Navigant Research Blog

Bill Gates: How to Fund Energy Miracles

— August 21, 2014

Through the Gates Foundation, Bill Gates has taken a stand on improving global public health, investing in programs focused on basic advances such as developing a next-generation condom to prevent the spread of sexually transmitted diseases, creating a standalone vaccine cooler for communities that are stranded without electricity, and inventing a toilet that can solve sanitation issues by pyrolizing human refuse into something more usable (using solar power, no less).  Meanwhile, Gates is also challenging U.S. energy policymakers and their funding practices for energy R&D.

In a June blog post titled “We Need Energy Miracles,” Gates called for the United States to look hard at R&D allocations, potentially redirecting funding from the military and healthcare sectors toward energy research and pilot projects (presumably renewable ones).  Given the imperfections (intermittency, inefficiency) of existing renewable resources, Gates argued, this research is necessary to establish an equitable energy mix, both in the United States and abroad – especially in developing nations that must increase energy use to grow their economies.  He stressed the need to invest in projects that are “high risk/high reward,” in order to achieve the sort of miracle needed to support growing demand and limit climate change.

Memo to Bill: DIY

Responding to Gates, Solar Wakeup (republished by Clean Technica) noted that Gates has been active in investing in energy storage with Aquion and LightSail but challenged him to be the major financer of the next energy miracle.  Why? Simply put, it’s unreasonable to expect increased investments (private and public) in risk-agnostic energy R&D, and if one of the world’s richest men wants it to get done, he should do it himself.  Payoffs are slow for energy projects, the uncertainties many: macroeconomic conditions, volatile energy and resource markets, policy reversals, infrastructure needs, and high operating and maintenance costs.  Solar Wakeup’s challenge is based in reality.

But the cleantech and renewable energy sectors are already substantial in countries all over the world, and growth is accelerating.  China has recognized this.  In recent years, China’s public and private investments in cleantech, both at home and abroad, have explodedReports by Azure International explore the drivers for increasing investment in cleantech in China.  Risk is inherent in investors’ strategies for expanding their energy-related portfolios, and intangible values, such as technological and innovative prestige, sometimes compete with return on investment (ROI).  Encouraged by the government, Chinese investors have become increasingly willing to fund energy efficiency and conservation projects, such as smart grid and smart buildings.

The topic of investment in renewables and smart grid is thorny, with many caveats and nuances that tend to shape the potential for ROI – but it’s safe to say that with China’s example, maybe Gates has a point in his stance against being risk-averse toward investing in potential energy miracles.

 

Solar PV Helps Eliminate Kerosene Lamps

— August 20, 2014

About 250 million households, representing 1.3 billion people, lacked reliable access to electricity to meet basic lighting needs in 2010, according to the International Energy Agency.  Until recently, kerosene lamps were one of the few options for illumination in communities with household income as low as $2 per day.  Kerosene is highly detrimental to health and the environment, subjecting people to multiple pollutants, including fine particulate matter, formaldehyde, carbon monoxide, polycyclic aromatic hydrocarbons, sulfur dioxide, and nitrogen oxides.  Exposure to these pollutants can result in an increased risk of respiratory and cardiovascular diseases, cancer, and death.  Despite these hazards, kerosene is the leading source of illumination for most people in developing countries.

There’s now growing momentum to displace the estimated 4 billion to 25 billion liters of kerosene used each year, driven by a combination of government policy, clean energy businesses, and investment.  Kenya, Ghana, India, and Nigeria are a few of the countries that have announced initiatives to phase out kerosene and replace it with solar and other clean energy options, as covered in Navigant Research’s report, Solar Photovoltaic Consumer Products.

  • Kenya’s kerosene phase-out program, announced in 2012, aims to eliminate the use of kerosene for lighting and cooking, replacing the fuel with clean energy products.  Norway has pledged $44.5 million toward the initiative.
  • India’s National Solar Mission seeks to achieve 20 GW of solar power by 2022, in part through the installation of rooftop PV systems.  It has also set the specific goal of providing 20 million solar lighting systems in place of kerosene lamps to rural communities, with the goal of reaching an estimated 100 million people.
  • The Ghana Solar Lantern Distribution project provides subsidies to support sales of 200,000 solar lanterns between 2014 and 2016 using money formerly allocated for fuel subsidies.

Kerosene remains the most important lighting fuel for off-grid and under-electrified households and small businesses in Africa, and accounts for approximately 55% of total lighting expenditure for those living on less than $2 per day, according to Lighting Africa.  Kerosene has been increasing as a percentage of household expenditure.  Ted Hesser developed the following chart with data from the United Nations, Saviva Research, World Bank, and the U.S. Energy Information Administration, highlighting the growth in kerosene prices.  Between 2000 and 2012, kerosene prices increased 240% in the developing world, from an average price of roughly $0.50 per liter in 2000 to about $1.20 per liter in 2012.  In high-cost markets – including Burundi, Guatemala, and Panama – kerosene costs can be as high as $1.80 to $2.10 per liter.

Price of Kerosene by Country, Selected World Markets: 2000-2012

 

(Source: Ted Hesser)

Beyond CO2

The climate impact of kerosene lamps has been dramatically underestimated by considering only CO2.  Recent studies estimate that 270,000 tons of black carbon (i.e., fine particulate matter that results from the incomplete combustion of fossil fuels, biofuels, and biomass) are emitted from kerosene lamps annually – leading to a warming equivalent of about 4.5% of U.S. CO2 emissions and 12% of India’s, according to a Brookings Institute study.

