Navigant Research Blog

The Global Biofuels Industry: A Future in Doubt

— December 11, 2014

In its recent report, The State of the Biofuels Market: Regulatory, Trade, and Development Perspectives, the United Nations (UN) notes that although the emerging biofuels industry has made great strides in the past decade – with ethanol and biodiesel becoming established commodities traded on all continents – significant barriers to commercialization persist across the developing world.  Global biofuels forecasts published in Navigant Research’s report, Market Data: Biofuels, support the view that future capacity deployment is heavily contingent on accessing a shrinking pool of capital investment targeting the industry.

As the UN report notes, conditions in the 2000s that drove annual investment in biofuels in the range of $10 billion per year – including uncertainties related to the price of petroleum products and peak oil speculation – have largely dissipated.  With shale oil & gas production on the rise in key biofuels markets like the United States and the price of crude sliding well under $100 per barrel, market realities have shifted.

Poor Timing

For the emerging advanced biofuels industry, the timing of this macroeconomic shift could not have come at a worse time.  While growth aspirations for the global biofuels industry shifted away from conventional pathways, such as corn starch, to ethanol, palm oil, and biodiesel during the financial crisis of 2008, greenfield biorefinery projects producing advanced biofuels have only just come online in the past year.

The development of these facilities involves capital costs in the hundreds of millions.  Since many of these projects were initiated and financed during a time when macroeconomic realities were quite favorable, a primary concern going forward is whether these first-of-kind facilities can spark additional investment to drive sustained capacity expansion.

This is unlikely given current realities.  To put this into perspective, according to our market data report mentioned above, global biofuels capacity – including conventional and advanced pathways – was just shy of 40 billion gallons per year at the end of 2013.  This represents 4.2% of the global liquid fuel market, or just under 1% of global final energy consumption.

Another $25 Billion Off

Advanced biofuels installed capacity – the focus of current commercialization efforts – accounts for just 1.2 billion gallons, or less than 2% of global biofuels production.  While that’s by no means insignificant, there’s still a long way to go in terms of reducing dependence on liquid fossil fuels, which account for 35% of global final energy consumption, according to data published by the Energy Information Administration (EIA).

In order for advanced biofuels to meet projected production capacity requirements by 2020 under expected biofuels supply mandates in key markets like the United States, European Union, China, and India (Brazil relies mostly on blending quotas), $25 billion to $35 billion in annual investment will be needed over the next 6 years, according to Navigant Research estimates.  This is a tall order for a suite of technology platforms that are not yet at price parity with petroleum-based fuels.

 

Street Lights Add EV Charging

— December 11, 2014

Sometimes a solution forms at the intersection of two challenges that may not seem, at first glance, to have anything in common.  For example, cities are perpetually seeking ways to increase revenue, and many owners of electric vehicles (EVs) want access to ubiquitous charging infrastructure.

Enter the new concept of retrofitting street lights with money-saving LEDs and EV charging ports.  City managers are moving toward central control of street lights by adding a control node, which enables them to reduce cost and integrate the lights with other systems, as my colleague Jesse Foote recently wrote.  With smart street lighting technology (as covered in Navigant Research’s report, Smart Street Lighting) in place, EV charging capabilities can also be added to street lights, creating a new revenue stream for municipalities.

A Light and a Charge

Among the first pilots of this combination are occurring in the cities of Munich in Germany, Aix-en-Provence in France, and Brasov in Romania.  BMW has two such lights at its headquarters in Munich and will add a series of enhanced lights in the city next year.  A consortium called Telewatt, led by lighting manufacturer Citelum, is similarly installing LED street lights with EV charging in Aix-en-Provence.  In Romania, local company Flashnet has integrated its inteliLIGHT management platform with an EV charger.

Motorists can pay for the EV charging using a mobile phone app.  Cities that have regulations allowing them to provide EV charging services can gain revenue to help balance the books.  They can also balance the additional power demand of EVs within their overall power management system.  Placing a Level 1 or Level 2 charging outlet on a light pole reduces the installation cost of bringing power to the curb, which otherwise can be several times greater than the cost of the equipment.  Cities that install these systems will help drive demand for EVs, which has the added benefit of increasing urban air quality.

This is another example of the integration of seemingly disparate city services into a smart city.  As detailed by Navigant Research’s Smart Cities Research Service, the move toward integrating power, water, transportation, waste, and building management will yield considerable savings while improving the quality of urban life for city dwellers.

 

For Self-Driving Cars, Automakers Consult Silicon Valley

— December 10, 2014

The fully autonomous vehicle (AV) is coming, and early models will be on roads sometime around 2020.  To reach this milestone, automakers are turning to Silicon Valley for its expertise in connected devices, the Internet of Things, and human-machine interfaces.  A recent tour of the 18-month-old Nissan Research Center (NRC-SV) in Sunnyvale, California underscored the importance of this trend in relation to the automotive industry’s development of the AV of the future.

