Navigant Research Blog

Beacon Power Bankruptcy Raises Cleantech Questions

— November 3, 2011

Beacon Power’s bankruptcy filing this past Sunday has received a great deal of interest from news and other media outlets.  The flywheel energy storage provider’s filing, along with news of solar PV manufacturer Solyndra’s bankruptcy filing two months ago and speculation that other recipients of DOE loan guarantees may also have difficulty repaying creditors, has caused reports that the sky is falling.  

It turns out the sky is not falling, but that cleantech – and, in the case of Beacon Power, energy storage vendors – are struggling to make a business out of these technologies.  This is not shocking, considering that cleantech frequently attempts to create value where there was none previously.   Frequently, the rules of the game (in this case, regulations and market rules) prevent energy storage vendors from fully commoditizing the value of energy storage technologies.  The rules are antiquated and were designed for a system (the grid) that has not changed in its fundamental design in decades.   

This is a well-documented barrier to entry for energy storage technology providers, and it gives traditional investors pause.  In this case, “traditional investors” refers to banks, venture capital firms, and private equity outfits.  These are the types of creditors that, with the varied risk tolerance each typically is associated with, will fund the commercialization of a technology that is in the prototype stage and eventually support major projects. 

In the absence of traditional funding for many cleantech sectors, the Department of Energy offered a loan guarantee program – different from the grants that the agency normally administers to prove or subsidies adoption of technologies. 

Not having read the terms of the DOE loan guarantee program, I can’t speak to the claim that accepting the loan guarantee provisions hamstrung Beacon Power and kept the firm from successfully securing additional funding.  Regardless, many energy storage firms are facing similar problems regarding access to capital.  This is a systemic issue for storage, and perhaps even cleantech as a whole. 

The difficulties faced by Solyndra, Beacon Power, and other firms should highlight this issue for rule-makers (lawmakers, regulators, system operators, and the like).

How this news will affect Pike Research’s forecast for flywheel technology in the future remains to be seen.  There are several companies, such as Amber Kinetics, that are developing less expensive flywheel technology for the grid.  The business case for using flywheels for the grid remains strong, irrespective of Beacon Power’s fate.  Whether Beacon and other flywheel firms will manage to make a long-term business case is the question. 

 

In Rio, Making Cities Smarter

— November 3, 2011

The numbers surrounding urbanization worldwide are staggering.  In 2008, the number of people living in cities, for the first time in civilization, surpassed the number of people living in rural settings.  Although urbanization is happening on every continent, the story could not be more dramatic in China, where urban migration will add 350 million people – more than the entire U.S. population – to cities by 2025. 

This will result not only in a swelling of the built environment, which will grow by 26% over the next ten years.  It will also create unprecedented levels of demand for city services on a scale that most city governments have never experienced before, especially in the developing world.  This realization is driving city leaders and technology innovators to launch an effort to leverage information and communications technology (ICT) systems to make it easier for cities to deliver services and foster innovation.  Pike Research documented these efforts in our recent report, Smart Cities.

Next week, worldwide experts on smart cities will descend upon Rio de Janeiro for IBM’s SmarterCities forum to examine IBM’s work on implementing ICT technologies to improve Rio’s urban infrastructure. IBM and the Rio de Janeiro city government have been working hard on the Rio Operations Center to manage its burgeoning investments in infrastructure and prevent the urban disasters that have plagued the city in the past. 

The Operations Center emerged largely in response to pervasive mudslides in Rio in 2010, which claimed the lives of more than 200 Cariocas.  In an effort to avoid such disasters in the future, Rio is first investing in smart city infrastructure that tracks weather patterns and identifies likely vulnerabilities.  In the long term, however, the Operations Center will be used to monitor a broader range of city services.  And as attention turns to Brazil in anticipation of the 2014 FIFA World Cup and the 2016 Summer Olympics, Brazil is particularly keen on demonstrating its ability to become a 21st-century nation. 

The drive for smart city infrastructure takes a different tone in the developing world compared with modern cities.  Many of the most prominent smart city projects, in places such as Amsterdam and Boulder, are focused on improving city infrastructure in a way that makes a city more competitive (for families and for businesses), reduces costs, and improves environmental sustainability.  While these objectives certainly apply in emerging markets such as Brazil, urban infrastructure is being built out for the first time in many developing cities like Rio, and city governments in emerging markets are finding themselves more responsible for the welfare of their citizens than ever. 

Cities in emerging markets are coming of age right on the cusp of a technological revolution.  Even just a few years ago, smart cities were more the stuff of science fiction than reality, but as costs for information and communications technology infrastructure have come down and the concept has been proven, dozens of cities worldwide have started to adopt smart city technology.  First-world city governments, though, remain constrained by governmental structures, entrenched bureaucracies, existing last-generation e-government systems, and ingrained processes for city service delivery. Emerging markets are more of a blank slate; they provide the opportunity to build out smart systems from the ground up.  Augmenting city services is inevitable in cities looking to develop and attract businesses and investment; it’s a question of how you do it, and the most ambitious cities, like Rio, will be looking to leapfrog to smart-city technologies.


Pike Research forecasts total smart city investment in Latin America to grow to $2.8 billion by 2020.  Much of this investment will land in Brazil, though city governments in other countries such as Mexico and Colombia are already starting to develop smart city projects of their own.  I’m looking forward to discussing the evolution of smart cities next week in Rio and getting a better sense for the course of urban development in Latin America and other emerging markets.

