Cleaner Technologies
Evolving Towards a Sustainable End-State
July 2012
Whitepaper available online: http://www.dbcca.com/research
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Climate Change Investment Research
Mark Fulton
Managing Director
Global Head of Climate Change Investment Research
New York
Bruce M. Kahn, Ph.D.
Director
Senior Investment Analyst
New York
Camilla Sharples
Assistant Vice President
New York
Lucy Cotter
Associate
London
We would like to thank the following individuals from Deutsche Bank for their insight:
Andrew Pidden
Managing Director
Global Head RREEF Sustainable Advisors
London
2 Cleaner Technologies: Evolving Towards a Sustainable End-State
List of Figures
Executive Summary........................................................................................................................... 6
Energy: Power and Transport......................................................................................................... 17
Power ............................................................................................................................................ 19
Transport ...................................................................................................................................... 24
Energy Efficiency............................................................................................................................. 33
Building Efficiency ....................................................................................................................... 34
Grid Efficiency .............................................................................................................................. 37
Industrial Efficiency ..................................................................................................................... 42
Agriculture, Water and Waste ......................................................................................................... 46
Agriculture .................................................................................................................................... 46
Water ............................................................................................................................................. 51
Waste ............................................................................................................................................ 55
3 Cleaner Technologies: Evolving Towards a Sustainable End-State
List of Figures
Figure 1: Climate Change Investment Universe, 2012 ......................................................................................................6
Figure 2: Bridges, Transitions and End-States Defined ...................................................................................................7
Figure 3: Key for Subsequent Tables – Technologies and Government Support .........................................................9
Figure 4: Evolution of Technologies for Power and Government Support ................................................................. 10
Figure 5: 2030+ Technologies for Power and Government Support ............................................................................ 10
Figure 6: Evolution of Technologies for Transport and Government Support ........................................................... 11
Figure 7: Evolution of Technologies for Building Efficiency ........................................................................................ 12
Figure 8: Evolution of Technologies for Grid Efficiency ............................................................................................... 12
Figure 9: Evolution of Technologies for Industrial Efficiency ...................................................................................... 13
Figure 10: Evolution of Technologies for Agriculture.................................................................................................... 14
Figure 11: Evolution of Technologies for Water ............................................................................................................. 15
Figure 12: Evolution of Technologies for Waste ............................................................................................................ 15
Figure 13: Energetic Transitions (1850-2150) ................................................................................................................. 17
Figure 14: Evolution of Technologies for Power and Government Support ............................................................... 19
Figure 15: 2030+ Technologies for Power and Government Support .......................................................................... 19
Figure 16: Renewables are Trending towards Grid Parity - US Electricity Generation and Retail Cost by
Technology, 1930-2010...................................................................................................................................................... 21
Figure 17: Evolution of Technologies for Transport and Government Support ......................................................... 24
Figure 18: Oil Shocks of 2008 and 2011-12 ..................................................................................................................... 26
Figure 19: Actual and Projected Fuel Economy for New Passenger Vehicles Worldwide ........................................ 27
Figure 20: Path Towards Full Electrification of Vehicles ............................................................................................... 28
Figure 21: Summary of Various Vehicle Fuels’ Current Attributes .............................................................................. 29
Figure 22: Evolution of Technologies for Building Efficiency ..................................................................................... 34
Figure 23: Evolution of Technologies for Grid Efficiency ............................................................................................. 37
Figure 24: Evolution of Technologies for Industrial Efficiency .................................................................................... 42
Figure 25: Evolution of Technologies for Agriculture.................................................................................................... 46
Figure 26: Evolution of Technologies for Water ............................................................................................................. 51
Figure 27: Water Hunting to Water Cultivation ............................................................................................................... 53
Figure 28: Evolution of Technologies for Waste ............................................................................................................ 55
Figure 29: The Waste Management Hierarchy ................................................................................................................ 56
4 Cleaner Technologies: Evolving Towards a Sustainable End-State
Editorial Letter
Mark Fulton
Managing Director
Global Head of Climate Change Investment Research
New York
In this report, we have developed our thinking around an enduring evolution toward clean energy and resource technologies.
We believe that the first phase of a long-term mega shift toward an end-state scenario of clean, domestic, sustainable and
efficient use of energy, materials and environmental services is now firmly established within the corporate world. The current
evolutionary phase towards this “sustainable end-state” scenario where these technologies are truly competitive at a
commercial level with minimal policy support is expected to take two to three decades, and presents a huge range of
profitable investment opportunities, particularly in practical and applicable technologies that already reduce the cost of
production and usage of existing products and services. In this paper, we re-examine our climate change technology universe
over this evolving timeframe.
As we progress through the evolutionary phase, “bridge” technologies such as natural gas and more efficient ways to
approach existing technologies such as vehicle engines will play a key role at first, given that they are relatively cheap and
abundant, cleaner than other energy technologies (e.g. gas over traditional coal), technologically advanced, and have
established infrastructure. Meanwhile, the “evolving end-state” technologies, such as pure-play wind and solar and fully
electric vehicles will start to take on a more pervasive role toward the end of this decade and the next as they enter the
competitive and sustainable end-state of full commercialization and deployment at scale, without significant policy support.
There clearly remain key short-term challenges to be overcome to achieving these end-states. These include the relatively
higher (but rapidly declining) costs of renewable energy, the necessary infrastructure expenditure, and policy uncertainty
caused by complex economic and political situations (on a global scale, and also in key developed countries such as the EU
and US). For example, at present we lack a global post-Kyoto agreement to limit greenhouse gas (GHG) emissions, thereby
somewhat diminishing the role of global policy in forcing a rapid transition toward our expected end-state.
Within this global economic and political context, we expect the global economy to progress through these key energy,
efficiency and environmental services evolutions, ultimately driven more by efficiency and economics as opposed to
government policy. Multiple profitable evolutionary phase investment opportunities will arise during this mega shift, and
investors need to have a fundamental understanding of the key value opportunities these bridge or evolving end-state
technologies offer. Indeed, as we discussed in our recent “Investing in Climate Change 2012” paper, the evolutionary phase
which we currently occupy tends to favor larger, more diversified companies – particularly for public market investors.
However, as we transition towards a long-term, sustainable end-state scenario, we expect more pure-play opportunities to
dominate.
We also believe that the evolutionary phase would accelerate rapidly into end-states if the global economy experiences a
"resources shock" from food or water or oil scarcity caused by a genuine change in the supply availability rather than from
hoarding or speculation (which would be regulated out). Conversely to this, a slower evolutionary phase could occur from a
global economic slump as this would result in less R&D in new innovative technologies.
5 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
Executive Summary
“Cleaner Technologies: Evolving Towards a Sustainable End-State” focuses on the idea of a current “evolutions” phase
toward an “end-state” scenario of clean, domestic, and efficient use of energy, materials and environmental services. During
this decades-long phase, there will be a reliance on “bridge” and, increasingly, “evolving end-state” technologies – the latter
being technologies that are mostly still on the path to full commercialization, and thus require current policy support.
This evolutionary phase presents a wide range of profitable investment opportunities, particularly in more diversified, as
opposed to “pure-play”, companies – with similar opportunities to what we outlined in our recent publication “Investing in
1
Climate Change 2012 – Investment Markets & Strategic Asset Allocation: Broadening and Diversifying the Approach ”. Here,
we also provided an updated view of the Climate Change Investment Universe, which encapsulates the sectors we focus on
in this paper, and the technologies that drive them under 3 key overall themes as shown in Figure 1 below.
Figure 1: Climate Change Investment Universe, 2012
Cleaner Energy
Power Generation











Solar (PV, CSP, thermal)
Wind (onshore, of f shore)
Other clean power (geothermal, hydro, landf ill
gas, marine, tidal, etc.)
Fuel switch: coal to natural gas/ biomass;
biomass to biomethane
Clean coal and gas (CCS)
Nuclear f ission
Increased ef f iciency
Combined heat and power
Mass energy storage
Fuel cells
Future breakthrough technologies (e.g.
nuclear f usion)
Energy & Material Efficiency
Building Efficiency
















High ef f iciency / lower emissions vehicles
Sustainable biof uels
Flex f uel vehicles
Hybrids
Electric vehicles
Battery technology
Natural gas vehicles
Hydrogen f uel cells
Agriculture












Energy mgmt systems
Inf rastructure: advanced metering, UHV
transmission, electric charging
Storage: compressed air, batteries, f lywheels
Wide area monitoring
Smart grid
Distributed grid
Grid security
Industrial Efficiency








Expanded, ef ficient technology products
Recycling of steel
Valve f itting and improvements
Speed controls
Waste heat recovery
Insulating distribution systems
Membrane use
Low carbon cement
(Climate) smart machinery
(Climate) smart irrigation
Seeds & breeding technologies: GMO’s &
hybrids
Clean/bio pesticides & f ungicides
Smart f ertilizers
GIS management systems
Water

Power Grid Efficiency

Transport
Ef f icient & LED lighting
Advanced materials
Micro generation / CHP
Retrof its, ESCO & Energy Services
Advanced/ef ficient appliances & lighting
Heating & cooling systems
Building mgmt: home energy displays &
smart meters
District power/heat networks
Environmental Resources







Filtration & membrane technology
Purif ication & disinf ection: pre-chlorination,
coagulation, sedimentation
Equipment: pipes, valves, etc.
Saf e chemicals
Desalination
Distribution & management: monitoring &
metering
Energy recovery devices
Wastewater treatment
Waste Management


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




Recycling & e-cycling
Advanced/sustainable materials
Anaerobic digestion
Mechanical heat and biologic treatment
Waste to energy
Land remediation
Material mgmt strategies
Advanced waste sorting
Source: DBCCA analysis 2012
In “Clean Technologies: Evolving Towards a Sustainable End-State”, we first outline how we define “bridges, evolutions
and end-states”, and then we provide an overview of the expected evolution of clean technologies in the following sectors: (i)
energy (power and transport); (ii) efficiency (building, grid and industrial); and (iii) agriculture, water and waste.
1
Access report at: http://www.dbcca.com/dbcca/EN/investment-research/investment_research_2411.jsp
6 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
Bridges, Evolving End-States and Sustainable End-States Defined
To provide a fuller discussion of our “Bridges, Evolving End-States and Sustainable End-States” thesis we must first define
how we view these key concepts. Figure 2 below provides a summary of these definitions, and a fuller description follows in
the text below.
Figure 2: Bridges, Evolving End-States and Sustainable End-States Defined
Sustainable
End-States
Bridges
 More efficient
 Lower carbon
 At scale
 Commercial
 May improve security
Examples:
Natural gas
Efficient ICEs
1st Generation biofuels
Membranes
Evolving
End-States
 Highest efficiency
 Lowest carbon
 At scale
 Commercial
 Secure
Examples:
CCS
Hydro
Electric vehicles
High-performance buildings
Mass desalination
 Sustainable end-state
technologies, except:
 Not at scale
 Not commercial
 Policy dependent
Examples:
Wind
Solar PV
Present
t
2020+
Source: DBCCA analysis 2012
First, “bridges” refers to a range of technologies that are more efficient, lower carbon, currently deployed at scale with minimal
policy support (i.e. commercial), and may also offer greater domestic energy or resource security. These technologies, are
thus generally better (but not ideal) from a sustainability perspective. Examples of these types of technologies are outlined in
Figure 2 above.
Second, “evolutions” refers to a period of time, while “evolving end-states” refers to a range of technologies. In terms of time,
we believe that we have recently entered a several decades-long “evolutions” phase towards an “end-state” scenario of clean,
highly efficient and productive use of natural resources. In terms of technologies, “evolving end-states” are one step away
from “end-states” in that they encompass the qualities of end-state technologies, but are not yet deployed at commercial scale
and are usually still dependent on policy support. Examples of these types of technologies are outlined in Figure 2 above.
7 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
Third, “end-states” refer to both a period of time and a range of technologies. In terms of time, we believe that an “end-state”
scenario – or comprehensive and fully sustainable long-term solution for energy and resource use – will not be achieved until
beyond 2020, and the time-scale at which this occurs will vary quite significantly by geographical region. In terms of
technologies, “end-states” encompass the highest efficiency, lowest carbon, and most secure technologies – all of which must
be operating at scale and on a commercial basis. Examples of these types of technologies are outlined in Figure 2 above.
Here, it should be noted that it is within the energy sector (power and transport) that the “evolutions to sustainable end-states”
thesis is most apparent. This is because efficiency, by itself, is a central theme to this process which runs through all sectors
– energy, agriculture, water and waste. And in order to reach the end-state scenario for waste, water and agriculture the
transitions required are not quite so dramatic or technology-focused.
Investment Opportunities & Relationship to Resource Scarcity
We have developed the above line of thinking in recent years as we have taken on board the time constraints and difficulties
2
of scaling “purer” end-state solutions in the face of our ever ticking DB “carbon counter” , which continuously measures the
growing carbon emissions in the atmosphere. As a result, we have developed our thinking around the current phase in which
bridge, and to a lesser extent evolving end-state technologies, dominate. As previously outlined, bridge technologies offer
perhaps second best in terms of long-term sustainability, as they are usually proven technologies that can be developed at
scale more quickly and at lower cost often by incumbent large corporations. But meanwhile evolving end-states represent
those technologies that are taking us to the ultimate end-state scenario, but may not yet be at commercial scale or
economically viable absent of government policy. For investors, particularly in equity markets, this is critical as returns in
some pure-play clean energy solutions such as wind and solar have come under pressure in a constrained environment –
particularly because these are stocks closely tied to industrial growth and recession cycles – while returns in bridge
opportunities have been more robust, and perhaps relatively less subject to the vagaries of the global economy. This is a
thesis that we outline in detail in our “Investing in Climate Change 2012” publication.
This paper has a clear focus on resource-intensive sectors, and efficiency is a theme that runs through all these sectors at
present, in recognition of the substantial and growing pressure on resources now and over the coming decades. Looking
through a scarce resource “lens” can be helpful to sizing both the issues and the opportunities in the broader climate change
universe. According to the McKinsey Global Institute’s recent “Resource Revolution” report, the resource challenge over the
3
next 2 decades will be different to any we have seen in the past in the following 5 ways :
1.
2.
3.
4.
5.
4
Up to 3 billion more “middle class” consumers will emerge in the next 20 years (compared with 1.8 billion today);
Demand is soaring at a time when finding new sources of supply, and extracting them, is becoming increasingly
challenging and expensive;
Resources are increasingly linked so the price and volatility of resources have become increasingly tight over the last
decade. Shortages and changes in one resource can thus impact other resources;
Environmental factors are increasingly constraining production; and
There is growing concern about inequality of energy supplies with 1.3 billion people lacking access to electricity.
There is no shortage of technologies associated with resource extraction, distribution and use, but the size of the challenge
today should not be underestimated, nor should the obstacles to diffusing more resource-efficient technologies throughout the
global economy. The emergence of 3 billion more middle-class consumers over the next 20 years will drive up demand for a
range of resources, and this demand is coming at a time when finding new sources of supply is becoming increasingly
challenging and expensive. The deterioration in the environment, itself driven by growth in resource consumption, appears to
2
See http://www.dbcca.com/dbcca/EN/
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
Note that the definition used by McKinsey for ”middle class” includes consumers with relatively low incomes - defined as "having daily per capita spending of $10-$100 in
purchasing parity terms". Source: "The emerging middle class in developing countries", OECD Development Center Working Paper, 2010, as cited in “Resource Revolution:
Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
3
4
8 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
be increasing the vulnerability of resource supply systems. Food – and thus agriculture – is the most obvious area of
vulnerability, but water is also a critical and increasingly scarce natural resource, as is energy.
Both an increase in the supply of resources and a step change in the productivity of how resources are extracted, converted
and used are needed to head off the potential resource constraints over the next 20 years.
Expected Evolution of Bridge, Evolving End-State and End-State Technologies
Below we summarize the key bridge, evolving end-state and end-state technologies that we believe will dominate over the
next 15+ years, and where relevant, we indicate the expected level (or absence) of policy support for these technologies to
exist at commercial scale. We place each technology in a specific year bracket according to when we view the mass market
for this technology as being established (i.e. when the technology will reach commercial scale). However, inevitably there will
be opportunities for investors to participate in driving this commercialization far earlier on that these dates – for example, a
technology that is expected to be commercialized in 2015 to 2020 will present investment opportunities now. It is also
important to note that technological innovation does not necessarily occur in a linear fashion and may accelerate or decelerate
according to external, but inter-related factors – in a high oil price environment, for example, we would expect to see some
acceleration in commercialization of new energy technologies.
Under each of these tables, there follows a summary of the expected technological evolutions that will occur in these sectors
over this period. For more detail on each section, please see the main body of the paper.
Figure 3: Key for Subsequent Tables – Technologies and Government Support
Symbol /
Explanation
Text Color
Represents no or low reliance on supporting policy
Represents moderate reliance on supporting policy
Represents a high degree of reliance on supporting policy
+
=
Represents a reduction in reliance on supporting policy (due to technological improvement, cost
reduction, etc.)
Represents no change in reliance on supporting policy
Green text
Emergence of a new technology / strategy (at commercial scale)
Black text
Continuation of an existing technology / strategy (at commercial scale)
Red text
The phase out of a technology / strategy
Source: DBCCA Analysis 2012
9 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
Energy: Power and Transport
Figure 4: Evolution of Technologies for Power and Government Support
Technology
Now
Policy
Now
Coal (with
scrubbers)
Technology
2015
Policy
2015
Technology
2020-2030
Coal (with scrubbers) and
Supercritical Coal
=
Supercritical Coal
Coal bed methane gas
=
Coal bed methane gas
Policy
20202030
=
=
Advanced Coal Plants
Natural Gas and
Gas Fracking (US)
Natural Gas and Gas Fracking
LNG
=
Fuel Switching Coal to Gas and
Biomass
Fuel Switching Coal to Gas and
Biomass
=
LNG
LNG
+
Gas Fuel Cells
Gas Fuel Cells
=
Natural Gas and Gas Fracking
(Global)
=
CCGT
CCGT
=
CCGT
=
Nuclear fission
Nuclear fission
+
Nuclear fission
+
Hydropower
Hydropower
=
Hydropower
=
Onshore Wind
Onshore Wind
=
Onshore Wind
+
Offshore Wind
Offshore Wind Deepwater
=
Offshore Wind Deepwater
+
Solar PV
Solar PV (larger scale & new
materials)
Solar Thermal Energy Generation
(STEG)
+
Solar PV (larger scale & new
materials)
Solar Thermal Energy Generation
(STEG)
Concentrated Solar PV
+
Landfill Gas
=
Landfill Gas
=
Combined Heat & Power
Combined Heat & Power
+
Biomass to Biomethane
Biomass to Biomethane
+
Landfill Gas
Marine Power Technologies
Hydrogen Fuel Cells
Mass Energy Storage (e.g.
batteries, compressed air)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology / policy color and symbol coding
Figure 5: 2030+ Technologies for Power and Government Support
Technology
Policy
2030+
2030+
Nuclear Fusion
Clean Coal Technology (CCS)
Clean Gas Technology (CCS)
Advanced Nano-Technology in Solar Cells
Source: DBCCA Analysis 2012
Note: we expect all of these technologies to have a high degree of reliance on supporting policy in 2030; see Figure 3 for key to technology / policy color and
symbol coding
10 Cleaner Technologies: Evolving Towards a Sustainable End-State
+
Executive Summary
Figure 6: Evolution of Technologies for Transport and Government Support
Technology
Now
Policy
Now
Technology
2015
Policy
2015
Technology
2020-2030
Policy
20202030
Regular diesel
vehicle
Regular diesel vehicle and high
efficiency diesel vehicles
=
Regular diesel vehicle and high
efficiency diesel vehicles
=
Regular petrol
vehicle
Regular petrol vehicle and high
efficiency petrol vehicles
=
Regular petrol vehicle and high
efficiency petrol vehicles
=
First Generation
Biofuels
First Generation Biofuels
=
First Generation Biofuels
=
Second Generation
=
Second Generation Biofuels
Third Generation Biofuels
Early-stage Hybrids
Hybrids (mild, full and plug-ins)
+
Range Extender (hybrid that inverts
role of electric motor and
combustion engine)
Flex Fuel Vehicles
(Brazil)
Flex Fuel Vehicles (more
widespread)
Electric Vehicles
+
Hybrids (mild, full and plug-ins)
+
Range Extender (hybrid that
inverts role of electric motor and
combustion engine)
+
Flex Fuel Vehicles (Global)
=
Electric Vehicles (mass
production)
+
Natural Gas Vehicles (CNG)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology / policy color and symbol coding

