Navigant Research Blog

Sharing Companies Shouldn’t Get Free Rides

— February 6, 2018

One of the big themes of recent years has been the emergence of the so-called “sharing” economy. Unless we were raised by hardcore Ayn Rand acolytes, chances are that as children we were taught that sharing is good, and I certainly subscribe to that philosophy. However, the kind of sharing I learned was about splitting cookies or letting other kids play with my toys. It wasn’t about business, it was for free in an altruistic manner. What we increasingly experience today is a freelance gig economy that has little to do with that kind of sharing, and has everything to do with commerce.

The Capitalism of Sharing

Why is this relevant? Many of the shared economy startups claim to be enablers of sharing when in fact they are independent business enablers. Not that there’s anything wrong with that, but we need to recognize these companies and their products for what they are and treat them accordingly from a policy standpoint.

Instagram is, or at least was before it was taken over by “paid influencers,” a place for users to share photos with friends. Uber and Lyft are platforms that enable freelance taxi drivers to give rides to strangers for pay. AirBnB is a platform to let people rent rooms, apartments, or houses to strangers for pay. Turo is a platform that lets individuals try to become Hertz by making their cars available to rent.

Dictionary definitions of sharing don’t rule out commerce since we buy fractions of companies and other products and call them shares. But the messaging from these companies always seems to focus on sharing in the altruistic context. This framing of the message is often used as part of the argument for circumventing regulations that govern the traditional form of the industries these new businesses are trying to compete with.

Safety in Sharing?

While there are undoubtedly plenty of rules in the taxi, hospitality, and rental businesses that are outdated and in many cases simply protectionist for incumbents, there are others that provide a public good. Background checks for taxi and livery drivers aren’t a terrible idea when it comes to public safety. Ensuring that homes being rented out to travelers meet building safety codes is ultimately a good thing. Managing where people pick up rental cars or hail rides at airports or in cities is crucial to safe and efficient operation for everyone. Yet some upstarts seem to think they get a free ride from regulations by playing the sharing card.

In late January 2018, Turo was in a dispute with the City of San Francisco about permitting at the San Francisco International Airport. The rules are meant to help pay for upkeep of the airport and manage traffic congestion. Turo claims it is not a rental company on the basis of it not owning or renting the physical assets, similar to the arguments made by Uber, Airbnb, and others. While the operational details differ from incumbent to incumbent, the end result to the customer is effectively the same as with those established players. They make reservations and payments using the startups portal, pick up their rental, and drive.

Compliance with reasonable business rules will be increasingly important as we transition to automated mobility services. Navigant Research’s report, Market Data: Automated Driving Vehicles, anticipates nearly 5 million such vehicles being deployed by 2025. If cities cannot manage where they go, congestion is likely to get worse rather than improve. We need to find a cooperative balance between overregulation and being completely laissez faire if we are to solve our transportation problems.

 

When It Comes to New US Solar Tariffs, the Sky Is Not Falling

— January 25, 2018

On January 22, 2018, President Trump announced the rates applied to solar modules and cells that resulted from the Section 201 trade case. Modules and cells have a tariff rate of 30% in 2018, to decline 5% in each of the 3 subsequent years, then stay at 15% from 2021. These are just below what the US International Trade Commission (ITC) recommended in October 2017. As I explained at that time, tariffs at this level favor the status quo, keeping the solar industry intact but slowing its growth.

No Need to Panic

At current international prices of around $0.30/W-$0.35/W, the impact of this tariff would be around $0.10/W in 2018. For utility-scale projects, costs could increase by 10%-15% compared to a tariff-free scenario. This would add $0.02/kWh-$0.04/kWh to the record solar bids, like Xcel’s disclosed earlier in January or TEP-NextEra’s announcement on May 2017. This increase would hardly make these utilities reconsider their investments.

The impact of the new tariff on the C&I and residential markets will be limited. For a commercial project, the tariff could increase the cost by about 5%; for a residential installation, only 2%-3%.

Winner and Losers

Currently, this ruling seems to have only one company as its beneficiary: First Solar. First Solar is in the middle of a technology transition as it tries to catch up with the prices offered by manufacturers of Crystalline modules. It is the only PV manufacturer with significant capacity in the US. On November 16, 2016, it made the decision to scrap its Module 5 product, which had been expected to debut next year. The new plan is to instead accelerate the production schedule of its Module 6 and introduce it in 2018, a year earlier than previously planned. The tariff bought First Solar some time to implement its new technology without risking losing significant market share in its home market.

The other two backers of the tariff, Suniva and SolarWorld, are unlikely to capitalize from its introduction. Even with the introduction of the tariff, local US prices of important modules will be below the costs that pushed both Suniva and SolarWorld into administration as the global prices of solar have dropped by more than 30% in the last 2 years. SunPower and Tesla, the other two US PV manufacturers, rely on the global value chain for their module operations and therefore will be affected by the tariffs.

If Nothing Else, Clarity for the Next Few Years

All in all, most of the players in the US solar sector should be glad that the uncertainty that plagued the sector in 2017 is now gone. They will need some time to absorb the fiscal changes and to find ways to mitigate the impact of the tariffs, but at least they will have a stable policy outlook for the next few years.

 

Five Bold Predictions on the Frontier of Energy for 2018

— January 11, 2018

It is that time of the year again, when pundits pontificate about what the future holds, and citizens and corporations alike set goals for the coming year. I’d like to make five predictions for 2018 that underscore why a forecast increase in distributed energy resources (DER) over centralized generation will transform the global economy in sometimes surprising ways.

