Navigant Research Blog

Toyota Commits to Active Safety Features

— September 18, 2014

If the world’s largest automaker gets its way, by the end of this decade, we can expect advanced active safety and semi-automated driving features to become as familiar as anti-lock brakes and stability control have in the past 10 years.

During an advanced safety systems seminar near Toyota’s North American technical center in Ann Arbor, Michigan, the automaker challenged its competitors when it committed to offering advanced active safety systems across its lineup by 2017.  Toyota also increased its commitment to advanced safety R&D by extending the initial 5-year mandate of the Collaborative Safety Research Center (CSRC) from 2016 through 2021 and adding $35 million in new funding.

At the same event, Simon Nagata, senior vice president of the Toyota Technical Center, announced an expansion of the scope of the CSRC, which was launched by company president Akio Toyoda in 2011.  Nagata described the program as unique in the industry because “all findings are openly shared in order to benefit people everywhere.”

CSRC research initially focused on three areas: driver distraction, active safety, and helping to protect the most vulnerable traffic populations, including children, teens, and seniors. Automated and connected vehicle technologies are now part of the CSRC scope of work. To date, CSRC has initiated or completed 34 projects with 17 universities and research hospitals.

Join the Crowd

Ford has drawn attention in recent years for offering a full suite of driver assist capabilities, including active park assist, blind spot information, lane departure warning and prevention, and adaptive cruise control on the high-volume Fusion midsize sedan.  Some of these features are even available on the smaller Focus and Escape.  Other manufacturers, including Nissan, Honda, and even Hyundai, have since added some of these features to mainstream products.  Toyota, on the other hand, has largely restricted these technologies to its premium Lexus brand.

“Many of these capabilities will be added to Toyota brand vehicles starting in 2015 and with the goal of becoming the first full-line manufacturer to offer these technologies across the entire lineup by 2017,” said Bill Fay, Toyota group vice president and general manager.  Fay didn’t provide details about exactly which vehicles will get what features.  However, the updated 2015 Camry sedan, announced in April at the New York Auto Show, will offer radar-based adaptive cruise control, blind spot monitoring, cross traffic alert, lane departure alert, and a pre-collision system.

Toyota’s increased emphasis on active safety and automated driving is likely to inspire both the competition and regulators who may well see this as an opportunity to begin mandating the technologies that are building blocks for autonomous vehicles, just as they did previously with stability control and rear cameras.  And it will provoke a wider discussion of how we incorporate automated vehicles into the transportation ecosystem.

 

Distributed Generation Leads Microgrid Investment Opportunities

— September 18, 2014

Without some form of distributed generation (DG), the vast majority of microgrids would not exist.  So, it should come as no surprise that such assets represent the single most lucrative microgrid enabling technologies (MET) segment today.

A prime mover technology for microgrids is diesel generators, which are widely deployed as backup emergency power generators thanks to their ability for black-start.  However, they are also often legacy assets upon which microgrids are layered and, more often than not, microgrids are specifically designed to reduce diesel fuel consumption.

In Navigant Research’s report, Microgrid Enabling Technologies, the amount of DG being deployed within microgrids is forecast in terms of capacity and of annual vendor revenue.  If one looks at new capacity additions, diesel generators have captured the largest market share, followed closely behind by natural gas generators (which also serve as the basis for combined heat and power applications).

DG Capacity Market Share in Microgrids: 2014

 

(Source: Navigant Research)

An important caveat on these estimates: only systems that incorporate some level of renewables are included in the tally for remote microgrids.   If one were to include all diesel generators deployed cumulatively, Navigant Research’s data suggests that they would represent more than 65% of total microgrid DG capacity.

Decline of Diesel

Another key assumption moving forward with microgrids is that new diesel capacity will decline over time, given the high cost of fuel, tightening air quality regulations, and the emergence of new power electronics technologies, lessening the need for a fossil prime mover.

While fossil DG capacity is still expected to exceed that of renewable capacity deployed within microgrids in 2014, the higher capital cost attached to solar PV, wind, hydroelectric, and biomass translates into higher vendor revenue per megawatt.  Fossil fuel DG (diesel and natural gas generators plus fuel cells) is expected to represent 58% of total DG capacity in 2014, according to our forecasts; renewables will most likely capture the other 42% of the DG market.   On a revenue basis, however, renewables are expected to capture 23% of total MET vendor revenue in 2014, compared to only 9% for fossil fuel DG.

Notably, the largest category of revenue in 2014 is technologies not actually included in the forecast, since they cannot be quantified on the basis of generation capacity (i.e., smart meters, smart switches, and other distribution or building infrastructure).  The majority of microgrids being deployed today incorporate significant amounts of legacy DG.  (Most of the community microgrids under development in New York and Connecticut add no or very little DG capacity.)  As a result, large investments into integration hardware – distribution infrastructure that cannot be quantified on the basis of generation capacity – represent a large piece of the overall investment pie for these retrofit microgrid projects. But this category is likely to decline as an overall percentage of total vendor revenue by 2023 as renewables, energy storage, and software increase in market share over time.

 

Smoggy Skies Drive City Innovation

— September 16, 2014

The air pollution caused by rising vehicle numbers and coal-fired power plants in Chinese cities has been well documented.  But these issues are not limited to cities of the developing world.  In March, smog levels in Paris reached levels that forced the city government to limit vehicle access to the city and make public transportation free.  Subsequent analysis suggests that this drastic measure had a notable impact on air quality, if only temporarily.