World electricity demand is projected to continue its historic upward trajectory over the coming years,
driven largely by emerging economies
According to the International Energy Agency, world electricity demand is projected to continue its historic upward trajectory
5
over the coming years, more than tripling from 7,217 TWh in 2009 to between 28,321 TWh and 31,722 TWh in 2035 . The
vast majority (80%) of this power demand growth is driven by emerging economies, outside the OECD, which are
6
experiencing faster economic and demographic growth, and associated increased consumption and power demand .

Coal’s share will drop as gas and renewables increase, and there will be a “cleaning up” of the global power
fleet
Although coal is expected to remain the largest source of power generation globally for the next two decades, it is expected to
become far more efficient (and cleaner) and its share of overall generation is expected to fall considerably. Meanwhile, we
expect a marked increase in power generation from natural gas (particularly in the nearer term) and renewable sources, which
will offset the drop in coal generation.

Government policy will continue to play a crucial, but declining, role in the transition to a more sustainable
global power mix
5
The World Energy Outlook 2011 forecasts three scenarios: (i) the New Policies Scenario; (ii) the Current Policies Scenario; and (iii) the 450 Scenario – the first assumes
recent government policy commitments are implemented (medium demand growth); the second assumes no new policy developments beyond mid-2011 (high demand
growth); and the third assumes substantial efficiency measures are implemented in order to meet the 450 ppm target (lowest power demand growth). Source: “World Energy
Outlook”, International Energy Agency, 2011
6
“World Energy Outlook”, International Energy Agency, 2011
11 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
Most renewable energy technologies still require government support because at present they are more expensive than
traditional fossil fuel technologies, are intermittent in nature, and can have substantially lower power densities – however, they
do offer considerable economic, national security and environmental benefits. As these renewable technologies scale up and
mature, costs are expected to decline and approach “grid parity”.

Modern transport systems are mainly powered by internal combustion engines (ICEs) fueled by petroleum,
but new technologies and fuels and are emerging
ICEs are the dominant transportation technology globally, and it is widely accepted they will remain so for vehicles out to 2020
(and likely beyond). However, recent volatility in oil prices has caused many countries to look towards alternative forms of
transportation, and will likely serve to drive technology change in the transport sector going forward. Leading alternative
transportation technologies include alternative fuels, advanced ICEs, and electrification. The latter are expected to become
increasingly popular as the decade progresses, and are particularly attractive given their energy independence prospects and
reduced emissions.
Energy Efficiency
Figure 7: Evolution of Technologies for Building Efficiency
Now
2015
Efficient Lighting
Efficient Lighting and LED Lighting
Insulation & Materials
Insulation & Materials
Micro Generation
Micro Generation
Retrofits/ESCO Model
Retrofits/ESCO Model Energy Services
Agreement Model
Efficient Appliances
Efficient Appliances
Lighting Controls
Lighting Controls
New business model innovation
Retro-commissioning of HVAC systems
Wireless Temperature Controls In home
energy displays/smart meters
District Power and Heat Networks
2020-2030
Efficient Lighting and LED Lighting
Insulation & Materials
Micro Generation
Retrofits/ ESCO/Energy Services
Agreement Model
Efficient Appliances
Lighting Controls
New business model innovation
Retro-commissioning of HVAC systems
Wireless Temperature Controls In home
energy displays/smart meters
District Power and Heat Networks
Zero Carbon Homes (UK)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Figure 8: Evolution of Technologies for Grid Efficiency
Now
2015
Energy Management Systems
Energy Management Systems
Advanced metering infrastructure
Ultra high voltage, efficient transmission
Storage: compressed air
Wide Area Monitoring
Electric Charging Infrastructure
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
12 Cleaner Technologies: Evolving Towards a Sustainable End-State
2020-2030
Energy Management Systems
Advanced metering infrastructure
Ultra high voltage, efficient transmission
Storage: compressed air
Wide Area Monitoring
Electric Charging Infrastructure
Smart Grid
Distributed Grid
Storage: batteries
Grid Security
Executive Summary
Figure 9: Evolution of Technologies for Industrial Efficiency
Now
2015
Standard technologies (e.g.
Standard technologies (e,g, locomotives)
locomotives)
and expanded products (e.g.
Ecomagination locomotives from GE)
Recycling of steel
Valve fitting and improvements
Speed controls on motor
systems/pumps
Recycling of steel
Valve fitting and improvements
Speed controls on motor systems/pumps
Waste-heat-recovery in steam systems
(i.e. from boiler exhaust and waste gases
and liquids)
Insulating distribution systems
Improved Valve fitting and improvements
Improved Speed Controls on motor
systems/pumps
Increased use of Membranes in chemicals
and food & drink industries to improve
efficiency
Material Efficiency
2020-2030
Standard technologies (e,g, locomotives)
and Expanded products (e.g.
Ecomagination from GE)
Integrated, high efficiency products
Recycling of steel
Valve fitting and improvements
Speed controls on motor systems/pumps
Waste-heat-recovery in steam systems
(i.e. from boiler exhaust and waste gases
and liquids)
Insulating distribution systems
Improved Valve fitting and improvements
Improved Speed controls on motor
systems/pumps
Increased use of Membranes in
chemicals and food & drink industries to
improve efficiency
Low carbon cement (although not likely to
play a major role until 2030)
Material Efficiency
Industrial Symbiosis (Eco Industry Parks)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding

Demand-side energy efficiency measures offer the best near-term solution for reducing energy demand and
carbon emissions
7
The IEA’s analysis of technology deployment required to achieve its 450ppm Scenario indicates that up to 60% of the
emission reduction solution in 2020 can come from energy efficiency. The McKinsey Global Institute lists building energy
efficiency as the top opportunity in terms of resource productivity out to 2030, and our March, 2012 report on building energy
8
efficiency retrofits identifies a $279 billion investment opportunity in the US alone . Increasing transport fuel efficiency,
increasing the penetration of electric and hybrid vehicles and higher energy efficiency in the iron and steel industries and
9
improving power plant efficiency are also identified as key resource productivity measures .

Buildings are responsible for ~42% of global energy consumption, and offer huge energy efficiency potential
through retrofits and/or new technologies, particularly as new financing models emerge
Building systems have historically been oversized and in many OECD nations existing buildings are largely inefficient, so
there exists a vast opportunity for building retrofits. In recognition of this, over the past few years there have been new
emerging financing structures, such as Energy Service Agreements (ESAs), Property Assessed Clean Energy (PACE), and
On-Bill-Finance options. In particular, we believe that the ESA structure offers significant near term potential to scale quickly
and meet the needs of both real estate owners and capital providers in the commercial and institutional market, without the
requirement for external enablers such as regulation or subsidy.
7
Ensuring carbon does not exceed 450 ppm in the atmosphere
“US Building Energy Efficiency Retrofits: Market Sizing and Financing Models”, DBCCA, March 2012. View report at http://www.dbcca.com/dbcca/EN/investmentresearch/investment_research_2409.jsp
9
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
8
13 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
Beyond retrofits, opportunities mid-way through this decade include deployment of low carbon heat technologies in off-gas
grid homes and commercial buildings, also district heating networks will start to emerge more from 2015. Low/zero carbon
10
and energy efficient heating and cooling technologies could reduce CO2 emissions in buildings by up to 2 Gt by 2050.

Smarter and then ultimately smart grids are the end goal for reliable and efficient electricity grids
Improving access to information about the electricity grid for both grid operators and consumers will be the overarching trend
in grid technology development out to 2020 and beyond, culminating in a smarter grid system with extensive communication
capabilities enabling smart metering and transformer monitors and other data gathering services.
The ultimate end-goal – the smart grid – will be a reinvention of how energy is transmitted, distributed and measured. It
represents a merging of technologies into a system that provides reliable and cost-effective energy. Within the smart grid
technology landscape, a broad range of hardware, software, application and communication technologies are at various levels
of maturity. It is vital to increase investments in demonstration projects that capture real-world data, integrated with regulatory
and business model structures.

There are vast opportunities for implementing of energy efficiency measures in industry, specifically in
energy intensive segments
Industrial energy demand varies by region and country dependent in part on the level and mix of economic activity and
technological development. More developed nations generally have higher energy efficiency in industrial operations and less
energy intensive operations than in non-OECD countries. This results in the ratio of industrial sector energy consumption
11
being higher in non-OECD nations than in OECD nations.
There are many challenges industrial energy efficiency given that the sector is so heterogeneous. One of the biggest
efficiency gains to be made is the recycling of waste heat. Other, cross-cutting energy efficiency technologies such as steam
systems, motors and buildings represent large efficiency potential.
Agriculture, Water and Waste
Figure 10: Evolution of Technologies for Agriculture
Now
2015
GMO’s
GMO’s
Machinery
Machinery Smart (and climate smart)
Machinery
Irrigation Smart Irrigation
Irrigation
Genetics
Genetics
Pesticides
Pesticides
GIS Management Systems
GIS Management Systems
Fertilizers
Fertilizers
Futures markets geographically
concentrated
Futures markets geographically
concentrated
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
10
11
“Technology Roadmap – Energy Efficient Buildings: Heating and Cooling Equipment” IEA, 2011
“International Energy Outlook”, EIA, 2009
14 Cleaner Technologies: Evolving Towards a Sustainable End-State
2020-2030
GMO’s
Machinery Smart (and climate smart)
Machinery
Smart Irrigation
Genetics (more varieties)
Pesticides Biopesticides/Biofungicides
GIS Management Systems
Fertilizers Climate Smart Fertilizers
Biochar
Futures markets more geographically
concentrated dispersed
Executive Summary
Figure 11: Evolution of Technologies for Water
Now
2015
Filtration
Filtration and Membrane Technology
Pre-Chlorination
Pre-Chlorination
Coagulation
Coagulation
Sedimentation
Sedimentation
Equipment (pipes/valves, etc)
Equipment (pipes/valves, etc)
Chemicals
Chemicals
Disinfection
Disinfection
Desalination
Monitoring / Metering
2020-2030
Filtration and Membrane Technology
Pre-Chlorination
Coagulation
Sedimentation
Equipment (pipes/valves, etc)
Chemicals (safety-oriented)
Disinfection
Desalination (mass)
Monitoring / Metering
Energy recovery devices (mass)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Figure 12: Evolution of Technologies for Waste
Now
2015
Recycling
Recycling
E-cycling
Sustainable Packaging
Landfill
Anaerobic Digestion
Mechanical Heat & Biological
Treatment
Waste-to-energy
Landfill
Anaerobic Digestion
Mechanical Heat & Biological Treatment
Waste-to-energy
More end uses from plastic recyclate
Material Management Strategies
2020-2030
Recycling
E-cycling
Sustainable Packaging
Advanced Materials/Recycling
Landfill
Anaerobic Digestion
Mechanical Heat & Biological Treatment
Waste-to-energy
More end uses from plastic recyclate
Material Management Strategies
Advanced Waste Sorting
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding

Agricultural production will need to double over the next three decades in order to meet growing demand,
requiring new technologies and business model innovation
To meet demand, McKinsey estimates that land supply would have to increase by 250% over the next two decades,
12
compared with the rate at which supply expanded over the past two decades . Productivity growth will also be influenced by
rising and volatile energy prices, climate change, water resources, infrastructure constraints, education, and social or
governmental policy. New technologies, product platforms and innovative business models in agriculture technology and food
systems will help to mitigate some of these constraints – presenting vast investment opportunities –, and we expect a
transition to “smart” (and “climate smart”) agricultural technologies over the next decade and beyond.

