Navigant Research Blog

Why Are We Funding Fuels?

— May 17, 2011

Last week, the Washington, DC office of Pike Research attended the Department of Energy’s Hydrogen and Fuel Cells Program and Vehicle Technologies Program Annual Merit Review and Peer Evaluation Meeting. During this year’s plenary session, I got to hear more about the funding specifics of the Vehicle Technologies program. One of the programs within Vehicle Technologies that struck me was the Fuels Technology subprogram.

First, I should summarize the Vehicle Technologies program and how the Fuels Technology subprogram fits within it. As summarized by the DOE website, “The Vehicle Technologies Program is developing more energy efficient and environmentally friendly highway transportation technologies that will enable America to use less petroleum. The long-term aim is to develop “leap frog” technologies that will provide Americans with greater freedom of mobility and energy security, while lowering costs and reducing impacts on the environment.” The VTP hits on the trifecta of new energy: less petroleum, lower costs, and less impact on the environment. Of course, being more efficient with a scarce resource is the easiest route and several subprograms, including the Fuels Technology subprogram, address efficiency.

In line with the VTP mission, the Fuels Technology subprogram is also summarized by the DOE, “The fuels and lubricants effort supports research and development to provide vehicle users with fuel options that are cost-competitive, enable high fuel economy, deliver lower emissions, and contribute to petroleum displacement. Activities aim to identify advanced petroleum-based fuels and nonpetroleum-based fuels and lubricants for more energy-efficient and environmentally friendly highway transportation vehicles that can displace petroleum fuels.” I think everyone would agree these are important goals.

I was surprised that the DOE was funding fuels technology, not because it is unworthy, but rather an issue for industry not government. I understand how the DOE would be interested in testing and verifying fuels and lubricants, but funding the actual research and development seems like a poor use of scarce government R&D dollars. It would be more efficient for the federal government to issue efficiency standards, leaving the fuel vendors to find funding. This is logical because fuels and lubricants for internal combustion engines are not disruptive technologies. We’ve been driving and fuelling ICE vehicles for over 100 years. There is nothing remarkable about ICE vehicles or the fuels and lubricants these vehicles consume.

Moreover, oil companies have the resources to undertake this type of research. I am certain that many (if not all) fuel vendors, such as Shell, have fuels and lubricants R&D programs with similar if not identical goals. The total budget for the Fuels Technology program in FY2009 was $20.122 million. That is a lot of money to spend on an existing product when vendors are performing the same research.

In my opinion, agencies such as the DOE primarily exist to fund research that is in too early a stage to receive serious industry funding. That is not the case with fuels and lubricants. A simpler way to ensure efficiency and get cost-competitive, high fuel economy, lower emissions fuels and vehicles is mandating these characteristics to fuel vendors, not necessarily undertaking research in parallel.


Will Fracking Derail NGVs?

— May 16, 2011

Natural gas has a relatively comfortable relationship with the transportation world. It is largely seen as clean, domestic, and inexpensive, a win-win-win situation that is not often found in the transportation industry. While the market for natural gas vehicles (NGVs) remains comparatively small, the growing cost of petroleum based fuels and the high purchase cost of electric vehicles has many in the NGV industry thinking their ship is coming in.

The medium and heavy duty truck world is looking at NGVs as a solution to many of the woes of diesel without the high cost of batteries or there limited range. When combined with hybrid systems, the M/HD NGVs look even more promising. Although the market is not expected to grow substantially, consumers are also starting to get a taste for NGVs with increased vehicle availability from Honda and other converters like Altech-Eco.

But one method for retrieving natural gas from shale rock has started to cast a growing shadow on the NGV industry. At the Alternative Clean Transportation Expo last week, I received several questions about how bad hydraulic fracturing (or fracking) is for the NGV industry.

The question is actually two-fold. First, there is the technology question surrounding fracking. Can gas drillers manage the chemicals and potential environmental damage from fracking? The DOE has formed a panel to address this question. While it seems likely that there is a technological solution, it will cost more, which will in turn drive up the cost of natural gas as a vehicle fuel. The fear is these technological solutions could make American drilled gas uncompetitive in comparison to importing liquid natural gas and would drive consumers back towards petroleum vehicles.

