Navigant Research Blog

With New Energy Efficiency Directive, the EU Makes Sausage

— June 26, 2012

The remark often attributed to Bismarck, that the making of laws, like sausages, is not a pretty sight, seems particularly relevant to regulation in the European Union.  The EU’s 20-20-20 targets for 2020 are rightly considered to have established a world-leading benchmark for energy policy and the reduction in greenhouse gas emissions, but maintaining real commitment to that policy across 27 nations is a constant political struggle.

Of the three key targets set for 2020, the reduction in energy consumption has proven the hardest goal, with member states likely to achieve 9% efficiency gains by 2020 on current activities, instead of the targeted 20%.  This has led to renewed pressure for the EU to provide a tougher approach to ensuring that member states meet the required targets.  However, reaching agreement on how tough the new Energy Efficiency Directive should be has also proven far from easy.

Advocates of a stronger approach to energy savings had hoped that enforceable energy efficiency targets could be applied for each country, an approach that has been successful in driving forward renewable energy programs across the EU.  Government leaders, though, have resisted any significant move in that direction.  Instead, the new directive details measures that EU countries must adopt but does not provide specific targets for each country.  Those measures in turn have been the focus of difficult negotiations.

A number of countries have resisted important elements of the proposed new directive, including the United Kingdom and, more surprisingly, Germany.  Nevertheless, an agreement was finally reached earlier this month.  The result is a half-full or half-empty glass situation depending on your perspective.

The focal point of the new directive is the requirement for energy retailers to reduce energy consumption (in terms of their volume of sales) by 1.5% by 2020.  This proposal was watered down to allow about a quarter of that reduction to be achieved by other means, and so the actual reduction is closer to 1.1%.  In addition, the requirement that 3% of public building stock should be renovated annually to meet energy efficiency standards will now only apply to central government buildings.

These and other measures are estimated to provide a 17% saving in energy efficiency by 2020.  For some that’s enough to claim a victory, particularly as this is a minimum requirement and there will be a further review of progress in 2014 and 2016, with the possibility of introducing further measures as necessary.

The state of the European economy, of course, loomed over the discussions.  Critics of stronger measures claimed that it is the wrong time to put additional requirements on businesses, while others pointed to the overall net value of the measures to the European economy.   The Energy Efficiency Directive is estimated to cost €24 billion ($33 billion) a year until 2020, but it will save companies and consumers €44 billion ($61 billion).  The European Commission also estimates that the Directive will lead to an increased GDP in EU of €34 billion ($47 billion) in 2020, along with 400,000 new jobs.

As Europe’s countries struggle to resolve the financial and political issues around the eurozone crisis, the goal of achieving a low-carbon Europe is one of the few positive long term visions.  The struggle over the Energy Efficiency Directive, however, indicates that getting there will require a lot more sausage-making.


Comparing the AMI Market with AMI Managed Services

— June 25, 2012

It’s not always up and to the right.  In other words, markets don’t expand forever.  At Pike Research we genuinely believe in the markets that we cover, but it’s our job to report and forecast objectively.  No market grows forever, without interruption, and our forecasts reflect that.

As a case in point, Pike Research recently published two reports on the global advanced metering infrastructure market: Smart Meters and AMI Managed Services, or simply, AMS.  The latter is a drill-down into a sub-market of AMI: selling AMI systems delivered from a repeatable, ready-made, and usually hosted (read, cloud) service.

The two charts below show our global revenue forecasts for AMI and for AMS.  Clearly the first chart is going to have larger absolute numbers.  But whereas the total AMI market looks to deliver somewhat steady revenues throughout this decade, AMS is poised for strong growth throughout.

AMI Revenue, World Markets: 2012-2020

(Source: Pike Research)

AMS Revenue, World Markets: 2012-2020

(Source: Pike Research)

Why is the chart at top relatively stable, while the other one continues to grow?  Simply put, AMS is a much newer market than AMI.  The bulk of AMI projects up to this point have come from large utilities, which have the staff to run an AMI project in-house.  Another factor in North America is the ARRA stimulus funding, which fueled a number of very large AMI deployments, all of them in-house.  Meanwhile, the sweet spot market for AMS is small to midsize utilities, which have largely chosen to sit on the sidelines and observe how the large utilities’ science projects turn out.

Our research into the AMI market shows that the science project mentality has just about run its course.  Now, AMI discussions center on traditional business topics like, “What return am I getting for this investment?”  Some very large utilities have told us that they can’t build a business case to deploy AMI – yet.  And that’s where things get interesting for AMS vendors.  When the holdout large utilities do deploy AMI, will they do it in-house or outsource to a managed service?  That is as yet unknown, but access to sufficient capital – or lack thereof – could be a major factor in that decision.  New capital often requires new rate cases, and the current political climate is not conducive to new rate cases.

None of this is to say that the market for in-house AMI deployments is dead.  The two charts show that even after a decade of steady growth, AMS will still have less than half of the AMI market.  In-house AMI systems still have a lot of business left to win.  It’s just not going to be up and to the right.


