A “pay as you go” strategy for critical infrastructure, such as power supply – wherein infrastructure is financed incrementally, during the construction process – could make sense when applied to small remote microgrids supplying small solar systems in the developing world.   End-users in these countries often earn subsistence wages and need only enough juice for lights, computers, and cell phones.

When applied to nuclear power, though, the pay as you go concept dramatically increases the risks to end-users.   Just ask residents of Florida, where ratepayers are discovering that utilities can actually make more money – and consumers pay more for electricity – the longer it takes to build nuclear power stations.  The culprit is something called “construction work in progress,” or CWIP.

The Nuclear Energy Institute (NEI) has made a convincing argument that CWIP should actually save consumers money.  By collecting funds from ratepayers in advance of actual power production, sudden rate shocks can be avoided.  Financing costs for such large infrastructure projects can be reduced under CWIP, since investors have more certainty that debts will be paid off.  Since the investment ratings of utilities are protected, borrowing costs also shrink.

In the case of a proposed nuclear reactor by Progress Energy in Levy County, Florida, NEI estimated that CWIP program financing would save consumers $13 billion over the life of these nuclear reactors.  When Florida passed a bill in 2009 authorizing CWIP, it sailed through the state legislature with only a single dissenting vote.

After 6 years of CWIP financing, residential customer bills in Florida are projected to increase by $50 a month this year, even before the nuclear reactors generate a single kilowatt-hour of electricity.  Progress Energy originally estimated that building the two unit reactors would cost $5 billion and would be generating carbon-free power by 2016.  Instead, the construction costs have ballooned to $22.4 billion, and the plant – if ever completed – will not be generating power until 2021.

Ironically, this revised price tag and construction schedule mean that Progress Energy will generate more – not less – revenue the longer it takes to build the nuclear reactor.  If the project were cancelled today, the utility would still walk away with $150 million in profit.  So far, ratepayers have committed to over $1 billion dollars for a nuclear plant that won’t produce any power  for almost a decade.

If nuclear power could be financed in a way that makes economic sense, then proceeding down that path might make sense.  “Distributed nukes” – which would be deployed at a much smaller scale, reducing large investment risks – could be a better fit for CWIP and provide the form of financial innovation that might lead to a nuclear renaissance.  (Both water and transmission facilities have deployed CWIP with little controversy).  Unfortunately, the experience in Florida is turning former nuclear advocates and supporters of CWIP into skeptics, though the practice still has its defenders.

All eyes are on Florida to see if and when the plug is pulled on CWIP for large-scale nuclear power plants, with Republican state representative Mike Fasano, who voted for the CWIP state legislation in 2009 and supports nuclear power, leading the charge to shift financial risks away from ratepayers and to utility shareholders with new state legislation.

In our recent white paper, “Smart Energy: Five Metatrends To Watch in 2013 and Beyond,” Navigant Research forecast that, in terms of economic development, the area in the Southern Africa Power Pool (SAPP) will be the next high economic powerhouse, akin to Brazil, Russia, India, and China (BRIC).  A March article in The Economist seemed to agree with me.  With booming economic growth, an appetite for energy and new technologies, fast liberalizing markets, and encouraging overseas investment, many companies are lining up to export to Africa.

However, Africa is not going to be just a passive adopter of overseas technology.  The governments of South Africa and Kenya, among others, aim to turn their countries into high innovation and IP generating economies, with local value-added manufacturing.

Innovation can be measured by a number of metrics, including IP generation, the amount of government funding allocated to R&D, the number of PhD students, and the number of limited liability companies created.  As each of these grows, in theory, the dependence on imported products decreases.  A prime example of this is the transformation of the South Korean economy from heavy importer to leading exporter in under two decades.

As more and more developing economies seek to follow this path, moving away from being passive importers of new technology (especially in the cleantech space), companies will need to develop long term market entry strategies that involve local partners, local offices, and, increasingly, local manufacturing.

The economics of the United States, Germany, South Korea, and Japan are “old world” examples of this type of market.  The new generation ‑ Brazil, Chile, India, Indonesia, South Africa, Kenya, and of course China – has a high potential for rapid adoption of cleantech, including renewable energy, fuel cells, and advanced batteries.

Together these Tier 2 economies represent billions of dollars in potential revenue for cleantech companies, but they are not pots of gold.  The people of these countries are looking for partners to create local wealth , not multinationals that want to leverage the market and export the wealth.

Shifting from exporting to local production will require extra resources, a deep and realistic understanding of the markets, strong IP protection, and a high degree of flexibility.  Those who succeed will find new partners, rapidly growing markets, and access to highly educated workforces.  Those who fail will have to face the economic reality of limited markets with limited growth potential.

More than 7.5 million plug-in electric vehicles (PEVs) will be sold between 2013 and 2020, according to Navigant Research forecasts.  All of those vehicles need to be charged somewhere, which is why the electric vehicle (EV) charging supply equipment market has attracted more than 120 companies, large and small.

