Navigant Research Blog

BEVs Moving Beyond 200 Miles

— June 14, 2016

EV RefuelingBy the end of 2016, the first long-range battery electric vehicles (BEVs) for the mass market will finally become available. Over the next 3 years, the long-range BEV is expected to emerge as the market standard as BEVs with ranges below 100 miles disappear from automaker new vehicle lineups. The long-range BEV under $40,000 is a marked achievement in the industry that is expected to significantly increase plug-in electric vehicle (PEV) adoption past the 1% penetration rate it has struggled to surpass in all but a few global markets. But how far past 1% will the 200 miles/under $40,000 move penetrate?

Practical Limitations

The leap in range and affordability is a significant achievement, but BEVs still have to overcome significant hurdles before the tech can effectively replace the conventional internal combustion engine (ICE) vehicle. For all its flaws (expensive fuel, upkeep costs, and emissions), the conventional option cannot be matched yet in terms of cost, fueling convenience, range, and capability. Parity across all these factors, among all light vehicle types, is a long way off.

Even at a 200-, 250-, or 300-mile range, a BEV is a hard sell to anyone without a place to charge their vehicle at their residence or at their work. For those without this specific access, charging needs are likely only met through fast charging when the BEV state of charge nears depletion. Unless one is so fortunate to have access to a Tesla Supercharger, charging a 60 kWh+ BEV from 0% to 100% on public fast charging equipment (around 50 kW) will likely be an hour(s)-long engagement, and the energy cost savings analysis is not encouraging in this scenario unless subsidized.

In the United States, the share of the market without access to workplace or residential charging is not likely a minority. Over 56% of respondents to Navigant Research’s annual Electric Vehicle Consumer Survey indicated they did not have access to an electrical outlet at their residential parking space.

Analysis of survey responses reveals that people without access to residential charging are far less likely to consider BEVs than those with access. Near 30% of those without access indicated they would not consider a BEV regardless of range, while 34% of those without access that would consider a BEV would only do so if the vehicle achieved a range over 300 miles. In contrast, around 17% of those with access would not consider a BEV regardless of range and only 22% of those who would consider a BEV would only do so at over 300 miles.

As of yet, BEVs play particularly well to two or more car households where one conventional car can be used for more demanding driving requirements and the BEV can be utilized for short driving needs. 200 miles will likely expand the number of households replacing one vehicle with a BEV, but it will likely make little headway in convincing the two or more car household to replace an additional vehicle.

Addressing the Gaps

Residential and workplace charging are fundamental to market growth, but speedy increases in development will never address all the needs of those limited to on-street parking at both their residence and workplace. Public charging infrastructure that can match the speed of a pump alongside an actual marketing campaign for PEVs from the established OEMs will improve conditions for all consumers. However, the only way such an infrastructure is developed is if a robust fast charging business model emerges for fuel retailers—and the only way that happens is via the steady increase in the long-range BEV population (or via additional government support).

This is not to say that the battery will not eventually replace the ICE; it’s likely it will. But adoption will not follow the same speed of the disruptive technologies BEVs are so often compared with. An all-electric future is highly probable, but it is not near.

 

Take Control of Your Future, Part VII: Merging Industries, New Entrants, and Colliding Giants

— June 13, 2016

Modern commercial premisesIn my initial blog in this series, I discussed seven megatrends that are fundamentally changing how we produce and use power. Here, I discuss how merging industries, new entrants, and colliding giants are changing our industry.

What Is Happening?

The power energy industry (the generation, transmission, and distribution of electricity) is not the sole territory of the incumbent utility anymore. Several players from other industries, including oil & gas (O&G), technology, retail, telecom, security, and manufacturing, are trying to get into the game. Navigant sees many cross-industry movements, and one of them is increased crossover investments between the electric utility and O&G industries. Besides pursuing mergers and acquisitions, which I discussed in one of my previous blogs, we see investments in new areas of opportunity like renewables, distributed energy resources (DER, including distributed generation, energy efficiency, demand response, storage, etc.), transportation, smart infrastructure and cities, and energy management.

