Navigant Research Blog

How Technology Partnerships Will Shape the Future of Building Innovation

— January 20, 2015

The last 5 years have been monumental for the smart buildings industry.  Major building automation vendors have repositioned themselves as tech companies, a flurry of startups have entered the market, and building owners have become increasingly aware of the business value of integrating energy and operations management technologies.  Navigant Research expects to see a shift from the rash of acquisitions that dominated the smart buildings news a few years ago to partnerships shaping the market’s near future.  Companies are coming together to help customers overcome the challenges of enterprise awareness and integration and to make energy service offerings even smarter.

Enterprise Awareness

Even as the economy improves, many customers resist investing in energy efficiency.  The upfront capital costs of systems integration and equipment upgrades can be a daunting proposition for building owners and managers still learning the business value of intelligent energy and operational management.  Yet, a growing number of startups are finding new ways to bring cost-effective solutions to market that will help deepen the market penetration of smart building technologies.

In August, for example, Panoramic Power and Lucid announced a partnership to help customers capitalize on enterprise efficiencies through wireless energy monitoring and analytics.  Panoramic Power’s self-powered micro-sensors and Lucid’s BuildingOS software help customers aggregate building data and generate useful data across diverse systems and facilities.  In October, GridPoint and MicroStrategy announced a new partnership to enhance the software platform and visualization capabilities of GridPoint Energy Manager for cost-effective insight across light commercial building portfolios.  These two examples epitomize the partnering activity in the market that’s helping customers realize the benefits of smart building technologies at lower costs.

Enhanced Energy Services

Energy and engineering service companies are also seeing the benefits of partnering to bring smart building technologies to their customers.  AtSite is now enhancing its smart building professional services with the BuildingIQ Predictive Energy Optimization software.  The collaboration converges cloud-based software analytics with engineering expertise to elevate the service offerings to their customers.  ForceField Energy has partnered with Noveda to enhance its energy service company (ESCO) offerings with the IntelliNET Luminaire Management System (LMS) offering.  These partnerships illustrate how smart building technologies can generate new efficiencies and insights for professional service providers and differentiate offerings to customers who increasingly demand data-driven decision support.

Navigant Research will continue to track how new partnership models unfold in 2015 and whether these companies can successfully utilize their individual core competencies to deepen market penetration and expand the market for smart building technologies.

 

In Review: Energy Metatrends

— January 14, 2015

In Navigant Research’s 2013 white paper, Smart Energy: Five Metatrends to Watch in 2013 and Beyond, we discussed key shifts in the energy landscape.  In this post, I’ll review those trends and discuss which have come to pass and which have yet to materialize or have fizzled out.

The white paper covered the following metatrends:

  • Energy is becoming increasingly democratized
  • The role of government innovation funds is changing
  • Technologies are converging
  • The Southern African Power Pool is becoming the new BRIC
  • The role of utilities is changing

Energy Democratization

Distributed generation (DG), which lies at the heart of the energy democratization shift, has gained significant traction in recent years.  The growth of DG – spurred in part by greater consumer awareness, cost reductions for technologies like solar PV, and improved financing models, among other things – is one of the most dynamic factors driving the evolution of the traditional utility business model.  In Navigant Research’s report, Global Distributed Generation Deployment Forecast, we state that between 2014 and 2023, DG is expected to displace the need for at least 321 GW of new large-scale power plants, valued at more than $1 trillion in power plant construction revenue.  Annual DG capacity additions are expected to outpace centralized generation capacity additions by 2018, underscoring the importance of this metatrend going forward.

Government Innovation Funds

The white paper argued that quasi-governmental funds would step in to fill the void left by private equity and venture capital exiting the energy sector.  The role of government funds would expand to drive innovative technologies from R&D to commercialization.  While this has proven to be partly true, significant capital has exited the energy space, leaving many fledgling companies (and technologies) exposed to market realities.  Spectacular flameouts have rocked the cleantech financing landscape.  That said, governments remain key sources of funding across the innovation lifecycle, so the jury is still out with respect to this metatrend.

