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.

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 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.

One persistent question was heard repeatedly from major smart-meter manufacturers at last week’s DistribuTECH 2012: “Who are these guys?”

The guys in this case are the people behind Glen Canyon – an upstart smart meter maker that jumped onto everyone’s radar just days before the smart grid industry’s latest annual event kicked off in San Antonio.  In multiple meetings with representatives of major incumbents (Itron, Elster, Landis+Gyr), one of the first questions to me and my Pike Research colleagues was what we thought about Glen Canyon (more on that below).

Why the great interest in Glen Canyon? Because the Santa Cruz, Calif.-based newcomer is offering to sell AMI smart meters for ridiculously low prices ($25 or less, according to reports).  That would undercut typical prices by a wide margin, and that has rattled nerves among the incumbents.

Glen Canyon representatives told me their NEXGEN meters are made by Hong Kong-based contract manufacturer Computime at a factory in Shenzhen, China.  The devices feature a communications package that includes an 802.15.4 wireless radio with a RISC-based 32-bit processor.  A key element of Glen Canyon’s system is its AMI cloud service, which while interesting is not unique as other vendors, including SAIC and GE, have similar offerings.

At DistribuTECH, Glen Canyon announced a deal with Beijing Guozhiheng Power Management Technology Group for 1.5 million NEXGEN meters that will be deployed over the next 18 months.  Not bad for a company just coming out of stealth mode.

If indeed GC can deliver at volume good-enough smart meters at cut-rate prices, then this could alter the competitive landscape.  It will also kick off a price war, mainly outside North America where utilities anxious to deploy smart meters but unwilling to pay premium prices might be willing buyers.  It’s too early to tell just how much ground shaking GC will eventually cause.  For now anyway, the meter business has felt at least a minor disturbance.

The energy industry is particularly adept at taking raw material and turning it into products.  Whether producing heat, power, or fuel, the model has proven exceptionally efficient at moving highly concentrated and homogenous resources over long distances through intricate supply chains. 

For the oil industry, time and investment has allowed for the development of a multi-trillion dollar, asset rich supply chain that spans the globe.  Benefitting from staggering economies of scale and capitalizing on a century of experience, this distribution model supplies the lifeblood of modern civilization.  The bio-based economy, which aims to take the carbon trapped in biomass and supplant a portion of this fossil fuel monopoly on the back of renewable feedstocks, must turn this model on its head if it is to realize the ambitions of its most ardent proponents.

To date, bioenergy has gained traction mimicking the fossil fuel model, siphoning expanding volumes of concentrated commodity goods to produce power and fuel.  Today’s ethanol industry was built almost exclusively on corn in the U.S. and sugar cane in Brazil; biodiesel on rapeseed and palm oil in the EU and soy in the U.S.  For biopower, wood is the feedstock of choice.  These industries were essentially bolted onto existing supply chains. 

Until recently, this model has proven to be marginally profitable, largely supported by subsidies and production encouraged by ambitious government mandates.  Generally, biomass resources are consumed locally due in part to the logistical and economic inefficiencies associated with transporting over long distances.  But as more and more governments impose biofuel and biopower production mandates, and restrictions on international trade ease, demand for concentrated feedstock is quickly outstripping available supplies.  

Facing this reality, the bioenergy industry has been on an aggressive R&D campaign to expand its feedstock pool.  From switchgrass to miscanthus, camelina to jatropha, and macroalgae to microalgae, the proliferation of feedstocks suggests that the path to global scale will be anything but straight.  With a number of industrial biotechnology ventures aiming to tweak the characteristics of various feedstock strains, innovation is happening quickly.  Even so, as I discussed in Pike Research’s report, Biofuels Markets and Technologies, it will be at least a decade before large volumes of such varietals are widely available.     

