Navigant Research Blog

How Technology Partnerships Will Shape the Future of Building Innovation

— January 20, 2015

The last 5 years have been monumental for the smart buildings industry.  Major building automation vendors have repositioned themselves as tech companies, a flurry of startups have entered the market, and building owners have become increasingly aware of the business value of integrating energy and operations management technologies.  Navigant Research expects to see a shift from the rash of acquisitions that dominated the smart buildings news a few years ago to partnerships shaping the market’s near future.  Companies are coming together to help customers overcome the challenges of enterprise awareness and integration and to make energy service offerings even smarter.

Enterprise Awareness

Even as the economy improves, many customers resist investing in energy efficiency.  The upfront capital costs of systems integration and equipment upgrades can be a daunting proposition for building owners and managers still learning the business value of intelligent energy and operational management.  Yet, a growing number of startups are finding new ways to bring cost-effective solutions to market that will help deepen the market penetration of smart building technologies.

In August, for example, Panoramic Power and Lucid announced a partnership to help customers capitalize on enterprise efficiencies through wireless energy monitoring and analytics.  Panoramic Power’s self-powered micro-sensors and Lucid’s BuildingOS software help customers aggregate building data and generate useful data across diverse systems and facilities.  In October, GridPoint and MicroStrategy announced a new partnership to enhance the software platform and visualization capabilities of GridPoint Energy Manager for cost-effective insight across light commercial building portfolios.  These two examples epitomize the partnering activity in the market that’s helping customers realize the benefits of smart building technologies at lower costs.

Enhanced Energy Services

Energy and engineering service companies are also seeing the benefits of partnering to bring smart building technologies to their customers.  AtSite is now enhancing its smart building professional services with the BuildingIQ Predictive Energy Optimization software.  The collaboration converges cloud-based software analytics with engineering expertise to elevate the service offerings to their customers.  ForceField Energy has partnered with Noveda to enhance its energy service company (ESCO) offerings with the IntelliNET Luminaire Management System (LMS) offering.  These partnerships illustrate how smart building technologies can generate new efficiencies and insights for professional service providers and differentiate offerings to customers who increasingly demand data-driven decision support.

Navigant Research will continue to track how new partnership models unfold in 2015 and whether these companies can successfully utilize their individual core competencies to deepen market penetration and expand the market for smart building technologies.

 

The Future of Energy: Open or Closed?

— January 20, 2015

Among technology giants, two predominant business models dictate the way in which consumers connect (and interact) with the broader Internet and the way in which innovation unfolds: open and closed.  This tug-of-war between open versus closed has been going on ever since the Internet first started to hit the mainstream.  As described by GigaOM, “It’s a battle that has been at the heart of the technology industry for most of its modern history.”

Open models seek to facilitate universal access and maximize creativity, but potentially breed chaos, error, and design catered to the lowest common denominator.  Closed systems limit the number of participants and exert more control over the flow of information, but can make it easier to roll out dynamic products while minimizing the potential for error.  In more specific terms, it’s a battle between the Google, Android, and Adobe business models and those of Facebook, Apple, and Microsoft.  Each carries with it specific advantages and disadvantages.

Advent of the Cloud

Although still in its infancy, in the emerging Energy Cloud, the battleground is divided similarly, with advocates of open and closed models both beginning to stake claims.

The Energy Cloud – the end result of an evolutionary shift away from a financial and engineering model that relies on large centralized power plants owned by utilities to one that is more diverse, in terms of sources of generation and ownership of assets, and enables the integration of new, distributed energy resources in addition to traditional generation – provides a rich ecosystem for breeding innovation as energy becomes increasingly democratized.  As depicted in the graphic below, the hallmark of the Energy Cloud is a shift away from one-way power flows to bidirectional flows in which consumers become both consumers and producers of power:

The Energy Cloud

(Source: Navigant Research)

Lessons from the Revolution

There are many lessons from the Internet revolution that can be applied to the Energy Cloud.  Open and closed Energy Cloud models alike must balance the need for access, reliability, safety, and ultimately, innovation.

The question comes down to this: will the Energy Cloud take the form of a walled garden, as CompuServe and America Online attempted in the early days of the Internet and Facebook is doing today, or will it remain an open landscape?  Or, perhaps of more relevance to stakeholders, which model best serves the goal of fostering a thriving, ubiquitous Energy Cloud?

Likely, both open and closed models will play key roles, as the Energy Cloud will serve multiple objectives simultaneously.  According to an essay on the topic from PricewaterhouseCoopers, innovation is almost never an either/or choice.  As most companies have discovered, their innovation goals involve a complex mix of closed and open models that is uniquely tailored to their specific innovation objectives.

Customers and Providers

For the incumbent utility, for example, objectives remain focused on preserving market share and maintaining safety and reliability while also growing profitability.  For the consumer, access to inexpensive and reliable power around the clock and choice in how and by whom their energy is produced remain key objectives.  Some stakeholders will seek to maximize either one of these positions, while others will seek to bridge the two.

In either case, the emergence of the Energy Cloud will require a rethinking of standards, protocols, and relationships among stakeholders.  With a slew of innovative technologies gaining market share – solar PV, distributed storage, home energy management systems – the integration of these assets into an efficient and resilient system remains among the greatest challenges ahead for all Energy Cloud stakeholders, and will likely be where the greatest emphasis on innovation will occur.

