Navigant Research Blog

The Global Biofuels Industry: A Promising Future

— December 17, 2014

As I described in my previous blog, the global biofuels industry faces an uncertain future amid declining crude prices and a surge in shale oil production in key markets like the United States.  Creating even greater uncertainty, the Environmental Protection Agency (EPA) recently announced that it is abandoning 2014 rulemaking around production quotas for biofuels under the Renewable Fuel Standard (RFS2), a clear concession to the controversy that has plagued the rule in recent years.

While these shifts will likely further dampen investor appetite for biorefinery projects focused on producing biofuels for ground transportation, the industry continues to advance on several fronts.

By Air

The commercial aviation industry, for example, has played an important role in driving research and development investment as well as providing a strong demand signal to producers.  More than 25 international carriers from all global regions have tested or piloted biofuels programs in the last 3 years.  These efforts have resulted in more than 60,000 biofuel miles flown according to Navigant Research’s report, Aviation and Marine Biofuels.

 Commercial Airline Biofuel Miles Flown by Flight Type, World Markets: 2008-2013 

(Source: Navigant Research)

Earlier this month, Boeing completed a test flight using a blend of 15% green diesel – a synthetic, drop-in substitute for diesel – and 85% petroleum jet fuel.  To meet growing demand, several high-profile, dedicated biojet biorefinery projects have begun construction.  Led by the Oslo Airport’s commitment to receive 660,000 gallons of biojet fuel beginning in March 2015, emerging bioports also demonstrate a commitment to ensuring that biofuels play a permanent role in future aviation.

The advantage commercial aviation offers the advanced biofuels industry is consolidated infrastructure and like-minded potential off-take partners.  According to the International Air Transport Association (IATA), 1,600 airports worldwide fuel 95% of the world’s flights.  This compares to more than 161,000 gas stations in the United States alone.  This lowers the capital needed to invest in infrastructure to bring fuel to the customer and streamlines contracting opportunities that should accelerate commercial deployment of biojet fuel under favorable market conditions.

By Sea

The U.S. Navy is also moving forward with its goal of sailing its Great Green Fleet in 2016, a fleetwide overhaul aimed at integrating energy conservation into the U.S. fighting fleet, in part by powering ships and aircraft using biofuels.  In anticipation, the Navy has procured nearly a half million gallons of advanced biofuels to support early testing and certification initiatives.  Biofuels were also included in the Navy’s annual procurement for bulk fuels this year for the first time ever.

But non-road transportation applications are not the only area where biofuels are gaining ground in energy applications in recent months.

Primary Energy

In the developing economies of sub-Saharan Africa, Southeast Asia, and Latin America, the wide availability of biomass, combined with limited access to reliable sources of energy, provides significant opportunities to expand the utilization of bioenergy as a primary energy source.  Conversion of agricultural waste into biogas that is consumed in gas-fueled generator sets, for example, can help anchor community microgrids.  These opportunities build off an already established tradition of utilizing biomass for traditional energy (e.g., burning wood or dung for cooking and as a source of heat) and well-established technological processes.

As discussed in the United Nations’ report, The State of the Biofuels Market: Regulatory, Trade, and Development Perspectives report, the developing world remains a significant growth opportunity for biofuels.  Biofuels used in off-grid cooking applications to industrial power generation continue to gain traction as key target opportunities for ethanol fuels, biodiesel, and emerging advanced biofuels.

Bio Niches

Supply chains to support these opportunities have begun laying the early foundation for an emerging global bioeconomy centered on renewable biomass for economic activities, including commodity and food trade, the IT and automotive industries, and environmental technologies.

While the refocus of investment away from ground transportation applications to a wider range of opportunities will mean less biorefinery capacity built through 2020, these niche opportunities are expected to result in the development of specialized capacity expansion in spite of cheap and plentiful oil.

