Navigant Research Blog

The US ITC Was Reinstated for Fuel Cells: Is It Enough to Recharge the Industry?

— March 20, 2018

In an 11th hour move, the US federal Investment Tax Credit (ITC) was reinstated for certain orphaned generating technologies in February’s congressional tax bill. Among the technologies extended, fuel cells have the highest incentive: as much as 30% of the system cost can be taken as a tax credit. For stationary systems made by the likes of Bloom Energy, Fuel Cell Energy, and Doosan, the credit can be worth around $0.02/kWh on a levelized cost basis—a significant amount that can decide whether a project gets built.

Will it be enough to reignite an industry that largely treaded water in the US in 2017? That depends on whether industry players can address certain key issues.

Capital Costs Must Be Lowered

The high capital costs of fuel cells remain the biggest hurdle to mass adoption. Installed capital costs vary widely but typically range from about $4,000/kW to $8,000/kW. By contrast, turbines, microturbines, and reciprocating gensets are significantly cheaper per kilowatt—as low as $1,000 or less for certain gensets and turbines. Fuel cells make up for this with high efficiency, but that advantage is hobbled in a world of low natural gas prices. Cost declines in recent years have been promising, but more must be done. Incentive certainty should help drive investment, volume, and thus economies of scale, but more must be done with manufacturing process improvement and the use of lower cost assemblies and materials.

Flexibility and Load Following Must Be Improved

The US electrical grid is experiencing increasing volatility thanks in part to fast growth among intermittent renewables. This has led to demand for flexible, dispatchable technologies like battery storage. The higher temperature fuel cells popular in the +500 kW range tend not to follow load well. This is a disadvantage, especially for applications like microgrids that value islanding from the grid. Pairing the fuel cell with battery storage (a la Bloom Energy) can help overcome this lack of flexibility

Carbon Emissions Still Represent a Liability

Despite super-low levels of criteria pollutant emissions, fuel cells using natural gas still emit carbon dioxide. This can be a significant liability when compared with, for example, the emissions-free PV-plus-storage systems that continue to fall in price. Though fuel cell emissions per megawatt-hour tend to be lower than most electrical grids right now, those grids are focused on decarbonizing. This is of special interest among corporate buyers thinking increasingly about sustainability. Low carbon fuels like biogas are a key decarbonizing pathway. Some programs, like California’s SGIP, encourage biogas market transformation by requiring increasing amounts of biogas in covered systems. Using biogas as a fuel is a strategy for fuel cells to compete better on system carbon emissions.

Fuel Cell Technology Needs More than Just the ITC

The reinstatement of the ITC gives a welcome boost to the stationary fuel cell industry in the US. It lowers both uncertainty and costs to the end user, and enhances economies of scale. But more yet is needed to truly scale the industry. Cost cuts have been aggressive in recent years but must continue. The ITC is scheduled to phase out over 5 years, dropping to 22% before ending in 2022, giving fuel cell companies a clear timeline for hitting lower cost targets. Pairing up with other dispatchable technologies like batteries may help fill the gaps in load following capability. And to limit carbon emissions, alternative fuels like biogas and green hydrogen will become increasingly important fuels. Fuel cell technology still shows great promise, but there is much yet to be done.

 

Purchase Incentives More Cost-Effective for E-Bikes Than EVs

— March 24, 2017

Electric bicycles (e-bikes) continue to be the highest selling EV on the planet, with nearly 35 million unit sales forecast for 2017. Increasing urbanization and a desire from consumers and city officials to move away from cars for motorized transportation are opening opportunities for alternative mobility devices. E-bikes are uniquely positioned to be a primary benefactor of this trend since they are low in cost relative to cars, do not require licensing, have no emissions, and can take advantage of existing bicycling infrastructure. The European Cyclists’ Federation (ECF) published a report that shows e-bikes are a particularly cost-effective way to decarbonize the transport system through incentives. However, e-bikes have received little in the way of purchase incentives within most countries’ electric mobility strategies.

