Navigant Research Blog

Developing Nations Look to Remote Microgrids for Energy Solutions

— December 13, 2011

According to the U.S. Department of Energy (DOE), what Pike Research defines as a “remote microgrid” is not a microgrid.  The DOE defines a microgrid as a distribution system connected to a larger utility grid, with its defining characteristic being the ability to disconnect (seamlessly) and then operate in islanding mode.

The truth of the matter is that remote power systems number in the thousands, with the vast majority being powered up by dumb, dirty diesel generation – hardly a technology platform of relevance to the smart grid and to the fundamental networking advantages of the microgrid platform.

Nevertheless, once distributed renewable energy generation (RDEG) is added to the mix, then these remote systems begin to look like the classic traditional microgrids that have been the focus of most of DOE and U.S. Department of Defense (DOD) funding.  The closest analogy to remote microgrids funded by the U.S. government are the so-called “mobile microgrids” deployed at military forward operating bases (FOBs) in Afghanistan and Iraq, and other temporary or remote bases throughout the world.  Like other technologies, DOD is now pushing a technology that could offer wide benefits to the society, and in this case, the developing world. 

During the 20th century, nearly 90 percent of population growth took place in countries classified as “less developed” by the United Nations – countries in Africa, Asia (except Japan), Latin America and the Caribbean, and Oceania (except Australia and New Zealand).  Today, developing countries have approximately 80% of the world’s population, but consume only 30% of commercially traded energy supplies, making them the top prospective market for remote microgrids.  As energy consumption rises with increases in population and living standards, awareness is growing about the environmental costs of energy and the need to expand access to energy – especially cleaner electricity – in new ways. 

Perhaps the most compelling market for remote microgrids today is geographic islands, often not connected to a mainland power grid, with existing grids that are often extremely unreliable, inefficient and dependent upon imported fossil fuels.  These islands face extreme challenges from an energy security perspective.  Pipelines supplying inexpensive and plentiful natural gas are not an option for them.   Most of them are completely dependent on liquid fuels derived from petroleum, with the default supply being diesel.   With only a few weeks of on-island storage, a supply interruption that delays the oil supply barge becomes an economic and security nightmare. 

The decline in solar PV prices is the single largest driver for remote microgrids today on islands and other remote regions, since these generation and distribution systems are now cost-effective even without subsidy.

In terms of village power systems — which average 10 kW in size according to Outback Power Systems — solar PV will be the dominant choice for these remote microgrids located near the equator.  For projects closer to either pole, small wind will be the preferred RDEG choice.  To date, the results from an Australian Commonwealth Scientific and Industrial Research Organization (CSIRO) survey imply that microgrids are more widely deployed in the more extreme northern and southern latitudes, since wind generation captures the largest share of power supply for the entire world’s microgrid market.  Alaska is among the most active global markets for remote microgrids featuring wind/diesel hybrids, which bolsters the U.S. position as the global leader when it comes to commercializing this technology platform.  According to HOMER Energy, Alaska and Australia probably have more remote microgrid capacity in current operation that the rest of the world combined.  The recent purchase of Powercorp by European industrial giant ABB is a clear sign that there is growing interest in the renewable, remote microgrid space. 


Siemens, eMeter, and the Smart Grid IT Market

— December 7, 2011

My colleague Bob Lockhart has already provided a cogent analysis of the announcement that Siemens is acquiring MDM vendor eMeter.  However, there are some other dimensions to this move that are worth exploring.

As Bob explains, Siemens disposed of its struggling enterprise IT solutions and services business to Atos earlier this year, but retained the IT capability within its business units, including Siemens Energy, which has been providing IT solutions to the energy industry for over 15 years.  At the core of this offering is the Spectrum Power Suite, which has evolved to become a portfolio of distribution management system (DMS) and energy management system (EMS) applications supporting transmission and distribution network operations.

Like other suppliers targeting the requirement for smart grid IT systems, Siemens has been expanding its operational IT capabilities in areas such as distribution optimization, outage management, and asset management.  Siemens’ strategy is to accompany the operational data upwards, providing services and solutions to support further integration with enterprise IT systems.   The acquisition of a dedicated MDM supplier enables Siemens to provide a more integrated approach to the collection, management, and analysis of smart grid data.

Siemens’ move to extend its smart grid software capability echoes similar moves by its main competitors in the smart grid market.  We have seen a steady stream of software asset acquisitions by leading equipment suppliers over the last year or so.  The most significant moves include:

  • ABB acquired utility software provider Ventyx in 2010, followed by more recent acquisitions of business intelligence provider Obvient and asset management specialist Mincom in 2011.
  • Alstom acquired UISOL (software and service provider for renewable integration) in March 2011.
  • GE acquired SNC-Lavalin’s Energy Control Systems (ECS) business and its network management and control software in August 2010 and Opal Software, a data migration and SCADA simulation specialist, in October 2010.
  • Schneider Electric purchased software and services player Telvent in September 2011.

These deals are important not only for the software assets involved but also the accompanying knowledge and experience of how to develop and grow a software and solutions business.  In fact, retaining and integrating that expertise may be the most critical factor in the determining the success of such acquisitions.  How well that is done will decide which, if any, of the engineering giants can develop a strong independent software business.

