Navigant Research Blog

New York Details Its Vision for the Future of Energy

— March 2, 2015

On February 26, the New York Public Service Commission (PSC) released its long-awaited Phase 1 Order on its Reforming the Energy Vision (REV) proceeding. The order lays out the PSC’s vision for how the future retail electricity market in the state should operate to maximize efficiency, improve reliability, engage customers, and create clean, affordable energy products and services. I can’t cover the entire 328-page order in one blog, but I’ll hit on the major decisions that affect the current utility world order.

The biggest variable in the REV equation was whether the PSC would require an independent party to perform the function of the distributed system platform (DSP), the central role of REV. According to the order, the DSP’s functions include load and network monitoring, enhanced fault detection/location, and automated voltage and volt-ampere reactive (VAR) control. That list covers a lot of what the utilities currently do, so taking those tasks away from them would have caused a major shift in the market landscape. However, the Phase 1 Order outright supports utilities acting as the DSP as a way to minimize the redundancy of actions. This singular decision vastly limits the potential impacts to the state and the utilities. Utilities must be breathing a sigh of relief.

Metering Alternatives

A second thorny issue was whether utilities should be able to own distributed energy resources (DER) or whether DER should be the sole domain of the competitive marketplace. Many market players wanted to prohibit the utilities from competing with them when they might have a natural advantage in acquiring customers. Under the order, utilities will be able to own DER if they run a solicitation to meet a system need and they are able to show that competitive alternatives are inadequate or more costly than a traditional infrastructure alternative. They will also be able to invest in storage to the extent it functions as part of the transmission and distribution (T&D) system. This seems like a reasonable compromise that should work for most parties.

The last major component is advanced metering infrastructure (AMI). Earlier communications from the PSC hardly mentioned metering at all, so it was unclear how the final rule would play out. In fact, the Phase 1 Order does not mandate AMI deployment by utilities. Rather, the PSC prefers the term “advanced metering functionality” (AMF)—meaning that other technologies, including ones provided by third parties, may be able to achieve the desired functionality cheaper and more efficiently than AMI. It states that “each utility Distributed System Integration Plan (DSIP) will need to include a plan for dealing with advanced metering needs; however, plans that involve third party investment may be preferred over sweeping ratepayer funded investments.” This indicates that utilities should consider AMI alternatives before choosing a path forward.

Ticking Clock

As far as next steps, the utilities’ integration plans must be filed by December 15, 2015, so the clock is ticking. Phase 2 of REV will consider reforming the PSC’s ratemaking process so that utilities do not have disincentives to further developing DER. Utility income is tied to bond funds now, but they should depend more on creating value for customers and achieving policy objectives. A draft proposal is expected by June.

It was interesting trying to guess which way the PSC would fall on these and other major issues. Now the real fun begins: implementing the vision.

 

Chevy Bolt Could Break Open the EV Market

— February 27, 2015

With GM’s announcement at the Chicago Auto Show that the Chevrolet Bolt battery electric vehicle (BEV) design concept would go into production, one of the biggest surprises of January’s North American International Auto Show became a reality just 1 month later. Although GM officials declined to comment on specific production timing, it’s now certain that the Bolt will be the automaker’s next BEV.

What makes the Bolt so important to GM and the auto industry as a whole is the targeted specification and price point. GM CEO Mary Barra quoted an electric driving range of at least 200 miles for the Bolt and a price of $30,000 after federal tax incentives. According to Navigant Research’s report, Automotive Fuel Efficiency Technologies, non-gasoline and diesel vehicles (including BEVs) are expected to account for less than 4% of light duty vehicle sales in 2024. If GM can execute on its goals, this car could break the market open and become a truly mainstream-acceptable BEV, with a price tag right in the heart of the market and battery capacity that should alleviate virtually all range anxiety.

Room for Five

According to KBB.com, at the end of 2014, the average transaction price of new vehicles in the United States reached $34,367. Recent media reports have indicated that production of the Bolt could start at GM’s Orion assembly plant north of Detroit by the end of 2016 or early 2017. By that time, the Bolt’s projected $38,000 sticker price won’t be much more than the average. Combined with the low operating costs of a BEV, that makes the Bolt a very attractive consumer financial package.

Another potentially critical argument in favor of the Bolt is its form factor. In recent years, American consumers have increasingly been migrating away from cars to crossover utility vehicles (CUV), particularly compact and midsize models such as the Chevrolet Equinox, Honda CR-V, and Ford Escape. With its taller CUV-style body and underfloor battery pack, the Bolt concept appears to offer ample room for five people—something that cannot be legitimately claimed for the Volt.

Rival Rides

The second-generation Nissan LEAF and the Tesla Model 3 are likely to be the primary competitors to the Bolt. With more than 150,000 sales to date, the LEAF is the best-selling plug-in electric vehicle (PEV) of all time. A new model is expected in 2016 with a projected range of about 150 miles. Meanwhile, Tesla CEO Elon Musk has promised the Model 3 by 2017 with a price of $35,000 before incentives and a 200-mile range. But the company’s new $5 billion Gigafactory battery plant, which will supply the Model 3, is not scheduled for completion until the end of 2017. It seems unlikely that the new car will arrive much before then. Tesla also has a history of mixing and matching numbers, claiming range specifications for high-end models along with entry-level prices. The $35,000 Model 3 is likely to deliver significantly less than the 200-mile range claimed by Musk.

GM has a major opportunity with the Bolt to make an impact in the EV market that the Volt has so far failed to achieve. Navigant Research will be watching the development of this car very closely over the next several years.

