Navigant Research Blog

With Charging Network, Tesla Takes the Road Untraveled

— October 3, 2012

Last week Tesla CEO Elon Musk debuted his company’s latest EV tech offering, the Supercharger Network.  The network, like all things Tesla, far outpaces anything on the market.  The Supercharger boasts the highest power output of any fast charging EV charging system on the market today at just below 100 kilowatts (kW).  The energy for the system is all solar, provided by a Solar City carport, and it’s all free for Tesla Model S owners (who are also the only people who can use the system).  At first glance it makes the higher end Model S even more appealing to those who can afford it; however, the strategy behind the offering is questionable.

First, how exactly does the system work? If the chargers can supply near 100 kW of power to a vehicle for 30 minutes, then the solar array must be able to produce 100 kW.  That’s a big solar array.  Solar is not always available, so it can be assumed that the station will draw from the non-renewable grid at night or on cloudy days. The company states that the stations’ solar arrays will produce more energy than will be used at the stations; therefore, Tesla also clarifies that the marginal energy costs of the system will be near zero.

That theory, however, is dependent upon some big assumptions about Tesla owners’ vehicle charging behavior. Assuming that a vehicle or vehicles will charge when the sun does not shine, then the charger will be drawing power from the grid at an incredibly high rate. That will incur high monthly demand charges ($4-$10 per kW) on top of the standard energy charge measured in cents per kWh. Tesla hopes to avoid demand charges through special rate plans with utilities and pay back any kWh charges by selling solar from the stations back onto the grid. However, this model only works if the stations produce more power in the 4 to 7 hours of daily solar availability than what may be taken from the stations over the course of the 24 hour day.

Second, why is Tesla making this system only for the Tesla owners and not for the greater population of EV owners? The Tesla outlet and inlet are not compatible with either CHAdeMO or SAE fast charge plugs, so Tesla drivers will be unable to charge at locations not in the Supercharger network.  Perhaps this strategy is meant to make Tesla vehicles more desirable, but Tesla’s problem is making vehicles, not selling them.  So why not also install other chargers at the Supercharger locations so that other EV owners can charge their vehicles for a fee?  Exclusivity increases desirability, but not necessarily revenue.

Which leads to the third and most important question: Why is this service free? Unlike most EV makers, Tesla does not need an additional reason for people to want the Model S.  The vehicle is not overpriced for its class and technology, and its range is far longer than any other EV on the market.  Further, if it is true that marginal costs for the charging systems will be low, Tesla is still taking a big hit on installation costs that include property, fast chargers, and 100+kW solar arrays; all not cheap in the least.  To be clear, the technology sounds great (hopefully the battery can handle near 100 kW of power), but unfortunately it does not appear profitable for Tesla.  Considering Tesla recently announced it is slashing revenue forecasts, charging a fee may be a wise move.


In L.A., Public Transit is Not an Oxymoron Anymore

— October 3, 2012

Is Los Angeles becoming the next great transit city?  According to this story on Slate, L.A. has transformed itself over the past decade from the quintessential car city to one with a multi-modal approach to moving people around.  I think that overstates the case somewhat, but it’s certainly true that Los Angeles has become an innovator with a few of its congestion mitigation programs.  I recently blogged about L.A.’s pilot program to provide real-time information on parking availability.  That program is intended to help ease congestion by reducing the amount of time drivers spend looking for parking spots.

L.A. has also been at the forefront of the movement to deploy rapid bus service as a cheaper alternative to light rail.  The rapid bus service gets surprisingly little mention in the Slate article, which focuses more on traditional infrastructure-intensive heavy and light rail systems, both of which have been expanded in Southern California over the past two decades.  But the accompanying photo is of a Metro Rapid bus, part of a 400-mile network of rapid buses serving over 20 corridors, from Lancaster to Long Beach.  The service works by running buses more often, with fewer stops, and with signal priority at certain intersections.  The more sophisticated Orange Line is closer to full bus rapid transit (BRT), with a dedicated lane and off-board fare payment.  These systems can be controversial, though; some riders feel that they should get the “gold-plated” rail service offered in other areas.  Nevertheless, the L.A. rapid bus system has been copied by a number of U.S. cities, like Cleveland and Eugene, Oregon.

The Los Angeles transit agency, LA Metro, is also set to be a trendsetter on zero emission buses.  Earlier this year, it requested bids for both super-low emission and zero-emission buses.  The agency hopes to procure up to 30 buses, including some zero emission buses that could meet current California Air Resources Board regulations.

It remains to be seen whether fuel cells or battery buses will be the primary zero emission technology for public transit.    Neither has reached full commercial potential in the North American market yet, as discussed in Pike Research’s Electric Drive Buses report.  Fuel cells buses have seen more deployments in the United States, with the AC Transit, Sunline Transit and BC Transit fleets, but that momentum has stalled in recent momths while battery buses are currently receiving a real push.  I expect the Los Angeles procurement to be watched as one indicator of which zero emission technology has the most commercial potential.


