Navigant Research Blog

Leasing EV Chargers and Profiting

— July 10, 2014

There are about as many business models for operating electric vehicle (EV) charging stations as there are flavors of Baskin-Robbins ice cream, but so far, none of them have been clearly profitable.  While worldwide sales of plug-in electric vehicles (PEVs) have grown to more than 12,000 monthly, in most locations today, there isn’t enough traffic for EV charging stations to directly pay back their cost within 3 years, which is a typical required return on investment.

Several hardware companies are trying to lower the cost of the equipment, which could reduce the payback period.  In the United Kingdom, electric vehicle supply equipment (EVSE) company POD Point is now leasing charging stations to lower the upfront cost.  For approximately £50 ($85) per month installed, POD Point will provide a commercial charger, which the company says requires just two charging sessions per day to be profitable.  Leasing can be a viable option for companies looking for an easy way to enter the market, and the leasing company has a vested interest in making sure that the stations remain operational.

Dig It

For companies that prefer to purchase the hardware outright, ClipperCreek recently began to offer a commercial charger for just $395 before installation costs.  A pay-by-mobile phone system from Liberty Access Technologies that manages up to 10 charging stations and enables fees to be collected can be added on.

The cost of installation, which can require trenching, running conduit curbside, and upgraded power delivery to the location, remains the Achilles’ heel of profitable EV charging, and unfortunately, there’s little leeway in reducing the contractor and cabling fees.

Automakers are getting involved to lower the cost and pain of EV charging.  Tesla bundles the costs of accessing its SuperCharger network with the vehicle purchase price, while Nissan is paying for the first 2 years of charging a LEAF with its recently announced No Charge to Charge program.  Nissan has teamed up with AeroVironment, NRG, and the Car Charging Group on the EZ-Charge program, which gives EV owners a single payment card for accessing chargers from these EVSE providers.  EV charging company ChargePoint was supposed to work with EZ-Charge too, but backed out of the agreement.

In Japan, Nissan has joined with Toyota, Honda, and Mitsubishi to form Nippon Charge Service, an EV charging company that will provide incentives for companies to offer commercial EV charging at retail outlets.

Lattes Not Included

As detailed in Navigant Research’s Electric Vehicle Charging Equipment report, to be profitable today, most commercial EV charging stations need to bundle the cost of charging with some other service or fee structure.  These include combining EV charging with conventional parking fees, valet service at a hotel, or offering subscription services that combine home and public charging (a la the NRG eVgo network).  Startup Volta in Hawaii and Juice Bar have taken another approach by using advertising revenue to reduce the cost of a charging station, a growing trend that is likely to increase in popularity.

There will come a day soon, however, when EV penetration will be sufficient in some regions to make pay-as-you-go EV charging services profitable.  Gas prices will likely continue to rise (gasoline in the United States  is up $0.16 from last year at this time, according to AAA) and EV charging service providers will have more flexibility in pricing, since electricity as a fuel will increasingly be a better deal ‑ making profitability easier to attain.

 

Big Savings from Replacing Diesel with Storage

— July 6, 2014

In my previous blog on diesel and energy storage, I discussed the payback period for energy storage in a remote microgrid.  What is the value of reducing diesel usage in a microgrid, practically speaking?

The table below illustrates the first-year savings of displacing 15% of the diesel generation in microgrids of different sizes using energy storage.  The average installed energy storage cost in this model is $2,112 per kW, and the assumption for the minimum cost of diesel fuel is $1.09 per liter, with the maximum cost in the model averaging $3.27 per liter.  Since the installation of storage is a one-time cost that occurs in the first year, the savings go up after that.

