Navigant Research Blog

Advanced Energy Is $1.13 Trillion Market

— April 11, 2014

The publication of the Fifth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC), Climate Change 2014: Impacts, Adaptation, and Vulnerability, made headlines recently with a familiar message: The climate is warming, people are causing it, and we are ill prepared to deal with the direct and indirect effects of climate change.

Indeed, it is a grim outlook, but when looking at one indicator not covered in the IPCC report – revenue from deployment of smart energy technologies – there are signs that things are moving in the right direction to reduce emissions.

One group, the Advanced Energy Economy (AEE), is a national association of businesses and business leaders who seek to make the global energy system more secure, clean, and affordable.  The group takes a big tent approach to clean energy.  It is bankrolled by one of the leading advocates and funders for the United States taking a leadership position in deploying clean energy, Tom Steyer.  AEE has identified seven core segments that make up the advanced energy industry: transportation, electricity generation, fuel production, electricity delivery and management, fuel delivery, buildings, and industry.

For the past 2 years, AEE has commissioned Navigant Research to quantify the advanced energy industry market sizes for the United States and globally.  We have identified 41 categories and 80-plus subcategories that meet the AEE definition and put the detailed findings and key trends in the report, Advanced Energy Now 2014 Market Report.  Below are some key findings from the report that illustrate the breadth and depth of technologies that are capable of reducing emissions and U.S. activity in those markets.

Key Findings

  • The global advanced energy market reached an estimated $1.13 trillion in 2013.
  • In the United States, the advanced energy market was an estimated $168.9 billion in 2013 – 15% of the global advanced energy market, up from 11% in 2011.
  • Advanced transportation is booming: Navigant Research forecasts annual plug-in electric vehicle sales will reach approximately 467,000 vehicles in the United States and 80,000 in Canada by 2022 – slightly faster than hybrid electric vehicles sales grew in their first decade.
  • The United States accounted for an estimated 18% of the global solar PV market that approached $100 billion annually in 2013 and far surpassed 100 GW of cumulative installations in 2013.
  • LEDs are expected to be the leading lighting technology over the next decade, with LED lighting products (including lamps and luminaires) in commercial building markets forecast to grow from $2.7 billion in 2013 to more than $25 billion in 2021.

As Race Tightens, Renewable Energy Costs Fall Quickly

— March 20, 2014

The most common metric used to compare the costs of different power generation technologies is levelized cost of energy (LCOE).  LCOE is defined as the average cost per unit of electricity over the life of a project, which is driven primarily by capital costs, operating costs, financing, and capacity factor (power output relative to the installed capacity).  All of these factors vary by technology and are continually changing.  The chart below shows a snapshot of LCOE for various technologies estimated by Navigant Consulting as of late 2013.  Note that each estimate provided represents an average of a wide range of values, given the many variables such as plant size, age, and location that exist within each technology.

U.S. Levelized Cost of Energy

(Source: Navigant Consulting)

PV Solar Cost Continues Its Precipitous Decline

This chart looked much different 5 years ago, and it will likely be very different in another 5 years.  Photovoltaic (PV) solar and wind in particular have seen dramatic cost reductions in recent years.  For example, average selling prices for PV solar modules have dropped from $3.50 per watt in 2007 to a current price of below $1.00 per watt for large customers.  In addition to declining costs, PV solar has been experiencing improved performance.  Different technologies will also have varying impacts on overall system output.  In warmer climates, for example, thin-film modules will generally produce higher capacity factors compared to crystalline silicon.  Similarly, tracking devices – which allow solar panels to follow the sun – improve the capacity factor of a PV system.  Over the past couple of years, single-axis tracking systems have seen an increase in market share due to lower prices and increased reliability.  While most of the adoption is currently in western states, where the performance benefit of tracking is the greatest, we expect to see more tracking systems across the entire market as prices continue to decline and reliability increases.  For example, Public Service Company of New Mexico recently filed for approval of 23 MW to be built in 2014 at a contracted price of just $2.03 per installed watt.

