The building equipment and services industries have always been highly fragmented.  While leaders such as Honeywell and Johnson Controls have large, multinational presences, most of the market is divvied up among thousands of smaller companies with a relatively narrow regional or technological focus.  Even CB Richard Ellis, the real estate firm with the largest footprint of space under management (2.9 billion square feet), has only captured less than 1% of the world’s 400 billion sf of commercial space.

The result is an industry that has historically consisted of an overwhelming array of service providers, each with different capabilities.  This has posed a challenge to tying building systems together into single solutions, as I explained in my last blog.  In the past, vendors designed products such as building automation systems, controls, and certain types of equipment specifically so that they would not work with other vendors’ products, ensuring the vendor a long-term market for replacements and upgrades.

These vendor-specific fiefdoms are starting to break down as demand for building energy management systems (BEMS) as well as comprehensive, end-to-end solutions for energy efficiency including new capabilities such as demand response and energy procurement continue to grow.  The word of the decade in the building sector is convergence: the integration of building control technologies with ICT.  No single player on either the HVAC or IT side can do it all, so the drive toward convergence has resulted in “co-opetition” – i.e., partnerships between competitors that would have been pitted squarely against each other in the past, and in some cases still are.

This week Schneider Electric and Cisco announced that they were expanding their partnership efforts to deliver better enterprise energy management solutions.  The partnership will pair the strengths of Cisco’s EnergyWise platform, which is ideally suited for data center and IT energy management, with Schneider Electric’s building management system (BMS).  The union is mutually-reinforcing, as the BMS can be used to monitor and control parts of the information and communication technology (ICT) network, and vice versa.

This is not the only example of this we’ve seen over the last few years.  IBM made one of the earliest moves toward co-opetition in smart building technology when it launched the Green Sigma Coalition in 2009, an industry alliance that has helped tie smart building technology into enterprise energy management and includes Honeywell, Siemens, Johnson Controls, and others.  There are also countless sub-rosa partnerships between rivals to enable a wider range of offerings in RFP responses and major contracts. 

The co-opetition trend, however, isn’t all about vendors deciding to play nice.  It’s about vendors finding that the combined capability of two systems – whether ICT systems linked with BMSs, demand response services tied with energy procurement services, or one of the dozens of other possible permutations – is often greater than the sum of the parts.  Combining two powerful solutions from separate vendors can open up new opportunities that are impossible to achieve individually.

Make no mistake; competition is still alive and well in the building sector, and that’s a good thing for the industry as a whole.  But these co-opetion arrangements demonstrate that the highly fragmented building industry is finding opportunities to pair technologies in novel ways to deliver smarter buildings in mutually beneficial ways.

Judging from industry hype, it might seem that the smart grid will solve virtually all of our problems relating to energy, transportation, and the economy moving forward.  Smart meters, distribution management automation, and other smart grid technologies will not only reduce both customer and utility costs and optimize the power grid akin to an Internet of Energy, but also is portrayed as vital to efforts to increase renewable energy production.

Last month, I attended the “Wind and Solar Integration Summit” in Scottsdale, Arizona, as a starting point for my research on a forthcoming Pike Research report.  There was plenty of discussion about wind and solar forecasting, different types of energy storage, and the different challenges that face regional grid operations across the United States.  Interestingly, I rarely heard the term “smart grid.”

Part of that, no doubt, is because the focus of efforts to date on integrating variable wind and solar power has been at the wholesale, transmission level of grid service, instead of at the distribution level, where smart grids, microgrids and virtual power plants are absolutely vital for integration.  It’s at the wholesale level where the money is right now, integrating bulk renewable energy into so-called organized markets managed by entities known as independent system operators (ISOs).

The summit did provide some good data points, among them the fact that wind integration costs generally run from $3 to $12 per megawatt hour (MWh), which at today’s wind penetration levels adds up to $270 million to $1 billion in just the United States. Less data is available about solar integration costs since utility scale solar PV is a rather recent phenomenon, but one can assume roughly the same order of magnitude.

Iberdrola, the Spanish operator, has more than 3 gigawatts (GW) of wind power capacity in current operation in the Pacific Northwest.  The company is among the leaders in investigating how better forecasting can reduce integration costs.  According to the company, so-called “day ahead” forecasts are already about as accurate as they can get, with error rates ranging from zero to as high as 18% for Iberdrola in the Bonneville Power Administration’s (BPA) grid control area spanning Washington, Oregon, Idaho and Montana.  (The equivalent forecasting error rate for day ahead forecasts in Europe is closer to just 5%, reflecting, perhaps, a more mature technology/policy integration.)

Better Forecasts

The real challenge for wind and solar forecasting is in the “hour ahead” and “intra-hour” data.  Within this forecasting envelope, error rates can exceed 30% for wind power.  The shorter the scheduling interval – e.g., every five minutes, as is the case in Texas – the more accurate the forecast.  (This is one reason why BPA has struggled in the past is that it used to only schedule wind hourly, and even today schedules wind power every 30 to 60 minutes). 

Which variable renewable energy technology offers the greatest integration challenge?  While wind power is less predictable than solar power, the output from the utility scale solar PV project can ramp down instantaneously with cloud cover.  In contrast, wind turbine ramps tend to be more gradual due to spinning machinery. 