Size Distribution of Deployed Microgrids and First-Year Fuel Savings
at Low and High Diesel Costs: 4Q 2013

ESMG table

(Source: Navigant Research)

According to Navigant Research’s Microgrid Deployment Tracker 2Q14, 231 deployed microgrids have diesel generation capacity.  This means that 38% of microgrids have diesel gensets, and overall, gensets account for 11% of microgrid capacity globally.  Only 40% of the 79 microgrids above 10 MW include diesel generators, and smaller systems are less likely to have diesel generation.  Less than one-third of the microgrids below 500 kW rely at least partially on diesel.

Taking the example of a large microgrid system, because this is where the savings are the greatest, microgrids over 10 MW average 42.7 MW of capacity.

Still Too Costly

Assuming a microgrid does in fact have diesel generation, if a 42 MW microgrid replaced 15% of its total capacity (and assuming at least 15% of that capacity would be displacing diesel gensets) with storage, it could save between $10.9 million and $53.4 million per year after storage costs are recouped.  The total savings for all of the large microgrid systems in Navigant Research’s Microgrid Deployment Tracker would amount to $2.2 billion to $10.8 billion per year in diesel fuel using just 200 MW of energy storage.

So why is storage not more popular in remote microgrids?  Chances are it’s because $2,112 per kW installed is still not competitive in most markets where storage is displacing traditional power generation – even with the benefits of volume manufacturing.  Companies such as Samsung SDI and LG Chem are manufacturing lithium ion cells for the grid at great volume, but it’s still challenging to deliver competitive prices to the customer.  This is because a large portion of costs has nothing to do with the core technology, and instead is related to project management, system design and integration, and installation.  As more companies such as Bosch and Schneider Electric enter the market and bring power electronics and energy management expertise to the storage space, these costs will come down significantly, benefiting the entire supply chain. 

 

Business Community Wakes to Climate Change Risks

— June 27, 2014

Attempting to reframe the climate change debate in terms of profit and loss, instead of politics, a bipartisan group of business and political leaders has released a report that says the United States faces billions of dollars in economic losses due to global warming.  Titled Risky Business: The Economic Risks of Climate Change in the United States, the study was produced by the Rhodium Group, an economic research firm, in association with a committee headed by former Treasury Secretary Hank Paulson, former New York City Mayor Michael Bloomberg, and Tom Steyer, the billionaire former hedge fund manager who has devoted his fortune to the effort to limit climate change.

Essentially, Risky Business makes the point, through an exhaustive database of the probable economic downsides of rising seas, drought, higher temperatures, and crop failures, that regardless of politics, it is irresponsible to ignore the risks of climate change – especially if you’re a businessperson, investor, or money manager.  With its high-powered lineup of Republican and Democratic financial heavyweights, Risky Business is the latest signal that the business community is awakening to the grave consequences of ignoring anthropogenic climate change, even as political leaders fail to act.

Ignored Rule

“Viewing climate change in terms of risk assessment and risk management makes clear to me that taking a cautiously conservative stance — that is, waiting for more information before acting — is actually taking a very radical risk,” wrote Paulson in a New York Times essay earlier this week.

In 2010, the U.S. Securities and Exchange Commission (SEC) established a rule requiring publicly traded companies to divulge their exposure to climate change risks in their reporting.  That rule has mostly been observed in the breach.  A February study by the Ceres Group, a Boston non-profit that looks at the financial implications of climate change, reported that, “A large number of companies fail to say anything about climate change in their 10-K filings. Forty-one percent of S&P 500 companies failed to address climate change in their 2013 filing.”

That is changing, as business leaders, driven by regulators and shareholders, have started to factor in likely climate-related effects on their businesses.  Large investors, meanwhile, have started to punish companies that produce or continue to rely on fossil fuels.  The announcement by Stanford University in May that it would eliminate fossil fuel investments from its $18.7 billion endowment portfolio is the most significant victory to date of the divestment movement.

Popping Sound

In an update to its 2011 report, Unburnable Carbon, the Carbon Tracker Initiative calculated that only 20% to 40% of the total listed reserves of the world’s fossil fuel companies can be burned if the world is to avoid catastrophic climate change.  Current fossil fuel company valuations represent a carbon bubble.  Eventually, the initiative stated, some form of price will be put on the carbon represented by those reserves, dramatically reducing their value.