As an example, in April, the French supermajor Total announced the creation of a Gas, Renewables and Power division, which it said will help drive its ambition to become a top renewables and electricity trading player within 20 years. According to a statement by the supermajor, “Gas, Renewables and Power will spearhead Total’s ambitions in the electricity value chain by expanding in gas midstream and downstream, renewable energies and energy efficiency.” Other companies, like ENGIE and Shell, have made similar announcements.

A Total Gas Station in Paris

TOTAL

(Source: Reuters)

Fighting for Future Energy Positions

The large incumbent players in the energy industry are under pressure. And the way things are unfolding now, it doesn’t seem like this will change anytime soon. Time to make some minor tweaks? Change course more drastically? Or completely reinvent ourselves? These are discussions that are taking place more frequently at the board and executive levels of the incumbent players.

Electric utilities are under pressure because consumption growth is minimal and, in many cases, flat to slightly negative. The average consumption per customer (both residential and commercial) is declining due to self-generation, energy efficiency, demand response, etc. As a result, revenue is declining. Costs are increasing because of needed investments in a safe, reliable, cleaner, and more distributed and intelligent electric power grid. Utilities are identifying new revenue streams and thinking through new business models that will bring shareholder value going forward.

Oil companies are under pressure because of the continued low oil price. Ever since the oil price dropped to historic lows in 2014, the struggles of the industry have been daily news. Short-term hopes for a recovery were tempered significantly by the outcome of the recent OPEC meetings in Doha. Oil companies are looking for ways to survive by taking out costs, reducing their upstream capital investments, and shutting down unprofitable assets. They are also looking for new opportunities to grow revenue and future shareholder value.

Industry Giants Are Responding

In the last couple of months, I’ve attended several meetings with CEOs from large utilities and O&G companies. It is remarkable how their views on what is happening in the energy space are so similar. What is even more interesting is that their strategies to address the challenges and opportunities are almost identical.

Here is what they say is happening:

  • Energy consumption and gross domestic product (GDP) growth: Although population and GDP growth (at a slower pace) drive growing energy demand, the trend line between GDP and energy consumption growth has been broken. This is especially the case in developed countries. Energy consumption in the United States flatlined from 2014 to 2015 even as GDP grew by 2.4%. Since 2007, energy consumption has fallen 2.4% while GDP has grown by 10%, according to the 2016 Sustainable Energy in America Factbook by Bloomberg New Energy Finance. At the level of individual utilities, we see this playing out. Utilities with no or limited customer growth see their overall revenue declining. Utilities that still see customer growth are reporting that demand (and revenue) is not growing at the same pace. This is creating an unsustainable situation, with flat or declining revenue, while the costs to serve their customers and investments in the grid are growing.
  • Impacts of climate change: In an earlier blog, we discussed the impacts of the growing number of policies and regulations to reduce carbon emissions. It is now clear that this impact is being felt. Beyond the COP21, Clean Power Plan, and other global or federal policies and regulations, many initiatives at the regional, country, state, and local levels are being designed and implemented in support of carbon emissions reductions. Sustainability objectives between government, policymakers, utilities, and their customers are more closely aligned than ever before. States and regulators will continue to discuss how sustainable targets can be met without affecting jobs and the access to safe, reliable, and affordable power. And utilities and O&G companies will continue to evolve to support cleaner, more distributed, and more intelligent energy generation/exploration, distribution, and consumption.
  • Big power to small energy and the rise of the prosumer: Customer choice is driving a large move from big to small energy. More and more customers are choosing to install DER on their premises. DER solutions include distributed generation, demand response, energy efficiency, distributed storage, microgrids, and electric vehicles (EVs). This year, DER deployments are projected to reach 30 GW in the United States. According to the U.S. Energy Information Administration, central generation net capacity additions (new generation additions minus retirements) are estimated at 19.7 GW in 2016. This means that DER is already growing significantly faster than central generation. On a 5-year basis (2015-2019), DER in the United States is expected to grow almost 3 times faster than central generation (168 GW vs. 57 GW). This trend varies by region because policy approaches, market dynamics, and structures differ. However, the overall move to small power will persist. In other words, the movement toward customer-centric solutions and DER will ultimately become commonplace worldwide.