While some autonomous drive systems that rely on cameras, lasers, and sensors, such as lane keeping and automatic braking, don’t require vehicle connectivity, the fully autonomous vehicle will.

Reaction Time

The fact that AVs are likely to be far safer than non-autonomous, human-driven vehicles has been well-established.  However, to provide the type of near guaranteed safety the auto industry and customers require, the fully autonomous vehicle described by NRC-SV Director Martin Sierhuis will be “the most complex system in the world.”

For starters, the fully autonomous vehicle needs to be able to communicate with other vehicles and infrastructure, anticipate/predict human and non-human (animal) behavior, be personable, constantly observe and relay information back to the Internet, and act quickly upon information received from all these sources.

Watch for Deer

Information on weather conditions, traffic congestion, and road construction are valuable assets to other vehicles and, in an ideal system, can be transferred seamlessly.  Further, observations made by vehicles can be used to maintain a near real-time map of the world, given changes to road infrastructure.  However, the most valuable pieces of information will be on how AV predictive systems can be improved and how AVs fail.

A major challenge for AVs is the unpredictability of the world.   The awkward four-way stops, the sudden trajectory deviations, the deer on the side of the road, the ear buds-wearing bicyclists in downtown San Francisco, etc. all have to be accounted for.  To function effectively, an AV must be able to predict both human and animal behavior better than humans do.  Predictions are based on data; as more data is accumulated on humans through AVs, they will in turn be better able to predict human behavior and, therefore, safer in the more pedestrian-centric urban environments.

The above are all examples in which the sharing of information from AV to AV will avoid catastrophe; however, it must be assumed that failures will eventually happen.  Yet, the silver lining will be that when the AV eventually does fail, the circumstances of that failure will be shared, and the overall system will learn from it.  As Sierhuis explained, “The same accident will never occur again.”

 

Warily, Utilities Go Digital

— December 10, 2014

Utility customers are changing their behavior rapidly, increasingly viewing the utility much in the same manner they would their bank, cellular provider, or – even worse – preferred online retailer.  J.D. Power affirmed this in July with the publication of its 2014 Electric Utility Residential Customer Satisfaction Study.  Consumer engagement technologies are also detailed in Navigant Research’s white paper, Smart Grid: 10 Trends to Watch in 2015 and Beyond.  These other types of providers, the banks and the cellular providers, have at least one thing in common: they’ve completely rearranged their strategy and operating model around a growing digital environment.  But utilities by and large are behind in developing effective and user-friendly digital presences, and I would argue that this is largely due to not having approached digitization as a firmwide strategy.

What is digitization?  It’s a broad topic, including everything from advanced gathering and analysis of data to social media.  The slowest movers have been government and public service organizations, such as utilities, simply because they’ve had more or less inelastic demand and monopoly status.  But now deregulation and growing expectations are forcing utilities to improve their public image and provide services in a more competitive manner by enhancing historically low/declining customer satisfaction.  These changes include the ability to easily monitor all activity and make services changes online, incorporate services such as prepay and prosumer options, and develop specific and targeted web/mobile-based marketing campaigns.

Resistance in the C-Suite

A couple of barriers are keeping utilities from becoming better digital organizations.  Probably the greatest barrier has been the resistance of utility executives.  It’s no longer possible to assign an intern to maintain a Facebook page and call that a digital strategy – digitization needs to involve all parts of the firm, and will probably change the business model altogether.  Utilities are not only characteristically slow adopters of change, but also traditionally siloed both functionally and informationally.

At the heart of a digital strategy is the information that is gathered to guide it.  The utility must consolidate comprehensive internal and external information from distributed sources like smart meters, customer information systems, intelligent electronic devices located on the grid, social media, and weather reports, just to name a few.   If this information is located within different parts of the utility and structured differently than other types of data, it can be nearly impossible to analyze in one place, and utilities will only see a half-formed image of demand patterns and customer preferences.

Beyond the Web Site

Once this information is in place, however, the utility still faces a second and even greater challenge of determining if and how to restructure its offerings in order to provide services in a different manner.  This can trigger investments in reorganization efforts, such as human capital investment, cross-functional collaboration, IT purchases, and outsourcing.

It comes as no surprise that many utilities are reluctant to consider these sorts of reorganizations, as they already operate with relatively low margins and typically have restricted investment budgets.  In those cases, managed services can ease the cost of digitization through highly focused products and outsourcing.

Managed services companies can assist utilities in developing firmwide digital strategies and provide resources that allow them to do so at a lower cost (with less risk of faulty investing) than integrating internally.  Until recently, the majority of these companies’ services have been adopted for very specific programs and needs, but more competitors are ramping up to offer enterprise service models where customer-facing digitization only scratches the surface.   In our report, Smart Grid as a Service, Navigant Research provides an in-depth assessment of the utility IT services market globally.  It will be worth watching how this market forms as more utilities ease, or are shoved, into the full transition to digital.

 

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