Navigant Research Blog

On Clean Transportation Policy, Less Is Not More

— January 9, 2012

Political developments in the last couple of months of 2011 highlighted the quagmire into which U.S. energy policy has sunk.  In November the Obama Administration postponed a decision on a 1,700 mile pipeline to deliver tar sands oil from Canada to refineries in Texas called the Keystone XL until 2013 (the GOP-led Congress subsequently moved this timetable up to February of this year, to ensure the decision comes before the general election).  Shortly after that both Enbridge and TransCanada floated alternatives and partial solutions designed to reduce the bottlenecks that the Keystone XL pipeline was supposed to solve.  At almost the same time in Danville, NY, the Department of Environmental Conservation held public hearings on permitting hydraulic fracturing for natural gas in New York. 

While each of these events had their own specific issues and implications, all could have an impact on motorists.  The Keystone XL pipeline was designed specifically to add pipeline capacity to utilize excess oil refining capacity in Texas.  While this will not have an impact in the short-term, by 2015 the current pipelines will be at capacity and fuel costs will increase.  The administration’s move to delay approval of this pipeline is seen as either an environmental win or short-sighted instance of kicking the can down the road, depending on which side of the issue you sit on.

Although New York’s fracking debate is a state-specific issue, this is more a representation of the issues facing the natural gas vehicle industry.  Between the push-back on hydraulic fracturing and the now all-but-defunct NATGAS Act, it seems clear that while politicians often express support for natural gas vehicles, that support is largely hollow.  While the NGV market may not need political support to survive, what’s more disturbing is the lack of national guidance at the federal level on new oil and gas extraction technologies, which means that the effort to monitor and improve fracking safety will likely be left to states and local governments.  This may in fact be the single greatest negative threat to the NGV market in the coming years.

Meanwhile, a bill has been introduced in Congress to end the Advanced Technology Vehicle Manufacturing Loan (ATVM) program.  This will inevitably be linked to the loans offered to Solyndra, the solar cell manufacturer that collapsed last fall.

All of these developments demonstrate that when it comes to clean transportation, U.S. policy is a mess.  The ATVM loans and the postponement of Keystone XL both have the potential to change the way Americans drive, through technology and higher petroleum costs.  This, in combination with increasing availability of public transit, is the strategy that the Obama Administration appears to have fallen into – a sound, long-term, high-cost strategy that clearly isn’t supported on either side of the aisle.  Meanwhile, the market for NGVs struggles toward viability.

The one-word answer to the question of U.S. policy on clean transportation would be simply “Less” – less oil, less technology, less alternative fuels.  Unfortunately, “less” is not a strategy, and neither the Obama administration nor Congress seems willing or able to come up with one.


The Smart City – From Vision to Reality

— January 9, 2012

The news that the 2012 TED Prize has been awarded for the first time to an idea, The City 2.0, is further evidence of the importance of cities in addressing global issues of sustainability, economic development and technology innovation.  The TED Prize is linked to the acclaimed TED conferences and video series promoting ground-breaking technical, scientific and cultural ideas.  According to the prize director, the idea behind the award is to challenge the TED Community “to embrace radical collaboration on one of the most pressing issues we face: how to build sustainable, vibrant, working cities.”

The TED announcement is just one of series of new studies, events and initiatives all focused on taking sustainable urban development programs to the next level.  Eric Bloom has already covered the recent IBM-sponsored smart city gathering in Rio de Janeiro.  He highlighted the innovative projects in Rio that are addressing systemic challenges and preparing the city for the arrival of the World Cup and the Olympic games.  The UN has provided another useful example of how major events can propel new thinking about city design and development.  It has pulled together lessons for sustainable cities drawn from the Shanghai World Expo in 2010, which had  the theme of Better City, Better Life.  The Shanghai Manual, A Guide for Sustainable Urban Development, provides a 300 page overview of the opportunities for cities to take new approach to issues such as economic development, transport, building, waste management and the use of ICT.  The manual is part of the UN’s attempt to educate and train city authorities around the world on how they can make their cities a positive force for economic development and environmental sustainability.

The core themes of the UN study were also the common topics of conversation at the Intelligent City Expo, which I attended in November.  Over three days in Hamburg – European Green Capital 2011 – city managers and political leaders, not-for-profit organizations and suppliers debated the way forward for cities.  There was general agreement that a smart city is one that combines a commitment to sustainability with continued economic and social development supported by the innovative use of technology.  Much of the discussion focused on the practical challenges of developing the political leadership, citizen engagement, and new operating models that enable the transformation to a smart city.

One of the biggest challenges is how to provide the financial underpinning for that transformation.  In fact, the first question asked at the conference to the opening panel was “Who pays?”  I chaired the panel that addressed this topic on the second day of the conference, comprising representatives from European investment bodies, including the European Investment Bank, and also from the private equity sector.  In Europe at least, investment funds are available for trials and pilots, but taking projects to large-scale deployment is still uncharted territory in most cases.  It’s also clear that the private sector is eager to find new ways to work with city authorities but they need to find the right service and right business models.