Germany has spent an enormous sum of money on electric cars, with unimpressive results. The country spent €1.4 billion ($1.5 billion) through 2014 on R&D and added an additional nearly €1 billion ($1.07 billion) subsidy scheme in 2016. Yet, there are just 25,500 pure EVs on the road in Germany. Meanwhile, e-bike sales exploded in the country during the same period with virtually no subsidies, aside from a few small pilot projects. Over 2.5 million e-bikes are in use in Germany, and Navigant Research expects nearly 650,000 unit sales for 2017. One wonders how much higher this figure could be if e-bikes had the same public financial support as EVs in Germany.

Differences in E-Bike and EV Policy, Germany: 2016

(Source: European Cyclists’ Federation)

New E-Bike Purchase Incentives in Europe

Several new e-bike purchase incentives have popped up across Europe, providing a boost to the industry and demonstrating new confidence in e-bikes as a cost-effective way to reduce traffic congestion and greenhouse gas (GHG) emissions. France announced a $200 subsidy for e-bike purchases in February 2017, and earlier in the year, Oslo, Norway began a $1,200 incentive program for electric cargo (e-cargo) bikes. Austria has offered an e-bike incentive program for numerous years. The ECF estimates roughly 25% of early e-bike purchases in the country’s crucial market uptake phase, around 2010-2011, were supported by financial incentives. Austria has one of the highest sales rates of e-bikes per capita in Europe, third behind the Netherlands and Belgium.

The increasing number of e-bike incentives in Europe demonstrates the growing recognition by European policymakers that e-bikes can be a more cost-effective technology to incentivize over EVs within an electric mobility strategy. On average, e-bikes cost less than 8% of the price of an electric car, according to the ECF. This, coupled with the lack of licensing requirements, make adoption much easier for consumers.

Studies Show

As noted in a previous blog, a consumer survey conducted by the Oregon Transportation Research and Education Consortium (OTREC) showed that the primary reason respondents bought e-bikes was to replace car trips—not bicycle trips. E-bikes offer enormous potential to replace cars. One study by the German Federal Environmental Agency shows that e-bikes are faster than cars for distances of up to 10 km (6.2 miles) in an urban environment. The trends in Europe in conjunction with conclusions from these studies suggest that more countries should incentivize and promote e-bikes if the goal is to reduce GHG emissions and traffic congestion in a cost-effective way.

 

The Unsettled Future of the Electric Powertrain

— March 13, 2017

I recently attended the conference on automotive 48V systems in Berlin organized by BIS Group. My key conclusion is that the electric powertrain is far from a settled science. Many that presented are enthusiastic about 48V technology and its potential for the future. German startup company Volabo even presented the case for a 48V all-electric vehicle. Others see 48V as an interim measure primarily to help OEMs pass the 2020 European Union emissions targets in the short term, with a future going more toward all-electric and full hybrid. Even though production plans have only been made in the last couple of years, powertrain development company AVL told me that testing of 48V systems has been going on for at least 10 years.

Unsurprisingly, Denso has a less enthusiastic opinion of 48V technology than some of the other delegates. The Japanese market has firmly embraced full hybrid drive thanks to Toyota and Honda; the majority of the vehicles on Japanese roads are small cars and trucks with efficient gasoline engines.

A good portion of the engineer audience thinks that an all-electric vehicle future is coming sooner rather than later. However, others are more in line with Navigant Research’s global vehicle forecast that the internal combustion engine still has a long future.

Low Voltage EVs

Volabo is a startup company spun out of a Munich university. Its proposal is a new type of electric motor that uses no copper winding and uses power electronics to control the magnetic fields. High power is made possible by locating the battery close to the motor, connected by thick bars rather than wires to handle the high currents of up to 5,000 amps. Prototype manufacturing for this motor is at the early stage, and there is a lot of interest from other delegates.

