Navigant Research Blog

China Launches Major Energy Storage Project

— January 17, 2012

China made news earlier this month in the energy storage sector with the announcement that a 6-megawatt (MW)/36 megawatt-hour battery has been installed alongside a 40-MW solar PV installation and a 100-MW wind installation in Hebei Province.

The storage system may seem oversized, but according to the State Grid Corporation of China, which is one of the two major utilities in China (China Southern Power Grid Company is the other) and Chinese battery manufacturer Build Your Dreams (BYD), the site will eventually incorporate 300 MW of wind and 100 MW of solar.  Pike Research has hypothesized that China will be a great market for energy storage if vendors can get the secret sauce right: reasonable value for energy, power and a proven ability to deliver renewables integration services, and ideally, a manufacturing presence in China.

China’s energy mix is dominated by coal, followed by hydro and nuclear.  Although the country has a significant installed capacity of renewables, not all of this capacity is online.  Overall, renewables in China currently account for a small portion of energy generation (approximately 2%). 

China does not have significant natural gas resources, and as a result has prioritized coal as its primary fuel, including so-called clean coal plants.  The country’s leaders seem to have seen the writing on the wall where energy security is concerned. China is aggressively pursuing wind, even though two-thirds of its current wind installations are not connected to the grid for fear of the instabilities wind can cause on the system.

In China, the opportunity for storage might not only be a wind integration benefit, but also a transmission benefit – which is typically easier to attach a dollar value to. It will be interesting to see which benefits China decides are most valuable – and in turn which technologies end up as winners in the Chinese market as a result.

With $500 million in state funding, this isn’t exactly a commercial project. But it is the next step beyond the energy storage technology being tested at the China Electric Power Institute (CEPRI), which is coincidentally a subsidiary of State Grid.  CEPRI has experimented with several different technologies and renewables.

It’s no big surprise that State Grid has chosen to install a 6 MW iron phosphate battery from a domestic manufacturer. What’s encouraging is that China is trying to understand storage technologies and their benefits.

 

Biofuels Rulings Shift Geopolitical Landscape

— January 17, 2012

A series of recent policy-related developments within the biofuels industry may have set the stage for what could prove to be a significant shift in biofuel geopolitics over the next decade. 

To recap: the European Court of Justice (ECJ) affirmed an earlier ruling that held the imposition of carbon taxes on flights touching down or taking off on EU soil did not infringe international law or the Open Skies Agreement; a U.S. District Court ruled that California’s Low Carbon Fuel Standard (LCFS) violates the U.S. Constitution; and the long-standing U.S. ethanol producer credit (aka “VEETC”) slipped quietly into the history books.   

Where do these developments leave the industry? 

While the inclusion of airline emissions in the EU’s ETS indicates that the buzz around aviation biofuels won’t fade anytime soon, the threat of costly trade wars by the United States and China in response to the ruling could put a crimp on the expansion of international biofuel trade flows. 

Meanwhile, just as the expiration of VEETC eliminates an estimated $6 billion worth of annual subsidies to the ethanol industry, the lucrative California fuel market is (at least for now) once again open for Midwest ethanol producers, and likely at the expense of Brazilian ethanol (more on this below).

On the whole, the decisions are generally good for advanced biofuels and corn-based ethanol alike. 

Aviation Biofuels Lack Production Volumes, Not Willing Buyers

In the case of advanced biofuels, the decision to uphold the carbon fee suggests that international carriers will not escape the added costs associated with doing business in Europe, adding further incentive to integrate carbon-cutting technologies.  As I discussed in an earlier blog, the combination of impending offset purchases and high oil prices appears to be forcing the aviation industry’s hand when it comes to fossil fuel alternatives, which has been signaling strong demand for sustainable advanced biofuels in recent years (note that first-generation biofuels lack the performance characteristics necessary to power commercial and military aircraft).

Although expected, the ruling is generally good news for energy feedstock producers looking to commercialize next generation feedstocks like camelina, jatropha, switchgrass, and algae, and seeking reliable markets and off-take contracts to offset the risk associated with growing relatively unknown crops.     

But the advanced biofuels story is not about lack of demand, which suggests that the ECJ decision may actually not have much impact at all.  In the case of the aviation industry, rising oil prices mean that demand for biofuel alternatives is deep, durable, and widespread.  Even without the EU tax, assuming adequate supply, price parity with petroleum-based fuels, and sufficient distribution logistics, aviation fuel buyers would be clamoring to lock-up every last drop of advanced biofuels production.

Meanwhile, with the threat of trade wars from the United States and China among others, costly tariffs and other punitive measures could actually stifle biofuels development, an unintended consequence of the aviation tax.      

Corn-based Ethanol Gets a Boost

Over on the other side of the pond, Judge Lawrence J. O’Neill’s December 29 decision declaring California’s carbon fuel standard unconstitutional represents a significant victory for Midwest corn ethanol producers (see my 2010 article on the LCFS and Green Federalism for more on the legal issues).  The California Air Resources Board’s (CARB) policy, introduced in 2007, aims for a reduction in the “life-cycle carbon intensity” of fuels consumed in the state by 10 percent over the next decade.  Due to corn ethanol’s inherent inefficiencies, the policy excludes most of the corn-ethanol produced in the United States from one of the world’s largest fuel markets. 

Implementation of the policy had led to the peculiar situation where Midwest ethanol producers were shipping their offending product 6,000 miles to Brazil to make up for a shortfall in sugarcane ethanol production.  Midwest corn’s exclusion from California, coupled with a national blending wall policy, put a serious constraint on U.S. producers’ scale-up ambitions.  The ruling may put corn ethanol back in the domestic driver’s seat, at least for now.      