 

‘Costly’ Amtrak Payments Dwarfed by Parking Largesse

— December 16, 2014

Rail service company Amtrak posted its annual financial report on November 25, and progress was reported all around.  Revenue ($3.2 billion) and ridership (31.6 million passengers) are up over the previous year, and the operating loss of $227 million was the lowest since way back in 1973.  However, the loss would have been much greater if not for payments from states and the federal government, which pony up nearly $2 billion annually to support infrastructure upgrades and other costs.

Amtrak is profitable in the Northeast, where it is viewed as indispensable for commuting along the I-95 corridor from Boston to Washington, D.C., but runs far in the red elsewhere, especially on long-distance routes.  For fiscal year 2015, Amtrak has requested a federal grant of $1.6 billion, and the number gets higher each year to counter the tunnels, bridges, and tracks that continue to fall into disrepair.

No Free Parking

Perpetually deficit-running Amtrak is a favorite target for fiscal conservatives, such as Mitt Romney, who frequently spoke of defunding the service during the 2012 presidential election.  However, the federal government is actually funding the parking of private vehicles at a much higher level.  According to a new report by the TransitCenter and the Frontier Group, employers providing tax-free parking allowances costs the federal government $7.3 billion annually in lost revenue.

The Internal Revenue Service’s (IRS’s) tax code allows parking allowances of up to $250 per month sans taxes, which is nearly twice the amount allowable for taking public transit ($130), and more than 10 times the allowance for bicycle commuters ($20).  The study claims that the tax abatement adds approximately 820,000 commuters who would otherwise find other means of getting to work, including motorists who increase use of roads, another hidden cost to taxpayers.

The True Costs

According to Streetsblog.org, Congress is violating the IRS maximum parking allowance by providing free street parking to staffers in pricey downtown D.C.  So we have CAFE regulations aimed at reducing transportation emissions by requiring carmakers to invest billions to produce increasingly fuel efficient vehicles, while at the same time, we subsidize the use of private vehicles in congested urban areas at a cost more than 3 times the total spent to support Amtrak.  Taken together, these policies can be viewed as somewhere between inconsistent and outright contradictory.

 

New Momentum for Fuel Cell Vehicles

— December 15, 2014

Somewhat unexpectedly, fuel cell cars were in the spotlight in November, with Toyota and Honda each unveiling their fuel cell vehicles (FCVs) in Tokyo, and several FCVs displayed at the Los Angeles Auto Show.   The media responses ranged from skeptical interest to disbelief that FCVs will ever become a reality.  So let’s look at what happened and what it says about where FCVs are going.

The biggest announcement was Toyota’s presentation of the Mirai, a four-seat fuel cell coupe that will be available to Japanese consumers in early 2015 and later in the year in the United States.  Although Hyundai is first to market with a production fuel cell car, Toyota generates the most excitement, mainly because the company is assigned almost magical powers to create a market for new clean technology thanks to its launch of, and continued dominance of, the hybrid vehicle market.  Toyota is clearly swimming against the tide on zero emission technology by going with fuel cells instead of batteries, and the company’s moves attract attention.

5 Minutes or Less

Toyota’s announcements were the most positive of the recent announcements.  I’ve said before that two remaining hurdles for the fuel cell car market come down to cost (of the car) and infrastructure, as the technology has largely been proven.  Toyota demonstrated this with the Mirai, which will have a 300 mile range and will refuel in under 5 minutes.  While Audi has said it is going the plug-in hybrid fuel cell route because a pure fuel cell car would be underpowered at just 130 horsepower (hp), the Mirai will have 153 hp, in line with Toyota’s conventional vehicle line up.  Toyota announced that the sticker price for the Mirai in the United States will be around $57,000.  When tax credits are added in, the price will drop below $50,000.  That’s still a high-priced car, but at this price point, it’s at least competitive with the high end of battery vehicles.