While numerous reports suggest that there is more than enough biomass available globally to meet substantial demand from biopower and biofuels production, the costs associated with harvesting, aggregating, transporting, and processing many of these feedstocks have proven to be mostly prohibitive.  And this assumes sufficient acreage has been planted to support such efforts.  Even where feedstock tonnage is available, supply chains have proven far too immature to attract the scale of investment needed to keep pace with ambitious production mandates.

The degree of complexity associated with processing such a wide variety of feedstocks is of serious concern.  Differing characteristics suggest that all biomass will have to be processed locally before shipping further afield.  Whether this can be done economically remains to be seen. 

And so the bioenergy sector finds itself at a crossroads.  On one hand, it could continue expansion of proven conversion processes using commodity-based feedstocks (e.g. fermentation of corn starch and sugar cane for fuels or combustion of wood for power); on the other, double down on advanced feedstocks to unlock further growth in the biobased economy.  A decision either way will have long-term consequences, necessitating annual investment in the billions and sinking capital into new infrastructure.  

Based on our analysis, over the next decade growth of the biobased economy is likely to be supported by biomass hubs centered on existing commodity-based feedstocks as depicted in the figure below, from the International Energy Agency:

The model will help meet demand growth in international markets, but more robust growth is likely to be tempered by rising feedstock costs.  To compete head-to-head with fossil fuels, bioenergy will need to upend the traditional energy model and optimize a complex network of supply chains built around a slew of diverse, locally-grown feedstocks.

As I mentioned in my last smart city blog, one of the biggest challenges to realizing the smart city vision is finding financial models that can enable the transformation in city operations.  This recent Climate Group report highlighted the opportunity offered to cities through better exploitation of one of their most critical and under used assets: data.  The most obvious use of city data is for the city authorities and service providers to become better at collecting, analyzing and acting on information about how the city works.  While public sector organizations – not only city authorities – have gone a long way in creating modern IT-based front- and back-office organizations, they have generally been much slower than the private sector to use the power of data analysis to understand how to improve those processes.  This is now changing, and city authorities are beginning to understand the power of data analytics.  But even with cloud computing and software-as-a-service models helping to reduce costs and speed up deployment, data analytics and advanced information management systems still involve a significant upfront investment, and payback depends on finding efficiencies and improvements in services.  A more radical – but complementary – approach is to open the data to third parties to allow them to provide new services and new insights.  This is one reason why cities are at the forefront of the movement for open government data.

The momentum behind open government data gained significant impetus with the release of President Obama’s “Memorandum on Transparency and Open Government” in January 2009.  This paved the way for the launch of data.gov in May 2009, a web portal that today provides almost 400,000 raw and geospatial datasets and more than 1,000 web apps.  The U.K. government launched data.gov.uk in April 2010.  Both the U.N. and the World Bank are now working to encourage governments around the world to adopt open data policies.  As well as spurring innovation, opening up government data is seen as a means for tackling corruption, increasing transparency and improving accountability.  In July 2011, Kenya became the first developing country to have an open government data portal.

Trying to put specific value on such data is difficult, but a report from the European Commission suggests that opening up public-sector information could be worth up to €140 billion (almost $200 billion) to the EU economy each year.  Cities have been among the most proactive governments promoting the possibilities for open data.  In the United States, cities like San Francisco, New York, and Chicago have launched open data portals, as have London and Barcelona and Helsinki.  A number of cities have also launched developer events and competitions to encourage the creation of new applications that can then be made available on the city website. 

Transparency, Accountability

So why is this important to the development of the smart city concept? Most importantly, opening up data to new uses is a way of refreshing our ideas about the city: how it works and how it could work better.  It also frees up the potential for further exploitation of new technologies such as smartphones and sensor networks.  Open data can also provide a boost to the city as center for software development and other digital industries, as the Mayor of New York has recognized with his promotion of NYC Digital. 

