Navigant Research Blog

July Proved a Pivotal Month for Renewable Power

— August 3, 2015

The news stream started early on July 3, when the German government published a white paper presenting its proposal for power market reform known as Strommarkt 2.0, or Electricity Market 2.0. The proposed reform is focused around three ideas: the energy supply must be reliable, it must be environmentally friendly, and it must be cost-effective–even with a growing share of wind and solar power.

To achieve these focuses, the white paper proposed 20 pillars to support the new market. The most important are that the price is set by a free market, there is constant monitoring of the security of supply, that there will be the introduction of a capacity reserve (but not a capacity market), and that the power market will evolve to be balanced.

While the proposal does not impact renewables directly (Germany has been actively tweaking its incentives in the last 2 years to reduce impact on electricity bills), it does introduce the flexibility necessary to allow further growth of renewbales in the country, which is a must if the country wants to meet its 80% renewables target in 2015.

More News

A couple weeks later, on July 17, the European Union (EU) Commission proposed a new regulatory package that set the stepping stones of its EU strategy. While most of the proposal is geared toward empowering consumers so they can make better decisions affecting their energy consumption, it also advocates for a new single-market design at the European level that will add flexibility to the system to facilitate the expansion of renewables, promote cross-border competition, allow decentralized electricity generation (including for self-consumption), and support the emergence of innovative energy service companies.

And a few days later, on July 22, in the United Kingdom, the U.K. Department of Energy and Climate Change (DECC) announced a revamp of its solar and biomass policy support, ending solar feed-in tariffs for projects under 5 MW (projects above 5 MW were not eligible). DECC also said that it will remove subsidies that had been guaranteed to new biomass conversions and co-firing projects, including existing plants that were intended to burn higher shares of biomass. Finally, DECC announced it would delay new Contract for Difference tenders indefinitely.

Meanwhile, France announced a significant shift in its energy policy. On July 23, the French National Assembly approved its energy transition law. In it, the country announced that it will reduce its reliance on nuclear energy to 50% of its generated power by 2025, from 75% today, capping its nuclear power installed capacity at 63.2 GW. The country also set the share of renewable energy at 32% of its demand. In addition, France introduced a long-term target for carbon tax. Currently standing at €14.50 ($15.90) per tonne, this tax will increase to €22 ($24) in 2016, then to €56 ($62) in 2020, rising to €100 ($110) in 2030.

Overall, with their new intents, the EU, Germany, and France seem settled in their way forward, while the United Kingdom’s energy  policy is consistent at being inconsistent. After all, it’s the third time it’s changed policies in about 5 years.

 

Smart Thermostats Helping To Grow Home Energy Management Market

— July 31, 2015

Home energy management has come a long way in recent years, and smart thermostats have been a significant portion of its increasing technology adoption.  Nest, ecobee, and Honeywell (to name a few) have created iconic and effective tools that have proven results for regulating the amount of energy used to heat and cool homes and small commercial spaces.  Some would suggest that these devices are well on their way to being adopted as mainstream (and not niche) tools for home energy management.

According to a market research report released this month by Parks Associates, the market for smart thermostats is expected to have composed 40% of total thermostat sales in the United States in 2015, which is estimated at around 10 million devices annually.  In 2017, greater than 50% of all thermostats will be smart thermostats.

According to the report, the majority of these devices sold will be via the retail channel, although significant numbers will also occur through HVAC contractor, Home Security/Automation, and Utility channels.

Assuming a mix of devices priced between $150-$250, with cost declining slightly year over year, and relatively linear growth in the overall market, this could mean a $1 billion to $1.3 billion opportunity in the United States alone.  No small figure.

Smart Thermostat Unit Sales, United States: 2013-2017

Smart Thermostats

(Source: Parks Associates)

Making a Case

Parks’ breakdown of the multiple sales channels show that retail is by far the fastest-growing channel, followed by HVAC. The chart also shows that utilities and home security/automation channels are expected to experience less upfront growth in the near-term.

This distinction between channels is helpful, but quite possibly one of the most interesting aspects of the smart thermostat market has been the overlapping of sales channels that has occurred recently.  Through Bring Your Own Thermostat (or BYOT) programs, utilities are looking at how they can decrease overall program costs, mitigate risk, and increase consumer choice by networking consumers’ pre-purchased devices into their demand response and energy efficiency programs.

Similarly, in Spring 2015, Commonwealth Edison (ComEd) incentivized Comcast Xfinity Home customers to sign up for Comcast’s Summer Energy Management Program, managed by EcoFactor (ComEd also incentivized Nest owners to sign up for that company’s Rush Hour Rewards demand response program).

As vendors in this market show no signs of decreasing their level of creativity in marketing these devices to consumers across different geographies and demographics, the market will continue to evolve.  In terms of overall home energy management, smart thermostats are just the beginning.  The recently published Navigant Research Leaderboard Report: Smart Thermostats provides a comprehensive overview of leading vendors, recent market activity, and both current and forward-looking market trends.