Paris is not alone among European cities in suffering from deteriorating air quality.  London and other U.K. cities, for example, have been under the spotlight for failing to meet European Union (EU) standards on air quality.  A report in July suggested that Oxford Street in London was one of the most polluted roads in the word with regard to nitrogen dioxide (largely produced by diesel buses and cars), with levels 3 times the EU-recommended amount – and higher than Beijing.  London and some other U.K. cities are not expected to meet EU targets for air pollution reduction until 2030.

Fewer Vehicles, Cleaner Air

The World Health Organization estimates that outdoor air pollution causes 3.7 million premature deaths worldwide each year; this mortality rate is due to exposure to small particulate matter of 10 microns or less in diameter, which cause cardiovascular and respiratory diseases and cancers.  Of particular concern in cities are fine particulate matter below 2.5 microns, referred to as PM2.5, which can lodge deep within the lungs.  This life-threatening type of smog is created by burning vehicle fuel as well as other fuels such as coal and wood.

The need to address air pollution is becoming a significant driver for the adoption of electric vehicles in cities, restrictions on the worst polluting vehicles, and the introduction of technologies that can monitor and improve air quality.  Madrid, for example, is using parking fees to target the worst polluting vehicles, while also introducing an electric bike rental scheme.  Boston is piloting high-tech city benches that can collect information on air quality and provide solar-powered charging for electronic devices.  Other high-tech attempts to improve air quality have been less than successful: a project supported by the Mayor of London that used a form of glue to collect contaminants proved to be largely ineffective in capturing vehicle pollution.  More recently, the Mayor has suggested that diesel vehicles, responsible for much of London’s damaging air pollution, may face additional charges for driving in the capital under the city’s congestion charging scheme.

Looking East

In the future, western cities may look to China as a leader in air quality improvement.  In 2013, the Chinese government launched its Airborne Pollution Prevention and Control Action Plan, which will see it invest $277 billion in an attempt to reduce air pollution by up to 25% in selected provinces and cities (including the municipality of Beijing) by 2017 compared to 2012 levels.  Beijing alone is expected to invest around $160 billion.  Beijing is also working with IBM on a 10-year project called Green Horizon that will employ sensor technologies, big data analytics, weather modelling, and other advanced techniques to help the city monitor and address air pollution.  The project will also integrate renewable energy forecasting and industrial energy management.

In North America and Europe, air pollution is often associated with a previous age of industrialization, but the growing public awareness of the continuing threat to public health is accelerating policy and technology innovation.  Ultimately, air pollution in our cities needs to be addressed through a combination of transportation and energy policies and the general adoption of clean fuel vehicles and other clean technologies.

 

In Slowing Market, Echelon Exits Smart Grids

— September 16, 2014

The market for smart grid technology is still growing — in fact, Navigant Research expects it to grow from $44 billion this year to more than $70 billion in 2023 — but that doesn’t mean it offers easy money for vendors.  In fact, among smart meter vendors in particular, the recent slowdown in demand following the boom years under American Recovery and Reinvestment Act (ARRA) stimulus funding in the United States and several large European deployments is prompting consolidation along with speculation that there is more to come.

San Jose, California-based Echelon announced on August 21 that it is exiting the smart grid market to focus on its Industrial Internet of Things (IIoT) division.  Linz, Austria-based S&T AG will acquire Echelon’s smart grid division for modest consideration — according to SEC filings from Echelon, it will receive in the neighborhood of $5 million before expenses related to the deal; debts associated with the division will also be assumed by S&T.

From S&T’s point of view, the deal is attractive in both financial and strategic terms.  S&T will form a new company, along with unnamed financial investors, and spend approximately $3.3 million (€2.5 million) for 40% of the company, implying an enterprise value of just more than $8 million, or about 0.3 times run-rate revenue for the division.  That low multiple reflects the 52.7% decline in smart grid revenue that Echelon suffered in 2013 versus 2012 and its reliance upon a small number of customers.

In contrast, publicly traded Itron, which has also been the subject of recent deal speculation, is valued by the market at 1 times run-rate revenue.  Considering typical acquisition premiums for technology businesses (typically 25%-50%), one could argue that Itron’s value in a sale would be north of $2.5 billion, or between 1.3 and 1.5 times run-rate revenue.

Head East  

A large IT solutions and services company, S&T has recently expanded its offerings in the smart grid space.  It has a solid presence in Central and Eastern European markets where Echelon’s power line carrier technology is likely to be dominant for smart meter deployments.  Whereas many Western European meter projects are well into the deployment process (or at least in the request for proposal stage), several Central and Eastern European governments have committed to Europe’s 20-20-20 initiative and smart meter deployments, but major utilities have not yet made significant commitments to vendors.

At least one Wall Street analyst expects additional consolidation among smart grid technology vendors.  Louis Basenese of Wall Street Daily reported on August 18 that more than $30 billion in smart grid deals have occurred over the past 2 years.  Of course, GE’s $17 billion buy of Alstom Grid will add substantially to that sum, but Basenese believes both Itron and Silver Spring Networks are presently attractive, largely because of their patent portfolios.

Unfortunately, Echelon appears to have been forced to sell at what may be a nadir in the market for smart meter business — but considering the growth ahead for smart grid technology deployments, I would agree with Basenese that more deals are likely to emerge.

 

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