From the Euro Crisis Emerges the “Free Floater”

— June 25, 2012

As the eurozone debt crisis continues, car sales in the region continue to falter.  May was the 8th consecutive month of slumping sales as year-over-year new registrations are down 8.7%.  In Greece, Spain, and Italy, car sales have plunged 47.3%, 8.2%, and 14.3% since last year, respectively.  Unexpected slumps are also occurring in the more financially stable countries, Germany (-4.8%) and France (-16.2%).  Unfortunately the higher end car makers, which tend to be European and North American, are bearing the brunt of the recession.  The only car makers who are doing well in Europe are Asian companies that offer low-cost, fuel-efficient cars (such as small hybrids).  In a weak and unpredictable economy, this is possibly one of the more predictable developments; people are seeking vehicles that are low-cost, reliable, and cheap to maintain.

Though the European and American automakers may not be able to compete at the same price points as Asian companies, European makers are pushing into new business models that may make “vehicle ownership” in some big cities obsolete.  In tough times, vehicle ownership, with insurance, maintenance, parking, and registration costs alongside rising fuel prices, is not as attractive as it once seemed.  Understanding this, Daimler has taken all the “not fun” aspects out of vehicle use through the car2go car-share program.  The program launched in 2008 in the small German city of Ulm, with 50 gasoline Smart ForTwo’s.  Since then it has expanded operations to 16 cities in North America and Europe and will expand to three more this year.  Two of the cities use all-electric ForTwo models.

Car2go charges by the minute, has no monthly membership fees, and most importantly allows users to park the Smart ForTwo’s anywhere in a given service area.  This last aspect, known as “free-float parking,” distinguishes the program from other typical car share services like ZipCar and eGo Share, which require users to return the vehicles to specific reserved parking spaces.  Free float is fundamental to the program’s success because it a) allows users the option of one-way trips, and b) enables flexible scheduling, in that users are not paying for the amount of time the car is away from the reserved parking spot – just the time they are driving the vehicle.

Though Daimler was first to the fray with this specific business model, a competitor has now emerged.  French automaker Renault launched four EV platforms this year and is now trying to figure out exactly how to sell them.  One method the company uses is to lease the battery and sell the car (see earlier blog post); the other is a car-share program, Twizy Way.

Twizy is the company’s newest and smallest EV, and Twizy Way is the company’s version of Daimler’s car2go.  50 of Renault’s Twizy’s are undergoing trials in the French town of Saint-Quentin-en-Yvelines.  The program has all the bells and whistles of the car2go program, including “free floating,” but with Twizy Way all the vehicles are electric.  While it’s only a pilot for now, Renault plans to open the program to the public in September.


Lithium Ion Batteries Can’t Stand the Heat

— June 22, 2012

Lithium ion batteries are truly fair weather friends – just like people, they fare best in a comfortable climate.  Lately, we at Pike Research have been delving deep into how environmental factors, such as temperature, affect battery performance and the rates at which vehicles are charged or discharged.  Our discussions with automotive companies and battery pack assembly companies have revealed numerous approaches for optimizing performance and extending a battery’s life – comparable to the many ways people dress to beat extreme heat.

According to our research, lithium ion batteries perform optimally, and will last longer, if they are kept at temperatures between -10°C and +30°C.  This range is consistent with findings by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE).

In very cold temperatures, batteries don’t achieve their full rated power until the battery cells warm up.  According to Ford engineers V. Anand Sankaran and Bob Taenaka, this short-term effect has greater implications for battery electric vehicles (BEVs) than for plug-in hybrids (PHEVs).  A PHEV can rely on its gas engine for power during warm up, but BEVs don’t have that other power source.

As the accompanying EERE graphic shows, batteries exposed to hotter average temperatures lose their ability to store energy; the hotter the temperature the faster they lose their storing ability.  So BEV owners in Phoenix will likely be looking to replace their batteries faster than owners living where the thermometer doesn’t often reach 110°F.

To combat the extreme temperature effect and keep batteries within their optimal temperature range, automakers use thermal management systems relying on either air or liquid cooling.  As the EERE data shows, liquid cooling is generally more likely to preserve a battery’s capacity than air cooling, though performance variations will occur depending on how well a battery management system was designed to control temperature.  According to Ford, the liquids used in cooling systems can retain a temperature for a long time, which contributed to Ford’s decision to use liquid cooling on the Ford Focus EV.  Ford has also used air cooling on its hybrid Escape and Fusion, as have Nissan and other BEV manufacturers on their vehicles.

In addition to external heat potentially shortening the usable life of a battery, operating batteries at high charge and discharge rates can have another negative impact.  That is particularly true for fast DC charging a battery pack at a rate of 50 kW for as little as 30 minutes (the expected time to charge a BEV 80%).  If done every day, that would generate enough heat to reduce the battery’s capacity.  BEVs that offer fast charging were designed with this fact in mind, so their battery management systems can force an EV charging system to slow down, thus protecting the batteries well before the pack is fully charged.

The interaction of batteries and fast charging is one of the many EV topics that Pike Research will explore at the Plug-In 2012 conference, the premier North American EV industry event, on July 23, 2012, in San Antonio.  I’ll be representing Pike Research at the conference where Ford and many of the leading companies will be discussing business models, technology challenges, and EV rollout strategies.


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