Technologies Converging

As discussed in our recent webinar on January 13, Energy Storage for Renewables Integration, storage reigns supreme within this metatrend, allowing for greater flexibility in managing electrons across both space and time.  Whether in an electric vehicle battery or advanced batteries deployed as peaking plants on the grid, energy storage has proven to be a linchpin technology unlocking the potential of distributed wind, solar PV, and microgrids.  For example, hybrid solar and storage deployments create exciting opportunities for energy consumers at the edge of the grid.  This is certainly a trend that has begun to emerge in a significant way.

Southern African Power Pool = the New BRIC

This metatrend is among the more difficult to measure, as specific goals remain longer term.  Economic growth appears to be gaining momentum across the region, but developments in Brazil, India, and China continue to overshadow the emergence of dynamic energy economies in Africa.  There is a general sense that investment to date in emerging energy technologies and infrastructure throughout emerging BRIC markets is just the tip of the iceberg.

Utility Role Changing

The changing role of the utility remains the most dynamic metatrend overall.  While predictions of a “utility death spiral” may prove to be overly dire, most acknowledge that utility business models will need to adapt to changing electrical grid realities.  In most cases, this will entail more complex partnerships with customers as utilities move toward more integrated service offerings.  In other cases, utilities may narrow their focus on one or two aspects of the grid, essentially becoming ”poles and wire” companies.

Summarizing, three out of five of these metatrends have materialized in significant ways.  While it is still too early to tell with the others, heading into 2015, we can expect a sustained global shift toward localized power generation and increased pressure on utilities to adopt (or at least explore) alternative business models.

For more on these dynamic changes and others, please see Navigant Research’s free white paper, Smart Grid: 10 Trends to Watch in 2015 and Beyond.

 

An Open Cuba Is Poised for a Green Future

— December 23, 2014

The news that the United States will extend normal diplomatic relations with Cuba can be viewed as the last act of the Cold War.  With the promise of cooperation on both sides, U.S. businesses will view the island nation as a new market for consumer and industrial goods as well as infrastructure spending.  Fortunately, Cuba has the potential to develop into an energy efficient country – if it can act deliberately.

Cuba opened its first 2.6 MW solar farm in 2013, with plans to develop six more, according to the U.S. Energy Information Administration.  Cuba also has plans to develop wind projects totaling 280 MW.  Today, 4.3% of its power comes from renewable resources.  Still, Cuba relies heavily on imported oil from a precarious source, Venezuela, which supplies two-thirds of Cuba’s petroleum. According to some reports, Venezuela was poised for oil price increases before the global drop.  Now Cuba may want to buy oil from other sources in the region at low prices, disincentivizing clean energy investment in the near term. At the same time, Cuba will have access to new low-carbon sources, following its own Article 81 in its Law 33, or general environmental policy, that encourages renewable resources that have minimal impact on the environment.

Building Boom

Cuba is also a member of the Organization of American States, which just announced support for the COP20 lowered emissions goals for all countries. With an awareness of climate change impacts and adaptation choices, it is bound to be torn between the cheap oil and development funds it now has access to and the regulations and low-carbon goals it supports.

Navigant Research’s report, Global Building Stock Database, forecast a flat growth rate for Cuba’s commercial and residential space, but that will surely change.  With more tourists and new commercial prospects flooding into the country, the demand for first-world quality residential and commercial space will rise.  The energy intensity of that space will likely be greater than the current building stock, resulting in an acceleration of energy demand.  There are a few strategies that can be employed that will help tamper the accelerated demand for power.

One landmark goal would be to make all new development net zero energy.  As described in Navigant Research’s report, Zero Energy Buildings, net zero implies that a building produces as much energy as it uses over the course of a year.  A strong government like Cuba could initiate strict building codes, following similar goals instituted in  California, as there is a legacy of energy efficiency policy implementation in the country. In 2005, Castro called for a “revolución energética,” resulting in the replacement of all incandescent light bulbs to CFLs and the replacement of over 2.5 million refrigerators.  Given the available solar resource and some wind resource, new hotels and business districts can leave room for installing renewables. Again, there is a precedent here. Over 2,300 schools have been equipped with solar since 2001, and the energy revolution provided some financing for residential PV.  Building codes can also require the most efficient building possible.