In Smart Grid Cyber Security, It’s Still Groundhog Day

— October 3, 2012

Sometimes we need to stop and take stock of what we’ve accomplished otherwise we lose sight of the forest for the trees.  And sometimes it’s best to remain firmly focused on the trees, to avoid seeing our own lack of progress.  Unfortunately, smart grid cyber security falls into this latter category.

While researching the upcoming Pike Research market focus report, Industrial Control Systems Security I’ve been struck by how many research interviews this year sound just like the interviews for the predecessor report from 2011.  At that time, I wrote a blog called “What’s Happening with ICS Security?”  It’s a bit unnerving to see how many issues from that blog are still issues in this blog.

There are still very few standards for control system security and almost nothing enforceable.  We still have NERC CIP, and it still applies only to transmission grids, not distribution grids.  Compliance is still the overwhelming factor in driving cyber security investment.  The data deluge is still coming – and let us offer thanks that that status hasn’t changed yet.  Not even a few utilities still believe that their control networks are isolated and therefore safe.

Old and proprietary protocols are still prevalent.  Utilities are still purchasing serial-protocol devices that cannot participate in modern networks.  Some even defend this because modern protocols such as IP have many more potential attackers.  To defend a single network that mingles old and modern devices is still nearly impossible, and I have yet to speak to anyone who claims that a solution exists.  That one has the makings for a Nobel Prize.

There is some good news, though.  Compared to 1 year ago, utilities are asking a lot more questions about cyber security of their control networks.  Operations and IT teams are beginning to work together.  Awareness of control system risk is increasing – although not consistently translating to budget for new cyber security products or services.  Cyber security vendors that specialize in control systems consistently give me a much rosier assessment of the market.  So it’s not all bad news.  Still, a little more good news wouldn’t come amiss.

I have developed one worrying corollary from this situation.  Moore’s Law has a two-year periodicity.  If we have now progressed through the first year with very little change, does that mean that Moore’s Law does not apply to power grids?  We all admit that utilities are different – but this was unexpected.


Small and Medium Businesses: An Untapped Energy Efficiency Market

— October 3, 2012

Large businesses represent the vast majority of commercial-sector energy consumption worldwide, and it makes sense that energy efficiency service providers and technology vendors have mostly tailored their offerings to major enterprises.  However, according to the U.S.  Census, there are 1.3 million businesses in the United States with 500 or fewer employees, compared to just 12,000 large businesses, and small businesses in the United States spend about $60 billion on energy every year, so there remains considerable opportunity among small and medium businesses (SMBs), too.

From a sales and marketing perspective, SMBs are often considered less attractive because of the sales fatigue associated with acquiring hundreds of SMBs as customers.  In contrast, a single large business could net just as much business with fewer salespeople.  In addition, the energy savings achievable among SMBs is often measured in hundreds or thousands of dollars per year, rather than the millions achievable among Fortune 500 companies.

Another reason is that counting large companies as customers can help energy efficiency start-ups establish a reputation as a top company in the space.   For example, C3, which started developing enterprise energy management software in 2008, already counts major companies like General Electric, PG&E, and Dow as customers.  Small businesses don’t offer this kind of reputation-building cachet that’s so critical for new entrants.

‘A Big Difference’

Although many service and technology providers have passed over the SMB sector, that lack of competitive intensity also represents an opportunity for early entrants.  For example, while most of the building energy management system developers like Johnson Controls and Schneider Electric target large companies as initial customers, others, such as Pulse Energy, eSight, and C3 have found success in serving SMBs, in many cases through utility demand-side management (DSM) programs.

In addition, companies like World Energy have found success providing energy efficiency services to SMBs.  Since World Energy’s acquisition of energy efficiency service provider Northeast Energy Solutions a year ago, it has posted considerable growth in its energy efficiency business, largely by serving SMB customers.  According to Phil Adams, CEO of World Energy, SMBs are particularly attractive because their level of awareness of energy efficiency tends to be so much lower than larger firms.   “Small and medium businesses often don’t have energy managers and don’t take advantage of the utility incentives available to them,” Adams told me recently, “so we can make a big difference there.”

Much of the latent opportunity in the SMB sector lies in the gap between the target markets of major energy efficiency service providers and smaller ones.  Top-tier ESCOs and energy retrofit providers such as Siemens and Honeywell generally prefer contracts of $1 million or more, which puts many small businesses out of their reach.  At the other end of the spectrum, local contractors and engineering firms, which dominate the market, often have limited resources for marketing and customer acquisition.   As a result, aggressive energy efficiency service providers, particularly those that can provide value-added services like energy procurement and financing (like World Energy), often find a great deal of untapped opportunity among SMBs.

The SMB market isn’t as large as the enterprise energy efficiency market potential overall.  However, it represents an important and to-date largely underserved segment of the market.  Over time, I expect more service providers and technology vendors to address it as efficiency services commoditize and mature.  In the meantime, however, it remains an early market that a handful of companies are starting to serve profitably.


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