Navigant Research Blog

Costs of Fossil Fuel Use on Society Much Higher Than Expected

— November 11, 2016

Electric Vehicle 2According to a new report from the American Lung Association (ALA), if the climate and health costs of gasoline-powered vehicles were accounted for, the average 16-gallon gasoline tank fill-up would cost an additional $18.42 for consumers (that’s on top of the average price of $35.68, raising the total price to around $54). The ALA estimates that these health expenses account for $11.82 per tank and $6.55 for climate costs. Because these costs are not being accounted for, the public is essentially subsidizing the use of gasoline-powered vehicles through higher healthcare costs and an increased need for climate adaptation efforts.

Carbon Tax and Transport Technology Solutions

While the possibility of a carbon tax being instituted in the United States is highly unlikely in the near term, several other countries around the world have begun to mandate these programs in order to assign a dollar value cost to fossil fuel use that affects public health. Canada announced last month that a national carbon price will be implemented in 2018. The Canadian government has proposed a minimum price of C$10 ($7.50) per ton of carbon pollution in 2018, rising by C$10 each year to a maximum of C$50 ($37) per ton by 2022.

Advanced transportation technologies also offer an opportunity to reduce the health and climate impacts of personal vehicles. While EV adoption continues to be a modest portion of overall vehicle sales, there are some encouraging signs for growth when considering studies on consumer behavior and the enormous interest. According to PlugInsights Research, once drivers have bought or leased an EV, 97% do not go back to gasoline-powered vehicles.

The survey indicates that once drivers have experienced the benefits of EVs, such as reduced operation and maintenance costs, they are extremely unlikely to return to combustion engines. There are also currently over 400,000 reservations for the Tesla Model 3, which looks to be the first mass-market EV designed to drastically increase the number of EV adopters. As suggested by the survey, high Model 3 sales could play a significant role in getting more consumers engaged and committed to the electric driving experience. Additionally, new transport solutions such as Hyperloop One’s high-speed tubes could drastically reduce the need for personal vehicles and help cut down on the health and climate impacts of cars.

 

Regional Energy Integration Captures National Attention as California Quietly Leads the Way

— November 7, 2016

IT InfrastructureCalls for a North American supergrid enjoyed a brief plug during the final presidential debate when Hillary Clinton, clarifying a past statement publicized by WikiLeaks, stated: “[W]e trade more energy with our neighbors than we trade with the rest of the world combined. And I do want us to have an electric grid, an energy system, that crosses borders. I think that would be a great benefit to us.”

As Clinton suggested, establishing a regional supergrid could generate numerous benefits, including improved operational efficiency, reduced costs, and the ability to harness renewable power on a bulk scale, thereby accelerating the decarbonization of the electric power system. Yet, as discussed in a recent Navigant Research report, many barriers to supergrid development remain, and a truly integrated hemispheric electricity market seems a distant dream. Even so, progress toward increasing integration within the United States and across North America is proceeding incrementally. California, consistently at the vanguard of energy innovation, offers an example.

California Market Expands, Eyes Mexico

California’s Energy Imbalance Market (EIM) began operating in fall of 2014, when the California Independent System Operator (CAISO) linked up with Oregon-based PacifiCorp to form a wholesale power market. Managed by CAISO, the EIM pools resources across participants’ territories, automatically balancing real-time electricity supply and demand and enabling utilities to access renewable energy generated across a wider geography. NV Energy of Las Vegas joined the EIM in December 2015, and both Arizona Public Service and Puget Sound Energy of Washington joined in October of this year. To date, the EIM has saved over $114 million and avoided over 140,000 metric tons of CO2 emissions.

With a 2-year track record of savings, the EIM is set to expand further. Portland General Electric and Idaho Power are both slated to join within the next 18 months, and the Sacramento Municipal Utility District (SMUD) announced its intent to join in late October. SMUD would be the first municipal utility to join and would likely be followed by several others.

With integration among Western utilities growing, CAISO is now pursuing expansion south of the border, recently announcing plans to explore extending the EIM to Mexican grid operator El Centro Nacional de Control de Energia (CENACE). CENACE’s Baja California Norte Grid already has two connections to the California grid, and its participation in the EIM is expected to enhance the overall economic and environmental benefits of the market while opening additional renewable generation to Mexico, which is targeting 35% of its electricity from renewables by 2024.

Full Integration a Long Way Off

Despite steady growth, the EIM represents only limited energy market integration. The EIM’s authority is restricted to balancing real-time supply and demand among participants and dispatching least-cost resources to meet load requirements every 5 minutes. CAISO is also pursuing a full-service day-ahead regional energy market that would require deeper market integration and, in theory, lead to more comprehensive benefits. The regional energy market would take the form of an expanded CAISO and would be designed to enable more efficient integration of renewable resources, improve regional transmission planning, and optimize use of all available generation and transmission capacity in the day-ahead market, further reducing consumer costs.

Under state legislation, CAISO is required to complete studies on the environmental and economic benefits of a regional energy market and to submit a proposal for CAISO expansion before the end of 2017. Final study results were released in July, but the proposal was delayed to allow more time to address concerns, including the risk that integrating with coal-heavy PacifiCorp could hurt California’s clean energy agenda. The proposal is now expected to reach the state legislature in January.

