The first Pike Research Smart Energy Annual Report is due out soon (Q2 of 2012), and in it Pike Research calculates the size and value of the global smart energy market in 2011.  We define smart energy as “the range of efficient technological options available to providing electricity in a distributed fashion, either for local use or for grid support,” covering renewable energy, biopower, energy storage and advanced conversion technologies such as fuel cells and CHP technology.  But we don’t cover developments in the natural gas market.  Why? Because it remains unclear whether the developing natural gas market in the US will harm or help the smart energy market.

Daniel Yergin in his article for CNN is cautiously optimistic that in the US natural gas will not crowd out the developing renewable energy market, but will more likely replace and then displace coal and nuclear for power production.  In Europe I believe that governments are starting to move away from the dash-to-gas due to the increased geopolitical tensions caused by the location of most of natural gas reserves.  In Austria, for example, the region of Güssing has a policy of 100% renewable, locally produced, power.  As I covered in the past in an article for Fierce Energy, this includes 50 MWs of distributed fuel cell power using locally produced biogas.  The United Kingdom has taken a slightly different approach, and has to date limited the use of hydraulic fracturing, or “fracking,” due to the increased incidences of minor earthquakes in the vicinity of a nuclear waste storage facility.

But how will the surge in natural gas supplies affect the overall smart energy paradigm – the production, storage and use of efficient, distributed power?  From my own personal perspective it’s likely to be a good thing.  Over three quarters of all fuel cell systems deployed today use either natural gas or a form of fuel in which natural gas is the main component.  The addition of natural gas-powered fuel cells will in some cases help a renewable installation in the same grid system win contracts, as it can guarantee steady, predictable baseload power.  A win-win surely and a prefect example of the systems based approach that we see rapidly developing in the smart energy market.

One scenario we could see developing is utilities providing smart energy systems, rather than electrons and heat, where a package that combines a natural gas-fuelled fuel cell, solar and wind capacity, and an advanced battery for hydrogen-based storage are deployed together in a turn-key system.  This could be everything from 1-5-kilowatt (kW) systems for homes right up to 50-100 megawatts for communities or towns.  Joining the dots in this way will increase the overall efficiency of the power and heat production network, and emissions will decrease.  So, note to self: Next year in the 2013 Smart Energy Annual Report – include natural gas.

We all know that Silicon Valley is the beating heart of the tech industry, with large corporations, tiny start-ups, entrepreneurs and the finance community all living, working and drinking coffee together.   (This last bit isn’t a throw away reference to our increasing addiction to the black magic bean, but to an article I read in Harvard Business Review in 2010 which said that you are as likely to start up a conversation with a potential investor or tech start-up CEO in the local coffee shop as over a formal meeting in an office.)  This melting pot of groups and interest is the key to the success of the Valley.  The key players are all there breathing in the same idea.

Do we need a Silicon Valley of Smart Energy?  And if so, will we see one emerge?  I believe that yes, we do need one.  By bringing all the actors together in an environment conducive to change, change happens.  Smart Energy is stronger than the sum of its parts, but right now its parts are like hissing cats in a sack, as quick to fight each other as to work together to foster innovation.  Just throwing them together won’t enable this change, but it should help them to understand the value of united action.  Secondly, investors are still quick to run to the more traditional markets of the old energy paradigm and high tech.  Investment in cleantech is still patchy and piecemeal with little evidence of a long term sustainable shift in focus to the Smart Energy sector.  A focused geographical region that comprises all the elements of a thriving tech sector would help draw in investors and generate investment.

If the Smart Energy Valley appeared, where would it be? As a European it pains me to write this, but it’s unlikely to be Europe.  Even though the European countries compose one of the biggest, if not the biggest, market for Smart Energy in the short to medium term, we are simply too institutionally risk-adverse to celebrate the successes, but critically also the failures, that a thriving Smart Energy Valley would need.  Micro valleys (let’s call them “Corries,” from the old Scots word for a round hollow) are springing up all over Europe.  These Silicon Corries though tend to promote a regional activity rather than a market.  So even though they can be very successful in promoting growth in their regions, their impact on the overall market is limited.

Asia Pacific? More likely than Europe, but still an outlier.  In energy at least the focus is still on regional growth and with the markets in Indonesia and China exploding this global focus is still, possibly, on the back burner.  Here I could be wrong.  If the Smart Energy Valley does appear in Asia Pacific it could well be in one of the younger countries – specifically Australia.

Africa or Latin America?  Even with the massive surge in liberalisation of energy investment in Africa and the huge strides that Latin America is making to develop deploy Smart Energy technology, there is simply too much going against them for either to be a realistic candidate.

We are left with India, the Middle East, and North America.  These are my front runners.  I believe a Smart Energy Valley will emerge.  Where will it be? In India, the Middle East or North America.

March passed for most with little terrestrial evidence of the storm raging above the atmosphere. So this time we got away with nothing more than some spectacular pictures of the coronal mass ejections – i.e., solar flares.  Increasingly, though, electricity transmission firms are working with professional astronomers to be warned of the next big solar storm.