 

How the Internet of Things is Changing Healthcare

— February 25, 2015

Much talked about in the energy efficiency sector, the Internet of Things (IoT) refers to a world where everything from lamps to HVAC systems to entire grids will one day be connected. The concept has gained traction in recent years, but deployments remain modest. Only an estimated 1% of the world’s buildings use systems to control and network lighting, and only 7% of commercial building lighting is operated using smart controls.

However, controls products offer huge energy consumption savings opportunities. Enlighted Inc., one lighting controls vendor, claims that its wireless sensor system can cut commercial building energy consumption by 50% to 75%. In an environment where healthcare costs are predicted to increase by 6% annually for the next decade and uncertainty lingers concerning the Affordable Care Act, cost-savings opportunities like that are enthusiastically welcomed.

Update Needed

In the healthcare sector, IT investments increasingly emphasize connectivity and networked systems. Networking enables healthcare systems to lower costs while improving patient experiences and facilitating an advanced degree of care customization. Particularly in the United States, where the cost of patient discharge is about $18,000 (versus $6,000 in other developed nations), networked systems can dramatically cut administrative costs.

One of the greatest benefits is the ability to test and diagnose devices remotely. This can help to reduce device downtime and avoid unexpected breakdowns, thus avoiding shutdown costs and patient rescheduling. Connected devices, such as MRIs, CT scanners, and lab test equipment, can signal when critical operational components are being depleted.

Efficient scheduling is another benefit of IoT technology in healthcare facilities. By leveraging utilization statistics, hospital employees are able to optimize equipment use and avoid over-scheduling procedures.

Seeing the Patterns

The expanded capabilities of smart, connected products and the data they generate are becoming necessary in the increasingly competitive healthcare sector. In addition to cost-cutting benefits, the IoT is opening extensive opportunities for improved operational efficiency and patient satisfaction. This emerging Internet of Healthy Things is composed of apps and hardware that promote positive health outcomes and focus on preventive healthcare for individuals. For example, Fitbit’s wearable device captures health-related data, such as sleep patterns, activity levels, and other personal metrics, to provide a complete picture of behavior and baseline vital signs. Medical device companies offer home health-monitoring systems that allow physicians to remotely monitor their patients’ clinical status. For example, Propeller Health’s asthma and chronic obstructive pulmonary disease (COPD) tracker allows a doctor to remotely monitor patients’ symptoms. Other apps exist to monitor a range of other health issues, including diabetes.

Although the healthcare sector has been traditionally slow to embrace new technology, the IoT offers improvements for both facility management and individual patient care. As tele-health and other in-home care options continue to expand, IoT-enabled devices can enable progressive hospitals to remain competitive—and improve outcomes.

 

Oil Price Retreat Could Spur Government Action

— February 24, 2015

Although the oil market has been historically volatile, the circumstances of the latest price dive suggest that low oil prices may be the new norm. If that’s the case, it could negatively affect both oil companies and the markets for clean transportation technologies like alternative fuel vehicles (AFVs).

Because of U.S. and some state government policies that mandate automakers produce more fuel-efficient vehicles and/or AFVs, low oil prices mean that it’s more expensive for automakers to improve fuel efficiency and produce AFVs to make these vehicles competitive with less fuel-efficient, and less costly, conventional vehicles. If they don’t absorb these costs, they’ll likely wind up paying penalties for being out of compliance with fuel efficiency standards and AFV mandates.

Raise the Tax

Federal and state government subsidies and incentives for AFVs provide some insulation from these costs. Yet, these policies were designed in an environment where oil prices were 30%–50% higher than they currently are. More recently, two policies have been proposed that would be beneficial to automakers seeking to comply with stringent fuel efficiency standards and AFV mandates. The first is an increase in the gas tax; the second, an increase to the U.S. federal incentive for plug-in electric vehicles (PEVs) and the inclusion of natural gas-powered vehicles in that incentive.

The federal gas tax is currently 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel. The tax, which has not been increased since 1993, is used to fund the repair and update of U.S. roads through the federal Highway Trust Fund. In recent years, the fund has been on the brink of insolvency but kept afloat by stopgap measures that provide money from the U.S. general fund. The current proposal, which would increase the tax by 5 cents per gallon over the next 3 years, would provide $210 billion over the next 10 years. The following chart shows the effect the proposal would have on the average U.S. price of gasoline over the next 10 years if oil prices rise to $90/barrel by 2025.

Gas Prices Under Increased Tax Proposal, United States: 2002-2025

(Sources: Navigant Research, U.S. Energy Information Administration)

Getting Flexible

The federal incentive for PEVs currently maxes out at $7,500 per vehicle and is accessed by the PEV owner when they file taxes for the year they bought their PEV. Of note, a PEV owner has to accrue at least $7,500 of taxable income to receive the max incentive. The White House has proposed to increase the incentive to $10,000 per vehicle, provide it as a point-of-sale rebate, and include natural gas-powered vehicles as eligible. The point-of-sale rebate would enable AFV buyers to incorporate the incentive into monthly payments upon purchase and receive the full incentive irrespective of their income.

The effect of both policies would make AFVs more competitive with conventional vehicles on an energy cost basis and open AFVs up to a larger, lower-income market, making it much easier for automakers to comply with federal and state fuel efficiency programs. This is not the first time these policies have been proposed, and it’s likely they’ll meet similar fates as their predecessors. However, low oil prices do introduce a new dynamic that may provide some flexibility in Congress, as well as increased pressure from interest groups that may create the necessary support.

 

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