And here are the strategies of large utilities and O&G companies going forward:

  • Search for shareholder value: Both utilities and O&G companies are looking across the entire energy value chain for future shareholder value. Right now, that value is not in exploration & production or power generation. Yet, shareholders are still interested in natural gas pipelines and transmission that support the movement of natural gas and electricity.
  • Attempts to develop new solutions and businesses: There has been more than just interest from incumbent players in new energy solutions such as renewables and other alternative fuel sources (hydrogen, biofuels, etc.), DER, behind-the-meter energy management, electric transportation, smart cities, etc. With serious profitability and growth pressure on their core businesses, more serious attempts to build new, potentially transformational businesses in this space are increasingly evident.

For example, Total’s Chairman and CEO Patrick Pouyanné states, “The goal is to be in the top three global solar power companies, expand electricity trading and energy storage and be a leader in biofuels, especially in bio jet fuels.” To this end, Total announced last month that it is acquiring Saft, a designer and manufacturer of high-tech batteries for the manufacturing, transportation, and civilian and military electronics sectors. The company reported sales of €759 million ($856 million) in 2015 and employs more than 4,100 people in 19 countries. “The combination of Saft and Total will enable Saft to become the group’s spearhead in electricity storage,” Chairman and CEO Pouyanné said in a news release, “The acquisition of Saft is part of Total’s ambition to accelerate its development in the fields of renewable energy and electricity.”

Transportation and Smart Cities

Transport electrification, the increased use of biofuels (including bio-jet fuels), and the use of hydrogen to fuel vehicles are all on the rise. These alternative fuel vehicles will slowly but surely replace existing carbon-based transportation fleets, which represent approximately 35% of the global demand for oil. Now there are reports of 500,000 committed purchases of the Tesla Model 3. If Tesla can produce 500,000 cars a year, with models that are in the $30,000-$40,000 price and 200-plus-mile range, this will be another tipping point and game changer for EVs.

Meanwhile, as part of the smart city movement, cities are examining the sources and efficiency of their energy in order to reduce their greenhouse gas emissions and energy costs. In the process, cities are becoming more ambitious and proactive in setting energy strategy. They are seizing opportunities to work with utilities and other stakeholders to create new urban energy systems. The emerging vision is of a smart city with integrated large- and small-scale energy initiatives, including major infrastructure investments, citywide improvements in energy efficiency, and distributed energy generation. As a result, both utilities and O&G companies are increasingly interested in becoming even more engaged with new transportation concepts and innovation (well beyond fuel) and smart cities.

So What Does This Mean?

Do the above examples represent some isolated, small adventures in crossover investments, or do they mark a trend toward two mega-industries (electric utility and O&G) colliding across the entire energy value chain and looking for shareholder value? Time will tell. What is certain is that there will be winners and losers.

There is a clear push for new revenue streams and growth opportunities given the current oil price situation. But we see also new, longer-term threats that will force the incumbent players to reinvent themselves and become broader energy companies. The industry giants seem to be in the best position to be the winners—and ultimately, they have no choice. After all, these are still the biggest companies in the world, and they have a huge shareholder interest that needs to be fed into the future. They simply are not going to declare “game over,” return the equity to the shareholders, and then advise them to go find new companies to invest in.

This post is the seventh in a series in which I discuss each of the power industry megatrends and the impacts (“so what?”) in more detail. My next blog will be about the emerging Energy Cloud. Stay tuned.

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

 

How Will Wireless Connectivity, Vehicle Autonomy, and Electrification Converge with On-Demand Mobility?