 

IT and Operations Meet in Smart Grid Projects

— November 1, 2011

The evolving relationship between information technology and operations technology in utilities is a hot topic in current smart grid discussions.  The worlds of IT and OT teams have historically been distinct within utilities.  IT has been primarily focused on business process and customer management systems, while operational systems for managing and monitoring power networks have been the domain of operational teams, with only limited input from the IT department.  That situation is changing for a number of reasons.  

The role of IT in the rollout of smart meters, including the deployment of MDM and new customer management and billing applications, has enhanced its standing within the business.  It’s also becoming evident that realizing the benefits of smart meter deployments – such as flexible pricing, improved customer understanding, and the deployment of new services – requires a significant investment in IT.  These developments are driving organizational and cultural changes as IT and OT teams learn to work together to meet common goals.  The need to define and deploy new IT systems to support the smart grid is driving greater collaboration between IT and OT and is also providing a set of common objectives that can bring diverse teams together. 

I had a chance to explore these issues at the recent Distribution Automation Europe conference in London.  At the conference, several distribution network operators – including ESB Networks in Ireland, Helsingin Energia in Finland and Stedin in the Netherland – presented on the work they have been doing on network self-healing systems to reduce the impact of network failures.  There were also overviews of automation programs for MV and LV networks from SP Energy Networks in the UK, Vattenfall Finland, Alliander (the Netherlands) and Endesa and Gas Natural Fenosa and in Spain. 

I was keen to understand how an audience largely made up of distribution power engineers saw the role of IT.  As I listened to the speakers, it became evident that IT is having an impact on distribution network management at three different levels.

The first, and most obvious, impact is via the deployment of new IT systems to support increased levels of automation and intelligence in the network.  Many of the projects described at the conference covered engineering solutions requiring little or limited IT support.  However, as these trials move into larger scale deployments, IT will have a vital role in monitoring and managing a more automated network.  Deploying distribution automation and other smart grid technologies requires consistent, accurate and accessible data on the state of the network.  Several speakers alluded to the fact that this is driving investment in new or upgraded distribution management systems (DMS), as well as new outage management and asset management systems. 

The second and less tangible influence that IT is having is on the way engineering solutions are designed and deployed.  Utilities and grid operators must move away from a traditional project-by-project view of network engineering improvements to a platform perspective more familiar to IT projects.  The smart grid requires an architectural approach in terms of standardization and the use of common communication and integration platforms.  The increased adaptability required of distribution networks also means that “loosely-coupled” integration will become more important at the network data level, allowing new applications and projects to share data in a rapid, cost effective and yet secure manner.

The third level of impact is organizational.  The importance of improving cooperation across IT and operational technology (OT) functions within utilities was evident in the discussion following my own presentation on smart grid IT.  How will IT and OT work together in future, I asked, and how can the historic barriers between departments be overcome?  Even in the smallish group of utilities present, several paths were being explored for IT/OT collaboration, including bringing IT innovators into the operations team and giving the CIO a greater role in helping define a smart grid strategy. 

These discussions about IT/OT relationships in Europe echoed similar conversations we have had with North American utilities during the research for the new Pike Research report on Smart Grid Enterprise Architecture.  This is an area that is gaining growing attention in utilities around the world as they adapt to the requirements for successful smart grid deployments.  How the relationship between IT and OT evolves will be one of the shaping factors for the utility business of the future.

 

Ireland Likely to Outpace U.S. in EV Adoption

— October 31, 2011

Despite several years of economic woes and rapidly expanding debt, a country commits to plug-in electric vehicles and an aggressive roll-out of charging infrastructure.  The Republic of Ireland (you were thinking of someplace else, perhaps?) is installing 1,500 public charging stations this year, which puts the country on pace to have a far and away greater penetration per capita than the United States.

ESB, Ireland’s leading electricity provider, sees great utility in the deployment of PEVs and charging infrastructure as the company increases the percentage of wind and other renewable energy to 40% of its total generation.  ESB is building out the infrastructure to support the government’s goal of 10% of all vehicles being electrified by 2020.

To put it in perspective, Ireland will install 1,500 public charging stations in 2011, while the U.S. will see double that number, despite a population that is more than 60 times greater.  When you consider that Ireland has no domestic PEV manufacturers, and just two imported vehicles (the Nissan Leaf and Mitsubishi i-MiEV) available today, the commitment is all the more impressive.  The country will also see 2,000 residential and 30 fast DC (CHAdeMO) charging stations installed by year’s end.


ESB is streamlining EV charging by creating a single-card payment system so that customers can switch electricity providers or charging locations and have the fees consolidated back to their home account.  ESB will also use smart charging to manage the equipment so that PEVs can participate in grid services, a step that utilities in the U.S. (with the exception of NRG) have been slow to take.

An agreement between Ireland’s two governments in late October will extend the EV network across the border into Northern Ireland so that the entire Emerald Isle can function as one.  As quoted in the Belfast Telegraph, Thierry Sybord, managing director of Renault UK, said, the agreement with Northern Ireland “provides a unique opportunity to explore cross-border collaboration with the Republic of Ireland.”

So PEV drivers anywhere in Ireland will be able to roam freely with their car (like their cell phone) and receive consistent service and billing.  This bodes well for consumer interest in PEVs.  Other countries such as Spain and Portugal have similar programs in development, and each is likely to have adoption rates higher than in the U.S., where no national plan has been proposed.

It’s encouraging to see the desire to reduce emissions and increase domestic renewable energy production bringing together an area that has seen more than its share of conflict.

 

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