Chicago provides a good example of what can be achieved.  In January, the city launched a new web site, Chicago Shovels, which keeps residents informed in real-time about the activity of the city’s snow ploughs when the blizzards hit.  In future, it will provide space for coordinating community-based snow-clearing teams.  It also provides additional applications developed by third-parties using the city’s open data sets.  Twoinch.es, for example, alerts drivers of winter parking bans, while WasMyCarTowed.com uses the City’s towed and relocated vehicle data to reconnect owners with their cars.  Sites like Chicago Shovels are not just providing new services, they are also making new aspects of a city’s operation transparent.

The CTO of Chicago has written an excellent blog on the city’s open data platform.  In the post he describes the four principles that have driven the program: transparency, accountability, analysis, and open data.  Looking to the future, he also talks about the emerging concept of the “city-as-platform” – an idea I will examine in more detail in my next blog.

Last week saw the official unveiling of the Hiriko electric car in Brussels, in front of the President of the European Commission Jose Manuel Barroso.  A trial manufacturing run of the vehicle is set to begin at Vitoria Gasteiz, outside Bilbao, next year and the first models are expected to reach the market in 2013.  Several cities have apparently already shown interest including Berlin, Barcelona, Malmö and San Francisco. 

Developed by a consortium of seven companies based in the Basque region of Spain, Hiriko Driving Mobility is taking forward a design for a CityCar first produced at MIT.  The Hiriko has several city-friendly features, but the most striking is its size and the fact that it folds up to fit into the smallest of urban parking spaces.  At only 2.5m (100 inches) in length unfolded, when crunched up for parking it takes a measly 1.5m (60 inches) in space.  The vehicle’s wheels also turn at right angles to help sideways parking in tight spaces and the lack of conventional doors mean that you can still get in and out the vehicle.

The transport challenges facing city leaders were the subject of some of the most interesting sessions at last November’s Intelligent City Conference, in Hamburg.  Amongst lengthy discussions about multi-model transport strategies and the pros and cons of road charging schemes, several presenters raised the importance of rethinking the role of the private car within our cities.  This is not only about the need to encourage EVs, or to accelerate the shift to public transit systems, but also to foster new thinking about car design.  We need to design cars that meet the needs of cities, several speakers declared, and move away from shaping our cities to accommodate cars. 

That’s the basic idea behind the Hiriko (which means “urban” in Basque).  The developers say that it’s well-suited to electric car-sharing schemes, similar to those already in place in San Diego and other cities.  Other options might include the use of advertising to pay for the car rental, or sponsorship by hotels, restaurants or other local businesses.  Operators and city transport authorities might also consider time-of-use pricing or incentives to encourage the use of alternative pick-up and drop-off points during busy times.

The Hiriko may horrify lovers of classic car design, but for anyone interested in the future of urban transport it offers some intriguing possibilities. 

The rise of bio-chemicals promises to transform that industry.  Bio-based chemicals and plastics – often referred to as bio-based products – are commercial or industrial products (other than food or feed) that are derived from biological products or biomass.  They serve as direct replacements for the building blocks used in petrochemical production. 

At last week’s 3rd Annual Bio-based Chemicals Summit, in San Diego, upstart biomass innovators and stalwart petrochemical industry stakeholders converged to capitalize on opportunities in the emerging bio-based economy.  Excitement is high, but it is largely a derivative of unrealized potential in the biofuels industry.  That potential could be accelerated by federal action: this week, President Obama is expected to unveil his Blueprint for a Bioeconomy.  (The bio-chemical sector is covered under our Bioenergy Advisory Service, which was launched last week.)

The bio-based segment of chemical production looks poised for dramatic growth.  As discussed in our recent report, Biofuels Markets and Technologies, there has been a significant shift away from a primary emphasis on biofuels production towards high-value, low-volume bioproducts in the last couple of years.  Currently, the US Department of Agriculture (USDA) estimates that at least 20,000 bio-based products are currently being manufactured in North America.  USDA has certified dozens of products with a “bio-preferred” label, which denotes a high percentage of bio-based ingredients. 

The shift in strategy away from biofuels and towards bio-based products aims to generate near-term revenue to facilitate broader scale-up efforts.  Ultimately, stakeholders envision a pervasive, renewable bio-based economy, comprising power, heat, fuel, and chemicals production derived from biomass resources.