Toyota also said that it will support infrastructure investment in the Northeastern United States.  The company is already investing in hydrogen station deployment in California, through California hydrogen infrastructure startup FirstElement.  While this move can be seen as simply supporting the introduction of zero emission vehicles (ZEVs) in the Northeast states that have adopted the ZEV mandate, it’s the first sign of real progress on U.S. infrastructure build out outside of California.

Full Speed Ahead, Slowly

Honda’s news was more mixed.  Honda unveiled a five-seater fuel cell concept car – a positive step in showing that FCVs won’t have to start small like battery vehicles did.  In addition, Honda joined Toyota in supporting FirstElement in California through a letter of intent to invest $13.8 million.  But the company took a step back by announcing that it would not release its first commercial FCV offering until 2016.  Moreover, Honda’s president, Takanobu Ito, said that his vision was of FCVs in significant numbers on the road in 30 years.

At the Los Angeles Auto Show, other OEMs that have largely stayed out of the fuel cell development path had concept vehicles on display.  The Volkswagen Group showed a hydrogen Golf and a plug-in A7 e-tron for Audi; both are still concepts so this looks more like hedging against future need for a FCV once Toyota, Honda, and Hyundai have tested the waters.

So progress continues on the two major challenges for FCVs, but it continues to be slow.  The price points are the most positive development, and may leave hydrogen infrastructure as the final obstacle for fuel cell cars.

 

With Predictive Navigation, Smart Cars Find Their Own Way

— December 15, 2014

The flood of available data from many sources – traffic updates, GPS, onboard sensors, etc. – will change the ways in which we’ll get around in the coming years.  One tangible manifestation, happening now, is predictive navigation.

From Google to Bosch to Volkswagen, a range of companies in the automotive and technology industries are starting to harness the power data to provide personalized real-time guidance and enhanced vehicle control that could lead to reduced congestion and fuel consumption – and, eventually, to hybrid powertrains that automatically adjust the balance between battery and engine output based on upcoming terrain.

Go This Way

Data about where and when we travel and how fast we go is collected through a combination of built-in systems, such as General Motors’ OnStar and Hyundai’s BlueLink, and brought-in systems, specifically smartphone apps.  Every time a driver launches a navigation app, such as Waze, Google Maps, or TomTom, information about speed and location is transmitted back to the cloud and aggregated with other factors, such as weather forecasts, construction sites, and local events, to determine where backups are occurring or are likely to occur and to provide real-time feedback.   The macro data can be combined with local data about individual driver habits to automatically provide alerts about traffic backups and alternate routes before you turn the key.

Google has provided these predictive alerts for more than 2 years as part of the Google Now functionality on Android phones.  At a recent innovation workshop at its Wolfsburg, Germany headquarters, Volkswagen showed off its own in-car solution to provide alternative route suggestions even when drivers don’t need to use the navigation for common destinations.  Other automakers, including General Motors, have been testing solutions for plug-in electric vehicles, like the Chevrolet Volt, that will automatically preserve electric power for the last portion of a drive home through a residential area or even use up some of the low-charge buffer when the system predicts it will be plugged in soon.

Shortest Is Not Necessarily Most Efficient

Mercedes-Benz is now utilizing topographic map data as an input to the plug-in hybrid powertrain available in its S500 luxury sedan.  When the system detects that the vehicle is approaching the crest of hill, it will automatically shift the power distribution away from the internal combustion engine to the electric motor and then recover energy to the battery on the downhill side.   Ford has been researching eco-routing solutions for both plug-in and traditional vehicles that will calculate routes that use less total energy even though they may cover more total distance.

Everyone that drives in urban areas is well aware of the frustrations of sitting through several cycles of a traffic light while trying to make a left turn.  For the past decade, package delivery company UPS has been using big data and electronic maps to provide its drivers with customized daily routes specifically designed to keep left-turns to a minimum.   By using right turns whenever possible, even if it means going further, UPS had saved more than 10 million gallons of gasoline and reduced carbon emissions by 100,000 metric tons by 2012.

 

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