One area of growing interest is the value of information and data assets in helping to reimagine the way the city operates.  This issue has been taken up by The Climate Group, in a new report on smart city economics, Information Marketplaces: the New Economics of CitiesThe report, produced with the help of Accenture, Arup and the University of Nottingham, examines the potential for cities to use untapped data and information assets to improve decision making, make better use of city infrastructure and develop new forms of  cooperation with the private sector and with citizens.  It’s a useful contribution to the growing debate as to how city data and information assets can provide a technical and financial basis for smart city transformation.   The challenge for cities is to understand what data they should make available, in what form and above all what partnerships they need to forge to ensure that that hidden value is realized.


Debunking EV Market Myths

— January 5, 2012

I always enjoy reading John Petersen’s blog posts and articles.  He and I often look at the same data and yet come to very different conclusions.  In his latest blog post, he claims that diesel and plug-in electric vehicles (PEVs) are undermining the hybrid EV market, that all non-lithium-ion battery technologies are doomed to failure thanks to the U.S. Department of Energy’s Li-ion worship – and that Li-ion manufacturers are also doomed to failure, anyway.  (Petersen’s views may not be entirely objective: the disclaimers at the end of his posts on Seeking Alpha claim that Mr. Petersen is a former “director of [lead carbon battery-maker] Axion Power International and holds a substantial long position in its common stock”).

On the face of it, Petersen’s data appear to support his statement that clean diesels and PEVs have cannibalized the hybrid market.  But cannibalization is a complicated issue, and just looking at the sales numbers is a superficial method of getting to that conclusion.  There are few examples of similar vehicles offered by the same manufacturer to try to make this a valid comparison. (VW now offers gas, hybrid, and diesel versions of the Touareg, so it will be a good vehicle to watch over the next year.)

Comparing apples to oranges, one could look at the Toyota Prius, with half the volume in the hybrid market, and the VW Jetta TDI, with almost 60% of the clean diesel volume in the U.S.  The Prius looks like it will be down about 4% for the year, while the Jetta TDI (which got redesigned for 2011) is up about 18%.  Yet, the gas version of the Jetta is up about 39% this year.  So, on the face of it, the data seems to say that the TDI version is being outpaced by its gas-powered sibling, rather than cannibalizing from hybrids.  The PEV side of the board is clearer, as Mr. Petersen’s claim that PEVs are stealing share from hybrids may be valid.  We hear anecdotally about hybrid trade-ins for PEVs, and the plug-in Prius, coming in early 2012, will also likely draw interest from current Prius owners.

The second claim is that in essence 95% of the $1.2 billion in federal ARRA grants for battery manufacturing was wasted tax payer dollars (I’m paraphrasing here).  If John Petersen were in charge, the federal government would be investing more broadly in a wider array of battery technology, including lead acid.  This despite the fact that even as far back as late 1990’s, GM was finding the limits of lead acid in their EV1.  Can lead acid or nickel metal hydride be improved?  Sure, but that doesn’t mean that we as taxpayers should be dedicating equal funding to companies whose technology seems unlikely to ever match the performance of Li-ion.  If his argument is for technology that’s based on current market acceptance, then why spend money on batteries at all?  Following that argument, the $20 billion in oil subsidies and tax abatements would grow, since that’s where the DOE will get guaranteed business success.

Petersen points to the spotty supply chain for lithium ion transportation and stationary batteries, claiming that this either “reckless apathy or simply a childlike faith that the taxpayers, like doting first-time grandparents, are breathlessly waiting for any opportunity to provide whatever the golden child needs or wants.”  The accompanying chart he uses to back up this claim comes from a Roland Berger study on the Li-Ion battery value chain.  As I went through that study, though, I came to very different conclusions than Mr. Petersen.

It seems unlikely to me that as the demand for Li-ion increases, the supply chain will remain stagnant.  Most of the Li-ion battery manufacturers that I’ve spoken with point to the cathode as the critical cost driver in the batteries, so we can expect that this will be the focus of process and supply improvements in the coming years.  Recent news shows that manufacturers are recognizing the supply chain as an opportunity as well.

Interestingly, Mr. Petersen, Roland Berger, and I all agree that cell production is in excess capacity for the current opportunity in PEV vehicles. Pike Research is anticipating global demand of 27.7 million kWh for Li-ion in transportation in 2017, based on 2.9 million global hybrid and PEV sales.  By comparison, the global market in 2011 is 2.53 million kWh, and A123 has stated capacity of 0.6 million kWh.  If this all went to transportation, then A123 should have 24% market share of the global market.  Suffice to say they do not, and layoffs have been the result.  However, that also equates to roughly 2% of the market in 2017 (or about 10% of the North American market), which will be too small if their success in the stationary market continues.

