Navigant Research Blog

Presidential Candidates at Odds on Climate Change

— October 6, 2016

Oil RigOne year ago, my colleague Casey Talon published a blog on the energy and climate change policies of various presidential hopefuls. With the nominees now chosen and the first official presidential debates now over, the nation’s energy future should be clearer, but widely disparate policies have instead made it more nebulous than ever. Let’s take a look at how each nominee could affect US climate policy.

  • Democratic nominee Hillary Clinton’s plan for climate action involves a heavy focus on solar panels, increasing the installed base of solar power in the United States by 700% within her first term. Clinton’s plan also includes creating a White House transmission office, which would coordinate permitting for siting transmission lines on the state and federal levels. This plan would rely heavily on either a cap-and-trade system for carbon emissions or a carbon tax. Without increased pricing for emissions, natural gas is currently too cheap for renewable energy to be competitive in some applications. One item Clinton’s plan is relatively vague about is energy storage. In order to meet the solar energy goals set forth by the presidential nominee, a large amount of storage would have to be implemented, as solar and wind are both intermittent power sources that do not necessarily produce power at the time when electricity demand is greatest.
  • Republican nominee Donald Trump promises a return to coal-fired power plants, as well as other fossil fuels. The candidate’s America First energy plan involves a dissolution of the US Environmental Protection Agency’s (EPA’s) Clean Power Plan, as well as the EPA itself. Any move toward clean power would be entirely dependent on free market adoption. Shifting back to more coal power could be problematic from an emissions perspective, as 71% of 2015 carbon emissions from the electric power sector came from coal. Meanwhile, natural gas, the second largest fossil fuel energy source, represented only 28% of emissions. Increasing CO2 emissions would not only mean a faster rise in global temperatures, but also a deviation from international agreements on climate change. In addition, due to declining renewable energy prices and the increasing prevalence of natural gas fracking, coal is not as economically attractive an option as it once was. A lack of regulation surrounding the energy sector could either result in widespread adoption of renewables on the market or a sharp rise in carbon emissions.

Electricity demand is increasing in the United States, and carbon emissions have remained fairly consistent in the past several years. It is true that cleaner energy is needed in greater quantities, both to balance out the added demand from smart metering, electric vehicles, and increasingly connected cities and to reduce emissions. In the 2015 Paris Agreement, the United States promised to cut its carbon emissions 28% below 2005 levels by 2025. It’s currently not on track to reach that goal, and a reduction in the amount of clean power being utilized would hinder the nation’s ability to meet this pledge.

The future of America’s energy policy is uncertain. November’s election could bring some much needed clarity.


Beefing Up the Meat Replacement Industry

— October 4, 2016

BiofuelThe environmental impact of agriculture is astounding. Water, fertilizer, large farm vehicles, processing, shipping, and spraying crops all take a major toll on the planet. But for as great an impact as farming plants has, raising livestock for meat has it beat. According to a 2014 study from the Cary Institute of Ecosystem Studies, beef production releases 2 to 6 times as many greenhouse gases as any other animal product.

But the burger has always been a staple of the American diet, and it’s not leaving our dinner tables anytime soon. How can the industry reconcile this staggering carbon footprint? The answer lies in high-tech substitutes to the traditional beef burger.

Plant-based meats are one solution to the resource-intensive meat production industry. There are a variety of veggie patties available on the market, and their popularity in American cuisine is on the rise. Most of these do not share the same protein or fat content as actual beef burgers, and therefore are marketed as more of a healthy alternative than a direct replacement. Despite having existed for many years and wide distribution networks, many veggie patties simply do not fill the hockey puck-shaped hole left by beef on the American table.