Demand for water is also growing far faster than supply, and requires substantial investment and
deployment of existing and new technologies to improve efficiency and supply
Water demand is growing far faster than supply as a result of inefficient and outdated infrastructure, and rising global
13
agricultural, industrial and residential (particularly municipal) demand – demand is expected to grow 41% by 2030; a higher
14
growth rate even than primary energy (33%) or food (27%) . This, combined with poor water management, excessive waste
12
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
McKinsey expects 65% of this demand will come from agriculture, 25% from water-intensive industries, and 10% from municipal demand. Source: “Resource Revolution:
Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
14
Water withdrawals are forecast to grow from 4,500 km3 in 2010 to 5,500 km3 in 2020 and 6,350 km3 in 2030. Source: “Resource Revolution: Meeting the world’s energy,
materials, food and water needs”, McKinsey Global Institute, November 2011
13
15 Cleaner Technologies: Evolving Towards a Sustainable End-State
Executive Summary
and pollution of water resources in many parts of the world, and growing resource pressure from climate change, is driving
growing concerns over a severe supply-demand mismatch in the coming decades
A lack of accurate pricing of this resource, population growth and climate disruptions are all key challenges to be overcome.
These characteristics make investing in water difficult, but we believe growing water stress will drive be a shift to “cultivating
water as a renewable resource rather than hunting it to extinction”, offering substantial opportunities for new technologies and
15
business models, with total revenue potential of $961 billion in 2020 .

With growing recognition that the world’s natural resources are scarce, finite and costly to acquire, waste
management has moved up the agenda in many countries
As the demand for materials grows worldwide, it makes sense to adopt a waste management hierarchy that is ranked
according to environmental impact – known as the 3R’s. Mobilizing investment into “greening” the waste sector will require a
number of enabling conditions including financing, policy and regulatory measures, incentives and institutional arrangements.
The overall, long-term vision for waste is to create a global circular economy where material use and waste generation are
minimized, any unavoidable waste is recycled or remanufactured and then any remaining waste is treated in a manner that is
least harmful to the environment. These zero waste economies should be the overall aim out to mid-century, particularly as
waste management makes up a component of carbon emissions – small relative to other sectors such as energy, but still
significant.
15
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
16 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
Energy: Power and Transport
Introduction
One of the most significant global economic trends over the past decade has been the substantial increase in the
cost of fossil energy resources, specifically crude oil – largely used for transportation – and power. This trend provides a
positive catalyst for better resource management, recycling of resources and finding innovative new ways to use resources.
The speed of evolution from a predominantly fossil-fuelled world to conversion of renewable and sustainable flows
will be a gradual process. All energy and technology evolutions are multigenerational with complex infrastructural and
learning needs. Energy evolutions encompass the time that elapses between an introduction of a new primary energy source
and its rise to claiming a substantial share of the overall market. The greater the scale of the prevailing uses and conversions
the longer the substitutions within sectors will take.
Figure 13: Energetic Evolutions (1850-2150)
Source: SRI International, Ripudaman Malhotra
The global energy mix does change. As shown in Figure 13 there have been various evolutions (or transitions) in energy over
the last century, however these changes usually take place within a time-span of 30-50 years.
As energy expert Vaclav Smil states: “The historical record of major energy transitions is one of slowly unfolding incremental
gains and regularities – as well as one of surprising accelerations, retreats discontinuities, and periods of stasis. Evidence of
the past transitions would suggest that a shift away from fossil fuels has to be a generations-long process and that the inertia
of existing massive and expensive energy infrastructures and prime movers and the time and capital investment needed for
17 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
putting in place new converters and new networks make it inevitable that the primary energy supply of most modern nations
16
will contain a significant component of fossil fuels for decades to come.”
Clearly, substituting the vast associated infrastructure of the fossil fuel world is a huge task and not one that will be
replicated by any alternative, or combination of alternatives, in just one or two decades. However there are steps that
will be taken to transition towards a decarbonized and sustainable end-state global energy scenario: first, with regard
to fuel switching or converting (e.g. from coal to gas; petroleum to biofuels); second, with regard to scaling up alternative
technologies; and third, with regard to developing and proving new alternative technologies. All the while, energy efficiency
will be reducing demand at the source, particularly in developed economies where there is less demand growth (if any) and
more established energy infrastructure. In emerging economies, similar trends will be occurring, but less fuel conversion and
more new, alternative build-out is expected to meet burgeoning demand.
As has been seen throughout history, energy evolutions require a specific sequence of innovations, and economic
and political circumstances. The most significant change in the past 200 years has been the shift from biomass to coal and
other fossil fuels. More recently, coal has lost some of its share of the power mix to natural gas, and to a lesser extent,
nuclear. Meanwhile, oil consumption has grown rapidly – largely to fuel the transportation sector – to outpace coal in terms of
overall energy consumption. These trends are only beginning to reflect what we see as a long term trend underlying largescale global energy transitions towards decarbonization and sustainability.
In terms of emissions by sector, the IEA states that power generation from fossil fuels is one of the largest sources of
greenhouse gas (GHG) emissions, representing ~41% of global CO2 emissions. This means that the power sector carries a
considerably greater burden of emission reduction than other sectors for meeting future carbon reduction targets.
Various technologies will be needed to make the transition to a low carbon industry. These technologies are at various
stages of development and commercialization and range from well established, mature technologies to those still at the
laboratory stage and some need government support while others do not. We will now look at the individual technology
evolutions we expect over the next decade and beyond in both the power and transportation sectors.
16
“The Cleantech Strategist: Two Views of Energy Transitions”, BAML, November 29 2011
18 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
Power
Figure 14: Evolution of Technologies for Power and Government Support
Technology
Now
Policy
Now
Coal (with
scrubbers)
Technology
2015
Policy
2015
Technology
2020-2030
Coal (with scrubbers) and
Supercritical Coal
=
Supercritical Coal
Coal bed methane gas
=
Coal bed methane gas
Policy
20202030
=
=
Advanced Coal Plants
Natural Gas and
Gas Fracking (US)
Natural Gas and Gas Fracking
LNG
=
Fuel Switching Coal to Gas and
Biomass
Fuel Switching Coal to Gas and
Biomass
=
LNG
LNG
+
Gas Fuel Cells
Gas Fuel Cells
=
Natural Gas and Gas Fracking
(Global)
=
CCGT
CCGT
=
CCGT
=
Nuclear fission
Nuclear fission
+
Nuclear fission
+
Hydropower
Hydropower
=
Hydropower
=
Onshore Wind
Onshore Wind
=
Onshore Wind
+
Offshore Wind
Offshore Wind Deepwater
=
Offshore Wind Deepwater
+
Solar PV
Solar PV (larger scale & new
materials)
Solar Thermal Energy Generation
(STEG)
+
Solar PV (larger scale & new
materials)
Solar Thermal Energy Generation
(STEG)
Concentrated Solar PV
+
Landfill Gas
=
Landfill Gas
=
Combined Heat & Power
Combined Heat & Power
+
Biomass to Biomethane
Biomass to Biomethane
+
Landfill Gas
Marine Power Technologies
Hydrogen Fuel Cells
Mass Energy Storage (e.g.
batteries, compressed air)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology / policy color and symbol coding
Figure 15: 2030+ Technologies for Power and Government Support
Technology
Policy
2030+
2030+
Nuclear Fusion
Clean Coal Technology (CCS)
Clean Gas Technology (CCS)
Advanced Nano-Technology in Solar Cells
Source: DBCCA Analysis 2012
Note: we expect all of these technologies to have a high degree of reliance on supporting policy in 2030; see Figure 3 for key to technology / policy color and
symbol coding
19 Cleaner Technologies: Evolving Towards a Sustainable End-State
+
Energy: Power and Transport
Summary