“The scale of this carbon budget deficit poses a major risk for investors,” wrote the report’s authors, Jeremy Leggett and Mark Campanale.  “They need to understand that 60-80 percent of coal, oil and gas reserves of listed firms are unburnable … Capital spent on finding and developing more reserves is largely wasted. To minimize the risks for investors and savers, capital needs to be redirected away from high-carbon options.”

Politicians have utterly failed to come to grips with the environmental crisis of climate change.  Now, by framing it as an economic crisis, the business community is having a go.

 

From NRG, a Solar Storm

— June 12, 2014

According to David Crane, NRG Energy’s outspoken CEO, residential solar power will be cost-competitive with retail electricity in about 25 states next year.  As a result, NRG is making some big moves in residential solar installation and financing.

In March, NRG announced that it is acquiring Roof Diagnostics Solar (RDS), which is the eighth-largest residential solar installer in the United States, employing 475 people.  NRG already has a small but growing residential solar installation and financing business called NRG Residential Solar Solutions (RSS), which mainly consists of licensed dealers and operates in Arizona, California, Connecticut, Hawaii, Maryland, Massachusetts, New Jersey, New York, Texas, and Vermont.  RSS has a fleet of several thousand residential systems installed, but it hit a sales plateau in 2013.  The company showed that it’s serious about becoming one of the largest solar installers and financiers in the United States by acquiring RDS, which will be rolled into RSS.  NRG hopes to maintain its existing installer network despite some channel conflicts with RDS, which operates in New Jersey, New York, Massachusetts, and Connecticut and has expansion plans for California.

Undercutting the Customer

NRG is also planning to eventually use the growing underground network of pipes that delivers gas to about half the homes in the United States to complement its residential solar business.  According to Crane, the company wants to provide customers with fuel cells and microturbines, which produce electricity from gas, to fill in the gaps of solar generation.  Plus, NRG is dabbling in energy storage and microgrids on Richard Branson’s Necker Island.

In some cases, NRG is making bets against its traditional customers (and its own traditional business).  It has become the largest power provider to U.S. utilities, with 25 GW of natural gas power plants, 13 GW of coal generation, 448 MW of wind farms, and 1.2 GW of utility-scale solar systems.  Some of this power goes to NRG’s own service territory, but more than half of the company’s revenue comes from power sales to other utilities on the wholesale market.  With its 47 MW of distributed solar panels on rooftops, NRG is actually undercutting the business of the utilities it serves.

A Lot to Lose

Why is NRG pursuing such an aggressive strategy?  As the largest power generator in the United States, NRG has a lot more to lose than transmission and distribution (T&D) oriented utilities with the proliferation of distributed generation (DG).  DG directly affects NRG’s bottom line, since every kilowatt-hour not provided by the company is a kilowatt-hour that’s costing NRG revenue.  This doesn’t affect utilities that are focused on T&D as much, since they’re still providing the same interconnection services (at least for the time being).  As a power provider, it’s in NRG’s interest to own as much of the utilized generation capacity as possible – and that now includes DG capacity, especially when you consider that DG output is always utilized due to policies like net metering.

Having an aggressive strategy also seems to be part of having David Crane as a CEO.  According to Crane, future power customers will be able to disconnect from the grid as they use residential solar coupled with energy storage and a gas-powered fuel cell or microturbine to provide for their own power needs.  This was the subject of Navigant Research’s recent webinar, The Energy Cloud.  Crane is positioning NRG to be the supplier of solar arrays, fuel cells, and microturbines to power customers in this age of grid obsolescence.  It’s remarkable to see a utility betting on the grid’s eventual obsolescence, but it’s important to note that within that framework, NRG is still maintaining its core business as a power provider.

 

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