The Brookings study points out that kerosene lamps are not the largest emitters of black carbon.  The leading source is residential burning of solid fuel, such as wood and coal for cooking – which emits 6 times more black carbon than lamps.  Similarly, diesel engine black carbon emissions are 5 times that of lamps.

Solar PV and other lower-emissions consumer products, such as improved cook stoves, are making their way to the market through a variety of private, non-profit, and public initiatives.  Education and awareness of the options available to consumers are the biggest challenges to changing the behavior of customers in remote communities.  But the combination of new business models, government leadership, and technical innovation are leading to a growing number of success stories that could lead to significant reductions in black carbon emissions.

 

Power-to-Gas Comes to North America

— August 14, 2014

Ontario has emerged as hub of clean energy innovation.  The province has rapidly changed its energy mix from coal to renewables in the past 10 years, and Ontario’s latest Long-Term Energy Plan, finalized in 2013, calls for 50 MW of energy storage to be procured in 2014.  Ontario is also home to several innovative storage companies, including Electrovaya, Temporal Power, Hydrostor, and Hydrogenics.

In addition to the 50 MW storage plan – split between 35 MW announced earlier this year and 15 MW slated for the second half of 2014 – Ontario also has a number of storage demonstrations underway.  A 250 kWh/500 kW lithium ion community storage system is being tested by Toronto Hydro, and Temporal Power has two projects: one for wind integration with Hydro One and one for frequency regulation developed by NRStor.  Hydrostor is testing a 4 MWh/1 MW demonstration facility to showcase the firm’s underwater compressed air system, 80 meters underwater.

First the Old World

In addition to batteries, compressed air energy storage, and flywheels, Ontario is adding hydrogen energy storage.  Hydrogenics has announced a 2 MW power-to-gas project in Ontario as a part of the 35 MW procurement.  Power-to-gas systems use surplus electricity and an electrolyzer to generate hydrogen for direct injection into the natural gas grid, or to generate hydrogen and then syngas for direct injection into the natural gas grid.  Ancillary benefits include using the electrolyzer for demand response (including frequency regulation).

In Navigant Research’s recent white paper, The Fuel Cell and Hydrogen Industries: 10 Trends to Watch, one of the trends examined is power-to-gas.  Specifically, the white paper suggests that the power-to-gas concept will be proven in Europe.  In the near term, Navigant Research estimates a $100 million market for power-to-gas in Europe in 2015.  The European power-to-gas market is expected to grow to as much as 665 MW in 2018, representing $850 million in revenue, according to Navigant Research estimates.  This base scenario equates to 4% of the wind capacity to be installed in Europe that same year, with a total installed capacity by 2018 equivalent to 1.9% of the installed capacity of wind from 2014 to 2018.

Although North America has a smaller grid system and the advantage of cheap natural gas – which makes it difficult to make a business case for any alternative technology to gas turbines – there is clearly room for power-to-gas.  Hydrogenics intends to find out how much.

 

In Asia, Wind Industry Picks Up Again

— August 6, 2014

The wind power market in Asia is normally quiet during summer, but this year is different.  Recent policies and new developments in China and India have delivered a very strong signal that Asia`s two largest wind power markets are ready to pick up the pace again.

China’s wind industry has been constrained the past few years by power transmission bottlenecks and high wind-power curtailment rates.  Figures released by China’s National Energy Administration (NEA) in July, however, show that the situation is improving, especially since the ultra-high-voltage Hami-Zhengzhou transmission line was connected.  In the first half of 2014, 6.32 gigawatts (GW) of wind power capacity has come online, up 31% from the same time in 2013, and the wind curtailment rate fell to 8.5%, 5.14% lower than the first 6 months of 2013.  It won`t be a surprise if this year China surpasses the record of 18.9 GW of new capacity that it achieved in 2010.

Survival of the FITtest

Another positive sign for the Chinese wind industry is that the NEA released its long-awaited feed-in tariff (FIT) for offshore wind in June.  Although the FIT is valid only for projects commissioned before 2017, and is not applicable for the four offshore projects included in the first offshore concession program, it provides certainty for near term investment.

According to Navigant Research’s annual wind power market report, World Market Update 2013, China will add 96 GW of new wind capacity over the next 5 years.

At the Offshore Wind China 2014 conference in Shanghai, many developers and turbine venders complained that the temporary FIT is too low and is not flexible to reflect differences in geographic location and wind resources.  While those are valid claims, I personally believe that NEA has learned from the “blind” investment that Chinese onshore wind experienced in the past and is working deliberately to introduce a low FIT so that only developers who have strong technical, engineering, and financial background and a sound project pipeline can take the necessary risks.  That’s the right way to minimize upfront risks and to secure a strong and stable offshore wind market in the long run.  Currently, there are six offshore wind projects totalling 784 megawatts (MW) under construction in China and another six projects totalling 1,350 MW that have been approved and are ready to be built.  It is likely that around 2,500 MW offshore wind capacity could be in operation by the end of 2016.

Restoration in India

In India, Asia`s second largest wind market, its Finance Minister has just announced the plan for the restoration of accelerated depreciation, an incentive was originally introduced back in 1990 but stopped in March 2012.  This tax savings supported private-owned projects that account for the majority of wind project installations in India.  At the historical rate of installation in India, AD is expected to create around 1,000 MW of wind power installations per year.  If the depreciation holds up, Navigant Research`s forecast for India in 2014, of 2,500 MW, is certainly achievable.

In short, it’s expected that India and China combined will account for at least 40% of global wind power installation in the next 5 years – a great contribution to reducing carbon emissions worldwide.  For a more detailed examination of the global wind power market, please join us for our webinar, “The State of the Global Wind Energy Industry,” on August 12 at 2 p.m. EDT.  Click here to register.

 

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