One option is the use of a software-as-a-service (SaaS) model to defer capital expenditures and reduce resource needs.  For example, both TaKaDu and i20 provide their software as a cloud-based service.  Innovative approaches to regulatory and investment programs will also be important.  In the United Kingdom, OFWAT is currently working with the country’s water utilities on the next regulatory pricing period, to run from 2015 to 2020.  The aim is to increase the ability of utilities to invest in water metering and other networks’ management technologies.

The smart water market is attracting a wide range of new players and presenting established players with the opportunity to expand their business into new areas.  Both sets of players face challenges in an industry that is hungry for change but also conservative in its operations and restricted in its financial options.  As stated in our Smart Water Networks report, while there are strong drivers for growth, the challenges of transforming a conservative industry faced with a physically and technically challenging deployment environment mean that the growth in this market will always be steady rather than explosive.  However, the direction of travel is clear.

 

Distributed Energy’s Big Data Moment

— April 9, 2014

As my colleague Noah Goldstein explained in a recent blog, the arrival of big data presents a multitude of challenges and opportunities across the cleantech landscape.  Within the context of distributed energy resources (DER), among other things, big data is unlocking huge revenue opportunities around operations and maintenance (O&M) services.

As illustrated by large multinational equipment manufacturers like GE and Caterpillar, big data represents not only a potential key revenue source, but also an important brand differentiator within an increasingly crowded manufacturing marketplace.  Experience shows, however, that capitalizing on this opportunity requires much more than integrating sensors into otherwise dumb machinery on the factory floor.

The recent tragedy of Malaysia Airlines Flight 370 brought international focus to the concept of satellite pings whereby aircraft send maintenance alerts known as ACARS messages.  These types of alerts highlight the degree to which O&M communication systems are already in place in modern machinery.  But Malaysia Airlines reportedly did not subscribe to the level of service that would enable the transmission of key data to Boeing and Rolls Royce in this instance.  Although data may be produced via a complex network of onboard sensors, it is not always collected in the first place.

The collection and utilization of big data is not necessarily as simple as subscribing to a service, however.  Today, the sheer volume of data produced by industrial machinery is among the main challenges facing manufacturers of DER equipment.

A Different Animal

Bill Ruh, vice president and corporate officer of GE Global Software Center, which helped lead GE into the big data age in 2013, describes the Internet of sensors as a very different animal than the Internet used by humans.  While “the Internet is optimized for transactions,” he explains, “in machine-to-machine communications there is a greater need for real time and much larger datasets.”  The amount of data generated by sensor networks on heavy equipment is astounding.  A day’s worth of real-time feeds on Twitter amounts to 80 GB.  According to Ruh, “One sensor on a blade of a gas turbine engine generates 520 GB per day, and you have 20 of them.”

Despite volume-related challenges, this opportunity proved too lucrative for GE to pass up.  Estimating that industrial data will grow at 2 times the rate of any other big data segment within the next 10 years, the company launched a cloud-based data analytics platform in 2013 to benefit major global industries, including energy production and transmission.

Similarly, Caterpillar is one of the latest industrial equipment manufacturers to recognize the value of streaming a torrent of real-time information about the health of products in order to generate new revenue.  Already integrating diagnostic technologies into its nearly 3.5 million pieces of equipment in the field, the company launched an initiative across its extensive dealer network aimed at leveraging big data to drive additional sales and service opportunities.  Currently, the company’s aftermarket business accounts for 25% of its total annual revenue.  As Caterpillar and other companies manufacturing energy technologies have realized, a healthy pipeline of aftermarket sales and service opportunities is of vital importance to market competitiveness in an increasingly competitive manufacturing landscape.

With distributed power capacity expected to increase by 142 GW according to a white paper published by GE in February, the addressable market for aftermarket DER data is rapidly expanding.  Despite these opportunities, data analytics still represents a mostly untapped opportunity for manufacturers of emerging DER technologies.  Allowing manufacturers and installers of everything from solar panels to biogas-fueled generator sets (gensets) to closely monitor hardware performance, better utilization of data has the potential to not only drive aftermarket service offerings, but also accelerate return on investment (ROI) through better optimization and greater efficiency.  And this is a highly valuable differentiator for a class of technologies still scrambling for broad grid parity.

 

Energy Systems Group Acquires Chevron’s Federal ESCO Unit

— April 8, 2014

On April 1, Energy Systems Group (ESG), a major U.S. energy service company (ESCO) based in Newburgh, Indiana and a subsidiary of utility holding company Vectren Corp., announced that it had acquired the federal sector energy services unit of Chevron Energy Solutions, a subsidiary of Chevron USA. The unit, which consists of 48 employees, will not only expand ESG’s projects and footprint but, more importantly, will also allow ESG to play in the U.S. federal government’s indefinite-delivery, indefinite-quantity (IDIQ) ESCO market.

That market was created in February 2009 when the U.S. Department of Energy (DOE) awarded 16 ESCOs with DOE energy savings performance contracts (ESPCs).  These 16 contracts allow the selected ESCOs to provide federal agencies with up to $5 billion of performance contracts each.  The program effectively prequalified the 16 ESCOs to perform energy efficiency services for many of the federal government’s largest facilities.

Narrowing the Competitive Field

Although ESG had been an active player in the federal ESCO market through other avenues prior to the acquisition, such as utility energy services contracts (UESCs – a twist on the traditional ESPC in which federal agencies procure performance contracts through their local utilities), the acquisition allows it to narrow the competitive field for large contracts offered only to ESCOs.  Given that the federal market represents one of the most promising segments in the challenging ESCO market, as Navigant Research wrote in its report, The U.S. Energy Service Company Market, the acquisition positions ESG to benefit from the full scale of the federal ESCO market. “The federal sector is one of our primary targets for growth in the coming years,” said Greg Collins, President of ESG, when I spoke with him.  “This acquisition strengthens our position in delivering on a wider range of federal opportunities.”

Note that other ESCOs have entered the federal market through acquisition.  For example, in 2007, SAIC (now Leidos) acquired BENHAM Companies to gain access to a broader swath of federal building customers (though, this was before the establishment of the IDIQ market).

The federal sector has been a key focus for ESCOs in the United States over the last few years.  While the municipalities, universities, schools, and hospitals (MUSH) market remains a challenge due to the winding down of stimulus funding for municipal performance contracts and concerns about municipal debt, ESCOs have patiently awaited the boost to the market that was initiated by the Better Buildings Initiative, the $2 billion federal performance contracting program announced by President Obama in December 2011.

So far, the program has fallen short of its goal of achieving the $2 billion in contracts by the end of 2013. However, initial signs in 2014 are promising.  Many of the ESCOs I work with are reporting a strong flow of federal requests for proposals (RFPs) and, in the first quarter of 2014, over $230 million of federal IDIQ ESPCs had been awarded. By contrast, in all of 2013, only $362 million was awarded.  In addition, the CEO of Ameresco, George Sakellaris, announced in his company’s 2013 fourth quarter earnings call in early March that federal government ESCO activity was high.  Therefore, 2014 is looking strong for the ESCO market and ESG will be in a much better position to address it in the wake of this acquisition.

 

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