Navigant Research Blog

Battery Makers Look for Markets

— February 2, 2012

The next couple of years are going to be very challenging in the automotive Li-ion battery market.  That comes as no surprise to battery manufacturers or to members of the Li-ion supply chain.  When I gave a presentation on this topic at the Lakeshore Advantage Michigan Smart Coast series in Holland, Michigan, recently, one of the questions asked was, “Where should battery manufacturers be looking to sell batteries?”  This is a pretty common question, and my only slightly tongue-in-cheek response was “Everywhere.”

The presentation was a more detailed expansion of a webinar my colleague John Gartner and I did recently, discussing whether the U.S. market will reach one million PEVs by 2015.  The area that is garnering focus and showing promise is in grid energy storage.  This makes sense since the batteries used need to be large, and grid storage will utilize a lot of battery capacity (just what a growing battery plant looks for).  What’s more, there has been funding available for these projects.  At the same time, these projects are likely to ramp up slowly over the next couple of years (sound familiar?).  As we look toward smaller packs in large volume, those serving distributed storage and commercial buildings are likely to see growth in Li-ion as a result of the regulatory and physical limits on lead acid (venting requirements, space needed, and short life-span) and the desire to move away from diesel or natural gas generators.  Unfortunately, these lithium battery markets are also several years away from robust growth. 

So, what is a battery manufacturer to do?  A123 and Xtreme Power have been pursuing the market for grid stabilization with large batteries with some success.  This market remains wide open competitively for other players, like Johnson Controls, LG Chem, and Dow Kokam, although much of the competition in this market comes from other forms of storage. 

Some industry figures have mentioned the possibility that time-of-use or peak-shifting storage could be a viable business model for Li-ion in the early years as well.  For this application, manufacturers would do well to look at their own back yard.  The manufacturing bases in the Midwest and California may benefit from using off-peak generated energy, depending on specific utilities’ cost structures.  The concern is that this is market will quickly become highly competitive as battery makers look for volume here early.

The fact is, even if Li-ion battery manufacturers can successfully diversify, costs will remain a challenge for the next couple years.  Fundamentally, this brings me back to another question that came up during the presentation: how much of the current cost of Li-ion is due to manufacturing inefficiencies vs. the cost of the actual materials in a battery?  The answer is roughly a third is manufacturing.  We anticipate that Li-ion battery costs will fall by about a third over the next few years, stabilizing by 2016. 

Unfortunately, it’s looking more and more like several manufacturers may find that the costs fall as a result of competitive pressures, rather than manufacturing efficiency gains in the next few years.  Large, well financed, and diversified companies like Johnson Controls and LG Chem will likely survive, and even drive, that type of competitive pricing.  But for smaller, specialized, battery manufacturers like A123 and Electrovaya, the next two to three years may seem very long indeed.


Glen Canyon Undercuts Smart Meter Competitors

— February 1, 2012

One persistent question was heard repeatedly from major smart-meter manufacturers at last week’s DistribuTECH 2012: “Who are these guys?”

The guys in this case are the people behind Glen Canyon – an upstart smart meter maker that jumped onto everyone’s radar just days before the smart grid industry’s latest annual event kicked off in San Antonio.  In multiple meetings with representatives of major incumbents (Itron, Elster, Landis+Gyr), one of the first questions to me and my Pike Research colleagues was what we thought about Glen Canyon (more on that below).

Why the great interest in Glen Canyon? Because the Santa Cruz, Calif.-based newcomer is offering to sell AMI smart meters for ridiculously low prices ($25 or less, according to reports).  That would undercut typical prices by a wide margin, and that has rattled nerves among the incumbents.

Glen Canyon representatives told me their NEXGEN meters are made by Hong Kong-based contract manufacturer Computime at a factory in Shenzhen, China.  The devices feature a communications package that includes an 802.15.4 wireless radio with a RISC-based 32-bit processor.  A key element of Glen Canyon’s system is its AMI cloud service, which while interesting is not unique as other vendors, including SAIC and GE, have similar offerings.

At DistribuTECH, Glen Canyon announced a deal with Beijing Guozhiheng Power Management Technology Group for 1.5 million NEXGEN meters that will be deployed over the next 18 months.  Not bad for a company just coming out of stealth mode.

If indeed GC can deliver at volume good-enough smart meters at cut-rate prices, then this could alter the competitive landscape.  It will also kick off a price war, mainly outside North America where utilities anxious to deploy smart meters but unwilling to pay premium prices might be willing buyers.  It’s too early to tell just how much ground shaking GC will eventually cause.  For now anyway, the meter business has felt at least a minor disturbance.


Bioenergy Seeks a Distribution Model

— February 1, 2012

The energy industry is particularly adept at taking raw material and turning it into products.  Whether producing heat, power, or fuel, the model has proven exceptionally efficient at moving highly concentrated and homogenous resources over long distances through intricate supply chains. 

For the oil industry, time and investment has allowed for the development of a multi-trillion dollar, asset rich supply chain that spans the globe.  Benefitting from staggering economies of scale and capitalizing on a century of experience, this distribution model supplies the lifeblood of modern civilization.  The bio-based economy, which aims to take the carbon trapped in biomass and supplant a portion of this fossil fuel monopoly on the back of renewable feedstocks, must turn this model on its head if it is to realize the ambitions of its most ardent proponents.

To date, bioenergy has gained traction mimicking the fossil fuel model, siphoning expanding volumes of concentrated commodity goods to produce power and fuel.  Today’s ethanol industry was built almost exclusively on corn in the U.S. and sugar cane in Brazil; biodiesel on rapeseed and palm oil in the EU and soy in the U.S.  For biopower, wood is the feedstock of choice.  These industries were essentially bolted onto existing supply chains. 