According to the International Energy Agency, world electricity demand is projected to continue
its historic upward trajectory over the coming years, more than tripling from 7,217 TWh in 2009 to
17
between 28,321 TWh and 31,722 TWh in 2035 .
The vast majority (80%) of this power demand growth is driven by emerging economies, outside
the OECD, which are experiencing faster economic and demographic growth, and associated
18
increases in consumption .
Although coal is expected to remain the largest source of power generation globally for the next
two decades, it is expected to become far more efficient (and cleaner) and its share of overall
generation is expected to fall considerably. Meanwhile, we expect a marked increase in power
generation from natural gas (particularly in the nearer term) and renewable sources, which will
offset the drop in coal generation.
Government policy will play a critical role in this transition towards a lower carbon, more efficient,
and more sustainable global power mix. This is because at present renewable energy
technologies are still more expensive than traditional fossil fuel technologies, are intermittent in
nature, and can have substantially lower power densities – however, they do offer considerable
economic, national security and environmental benefits.
In addition, as these renewable technologies scale up, costs are expected to continue to decline
and approach “grid parity”.
Over the next ten years (and beyond), the major trends we expect to see are: (i) a “cleaning up” of
the global power fleet through greater pollution controls and a coal-to-natural gas switch; (ii) a
substantial scale-up in renewable technologies; and (iii) the emergence of new, renewable energy
or clean technologies (e.g. marine power).
Many existing and emerging renewable power technologies currently require direct government
support to assist in overcoming additional costs and risks associated with their deployment, but
we expect that as these technologies mature the necessary level of government support will fall
off.
Meanwhile, demand growth will be somewhat tempered by efficiency measures.
In 2009, fossil fuels accounted for 67.1% of global electricity generation, nuclear 13.5%, hydro 16.2% and non-hydro
19
renewables just 3.2% . The share of fossil fuels in the global power mix is expected to decline considerably over the
coming decades as countries are increasingly cognizant of the economic and national risks associated with a
reliance on finite and price-sensitive fuels (globally traded as commodities – except for natural gas, which is a largely
localized commodity) for power generation, as well as the negative environmental externalities associated with fossil fuel
power generation (e.g. SOX, NOX, particulate matter, and carbon emissions, particularly from coal). By 2020 and even 2035,
the IEA expects fossil fuels to still account for the majority of power generation – 63% and 56%, respectively (under the New
20
Policies Scenario) . This is largely due to “legacy” investments in coal and gas (and in some cases oil) power generation
infrastructure, and due to the relatively high current costs of renewable energy technologies.
However, as Figure 16 below shows, the costs of renewables has been in rapid decline in recent years. The relative
technology costs also need to be recognized within a larger historic perspective: (i) fossil fuels having been used in power
generation for over 100 years; (ii) fossil fuels have received government incentives for many decades and continue to do so in
much of the world, despite their vast current scale; and (iii) renewable power technologies are relatively new and far smaller
17
The World Energy Outlook 2011 forecasts three scenarios: (i) the New Policies Scenario; (ii) the Current Policies Scenario; and (iii) the 450 Scenario – the first assumes
recent government policy commitments are implemented (medium demand growth); the second assumes no new policy developments beyond mid-2011 (high demand
growth); and the third assumes substantial efficiency measures are implemented in order to meet the 450 ppm target (lowest power demand growth). Source: “World Energy
Outlook”, International Energy Agency, 2011
18
“World Energy Outlook”, International Energy Agency, 2011
19
“World Energy Outlook”, International Energy Agency, 2011
20
“World Energy Outlook”, International Energy Agency, 2011
20 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
scale. Within this context, it is expected that as renewable energy technologies scale up, costs will decline further –
particularly with effective policy support – and should reach “grid parity” within the next 5-10 years. As a result, nonhydro renewables are expected to increase their share in the global power supply mix considerably – from 3.2% in 2009, to
21
8.4% in 2020 and 15.4% in 2035 (New Policies Scenario) – while hydro and nuclear maintain relatively constant shares .
Figure 16: Renewables are Trending towards Grid Parity - US Electricity Generation and Retail Cost by Technology,
1930-2010
2,200
1,800
1,600
1600
1.2
1.2
1.0
1.0
Solar and Wind are
experiencing significant
improvements in their
cost structure with small
increases in scale
1,400
1400
Generation (TWh)
Generation (TWh)
1800
1,200
1200
1,000
1000
0.8
0.8
0.6
0.6
800800
Retail Cost ($/kWh)
2,000
2000
1.4
1.4
Coal, Natural Gas, and
Nuclear required massive
achievements in improving
scale to achieve current
favorable cost structures
Retail Cost $/ kWh
2200
0.4
0.4
600600
400400
0.2
0.2
200200
0 0
0.0
0.0
1930
1930
1935
1935
1940
1940
1945
1945
1950
1950
1955
1955
1960
1960
1965
1965
1970
1970
1975
1975
1980
1980
1985
1985
1990
1990
1995
1995
Coal
CoalGeneration
Generation
Gas
Generation
Gas
Generation
Nuclear
Generation
Nuclear
Generation
Solar
Generation
Solar
Generation
Coal Cost Trend
Gas Cost Trend
Nuclear Cost Trend
Solar Cost Trend
Coal Cost-trend
Gas Cost-trend
Nuclear Cost-trend
Solar Cost-trend
2000
2000
2005
2005
2010
2010
Wind Generation
Wind
Generation
Wind Cost Trend
Wind Cost-trend
Source: Hudson Clean Energy Partners analysis 2011
This massive scale-up in renewable power and overall shift to cleaner sources of power (for example, natural gas)
will be accompanied by substantial shifts in power technologies. Existing renewable technologies are expected to
become far more widespread, and will be built at increasingly large scales, resulting in a reduction in the level of government
support that some technologies currently demand. Meanwhile, innovative, clean technologies are expected to become
commercialized over the next 10+ years – for example, marine power, mass energy storage, and perhaps in 2030+, nuclear
fusion.
Current Situation-2015
At 67%, fossil fuels – and particularly coal (>40%) – currently dominate global electricity generation. In developed and
emerging economies, in particular, there has been a recent push toward “cleaner” fossil fuel power generation, for
example through the installation of scrubbers at coal plants. Similarly, in economies with large domestic natural gas
reserves and an existing coal infrastructure, a coal-to-gas shift is occurring as policy makers and utilities recognize the
economic and environmental benefits of natural gas. The US, in particular, is already experiencing a coal-to-gas switch, given
22
the abundance of natural gas (boosted by shale gas extraction via fracking), the relative lower prices and price volatility of
gas, and the lower harmful emissions relative to coal – the latter is of increasing importance, given recent and pending
regulations on pollutants and greenhouse gases by the Environmental Protection Agency (EPA). As a result, we expect to
21
“World Energy Outlook”, International Energy Agency, 2011
There is a general consensus among industry analysts that US natural gas prices will remain in the $4-$6/MMBtu range out to 2020, making gas a relatively economic and
environmentally sound power option
22
21 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
see natural gas as a critical “bridge” fossil fuel for power generation, and evidence of this trend is already clear, particularly in
23
the US.
A build-out of relatively mature non-hydro renewable energy technologies – namely onshore wind and, to a lesser
extent (due to higher current costs), offshore wind and solar PV – is also occurring in developed and emerging
economies. The largest markets at present for these technologies are Europe (particularly Germany), the US, China, Brazil
and India, although all these technologies – even onshore wind which is relatively mature – are still dependent on supportive
policy. In the US, for example, there is a current boom occurring in onshore wind installations in anticipation of the expiry of
24
several key policy support tools, but a subsequent slump is expected in the US wind market when these policies do expire.
With regard to the higher cost solar PV, largely driven by supportive Feed-in Tariff (FiT) policies, Germany has for
several years been the global leader in deployment of this technology, and currently accounts for 43% (17 GW) of
25
total installed solar PV capacity globally . China, by contrast, has historically concentrated on solar equipment
manufacturing, but is now targeting a vast scale up of solar PV generation – as is evident from the government’s 2011
announcement to increase its 2015 installed capacity target from 10 to 15 GW. To put this in perspective, China currently has
less than 1-2 GW of solar PV installed.
Offshore wind is receiving similar policy support in countries that have an abundance of this resource and stringent
carbon and renewable energy targets to meet. The UK government, for example, has highlighted offshore wind as a key
26
strategic power industry going forward , and Germany is targeting offshore wind to help meet the drop-off in power
27
generation over the next several years as all of the country’s nuclear power is taken offline . This technology still currently
needs government financial support due to high upfront costs and difficulty accessing finance as the risks at the construction
phase, especially, are deemed too high for some investors.
With regard to the more mature renewable power technologies, large-scale hydro will continue to form a significant
part of the global power mix. However, it is not expected to experience substantial build-out as there are limited locations
available for this technology and in most countries – or at least the leading global economies – the vast majority of these have
been exploited. Landfill gas is also used as a power source in some countries, and will continue to be used through 2020,
although we may see a decreasing contribution as we expect many countries to place growing emphasis on reducing waste
that is sent to landfill sites and ensuring waste is more sustainably managed.
Nuclear power technology has been in existence for many decades, yet its costs have increased in recent years due to
increasingly stringent regulations and issues associated with waste disposal (for example, the decade-long Yucca Mountain
debate in the US). As a result, nuclear power is not economically competitive with other energy technologies in many
28
countries, and the partial meltdown of the Fukushima-Daiichi nuclear plant in Japan in March, 2011 has increased
the relative costs and decreased public acceptance of nuclear on a global scale. As a result of this incident, combined
with the high costs of nuclear fission power, several countries – Japan, Germany, Switzerland and Italy – have announced a
complete ban on construction of new nuclear plants, and the technology is only expected to continue to grow in certain
regions – for example, China and France – where it will be critical to meeting future baseload energy demand, while also
reducing emissions.
23
See DBCCA research note “Natural Gas and Renewables: The Coal to Gas and Renewables Switch is On!” for more detail. Access the note at:
http://www.dbcca.com/dbcca/EN/_media/NaturalGasAndRenewables-Oct_2011_Update.pdf
24
The Production Tax Credit (PTC) for wind, which is scheduled to expire at the end of 2012; and the 1603 Treasury Cash Grant which expired at the end of 2011 but for
which qualified projects are still under construction
25
“Germany captures 43% of the world's solar power”, TECHi, December 18 2011
26
See DBCCA research note “UK Offshore Wind: Opportunity, Costs and Financing.” Access at: http://www.dbcca.com/dbcca/EN/_media/UK_Offshore_Wind_Opportunity112111.pdf
27
In response to Fukushima, the German government committed to closing all nuclear reactors by 2022
28
The incident was triggered by an earthquake and tsunami on March 11th and the Japanese Government declared a “cold shutdown” status 9 months later on December 16
2011 – making this nuclear disaster the second worst (after Chernobyl in 1986) in history
22 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
2015-2020
In the 2015 to 2020 period, solar PV is expected to be deployed at an increasingly large scale. This technology is
currently experiencing very rapid cost declines and it is benefiting from substantial current and future deployment targets and
financial support in many countries which are expected to push costs even lower, resulting in far less need for government
support towards the end of the decade. Offshore wind is also expected to continue to grow as a source of renewable power
generation, particularly in countries with ambitious renewables or carbon targets, and favorable offshore wind resources such
as the UK – and costs are also expected to decline for this technology. Although we expect that government support will still
be necessary for the offshore wind industry throughout the coming decade, as costs decline it is anticipated that the level of
this support will gradually fall through 2020.
As previously stated we expect landfill gas to remain a part of the global power technology mix out to 2020, and in the 2015 to
2020 period we also expect biomass to be increasingly utilized to generate biogas for power, or for biogas to be upgraded to
biomethane to inject into the natural gas grid as an alternative heat source. In the UK, for example, industry calculations
suggest that if all domestic waste biomass resources were used to produce biogas and subsequently biomethane then this
29
could substitute for 48% of residential gas demand.
Even though some natural gas usage for power may be displaced by technologies such as biomethane – particularly in EU
countries which have more stringent carbon and renewable power regulations –, we also expect shale gas to be more
widely exploited in countries outside the US post-2015. In the next several years we expect environmental best practices
for shale gas extraction to be adopted and proven, which should lower public opposition to this technique in some countries
(for example, certain countries in Europe). Natural gas will also become more of a global commodity, with liquefied natural
gas (LNG) trade expected to open up between the US and Europe, and perhaps Asia, and a growing coal-to-gas shift in order
to lower carbon and other harmful emissions to meet national (and perhaps international) climate policy targets.
As previously stated, coal is expected to remain as a central part of global electricity supply, but the type of coal-fired
generation technologies used will change as older plants are retired and more efficient new plants are built. In
particular, supercritical coal plants are expected to become a more dominant coal technology over this period in response to
increases in the price of coal, reductions in the capital costs of advanced coal technologies, and policy drivers (e.g. emissions,
efficiency and/or carbon regulations).
Traditional nuclear fission power capacity will grow in some regions, but remain constant or decline in other regions as older
plants are decommissioned. Smaller, modular reactors (~60 – 100 MW), for example, are receiving growing investor interest
in certain countries (e.g. the US) as a more economic alternative to the traditional, large nuclear reactors. However, it
remains to be seen whether plants of this size will end up being deployed at significant scale.
Similarly to nuclear, overall we expect hydropower generation to remain relatively constant over this period.
2020-2030
By 2020 we expect to see the commercialization of some new, renewable energy technologies that are still currently
in the research and development (R&D) stage – for example, marine technologies and hydrogen fuel cells. As intermittent
renewable forms of energy (e.g. wind and solar) take up a growing portion of electricity supply, and no longer demand
government support, we also expect to see the commercialization of bulk energy storage technologies in order to
facilitate the smooth operation of the electricity grid. Concentrated solar technologies (thermal and PV), which use
mirrors or lenses to concentrate a large area of solar energy onto a small area, are also expected to reach full
29
“The Potential for Renewable Gas in the UK”, National Grid, 2009, as cited in DBCCA research note “UK Renewable Energy Investment Opportunity: Creating Industries &
Jobs”. Access note at: http://www.dbcca.com/dbcca/EN/_media/UK_Renewable_Energy_Investment_Opportunity.pdf
23 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
commercialization by 2020, although many of these new technologies will require some level of policy support as they scale
up.
Advanced coal plants – ultra super-critical and integrated gasification combined-cycle (IGCC) –, as well as supercritical plants, will dominate the coal power industry, with associated thermal efficiency gains and lower emissions per
unit of energy generated. We also expect continued global growth in natural gas power generation, as well as
liquefaction and trade, although we do expect natural gas to act as a “bridge fuel” toward a more sustainable power
generation fleet, entirely free of fossil fuels in the years beyond 2030+ – with fossil fuel carbon capture and storage (CCS)
plants being the only exception.
2030+
Beyond 2030, we expect the large scale adoption of clean coal and gas technologies with Carbon Capture and
Sequestration (CCS). Another key power technology breakthrough we see as feasible in the 2030+ period is nuclear
fusion, which involves the fusion of two light atomic nuclei to form a heavier nucleus. A large amount of energy is released
from the binding energy due to strong nuclear force, and this technology is expected to have significant safety advantages
over current nuclear fission power stations as it only takes place under very limited and controlled circumstances, and
requires a constant feed of new fuel to maintain the reaction. As a result, ceasing active fueling quickly shuts down the
nuclear fusion reaction – unlike fission that can be subject to catastrophic failures that self-maintain the reaction, as witnessed
in both Chernobyl and Fukushima. Fusion power is an area of intense research in plasma physics, although
commercialization of this technology is not expected for several decades.
Transport
Figure 17: Evolution of Technologies for Transport and Government Support
Technology
Now
Policy
Now
Technology
2015
Policy
2015
Technology
2020-2030
Policy
20202030
Regular diesel
vehicle
Regular diesel vehicle and high
efficiency diesel vehicles
=
Regular diesel vehicle and high
efficiency diesel vehicles
=
Regular petrol
vehicle
Regular petrol vehicle and high
efficiency petrol vehicles
=
Regular petrol vehicle and high
efficiency petrol vehicles
=
First Generation
Biofuels
First Generation Biofuels
=
First Generation Biofuels
=
Second Generation
=
Second Generation Biofuels
Third Generation Biofuels
Early-stage Hybrids
Hybrids (mild, full and plug-ins)
+
Range Extender (hybrid that inverts
role of electric motor and
combustion engine)
Flex Fuel Vehicles
(Brazil)
Flex Fuel Vehicles (more
widespread)
Electric Vehicles
+
Hybrids (mild, full and plug-ins)
+
Range Extender (hybrid that
inverts role of electric motor and
combustion engine)
+
Flex Fuel Vehicles (Global)
=
Electric Vehicles (mass
production)
+
Natural Gas Vehicles (CNG)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology / policy color and symbol coding
24 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
Summary