— June 13, 2016

CarsharingIn the future, urban transportation is expected to be electric, autonomous, and on-demand. This is the vision that captures the major trends in mobility and is one that companies like Uber and Google already appear to be working toward. Navigant Research believes that on-demand shared transportation services—whether carsharing, ride-hailing, bikesharing, or even public transit—will converge with the major vehicle technology trends of electrification, wireless connectivity, and autonomous driving capability to create a low-carbon transportation system for cities over the next 25 years. Navigant Research has covered these trends in its recently published Transportation Outlook: 2025 to 2050 white paper and will discuss them further in a June 14 webinar, Changing Models for Urban Mobility.

Convergence Underway

This convergence is happening already. The first piece, wireless connectivity, is a key building block technology for a future where personal transportation transitions to mobility as a service. By 2025, Navigant Research forecasts that more than 1.2 billion vehicles globally are expected to be connected to their surroundings and/or to each other through either built-in or brought-in communications technology. At a baseline, these systems will provide real-time safety alerts and traffic notifications to drivers; the more mature and full-featured systems will support semi-autonomous driving systems. In this same timeframe, the number of vehicles equipped with some form of telematics will also grow rapidly. By 2025, most new vehicles in developed markets are likely to have telematics offering various types of services to the driver. Today, this type of connectivity is already central to electric vehicles (EVs), which have navigation systems that alert the driver to available charging stations and provide battery charge status updates.

The convergence is also already occurring between vehicle electrification and shared mobility. EVs are an increasingly popular option in carsharing schemes in cities. Indeed, city officials looking to control pollution in congested city centers are actively encouraging the use of EVs in carshare services. For example, officials in London pushed hard to bring to the city an electric carsharing scheme similar to the successful Autolib’ service in Paris; the new service opened in spring 2016. Carsharing services already see a greater percentage of EVs in their fleets than is found in the wider passenger car population. Navigant Research estimated that plug-in hybrids and battery EVs represented more than 15% of all vehicles in carshare services as of 2015. While these EVs are largely concentrated in a handful of services—such as the all-electric Autolib’, all-electric carshare companies in China, and in some of Daimler’s and BMW’s carshare services—EVs are expected to expand to many more carshare operations through 2025 and beyond. One reason for this is that carsharing will be a growing option for automakers to put certain types of cars into service—primarily fuel-efficient, electric-powered, and autonomous—and many OEMs are expected to operate these transportation services themselves as a way to offset reductions in revenue due to falling vehicle sales in urban areas.

Mobility as a Service

Carsharing is a key building block for the future of mobility as a service, and is now a well-established industry that feels familiar rather than new. But in fact, this business is at the early stages of major upheaval that will change the role it plays in urban mobility. First off, automakers are entering the market in earnest, and it is expected that almost all major automakers will be offering some type of shared vehicle service by 2025. A second disruptor is the rise of the one-way operational model. With drivers no longer required to return vehicles to the same parking spot where they picked it up, carsharing significantly expands its use case for city residents. Carsharing now can provide true on-demand mobility and be used for spur-of-the-moment travel needs and for shorter one-way trips than is typical for conventional round-trip carsharing. This new operational model makes carsharing more like the third major disruptor in the shared vehicle sector: the explosive popularity of ride-hailing apps like Uber and Lyft. While these two types of services can be seen as competing, they are better thought of as complementary, each offering a different type of experience for the customer. Carsharing acts as a replacement for owning a car, whereas ride-hailing is more directly a replacement for conventional taxi services. One-way carsharing and ride-hailing services may well compete for customers, but Navigant Research believes that the urban mobility model of the future will have both carsharing and ride-hailing.