The second question is a marketing or branding question. Will gas drillers lose the public support for NGVs because of the damaging publicity surrounding fracking? This question is much trickier for gas suppliers and does have the very real possibility to derail the use of NGVs in the United States. The question comes from strong emotional reactions to reports of drinking water that can ignite in the movie Gasland, concern over the sources of earthquakes in Arkansas, air quality concerns in Wyoming, and numerous other articles, research, and videos that seems to damn fracking. Even the word, “fracking” has been used as a (slightly) more polite expletive in video games and television shows, something that no doubt contributes to the negative connotation of the drilling practice.

The organization, America’s Natural Gas Alliance is responding to some of these, but from a branding standpoint, it appears they are losing the opinion battle over fracking. Plus, time is not on their side. Fortunately, thus far, public opinion of NGVs remains positive, and seems largely disconnected from the fracking issue. However, the longer questions about earthquakes and air quality go without official responses (several searches I did found no response from the ANGA or NGVAmerica on these specific topics), the more consumers will believe those who are talking about it and may start making the connection to NGVs. The Toyota brand took a huge hit when they remained mum about unintended acceleration and only started to earn trust back when they recalled the questionable vehicles for inspection. A high cost move, but cheaper in the long run than a permanently damaged brand. While not completely comparable, there are some parallels in the natural gas industry.

As they say, actions speak louder than words. Actions like releasing information on the chemicals being used in hydraulic fracturing fluids helps. However, stating what chemicals they use does not have the same impact on public opinion that changing or eliminating the chemicals would.

Overall, the issue of fracking seems likely to lead to more legislation (we’re seeing the beginning of that process now). Whether that is on the state level with moratoriums, or if it comes at the national level with tighter EPA regulations. The fact is that as legislators start to hear more and more about the negative side of fracking from constituents, the more likely legislation will play a bigger role in the hydraulic fracturing for gas (and make no mistake legislation already plays a big role). Additionally, local governments may feel the pressure from local constituents to purchase technologies other than NGVs if natural gas becomes too closely associated with tainted drinking water.

Will this derail NGVs? Not likely in the near term, thanks to growing gasoline and diesel costs, continued pressure to deliver vehicle range with low emissions, and a continued need for employment in many of these key parts of the country fulfilled by natural gas drilling. But as electric vehicles and other biofuel alternatives become more competitive in coming years, the NGV industry could be painted as “dirty” in the court of public opinion, sending their ship back out to sea earlier than expected.


A Final Word (for now) on BEVs vs. FCVs

— May 12, 2011

Today’s blog post will feature an exorcism. Mainly of my pent up aggravation over how the battery versus fuel cell debate has been characterized over the past several years.

Recently my colleague John Gartner wrote an insightful blog post showing how today’s EVs and the market climate for this technology are different than the 1990s. As he points out, today’s commercial EVs have more advanced batteries, more amenities, and cost less than EVs did in 1999.

Since Who Killed the Electric Car was released in 2006, it has become received wisdom among many that EVs in the 1990s would have succeeded except for…well, how else to put it, conspiratorial opposition to them. Theirs was not the only suggestion that some sort of plot has kept EVs out of the market. Over the years, blame for the failure of battery EVs to succeed has been placed on oil companies, automakers, the Stonecutters, and, of course, the dastardly fuel cell. As someone who was involved in the 1990s push for EVs (I worked for the Electric Transportation Coalition in the 1990s), it is my firm opinion that the primary reason EVs failed to take hold at that time was a lack of true commercial viability. In other words, it was primarily a market failure, albeit a failure in a market that had been artificially created by the CARB zero emission vehicle (ZEV) mandate.

Yes, the automakers were, to put it mildly, of two minds on EVs. They opposed California’s ZEV mandate through the courts on the one hand, while ostensibly promoting their EV products to drivers in California on the other. But fundamentally, EVs were not ready to be anything other than a small niche product, due to the limitations of ’90s battery technology. Even the EV1, which is rightly touted as the best of the EVs at the time, had major limitations which tend to be glossed over. It was a nifty little car, with good acceleration (0 to 60 in 8.5 seconds, good even for a gas car at the time) and it looked sleek and modern. But it was a two-seater, which is inherently a niche car segment. Its small size was necessary to maximize range, given the limitations of battery technologies at the time. The first generation of EV1s had lead acid batteries, giving it a range under 100 miles, and their performance fell dramatically in cold weather. The second generation had nickel metal hydride batteries, which extended the range to as much as 160 miles, but they had hot weather issues, and added more to the price, which was already high. An EV1 lease was around $399 to $549 per month, quite expensive for the 1990s. While other OEMs’ EVs were on larger vehicle platforms, they still suffered from limited range, often anemic acceleration, and high price tags. Today’s BEVs have benefited enormously from the investment in lithium battery chemistries that continued after the ZEV mandate was altered, which is why today’s EV market looks so much rosier.