Transportation accounts for almost a third of greenhouse gas emissions in developed nations
and will remain the main driver of global oil demand as economic growth increases demand for
30
personal mobility and freight through 2020 .
Since the introduction of motorized transport systems, economic growth and advancing
technology have allowed people and goods to travel further and faster, steadily increasing the
use of energy for transportation.
Modern transport systems are mainly powered by internal combustion engines (ICEs) fueled by
petroleum, which has in the past been widely available, of high energy density, and relatively
inexpensive in many parts of the world. It is widely accepted that ICEs will remain the dominant
transport technology for vehicles out to 2020 and likely beyond, however recent volatility in oil
prices has caused many countries to look towards alternative forms of transport fuel, and will
only serve to drive technology change in the transport sector going forward.
Options for reducing emissions in the transport sector can be categorized into three groups: (i)
alternative fuels such as biofuels and natural gas; (ii) advanced internal combustion engine
technologies; and (iii) electrification including hybrids, plug-in hybrids and full electric vehicles.
Cars equipped with alternative propulsion technologies including hybrids, range extenders and
electric vehicles will achieve some market penetration by 2020.
Electric vehicles would emit ~115g of CO2 per kilometer driven, compared to a conventional
gasoline car which emits ~250g of CO2 per kilometer, showing the significant potential reduction
of transport emissions through electrification of vehicle fleets.
There is the potential for hydrogen fuel cell utilization to increase in transport by the mid 2030s
and grow towards mid-century.
There are also “soft” technology measures that can be taken to reduce transport demand such as
marketing of lifestyle changes, better urban planning and demand management through viable
transport alternatives and mass transport systems.
Over the last 100 years, oil has become the dominant transportation energy source. The technical performance, cost and
convenience of oil have yet to be challenged by alternative power sources. However, in the coming years the
transport sector globally faces a number of challenges – many of which are already driving growing interest in
alternative transportation solutions: fluctuating and increasing oil prices, increasing stringent pollution control standards,
controlling CO2 and other harmful emissions; and a desire for greater energy independence. One single technology will not
provide all the answers to these obstacles. Instead over the next two decades there will be a shift towards a more
diversified transport mix with an overall trend towards increased electrification of the transport sector. The
challenges to making the required technology and market transitions are significant but not insurmountable if complete
implementation plans are created.
There has been considerable market volatility since the beginning of 2011 – a trend that has been particularly evident
in oil prices, which started a steep incline in early 2011 due to political and civil unrest in the Middle East and concerns
over reductions in oil supply, and have continued to show high prices and volatility into 2012 (see Figure 18).
Assumed future increases in oil prices and continued volatility provide a strong economic signal to reduce oil use in
many sectors, either through increased efficiency, fuel substitution or electrification. Already in 2012 the Iranian
political situation threatens to drive oil prices higher still, with the EU announcing a ban on imports of Iranian crude in January
in reaction to Iran’s nuclear program. In addition to this, in Saudi Arabia the government is believed to have an oil price
assumption of $85-90 per barrel on the back of major new spending commitments announced during the peak of the regional
30
“World Energy Outlook”, International Energy Agency, 2011
25 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
“Arab Spring” political unrest in 2011. The market assumption is that the Saudi’s will manage production to prevent prices
falling below that level.
Figure 18: Oil Shocks of 2008 and 2011-12
Panic Buying / Market
Dislocation
Summer 2008
160
2011 Price Volatility
140
120
Global Recession
2008 – 2009
Hurricane Katrina
Sep 2005
80
Japan Nuclear Crisis
March – May 2011
60
Political Unrest/Wars
in Middle East/Af rica
2006 – 2008
20
“Arab Spring”
in Middle East
2011
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
0
Jan-12
40
Jan-11
$/Barrel
100
Source: Bloomberg Brent Crude Spot
Note: Data as of March 3, 2012
Investing in electric vehicle’s over the next 20 years would drive learning rates so that after 2030 there could be a
paradigm shift in the transport sector. Such investment could even support the smart penetration of renewables such as
offshore wind into the grid through the provision of distributed storage capacity for off-peak generation. Transport would no
longer be dependent on oil and the exposure to the risk of higher and volatile oil prices would be lower.
Current Situation-2015
High and fluctuating oil prices during the last 4 years have prompted governments and the transport industry to look for
alternative fuels and technologies. These would reduce the dependence of the transport sector on liquid fossil fuels,
decreasing the economic risks associated with the price volatility of conventional oil-derived fuels. Cars make up the
majority of emissions from transport in many developed nations, so the focus over the next 5 years should be on
providing better fuel efficiency from vehicles. In this sense incentivizing more efficient combustion engines and the use of
sustainable fuels in a growing segment of the private vehicle fleet will be critical between now and 2015. Improving the
efficiency of conventional petrol and diesel cars and supporting research into low emission vehicles should be a priority in the
near-term in OECD countries. Enhancement of ICEs through clean diesel, hybrids and new combustion techniques will ensure
increased efficiency.
Government policies will be important in encouraging or mandating improvements in fuel economy in the next 5-10
years, with less emphasis on such government intervention towards the latter part of the decade. Figure 19 shows
that many regions have already adopted passenger vehicle fuel economy standards, with the most stringent being in the
European Union, Japan and South Korea. A key development in the US was the announcement in July 2011 of a new 54.5
mpg CAFE standard for passenger vehicles by 2025 that will begin to take effect in 2017, if fully legislated. According to a
statement by the White House, this standard will save consumers an average $8,000 per vehicle in reduced fuel costs and
26 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
31
drastically reduce the US’ fuel consumption and carbon footprint, changing the way cars are made on a huge scale . We see
significant implications for investment in vehicle manufacturers developing efficient engines in light of this new US standard.
Figure 19: Actual and Projected Fuel Economy for New Passenger Vehicles Worldwide
Source: “Global Passenger Vehicle Standard”, Center for Climate and Energy Solutions, November 2011 (www.c2es.org)
Alternative fuels are also expected to increase steadily, with first generation biofuels playing an increasingly
important role already in some countries (for example, the US and Brazil), and increasingly so in other regions as we
look forward. From a technology perspective, the share of biofuels in the transport mix is largely a supply-side issue, as in
most cases biofuels are blended into conventional gasoline or diesel, requiring no change to today’s vehicle structure if mixes
are kept within certain government-established limits. However, first generation biofuels generally require large areas of
arable and fertile land and in some cases can compete with food sources, making them a target of some controversy in recent
years. Additionally in some key biofuel markets, such as the US and Brazil, production is reportedly slowing or is close to
saturation point, according to the International Energy Agency. Flex-fuel vehicles (FFVs) – which run on 100% gasoline,
100% ethanol, or a mix of the two – are on sale already in several markets, such as Brazil, where sales have far exceeded
32
those of their traditional petroleum counterparts for several years now , and they are expected to penetrate other markets out
to 2020. These vehicles are particularly useful in a volatile commodity pricing environment as consumers can choose “at the
pump” which fuel to use. Alternatives such as compressed natural gas (CNG) and liquefied petroleum gas (LPG) will
be mainly used in captive fleets, such as industrial or local delivery vehicles, so their overall impact is anticipated to
be low until 2020 onwards.
The drive for increased efficiency, particularly if supported by effective policy (e.g. the UK’s Road Tax system which
charges more according to a cars CO2 emissions and the proposed US 54 mpg CAFE standard by 2025), should advance
development of early-stage hybrid and engine technologies over the next five years. It will also facilitate the gradual
31
32
“President Obama Announces Historic 54.5 mpg Fuel Efficiency Standard”, The White House, July 29 2011
Since 2007, FFVs have accounted for >85% of light vehicles registered each year in Brazil. Source: “Brazilian Automotive Industry Yearbook 2011”, ANFAVEA, 2011
27 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
transition towards large-scale penetration of plug-in hybrids and electric vehicles from 2015 onwards. Without such
penetration of electric vehicles, biofuels will need to play a far greater role by 2020 to achieve the same level of energy
security and/or emission reduction. To make cellulosic ethanol and other biofuels competitive enough to reduce
petroleum consumption, advances in technology are needed. Continued cost reduction in feedstock resource
management and production processes are prerequisites for the fuels to be economically viable and produced at
scale without requiring government support. Breakthroughs in land yield and water management for biofuel crops –
particularly first generation biofuels – are also essential to ensure high volume sustainable production.
2015-2020
Second generation biofuels such as synthetic biomass-to-liquid, we expect to be present in 2015 onwards, but are
likely to see more significant growth into the 2020s and 2030s – when we also expect third generation biofuels to
emerge. Electric power utilization will be manifested as increased hybridization with a potentially significant element
of pure electric vehicles powered by batteries by 2020. As shown by Figure 20 below, advanced internal combustion
engines will be the most cost-effective way to reduce CO2 on a broad scale. Technologies include gasoline and diesel based
direct injection, reduction of engine displacement and reduction of internal engine resistance.
Electrification – so long as charging is efficient and off a diversified power grid – will achieve greater reductions in
CO2 than those based on advanced ICE technologies – but will come at a higher cost. The principle cost driver of
electrified vehicles is the high cost of batteries that they require, especially lithium ion based batteries. The “pure” electric
vehicle is in fact the end-point of an evolutionary path/transition containing several prior stages. Some countries, however,
are already starting to embrace this technology – in particular, China, which has introduced several supportive policies and
mandates including a target for a stock of 5 million electric vehicles. Other OECD countries with specific electric vehicle
mandates include Australia, Canada, France, Germany, Japan and the UK.
Despite the current higher costs, there are significant potential transport cost advantages for EVs compared with ICEs.
Driving an ICE is up to four times more costly per unit of distance traveled than an EV. A significant portion of this cost
33
advantage comes from lower taxes on electricity compared with fuel.
Yet the cost of EVs and PHEVs remain more
expensive than ICEs today owing to the high cost of batteries. The future cost competitiveness of EVs and PHEVs
thus depends on technological learning rates in batteries and electrified engines versus ICE engines. See the Case
Study at the end of this section for a full discussion of the path towards full electrification of vehicles.
Figure 20: Path Towards Full Electrification of Vehicles
2011+
2011-2020
2015-2020
Advanced
ICE
Mild Hybrid
Full Hybrid
Plug-in
Hybrid
Range
Extender
Full Electric
Vehicle
Advanced
gasoline and
diesel
technologies
Start-stop
system,
regenerative
braking,
acceleration
assistance
Electric launch,
acceleration
assistance,
electric driving
at low speeds
Full hybrid
with a larger
battery and
plug-in
capability
Electric
vehicle with
an ICE to
recharge the
battery
All the necessary
propulsion energy
stored in the
battery
Sources: “The Comeback of the Electric Car”, Boston Consulting Group; DBCCA Analysis, 2012
33
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
28 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
2020-2030
In addition to electrification and biofuels, natural-gas powered vehicles (NGVs) are gaining traction in some countries as
an alternative to the ICE – particularly those countries with large domestic gas reserves. Natural-gas vehicles are fuelled
commonly by compressed natural gas (CNG) or liquefied natural gas (LNG). While CNG will play a role, the chemical
conversions of gas into some form of liquid fuel may be the best pathway to significant market penetration. Their benefits are
being realized as natural gas prices have dropped substantially recently – particularly in the US – and with rising
gasoline and diesel prices it is becoming an increasingly attractive option for vehicles, especially since natural gas
vehicles also emit less pollution. However, their construction features and average fuel consumption are similar to those of
conventional cars that use an ICE, but there are differences in the fuel injection system and size of the fuel storage tanks.
These changes lead to higher purchase prices, with additional costs between $2,000 and $10,000 for a new CNG vehicle
compared to a similar gasoline-fuelled vehicle.
Natural gas vehicles presently account for around 1% of total world road fuel consumption and less than 1% of world gas
demand, and their use is very geographically concentrated – over 70% of all NGVs are found in just 5 nations: Pakistan,
Iran, Argentina, Brazil and India. Yet despite strong growth in the number of NGVs on the road in recent years, the IEA states
that they are still a niche market in global terms, with an estimated 13 million vehicles in use. The uptake of NGVs on
a significant scale remains limited out to 2020 unless there is a significant increase in the availability of refueling infrastructure.
The most likely source of demand growth is in non-OECD Asia and Latin America. In the US, where unconventional sources
of gas are abundant, the transport fuel is expected to be a potentially viable alternative to gasoline and diesel.
While the economic case for natural gas vehicles is often promising, the IEA makes the case that there is often a lack of policy
support needed for a more significant uptake. As shown in Figure 21 below, it is expected that direct government support
34
will be needed for significant penetration of natural gas vehicles through 2020. The 2011 US NAT GAS Act , for
example – if passed –, would provide incentives for passenger vehicles and trucks to run on natural gas as well as for home
fuelling stations. The proposed legislation is driven by the need for America to quickly reduce its dependence on foreign oil,
although it has been having difficulty gaining traction in what has been a very divided Congress over the past two years. The
US federal government is also discussing a plan for newly purchased federal vehicles to run on alternative fuels, starting in
2015. Nonetheless, the IEA is not bullish on this technology – in the 2011 World Energy Outlook (New Policies Scenario) the
35
global stock of NGVs increases from 13 million today to ~30 million in 2035 , but are still projected to account for under 2% of
the global vehicle fleet.
Figure 21: Summary of Various Vehicle Fuels’ Current Attributes
Fuel Type
Cost Competitiveness
Current Technology Status
Gasoline
Biofuel
Natural Gas
Electricity
Low cost of vehicle, costs
rise with oil price
Low cost of vehicle, fuel cost
dependent on cost and
supply of biomass
Higher vehicle cost, fuel cost
depends on oil-to-gas price
difference
High vehicle cost; low
running cost
Mature fuels and vehicles,
potential for hybrids from now
Vehicles and conventional
biofuels are proven
Possible Constraints to
growth
Petroleum availability
Land constraints
CNG vehicles available and
proven; LNG less deployed
Infrastructure upgrade costs and
storage
Some vehicles available but no
mass roll-out yet
Battery costs, recharging
infrastructure and consumer
acceptance
34
House version of the Bill (H.R. 1380: “New Alternative Transportation to Give Americans Solutions Act of 2011”) was introduced in April 2011 and has been referred to the
Subcommittee on Energy and Power; while the Senate version of the Bill (S. 1863) was introduced in November 2011 and has been referred to the Committee on Finance
35
IEA, “Are We Entering A Golden Age of Gas?” 2011
29 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
Hydrogen
High vehicle cost
Vehicles at the R&D stage, only
available in prototypes
Fuel cell and hydrogen storage
technology development
Source: DBCCA Analysis, 2012. Key: Green = Strong; Amber = Neutral; Red = Weak
To make substantial improvements in sustainability of energy for transport, breakthrough technology will be needed
by 2050. Hydrogen and fuel cells can contribute to the passenger vehicle market if challenges of fuel cell cost, hydrogen
storage, hydrogen production and hydrogen delivery can be overcome. The IEA forecasts sales of hydrogen fuel cell vehicles
starting from around 2025 and increasing steadily out to 2050, at which time there will be more hydrogen fuel cell vehicle
sales than hybrid vehicles, but when plug-in hybrid sales will still dominate. Hydrogen fuel cells based on natural gas are
expected to start to become economically viable after 2020 in the transport sector. To get to this stage though, the sector will
be dependent on Government-backed demonstration and commercialization programmes.
Consumer Behavior and “Soft” Approaches to Reduce Transport Demand
Measures to reduce transport energy demand take a number of different forms other than the “hard” technology measures
such as electric vehicles and alternative fuel vehicles. “Soft” technology measures will also become increasingly
important as a trend out to 2020 and beyond. By this we mean measures that can affect demand for mobility and reduce
energy consumption as a result such as lifestyle marketing of lifestyle changes, better urban planning, car sharing schemes,
and mass transport systems. Such smarter choice policies can greatly reduce car miles traveled. Changes in passenger and
commercial road travel could reduce fuel demand by 10% in 2030. Smaller cars, more efficient driving and avoiding trips
36
would reduce fuel consumption for light duty vehicles .
Innovative management policies are needed if car-dependent transport systems are to move towards a sustainable
transport system, particularly for cities. In Singapore strict government policies are in place including a Vehicle Quota
System and Electronic Road Pricing, which make owning a vehicle very expensive. Similarly in Singapore, public transport is
promoted as a ‘choice made’. This means that efforts to maintain and extend a comfortable public transport system takes
places alongside police to control car ownership and usage with the objective of making the availability, quality and diversity of
the public transport system a viable alternative to personal car usage. In December, 2011 Paris launched the world’s first
electric vehicle car sharing scheme with the aim of having 3000 electric vehicles on the cities roads by 2013. Such vehicle
leasing is a business model designed to support increased penetration of EVs, whilst minimizing inconvenience for consumers
through lengthy re-charging times. Other such models that could become more widespread include battery leasing,
subscription services covering the EV and the battery or car clubs where vehicles are effectively leased by the hour or day etc
(AEAT, 2009), such as the Zipcar sharing scheme in the US and the UK where cars (not necessarily hybrids or EVs) are
leased by the day.
Case Study: Path Towards Full Electrification of Vehicles
2011+
2011-2020
2015-2020
Advanced
ICE
Mild Hybrid
Full Hybrid
Plug-in
Hybrid
Range
Extender
Full Electric
Vehicle
Advanced
gasoline and
diesel
technologies
Start-stop
system,
regenerative
braking,
acceleration
assistance
Electric launch,
acceleration
assistance,
electric driving
at low speeds
Full hybrid with
a larger battery
and plug-in
capability
Electric vehicle
with an ICE to
recharge the
battery
All the necessary
propulsion energy
stored in the
battery
Sources: Boston Consulting Group; DBCCA Analysis, 2012
36
McKinsey & Company “Resource Revolution: Meeting the world’s energy, materials, food and water needs”, November, 2011
30 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
Hybrid vehicles which combine an internal combustion engine, an electric motor and their respective energy storage
systems (fuel tank and battery) offer considerable potential in terms of greater fuel efficiency and associated CO2
reduction. The combination makes it possible to reserve the use of the IC engine to when it is most efficient (outside
towns and cities). Hybrid vehicles are likely to develop on a significant scale over the coming decade. The electrical
energy available onboard vehicles for powertrain requirements are set to gradually increase and many more potential
solutions may be made available. There are various forms of hybrid that will come to market at scale prior to full electric
vehicles:
The Mild Hybrid stage is the first step on the path to electrification, which we see emerging in the coming few years
and especially from 2015. This vehicle contains a small electric motor providing a start-stop system, regenerates braking
energy for recharging batteries and offers acceleration assistance. This type of hybrid only assists the conventional
engine while the vehicle is moving, and will thus only achieve modest reductions in emissions at a relatively high
37
additional cost. It should be viewed as an intermediary step that will not be present from 2020 onwards.
The Full Hybrid is the next step. Featuring both a larger battery and a larger electric motor than the mild version, it has
electric launching, electric acceleration assistance and electric driving at low speeds. An example of this type of hybrid
already at scale is Toyota’s Prius model launched in Japan. In February, 2011 Toyota announced global cumulative
sales of its hybrid vehicles of more than 3 million. The cost of hybrid components is expected to decrease by 5% a year
so that by 2020, the incremental cost of a full hybrid should fall to ~$4000. IEA forecasts show hybrid vehicles as
increasingly important from now up to 2035 and then declining in market share as plug-in hybrids and electric
vehicles take share.
38
According to the IEA , none of today’s hybrid vehicles has sufficient energy storage to warrant recharging from grid
electricity, nor do they have the power-train architecture to allow the vehicles to cover the full performance range by
electric driving. However plug-in hybrids are designed to do both, primarily through the addition of more energy storage to
the hybrid system.
The Plug-in Hybrid is an upgrade of the full hybrid, with a battery capacity that is 5-10 times larger. The vehicles
battery can be charged from the electricity grid so the offer the vehicle efficiency advantages of hybridization with the
opportunity to travel part-time on grid electricity rather than solely relying on the vehicle’s recharging system.
Expectations were that PHEVs would be charged at home from typical 120V outlets. However the PHEV infrastructure
scenarios have in fact expanded significantly. Toyota also launched the Prius Plug-in Hybrid model with a lithium-ion
battery, in 2009 with a global demonstration program. The production version was unveiled at the Frankfurt Motor Show
in September, 2011 and sales are expected to start by early 2012 in Japan, the US and Europe. The model is
rechargeable using an electrical connection, rather than only from electricity generated while the vehicle is in motion and
once the 4.4kWh lithium-ion battery pack is depleted the vehicle switches to hybrid mode. The Prius Plug-in can be fully
recharged in less than 1.5 hours. PHEVs have the advantage of being less dependent on recharging infrastructure
and possibly less expensive than the latter stage electric vehicle and therefore might be targeted for higher
volumes in earlier years between 2015-2020 or perhaps even earlier if oil prices continue to rise and if new
technology innovations are made sooner. Mass production levels needed to achieve economies of scale may be
lower than those needed for EVs, and many consumers may be willing to pay some level of price premium for a PHEV as
it is a dual-fuel vehicle.
The Range Extender resembles current hybrids but the difference being that it inverts the roles played by the electric
motor and the Internal Combustion Engine. The vehicle drives in electric mode but carries a small highly efficient ICE that
39
can be used to charge the battery and extend the driving range . Without sufficient charging infrastructure by 2020, this
37
38
39
“The Comeback of the Electric Car?” The Boston Consulting Group, 2011
“Technology Roadmap – Electric and plug-in hybrid electric vehicles”, IEA, June, 2011
“The Comeback of the Electric Car?” The Boston Consulting Group, 2011
31 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy: Power and Transport
option can help bridge the gap between Plug-in Hybrid technology and Full Electric vehicles.
The Full EV is the last step on the electrification path for vehicles. This vehicles propulsion technology depends
solely on electricity from the grid, stored in a large (likely lithium-ion) battery. However today lithium-ion batteries
cost around $2,000/kWh due to production volumes being low. Industry experts anticipate this cost to fall to $50040
$700/kWh by 2020 . Assuming the higher end cost, a 20kWh battery needed for driving range of 80 miles would still cost
~$140,000. The leading electric vehicle on the market today is the Nissan Leaf with a battery capacity of 24kWh that can
41
go around 70-100 miles. The range limitation is a key obstacle to higher full EV penetration .
A key physical constraint to the roll-out of electric and plug-in hybrid vehicles is the lack of recharging
infrastructure in many countries. Many households around the world already have parking locations with access to
electricity plugs. For most though such access will require new investments in infrastructure and modifications of
electrical systems. For daytime recharging, public recharging infrastructure will be needed. Public recharging
infrastructure for EVs is currently limited in most cities, though a few have implemented pilot projects and other
programmes. To enable and encourage widespread consumer adoption of EVs, systems with enough public recharging
points to allow consumers to charge during the day will be needed. According to the IEA, public charging could include
opportunities for rapid recharging or via battery swapping stations allowing replacement of discharged battery packs with
charged ones. It is important to note that charging of EV batteries could have an impact on electricity consumption
patterns and grid management. EV owners could help smooth load curves which would improve the utilization
42
of peaking plants and enable higher achieved power prices for baseload capacity .
The major technological risk associated with electric vehicles and plug-in hybrids is owning the battery and the
energy storage of the battery, which makes the overall car battery system 15 times less powerful in terms of
energy storage than conventional cars and limits the range that can be travelled on one charge. Batteries are
expensive to replace and the cost of the battery is largely responsible for the price premium of an EV over a conventional
ICE vehicle. At expected near-term, high-volume battery prices of around $500/kWh, the battery alone would cost
$35,000-$40,000 per vehicle. To make EV’s affordable in the near-term, most recently announced models have shorter
driving ranges that require significantly lower battery capacities. The battery technology for EVs is however still an
early stage of development and faces a steep curve for cost reduction. Certain battery manufacturers, for example,
43
are targeting a 40% and 60% cost reduction by 2015 2020, respectively .
Financial support from Government’s in the form of grants for people choosing to buy electric and hybrid
vehicles will be necessary to support the market growth out through 2020. In the US, plug-in vehicles are eligible
for a $7,300 tax credit, to expire at the end of 2014; the UK started a £5,000 electric car grant scheme in early 2011;
China offers electric car-makers £4,721 per car; and France has a €5000 grant scheme. In California, there are
infrastructure subsidies covering up to 90% of the installation charges for EV chargers. In Japan, electric and hybrid
vehicles can receive a purchase subsidy of up to 50% of the incremental cost of the vehicle and there are subsidies for
the establishment of clean energy vehicle refueling stations. As these markets mature towards mass production and
achieve the associated cost declines, we would expect a significant reduction in the level of government support required.
However it must be recognized that many hybrid car batteries use rare earth materials such as lanthanum. China
controls over 90% of the global production of such rare earth metals and has cut export quotas in the past two years,
resulting in surging prices and many mining companies restarting rare-earth mines to maintain global supply. Companies
such as General Electric and Toyota are trying to reduce their need for such metals and funding research and
development into substitutes.
40
“The Comeback of the Electric Car?” The Boston Consulting Group, 2011
Socket to me” Bank of America Merrill Lynch, December, 2011
“Socket to me” Bank of America Merrill Lynch, December, 2011
43
“Socket to me” Bank of America Merrill Lynch, December, 2011
41
42
32 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
Energy Efficiency
Introduction
Energy efficiency has been described as both the largest and least expensive energy resource. Using resources more
efficiently and achieving more work with a given amount of energy lies at the heart of the necessary structural changes to
maintain and boost the competitiveness of industries, countries and cities. Growing recognition of the need for greater
resource efficiency has also generated a huge market opportunity for energy efficiency products, services and processes, with
44
forecasts of a ~€900 billion global market by 2020 (for energy efficiency technologies), from €450 billion today .
Greater energy efficiency will certainly be an important component in comprehensive national and global strategies for
managing energy resources and climate change going forward. Demand side energy efficiency measures offer the best
near-term solution for reducing energy demand and also carbon emissions reductions as many energy efficient
technologies for buildings, industry and the power grid are already commercially available. In the US alone, McKinsey
estimates that energy efficiency has the potential to reduce annual non-transportation end-use energy consumption by ~23%
45
and primary energy consumption by 26% by 2020 by developing an array of energy efficient technologies .
The IEA’s analysis of technology deployment required to achieve its 450 ppm Scenario (i.e. ensuring carbon does not
exceed 450 ppm in the atmosphere) indicates that up to 60% of the emission reduction solution in 2020 can come
from energy efficiency. The McKinsey Global Institute lists building energy efficiency as the top opportunity in terms of
resource productivity out to 2030. Increasing transport fuel efficiency, increasing the penetration of electric and hybrid
vehicles and higher energy efficiency in the iron and steel industries and improving power plant efficiency are also identified
46
as key resource productivity measures .
The challenge is to implement energy policies and fashion new financing mechanisms to unlock this substantial, yet
underutilized, energy efficiency opportunity as significant barriers have impeded the changes needed to stimulate widespread
deployment of energy efficient practices and technologies. For example, many profitable energy efficiency opportunities
in buildings are not implemented because of agency issues where a building owner bears the cost of installing
energy efficient equipment but the tenant enjoys the lower energy bills. Government efficiency standards could be an
effective tool to overcome principle-agent barriers, but standards must also be designed to encourage market-based
innovation.
The concept of a chain of processes is an important factor to consider when looking at recovering lost energy in
manufacturing and industry as each process in the chain will carry an energy efficiency profile and the overall
efficiency rate is the result of multiplying all efficiency rates of each link in the chain. Distribution and supply companies
should be required to secure documented energy savings among their customers.
44
45
46
“Industrial energy efficiency and competitiveness”, UNIDO, 2011
“Unlocking energy efficiency in the US economy”, McKinsey & Company, 2009
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
33 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
Building Efficiency
Figure 22: Evolution of Technologies for Building Efficiency
Now
2015
Efficient Lighting
Efficient Lighting and LED Lighting
Insulation & Materials
Insulation & Materials
Micro Generation
Micro Generation
Retrofits/ESCO Model
Retrofits/ESCO Model Energy Services
Agreement Model
Efficient Appliances
Efficient Appliances
Lighting Controls
Lighting Controls
New business model innovation
Retro-commissioning of HVAC systems
Wireless Temperature Controls In home
energy displays/smart meters
District Power and Heat Networks
2020-2030
Efficient Lighting and LED Lighting
Insulation & Materials
Micro Generation
Retrofits/ ESCO/Energy Services
Agreement Model
Efficient Appliances
Lighting Controls
New business model innovation
Retro-commissioning of HVAC systems
Wireless Temperature Controls In home
energy displays/smart meters
District Power and Heat Networks
Zero Carbon Homes (UK)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Summary