Until recently, this model has proven to be marginally profitable, largely supported by subsidies and production encouraged by ambitious government mandates.  Generally, biomass resources are consumed locally due in part to the logistical and economic inefficiencies associated with transporting over long distances.  But as more and more governments impose biofuel and biopower production mandates, and restrictions on international trade ease, demand for concentrated feedstock is quickly outstripping available supplies.  

Facing this reality, the bioenergy industry has been on an aggressive R&D campaign to expand its feedstock pool.  From switchgrass to miscanthus, camelina to jatropha, and macroalgae to microalgae, the proliferation of feedstocks suggests that the path to global scale will be anything but straight.  With a number of industrial biotechnology ventures aiming to tweak the characteristics of various feedstock strains, innovation is happening quickly.  Even so, as I discussed in Pike Research’s report, Biofuels Markets and Technologies, it will be at least a decade before large volumes of such varietals are widely available.     

While numerous reports suggest that there is more than enough biomass available globally to meet substantial demand from biopower and biofuels production, the costs associated with harvesting, aggregating, transporting, and processing many of these feedstocks have proven to be mostly prohibitive.  And this assumes sufficient acreage has been planted to support such efforts.  Even where feedstock tonnage is available, supply chains have proven far too immature to attract the scale of investment needed to keep pace with ambitious production mandates.

The degree of complexity associated with processing such a wide variety of feedstocks is of serious concern.  Differing characteristics suggest that all biomass will have to be processed locally before shipping further afield.  Whether this can be done economically remains to be seen. 

And so the bioenergy sector finds itself at a crossroads.  On one hand, it could continue expansion of proven conversion processes using commodity-based feedstocks (e.g. fermentation of corn starch and sugar cane for fuels or combustion of wood for power); on the other, double down on advanced feedstocks to unlock further growth in the biobased economy.  A decision either way will have long-term consequences, necessitating annual investment in the billions and sinking capital into new infrastructure.  

Based on our analysis, over the next decade growth of the biobased economy is likely to be supported by biomass hubs centered on existing commodity-based feedstocks as depicted in the figure below, from the International Energy Agency:

The model will help meet demand growth in international markets, but more robust growth is likely to be tempered by rising feedstock costs.  To compete head-to-head with fossil fuels, bioenergy will need to upend the traditional energy model and optimize a complex network of supply chains built around a slew of diverse, locally-grown feedstocks.


Using Data to Drive Urban Transformation

— February 1, 2012

As I mentioned in my last smart city blog, one of the biggest challenges to realizing the smart city vision is finding financial models that can enable the transformation in city operations.  This recent Climate Group report highlighted the opportunity offered to cities through better exploitation of one of their most critical and under used assets: data.  The most obvious use of city data is for the city authorities and service providers to become better at collecting, analyzing and acting on information about how the city works.  While public sector organizations – not only city authorities – have gone a long way in creating modern IT-based front- and back-office organizations, they have generally been much slower than the private sector to use the power of data analysis to understand how to improve those processes.  This is now changing, and city authorities are beginning to understand the power of data analytics.  But even with cloud computing and software-as-a-service models helping to reduce costs and speed up deployment, data analytics and advanced information management systems still involve a significant upfront investment, and payback depends on finding efficiencies and improvements in services.  A more radical – but complementary – approach is to open the data to third parties to allow them to provide new services and new insights.  This is one reason why cities are at the forefront of the movement for open government data.

The momentum behind open government data gained significant impetus with the release of President Obama’s “Memorandum on Transparency and Open Government” in January 2009.  This paved the way for the launch of in May 2009, a web portal that today provides almost 400,000 raw and geospatial datasets and more than 1,000 web apps.  The U.K. government launched in April 2010.  Both the U.N. and the World Bank are now working to encourage governments around the world to adopt open data policies.  As well as spurring innovation, opening up government data is seen as a means for tackling corruption, increasing transparency and improving accountability.  In July 2011, Kenya became the first developing country to have an open government data portal.

Trying to put specific value on such data is difficult, but a report from the European Commission suggests that opening up public-sector information could be worth up to €140 billion (almost $200 billion) to the EU economy each year.  Cities have been among the most proactive governments promoting the possibilities for open data.  In the United States, cities like San Francisco, New York, and Chicago have launched open data portals, as have London and Barcelona and Helsinki.  A number of cities have also launched developer events and competitions to encourage the creation of new applications that can then be made available on the city website. 

Transparency, Accountability

So why is this important to the development of the smart city concept? Most importantly, opening up data to new uses is a way of refreshing our ideas about the city: how it works and how it could work better.  It also frees up the potential for further exploitation of new technologies such as smartphones and sensor networks.  Open data can also provide a boost to the city as center for software development and other digital industries, as the Mayor of New York has recognized with his promotion of NYC Digital

Chicago provides a good example of what can be achieved.  In January, the city launched a new web site, Chicago Shovels, which keeps residents informed in real-time about the activity of the city’s snow ploughs when the blizzards hit.  In future, it will provide space for coordinating community-based snow-clearing teams.  It also provides additional applications developed by third-parties using the city’s open data sets., for example, alerts drivers of winter parking bans, while uses the City’s towed and relocated vehicle data to reconnect owners with their cars.  Sites like Chicago Shovels are not just providing new services, they are also making new aspects of a city’s operation transparent.

The CTO of Chicago has written an excellent blog on the city’s open data platform.  In the post he describes the four principles that have driven the program: transparency, accountability, analysis, and open data.  Looking to the future, he also talks about the emerging concept of the “city-as-platform” – an idea I will examine in more detail in my next blog.


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