 

Explosive Growth Drives India’s Smart Cities Movement

— January 19, 2015

In June, Prime Minister of India Narendra Modi announced the country’s goal for the development of 100 smart cities.  Fundamental to this vision is the development of smart buildings.  According to a recent article by Surabhi Arora, director of research services for Colliers International, “The advantage of following smart building concept is that they can be considered as future-proofed assets. … The shift to smart buildings has only just begun, and will now accelerate very quickly with proactive government support.  It is the time for forward-thinking developers and landlords to prepare themselves to lead, rather than follow, the change.”

My colleagues James McCray and Lauren Callaway recently commented on the drive to create a more resilient and smarter grid in India.  As with that effort, India will face some inevitable challenges on the path toward developing smart buildings.  According to the United Nations, Indian cities will see populations burst with an additional 404 million people by 2050.  This rate of urbanization will put unprecedented pressure on city infrastructure and resources.  Smart city and smart building goals speak to the priorities for sustainability, climate change readiness, and human welfare, but economic commitments will be critical to see these objectives come to fruition.

Outside Forces

The international community has recognized the opportunities in India, and Japan, the United States, and Singapore are major government allies for the Indian smart cities agenda.   According to an article in Forbes, the Delhi Mumbai Industrial Corridor (DMIC), a 1,000 kilometer stretch between Delhi and Mumbai, will be a major focus of the smart cities development plan.  It’s projected that the new manufacturing and commercial centers within the smart cities will require upwards of $90 billion from international investors.  The smart city development in this corridor is integral to the nation’s vision of becoming the “Global Manufacturing and Trading Hub,” according to the DMIC Development Corporation, the government partnership between India and Japan.  The international interest for participation in the development of these smart cities also stems from major technology companies such as Microsoft and IBM.

A Chicago a Year

The Indian government is pushing the smart city agenda forward through an important round of stakeholder planning meetings that began at the end of December.  The government recognizes that accomplishing its vision will be no small feat; as one government official explained, “a new Chicago needs to be built every year.”  The political commitment, international interest, and growth demands in India represent a major opportunity for smart building technology companies.  India’s smart cities movement could demonstrate how smart buildings deliver significant cost savings through energy efficiency and strategic facilities management, and could become a hub for the spokes of the smart city infrastructure.

 

How Oversupply Could Benefit the World Oil Market

— January 19, 2015

For economists, it has been fascinating to watch what’s been happening in the oil & gas market since OPEC’s meeting in November, when it decided (driven by Saudia Arabia) to maintain production of 30 million barrels of oil per day.  This decision, combined with the sharp rise in U.S. production and a decrease in demand driven from China’s slowing economy, has sent oil prices to their lowest levels since May 2009.  Saudi Oil Minister Ali al-Naimi has explained that OPEC’s reason for maintaining the production level is to recoup market share lost to what he considers high-cost or inefficient non-OPEC oil producers, such as Russia, Brazil, and Canadian tar sands producers.  Of course, there’s also a geopolitical side to the story, but let’s take a deeper look at the situation in economic terms.

The demand for oil is fairly inelastic to price; that is, as the price changes, demand stays relatively consistent, especially in developed countries.  As such, OPEC has been able to essentially set the price of oil by choosing how much to produce.  Over the past 5 years, however, non-OPEC oil production has exploded, especially in the United States.  The country, which was OPEC’s biggest customer only 10 years ago, is now the world’s largest producer of total oil (crude and natural gas liquids) and moving toward self-sufficiency.

Consumers’ Delight

OPEC has typically responded to increases in non-OPEC oil supply by cutting its own production in order to keep the price of oil above $80 per barrel.  Now it appears the oil market and OPEC have reached a turning point as the huge influx of supply and a slowing of demand growth from China and Europe (among other reasons) have sent the price of oil on a steady decline since June.

At the meeting in November, OPEC ministers faced unenviable choices.  They could cut production in order to raise the price of oil and increase their margins in the short term, but this would not have served them in the long run.  If only OPEC cuts production, not only do their competitors share the benefit of higher margins, but also OPEC concedes more market share.  Instead, OPEC decided to forego profits in order to thin out the herd.  By declining to cut production, the Saudis hopes to drive higher cost producers out of business while giving oil-consuming economies a shot in the arm.

Thinning the Herd

As my colleague Richard Martin has pointed out, the stronger members of OPEC (i.e., Saudi Arabia and Kuwait) can likely withstand drastic price declines, while the weaker members (Venezuela, Iran, Nigeria, and Algeria) could face economic disaster.

The current market trajectory will end up benefiting those countries that have a comparative advantage in oil production, as it should, and it’s likely that the market will be left more efficient and better off in 2 to 5 years as a result.  According to some, the U.S. might actually be better positioned for a price war than Saudi Arabia, which as a society has grown accustomed to the benefits of $100/barrel oil.  According to Naimi, we may never see $100/barrel oil again.  As far as he’s concerned, Saudi Arabia and OPEC will see this price war through, regardless of how low it goes: “Whether it goes down to $20, $40, $50, $60, it is irrelevant.”

As for the effects of all this on the natural gas market and renewables, that’s for another blog.  The December issue of Navigant’s NG Market Notes includes a great infographic about the breakeven prices of oil for producers around the world.

 

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