Buildings are responsible for ~42% of global energy consumption and an estimated 65% of the
47
building stock that exist today will still be in use in 2050 .
Demand for energy can be reduced by increasing the thermal efficiency of buildings through
insulation, encouraging consumers to use smart meter heating controls and by improving energy
efficiency of lighting and appliances.
Scaling building energy retrofits offers a huge investment opportunity, sized at $279 billion in the
48
US alone . The energy savings associated with this could total more than $10 trillion over 10
49
years .
Rising standards of living inherently increases the demand for home appliances, which
subsequently increases the demand for electricity in residential buildings.
Various technologies already exist to tighten building design and allow energy use reduction in
buildings such as insulation materials, efficient light bulbs and lighting controls and efficient
appliances.
Opportunities mid-way through this decade include deployment of low carbon heat technologies
in off-gas grid homes and commercial buildings, also district heating networks will start to
emerge more from 2015.
Low/zero carbon and energy efficient heating and cooling technologies could reduce CO2
50
emissions in buildings by up to 2 Gt by 2050.
For residential buildings the physical size of the structures is a key indicator of the amount of energy used by
occupants. Building systems themselves have historically been oversized with proportionally large subsystem energy use by
heating, ventilation and air conditioning systems and lighting systems. The result is that in many OECD nations existing
buildings are largely inefficient and currently retrofits are the main solution to preventing energy being wasted from
buildings – particularly as there tends to be less new-build in developed, as opposed to emerging, economies.
47
Johnson Controls, 2011
See DBCCA research paper: “United States Building Energy Efficiency Retrofits: Market Sizing and Financing Models”. Access at
http://www.dbcca.com/dbcca/EN/investment-research/investment_research_2409.jsp
49
This economic impact is a directional estimate, which converts the volumetric energy savings to dollar savings using sector specific energy prices from the U.S. EIA, as well
as EIA estimates for sector specific electricity price escalation. It does not incorporate the feedback loop of reduced demand via energy savings affecting prices.
50
“Technology Roadmap – Energy Efficient Buildings: Heating and Cooling Equipment” IEA, 2011
48
34 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
Upgrading and replacing energy-consuming equipment in buildings therefore offers an important capital investment
opportunity, with the potential for significant economic, climate, and employment impacts. In the United States alone, more
than $279 billion could be invested across the residential, commercial, and institutional market segments. This
investment could yield more than $1 Trillion of energy savings over 10 years, equivalent to savings of approximately 30% of
the annual electricity spend in the United States.
Over the past few years, there have been new emerging financing structures for retrofits, such as Energy Service
Agreements (ESAs), Property Assessed Clean Energy (PACE), and On-Bill-Finance options, which offer significant potential
to address historical barriers and achieve scale across the different market segments. These provide additional options
beyond Energy Service Companies (ESCOs), which operate primarily in government markets (which include both commercial
and institutional segments). PACE has potential as a model for all segments, but it requires significant regulatory support and
acceptance from the mortgage industry. On-Bill Finance could be utilized with enabling regulation or used as a mechanism to
enhance other financing models across the three building market segments. In particular, we believe that the Energy
Service Agreement structure offers significant near term potential to scale quickly and meet the needs of both real
estate owners and capital providers in the commercial and institutional market, without the requirement for external
enablers such as regulation or subsidy.
Beyond retrofits, opportunities mid-way through this decade include deployment of low carbon heat technologies in
off-gas grid homes and commercial buildings, also district heating networks will start to emerge more from 2015.
Low/ zero carbon and energy efficient heating and cooling technologies could reduce CO2 emissions in buildings by
51
up to 2 Gt by 2050.
Current Situation-2015
Various technologies already exist to tighten building design and allow energy use reduction in buildings such as insulation
materials, efficient light bulbs and lighting controls and efficient appliances, as shown in Figure 22 above. A critical factor is
that buildings are manufactured products, designed and built in a production process that comprises sequence of
steps so the efficiencies of the chain – the whole-building approach – needs to be addressed when trying to reduce
overall system efficiency. Buildings can achieve substantial savings in heating, cooling and lighting if they are designed to
take advantage of natural light.
Retrofits are important in the developed world where there is significant established real estate infrastructure and new
construction is still facing many headwinds in the wake of the real estate crisis. As previously mentioned, there are emerging
models of firms attempting to provide retrofit services and capital investment in energy savings to the real estate
market.
The surge in use of electronic goods in recent decades, primarily in OECD and emerging economies, has led to the invention
of a variety of additional household appliances. As well as improving the fabric of buildings themselves, it will also be
important to minimize the energy used in lighting and appliances. Removing the least efficient products from the market
and promoting the sales of the most efficient will significantly reduce energy consumption and thus energy bills and
emissions. Importantly many governments have developed aggressive standards for appliances to comply with in order to
mitigate the increased energy use associated with this surge in electronic appliances – for example, Japan’s Energy Efficiency
Law for domestic appliances and the US Energy Star labeling scheme.
51
“Technology Roadmap – Energy Efficient Buildings: Heating and Cooling Equipment” IEA, 2011
35 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
52
Lighting accounts for 19% of global power consumption . In commercial buildings, more than 35% of a building’s
electricity use goes toward lighting, more than any other single use. Opportunities to mitigate this energy consumption include
53
upgrading lighting controls, and replacing inefficient white goods as well as passive lighting.
Enabling building codes that require energy efficiency in new construction has been effective in some countries. Direct
government support may be particularly necessary in the case of low income housing. The Weatherization Assistance
Program, created by the 2009 American Recovery and Reinvestment Act (known as the US Stimulus Program), targets 40
million low income homes and has weatherproofed over 6.3 million to date. Labeling and voluntary standards could also raise
awareness and help the transfer of the value of a property.
2015-2020
Opportunities mid-way through this decade include deployment of low carbon heat technologies in off-gas grid
homes and commercial buildings, also district heating networks will start to emerge more from 2015. Renewable
heating will become increasingly important in buildings. Building the market through this decade is important for off-gas grid
homes and in the commercial sector. District heating networks, especially in urban areas is important. Heat pumps in
residential areas will expand at scale during the 2020s in residential areas.
A greater role for specialized energy services firms and utilities to provide funds for upfront investment and deploy expertise in
capturing energy efficiency may also be necessary. Innovative financing such as PACE can help to overcome capital
constraints and rapid payback requirements by tying investments to the property or to the utility meter instead of the
homeowner, although many of these models require enabling legislation at a municipal level to expand and scale. Models
such as Energy Service Agreements seek a structure that is commercially viable without policy requirements. Additionally,
rebates and incentives for the installation of efficiency measures such as fitting new windows and better insulation have
helped to encourage increasing efficiency but do not overcome underlying structural barriers.
Energy efficiency and smart grid provide many opportunities for business model innovation (BMI). Green business models
are business models which support the development of products and services with environmental benefits. Such models
have a lower environmental impact than traditional business models and although these are starting to emerge now, we take
the view that they will be more widespread from mid-decade onwards. Demand response and energy management using
sophisticated software and remote monitoring and control will be an important emerging theme over the next decade.
2020-2030
By 2020, various technologies and business models will likely have achieved a degree of scale, enabling much wider spread
adoption. The combination of proven business models and well-targeted government policy will have encouraged the
owners and developers of both existing and new buildings to move towards more energy efficient equipment and
operation.
Additionally, a diverse mix of new technologies suitable for deployment in existing buildings to improve energy efficiency as
well as improved materials and appliances at the initial construction phase will have entered the market. Integration of
innovations such as nanotechnology offer a large potential to improve the energy efficiency of products – for example,
nanomaterials can be used in window coatings, insulation materials and for improved thermal management for
electrical equipment.
Wireless technologies will continue to gain market share and the UK, for example, intends to roll-out smart meter technology
in all homes by 2020. The information provided by the meters will help consumers to better manage and reduce energy use.
52
53
“Light’s Labour’s Lost” IEA, 2007
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
36 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
Thus, although efficient lighting, insulation and retrofits will still be important out to 2020, we will see the evolution of more
fully integrated technology systems as an additional critical piece in efficiently operating buildings, through such
technologies as automated energy displays and smart meters to better manage energy use. Devices such as smart
thermostats, in-home displays and building automation systems will become more widespread, all of which feed in to
an overall “Smart Grid” as discussed in the Grid Efficiency sub-section below. Empowering consumers to take charge of their
energy use will be a key trend through 2020.
Additionally, the concept of Zero Carbon Homes by 2020 has been adopted in some OECD countries, such as the UK. The
vision is that in the future, buildings will need to evolve towards becoming self-sustaining in terms of energy
production and consumption, with an emissions footprint that is at or close to zero. Such buildings will incorporate: (i)
highly insulated walls, (ii) increased air tightness to minimize heat losses, (iii) a mechanical heat recovery system to maintain
air quality and retain heat, (iv) advanced window technologies with triple glazing, (v) renewable energy and space water
heating such as solar water heating and ground source heat pumps, and (vi) renewable energy power generation such as
solar PV panels and wind turbines.
Grid Efficiency
Figure 23: Evolution of Technologies for Grid Efficiency
Now
2015
Energy Management Systems
Energy Management Systems
Advanced metering infrastructure
Ultra high voltage, efficient transmission
Storage: compressed air
Wide Area Monitoring
Electric Charging Infrastructure
2020-2030
Energy Management Systems
Advanced metering infrastructure
Ultra high voltage, efficient transmission
Storage: compressed air
Wide Area Monitoring
Electric Charging Infrastructure
Smart Grid
Distributed Grid
Storage: batteries
Grid Security
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Summary




Once electricity is generated it must be moved to demand centers where it will be used. The
transmission and distribution grid includes everything between a generation plant and an enduse site. Along the way, some of the energy supplied is lost to the resistance of the wires and
equipment that the electricity passes through.
Improving the access to information about the electricity grid for both grid operators and
consumers will be the overarching trend in grid technology development out to 2020 and beyond,
culminating in a smarter grid system with extensive communications capabilities enabling smart
metering and transformer monitors and other data gathering services.
The ultimate end-goal – the smart grid – will be a reinvention of how energy is transmitted,
distributed and measured. It represents a merging of technologies into a system that provides
reliable and cost-effective energy.
Within the smart grid technology landscape, a broad range of hardware, software, application and
communication technologies are at various levels of maturity.
37 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial

It is vital to increase investments in demonstration projects that capture real-world data,
integrated with regulatory and business model structures.
Electricity grids are national infrastructure that allows us to transport power from where it is generated to the end user. It
consists of a transmission network that moves electricity over long distances at high voltages, and a number of lower voltage
regional distribution networks that feed electricity into homes and businesses. National power grids are fundamental assets
that are vital to the economic and national security of countries.
54
Worldwide demand for power will grow 44% over the next two decades , yet power outages around the world have fuelled
concerns about the reliability of aging power transmission systems in coping with this added demand. In the US for instance,
R&D spending for the electric power grid dropped 74%, from a high in 1993 of $741 million to $193 million in 2000.
Simultaneously investment in the transmission infrastructure has not kept pace with the demands being placed on it –
according to the EIA there were 156 outages of 100 MW or more during 2000-2004 and such outages increased to 264 during
2005-2009.
In addition to increased demand and aging infrastructure, the world’s power networks face other, growing challenges including
the integration of more renewable energy sources – often distributed and/or intermittent –, as well as the need to improve
55
security of supply and lower harmful emissions.
Greater reliability demands expansion and strengthening of the
transmission and distribution (T&D) system of countries, augmented with highly efficient local grids combining heat, power and
storage.
The T&D system includes everything between a generation plant and an end-use site. The transmission and distribution of
electricity can result in losses mainly due to resistance of the electrical cables. In addition to these losses, power
outages and power quality disruptions can cost businesses billions of dollars per year. Grid efficiency can be improved in
three main ways: (i) reducing losses; (ii) reducing voltage; and (iii) improving system reliability.
The electrification of developed nations has occurred over the last 100 years and continued investment is needed to maintain
reliability and quality of power. As demand grows and changes and distributed generation become widespread, ageing
distribution and transmission infrastructure will have to be replaced and updated and new technologies will need to be
deployed.
Reducing losses through power control frees up grid capacity, reduces the need for infrastructure capital expenditure and
helps to protect consumers from steep rate increases. Reducing voltage eliminates the over-delivery of energy as well as the
grid-load which also frees up grid capacity, and improving system reliability can be achieved by preventing failures through
isolating problems before they arise – essentially having a proactive rather than reactive grid system. The overall aim for
power grids over the coming decade is to move progressively towards a more intelligent and more efficient grid – a
Smart Grid.
Importantly, the expansion of the grid is heavily constrained by policy bottlenecks across multiple resolutions of scale (e.g.
national, regional, state, local, etc.) and across multiple different types of entities (e.g. in the US: Public Utility commissions in
multiple states / regions, federal approvals, state approvals, etc.) and exists in the context of very large capital expense
requirements, so evolution is by definition very slow. The infrastructure constraints are forcing the issue but there is always
the possibility that bandages rather than solutions are utilized.
54
55
US Energy Information Administration
“Smart Grids Roadmap”, International Energy Agency, 2011
38 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
Current Situation-2015
Currently, just how much energy is taken up as losses in the T&D system depends on the physical characteristics of the
system as well as how it is operated. Generally speaking, T&D losses of between 4-8% are considered normal in western
nations, compared to around 17-31% in developing nations. India has one of the highest T&D losses in the world, with almost
56
31% of the installed capacity being lost in transmission.
The current opportunity is for the traditional energy sector to innovate and overhaul outdated business models to
deliver value to consumers and society. We are seeing software emerging that helps to analyze and control energy
endpoints. Such energy management systems depend on a combination of reliable, accurate data tools.
Some companies have developed products that respond to industry-specific needs with dynamic energy diagnostic tools and
analytics, giving energy management stakeholders the ability to design and engineer energy management programs. These
programs offer a suite of smart grid applications, designed to assist program managers to meet the efficiency and renewable
integration requirements of the grid.
57
New technologies to improve the performance of a power grid currently include :


HVDC Transmission: systems allow power flow across regions without troublesome loop flows while providing
support and performance enhancement for the surrounding AC Grid.
FACTS: Flexible AC Transmission devices, such as Series Capacitors, provide a variety of benefits for increasing
transmission efficiency enabling more flow on existing power lines and improve voltage stability, making the system
58
more resilient to system swings and disturbances .
An additional current challenge with increased renewable power on a grid is the need to transmit it from regions rich
in natural renewable energy resources to regions where demand is greatest (usually municipalities). China has
already taken the lead in the development of ultra high voltage (UHV) efficient transmission lines to address this issue. By
comparison, the US transmission and distribution network for instance is a complex, fragmented and poorly coordinated grid,
transmission bottlenecks are common and long distance movement of power is often limited. Over this decade, the
development of national UHV transmission systems is needed in many countries to transmit electricity up to three
times faster than traditional voltage and cut electric friction losses, making grids far more efficient. The State Grid of
China plans to spend $88 billion to establish a synchronized UHV power grid with the capacity to transit 300 GW of power
over 56,000 miles of UHV lines by 2020. In Brazil a contract has been signed with the State Grid of China and the Brazilian
state power company for 1,200 miles of UHV line to transmit 11 GW of power capacity.
2015-2020
In the 2015 to 2020 period, enhanced remote monitoring and data collection will be useful for both consumer relationship
management and data analysis, making it possible for utilities to assess service levels using information from sensors located
throughout the distribution grid. Smart meters will form the fundamental technology foundation for any overall Smart
Grid, making usage data accessible for utilities so that billing can be more accurate and precisely linked and
Government’s are starting to roll-out smart meter plans.
Regulators and policymakers need to remove barriers for new product and service offerings in areas such as smart homes,
demand response, distributed generation and EV management, and these will require regulatory support out to 2020. The
trends of energy efficiency, increased electrification and the role of grids in adapting supply/demand flows are a
56
57
58
Position Paper on The Power Sector In India, December, 2009 http://www.pppinindia.com/pdf/ppp_position_paper_power_122k9.pdf
ABB “The European power grid – the need for regulatory changes and advanced technology.”
ABB “Connecting renewable energy to the grid”
39 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
priority on the agenda of the EU utilities, who are heavily involved in R&D and pilot projects designed to validate new
technologies and business model innovation. The European Union has set a deadline of September 2012 for all Member
States to produce an implementation plan and timetable for the roll-out of smart metering systems so there is expected to be a
lot of activity in this space mid-way through the decade onwards, with numerous opportunities for companies to compete on
technology products. Some EU countries are already taking the lead – in Spain, for example, the Government’s meter
replacement plan requires smart meters to be installed in every home and small business by 2018.
Wide area monitoring systems have many promising capabilities, one of which is line thermal monitoring. With this,
transmission operators could change the loading of transmission lines more freely by virtue of having a very clear
understanding of how close a given line really is to its thermal limits. It would allow more of the transmission system to be
operated at a higher loading.
Advanced metering infrastructure is already a mature technology, but will be deployed more widely towards the end
of the decade. It involves the deployment of a number of technologies in addition to advanced or smart meters that enable
two-way flow of information, providing customers and utilities with data on electricity price and consumption. Advanced
metering infrastructure will provide remote consumer price signals, the ability to collect, store and report customer
energy consumption data, improved energy diagnostics and the ability to identify location and extent of outages
59
remotely via a metering function that sends a signal when the meter goes out and when power is restored.
Electric vehicle charging infrastructure will be increasingly deployed from mid-decade in conjunction with the roll-out of electric
vehicle technologies, as discussed in the previous Transport sub-section. EV charging infrastructure will handle the billing,
scheduling and other intelligent features for smart charging during low energy demand. In the long-run it is envisaged that
large charging installation will provide power system ancillary services such as capacity reserve, peak load shaving and
vehicle-to-grid regulations including interaction with advanced metering infrastructure.
2020-2030
A Smart Grid is an electricity network that uses digital technology to monitor and manage the transport of electricity from all
generation sources to meet the varying electricity demands of end users. Such grids will be able to co-ordinate the needs and
capabilities of all generators, grid operators, end users and electricity market stakeholders in such as way that it can optimize
asset utilization and operation, and in the process, minimize costs and environmental impacts while maintaining system
reliability and stability. Smart metering, electric vehicle charging infrastructure, advanced metering infrastructure and wide
area monitoring and control all constitute what a Smart Grid will look like. Thus the “smartening” of grids is already going
on; it is not a one-time event. But the IEA calls for large-scale system-wide demonstration projects to determine
solutions that can be deployed at scale. These would integrate the full set of these smart grid technologies with
60
existing electricity infrastructure .
The actual implementation of a more active transmission and distribution system in the form of Smart Grid is therefore unlikely
to take place until 2020 onwards. The drive for lower-carbon generation, coupled with greatly improved efficiency on the
demand response, will motivate consumers to be more intrinsically interactive with the power system.
There has been a marked acceleration in the deployment of smart grid pilot projects globally since 2009, with investments
around the world enabling hundreds of projects. Most current pilot schemes focus on network enhancement efforts such as
demand-side management and distributed generation, and demonstration has thus far only been undertaken on a restricted
scale. The scale of the demonstration and deployment coordination needs to be increased.
59
60
“Technology Roadmap Smart Grids”, IEA, 2011
“Technology Roadmap Smart Grids”, IEA, 2011
40 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
A shift to Smart Grids creates multiple business opportunities, with $200 billion in global Smart Grid investment expected by
61
2015 – around $53 billion of this is expected to be in the US . With such investment requirements, utilities need to prepare a
budget that will fund comprehensive Smart Grid programs and governments need to provide support – for example, the 2009
American Recovery and Reinvestment Act set aside $11 billion for a Smart Grid initiative in the US; and the UK government
has a target to roll out smart meters in every home by 2020.
International collaboration will enable the sharing of risks, rewards and progress. Smart grids need to be developed
throughout the 2020s based on a range of drivers that vary across regions around the world. Many countries, such
as the US, South Korea and China, have made progress in developing smart grids, but the lessons learned are not
necessarily shared in a coordinated way. Major international collaboration is needed to expand R&D investment in all
areas of the smart grid. Standards will play an important role in the technology development. By providing common design
protocols for equipment, costs can be reduced.
With the expansion of “smarter” grids also comes the need for major scale-up in grid security technologies. With the
upgrading of power grids and connection to online systems to improve energy efficiency comes the issue of increased
62
vulnerability to hackers and grid attacks. Security tools and technologies to ensure that the grids are not disrupted will be a
key growth market. According to an MIT study, smart grid features and internet-based connections to the power grid are
63
proliferating, increasing pathways for would-be cyber attacks . There is thus a danger that millions of new communicating
electronic devices will introduce attack vectors increasing the risks of international and accidental communications disruptions.
Cyber security is being addressed by several international collaborative organizations. Lessons can be learned from other
industries such as banking, mobile phones and retail but a dedicated focus is needed in the context of infrastructure-related
64
systems.
Distributed grid networks/smart mini-grids will become more prevalent through 2020, comprised of an intelligent power
distribution network operating at low voltage, where the energy demand is intelligently managed by a diverse range of
distributed energy resources such as solar PV, micro-hydro power, wind turbines and small conventional generators.
Distributed networks like these will have potential in commercial and industrial complexes too.
Integrating renewable and distributed energy resources can open up challenges to the effective and efficient
65
dispatch of the resources and the operation of the electricity system, according to the IEA . Unlike markets for
storable commodities, electricity markets depend on real-time balance of supply and demand. Although much of the present
day grid operates effectively in many countries without storage, cost-effective ways of storing power will help to make the grid
more efficient and reliable. Furthermore, the integration of more renewable power onto power grids, as discussed in the
previous Power sub-section, increases the need for utility scale electricity storage technology, especially towards the latter
end of the decade as countries strive to satisfy 2020 renewable energy targets – particularly in the EU and China.
There are technologies such as distribution and sub-station sensing and automation which can reduce outage and repair time
as well as maintain system voltage levels. The IEA highlights the importance of advanced distribution automation which
process real-time information from sensors and meters for fault location, along with sensor technologies to enable
performance-based maintenance of the network components so a growing market for such technologies can be expected as
the Smart Grid matures through 2020.
Future advanced metering infrastructure will involve the deployment of various technologies as well as advanced or smart
meters that enable two-way flow of information. Such technologies will provide customers and utilities with data on electricity
price and consumption. Thus, advanced metering infrastructure will provide remote consumer price signals, the
61
Michael Roney special edition for Forbes “Building the Smart Grid ‘Promise, Challenge and Transformation,” December 2010
Homeland Security News Wire, “Smart Grid offers target-rice opportunities for hackers,”August 2010
Massachusetts Institute of Technology “Future of the Electric Grid”, 2011
64
IEA ‘SmartGrids Roadmap’, 2011
65
“Technology Roadmap Smart Grids”, IEA, 2011
62
63
41 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
ability to collect, store and report customer energy consumption data, improved energy diagnostics and the ability to
identify location and extent of outages remotely via a metering function that sends a signal when the meter goes out
66
and when power is restored.
In terms of utility-scale power storage, an area of significant potential is the strategic supply of power to meet peak demand
requirements. Currently, compressed air storage exists at only 2 sites globally with a few pilot projects and involves pumping
air into a cave. Compressors use off-peak electricity to fill the cavern with air. For peak demand the compressed air is then
withdrawn from the cavern and used to power a wind turbine, for instance. Unfortunately current batteries available for gridlevel storage are either too expensive or do not last for the length of time required to make them cost effective. Battery
technology advances will be particularly important for grid efficiency, replacing the current most widespread storage system:
pumped hydro systems. These cost millions to build and are very site-specific whereas grid-level batteries can in principle be
sited anywhere.
Industrial Efficiency
Figure 24: Evolution of Technologies for Industrial Efficiency
Now
2015
Standard technologies (e.g.
Standard technologies (e,g, locomotives)
locomotives)
and expanded products (e.g.
Ecomagination locomotives from GE)
Recycling of steel
Valve fitting and improvements
Speed controls on motor
systems/pumps
Recycling of steel
Valve fitting and improvements
Speed controls on motor systems/pumps
Waste-heat-recovery in steam systems
(i.e. from boiler exhaust and waste gases
and liquids)
Insulating distribution systems
Improved Valve fitting and improvements
Improved Speed Controls on motor
systems/pumps
Increased use of Membranes in chemicals
and food & drink industries to improve
efficiency
Material Efficiency
2020-2030
Standard technologies (e,g, locomotives)
and Expanded products (e.g.
Ecomagination from GE)
Integrated, high efficiency products
Recycling of steel
Valve fitting and improvements
Speed controls on motor systems/pumps
Waste-heat-recovery in steam systems
(i.e. from boiler exhaust and waste gases
and liquids)
Insulating distribution systems
Improved Valve fitting and improvements
Improved Speed controls on motor
systems/pumps
Increased use of Membranes in
chemicals and food & drink industries to
improve efficiency
Low carbon cement (although not likely to
play a major role until 2030)
Material Efficiency
Industrial Symbiosis (Eco Industry Parks)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Summary


66
67
Industrial energy efficiency accounts for 40% of the end-use efficiency potential in the United
67
States.
Industry covers a diverse and heterogeneous group of sectors including refining, iron and steel
mills, chemicals, construction, mining, plastics, paper products and food production.
“Technology Roadmap Smart Grids”, IEA, 2011
“Unlocking energy efficiency in the US economy”, McKinsey & Company, 2009
42 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial



