Navigant Research Blog

Ford Targets Home Energy

— January 17, 2013

KyudoFord Motor Company intends to become your home energy management supplier one day – or at least try to.  The automaker announced a new effort at the Consumer Electronics Show (CES) last week in Las Vegas called MyEnergi Lifestyle, and the ensemble of players Ford has brought together for this project is impressive.

The companies joining Ford in MyEnergi include Eaton, SunPower, and Whirlpool.  Nest Labs and chipmaker Infineon are two other firms rounding out the group.  The goal is to show how typical consumers can significantly reduce electric bills by combining smart home appliances, cloud computing, solar panels, off-peak pricing, and plug-in vehicles.  Besides the car, which Ford would sell, the package of goods necessary for MyEnergi to achieve its goal includes:

  • Energy efficient appliances like refrigerators, dishwashers, and clothes dryers
  • Hot water heaters
  • Connected smart thermostats
  • Rooftop solar systems

Ford quoted a Georgia Tech computer model that predicts a 60% decrease in energy costs and a 55% cut in carbon savings from a typical home that adopts MyEnergi Lifestyle products.

That sounds impressive.  But so is the estimated price for all the gear: a Ford C-Max Hybrid goes for $25,200, a new energy efficient Whirlpool refrigerator costs around $1,100, a new clothes dryer is around $500, a basic hot water heater sells for around $500, the Nest thermostat runs $250, and a rooftop solar system goes for around $10,000.  The total comes to $37,550.  How long for a payback on that investment?

Half a Century

A typical energy bill in the United States is $1,248 per year.  It would take around 50 years to pay back the equipment investment ($37,550 divided by $748.80, which is 60% of the annual bill).  These are averages, of course, and a homeowner could start with one or only a few products, so the initial investment would be less, but so would the savings.  The vision Ford has seems out of reach for typical household budgets today. Where it does make sense is for a family doing a major home remodel or building a new dwelling; but add to that a new plug-in car?

So while MyEnergi Lifestyle is an intriguing concept by Ford and its partners, it has major hurdles and this idea is probably ahead of its time.  First, plug-in vehicle demand remains sluggish; for example, Nissan sold fewer than 10,000 LEAFs last year, less than half the original estimate.  Second, electricity consumption is not expected to rise rapidly; the Energy Information Administration projects electricity use in the United States will increase on average just 0.7% a year for households through 2040; thus, with relatively flat consumption, prices aren’t likely to jump quickly either, and without a big spike consumers are not likely to feel much pain.  Third, it will take at least another 5 years to get significant numbers of people to upgrade to products like smart appliances or more efficient water heaters.  Color me skeptical at this point.  I need to see stronger market drivers and fewer, or weaker, inhibitors.


Seeking Funding, Solar Projects Look to the Crowd

— January 16, 2013

Source: Thatrockblog/TumblrKickstarter has become a popular means for ambitious, underfunded entrepreneurs to test their ideas in the open market.  Kickstarter raised more than $319 million for 18,109 projects in 2012 alone.  This success raises the question: what else can be done with this business model?

Banking on forthcoming legislation from the Jumpstart Our Business Startups Act (JOBS Act), Oakland-based Mosaic thinks it has the answer: renewable energy.  Launching its publicly facing platform last week, the company funded four projects submitted by third-party companies, at a value of more than $313,000, in less than 24 hours.  Mosaic’s minimum investment is $25. The promised payback terms range between 60 and 109 months.  Mosaic says the loans come with interest on investments in the 4% to 6% range, which is better than nearly any current bank rate.

This most recent development has brought funding for all of Mosaic’s solar projects to approximately $1.1 million.  Mosiac previously funded five beta projects, which carried no yield but proved the feasibility of the technology.

Investing in such projects does not promise any return and carries inherent risk since venture funding for companies using Mosaic is not insured by the FDIC, unlike bank accounts.  Mosaic says it select projects with minimal risk and currently has a 100% on-time payback rate.  If the experience of other crowdfunding companies like Kiva is an indication, Mosaic should have a lower default risk than the majority of mortgages.

Prior to the JOBS Act of 2012, investments in projects of this size were hard to come by, and regulations by the Securities Exchange Commission (SEC) still have not been finalized.  In general, though, these regulations will likely allow smaller investors to participate in such projects by altering or dropping the accreditation requirement.  Because of other SEC rules, Mosaic can currently operate in California and New York, but the JOBS Act may create a set of national rules and simplify crowdsource funding.

Mosaic is neither the first nor the only company using crowdsource funding for green and renewable energy projects.  SunFunder operates crowdsourced loans with an emphasis in solar installations in the developing world.   Firms like Greenfunder and Green Unite have broader goals than Mosaic but still operate under the green/crowdsource banner.  Even social-impact funding giant Ashoka has launched a beta version of a crowdsource funding platform, called Innovations for the Public, with a $10 minimum investment.  While Innovations for the Public does not focus entirely on renewable energy projects, it shares a business model with Kickstarter and Mosiac.

It’s too early to say whether the crowdsourcing model is the future for small renewable energy projects, but if Mosaic continues to be successful, expect to see other companies competing for the space.  More importantly, expect to see a boom in small solar and other clean energy projects.


