Navigant Research Blog

As A123 Fails, Overcapacity Remains in Battery Market

— October 17, 2012

For those in the cleantech industry, the news that lithium ion battery manufacturer A123 has declared bankruptcy was disappointing, but hardly surprising.  A123 has been in a tailspin for the last 9 months or so.  Innovation in battery technology and the growth of the plug-in electric vehicle (PEV) market literally couldn’t come fast enough for A123.

In essence, A123’s narrow customer base and its failure to grab one of the few available high-volume battery contracts in the transportation market, combined with an expensive recall, drove it to bankruptcy.  The company’s largest program, Fisker’s Karma battery, has proven to be a money loser for A123 because of manufacturing defects that resulted in a recall, which cost the company $55 million (the total Fisker contract generated about $42 million in revenue for A123 in 2011).  A123 produced batteries for a handful of other automotive manufacturers, including BMW hybrids and Smith Electric Vehicles, but these were both very small contracts, and Smith has some financial issues of their own.

The battery market has an overcapacity of production for current demand, particularly in transportation.  The total estimated transportation market is expected to consume just under 1 megawatt-hour (MWh) of battery capacity in North America this year, and nearly 3 MWh globally.  The stationary energy storage market is expected to reach 33.6 MW.  A123’s battery cell production capacity in the United States is 360 MWh.  A123’s largest domestic competitors, Johnson Controls (JCI) and LG Chem, both have capacity that is similar in size or slightly larger.  These plants are all dramatically underutilized.

In a proposed deal, JCI would purchase A123’s automotive business, including the manufacturing facilities.  On the face of it, this makes sense because JCI is a large automotive supplier working to develop prismatic Li-ion cells, which A123 has already launched.  Additionally, A123’s newest product, the Nanophosphate EXT Li-ion, is specifically targeted at the stop-start vehicle market, an area of strength for JCI’s advanced lead-acid products.  This move would give JCI a jump on their prismatic development.  However, it does not solve the underlying problem – too much capacity chasing, too little demand.  How JCI will fill this new combined capacity is not immediately clear.  I suspect JCI’s interest in A123’s transportation products is mostly driven by the acquisition of technology, clients, and perhaps some of A123’s cell component manufacturing.  In my opinion, JCI would likely need to do some consolidation of its own, including closing one of the two Li-ion plants it would own.

 

CHP, Solar PV Move Microgrids into the Mainstream

— October 16, 2012

Microgrids are really just miniature versions of the larger utility grid, except for one defining feature: when necessary, they can disconnect from the macrogrid and can continue to operate in what is known as “island mode.”  Because of this distinguishing feature, microgrids can offer a higher degree of reliability for facilities such as military bases, hospitals and data centers, which all have “mission critical” functions that need to continue to operate no matter what.

Along with enhancing reliability, microgrids serve another useful function: they can help the larger grid stay in balance.  As the world moves toward an energy system that looks more and more like the Internet, with two-way power flows thanks to growing reliance upon on-site sources of distributed generation (DG), this increasingly dynamic complexity requires new technology.  But some forms of DG – especially variable renewable resources such as solar or wind — create a greater need for smart grid solutions, such as microgrids.  For example, recent trends in declining prices for solar photovoltaic (PV) systems certainly increase the need for aggregation and optimization technologies.  Why? Distributed solar PV systems can create frequency, voltage, and other power-quality challenges to overall grid operations.

But how much solar PV will actually be deployed within microgrids over the next 6 years all around the world? This is one of the questions addressed in my latest report, Microgrid Enabling Technologies.

Anchor Resource

In order for a microgrid to continue operating in island mode, it has to include some form of on-site power generation.  Without DG, a microgrid could not exist, so these DG assets are the foundation of any such localized smart grid network.

The ideal anchor resource for any microgrid is actually combined heat and power (CHP); a total of 518 megawatts (MW) of CHP capacity that will be deployed in microgrids this year.  This technology leads all forms of microgrid DG deployments today and will continue to hold the edge by 2018 (with 1,897 MW, representing more than $7 billion in annual revenues)  Given that it is a base load electricity resource that also provides thermal energy, today’s microgrid CHP capacity is the largest of any DG option besides diesel generators.

The bulk of CHP installations are with grid-tied systems within institutional campus environments.  The current low cost of natural gas in North America translates into the ability for microgrids to provide lower cost energy services than the incumbent utility grid.  For example, the University of California San Diego microgrid is saving over $4 million annually thanks, in large part, to on-site combustion of natural gas.

Still, Pike Research believes that declining solar PV costs will be one of the largest drivers for microgrids worldwide, and in terms of numbers of new installations, solar PV will be the market leader.  (CHP will lead in terms of total capacity due to the relative scale of CHP systems compared to solar PV.)  With the price of solar PV reaching grid parity in key markets by 2014 and 2015, the variability of this DG resource will necessitate a greater reliance upon energy storage (as well as the networking function of microgrids).  All told, this microgrid solar PV market adds up to almost $2 billion globally by 2018.