These moves also reflect an uncertain jostling for position between IT and operational technology (OT) vendors in the smart grid IT market.  IT vendors such as IBM, HP, and Oracle are expanding further into areas of operations management, while grid infrastructure companies such as ABB, Siemens, and Schneider are beefing up their IT capability.  So far this is not so much a head-on clash as a gradual reshaping of the landscape around IT and OT that I have discussed in a previous blog.  MDM is also looking increasingly like no-man’s land in that landscape and we can expect to see further MDM acquisitions as the major IT and OT players consolidate their position.

As we will show in our forthcoming report on smart grid IT systems, EV charging systems and distributed renewable energy management (including VPPs and microgrid management) will become key battlegrounds in this market.  Siemens, like its competitors, is already eyeing these opportunities and the eMeter acquisition can only help bolster its position.


BIC-Angstrom Power Deal Signals New Phase for the Fuel Cell Industry

— December 7, 2011

It is fair to say that when BIC, the Paris-based company known for lighters and shavers and pens, announced on December 2 that it has acquired Vancouver-based Angstrom Power, there was some surprise.

Angstrom has had a commercial portable fuel cell for some time now, unlike many of its rivals, but what does BIC see in the fuel cell industry that convinced it to pay a rumoured $18.5 million in these times of economic austerity? And is this the first signal that 2012 will see a round of M&A in the fuel cell industry?

The companies involved in the fuel cell sector tend to be of two types. The first are daughter companies of large, stable, multinational companies, which can invest for a long term outlook and understand the time horizon to return on assets is longer for new disruptive products than for their traditional offerings. Companies such as UTC Power and Rolls Royce Fuel Cells clearly fall into this category. The other, much more common, company is the small startup, where a couple of engineers who’ve stumbled out of the lab after years of toil into the bright sunshine with their new technology. A company is formed, often at this stage supported by some form of government subsidy or angel investment, with the aim of taking the product to market. But many fuel cell startups have stubbornly stayed in the pre-commercial phase. A rule of thumb is that for every fuel cell company with a commercial product, there are another seven to 10 that are pre-commercial.

So why would a global multinational with a well-known product portfolio decide to sink many millions of dollars into a fledgling industry with a reputation for over-promising and under delivering? BIC’s answer is that it has been developing hydrogen cartridges for portable power devices for nearly a decade, and there are a number of complementary areas with Angstrom Power.

That being the case, will other multinationals look to acquire fuel cell companies? Almost certainly. I wouldn’t call them sharks circling, or wolves on the hunt, but large companies that have a history of forward-looking investment and feel the time is right to bring a fuel cell startup to the commercial product stage are likely to leap in. After all, when a company is bought outright not only is the IP transferred to the new owners, but they also control the route to market, marketing and distribution: three areas the fuel cell industry has almost completely failed at.

Looking at the three main sectors of transport, portable and stationary, we see that in transport most independent companies are in the supply chain, in portable there’s a mix between stack and system developers, and in stationary there is also a good mix of independent stack and system developers. With the increased global focus on clean energy and energy efficiency, the stationary sector is likely to see the highest interest from large corporations, at least for the next 12 – 18 months. Later, as we get closer to the roll out dates of volume fuel cell vehicles, it will make sense for a number of independent vendors to be rolled up into one end-to-end company. This transport M&A activity will likely kick off sometime late 2013.

The fuel cell industry for too long has been dependent on government handouts. Time to move on folks, get real and get commercial. And this is going to require selling up.


Energy Service Cos. in a Post-ARRA World

— December 6, 2011

Across the sectors of cleantech, from renewables to energy efficiency, the American Recovery and Reinvestment Act originally seemed to be a huge boost for the industry.  The actual outcomes have been more nuanced than originally thought, and one way to examine the act’s real-world effects is to look at some of the unintended consequences in the energy service company (ESCO) sector.

At the NAESCO conference in San Diego recently, I got a glimpse into the post-ARRA world for energy performance contracting.  Despite the millions of ARRA dollars dedicated to energy efficiency, the ESCO industry has not yet seen a big surge of contracts in the federal sector, and has experienced a relative lag in the MUSH (that’s the Municipal, University, Schools, and Hospitals sector, not mush) sector.  In fact, the average number of ESCO projects initiated this year is below the historical average, at least for the federal government.  As it turns out, the backlash of the ARRA may have in fact resulted in less business.  The reason: companies and project developers sat on their heels waiting for ARRA money to become available and get spent.  The result was a hesitation to initiate projects using the energy service performance contract (ESPC) model, and thus a relative lag in ESCO business.  As a result, the entire sector has experienced lower revenues than anticipated.  

Nevertheless, the value of the ESPC model has not been undermined in the federal sector.  In fact, many federal agencies used the down time to overhaul the procurement procedures that will open doors to the energy service procurement model and the ESCOs themselves.  The Army and the General Services Administration (GSA), which manages a significant amount of Federal real estate, are undertaking significant efforts to educate their staff on the intricacies of ESPCs.

That’s why energy service companies are optimistic about the outlook in the federal sector, despite the paradoxical lag caused by ARRA funding.  The U.S. military in particular will be targeting more ESPCs for integrated energy efficiency and renewable energy projects.  Likewise, look for innovative new technology pairings to begin to surface in the Department of Defense and through the U.S. General Services Administration as it embarks on an experiment with net zero buildings.


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