Wind Cost Resumes Its Downward Trend

The LCOE of wind power has experienced a similar decline since its modern day peak in 2009.  Average power purchase agreement prices for wind plants in the interior (windy) part of the United States were around $50 per MWh (in 2013 dollars) that year, compared to an average of $23 per MWh in 2013.  The newest generation of wind turbines have capacity factors that are approximately 10 percentage points higher (i.e., 45% instead of 35%) compared to just 5 years ago.  With the new large rotor turbines yet to be integrated into the U.S. fleet, we can expect continued improvements in the years ahead, with many projects achieving capacity of factors above 50%.

Mature technologies are also able to secure more favorable financing.  This is due to the lower perceived risk by financial providers, which improves the price competitiveness of these projects.  Both wind and solar are now becoming mainstream technologies and will ultimately become cost-competitive without the need for incentives.  As the newer renewable technologies mature, we expect them to benefit from more attractive financing terms, as well.

Readers should be cautioned that LCOE is only part of the story.  The short-term variability of renewables imposes some cost, especially at higher penetrations.  Resources and projects may require new or expanded transmission investment, which is typically not included in general LCOE estimates.

For those interested in hearing a lively discussion on this subject, representatives from Navigant Consulting, the Lawrence Berkeley National Laboratory, and the National Renewable Energy Laboratory will participate in a panel session covering LCOE forecasts for renewable energy and grid parity projections as part of a renewable energy workshop on May 5, 2014 at the AWEA WINDPOWER 2014 conference in Las Vegas.  For more information, click here.

Notes:  The chart assumes federal incentives only (e.g., 30% investment tax credit [ITC] for solar and accelerated depreciation).  PV is fixed axis.  Concentrated solar power (CSP) assumes trough technology.  Natural gas price of $3.00 per MMBtu.  Geothermal assumes installed cost of $5 per watt, capacity factor of 80%, and ITC of 10%.  Wind assumes 35% net capacity factor with no production tax credit (PTC)/ITC.

Bruce Hamilton is a director in the Energy Practice of Navigant Consulting.


Clean Energy Incentives Plan Faces Opposition

— January 30, 2014

The chairman of the Senate Finance Committee has a noble goal: to level the playing field for clean energy incentives while also making their benefits more predictable.

Montana Democrat Max Baucus’ staff published a discussion paper in December that details a plan to reduce the number of tax credits and standardize the amount of incentives based on the environmental benefit.  Companies – both fossil fuel producers and renewable energy companies – would have the flexibility to choose either a production tax credit or an investment tax credit.

“Today, there are 42 different energy tax incentives,” according to the paper, “including more than a dozen preferences for fossil fuels, ten different incentives for renewable fuels and alternative vehicles, and six different credits for clean electricity.  Of the 42 different energy incentives, 25 are temporary and expire every year or two.”

That the credits expire every 12 to 24 months has been a source of consternation for the clean energy industry and its customers, as they are reluctant to make capital investments if the credit goes away before it can be fully realized.  Creating stable incentives would likely expand investment in renewable energy production.

Logical But Unloved

The plan states that all incentives would be based on reductions in greenhouse gas emissions for each alternative; only technologies that reduce emissions by more than 25% than the current average for energy generation would be eligible.  This would create new opportunities for using technologies such as energy storage (for capturing excess renewable energy) and combined heat and power plants, which until now haven’t been treated equally.

Standardizing the incentives is a logical idea, but the plan’s intent to use the U.S. Environmental Protection Agency’s (EPA’s) standard calculations for emissions will be contentious.  There are many studies that contradict the agency’s findings, which would likely result in loads of complaints from dissenting advocates of specific technologies.  Conversely, the oil & gas industry will strongly oppose legislation to eliminate fossil fuel incentives – but if they’re still included, then the promise of equality would not be realized.

The plan also looks to consolidate seven incentives while eliminating eleven others, including the incentive for purchasing a plug-in electric vehicle (PEV).  While the incentive plan may reduce the cost of renewable electricity, it would not lower the cost of all electricity for use in a vehicle.  Eliminating this tax credit would not sit well with the electric vehicle (EV) industry and would likely reduce EV sales in the short term.  Vehicle buyers generally do not spend considerable time calculating the recurring fuel costs when purchasing a vehicle (other than possibly looking for higher MPG ratings); rather, they focus on the upfront cost of the vehicle.  Without a credit at the time of purchase, EVs, which carry higher prices than conventional cars, would become considerably less attractive to many.