Perhaps if CARB had stuck with its original ZEV mandate, the EV market would indeed have taken off in 1998 and beyond. But I believe that all parties recognized they had hit a wall on the development of battery EVs at the time, and it was not possible to force the market as quickly as they’d hoped. This is one reason governments turned to fuel cells. Fuel cells offered a zero emission car without the range and recharging limitations of batteries, so they became part of the revised ZEV mandate (along with hybrids). Of course, FCVs ran into their own development realities, taking longer to progress than had been promised. And the FCV industry must still work on cost reduction and the infrastructure conundrum. Ultimately, as with BEVs, the success of FCVs (at least as they are being developed by the major OEMs today) will depend on customer response. While the government can play a critical role in priming the market – by supporting infrastructure build-out, for example – in the end, FCVs’ success will depend on whether drivers demand, and are willing to pay for, a zero emission vehicle with range and refueling capabilities similar to today’s gas cars, and in the full range of vehicle segments.


How Can Utilities Monetize their AMI Data?

— May 12, 2011

As utilities are gearing up to deploy the smart grid and expand it over time with the installation of thousands and sometimes millions of smart meters, they are not only faced with the formidable task of managing the huge volume of data generated by these meters and other intelligent devices on the smart grid, but they must also determine how to take advantage of all this data. They must be able to transform the raw data into useful information that can guide their business decisions and actions, especially with regard to grid operation and customer relationship and management. Therefore, the ability to perform data analytics becomes a critical undertaking. Otherwise, a utility organization can become very data rich, yet very information poor.

Through smart grid data analytics, utilities can turn the masses of data into business value in various ways. First, data analytics will improve their ability to run a more efficient and effective grid operation than ever before – especially with respect to revenue loss management, load management, outage management, asset management, and energy management. Second, analysis of data can provide enormous benefits from a customer management perspective because customer data is one of the most important assets a utility possesses. Thanks to data analytics, utilities can identify and correct customer issues. In addition, it allows them to understand customer behavior and preferences better. Smart metering with increased data availability, for example, at 15 minute intervals, makes it possible for utilities to respond to any customer changes quickly and appropriately. As a result, they are able to serve their customers more effectively with new products and services – providing the opportunity for a utility to generate new revenue streams.

The ability to monetize the explosion of AMI data can be expected to become a major economic driver for further investments among utilities in smart meters and the smart grid in the coming years. Vendors that have developed expertise in this area will most likely enjoy robust demand for their software and services in the future. One such software vendor is GridGlo, a smart data mining, aggregation and fusion provider, based in Delray Beach, Florida, which has been working with several major utilities to obtain intelligent and actionable consumer information by integrating consumer behavioral data with energy consumption data. GridGlo’s proprietary software platform enables a utility client to create a consumer energy profile that shows when, where, and how much energy is consumed. By aggregating this data from a group of consumers (to avoid any privacy concerns by looking at individual consumer data) and integrating it with other data, such as demographics, weather, zip codes, and other behavioral information, GridGlo is able to monetize the data for utilities by:

  • Developing personalized services or software solutions that are uniquely customized for the specific consumer segment that the utility client wants to target. Presumably, consumers would be interested in obtaining this more “individualized” service or product for a fee.
  • Reducing their load reserve or inventory (e.g. from 8% to 10%) thanks to more accurate and reliable forecasting and modeling tools some utilities in certain regional markets are able to generate and sell more energy to their consumers.
  • Decreasing the probability of energy theft and abandonment (i.e. lack of payment of energy bills) through better understanding and forecasting of certain consumer segments can help utilities save a great deal of money over time.

By finding ways to monetize AMI data, GridGlo is not only helping utilities gain business value from their smart meters but also enabling them to move beyond risk mitigation and focus on growth and innovation. With adoption of smart grid technology, utilities are evolving from solely being distributors of energy to also becoming information brokers and analysts.


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