Navigant Research Blog

Automation Gives Manufacturers an Energy Boost

— October 17, 2014

According to the U.S. Manufacturing Purchasing Managers’ Index, a measure developed by financial research firm Markit, manufacturing activity in the United States in September reached its highest point in more than 4 years.  Factory employment, though still well below pre-2008 levels, reached its highest level since March 2012.

U.S. manufacturers are getting a boost from low energy costs, driven primarily by the bonanza of low-cost natural gas (and, to a lesser extent, by distributed renewables, often onsite at plants).  But what’s going on inside U.S. plants is equally important.  Increased energy efficiency, enabled by a revolution in process automation technology, is also helping U.S. manufacturers compete with manufacturers that enjoy low-cost labor in developing countries, particularly China.

Excess No Longer Success

Since peaking around 1999, the primary energy use in the U.S. manufacturing sector has declined steadily, according to the American Council for an Energy-Efficient Economy, from about 35 quadrillion BTUs annually to less than 31 quads.  Energy intensity – the BTUs used per dollar value of shipments – has declined even more dramatically.

The shift is coming as a shock to old-line factory managers unused to calculating energy as a key metric of efficiency and productivity.  “No one ever got fired for purchasing a pump or a machine that’s too big for the job,” said Fred Discenzo, manager of R&D at Rockwell Automation, at a recent energy management conference in Akron, Ohio.  In manufacturing, “excess capacity has always been the safe option.”

Rockwell is among an emerging segment of technology vendors that is trying to change that, through what it calls “the connected enterprise.”  What that means is connecting the factory floor to the C-suite with far greater visibility and immediacy than before.  Another name for this change might be “extreme granularity.”  In the near future, energy use will be measured not at the factory or line or machine level, but at the individual process level, per unit of production: how much energy did it take to make this widget or valve or bag of ice, and where in the process can that energy use be optimized?

The Next Revolution

Advances in factory-floor networks, wireless sensors, virtualization, and monitoring equipment are enabling these improvements in manufacturing efficiency, energy conservation, and quality control.  These twinned revolutions – cleaner, cheaper, more distributed energy coming into the plant and sophisticated automation technology reducing energy intensity inside the plant – will result in changes that have far-reaching implications for the manufacturing sector, and for the economy.  “The new era of manufacturing will be marked by highly agile, networked enterprises that use information and analytics as skillfully as they employ talent and machinery to deliver products and services to diverse global markets,” concluded a 2012 McKinsey study entitled Manufacturing the Future.

At 32% of total energy consumption, industry uses more energy than any other sector of the U.S. economy.  Manufacturers that adapt to the new realities of energy, by changing the ways in which they source and use electricity, will be more competitive on the global stage – and could help usher in the new economic upswing that politicians and analysts have been dreaming of for years.

 

From Commonplace Materials, Shigeru Ban Creates Uncommon Shelters

— September 8, 2014

Japanese architect Shigeru Ban’s first museum in the United States opened last month in Aspen, Colorado.  An internationally renowned architect and the recipient of the 2014 Pritzker Prize, which is often referred to as architecture’s Nobel Prize, Ban is distinguished from his peers by his commitment to humanitarian work and sustainability.

Since 1994, Ban and a team of volunteers have responded to a number of disasters worldwide with innovative architectural solutions.  They constructed relief housing in response to the 1999 earthquake in Turkey, to Hurricane Katrina in 2005, and to the 2011 earthquake and tsunami in Japan.  Ban uses inexpensive, often recycled materials to construct innovative shelters in an economically and environmentally sustainable way.  These structures dispel preconceived notions of the aesthetics of disaster relief shelters with their simple, clean designs.

In Onagawa, Japan, Ban converted old shipping containers into housing for people who lost their homes in the 2011 disaster.  The earthquake and flooding left little flat land, which Ban addressed by stacking the shipping containers to make three level multi-family units.   One of Ban’s earliest projects was in response to the 1994 civil war in Rwanda that left millions homeless.  Ban worked with the United Nations High Commissioner for Refugees (UNHCR) to develop refugee shelters, using low-cost paper tubes as an alternative to wood in an area that had suffered rapid deforestation.

Minimalism in a Time of Excess

What makes Ban’s work particularly interesting from an energy standpoint is his dedication to using locally and sustainably sourced materials.  The new Aspen Art Museum is constructed from materials ranging from paper tubes to beer crates, and all the wood involved in the project was sustainably sourced.  Fellow architects have called Ban a “socially responsible” or “socially conscious” architect who prizes sustainability above all.  But despite Ban’s focus on reusing materials and minimizing waste, he rejects labels such as green and eco-friendly.

Although Ban is the best-known philanthropic architect, lesser-known builders and organizations are working in a similar capacity, creating a small but growing movement.  For example, the U.K. charity Architecture Sans Frontières, emulating the model pioneered by Doctors without Borders, is spreading sustainable architecture and responsibly built environments to marginalized or impoverished communities around the world.  In the United States, the organization Make it Right, created after Hurricane Katrina, enlists architects who donate their time to create cradle to cradle homes that produce more energy than they consume.  Natural disasters, political turmoil, and war will continue to displace people from their homes, and the innovative architectural designs by Ban and others can help keep them from crowded and unsanitary refugee camps.