1. DER Innovation Will Abound

The spotlight continues to shine brightly on solar and energy storage technologies. Yet other forms of DER, especially generators driven by fossil fuels, will push the envelope on new business models in surprising ways. For example, Fairbanks Morse recently announced a new offering it is calling power reliability as a service, allowing remote villages in Latin America to access reliable electricity in locations not accessible by road or even airplane. These generators are forging new partnerships/acquisitions while also integrating upgrades revolving around novel hardware designs: Innovus Power (featuring variable speed generators) and the 360 Power Group (extensively patented modular generators that dramatically reduce fuel consumption and improve reliability), are just two examples.

2. One Microgrid Vendor to Lead Them

A US company will emerge as the leading microgrids controls vendor based on validated performance, offering a controls solution priced below $2,000 for a kilowatt-scale microgrid. The company has wowed US government officials with the performance of its controls solution. The question is: can it effectively market its solution as the go-to platform in a market not quite mature enough for a true plug-and-play solution?

3. Policies to Net Positive Results for DER

Trump administration tax reform and new policy directives at the US Environmental Protection Agency will accelerate smart energy investments by a factor of three. While some of these regulatory tweaks will reduce public government support for renewables such as solar PV, the net results will be positive for DER. A combination of public policy reforms at the state level in the US and actions by the private sector will demonstrate that the transition to key elements included under the Energy Cloud future is unstoppable.

4. Asia Pacific Takes Over Innovation

The center of innovation on the DER front will shift away from North America and toward Asia Pacific, focusing on four countries: Australia, China, India, and Japan. Each of these countries offers a landscape fostering DER opportunities. One could argue that Australia is where the most diverse opportunity exists in terms of DER integration with microgrids and virtual power plants. Australia is also home to Power Ledger experiments with transactive energy.

5. Energy-Water Connection Creates Opportunities

New solution offerings focused on the energy-water nexus will come to the fore in 2018. In California, Advanced Microgrid Solutions is one company to recognize this linkage with innovative grid-connected battery systems supporting public water agencies: Inland Empire Utility Agency, Irvine Ranch Water District, and the Long Beach Water Department. Of course, water is a necessity for life. An even more urgent need for energy-water nexus solutions is in developing world locations such as India, where 1 billion people need access to safe and clean drinking water (and as many as 300 million lack access to electricity). Linking solutions for both water and power through DER-based solutions creates synergy and opportunities, both for do-gooders and for entrepreneurs seeking profit.

A Distributed and Resilient Future

These five trends are not the only things I see in my crystal ball. Yet I believe they will help define 2018 as the world makes the transition from costly centralized power infrastructure to a nimble, flexible, and more resilient paradigm. We are in a historic transformation toward a clean, distributed, intelligent, and mobile grid. Do you agree?

 

Costa Rica Plans for Sustainable EV Future

— January 4, 2018

Up until now, plug-in EVs (PEVs) have been about as popular as snowshoes in Latin America due to the higher cost of the vehicles and lack of governmental focus on reducing transportation carbon emissions. However, in Costa Rica, government agencies are developing policies and infrastructure to lure automakers to send PEVs and to get consumers excited about the technology.

A Small but Ambitious Market

Costa Rica may not seem like the ideal location to grow a PEV market. The country has a gross national income per capita of just over $10,000 per year (as of 2015, per World Bank statistics), whereas most PEVs cost north of $40,000 and would be out of realistic reach for most consumers. The vehicle market is also small (just 154,000 vehicles sold annually), so it is not a top priority market for automakers to support PEV sales.

Nevertheless, with tourism to its sandy beaches and internationally renowned rain forest contributing 5% of Costa Rica’s gross domestic product, the government wants the country to project an eco-friendly image and participate in global efforts to combat climate change.

The country has set a goal of getting 37,000 PEVs on the road by 2022. On December 15, 2017, Costa Rica passed its first incentives for EV purchases, which include exemptions on the sales, consumption, and customs import taxes. According to a report from Nacion.com, this would reduce the final cost of a PEV by about 24%.

Growing Support for PEVs

Federal organizations in Costa Rica are also planning support for PEVs. The state-run utility led by Grupo ICE and Costa Rica’s integrated ministry of energy and environment (MINAE) both shared steps they are taking to promote EVs at the Third Annual Latin America Clean Transport Forum, which was held in San Jose, Costa Rica on September 20, 2017.

ICE said that with 76.6% of its power generation coming from renewables, the carbon savings of switching transportation from liquid fuels to electricity can be significant. Since 92% of residents live in private homes, pervasive access to home EV charging should smooth the introduction to PEVs. Also, the mild climate (an average temperature of 25°C) would enable PEV batteries to provide greater range and durability than in places with harsher weather. The utility is now investigating the barriers to PEV adoption and infrastructure requirements (such as charging levels and standards for collecting data) to prepare for their introduction.

EV Policy Development and Logistical Challenges

MINAE is developing a national policy for transportation electrification that will be released as part of the annual Oficializado Plan Nacional de Energía, which was due at the end of 2017 but does not appear to have been published yet. The national EV policy will set achievable goals for reducing emissions in transportation, including light and commercial vehicles as well as mass transit. These goals will align with the country’s overall climate change targets.

Despite these efforts, getting automakers’ attention to prioritize Costa Rica and other Latin American nations as PEV markets will be a challenge. With no local manufacturing plants, PEVs currently have to be imported into Latin America, and the higher cost of shipping the vehicles will need to be offset by local incentives. Consumer education in places where PEVs are rarely seen will require concerted effort from both the public and private sectors. Importing used PEVs, which have low resale values and could be used in fleets, is an effective method of introducing target customers to the capabilities of PEVs and building buzz around the technology.

 

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