Navigant Research Blog

‘Costly’ Amtrak Payments Dwarfed by Parking Largesse

— December 16, 2014

Rail service company Amtrak posted its annual financial report on November 25, and progress was reported all around.  Revenue ($3.2 billion) and ridership (31.6 million passengers) are up over the previous year, and the operating loss of $227 million was the lowest since way back in 1973.  However, the loss would have been much greater if not for payments from states and the federal government, which pony up nearly $2 billion annually to support infrastructure upgrades and other costs.

Amtrak is profitable in the Northeast, where it is viewed as indispensable for commuting along the I-95 corridor from Boston to Washington, D.C., but runs far in the red elsewhere, especially on long-distance routes.  For fiscal year 2015, Amtrak has requested a federal grant of $1.6 billion, and the number gets higher each year to counter the tunnels, bridges, and tracks that continue to fall into disrepair.

No Free Parking

Perpetually deficit-running Amtrak is a favorite target for fiscal conservatives, such as Mitt Romney, who frequently spoke of defunding the service during the 2012 presidential election.  However, the federal government is actually funding the parking of private vehicles at a much higher level.  According to a new report by the TransitCenter and the Frontier Group, employers providing tax-free parking allowances costs the federal government $7.3 billion annually in lost revenue.

The Internal Revenue Service’s (IRS’s) tax code allows parking allowances of up to $250 per month sans taxes, which is nearly twice the amount allowable for taking public transit ($130), and more than 10 times the allowance for bicycle commuters ($20).  The study claims that the tax abatement adds approximately 820,000 commuters who would otherwise find other means of getting to work, including motorists who increase use of roads, another hidden cost to taxpayers.

The True Costs

According to Streetsblog.org, Congress is violating the IRS maximum parking allowance by providing free street parking to staffers in pricey downtown D.C.  So we have CAFE regulations aimed at reducing transportation emissions by requiring carmakers to invest billions to produce increasingly fuel efficient vehicles, while at the same time, we subsidize the use of private vehicles in congested urban areas at a cost more than 3 times the total spent to support Amtrak.  Taken together, these policies can be viewed as somewhere between inconsistent and outright contradictory.

 

Cautiously, Private Utilities Dip Toes into Microgrid Pool

— December 16, 2014

Lawrence Berkeley National Laboratory statistics show that 80% to 90% of all grid failures begin at the distribution level of electricity service.  While utilities can resolve these issues through a variety of technologies, their historic bias against the concept of intentional islanding – or cutting off certain systems from the wider grid – has precluded them from considering microgrids in the past.

That has changed over the last 3 years.  The extreme storms that pounded the East Coast beginning in 2011 have led the states of Connecticut, Maryland, Massachusetts, New York, and New Jersey to all initiate resiliency programs that promote microgrids as a key element of their strategy.

Unfortunately, the concept of community resiliency or public purpose microgrids often violates utility franchise rules, since power would have to be sent over public rights of ways.  Connecting, for example, a gas station to a high school serving as an emergency shelter and a hospital could get the operator of this impromptu microgrid in trouble.

So, by way of necessity, utilities clearly have to play a role in these kinds of microgrids.  Furthermore, the hype about the utility death spiral is prompting many utilities to examine new regulatory structures and business models to accommodate the growth in third-party distributed energy resources (DER).

The Revolution Will Be Distributed

As a result, Navigant Research has issued a new report, Utility Distribution Microgrids (or UDMs).  While public power UDMs – both grid-tied and remote – are a larger market today and are expected to be in the future than systems deployed by investor-owned utilities (IOUs), the most interesting segment are these latter private systems, due to the regulatory issues they raise and because these large companies tend to move markets.

In conversations with utilities, the messages I’ve heard have changed dramatically.  When I initially researched this topic more than 2 years ago, the biggest concern about microgrids revolved around technology and intentional islanding, a concept that was anathema to utilities whose grid codes were designed to prevent customers from sealing themselves off from the larger distribution grids.  Worker safety, loss of customer load, and stranded investments in centralized generation also came up.

Today, many utilities cite these same issues, but growing numbers realize the DER revolution is picking up momentum and that microgrids that are owned or controlled by utilities could help them fulfill their mission to provide low-cost, reliable power.

Convincing the Regulators

The IOUs exploring microgrids include Arizona Public Service, Consolidated Edison, Duke Energy, NRG Energy, and San Diego Gas & Electric.  The primary challenge for an IOU today in implementing a UDM is justifying a microgrid under traditional rate-based regulation.  How can the utility convince state regulators that investing ratepayer funds into a project that directly benefits a small subset of customers will also benefit the wider customer base?  Even if a valid business case can be made, the typical 3-year rate case state regulatory proceeding business model may retard near-term innovation.