Indian OEM Tata’s European Tech Center has examined the market for 48V systems in India and concludes that the market will only be in the C-segment and luxury due to the cost increment. The bulk of the Indian market is very low cost small cars. Typical Indian drivers do not like stop-start systems (and deactivate them if fitted) because fractions of a second delays matter in navigating typical traffic jams. Plug-in EVs are also not likely to be popular in India in the short term because of the unreliability of the local electric grid.

Higher Power Demand

Magna International agrees with one of the key conclusions from my presentation: automated driving systems will support the move toward 48V systems, with demand of up to an additional 10 kW for computing and electric controls that is simply impractical from 12V networks. McLaren Applied Technologies presented some of its development work for racing that is finding its way into volume production. Silicon carbide semiconductors, for example, are prompting performance improvements, and now development work is moving into gallium nitride.

48V Projections

48V automotive systems appear to be an immediate solution to meet upcoming stricter emissions legislation and to provide additional power for automated driving systems. In the short term, these systems will be important in large markets such as Europe, North America, and China, and less so in Japan and India. The longer-term future is somewhat dependent on the growth of high voltage hybrid and all-electric drive, which in turn rely on continued reduction in battery cost. More analysis of the market for 48V systems is available in the Navigant Research report, Low Voltage Vehicle Electrification.

 

Perception vs. Reality: CES and the North American International Auto Show

— January 19, 2017

Connected VehiclesIf there is any one lesson that we should all take away from 2016, it’s the confirmation that perception does not necessarily equal reality. What people perceive to be the truth is often the most important part of their decision-making, a concept now shown in the auto industry’s seemingly increasing participation in the International CES and apparently declining interest in Detroit’s North American International Auto Show (NAIAS).

There has been a lot of consternation in Michigan recently about the impact that CES has had on the Detroit show over the past decade. The two events tend to run back-to-back over the first 2 weeks of January. I was on hand in 2008 when then-General Motors CEO Rick Wagoner was the first major auto executive to keynote at CES after demonstrating the autonomous Chevrolet Tahoe, which won the DARPA urban challenge the prior year. While more automakers and suppliers than ever took part in CES this year, GM actually took a pass for the first time since Wagoner’s speech.

While the Detroit Auto Dealers Association, which organizes the NAIAS, is concerned that manufacturers are increasingly favoring CES, the issues of the auto show are largely unrelated to what’s happening in Vegas. Auto shows are consumer events designed to showcase all of the latest products available for sale, and media previews show what is arriving in the coming months.

With rare exceptions (like 2016, when Chevrolet unveiled the production version of the Bolt EV), new production vehicles are almost never shown at CES. The electronics show is a business-to-business event that isn’t open to the public; instead, the industry flocks to Las Vegas to talk up technology.

NAIAS Is About Reality; CES Is About Perception

For many years, the financial market’s perception of the auto industry has been that of old-school manufacturers of commodity widgets. The view of Silicon Valley and technology companies is that of innovators on the bleeding edge that are poised for explosive growth. Thus, you have investors pouring billions of dollars into startups every year; most of those companies getting all of that investment fail without ever producing anything noteworthy while burning through cash.

Meanwhile, the modern car is one of the most complicated and technologically sophisticated devices ever created and is produced by the latest cutting-edge processes. The industry that produces them employs tens of millions of people globally directly and indirectly, generating trillions of dollars in revenue and tens of billions in profit. Yet the industry gets little respect and low market values.

The presence of the auto industry at CES is designed to reach a group of media that cover companies like Apple, Google, Microsoft, Amazon, and Facebook alongside countless startups, the same media that investors follow. The goal is to change the perception of the auto business from one that looks like it came from the dawn of the industrial revolution to one that innovates on a daily basis.

That’s not a message you can get across by showing off the refreshed Ford F-150, even though it may be packed with far more technology than anything from Silicon Valley. That’s a message you communicate by demonstrating automated cars in Las Vegas traffic jams; partnership announcements with chip designers like Nvidia won’t reach its intended audience in auto shows in Detroit, Frankfurt, or Geneva. These shows have issues to address, but the fault doesn’t lie in Las Vegas. It’s all about perception.

 

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