Beyond forecasting, the most heated discussions at the Summit pertained to energy storage.  It became clear that the perception that energy storage was too expensive may not always be true.  Energy storage is not a monolithic resource, but rather an emerging grouping of technologies that can offer long-term and short-term solutions for variable renewable resources.  The cost of a flywheel providing frequency regulation is a completely different animal than a compressed air storage unit offering long-term energy storage.  The storage firm A123, working with AES Storage, has bragging rights to a 32MW storage project offering frequency regulation services in the Pennsylvania-New Jersey-Maryland (PJM) grid control area today, as well as a 12MW spinning reserve service project in Chile, South America.

The most provocative take away from the Scottsdale conference was a recently released study by Alstom Grid that surveys the world about solutions to the challenges of wind integration.  This report actually does reference the smart grid, highlighting the role of demand response, dynamic line ratings and transformer load management as keys to moving forward with planned wind project integration throughout the globe. 

The truth of the matter is that the integration of renewables is not a reliability issue, as these resources are being integrated around the world without a smart grid.  It’s really all a matter of costs to ratepayers.  The far larger challenge is at the distribution level, which is where microgrids and virtual power plants come in.  I’ll have more on that topic in a future blog post. 

The prospects for commercializing wireless EV charging are rapidly improving as the industry’s greatest challenges are being addressed.  Auto manufacturers have shown great interest in the convenience factor of wireless charging as a way to increase demand in EVs.  But without technology and performance standards, their investment in wireless charging is likely to be limited to demonstration projects and small custom fleets. 

However, the Society of Automotive Engineers (SAE), the governing body whose decisions on standards carry the most weight in the global market, expects to have a final draft specification for wireless charging completed by the end of the year. 

Currently the market is clogged with a variety of competing technologies (including electromagnetic induction or magnetic resonance) and charging speeds, resulting in a lack of interoperability between products.  SAE established the J2954 wireless charging working group to establish wireless PEV charging standards for the minimum efficiency of power transfer, equipment positioning, wireless communications, software, interoperability, and safety. 

With a draft standard in place, the move to commercialization could move much more quickly, as it did when the cabled standards for Level 1 and 2 charging were finalized by SAE.  While other standards groups, such as the Geneva-based International Electrotechnical Commission (IEC), may take other approaches, the SAE’s standardization of wireless is a critical first step. 

As shown below, the market for wireless charging will start off slowly, and remain a niche of the overall EVSE sales, with just 5% of total revenue by 2017, according to data from Pike Research’s report, Electric Vehicle Charging Equipment. 

Qualcomm, a company better known in the telecommunications industry than automotive circles, is moving closer to commercialization of its wireless charging technology.  In January, the company unveiled its technology at CES and began testing a fleet of wireless-charging equipped vehicles in London.  Also in January, wireless charging company Evatran signed up with financially troubled Sears to sell and install its Plugless Power equipment. 

For wireless charging to reach commercialization will require large and well-connected companies such as Qualcomm, Siemens, Delphi and others to supplement the efforts of niche players such as EvaTran and WiTricity to get automakers on board.  If January 2012 is any indication, the sector is poised to make major strides by year’s end. 

The next couple of years are going to be very challenging in the automotive Li-ion battery market.  That comes as no surprise to battery manufacturers or to members of the Li-ion supply chain.  When I gave a presentation on this topic at the Lakeshore Advantage Michigan Smart Coast series in Holland, Michigan, recently, one of the questions asked was, “Where should battery manufacturers be looking to sell batteries?”  This is a pretty common question, and my only slightly tongue-in-cheek response was “Everywhere.”

The presentation was a more detailed expansion of a webinar my colleague John Gartner and I did recently, discussing whether the U.S. market will reach one million PEVs by 2015.  The area that is garnering focus and showing promise is in grid energy storage.  This makes sense since the batteries used need to be large, and grid storage will utilize a lot of battery capacity (just what a growing battery plant looks for).  What’s more, there has been funding available for these projects.  At the same time, these projects are likely to ramp up slowly over the next couple of years (sound familiar?).  As we look toward smaller packs in large volume, those serving distributed storage and commercial buildings are likely to see growth in Li-ion as a result of the regulatory and physical limits on lead acid (venting requirements, space needed, and short life-span) and the desire to move away from diesel or natural gas generators.  Unfortunately, these lithium battery markets are also several years away from robust growth. 

So, what is a battery manufacturer to do?  A123 and Xtreme Power have been pursuing the market for grid stabilization with large batteries with some success.  This market remains wide open competitively for other players, like Johnson Control, LG Chem, and Dow Kokam, although much of the competition in this market comes from other forms of storage. 

Some industry figures have mentioned the possibility that time-of-use or peak-shifting storage could be a viable business model for Li-ion in the early years as well.  For this application, manufacturers would do well to look at their own back yard.  The manufacturing bases in the Midwest and California may benefit from using off-peak generated energy, depending on specific utilities’ cost structures.  The concern is that this is market will quickly become highly competitive as battery makers look for volume here early.

The fact is, even if Li-ion battery manufacturers can successfully diversify, costs will remain a challenge for the next couple years.  Fundamentally, this brings me back to another question that came up during the presentation: how much of the current cost of Li-ion is due to manufacturing inefficiencies vs. the cost of the actual materials in a battery?  The answer is roughly a third is manufacturing.  We anticipate that Li-ion battery costs will fall by about a third over the next few years, stabilizing by 2016. 

Unfortunately, it’s looking more and more like several manufacturers may find that the costs fall as a result of competitive pressures, rather than manufacturing efficiency gains in the next few years.  Large, well financed, and diversified companies like Johnson Controls and LG Chem will likely survive, and even drive, that type of competitive pricing.  But for smaller, specialized, battery manufacturers like A123 and Electrovaya, the next two to three years may seem very long indeed.