Navigant Research Blog

Heating: The Next Frontier of Decarbonization?

— April 12, 2018

Low carbon energy is gaining steam in fast-growing technologies like solar PV and battery EVs, but a key lagging sector—heating—may see a pickup in its own decarbonization. Alongside transport, the CEO of E.ON UK recently mentioned heating as a specific area where the company wants to play a larger role, suggesting perhaps that renewable electricity has more sustainable momentum than heating. This agrees with trends Navigant Research has been following and projecting, as outlined in this blog.

Though global data on heating alone is somewhat limited, for example heating and cooling in Europe accounts for 51% of final energy use, the stakes are indeed high. Together, transport, electricity, and heat accounted for about two-thirds of global CO2 emissions in 2015, according to the International Energy Agency.

Multiple Pathways Will Decarbonize Heating

There are several parallel paths to decarbonizing this sector—one that has traditionally relied on burning fossil fuels onsite. Among these paths, fuels can be decarbonized, heat production processes can be made more efficient, and heat sharing business models can be expanded.

Fuel decarbonization is covered in depth in a new report for the Gas for Climate consortium by Ecofys, a Navigant Company. The report concludes that renewable gas—including biomethane and power-to-gas—can help achieve a net-zero carbon energy system in the European Union by 2050, while saving €138 billion annually compared to a scenario without any gas. The report mentions space heating and industrial heating as benefiting from gas especially during the coldest winter snaps, when the fuel can be dispatched in huge bursts for both heat and power.

Heat production can also be made more efficient with the use of heat pumps and a variety of combined heat and power (CHP) technologies such as fuel cells. Heat pumps are broadly adopted for heating and cooling applications and, especially in high adoption places like Europe, look to provide a compelling bridge between clean electricity and heating and cooling. Meanwhile, CHP systems are being embraced in ever-smaller applications, much smaller than traditional multi-megawatt systems. This is enabled in part by improved packaged systems in the 1 kW-100 kW range, which open massively larger markets than before. Navigant Research forecasts significant growth in CHP in microgrids, and smaller package systems such as micro-CHP fuel cells ready to rise in Europe and elsewhere following significant sales in Japan.

Winning Energy Solutions Serve Multiple Sectors

Energy use in most sectors increasingly overlap. Renewable gas usage can be used for transport, electricity generation, and space heating, among other things, and heat pumps also provide a key link between electricity and heating and cooling.

As a final example, consider thermal storage systems such as those at University of California, Irvine (UCI), where 44% of total energy is used for space cooling. On a high PV penetration electrical grid that values flexibility, the cold thermal storage well pays for itself by allowing the campus to shift loads across the day, saving millions of dollars in demand charges while offering an efficient and lower carbon solution.

This type of system works well on large campuses that can share the load across many buildings—in UCI’s case, 8 million SF. But the same basic concept applies to district energy systems that dispense heat and cooling to many facilities and households, especially in certain larger cities. If there is a serious desire to keep this planet from overheating, these types of models should be embraced in ever-smaller, and more flexible, applications.

 

The US ITC Was Reinstated for Fuel Cells: Is It Enough to Recharge the Industry?

— March 20, 2018

In an 11th hour move, the US federal Investment Tax Credit (ITC) was reinstated for certain orphaned generating technologies in February’s congressional tax bill. Among the technologies extended, fuel cells have the highest incentive: as much as 30% of the system cost can be taken as a tax credit. For stationary systems made by the likes of Bloom Energy, Fuel Cell Energy, and Doosan, the credit can be worth around $0.02/kWh on a levelized cost basis—a significant amount that can decide whether a project gets built.

Will it be enough to reignite an industry that largely treaded water in the US in 2017? That depends on whether industry players can address certain key issues.

Capital Costs Must Be Lowered

The high capital costs of fuel cells remain the biggest hurdle to mass adoption. Installed capital costs vary widely but typically range from about $4,000/kW to $8,000/kW. By contrast, turbines, microturbines, and reciprocating gensets are significantly cheaper per kilowatt—as low as $1,000 or less for certain gensets and turbines. Fuel cells make up for this with high efficiency, but that advantage is hobbled in a world of low natural gas prices. Cost declines in recent years have been promising, but more must be done. Incentive certainty should help drive investment, volume, and thus economies of scale, but more must be done with manufacturing process improvement and the use of lower cost assemblies and materials.

Flexibility and Load Following Must Be Improved

The US electrical grid is experiencing increasing volatility thanks in part to fast growth among intermittent renewables. This has led to demand for flexible, dispatchable technologies like battery storage. The higher temperature fuel cells popular in the +500 kW range tend not to follow load well. This is a disadvantage, especially for applications like microgrids that value islanding from the grid. Pairing the fuel cell with battery storage (a la Bloom Energy) can help overcome this lack of flexibility

Carbon Emissions Still Represent a Liability

Despite super-low levels of criteria pollutant emissions, fuel cells using natural gas still emit carbon dioxide. This can be a significant liability when compared with, for example, the emissions-free PV-plus-storage systems that continue to fall in price. Though fuel cell emissions per megawatt-hour tend to be lower than most electrical grids right now, those grids are focused on decarbonizing. This is of special interest among corporate buyers thinking increasingly about sustainability. Low carbon fuels like biogas are a key decarbonizing pathway. Some programs, like California’s SGIP, encourage biogas market transformation by requiring increasing amounts of biogas in covered systems. Using biogas as a fuel is a strategy for fuel cells to compete better on system carbon emissions.