Some companies are developing more realistic plant-based meat replacements by distilling plants into protein and fat components, creating a more familiar (but environmentally friendly) burger. Beyond Meat, a company based in Manhattan Beach, California, has developed a pea-protein based substitute that not only tastes meatier but, due to the addition of beet juice extract, also resembles hamburger in its color. These burgers are entirely plant-based and, theoretically, cut down on the environmental impacts of beef farming. Beyond Meat’s burgers were released on the market in the spring of 2016. It will be interesting to see whether these products and similar burgers become popular outside of their debut city of Boulder, Colorado.

Where’s the (Lab-Grown) Beef?

The most similar alternative to large-scale farmed meat starts with a single cell. By growing meat cells directly in a lab, scientists have successfully grown hamburger without ever having to set foot on a ranch. This technology is relatively nascent, and lab-grown beef will probably not become available on the market for several years. Memphis Meats, one company developing a lab-grown meat product, expects to have its wares on the market within 5 years.

One of the biggest issues with lab-grown meat is that it does not fall under the same regulatory body (the Food and Drug Administration) as normal meat. However, once licensing and regulation issues are worked through, you can expect to see lab-grown sausages, meatballs, and burgers on grocery store shelves.

The world of technology is becoming more connected, and humanity is becoming more aware of its impact on the planet and climate change. As with all other fields, agriculture will undergo major changes over the next several decades. Soon, the energy- and emissions-intensive burgers of yore may become a thing of the past.


Should We Worry About Carbon Dioxide Emissions From Natural Gas Surpassing Coal?

— September 13, 2016

Smoke StacksAccording to the US Energy Information Administration, in 2016, CO2 emissions from natural gas are expected to surpass coal emissions in the United States for the first time since 1972. As CO2 emissions from natural gas increase due to growing natural gas consumption in the energy sector, major concerns have developed among environmental groups and others about natural gas becoming a threat to climate change. However, to generate the same amount of power, natural gas emits only 55% of the CO2 compared to coal. As natural gas displaces coal, CO2 emissions that could have come from coal will be cut by half. As long as the growth of natural gas is at the expense of coal consumption, it will help the fight against climate change.

It would be ideal if both natural gas and coal could be replaced with renewable energy such as solar and wind. However, when the sun doesn’t shine and wind doesn’t blow, electricity still needs to be generated. Even with cutting edge technology on energy storage, demand-side management, and energy efficiency, the need for stable electricity generation from reliable sources cannot be fully eliminated. Natural gas is by far the best option for such a reliable source due to its affordability and abundance in the United States. Besides the benefit of fewer  emissions, the price of natural gas is also competitive with coal. The United States is also the largest natural gas producer in the world thanks to the boom of shale gas. In general, as more renewable generation capacity will be added than fossil fuel capacity this year (and likely in the next few years), natural gas is essential as a backstop for grid operators to address the intermittency of renewable energy.

The Problem of Methane Leakage

Nevertheless, natural gas is not perfect. The methane leakage problem could seriously undermine the climate benefit of natural gas. At the same time, the US Environmental Protection Agency is making crucial progress in setting regulations on restricting methane leakage. With proper regulatory incentives and continuing technology improvement, the effects of methane leakage can be contained to make natural gas a viable complement to a lower carbon future.


Europe’s Energy Transition Megatrends and Tipping Points, Part VII: The Power of Customer Choice and Changing Demands

— September 9, 2016

Energy CloudJan Vrins coauthored this blog.

In our initial blog on Europe’s energy transition, we discussed seven megatrends that are fundamentally changing how we produce and use power. Customer choice and rapidly changing customer demands are one of the megatrends driving Europe’s energy transition. In this blog we discuss how utilities and new entrants are competing for customers and market share through new energy products and services, as well as how they are implementing new business and revenue models in search of growth and shareholder value. We also discuss a path forward, which we call the Energy Cloud Playbook.

What’s Happening?