 

Water, Water Everywhere—But Not a Drop To Drink

— July 31, 2015

Floating islands are the stuff of fantasy novels, Kevin Costner movies, and Final Fantasy VI. They can also occur in nature, as a conglomeration of aquatic plants, mud, and peat. With current predictions by climate scientist James Hansen that the sea level will rise at least 10 feet in the next 50 years, living on floating islands might become a necessity sooner than we think.

Fortunately, manmade floating cities are becoming as vogue as tiny houses.  In fact, outside of Kampala, Uganda, a group of 10 artists have taken up chic residence on a chunk of land that broke away from the mainland and is floating around Lake Victoria. The artists have everything they could want—constantly changing scenery, serenity, grass huts, a fresh supply of lake water, and even some fairly soggy garden beds.

Not a Drop to Drink

When floating islands are in a lake, it’s easy to rig up a filter or a simple chlorination system to make water potable. But water supply is an extraordinary issue when living at sea. The Seasteading Institute, in partnership with the Netherlands’ DeltaSync, recently ended a contest for architectural designs of modular floating islands. Participants were encouraged to consider sources of energy, but the contest did not require a water treatment center. Unless the island is connected to a mainland water source, though, on-island treatment systems are necessary. Some private companies have already developed solutions to this salty problem. On a $6.5 million private floating island (really more of a yacht) made by the Austrian company, Orsos, water supply is guaranteed through an onboard reverse osmosis desalination system. But with current high energy demands of traditional desalination plants, and the high price of this private island, this doesn’t seem likely to be a sustainable solution.

Enter the DESalting Island on Renewable multi-Energy Supply, or DESIRES. DESIRES utilizes several renewable energy sources (eolian, solar, tidal, wave, and hydrothermal gradient) and large storage reservoirs to produce salt-free, potable water at a cost of $0.88-$1.32 per cubic meter. Even the largest, most efficient desalination plants running on shore cost around $1.62 to produce a cubic meter of fresh water. Further, the DESIRES system has a small footprint—a module between 0.06 square km and 0.65 square kilometers can produce enough water to supply a city of about 105 inhabitants. Further still, the system utilizes enhanced energy during storms to pump water, reducing its impact even further. However, the system is only in research phases right now. Real-world implementation could lead to more expensive and less efficient operation. In addition, the sheer number of renewable energy systems aboard the system could make the commercial capital cost quite prohibitive. Only time will tell whether the DESIRES system will be far more sustainable than traditional desalination technology.

But in the meantime, future denizens of the floating island rejoice!

 

Honeywell Steps into Smart Grid Fray with Elster Acquisition

— July 29, 2015

Honeywell’s purchase of smart meter maker Elster is a sign that the smart metering business still has some attractive runway for companies willing to endure the somewhat lengthy procurement process of utilities. The $5.1 billion deal gives Honeywell a solid global competitor for the next wave of smart grid investments.

The Deal

Honeywell is purchasing Elster from its current owner, Melrose Industries, a British investment firm that specializes in buying manufacturing businesses, turning them around, and selling them for a profit. In this case, Melrose did that after paying approximately $2.3 billion for Elster in 2012, suggesting a profit of nearly $3 billion. Melrose said it generated a 33% internal rate of return in the 3 years since acquiring Elster.

Here is what Honeywell is getting by purchasing Elster: a global manufacturer of gas, electricity, and water meters; communications equipment; and software solutions, including data analytics. It is also taking on about 6,800 employees of Elster, which is based in Mainz-Kastel, Germany. The company has operations in 39 countries, including the United States, the United Kingdom, and Slovakia. Honeywell is also taking on about $1.4 billion in pension liabilities.

Fits with Plans

While this move raises some eyebrows for its premium price, the acquisition fits with Honeywell’s stated plans last year that it would target some $10 billion to buy companies over the next 5 years. And while the smart meter business has slowed, particularly in the United States since federal stimulus money dried up, Elster has been active, picking up business in France as part of ERDF’s deployment of 35 million meters, and scoring a deal with CFE in Mexico earlier this year for about 300,000 meters. In addition, earlier this year, Elster launched an enhanced gird software platform called Connexo that integrates utility workflows, business processes, and grid data from multiple devices and vendors into a unified solution. According to Honeywell, Elster is attractive for several reasons: its high- and low-temperature burner products and residential heating components complement Honeywell’s existing business within its Environmental Combustion and Controls group; Elster’s presence in high-growth regions aligns with Honeywell’s strategy; and the existing Elster customer base presents an opportunity to cross-sell legacy products.

For Elster and its employees, the deal makes sense. Honeywell already has some synergies in the gas sector, and is no stranger to the way the utility industry operates. Elster’s electricity and water businesses give Honeywell a broader set of technologies it can leverage as those sectors grow in ways different from gas. Nonetheless, Honeywell will be facing some experienced meter manufacturers. Companies like Landis+Gyr, Itron, and General Electric are formidable global players, not to mention lesser known Chinese manufacturers, such as Holley Metering, that want to move beyond their domestic markets.  By acquiring Elster, Honeywell has the vehicle to be competitive now, and with skill can stay among the leaders as the market evolves.

 

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