The strategy flies in the face of existing biofuels policy in the United States, which one presenter in San Diego called “ass-backwards.”  From subsidies to loan guarantees to grants, the federal government has relied on a number of mechanisms to ramp up biofuels production.  Where there are bio-based chemical incentives, they are typically treated as complimentary to biofuels policy.    

Shifting this paradigm is of chief concern among bioproduct advocates.  Bioproducts, the logic goes, are a natural stepping stone to biofuels production, which is tasked with supplanting an entrenched and highly profitable petroleum fuel industry.  The price tag for doing so is daunting – roughly $16 billion per year to meet the Renewable Fuels Standard (RFS) mandate.  Requiring less capital and feedstocks, widespread bioproducts production is viewed as a lower hurdle that can spearhead development in the utilization of biomass as a replacement to crude oil. 

Despite its promise, the bioproducts market faces many challenging obstacles that will likely stifle growth in the United States over the near-term.  Three key issues are summarized briefly below: 

• First, EPA’s regulation of industrial chemicals under the Toxic Substances Control Act (TSCA) may lead to delays and increases in the time-to-market.  While bio-based chemicals are subject to review, many petroleum-derived chemicals were grandfathered in when the regulation came into force in the 1970s.
• Second, limited access to feedstocks may confine production to areas with access to regional biomass supply chains, potentially stifling growth in the industry.  Even where feedstocks may be prevalent, cost remains a barrier to the commercialization of biobased production from advanced (non-commodity) feedstocks, such as camelina, jatropha, algae, and switchgrass.
• Third, accessing capital for scale-up remains a difficult challenge.  Although higher-value bio-based products require less capacity than biofuels production, many investors are wary of building a first plant given the associated technology and market risks.  Without steel in the ground, it’s difficult for the industry to accurately assess the risks of subsequent investment.

Here’s the problem: While it is certainly possible to tie together systems (say, an HVAC automation system based on BACnet and a lighting system based on LonWorks) into a single energy management system, the cost of the labor required to integrate systems cannot always be economically justified.  Moreover, in many cases, the automation functionality of two independent systems on different protocols is often higher than a system that integrates the two, as much of the data is lost in translation.

So how did we get to this modern-day building automation Tower of Babel?  BACnet was originally developed in the late 1980s in association with ASHRAE, the HVAC industry association, and is one of the leading protocols in the U.S., particularly for HVAC and lighting control systems.  LonWorks, the other top protocol in the U.S., was developed in the 1990s by Echelon, one of the leading smart grid and automation technology firms in the world.  While BACnet’s association with ASHRAE has curried favor among HVAC vendors, LonWorks has been a favorite among lighting controls manufacturers given its rapid response time.  Other protocols serve other niches or are favored by specific vendors as a way of discouraging mixing-and-matching of products from competitors. 

The result is a world in which systems that perform very similar functions can’t communicate with each other.  Imagine if Blackberry owners couldn’t call iPhone owners.  That’s the basic reality in the building automation systems world today.

Last week, Echelon made a major step toward breaking these barriers down through the launch of a suite of tools and products aimed at integrating systems based on LonWorks and BACnet.  This is a particularly fitting move for Echelon, which is the gatekeeper of the LonWorks protocol and is carving out a leading role in developing technologies at the “edge of the grid,” the interface between buildings and the utility distribution network.  Through the platform, which involves hardware, software, and service components to translate between LonWorks and BACnet for rich energy management, Echelon will be able to connect with whole buildings, not just isolated systems within buildings, and prepare them to play a role in overall grid management through demand response and other types of utility programs.

Over time, automation systems will likely shift to IP networks for new buildings, doing away with the polyglot automation world of today.  However, the existing building stock will continue to speak many languages, and solutions such as Echelon’s will play an important role in synthesizing building energy data to make buildings smarter and more energy-efficient.