This IOU UDM segment offers the largest potential growth of any UDM segment, since it helps address the need for new technology solutions to address explosive growth in DER.  But it also faces the largest regulatory question marks.

 

The Global Biofuels Industry: A Future in Doubt

— December 11, 2014

In its recent report, The State of the Biofuels Market: Regulatory, Trade, and Development Perspectives, the United Nations (UN) notes that although the emerging biofuels industry has made great strides in the past decade – with ethanol and biodiesel becoming established commodities traded on all continents – significant barriers to commercialization persist across the developing world.  Global biofuels forecasts published in Navigant Research’s report, Market Data: Biofuels, support the view that future capacity deployment is heavily contingent on accessing a shrinking pool of capital investment targeting the industry.

As the UN report notes, conditions in the 2000s that drove annual investment in biofuels in the range of $10 billion per year – including uncertainties related to the price of petroleum products and peak oil speculation – have largely dissipated.  With shale oil & gas production on the rise in key biofuels markets like the United States and the price of crude sliding well under $100 per barrel, market realities have shifted.

Poor Timing

For the emerging advanced biofuels industry, the timing of this macroeconomic shift could not have come at a worse time.  While growth aspirations for the global biofuels industry shifted away from conventional pathways, such as corn starch, to ethanol, palm oil, and biodiesel during the financial crisis of 2008, greenfield biorefinery projects producing advanced biofuels have only just come online in the past year.

The development of these facilities involves capital costs in the hundreds of millions.  Since many of these projects were initiated and financed during a time when macroeconomic realities were quite favorable, a primary concern going forward is whether these first-of-kind facilities can spark additional investment to drive sustained capacity expansion.

This is unlikely given current realities.  To put this into perspective, according to our market data report mentioned above, global biofuels capacity – including conventional and advanced pathways – was just shy of 40 billion gallons per year at the end of 2013.  This represents 4.2% of the global liquid fuel market, or just under 1% of global final energy consumption.

Another $25 Billion Off

Advanced biofuels installed capacity – the focus of current commercialization efforts – accounts for just 1.2 billion gallons, or less than 2% of global biofuels production.  While that’s by no means insignificant, there’s still a long way to go in terms of reducing dependence on liquid fossil fuels, which account for 35% of global final energy consumption, according to data published by the Energy Information Administration (EIA).

In order for advanced biofuels to meet projected production capacity requirements by 2020 under expected biofuels supply mandates in key markets like the United States, European Union, China, and India (Brazil relies mostly on blending quotas), $25 billion to $35 billion in annual investment will be needed over the next 6 years, according to Navigant Research estimates.  This is a tall order for a suite of technology platforms that are not yet at price parity with petroleum-based fuels.

 

Street Lights Add EV Charging

— December 11, 2014

Sometimes a solution forms at the intersection of two challenges that may not seem, at first glance, to have anything in common.  For example, cities are perpetually seeking ways to increase revenue, and many owners of electric vehicles (EVs) want access to ubiquitous charging infrastructure.

Enter the new concept of retrofitting street lights with money-saving LEDs and EV charging ports.  City managers are moving toward central control of street lights by adding a control node, which enables them to reduce cost and integrate the lights with other systems, as my colleague Jesse Foote recently wrote.  With smart street lighting technology (as covered in Navigant Research’s report, Smart Street Lighting) in place, EV charging capabilities can also be added to street lights, creating a new revenue stream for municipalities.

A Light and a Charge

Among the first pilots of this combination are occurring in the cities of Munich in Germany, Aix-en-Provence in France, and Brasov in Romania.  BMW has two such lights at its headquarters in Munich and will add a series of enhanced lights in the city next year.  A consortium called Telewatt, led by lighting manufacturer Citelum, is similarly installing LED street lights with EV charging in Aix-en-Provence.  In Romania, local company Flashnet has integrated its inteliLIGHT management platform with an EV charger.

Motorists can pay for the EV charging using a mobile phone app.  Cities that have regulations allowing them to provide EV charging services can gain revenue to help balance the books.  They can also balance the additional power demand of EVs within their overall power management system.  Placing a Level 1 or Level 2 charging outlet on a light pole reduces the installation cost of bringing power to the curb, which otherwise can be several times greater than the cost of the equipment.  Cities that install these systems will help drive demand for EVs, which has the added benefit of increasing urban air quality.

This is another example of the integration of seemingly disparate city services into a smart city.  As detailed by Navigant Research’s Smart Cities Research Service, the move toward integrating power, water, transportation, waste, and building management will yield considerable savings while improving the quality of urban life for city dwellers.

 

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Electric Vehicles, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Smart Grid Practice, Smart Transportation Practice, Smart Transportation Program, Utility Innovations

By Author


{"userID":"","pageName":"Policy & Regulation","path":"\/tag\/policy-regulation?page=2","date":"12\/23\/2014"}