With potential EIM expansion into Mexico and a broader regional energy market plan in the works, California has cemented its role as a major driver of increasing energy market integration in the West. Yet the incremental nature and uncertain pace of integration suggest that the hemispheric electricity system Hillary Clinton alluded to is still a long way off.

 

Unraveling Germany’s Smart Meter Strategy

— November 4, 2016

Power Line Test EquipmentWith smart meters quickly becoming the norm for grid operators and utilities, Germany presents an interesting case study given the country’s hesitance to adopt this smart grid technology. Western Europe has distinguished itself as one of the global leaders in smart meter deployments. Buoyed by nationwide deployments from countries like France, Italy, Sweden, Spain, and the United Kingdom, the region is quickly advancing the business case for smart meter technologies. While many of the most affluent nations within Western Europe have initiated large volume deployments already, Germany has been largely hesitant to jump on the bandwagon.

This changed in July 2016, as legislation was passed that will kick-start smart meter activity within the country, though careful attention must be paid to the details, as this rollout deviates significantly from traditional deployment strategies seen elsewhere in the region. According to the recently enacted Digitisation of the Energy Turnaround Act, Germany’s smart meter rollout is finally set to commence. Years in the making, the country’s approach is unique given its selective deployment and tiered installation schedule.

Starting in 2017, large consumers with average annual consumption in excess of 10,000 kWh will be required to install smart meters. This threshold will be lowered to 6,000 in kWh in 2020, which applies to approximately 15% of electricity consumers. The majority of German households will remain unaffected given that average consumption hovers around 3,500 kWh. For households where smart meters are not required, utilities will still maintain the option to supply this technology to its customers, though the meters are subject to a cost price cap of 40 euros per year. While the overall program is set to last until 2032, some types of consumers and operators will be required to have rollouts finished before the end of 2024.

A Considered Approach

This resolution is long-awaited as Germany has struggled to justify the need for smart meters. In the summer of 2013, Germany’s Federal Ministry for Economics and Technology contracted with Ernst & Young to perform a cost-benefit analysis relating to a nationwide deployment of smart meters by 2020, in line with European Commission target deadlines. The study concluded that such a mandate was not economically beneficial and instead recommended a selective rollout similar to the country’s aforementioned strategy. While industry advocates may view Germany as dragging its feet on the issue, the country is taking its time to carefully study the implications of installing smart meters in a country with over 50 million households and businesses.

One of the benefits to this approach is the availability of more technologically advanced smart meters on the market today relative to the more primitive smart meters installed in Italy and some of the Nordic countries during earlier rollouts. Given the typically shorter lifespan of smart meters relative to traditional electromechanical meters, some of these European countries are already expected to be looking at upgrades or replacement units in the coming decade. While many in the industry have long touted the benefits of smart meters, Germany is taking a responsible approach in studying the overall implications and has a clear and rational basis for delaying nationwide implementation.

 

The EU Continues to Lead EV Charging Policy

— November 4, 2016

EV RefuelingThe European Union (EU) continues to be at the forefront of policies to spur plug-in electric vehicle (PEV) charging. Since 2014, EU countries have been under a directive requiring member states to develop a plan to install PEV chargers on a broad scale by December 31, 2020. Public and semi-private charger availability is extremely high in the Netherlands and Norway, with other countries like the United Kingdom, Finland, and Denmark having increasingly high levels of public charging networks. The EU is also leading on interoperability and roaming, which lets drivers easily access public chargers across many networks and multiple countries. This is a key feature if the growth in public charging is to lead to greater PEV sales—which is, after all, the EU’s real goal. This has led to Europe outpacing North America in charger sales in Navigant Research’s Electric Vehicle Charging Services near-term forecasts.

Now the EU looks to be pulling another lever for the charger market: a draft directive requiring new homes to be built with charging infrastructure. The draft directive reportedly says that any new or substantially renovated home will need to be equipped for EV charging beginning in 2019. It also indicates that starting in 2023, buildings must have one out of every ten parking spaces at a building equipped for EV charging.

This directive can help drive PEV sales for several reasons. First, home buyers will be made aware of EVs and EV charging by the presence of infrastructure in new homes. Secondly, having the infrastructure installed removes some of the friction that can hinder interest in PEVs among consumers, such as understanding how home charging occurs, whether it requires an electrical upgrade, and the potential cost of such an upgrade.

Details Yet to Be Determined

However, the devil is in the details, which are yet to come. A few key points:

  • This directive could well create a scrum among charger providers looking to gain some advantage through a mandate-driven market. The directive should avoid specifications that favor certain charging companies, which would effectively hand them the new home EV charger market.
  • It should also ensure that the requirements will allow for meeting the needs of an evolving PEV market. For example, longer range battery EVs will be increasingly prevalent and would benefit from higher power charger capability.
  • Coming innovations in charging should be considered. For example, how will wireless charging be accommodated? By the time this directive goes into effect, several OEMs will be offering wireless charging as an option with their PEVs. Will the directive attempt to encourage smart charging capability, or leave that to the end user? Smart charging will become increasingly important to manage growing EV loads, particularly in the 2023 timeframe when the parking space mandate would go into effect. Indeed, there could be opportunities for building owners to aggregate PEVs for grid services.

Combined with ongoing efforts in Europe to install more public infrastructure and fast charging networks, this directive should make Europe a surging market for EV charging, potentially outpacing North America beyond 2017.

 

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