Autonomous Opportunity

Both services probably will be early markets for autonomous driving technology, the final piece of this low-carbon mobility as a service model. It is likely that autonomous vehicles will initially be integrated into shared fleets in a controlled and regulated setting. Sites like central London, Paris, and Singapore are anticipated to be among the first. From 2025 on, a number of entities—including carsharing companies, taxi fleets, ride-hailing companies, and automakers—are expected to be operating autonomous fleets. In particular, automakers likely will embrace the autonomous fleet idea as an extension of their current involvement in carsharing schemes and will seek to incorporate them into their EV models. GM has announced it will begin offering autonomous Chevrolet Volts for its employees to drive at its Technical Center in Warren, Michigan in late 2016.

According to the United Nations, by 2050, as much as 66% of the world’s population is expected to live in urban areas, and the individually owned vehicle will probably become a rarity in most large cities. The possibility that shared mobility may lead to less use of public transit has been an oft-cited concern among city officials and sustainable transportation advocates. A 2016 report by the Shared-Use Mobility Center found that services like carsharing and ride-hailing are actually complementary to public transit. The report, which focused on users in seven U.S. cities, noted that the people that use shared modes of transportation the most were the most likely to use public transit and to own fewer cars. Navigant Research also believes that, from 2025 onward, public transportation itself will become more of an on-demand service, which will use buses much more efficiently. Connectivity and data analysis will enable the efficient dispatch of vehicles to where passengers need them, keeping idle time to a minimum. These services can be fully integrated with the other types of on-demand options in the city, making multi-modal travel more robust and seamless.

 

Take Control of Your Future, Part III: Rising Number of Carbon Emissions Reduction Policies and Regulations

— May 16, 2016

Energy CloudMaggie Shober and Rob Neumann also contributed to this post.

My recent blog discussed seven megatrends that are fundamentally changing how we produce and use power. In the second part of the series, I focused on the power of customer choice and changing demands. Here, we will discuss the rising number of carbon emissions reduction policies and how this trend is fundamentally changing the power industry.

What’s Happening with Carbon Emissions Policies Globally?

The long-term impact of the Paris Climate Agreement will be significant. This agreement will focus on limiting global warming to well below 2°C (3.6°F) by the year 2100. Each nation sets its own target for reducing emissions and updates that mark each year. A record number of countries (175) signed the agreement on the first available day. Governments must now ratify and approve the agreement, which could take months or years. The agreement goes into effect once 55 countries representing at least 55% of global emissions formally join. It’s clear that the tone and tenor of the Paris Climate Agreement is providing a guiding light for nations to reduce emissions.

The biggest news was the full commitment of China. The country, together with United States, was one of the first to sign the final Paris Climate Agreement. The United States and China account for nearly 40% of global carbon emissions. It does appear that China is serious about reducing emissions, since the country has made significant investments in renewables, electric vehicles, green cities, and more. Already the world leader in wind power, China is set to overtake Germany this year in solar power (see chart below).

Renewable Energy Growth in Major Economies

Jan Blog 3

(Source: World Resources Institute)

We see that other countries are not waiting. This week, Germany announced a €17 billion ($19.2 billion) campaign—that’s right, billions—to boost energy efficiency. The ultimate goal is to cut the country’s energy consumption in half by 2050. This is part of meeting domestic and Paris Climate Agreement emissions reduction targets. The campaign could prove bearish for European Union (EU) carbon prices if it reduces demand for power and heating in Germany, the top economy (and emitter) of all the EU’s 28 member states.

Many other initiatives at the regional, country, state, and local levels are currently being designed and implemented in support of carbon emissions reductions, accelerated by the agreement. Importantly, the EU is seeking swift approval and implementation of the Paris Climate Agreement at the United Nation’s Bonn Climate Change Conference in Bonn, Germany this week.