 

Winners and Losers under the U.S. EPA’s Clean Power Plan

— September 5, 2014

The most cost-effective and accessible way for states to replace retiring coal plants and comply with the U.S. EPA’s proposed carbon regulation (the Clean Power Plan, or CPP, released in June 2014) is through demand-side measures.  These include the energy efficiency programs that the EPA uses to calculate emissions rate targets in the CPP as well as other measures, such as demand response.  Analysis by Navigant and others shows that measures that cut demand growth will cut compliance costs.  However, most states cannot meet their targets by energy efficiency alone.

It’s in electricity customers’ best interest for states and utilities to implement the CPP with as much emphasis on energy efficiency and demand response as they are physically and financially able to.  For this primary reason, states and utilities will expand programs where they already exist and introduce new programs where there are gaps.

Accelerating Retirements

The costs to comply with the CPP, in addition to costs to comply with other environmental regulations as well as competition with low-cost natural gas, will drive approximately 45 GW of additional coal retirements by 2025, beyond anticipated retirements without the CPP (according to Navigant’s analysis).  The aging U.S. coal fleet already faces troubled times, with low natural gas prices expected to continue and the Mercury and Air Toxics Standards (MATS) requiring hundreds of coal plants to install costly emissions controls or shut down.  As coal plant owners look ahead to a carbon-constrained future, they are weighing complex decisions about whether it makes sense to invest in improvements in the near term when the long-term future of their coal fleets is uncertain.  Much depends on what the EPA’s final regulation will look like and how states will choose to implement it.

While the discussion around coal retirements tends to center on replacement by natural gas, wind and solar will also play a role.  The CPP will drive solar and wind generation above and beyond existing renewable targets, even in states that do not currently have a Renewable Portfolio Standard.  Growth will be particularly strong in areas that have high potential for solar and wind, such as the Desert Southwest and the Texas Panhandle, and where higher power prices make renewables more cost-effective.  Although much of the new solar capacity will be distributed customer-scale generation, wind installations will continue to be larger, utility-scale deployments.

New Questions Raised

The power sector has been expecting federal-level climate change policy or regulations for years.  This has been a major area of uncertainty for future generation planning.  However, the release of the proposed CPP has not led to any concrete assumptions for the future, and it has likely generated more uncertainty than it has quelled.  How will the EPA fashion its final regulation?  Will states choose to band together to implement the regulation, and will the basis for their implementation be rate-based or mass-based targets?  How will energy efficiency be measured and verified?  How will differences between states be reconciled in a system where electricity is constantly moving across state lines?  The answers to these questions will drive broad changes in the power sector and have ripple effects across the national economy.  These ripples will be felt by all industry players that are electricity customers (i.e., everyone) and, indirectly, by the healthcare industry (handling fewer conditions brought on by poor air quality) and the insurance industry (facing lessened impacts of climate change).

It’s not surprising that the CPP will transform the domestic power generation landscape, reducing coal use, lowering demand growth (due to energy efficiency and conservation programs), and increasing gas-fired and renewable generation.  Thinking globally, the plan could be just what the international community has been calling for: leadership on climate change from the United States that will push other nations (notably China and India) to follow suit.

 

The Race to Control the Smart Home Heats Up

— September 3, 2014

The race to control the smart home is heating up.  Four tech giants have made strategic moves that portend a lengthy fight – one in which consumers should come out ahead, eventually, and more energy efficient homes should result.

The four big players – Microsoft, Samsung, Apple, and Google – are each taking different approaches and are at different stages of development.  Their recent tactical moves include:

  • Microsoft is acting as an incubator.  The software giant (along with partner American Family Insurance) has set up an accelerator program to encourage tech startups to create smarter homes.  In the current round, 10 companies have been chosen, two with a clear focus on energy efficiency.  Chai Energy aims to give consumers real-time energy consumption data for the whole house and for individual appliances.  Heatworks offers what it calls “the first digital tankless water heater” to conserve energy and reduce water consumption.
  • Samsung is making acquisitions.  In August, the gadget and appliance maker announced its purchase of SmartThings, a startup offering a hardware-software solution that connects many in-home devices, such as light switches, outlets, locks, and thermostats.  Also in August, Samsung bought Quietside, a U.S.-based distributor of heating, ventilation, and air conditioning (HVAC) products, and the South Korean conglomerate says it will release an enhanced lineup of HVAC products that better addresses North American customers’ needs.
  • Apple is featuring HomeKit as part of iOS 8.  The mobile operating system will include HomeKit, a new software framework, when it is released this fall; the new software will enable users to connect iOS and third-party devices in the home in order to control lights, door locks, and thermostats, among other devices, from mobile devices.
  • Google’s Nest Labs is opening its platform. The company’s software is now available to outside developers that can write applications that connect devices to Nest thermostats and smoke detectors.  The company also acquired Dropcam, a startup that offers video monitoring equipment for the home.

No Quarter

This competition for smart home supremacy will continue for a number of years.  Why?  Because home energy management remains a fragmented world, with no single standard or platform.  No clear leader has emerged, and interoperability will be an issue.  Furthermore, none of these companies want to concede ground to the other if they don’t have to.  From an energy-savings standpoint, Google’s Nest Labs has momentum.  But don’t count out the others in terms of volume and the ability to drive adoption, particularly Apple and Samsung; both can leverage large installed bases of mobile device users, and Samsung has the advantage of already selling connected appliances.  The race has just gotten started.

 

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