I even agree with Mr. Petersen that the prices of PEV are too high for mass adoption, and Pike Research forecasts the start-stop market will be the dominant sector in years to come (growing from 3 million in 2011 to 37.3 million annual vehicle sales in 2020).  However, while he jumps to the assumption that this means the PEV market is a failure out of the gate, I would argue that it points to increased specialization in the automotive market.

The Leaf’s early success is a proof-of-concept that limited range city vehicle can make a go of it in the U.S.  The Volt is proving that the plug-in hybrid model also makes sense.  Let’s not forget that the Prius didn’t sell more than 25,000 in a year until its first redesign in 2004 – five years after launch.  The Ford Escape hybrid has never broken the 25,000 sales/year mark.  But I’d venture to say that neither of these are considered failed programs by their battery suppliers or by the DOE.


Reviewing Our EV Predictions for 2011

— January 5, 2012

Plunging headlong into 2012, it’s a good time to pause and look back at our predictions for what Pike Research forecast would happen in the world of electric vehicles in 211.  Here’s a quick rundown of what Pike Research predicted for 2011 along with analysis of where we hit and missed:

1. The majority of people who drive a plug-in vehicle won’t own it.   

This prediction was on the money as GM and Nissan allocated a good percentage of their vehicles to dealers to make them available for test drives and to corporations for fleet use.  As predicted, car sharing programs are incorporating EVs into their fleets to enable many consumers to get their first taste of electric motoring, and we expect that trend to continue in 2012.

2. Automakers will get pushback from EV owners regarding the length of time it takes to fully charge a vehicle.

We haven’t heard as much negative feedback on charging times as we anticipated, partly due to the fact that most consumers are buying faster Level 2 charging equipment rather than plugging vehicles into a standard outlet.  However, Nissan decided that offering a 3.3-kilowatt onboard charger was a competitive disadvantage for the Leaf and therefore doubled the speed for the 2012 model.

3. Stop-start vehicles will arrive in the United States, albeit in small numbers

Sales of non-hybrid vehicles with stop-start technology were indeed minuscule in 2011.  During 2011 Ford and Volkswagen announced they were bringing stop-start to their North American lineups by 2012, and Wisconsin-based Johnson Controls announced it was investing more than half a billion dollars globally in stop-start battery manufacturing capacity.

4. Many EV charging stations will spend the majority of their time idle

We didn’t exactly go out on a limb with this prediction.  Despite the fact that public charging stations installations have lagged, in many cities there are more public chargers than EVs today.  We’ve heard many anecdotal stories of charging stations that are rarely if ever servicing vehicles and we can expect that to continue in 2012.

5. Fuel cell vehicles (FCVs) will be sold to fleets and consumers in small but growing numbers.

Automotive companies are continuing to slowly push forward towards commercialization of FCVs, but the quantities sold were very limited in 2011.  Based on the lack of availability of vehicles during the year, we sharply reduced our expected sales of FCV for 2011 to less than 700 globally – but that’s up from less than 200 the prior year.

6. Someone somewhere will have a bad EV experience and the media will overreact.

Fortunately for automakers the only negative EV experience that received significant media attention was at a NHTSA test facility.  The web and media did play up the event and some reports accused NHTSA of not responding quickly enough.  However, the coverage avoided overreaction.  Fisker also has an issue about potential fires due to coolant leakage within the battery pack, so we’ll see if the “EV batteries are a fire hazard” follow up stories continue.

7. The advanced battery category will heat up with M&A activity.

Way off.  There were no significant acquisitions or mergers during the year, and the biggest news was actually of an “anti-merger” – the dissolution of the Johnson Controls and Saft joint venture.  We expected some of the smaller companies to be acquired, but the independent battery startups managed to survive on their own despite sluggish EV sales.  Lithium-ion battery maker Boston Power received the most interest from investors as the company is shifting its focus, and its operations, to China.

8. Range anxiety” will prove to be more fiction than fact.

The accuracy of this prediction is hard to quantify, but the hypothesis that EVs would become stranded as drivers would not be able to cope with the shorter driving ranges appears to be false.  The media attention to range anxiety is slowly subsiding and should continue to fade from view in 2012.

9. The best-selling EVs won’t have four wheels.

This one was a gimme.  Global sales of electric bikes and motorcycles are continuing to grow rapidly, and are finally making inroads in the United States.  Two-wheeled electric vehicle sales far outpace all forms of hybrids and EVs, and with companies such as SRAM getting into the game, the gap will continue to widen.

10. The landscape for charging equipment will undergo a seismic shift as the category swiftly moves toward becoming a commodity market.

We were on target in predicting a seismic shift in EV charging equipment, but we picked the wrong one.  Prices didn’t fall as quickly as expected due to lower than expected sales of EVs and chargers.  But an emerging business model where third-party companies own and operate the charging equipment at no cost to the property owner has shaken up the industry.  These charging-as-a-service providers (350 Green, Car Charging Group, etc.) will help drive up volumes and drive down sales.

Overall, six of Pike Research’s 10 predictions mostly hit the mark, while four were off or missed entirely.  Undoubtedly we’ll do better than 60% for 2012.


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