Fuel Cell Technology Needs More than Just the ITC

The reinstatement of the ITC gives a welcome boost to the stationary fuel cell industry in the US. It lowers both uncertainty and costs to the end user, and enhances economies of scale. But more yet is needed to truly scale the industry. Cost cuts have been aggressive in recent years but must continue. The ITC is scheduled to phase out over 5 years, dropping to 22% before ending in 2022, giving fuel cell companies a clear timeline for hitting lower cost targets. Pairing up with other dispatchable technologies like batteries may help fill the gaps in load following capability. And to limit carbon emissions, alternative fuels like biogas and green hydrogen will become increasingly important fuels. Fuel cell technology still shows great promise, but there is much yet to be done.

 

Is BlackRock’s Climate Change Announcement a Spark or a Sleeper?

— March 13, 2018

BlackRock, the world’s largest asset manager, has taken on long-term investing, and this will have some cascading impacts throughout the investment community. According to CEO Larry Fink, “To sustain [long-term] performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends—from slow wage growth to rising automation to climate change—affect your potential for growth.”

This is a clear statement that climate change is a relevant and crucial factor when examining long-term performance. Climate change can be evaluated with respect to direct impacts on a portfolio or a business (e.g., sea level rise, increased storms, and natural disasters), or climate change impacts can be evaluated indirectly (e.g., how a portfolio or a business can respond [positively or negatively] to regulatory shifts or consumer trends).

But what does BlackRock’s pronouncement mean for the corporate community at large? Certainly corporations pay attention when big players act. For example, Walmart’s sustainability programs are maturing and focusing on its supply chain, and Coca Cola now regularly reports on its sustainability progress. This is leadership in action. But for the long tail of smaller businesses (even in the Fortune 1000), what BlackRock’s announcement will trigger is uncertain. Below are some possibilities.

BlackRock Triggers the Avalanche

It is possible that BlackRock’s approach will influence decision makers in the board room and in the investment houses to take immediate action with respect to their operations and portfolios. Recent announcements by Amazon, JPMorgan, Chase, and Berkshire Hathaway to create their own healthcare system in light of rising costs and government stagnation shows how the big players in corporate America are taking charge of initiatives funded by governments in other countries. We Are Still In is another such effort.

Companies Will Want to Be First to Be Third

Other large financial and investment companies may follow BlackRock’s approach. But the majority of corporates may wait until more Fortune 1000 companies start turning these announcements into action before they act. This could come in the form of seeing who signs up for science-based targets (only 342 as of this witting) or reports their emissions to CDP. The second wave of “light green” companies will follow, triggering the race to be “first to be third”—or to be relevant—before climate impacts become table stakes.

Silence

It is possible that not much will happen in corporate America. While the benefits of long-term planning are becoming clearer in Europe—especially accounting for climate impacts and carbon accounting—that is a different market. The concepts of the circular economy, direct climate change impacts, and carbon accounting are still unknown to most businesses in the US. They may be paying attention more and more, but until climate and sustainability action is clearly a stick or a carrot, they could be slow to act.

So, what does this mean? Which scenario will play out? It is too early to tell, but this is a newly fast-moving environment. Navigant will be watching this space closely.

 

Premium Auto Brands Lead the Way to 200+ Mile BEVs

— February 22, 2018

In the race to create long-range battery EVs (BEVs), premium brands are taking the lead. Navigant Research projects over 6 million BEV sales globally by 2026. Because range anxiety is a leading deterrent of consumers looking to purchase an EV, increasing the range of BEVs will be crucial to expanding the market.

Over the past few years, several premium brands have announced they would bring to market BEVs with capabilities of at least 200 miles, with many pushing that number to over 300 miles of range. Apart from Tesla’s Model S and Model X, no premium automaker has released these long-range BEVs. However, 2018 is anticipated to be the year we start to see these new models come to market.

Premium Automaker Electric Promises

The following timeline showcases the increase in announced/expected premium brand long-range BEVs:

Announced Premium Brand 200 + Mile Range BEVs

(Source: Navigant Research)

Audi and Jaguar will likely continue Tesla’s long-range trend in 2018 with the crossover style Jaguar i-Pace and Audi’s SUV e-tron Quattro. The i-Pace is expected to have a range of 220 miles, while the e-tron Quattro will have around 300 miles of range. Audi is also expected to release another all-electric SUV by 2019, along with Aston Martin’s RapidE, Mercedes Benz’s Concept EQ, Porsche’s Mission E, and the Fisker EMotion. Looking to 2020 and beyond, BMW, Tesla, Infinti, and Volvo are all anticipated to release long-range BEVs—in Tesla’s case, the revamped Roadster with 600 miles of range (and a hefty price tag).

Premium brand commitments to electrification comes in more than just the form of single vehicle announcements. Volvo, Aston Martin, and Jaguar Land Rover have announced plans to go all electric or hybrid over the next decade, with Volvo promising this lineup by 2019. In 2017, Porsche installed its first 350 kW charging station at its Berlin office. The ultrafast charger is being developed for the Mission E to allow customers to recharge quickly.

Affordable, Long-Range Vehicles Not Far Behind

More details of these long-range vehicles will be unveiled closer to the release dates, but it is already clear that premium automakers are committing to an electric future. As with many consumer markets, premium and luxury automakers are often early adopters of trends and technologies that are later picked up by economy brands.

While these premium brand long-range BEVs will have a hold of the market for the time being, economy brands like Ford and Hyundai are announcing their own long-range BEVs, which will likely have a substantially lower price tag. Some premium brands, like Tesla, have begun offering less expensive electric models to meet this demand for non-luxury long-range BEVs and to compete in both market segments. If automakers stick to their electric promises and all begin producing EVs, we will continue to reduce emissions from the transportation sector and move toward a greener, cleaner future.

 

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