These vendors would like each new PEV owner to buy a home charging unit.  Due to a variety of factors, though, the percentage of consumers that choose to do so in future years will shrink.  According to Navigant Research’s 2012 Electric Vehicle Charging Equipment report, the portion of PEV buyers that will purchase a residential charging station will fall from 63% in 2013 to 47% in 2020.  The primary factors influencing this decline include:

• Increasing sales of plug-in hybrid vehicles (PHEVs) with smaller battery packs that can be fully charged via a standard 110-volt outlet overnight
• A greater share of PEV owners living in multi-unit dwellings without dedicated parking spots
• Increased reliance on workplace and other public charging

As the relative sales of residential electric vehicle supply equipment (EVSE) go down, sales of commercial (non-residential) EVSE will by necessity rise.  The chart below illustrates that annual global sales of commercial EVSE will grow to more than 1.5 million units annually while residential EVSE sales will rise to less than 823,000 units.

Residential and Commercial EVSE Unit Sales, World Markets: 2013-2020

                                                                                                 (Source: Navigant Research)

To reach the forecast volume of residential EVSE sales, the cost of purchasing and installing a home charger must go down.  We are starting to see residential EVSE priced in the $600 to $650 range for basic units; the average selling price should fall below $500 by 2016.

Simplify, Please

EVSE maker AeroVironment is reducing the immediate financial impact of buying and installing a residential EVSE by working with dealers to bundle the EVSE cost into the vehicle’s purchase cost.  Through the program, dealers approve potential customers for financing above the price of the vehicle and the EVSE, warranty, and installation costs are added as a capital item.  AeroVironment is launching the program with dealers selling the Nissan LEAF and will expand it to dealers of other brands over time.  The company expects the installation to take 4 days or less, including the time for an inspection.  AeroVironment will also be busy installing residential EVSE in California.  The California Energy Commission recently granted AeroVironment $2 million to install 770 residential EVSEs across the state.

Depending on which state or city an EV owner resides, the permitting process can be a lengthy and onerous process for purchasers and electrical contractors.  According to Navigant Research’s recently published Electric Vehicle Supply Equipment Permitting report, some regions allow a permit to be filed online and offer same-day inspections.  In other places, differences in city and county rules can significantly slow the process.  Currently, very few states have attempted to standardize the process.  Yet, for sales of EVSE to grow as forecast, more states will have to simplify the process.

March was a big month for Canadian fuel cell stack and system supplier Ballard, with a number of major deals edging the company closer to profitability.  Not only did it announce its move into the Chinese market, through its distributor Azure, for its large scale distributed generation system ClearGen, it also signed an agreement with Volkswagen to develop fuel cell stacks for the automaker’s fuel cell vehicle program.  The most interesting – if least valuable in terms of upfront money – development was the announcement that the South Africa-based PGM Development Fund will make a strategic $4 million investment into Ballard.  In the scheme of things, $4 million is not a huge amount, but the move is significant nevertheless.

The PGM Development Fund is a vehicle for Anglo American Platinum (AmPlat) to make strategic investments into technologies it sees could help the South African economy, and the wider economic development of Africa.  South Africa is the largest producer of platinum-group metals in the world and AmPlat, along with Impala Platinum and Lonmin, controls over 75% of the world platinum market.  These three companies have a long-term view of world development.  If it takes up to 20 years to open a new mine shaft, the planning horizons involved have to be similarly long term.

According to the Johnson Matthey publication “The Platinum Book,” the current demand for platinum comes from four main sectors: auto-catalysts, jewelry, industrial applications, and precious-metals investing.  Longer term, the platinum industry is looking to the fuel cell sector for increased demand.  Navigant Research calculates that today the use of platinum in the fuel cell sector is less than 1,000 ounces annually, but that is growing.  Within the next 10 to 15 years it is unlikely that demand from the fuel cell sector will reach a large bar on a graph like this one, but it will increasingly soak up excess platinum from the market, with companies moving to lending platinum, as is the current norm in the automotive sector. Lending of platinum is when companies pay to loan the metal, instead of outright ownership. At the end of the use of the material it is returned to the owner company, often for refining, and loaned out again. This works with platinum in a number of industries as it does not dissociate over time.

Market Interests

Ballard is the globally dominant low-temperature fuel cell stack supplier.  It controls over 60% of all PEM stacks worldwide, excepting Japan, and it is likely to remain the leader for some time to come.  By taking a stake in the leading supplier of platinum-loaded fuel cell stacks, AmPlat is securing market access for its product.

The funding will also buy AmPlat influence in the future development of Ballard.  We will almost certainly see increasing interest from Ballard in the South African market: within the next 2 years or so a joint venture, based in South Africa, and then longer term manufacturing capability located in-country.

After all, through clear marketing and promotional activity, platinum miners have been manipulating market interest and uptake in platinum for decades.  It was only a matter of time before they started to influence the fuel cell sector as well.  We suspect this is one of the opening salvos in an increasing interest and activity from platinum miners in this sector – and don’t be surprised if Ballard starts more aggressively promoting fuel cells in general.