Looking Beyond 2012

As discussed in Pike Research’s report, Biofuels Markets and Technologies, we expect the production of conventional biofuels – namely corn- and sugarcane-based ethanol – to increase steadily over the next decade as demand for alternatives to petroleum-based fuel outstrips advanced biofuels production volumes.  The corn-based ethanol industry appears to have established viability, and even without the VEETC, we foresee an increase in production as access to markets like California and the likely raising of U.S. blend walls (e.g. implementation of E15 or expansion of E85) opens up new opportunities for producers. 

The key question raised by these decisions: where will the production go over the next decade?  As corn-based ethanol ventures beyond VEETC, the industry will need to fight for market access at home and abroad despite this most recent victory.  Meanwhile, the EU may be positioning itself as the primary market for advanced biofuels at the expense of U.S. and China.     

 

Fisker Deepens Management Team

— January 17, 2012

At the end of 2011, high-end EV maker Fisker Automotive announced the addition of a two executives who the company hopes will help win over skeptics – but more importantly will provide much-needed guidance for the fledgling car company.

  • Tom LaSorda will join as Vice Chairman (for the most part an advisory role).  LaSorda is certainly no stranger to turmoil as he was the chief of Chrysler during both the company’s sale to Cerberus Capital and then to Fiat.  It seems likely that his experience with a resource-starved Chrysler, under Cerberus Capital, will be of benefit to a start-up that’s still struggling to roll out its first ultra-luxury model.  LaSorda is also a good choice for Fisker because he understands style (as seen with success of the 300C) as well as automotive manufacturing (he led Chrysler’s manufacturing prior to being CEO and was in manufacturing with GM for years prior to that).  Volume manufacturing will be a critical area for Fisker in order to be successful long term.  Of course, the skeptic in me can’t resist pointing out that LaSorda is also one of the few executives with experience in guiding an automobile manufacturer through bankruptcy and seeking partners for sale of the company.  I doubt this was the particular skill-set that Fisker was seeking in LaSorda, though.
  • Almost more critical at the moment than the addition of LaSorda, Fisker also announced that Richard Beattie will become chief commercial officer.  Less well-known outside the insular automotive world, Beattie was the VP of marketing for Jaguar and Land Rover North America from 2002-2011.  Prior to that, he was VP of marketing, sales and service for Lincoln and Mercury.  Beattie has certainly been the marketing lead for some very high profile vehicles, including the latest Jaguar XJ.  As Fisker looks to bring the Karma to market (possibly the Surf too?), followed by the Nina in a few years, Beattie’s experience in “boutique” luxury automotive brands will be critical.  Beattie can be expected to lead a solid branding and customer-service experience for Fisker’s high-end customers.

It’s interesting to see many of the established automotive companies looking outside the automotive sector for new management, as Telsa, Fisker and Coda snap up members of the old guard from the automobile OEMs.  This is definitely of benefit to the start-ups who will need to have a solid foundation in automotive manufacturing, quality, safety, and design in order to compete.

 

Landis+Gyr Adds MDM With Ecologic Analytics Buy

— January 12, 2012

Landis+Gyr announced this week that it has acquired the remaining stake of meter data management (MDM) vendor Ecologic Analytics, with whom it already has a close working relationship.  Ecologic’s MDMS is already tightly integrated with L+G’s Gridstream advanced metering infrastructure (AMI) solution as the default MDM.  However, both vendors support other products as well – Gridstream has ready-built interfaces with most popular MDM solutions while Ecologic MDMS has ready-built interfaces with most popular AMI solutions.  Landis+Gyr is itself 100% owned by Toshiba.

Pike Research has verified that both L+G and Ecologic intend to continue with a focus on interoperability and partnering – in other words, they’ll still see other people.  Both companies have in the past stated their belief that utilities will continue to require integration with and support for different software systems and solutions.  I believe that such flexibility maximizes the options to be involved in new AMI and MDM ventures.  In such competitive markets, the last thing any vendor wants to write in an RFP response is, “Sorry, we don’t work with those people.”

In our 2011 report, Pike Pulse:  Meter Data Management, we rated Ecologic Analytics as a Contender, just short of the Leaders category.  The report characterized Ecologic as “…a well-run company that addresses all aspects of its business.  The company has also done a good job of phrasing its marketing messages in terms of utilities’ business problems.”  I continue to hold that view of Ecologic as a unit of L+G.

That report also explained that to move into the Leaders category, “Ecologic could expand its business with other AMI vendors, especially those that do not already have their own MDM.  There is also quite a bit of room for the company to improve its geographic reach, which may be accomplished via L+G’s 11 offices in China.”  Ecologic addressed that first point soon after our report was published, by announcing a partnership with IBM to integrate its MDM technology with IBM solutions.  At roughly the same time Ecologic also announced a development deal with L+G to support the SAP MDUS specification and therefore make Ecologics’ technology available to SAP for Utilities customers.   Competitors such as eMeter, Itron, and OSIsoft had already completed MDUS integrations.

Our second recommendation for Ecologic Analytics – wider geographic reach for Ecologic’s products – is furthered with this acquisition.  I continue to be skeptical that China will be an addressable market for external MDM vendors unless some special relationship exists.  L+G’s existing business in China, plus Toshiba’s ownership, could become highly valuable in helping Ecologic penetrate that market.  Still, trying to predict any technology market in China is fraught with assumptions, so I’ll simply state that this transaction should give Ecologic a stronger presence in China.

 

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