Navigant Research Blog

Small Wind Leases Open Up New Markets

— December 8, 2014

With more than 5 MW of distributed solar PV being installed per day in the United States, third-party-owned (TPO) systems have catalyzed growth in residential and commercial market segments.  Until now, the wind industry has missed out on the immense opportunity offered by customized power purchase agreements and lease options for its customers.  As with TPO solar, wind leases enable customers to start saving money on their electric bills immediately, with little-to-no money down.  The system owner, meanwhile, takes advantage of the federal investment tax credit (ITC), depreciation, and other state incentives.

Based in Brooklyn, New York, United Wind is a developer of small wind projects and is currently offering lease options for 10 kW and 50 kW wind turbines.  The company has focused its efforts in New York, where the New York State Energy and Research Development Authority (NYSERDA) wind incentive can mean up to $40,000 in credits on a 10 kW system, on top of the 30% ITC.  Other companies are also trying to provide financing options for their customers, either directly or through third-party sources, but uptake has been slow.

Slow Off the Mark

According to Navigant Research’s report, Global Distributed Generation Deployment Forecast, 225 MW of small and medium wind (<500 kW) are expected to be installed cumulatively in the United States between 2014 and 2023.  Overall, the small and medium wind market in the United States has been far surpassed by the solar PV market due to rapidly declining costs that small wind has not been able to match.  With state incentives, in regions with strong wind resources, small and medium wind can be more cost-effective than solar PV, but the industry has been on its heels for the past few years.  As key state incentives have expired, a number of companies have gone under.

At the same time, distributed solar PV companies secured hundreds of millions of dollars in investment, established national sales operations, and significantly reduced customer acquisition costs.  The wind lease option is intended to tip the scales back in favor of small wind in key market segments, such as agriculture, manufacturing, municipalities, universities, schools, and hospitals, in places where wind is abundant.

As with solar PV, wind leases will range from 15 to 20 years on average and include guaranteed performance (in kilowatt-hours generated) warranties that include maintenance and insurance – all wrapped into a single payment.  This puts a premium on site assessment, since customers that don’t see cost savings are a risk to default on their payments.

The small and medium wind market needs to prove it can succeed in markets without lucrative state incentives.  The lease model is a great opportunity to move in that direction, but will require significant investment.

 

No Love for Utilities in FCC Spectrum Auctions

— November 26, 2014

As a wireless industry analyst who spent years following the FCC’s monetization of spectrum via competitive auctions, I’ve been struck by the dramatic increase in spectrum values implied by the ongoing Advanced Wireless Services (AWS) Auction in Washington, D.C.  The sale of more than 1,600 licenses nationwide, which began November 13, has now raised more than $38 billion – a tally that has risen by more than $2 billion since I started writing this blog!  That’s 2 to 3 times the total analysts were calling for prior to the sale and implies values of more than $2 per megahertz per population unit (MHz POP) for paired licenses; some large markets are already going for $5 per MHz POP.

(Value per MHz POP is a metric commonly used to compare the values of various spectrum licenses; it is equal to the price of the license divided by the total number of MHz for a given license divided by the population of the licensed market.  Paired licenses come with two swaths of spectrum, one each for uplink and downlink, and are typically more valuable than unpaired licenses, which have only one spectrum swath.  For detail on the licenses currently up for sale, click here.)

To put that in perspective, in the last major spectrum auction, held in 2008, spectrum values leveled off at $1.22 per MHz POP.  And while the bidding is blind – we don’t know which companies currently hold the top slot for which licenses – rest assured that Verizon and AT&T are near the top of that list.  Smartphone penetration and data usage have grown stunningly over the past 6 years, and the top wireless carriers are willing to pay (almost) any price to ensure they can continue to meet demand.  Without adequate spectrum, they simply won’t be able to keep up.

What about the Grid?

In my current role, as a smart grid communications analyst, I can’t help but wonder what happened to the FCC’s oft-discussed plans to allocate spectrum to electric utilities for smart grid connectivity.  Proceeds from the current auction will go to support build out of a nationwide public safety communications network at 700 MHz; public safety organizations were awarded those licenses, free of charge, a few years ago.  The so-called FirstNet initiative is expected to provide interoperable communications for first responders (police, fire, EMTs) – but apparently, the FCC doesn’t consider the electric grid to be critical to public safety.

The Utilities Telecom Council (UTC) has lobbied for years to convince the Commission that the power grid nationwide is critical infrastructure, and that utilities struggling to make upgrades to ensure improved reliability and efficiency are in need of dedicated spectrum to enable the communications between new grid devices.  But it appears the last time the FCC seriously considered such a move was in 2012.  At that time, the Commission was dismayed by the underuse of 4.9 GHz unlicensed spectrum and considered awarding the licenses to utilities.  But in the end, it didn’t.  In 2009, the UTC asked for 30 MHz of dedicated spectrum, also to no avail.

The DIY Option

Some utilities have owned their own spectrum licenses in the past – but that was the exception, not the rule.  San Diego Gas & Electric had plans to build its own communications network using wireless communications services (WCS) spectrum a few years back, but it opted instead to sell the licenses for the San Diego market to AT&T.  Many utilities across the United States have used unlicensed 900 MHz spectrum for their smart meter deployments, and many cooperative utilities own licenses for the 220 MHz band.  Smart grid networking system vendor Tantalus offers a system that leverages that spectrum for connectivity in difficult terrain.