Note, too, that the plan would end the incentives as fuels and power generation get cleaner.  For transportation, the credits would phase out once the greenhouse gas intensity of all fuels is 25% cleaner than gasoline.  Having an end date is likely more palatable for legislators who are focused on debt reduction.

Despite its merits, should elements of this plan become a bill, it would likely face opposition from many interest groups, especially considering that Baucus is tying the incentive plan to reducing corporate taxes.


Middle East Tensions Point to Clean Energy Solutions

— March 21, 2012

In his March 15 “State of Energy” address, President Obama strongly defended his clean energy policies and ridiculed Republicans like Newt Gringrich, who has referred to Obama as “President Algae” for his support of R&D on biofuels.

Referring to “a lot of the folks who are running for a certain office,” Obama said, “They dismiss wind power.  They dismiss solar power.  They make jokes about biofuels. They were against raising fuel standards. I guess they like gas-guzzlers.  If some of these folks were around when Columbus set sail, they probably must have been founding members of the flat earth society.”

In a fair world, this ought to be an optimistic time for U.S. energy supplies and security.  Natural gas production is surging to record highs, even as the price of natural gas remains low; the United States last year became a net exporter of petroleum products for the first time since the late 1940s; the number of operating oil rigs has quadrupled in the last year or so; prices for solar photovoltaics continue their rapid falls; the U.S. economic recovery is gathering steam, benefiting the oil majors and opening up new opportunity for clean energy innovation.

The world, however, is not fair.  Oil futures rose again last week as the possibility of military action against Iran – once considered a Strangeloveian fantasy – took on an ominous air of inevitability.  Atlantic national correspondent James Fallows has been charting the “Iran Drumbeat Watch” in his blog and recent installments have been alarming, if you credit sources who point to, among other things, naval deployments (the Enterprise Strike Group has sailed, the Navy is doubling the number of minesweepers in the Persian Gulf, etc.)  As a result, average gas prices hit $3.80 a gallon and show no signs of moderating.  Obama and British Prime Minister David Cameron reportedly discussed tapping each country’s strategic petroleum reserves in their meetings last week.

Unfortunately, pouring more oil onto the U.S. market wouldn’t do much about gas prices at the pump, which are driven by worldwide market forces.  And if you think four dollar-a-gallon gas is eye-opening, just wait and see what happens if, say, Israel launches an air strike on Iranian nuclear facilities.  “I think you will see $5- and $6-a-gallon gas,” energy consultant Andrew Lipow, president of Lipow Oil Associates, told Washington political blog The Hill.  Other analysts went even further: a doubling of gas prices in the United States is well within the realm of possibility if the Israel-Iran conflict breaks out, the Iranians begin blocking oil shipments through the Strait of Hormuz, and the U.S. finds itself dragged in.

The possible worst-case scenarios, according to former White House counterterrorism director Richard Clarke, include “a huge energy crisis,” terror attacks in U.S. cities, cyber-attacks on U.S. power grids and oil refineries, and other equally sobering thoughts.

From the clean energy perspective there’s only one immediate response: it’s a lot harder to disrupt distributed solar arrays, biofuel plants, and wind farms (not to mention natural gas plants running on domestic supplies) on U.S. territory than it is to blow up an oil tanker in the Persian Gulf.  The shift to domestically produced, renewable sources of energy would be the single greatest boon to national security any presidential administration could deliver.  The governments in Jerusalem and Tehran could deal a serious blow to Barack Obama’s re-election prospects by launching a regional war that drives a worldwide spike in oil prices.  Such a disastrous conflict, though, would likely also spark rising public demand for and renewed political acceptance of new and less vulnerable energy supplies.  Speaking in Boulder City, Nevada, on March 21st on a Western swing to promote his energy policies, President Obama once again affirmed his support for clean energy technologies.  It’s a message that resonates more powerfully as tensions mount in the Middle East.


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