Airlines, Governments Repel EU Aviation Emissions Plan

— January 16, 2013

Source: AirnationThe worldwide commercial aviation industry uses an estimated 70 billion gallons of fuel annually, producing roughly 2% of global greenhouse gas emissions.  Business-as-usual estimates for CO2 emissions from the global aviation industry projected by the International Energy Agency show increases of 3.1% per year over the next 40 years – resulting in a 300% increase in emissions by 2050.  However, the industry has taken significant strides in recent years to stabilize, and ultimately reduce, its contribution to global emissions.

Led by the International Civil Aviation Organization (ICAO), the commercial aviation industry has set two aspirational goals to guide policy: carbon-neutral growth by 2020 and a 50% reduction in industry emissions by 2050.  The integration of aviation biofuels derived from sustainable feedstocks like jatropha, camelina, municipal solid waste (MSW), and algae is a key component of achieving both goals.  Yet, national sovereignty and international agreements on the freedom of the skies are hampering efforts to impose a carbon tax that would encourage the integration of such fuels.

In an effort to compel airlines to implement emissions reduction measures, the EU rolled airline emissions into its Emission Trading Scheme (ETS) in 2008.  Originally scheduled to take effect in 2012, the market-based effort triggered direct opposition from the ICAO, which sought a global solution.  It also led the United States, China, India, Russia, Japan, and some Persian Gulf nations to threaten retaliatory trade measures.

In the United States, the aviation industry spent nearly $5 million in 2012 to support fierce political opposition, culminating in President Obama signing into law the European Union Emissions Trading Scheme Prohibition Act on November 27.  The bill gives the U.S. Transportation Secretary the power to shield U.S.-based carriers from the tax.  This effectively allows U.S. airlines to ignore the EU-imposed tax.

Blackmail, Black Market

Chinese and Indian airlines, meanwhile, refused to submit emissions data as part of the EU scheme.  China also threatened to withhold aircraft orders in excess of $3.8 billion from Airbus if the EU proceeded with the trading scheme.  The Indian government has been a staunch critic of the scheme, arguing that the EU plan would result in the formation of a black market for airline emissions credits.

Facing international pressure from major powers and key trade partners, the EU’s three most powerful members – Germany, the United Kingdom, and France – forced a 1-year postponement of the Airline Amendments to the ETS pending an anticipated agreement on a multilateral global alternative program.   The latter program is scheduled to be negotiated in the ICAO Assembly in 2013.

Although aviation’s contribution to global emissions is not overwhelming, the suspension of the ETS creates an environment of uncertainty around aviation biofuels, potentially stifling investment in drop-in conversion technologies that have yet to cross the commercial threshold.  Lack of long-term policy certainty has routinely been cited by industry sources as a key barrier to biorefinery construction and advanced biofuels scale-up.

Despite opposition to the EU plan, the U.S. government still strongly supports the development of aviation biofuels.  The Federal Aviation Administration (FAA) has called for the aviation industry to use 1 billion gallons of alternative jet fuel per year by 2018.  Moreover, the U.S. Department of Defense remains one of the most enthusiastic proponents of aviation biofuels.  Recent legislation passed by the U.S. Congress has signaled a commitment to public-private partnerships to build out domestic infrastructure for the production of advanced biofuels, including drop-in fuels compatible with existing commercial and military aircraft.


In Energy Savings, Utilities Must Meet Consumer Expectations

— January 16, 2013

Pike Research’s just published Smart Grid Consumer Survey indicates that U.S. consumers have fairly realistic – or perhaps optimistic – expectations when it comes to saving money on their electric bills.  Nearly 6 out of 10 (59%) say they expect to save $15 or more on their electric bills based on recommendations from their utility.  That translates to about 15% or greater savings, given that the average U.S. electric bill is $103.67, according to the latest government data.

However, many existing energy-saving programs offer reductions only in single-digit percentages, often as little as 1% to 3%.  The much-touted Opower solution, which dozens of U.S. utilities have adopted, provides an average 1.5% to 3.5% decrease on energy bills through a combination of paper bill reports and online recommendations.  That’s not much to an individual homeowner.  But for a utility, the relatively small percentage – spread across thousands of households – can mean substantial savings in terms of reduced operational costs and help in terms of meeting efficiency targets.

Expected Savings Based on Utility Recommendation, United States: 2012

(Source: Pike Research)

Clearly, consumers have a good sense of what matters to them when it comes to savings.  If the product, service, or program a utility is offering does not deliver meaningful savings, on the order of 15% or more, consumers are unlikely to be interested.  While it’s nice to have a few percentages off monthly bills, they’re looking for double-digit reductions for the programs to be worthwhile.

So, it makes sense for utilities and vendors in home energy management (HEM) to provide something consequential, which is starting to take place.  PG&E in California, for example, is trialing a smart thermostat service, powered by Opower and Honeywell, that’s reportedly cutting heating and cooling costs by 15% to 25%.  Similarly, Reliant Energy in Texas is working with Tendril to deploy in-home displays that connect to smart meters, enabling savings of up to 15%.  More utilities should consider taking the lead to reach wider traction among consumers.  If not, current energy savings solutions will continue to languish.


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