Total Microgrid Distributed Generation Vendor Revenue, Average Scenario,
World Markets: 2012-2018

(Source: Pike Research)

If one also includes distributed wind and fuel cells in the overall microgrid DG mix, this segment of microgrid enabling technologies is, by far, the largest target of new investment: 3,978 MW of new generation capacity valued at more than $12.7 billion (see the chart above).

 

No Halt to Stop-Start Vehicle Technology Advances

— October 11, 2012

The latest Pike Research report on Stop-Start Vehicles has been published for less than a month, and already more new developments have emerged.  On October 2, Lamborghini said it will implement a stop-start system from Continental that features Maxwell ultracapacitors.  All models of the Aventador, which goes into production in late 2012, will feature the new system.  Using ultracapacitors to handle the electric power surge required to start the V-12 engine in 180 milliseconds allows the company to reduce the size and weight of the battery.  The stop-start system is estimated to contribute about 7% of the 35% goal (by 2015) that Lamborghini has set to reduce the CO2 emissions of its new models.

System design was reportedly done by Maxwell’s Italian distributor Dimac, with production responsibility handed over to Tier One supplier Continental.  Undoubtedly Continental’s experience supplying Maxwell’s ultracapacitors to PSA Peugeot Citroën for its second-generation e-HDi stop-start system were a factor in landing this business.

On October 3, Tier One supplier Denso debuted a Li-ion battery pack designed specifically for stop-start applications.  The system comprises high-power battery cells from a Tier Two source packaged with a power supply control switch and a battery management unit to monitor the charge levels.  The pack is designed to be air-cooled and does not require any additional hardware to modulate the temperature.  The system is reportedly going into production on the Suzuki Wagon R this month.

These two announcements illustrate different approaches to address the practicalities of powering a stop-start system.  With a charge-discharge cycle rate of typically 10 times that of a conventional vehicle, the traditional automotive battery simply cannot cope, and most production systems feature heavy duty absorbed glass mat batteries.  As Li-ion cells get cheaper thanks to the hybrid and electric vehicle usage demand that is pushing volumes up, the greater power capacity is attractive for stop-start systems.  The alternative is to keep a low-cost basic battery to handle the steady loads of lighting, ignition, information and entertainment systems, and HVAC, and supplement it with a high power device such as an ultracapacitor to handle rapid charging and discharging.  Both systems require robust electronics to manage the stored electrical energy effectively.

Both these systems have advantages and disadvantages, and as with most things automotive, the tradeoffs are in cost, size, and performance.  We expect to see further announcements of new batteries and energy storage technologies for stop-start systems in the coming months as OEMs begin to implement the fruits of their recent research.  Evidence of this in the United States, where the EPA testing doesn’t include enough stopping to demonstrate the practical benefits of stop-start technology, can be seen in Ford’s recent PR efforts to raise awareness.  Those benefits are too important to ignore under the pressure of increasing legislation and the consumer demand driven by rising fuel prices.

 

Advanced Batteries + Solar PV + Microgrids = Market Growth

— October 8, 2012

Advanced batteries are consistently heralded as a future panacea for cleantech, without which renewables will remain niche applications and a distributed grid architecture will never materialize.  To a large extent, though, advanced batteries remain materials science experiments, more commonly found in labs than on the grid.  Likewise, the pace of innovation seems slow, especially in a world accustomed to advancing at the pace of Moore’s Law.  But if advanced batteries became the focus of consumer demand (from individuals, households, commercial buildings, and utilities), and the process of innovation became a conversation between materials science and real-world needs, we could see a dramatic acceleration of this market.

Consumer electronics brought lithium-ion batteries to the forefront of public awareness, making battery life and replacement a central issue for makers of smartphones and tablet computers.  Users consistently challenge the cycle life and functional limits of their devices, which has begged a targeted response from battery vendors.  The industry’s advances over the last 20 years have been generated through interaction with the physical world and the marketplace.  The challenge with larger format batteries, particularly for grid-scale applications, is how to get early versions of these systems deployed and interacting with the physical world.

Grid-scale demonstrations are costly and can be controversial, depending on the source of the funding.  In the United States, this work has largely been done by the Department of Energy.  Deploying advanced batteries in remote microgrids or in conjunction with distributed solar PV, though, could drive these technologies in the same fashion that consumer electronics drove the evolution of lithium-ion batteries, through smaller deployments visible to consumers.  The industry would benefit from a larger number of deployments, a broader variety of end-use applications displayed, and economies of scale that would begin to bring costs down.

This scenario might not be that far from reality: the competition on cost between diesel fuel and solar PV now makes distributed solar a more attractive investment than diesel generators.  According to McKinsey, the cost of power coming out of diesel generators ranges from $0.30 to $0.65 per kilowatt-hour.  Solar PV can now produce power for about half that cost.  In niche applications such as uninterrupted power supply in emerging economies, rural electrification, and island power, there is a clear economic case for deploying solar PV, which becomes a dispatchable, high-quality resource when paired with battery storage.

These small-scale deployments would provide the industry with another source of product feedback on technical integration with renewables, demonstrate potential revenue models, and ultimately generate larger demand for advanced batteries.  Microgrids are also a popular new technology for U.S. military applications, a historically strong contributor to advanced technology innovation.

 

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