Whether residential, commercial, or industrial, more customers want to control their electricity usage and spend, as well as when and what type of power they buy. Historically, customer choice was restricted to switching suppliers. However, the European market is rapidly changing, and utilities will have to prepare themselves for far more complex customer demands and relationships. For example, many customers now want the ability to self-generate and sell that power back to the grid. Many European homeowners have installed rooftop solar and are interested in storage. Additionally, despite the reduction of subsidies in some countries, overall distributed energy resources (DER) will continue to grow in the long term. On the commercial and industrial side, large corporations like IKEA, BMW, Metro AG, Unilever, Swiss Re, Roche, Aviva, and others are increasing their focus on sustainable energy solutions. The key question moving forward is who will capture the value of more local (distributed), broader, energy management and individualized energy—the incumbents or the disruptors?

Increasing Competition

The European power markets are struggling to balance the requirements to reduce prices, invest in renewable generation, secure supply, and improve the customer experience. European electricity customers pay some of the highest prices in the world, yet many customers receive substandard service from their current utility provider. The move toward a single European energy market is the cornerstone of EU energy policy; thus, there is an expectation that power markets will become more competitive, not less. Competition has many consequences for a utility’s customer relationships, which can directly affect the utility’s business model. However, it is not the only factor: consumers are becoming increasingly aware of the financial and environmental cost of their power consumption. They are also increasingly expecting better, more personalised service from suppliers. As a result, customers will engage with the power industry in new ways, demand new services, and seek out alternative suppliers and options (like self-generation, energy management, etc.).

A New Deal for a New Breed of Customer

The European Union wants to put consumers at the heart of the power market. In the second half of 2016, a set of legislative proposals for a new energy market design will be published. This new deal for energy consumers is based around three pillars: saving money through better information, a wider choice of actions when participating in the power market, and maintaining the highest level of consumer protection. The market design will enable customers to actively participate in the market, adapt their consumption according to the requirements, create clearer bills, and accurately compare prices to improve switching rates. The European Union also reiterated its desire to tackle the issue of residential price regulation that hampers competition. Finally, the market design will try to remove barriers stopping customers from generating their own power and selling excess generation back to the grid.

Commercial and industrial (C&I) customers are central to Europe’s transition to a low-carbon economy. Many corporations have incorporated sustainable energy consumption within their corporate responsibility agendas. For example, Swedish furniture retailer IKEA plans to completely shift to renewable energy by 2020 and will invest up to €1.5 billion (~$1.7 billion) in wind and solar energy as part of its new safeguard nature strategy. The company does not rule out becoming a net energy exporter, potentially selling the surplus of energy to suppliers or customers.

Most customers—both residential and commercial—who generate their own power will do so with solar PV (potentially combined with storage). Until a few years ago Europe dominated the market for solar PV installations, driven largely by a range of different subsidies. These subsidies have largely been removed, and the market has flattened. However, we could be witnessing a short-lived consolidation period for solar: the market could soon pick up as the cost continues to decrease and if current import tariffs on cheap Chinese panels are lifted.

Other DER will further transform the way customers consume power. Locally available battery storage will help customers become more self-sufficient; EVs will dramatically change how, when, and where customers use energy; and peer-to-peer trading networks will help customers decide to whom they will buy or sell their power.

A New Business Model for the New Deal

These new customer demands are already reshaping the utility market. The more forward-thinking utilities are making significant investments into new business models, and competition is increasing. Time is running out for the less adventurous: smart metering will be a reality in the majority of European countries by 2020. Those companies that have prepared for a more connected, digital, and personalised customer relationship will be at an advantage against those that have not.

One of the most significant business model changes is the shift from a commodity-based supply business to an energy service provider. Many utilities have expanded their product offerings beyond the regulated power supply model and broken into new areas—smart home technologies, boiler maintenance or replacement, insurance, home appliances, and security systems are just some of the services offered. One other important area is the relatively new phenomenon of broadband and other communications services. Dutch utility Delta sells broadband, fixed-line, and pay TV services alongside power and gas.