Lovely Decay

A major challenge, however, will be in retrofitting the existing building stock.  Renowned for its decaying beauty, the frozen-in-time architecture of Havana is a challenge for energy efficiency retrofits.  Maintenance and upgrades have been minimal over the past half-century, and the island’s humidity and heat are intense.  It’s hard to envision the building envelope being retrofitted to a highly efficient level. However, the appliances within them could be ungraded easily as part of the revolución energética.

Cuba recently announced 246 projects , worth over $8 billion for technology and industrial jobs, focused on renewable energy development and manufacturing of air conditioners, for instance.  Cuba is now at a crossroads and has the potential to choose the green/clean path forward.

 

Oil Price Crash Rocks Producers’ Worlds

— December 22, 2014

The effects on U.S. consumers of the steep decline of oil prices in recent months have been very welcome: in mid-December, average nationwide gas prices dropped below $2.50 a gallon, leading some analysts to predict a very green and merry Christmas.

The geopolitical ramifications, however, are much less benign.  They can be seen most visibly in Russia, where the value of the ruble is collapsing and the economy is slipping into recession.  The impacts of a crippled economy, clobbered by plummeting oil prices and economic sanctions over the annexation of Crimea, on the government of Vladimir Putin are impossible to predict.  But Russia in chaos is not a good thing for international security.

The December issue of Navigant’s NG Market Notes examines the likely implications of the current price dive on the global oil and gas industry.  Below is a rundown on the consequences in three critical OPEC countries.

Venezuela

Plunging oil prices have deepened Venezuela’s economic crisis, bringing “massive shortages of basic goods, the world’s highest inflation rate, and a steep currency devaluation,” according to Bloomberg Businessweek.  The decline poses a serious threat to the government of President Nicolas Maduro, who has attempted to continue Hugo Chavez’s program of massive socialized welfare and subsidized prices.  In mid-December, Fitch Ratings downgraded Venezuela’s credit rating to “CCC,” which signals a strong possibility of default.  Low oil prices also deepen Venezuela’s dependence on China, which has lent some $40 billion to prop up the faltering Venezuelan economy through loans and other credits.  Venezuela now exports about 540,000 barrels of oil a day to China, most of which is unprofitable because it goes to repay Chinese loans.

Iran

Overruled at the November OPEC meetings in its bid to push the producing countries to cut production, the Islamic Republic of Iran has moved to the paranoid phase.  Oil minister Bijan Zanganeh declared, “The prolongation of the downward trend of the oil price in world markets is a political conspiracy going to extremes,” according to the British newspaper The Telegraph.  Iran’s currency, the rial, has lost 8% of its value against the dollar in recent weeks as Iran copes with not only plummeting oil prices, but also the crippling effects of economic sanctions from Western nations over its pursuit of nuclear weapons technology.  The impact is also being felt in neighboring Syria, where the Assad regime is propped up in the country’s 4-year-old civil war by support from Shi’ite Iran.  Iranian officials have insisted that support for Syria will continue.  But the steep price fall “will break Iran’s back, not just the level of support for Assad,” a Syrian businessman told Reuters.

Saudi Arabia

Perhaps the most significant effects of falling oil prices can be seen in the Kingdom of Saudi Arabia, the world’s biggest oil producer for decades until being overtaken by Russia and, more recently, the United States.  The Saudis, who can produce oil from their desert fields at a cost of as low as a few dollars per barrel, have calculated that, at least for the time being, they can endure the effects of very low-priced oil.  In so doing, they are choosing to price other, higher-cost producers out of the market.  Already, production in the North Sea and western Canada is jeopardized, although the common notion that the Saudis are waging a “war on shale” by making U.S. shale oil production uneconomical is probably wrong.  U.S. shale producers can still make money with prices as low as $30 a barrel, according to Morgan Stanley.  How long Saudi Arabia can put up with oil below $70 a barrel, however, is an open question.  The desert kingdom has spent billions on defense, largely with U.S. material, in the last 5 years.  According to RBC Capital Markets analyst Helima Croft, whose calculations were presented on BusinessInsider.com, if prices persist at around $75/barrel, Saudi Arabia’s government reserves could be depleted by 2018.

 

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