U.S. Carbon Regulation

And then we have the Clean Power Plan (CPP). The CPP has been stayed by the U.S. Supreme Court until a final resolution of the case passes through the federal courts. Litigation may not be resolved until 2018, although it’s possible a resolution could be reached sooner. There has been a great deal of discussion on compliance with the CPP. Our analysis continues to show that cost-effective compliance includes a variety of options that are tailored to regional characteristics. A recent deep dive by Navigant into a southeastern state with modest renewable resources showed that trading with other states and developing energy efficiency programs and portfolios are key strategies for reducing overall compliance costs. Compliance strategies depend on existing resources; older coal resources on the margin for retirement are able to get a large bang for their buck on the emissions balancing sheet through replacement with gas, renewables, and energy efficiency.

Navigant also investigated the effects of deploying additional energy efficiency resources in order to decrease CO2 emissions in two regions: California and PJM. We found that additional energy efficiency reduces CO2 emissions, overall cost of compliance, and system congestion. The cost to serve load is reduced by 3%-5% in California and PJM. System congestion relief is also likely to occur, which further reduces the cost to serve load. This last point is important, since large, urban utilities are focused on reducing congestion points—and energy efficiency can be used as a solution.

Other Ongoing Developments

Even though the CPP is on hold, many individual states, cities, and utilities continue to move toward the CPP goals to reduce carbon emissions, plan for an advanced energy economy, and meet cleaner generation goals. The CPP parameters are being used as a guide for emissions reductions:

  • Last month, Maryland lawmakers approved the Clean Energy Jobs Act of 2016 (SB 921) by large majorities in both houses, increasing the state’s Renewable Portfolio Standard (RPS) to 25% by 2020.
  • As part of the New York Reforming the Energy Vision (REV) proceedings, the New York Public Service Commission introduced an order that requires placing a value on carbon emissions, focusing on distributed generation portfolios, and compensating customers for their distributed electricity generation.
  • Over the past year, six states led by Tennessee (plus Georgia, Michigan, Minnesota, Oregon, and Pennsylvania), the U.S. Department of Energy (DOE), and a few other national organizations have been developing a National Energy Efficiency Registry (NEER) to allow states to track and trade energy efficiency emissions credits for CPP and emissions compliance purposes.
  • Last week, San Diego announced its pledge to get 100% of its energy from clean and renewable power with a Climate Action Plan that sets the boldest citywide clean energy law in the United States. With this announcement, San Diego is the largest U.S. city to join the growing trend of cities choosing clean energy. Already, at least 12 other U.S. cities, including San Francisco, San Jose, Burlington (Vermont), and Aspen, have committed to 100% clean energy. Globally, numerous cities have committed to 100% clean energy, including Copenhagen, Denmark; Munich, Germany; and the Isle of Wight, England.
  • Meanwhile, many utilities are decommissioning or converting their existing coal plants and investing in utility-scale renewables, as well as distributed energy resources. As example, AEP is in the process of decommissioning 11 coal plants, representing approximately 6,500 MW of coal-fired generating capacity as part of its plan to comply with the Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards. The company is simultaneously making significant investments in renewables, with a total capacity of close to 4,000 MW by mid-2016.

What Does This All Mean?

The sustainability objectives of government, policymakers, utilities, and their customers are more closely aligned than ever before. In my last blog, I discussed how customer choice and changing customer demands are shifting toward supporting sustainability. States and regulators will continue to discuss how sustainable targets can be met without affecting jobs and the access to safe, reliable, and affordable power. And utilities will continue to evolve to support cleaner, more distributed, and more intelligent energy generation, distribution, and consumption.

Recommended action items for states and utilities include:

  • Understand the possibilities, costs, and full impacts of low-carbon generation and distributed energy resources (energy efficiency, demand response, and others).
  • Implement a workable framework and develop an integrated plan to move toward lower emissions goals, since it’s likely that decreased emission requirements will be in place in the near future.
  • Leverage existing state and neighboring utility designs and efforts to develop joint plans, policies, and goals.
  • Implement (pilot) initiatives that include renewable energy and other low-carbon generation into a reduced emissions framework while also incorporating energy efficiency and distributed generation as resources into the decreased emissions planning process.

This post is the third in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. My next blog will cover shifting power-generating sources. Stay tuned.

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

 

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