The market is not immune to new entrants. Some telecommunications companies such as Croatia Telecom are now bundling energy with their more traditional services. Other telecoms, such as Deutsche Telekom and O2, are heavily investing in smart home technologies. New models of buying power—including collective switching groups and energy cooperatives—are appearing. In the United Kingdom where the model of municipal-owned utilities was scrapped years ago, councils are setting up their own energy businesses to offer low-cost power to their citizens.

Battle for the Grid’s Last Mile


(Source: Navigant Research)

Competition will not end there, as many companies will likely enter the market with radically new business models. For instance, as solar PV and battery storage technologies become cheaper and more efficient, many customers could be taken completely off-grid by new entrants. Retailers, technology companies, and telecoms are also looking at smart home technologies that could ultimately cut utilities out of many customer relationships.

New Business Models Need Better Customer Understanding

As new technologies—smart meters, EVs, distributed generation, energy storage, and smart home devices—proliferate and mature, so will the opportunity to develop deeper and more complex relationships with customers. However, as these opportunities grow so does the threat from competition. To create the right products and services and market them in the most effective way, utilities must better understand their customers’ needs. New technologies will bring deep insights into each customer’s requirements. By using advanced analytics, utilities have a unique opportunity to put the voice of the customer at the heart of their business planning.

What Does All This Mean for Utilities?

Utilities have to adapt. Customers will look for better, greener, and cheaper alternatives, and more and more of these alternatives are becoming available. What’s more, the fight for large C&I customers is going to change dramatically. If only a small percentage of large C&I customers switch over to local distributed generation and energy management solutions, current suppliers and network operators will be in trouble. This will affect their revenue streams, roles, and the cost versus value of the centralised managed grid.

Facing declining revenue as customers consume less and produce more of their own power, utilities are confronted with potential stranded generation (and eventually transmission and distribution) assets. This makes it even harder to make large investments aimed at improving reliability and resilience in their current grid while also making it more intelligent. Utilities also have to make investments in developing DER capabilities, offerings, and businesses.

Given these challenges, utilities must play both defence and offense. An updated defensive strategy requires suppliers to engage with customers to understand their changing demands regarding price, sustainability, and reliability. They also have to continue to improve customer service at the lowest prices possible. Network operators must engage with regulators to find equitable ways to charge net metering customers for transmission and distribution services that fairly address the cost to serve. They have to continue to improve grid reliability at the lowest cost possible and streamline asset management and operations, while also developing utility-owned renewable assets to appeal to environmentally conscious customers.

Playing offense is even more important. Suppliers must create new revenue streams through the development of new business models, products, and services. They also have to transform their organisations and culture in order to fully integrate sales, customer service, and operations. Network operators must upgrade the grid and operations to facilitate the integration of DER and explore new revenue streams as a network orchestrator.

There is no going back to the old ways of doing business. Utilities must lead—by playing both defence and offense—or they run the risk of being sidelined.

Utilities conducting strategic planning must embrace an agile mindset focused on achieving two objectives: accelerating the time to market readiness and reliably producing high quality results. This will be crucial to remaining competitive, as value moves down the value chain and barriers to entry are decreased/eliminated. The opportunity lies in continuously shaping DER portfolios, embracing the rise of the digital prosumer, and capitalising aggressively on platform opportunities for unbundled solutions. We believe that utilities must begin transforming their operations and business models today by simultaneously pursuing risk mitigation capabilities and making bold bets on potentially high-growth product offerings. In our newest white paper, we describe how businesses develop and implement a strategic identity and growth plan (10-15 years), as well as an agile Energy Cloud Playbook (6-12 months) that will help them navigate the path forward and take control of their future.

This is the seventh in a series of posts in which we discuss each of the power industry megatrends and impacts (“so what?”) in more detail. Our next blog will cover the emerging Energy Cloud. Stay tuned.

Learn more about our clients, projects, solution offerings, and team in our Navigant Energy Practice Overview.


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