But utilities have been left on the sidelines as the government works to maximize spectrum utilization, promote rural broadband access, and ensure public safety organizations have the communications they need in times of disaster.  But a resilient, reliable, efficient power grid plays a major role in our nation’s ability to respond to natural and man-made disasters.  That would seem to be worthy of dedicated spectrum.

 

Smart Building Startups Continue to Flourish

— November 17, 2014

Like the “Harvard of the [insert region here],” “the Next Silicon Valley” is a term so trite that it has become meaningless.  You may have heard of the Silicon Hills, the Silicon Strip, Silicon Wadi, or even the Silicon Valley of the East.  It seems that anyone with a pulse is trying to woo tech entrepreneurs into the next Silicon cluster.  Nevertheless, tech activity is not limited to Northern California.  A recent analysis by the Financial Times found that 60% of “unicorns” (tech startups that reach a $1 billion valuation) were created outside of California’s Bay Area.

Indeed, many local governments are trying to establish startup ecosystems to rival Silicon Valley, including the government of Washington, D.C.  Recently, Mayor Vince Gray announced the awarding of grants to tech startups totaling over $800,000.  Several of these companies represent the wave of innovation occurring in smart buildings.  Aquicore, a real-time energy management software for commercial real estate and industrial facilities, received $122,500.  And Azert, the developer of Smart(er) Socket, wall sockets integrated with Apple’s iBeacon technology and Wi-Fi, also received $122,500.

Other People’s Stuff

It might seem strange to think of wall sockets communicating, and even stranger to think of any building infrastructure using an Apple technology.  What’s more, the idea of a software startup that relies entirely on building controls hardware made and installed by other vendors was until recently unthinkable.  In the past, building systems were specifically designed not to work with other vendors’ products in order to ensure a long-term market for replacements and upgrades.  But the convergence of building technology and information technology, the adoption of open protocols, and greater integration between building automation systems have lowered the barriers to entry in the smart building market.

These startups demonstrate that the competitive landscape of smart buildings is changing.  It’s easier than ever to get building data, meaning that a wider pool of competitors is emerging.  What’s striking, and hopefully indicative of future trends, is that these companies are springing up in Washington, D.C., away from the established tech hub of Silicon Valley and away from established global building controls manufacturers.  Future innovation in smart buildings can be driven by anyone, anywhere.

 

With New Plant, Alevo Claims Major Battery Advances

— November 10, 2014

Swiss manufacturer Alevo has launched a new battery and grid storage division in North Carolina that it promises will lead to hundreds of megawatts worth of battery-based grid storage projects.  The U.S. subsidiary hopes to manufacture its formulation of lithium iron phosphate (known in the industry as LFP) batteries in the 3.5 million square foot Concord, North Carolina factory.

Alevo’s battery chemistry is not new – there are dozens of LFP manufacturers (most based in China) cranking out hundreds of megawatts of batteries for portable power and grid storage applications.  However, Alevo claims that its formulation of the chemistry (primarily its secret electrolyte additives) will enable its LFP batteries to last as long as 43,000 cycles of full discharge.  If such a cycle life is proven in the field, this chemistry will represent the most durable lithium ion (Li-ion) battery available today.

An Impressive Debut

Alevo also claims that it uses a non-flammable electrolyte, which makes its battery less prone to catching fire than most grid storage batteries.  Although the company won’t discuss manufacturing costs, LFP batteries have relatively cheap material inputs, opening up a potential path toward low-cost cells.

During the unveiling ceremony at the Concord plant (complete with a drawing back of the curtains on stage, swirling searchlights, and wolf whistles from the employees that packed the audience – all for a 20-foot shipping container), the air-cooled battery bank was displayed, along with its Parker Hannifin inverter and fire detection and suppression equipment.  Alevo also highlighted its big data and analytics capabilities, which it says are needed to help deploy and optimize the energy storage system.

While Alevo seems to have plenty of capital behind it (Reuters reported that Swiss investors have put up more than $1 billion), as well as several global partnerships, it has significant challenges ahead.  The most important of these focus on the battery cells themselves: real-life durability and manufacturing cost.

Two Challenges

On the durability front, Alevo’s internal accelerated testing of 43,000 deep discharge cycles is indeed impressive.  But accelerated testing is an imperfect science.  Batteries tend to perform very differently in the real world over the course of decades, as opposed to laboratory benchmark tests that model expected long-term battery durability.

As for manufacturing costs, Alevo has a hard mountain to climb to learn how to become a battery manufacturer, especially with the challenges that LFP technology brings to the factory.  Unlike other Li-ion chemistries, LFP requires very finicky vacuum technologies that make large-scale manufacturing hard to do efficiently.  Many other LFP manufacturers have assumed cheap manufacturing costs only to find that the chemistry left them with much higher costs, lower yields, and more failures than expected.  While other cobalt-based Li-ion chemistries have higher costs for material inputs, the manufacturing processes are much simpler and easier to scale.  Alevo’s claims are impressive; proving them will be another matter.

 

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