The solar cycle lasts between 9 and 14 years, and during the so-called Solar Maximum, solar flares and sunspots increase in frequency and energy.  These massive bursts of solar plasma and charged particles create geomagnetic storms when they hit the earth’s atmosphere.  Although it’s thought unlikely that we would face another solar super-storm anytime soon, the frequency and intensity of solar storms is on the rise and is forecast to peak sometime in 2013.

These geomagnetic storms have the potential to knock out satellites, disrupt airplane navigation systems, and overload the electricity grid.  That’s exactly what happened in 1989, when a solar flare saturated power transformers in Quebec, Canada, taking out 9.5 gigawatts from the system instantaneously.  That was in 1989, before the ubiquitous Internet, before smart phones and tablets, before laptops in every home.

Today, we rely on the continuous free flow of high-quality electricity to provide heat and power to our homes and offices and to power all of the gadgets we use on a daily basis.  Power outages are all too common already, as shown in the chart below.

So what can we do? Apart from becoming an off-net survivalist, for a more rational response is to create more distributed power generation.  Often when we talk about DG it is more in terms of efficiency, stability and making the best use of local resources.  But what it could also be used for is to create something of a self-healing network.

In a DG network of multiple islands, with each island slightly overlapped the next, if one was knocked out, by weather, inquisitive animal, or solar activity, each of the neighbouring islands could temporarily pick up the missing load until the system was fully repaired.  Sounds simple, and it’s definitely not a new idea.  But like many things this is an idea whose time has yet to come.  Why now?  Renewables, efficient conversion technologies, such as fuel cells and advanced batteries, a range of energy storage options, and an increasing number of people and policies are aligning to create a window of opportunity.

We would need to systematically and deliberately create an island-based DG network, based on the increasing knowledge of what the smart grid could provide and of the potential for linking renewables, micro- generation, energy storage and the smart grid to create a much more resilient network.

So maybe this month’s solar storm was a heaven-sent catalyst for change.  If we are to continue to depend on the flow of electrons for our basic needs, we must ensure that the electricity grid can cope with everything we face, including solar eruptions.

In forecasting changes in the fuel cell sector Pike Research takes a somewhat conservative approach to modelling growth.  The chart below is derived from data published in the Pike Research Fuel Cell and Hydrogen Annual Report 2011 and shows steady annual growth out to 2015. 

In advance of production of our updated Fuel Cell and Hydrogen Annual Report 2012, it’s useful to look at the most important flex points in the model that could significantly steepen the adoption curve for fuel cell systems. 

1.  Materials Breakthrough

There are clearly a number of areas in which a breakthrough in materials technology could have a significant impact on the cost of the fuel cell, thereby increasing the rate of adoption.  These include platinum thrifting ‑ i.e., removing the unused platinum on the catalyst surface ‑ increasing the durability of low platinum cathodes, improving the recyclability of the membrane, and increasing the efficiency of the stack.

Clearly with any new technology there are two standard ways of reducing costs.  The first is reducing the costs of materials or components, and the second is shifting to mass production.  Bringing down the current cost of fuel cells (estimated in the upcoming Pike Research report, “The Fuel Cell Stack Supply Chain: Opportunities and Constraints in Early Market Applications,” as $1,700 per kW) will require both.

But what is the likelihood of material breakthroughs?

 The amount of money spent by national governments on R&D is a poor proxy for likelihood of material breakthroughs, but we can look at intellectual property.  The number of patents applied for, as well as granted, related to fuel cell materials is cause for optimism that breakthrough materials are in the pipeline.

2.  Policy

Clearly if a government decides that it wants to bring fuel cell powered systems into the market, market forcing policy is one of the quickest ways of doing this.  Today Japan, South Korea, and Germany all have what could be classed as pro-fuel cell market forcing policy covering residential combined heat and power (resCHP) systems, fuel cell vehicles, and backup power systems. 

What is the likelihood of other countries also adopting pro-fuel cell policies?  Direct policy that selects one technology over others is unlikely in most countries, but we are likely to see government policy directed at encouraging the adoption of systems in specific markets in which fuel cells are attractive. 

3.  Stigmatization of competing technologies

Sadly, the third of the flex points focuses on the failure of another technology.  Known as “technology stigmatization”, this is when a technology is tainted, in the eyes of the public, due to fears of safety. 

The most recent example that had a clear impact on the fuel cell industry was the Japanese earthquake and tsunami and the resulting nuclear accident at Fukushima-Daiichi.  Soon thereafter Japan enacted a no-new-nuclear policy, Germany said it would close all of its nuclear capacity by 2022, and Scotland also shut its gates to new nuclear plants.  In Japan, available subsidies for the purchase and installation of residential combined heat and power fuel cells were snapped up, and soaring demand forced manufacturers to bring in extra capacity.  

Additional technology stigmatization events in the energy sector would make it more likely that fuel cells technology will be drawn into the market faster.  The flip side of this, or course, is that a serious incident involving fuel cells will slow or even halt the diffusion of the technology.