The energy intensity of production in industrial sub-sectors varies widely and therefore the
energy efficiency opportunities are fragmented across subsector-specific steps.
Cross-cutting energy efficiency technologies such as steam systems, motors and buildings
represent a large efficiency potential.
In terms of industry, there remain huge opportunities for implementation of energy efficiency
measures, specifically in energy intensive segments such as chemicals, refining, metals and pulp
and paper.
Energy is consumed in the industrial sector by a wide group of industries and for a wide range of activities, such as
processing and assembly, space conditioning, and lighting. Therefore, industrial energy demand varies by region and
country dependant in part on the level and mix of economic activity and technological development. More developed
nations generally have higher energy efficiency in industrial operations and less energy intensive operations than in
non-OECD countries. This results in the ratio of industrial sector energy consumption being higher in non-OECD
68
nations than in OECD nations.
There are many challenges around reducing energy use in the industrial sector given that the sector is so heterogeneous, with
many different industries having varying energy requirements. Nonetheless, most industrial processes need high
temperatures and/or motive power, both of which generate waste heat. One of the biggest efficiencies to be made is the
recycling of waste heat – either for space and water heating in factories or for export to heat local residents.
Some of the most energy intensive industries are metals, petroleum refining, basic chemicals and intermediate products,
glass, pulp and paper and mineral products. There remain many opportunities for energy efficiency improvements in these
industries currently and over the coming few years as energy prices remain volatile, providing more motivation for incremental
investment in energy efficiency measures for cost saving purposes. It is estimated that improvements in energy efficiency
69
could reduce energy use in industry by 14-22% compared to the DOE/EIA reference case by 2020.
Emission reduction from industry will come from three sources, first, driving further efficiencies in the use of energy and
materials and the design of industrial processes; second in replacing fossil fuels with low carbon alternatives such as bioenergy and electrification and third from capturing carbon and storing it – although it is important to note that we see this
process not being rolled out to any scale until 2030+.
As investors, we note that decreased operating expenses, as a result of industrial efficiency reducing energy and material
consumption, has the ability to make companies more cost competitive within many markets, particularly some of the
commoditized industrial segments.
In many cases, external pushes are needed to force change away from inefficient pathways in industry, and towards greater
energy conservation. Strict mandates for industry, appliance and equipment standards, fuel efficiency standards for cars,
government stimulus packages for industry and manufacturing and commercial strategies for greening supply chains are all
ways to force retooling and process change.
In all countries, government and industry partnerships, incentives and awareness schemes should be pushed to reap the
widespread opportunities for efficiency improvements in industry. New plants and retrofit refurbishments of existing facilities
should also be encouraged.
68
69
“International Energy Outlook”, EIA, 2009
NRC, 2009 data in National Academy of Engineering “The Bridge” - “The Potential of Energy Efficiency: An Overview,” 2009
43 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
Current Situation-2015
A principal driver for an energy efficient development of industry is the need in all countries to achieve cleaner production
modes and decrease costs. The concept of a chain of processes is an important factor to consider when looking at
recovering lost energy in manufacturing and industry as each process in the chain will carry a different energy efficiency
profile and the overall efficiency rate is the result of multiplying all efficiency rates of each link in the chain. There is potential
at each stage of the chain to reduce losses and improve financial performance and environmental impact.
Industrial energy support systems consist of steam systems, motor systems and building infrastructure (i.e. lighting and space
heating). Current energy efficiency measures from steam systems include steam trap maintenance and valve and
fitting improvements and these simple upgrades to plant equipment will continue through 2020.
Variable speed drivers have been shown to deliver real energy savings with even a small fluctuation in motor speed. This is
due to the fact that they can vary the speed of a centrifugal pump or fan to reduce power demand. Maintenance costs can
also be improved as the likelihood of wear and tear due to mechanical shock is reduced. Additionally, by enhancing the
insulation used for industrial heating apparatus, from small laboratory furnaces to larger aluminum holding furnaces,
companies can reduce the amount of fuel needed to operate equipment.
Over the next several years, incremental improvements in efficiency can be achieved by implementing such system
plant upgrades. However in some other industrial plants their processes are nearing a theoretical maximum
70
efficiency and will resultantly require an overall change in process to realize any further efficiency gains .
Government incentives in the form of rebates, grants, loans and income tax deductions can make investments in energy
efficiency projects more alluring by lowering upfront capital costs.
The steel industry accounts for 6% of global final energy consumption, and so boosting the energy efficiency of this
71
sector could be very significant, with substantial resource savings . There are many opportunities for the industry to
improve energy efficiency. China’s overall actions on energy efficiency in steel will be important given that the country
dominates global production. Recapturing waste heat presents 10% of the opportunity in this sector. Cogeneration captures
waste heat from power generation and uses it for heating applications at various phases of the steelmaking process. A further
opportunity to boost efficiency in steel production is coke dry quenching using water sprinkling to recover heat that would
otherwise be diffused into the atmosphere. Steel recycling and using scrap metals will also become increasingly
important to industry if commodity prices continue to rise. Using scrap aluminum to make new aluminum uses 95%
72
less energy than mining and producing aluminum from bauxite ore . The potential for rising energy prices is therefore a
positive trend for scrap metal recyclers.
Additionally, power plant efficiency increases could deliver direct resource benefits. There is room to improve the conversion
rates from natural gas and coal by 5-10%. The McKinsey Global Institute expects that a third of coal plants will still be using
73
subcritical technology in 2030 and half of gas plants will use basic gas turbines rather than combined cycle gas turbines .
Upgrades to plants could be in the form of ultra-supercritical coal and combined-cycle gas turbines.
2015-2020
Looking out to mid-decade and beyond, industry can decarbonize by taking up opportunities that will still remain in
energy efficiency and move progressively towards low carbon fuels. Out to 2020, reductions will be driven in industry by
switching to low carbon fuels such as using biomass to generate heat, as well as utilizing waste heat streams.
70
Energy Research Partnership “Industrial Energy Efficiency,” November 2011
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
“Markets for Recovered Aluminum”, EPA, 1993
73
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
71
72
44 Cleaner Technologies: Evolving Towards a Sustainable End-State
Energy Efficiency: Building, Grid and Industrial
Process heat (the heat used to drive machinery) accounts for ~50% of energy used by industry. Some efficiency
improvements could be made through captured ‘waste’ heat, such as from blast furnaces. McKinsey & Co identifies
three forms of waste heat recovery that can offer efficiency savings: (i) high quality waste heat recovery, including sinter
plants and top-pressure recovery turbines which can be harnessed for process energy, electricity generation and steam
generation; (ii) low-quality heat recovery from cooling water and return lines which can be used for space and water heating;
74
and (iii) recovering waste streams for fuel such as hydrogen in refining and blast furnace gas in iron and steel .
Technologies associated with heat networks are mature and the challenges associated with deployment relate more
to “legacy” infrastructure and structural barriers. Technologies associated with the efficient conversion of low-quality
heat to electricity are in their infancy and warrant more research. Also using combined heat and power (CHP) for district
heating will emerge increasingly towards the latter part of the decade. This is a system for distributing heat generated
from a cogeneration plant for residential and commercial heating such as space and water heating.
Further into the decade, aside from continued energy efficiency measures relating to improving equipment and controls, other
cross-cutting technologies such as combined heat and power, advanced materials, better separation processes, better steam
75
and process heating and better sensors could lower energy use in industries. CHP systems generate electricity and thermal
energy in a single system resulting in markedly higher energy efficiency. Industrial CHP typically involves the use of steam or
natural gas turbines for electricity generation. Sectors like chemicals and iron and steel as assumed to represent a large
share of the CHP opportunity this decade, owing to their large steam energy requirements.
Material efficiency in industrial production can be defined as the amount of a particular material needed to produce a particular
product. Material efficiency can be improved by reducing the amount of the material contained in the final product or by
reducing the amount of material that enters the production process but ends up in the waste stream. Benefits of increasing
material efficiency are that natural resources are conserved, ensuring both that they will be available for future generations
and that use of the most accessible and lowest-cost resources will be extended. Increasing material efficiency will also
reduce the amount of waste going to landfill, reduce land use, water and air pollution.
Out to 2020 more advanced boilers and furnaces will be developed that can operate at higher temperatures while
burning less fuel. There are applications for nano-manufacturing in chemicals, refining, maritime and automotive
sectors in fabrics, as catalysts and as separation membranes.
2020-2030
Beyond 2020 we expect a continued uptake of energy efficiency measures and deployment of more advanced
decarbonisation measures in fuel switching such as sustainable biomass and biogas (industry currently receives the
majority of energy from gas use) and Carbon Capture and Storage (CCS). Electricity is currently used to drive motors and
machinery, compressors and refrigeration. In practice it is likely that industry will exploit large-scale CHP opportunities in the
short term. Between 2020 and 2030 deployment of options with longer payback periods may emerge such as the use of
biomass in high temperature processes and electrification in industrial processes.
Business model innovation can also be used to create industrial symbiosis. This is defined as sharing of services, utility
and by-product resources among diverse industrial actors in order to add value, reduce costs and improve the environment.
Industrial symbiosis is a subset of industrial ecology with a particular focus on material and energy exchange. The process
engages traditionally separate industries and other organizations in a collective approach to competitive advantage involving
the physical exchange of materials, energy, water and/or by-products together with the shared use of assets, logistics and
expertise.
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75
“Unlocking energy efficiency in the US economy”, McKinsey & Company, 2009
NRC, 2009 data in National Academy of Engineering “The Bridge” - “The Potential of Energy Efficiency: An Overview,” 2009
45 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
Agriculture, Water and Waste
Introduction
Demand for food and water is expected to exceed supply out to 2030, and these are expected to become increasingly
scarce – and thus valuable – resources over the coming decades. In response to this growing demand, there are vast
opportunities for increasing efficiency and productivity, as well as finding new sources of food and water (for
example, desalination of sea water), and many of these emerging techniques require technological innovation and
commercialization. We therefore expect vast technology and market opportunities to emerge in the agriculture and water
sectors over the coming two decades.
th
st
Excessive waste has characterized the late 20 and early 21 Century in many developed countries, but we expect to see a
shift toward more efficient and integrated waste management as the world’s natural resources become increasingly scarce
and costly, and simple disposal thus becomes less viable. Over the next decade and beyond, we expect to see a
“greening” of the waste sector, and a marked shift towards waste reduction, reuse and recycling. These will be
accompanied by shifts in strategies and technologies including, for example, advanced waste sorting, increasingly diverse end
uses from plastic recyclate, and integrated waste management strategies.
Taken together, we believe there will be a substantial drive toward more efficient, life cycle management of agriculture, water
and waste. Water, in particular, will undergo growing privatization and monitoring, and a substantial price increase as
historically water has not been appropriately priced or monitored due to its status as a public resource in most of the world.
Food and waste will also take on growing value and present substantial investment opportunities in an increasingly resource
constrained world.
Agriculture
Figure 25: Evolution of Technologies for Agriculture
Now
2015
GMO’s
GMO’s
Machinery
Machinery Smart (and climate smart)
Machinery
Irrigation Smart Irrigation
Irrigation
Genetics
Genetics
Pesticides
Pesticides
GIS Management Systems
GIS Management Systems
Fertilizers
Fertilizers
Futures markets geographically
concentrated
Futures markets geographically
concentrated
2020-2030
GMO’s
Machinery Smart (and climate smart)
Machinery
Smart Irrigation
Genetics (more varieties)
Pesticides Biopesticides/Biofungicides
GIS Management Systems
Fertilizers Climate Smart Fertilizers
Biochar
Futures markets more geographically
concentrated dispersed
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Summary


Agricultural production will need to double over the next three decades in order to meet growing
demand.
Demand for increased food, feed, fuel and fiber is driven by increased population, and an
increase in the middle class in emerging economies. Coupled with a shift in dietary preferences
46 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste




from grains and staple carbohydrates to more protein based diets including pork and beef (and
perhaps fish), and biofuel production, more grains will be used to feed animals and fuel our
automobiles.
As an energy intensive sector, agriculture is closely linked to energy markets, with crop
production and demand potentially adversely affected by higher oil prices, while crop inputs
(such as fertilizer) may benefit from lower natural gas prices. These shifting dynamics will affect
profit margins in different segments of the agricultural supply chain.
In addition to energy prices, likely constraints to the productivity growth of agriculture include
climate change, water resources, infrastructure, education and training of producers, and social /
governmental policy that distort agricultural markets.
New technologies, product platforms and innovative business models in agriculture technology
and food systems will dominate the shift from industrial agriculture to a more socially just and
environmentally sustainable food production and distribution system.
The agricultural technology sector is large, comprising over 8,500 companies generating over
$1.3 trillion of revenue per year, in the US alone. Moreover the volume of transactions in the
agricultural sector is greater than $15 billion per year with an estimated peak of over $70 billion in
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2007 .
Agricultural supply is expected to fall far short of demand over the coming decades, particularly as developing and emerging
economies develop further and consumption levels increase. McKinsey, for example, estimates that land supply would have
to increase by 250% over the next two decades, compared with the rate at which supply expanded over the past two
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decades . There is, therefore, vast room for technological development in today’s agricultural sector to boost
productivity and efficiency, and we expect a transition to “smart” agricultural technologies over the next decade and
beyond.
When looking at potential investment opportunities in agriculture, it is important to recognize the different dynamics that
exist through the agricultural supply chain, from feedstocks (e.g. fertilizers, seeds) in the upstream segment, to crop
production in the midstream, and finally to distribution in the downstream. The latter two supply chain segments are
highly energy intensive, and as such are influenced by energy prices, in particular oil – high oil prices, for example,
make planting and harvesting crops (particularly in highly mechanized farms), and distribution of food far more expensive.
When oil prices reach a certain level this can result in compressed margins for farmers and/or demand destruction – the latter
occurs when food commodity prices quite simply become too expensive, impacting consumer decisions. For the upstream
segment, fertilizers, which are crucial to increasing crop yield, require a vast amount of natural gas during the
process of production – in countries with low natural gas prices this can present attractive margins for fertilizer producers.
Energy and agriculture are thus inextricably linked, and the dynamics are particularly interesting given the recent
divergence in oil and natural gas prices (as opposed to their recent positive correlation).
In addition to energy prices, other factors that may influence the necessary productivity growth of agriculture over the
coming decades include climate change, water resources (also affected by climate change), necessary infrastructure
(for example, for irrigation or distribution), education and training of producers, and social or governmental policy
that may distort agricultural markets. New technologies, product platforms and innovative business models in
agriculture technology and food systems will help to mitigate some of these constraints and assist in the shift to a
more socially just and environmentally sustainable food production and distribution system. Regardless, these issues
require attention, monitoring, and proactive decision-making by investors and players in the agricultural industry.
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77
Source: Capital IQ
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
47 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
Current Situation-2015
Today’s agricultural sector is characterized by three dimensions: (i) industrial agriculture using intensive production methods
of heavy chemical use, hybrid and genetically modified organism (GMO) seeds, large machinery and capital intensive
infrastructure for the off-take markets – with this type of agriculture, margins on growers/producers is typically squeezed by
the input providers (seeds, chemical and fertilizers) and the off-takers (the commodity trading houses); (ii) the sustainable
agriculture market, albeit niche, and comprised of the organic and or locally-grown markets, where produce and packaged
goods are attractive to a subset of consumers; and (iii) the subsistence, emerging economy farming community that is still
evolving, albeit with a severe lack of knowledge, lack of infrastructure, lack of access to capital and to markets and a shortage
of technology deployed at scale.
The use of Geographic Information Systems (GIS) and precision farming are not widely used in most areas of the world
today. Certainly these technologies have been adopted in some areas of Latin America, such as Argentina and Brazil, but
have yet to be deployed at scale in other emerging economies such as Africa and Asia. A GIS aided precision agriculture can
identify the right crops for an area in terms of sustainability and yield, be used for inventory management and timing from field
to plant, optimize transportation logistic costs from a potential field’s production to plant gate from multiple production
scenarios, facilitate environmental and other permits, identify location of storage and drying capabilities operations in the
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value chain system.
In many parts of the world seed technology has been aimed at increasing the financial returns of professional row
crop growers. More specifically, it has been geared to increase the yield and productivity on growing existing crops, and to
improve end-product characteristics. There has been a great concern over the intellectual property and effectiveness of GMO
crops and this technique will remain controversial among many growers, governments and NGO’s in the foreseeable future.
On the irrigation side, technologies have remained quite simple (either flood, drip or pivot irrigation technologies) up until
recently and are not yet deployed on a scale that meets the need for advanced irrigation. However, much development in
advanced machinery R&D has seen an increase in spending for tractors, planters, sprayers, combines, etc. Over $1
billion annually among the top 5 OEM’s, representing between 4-5 % of net sales have been deployed into advanced
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agricultural machinery . This research includes agriculture decision support systems by using integrated wireless
technology linking the equipment, owners, operators, dealers, and agricultural consultants to provide more productivity to the
80
producer .
And on the chemical side, pre- and post- harvest chemical use is a mainstay of commercial industrial agriculture. However,
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consumers are becoming more aware of environmental concerns and are asking for chemical-free food stuffs . This
movement towards a more sustainable agriculture will need to reduce the amount of chemicals used in food production and
handling, but will require the same level of protection and shelf life that the consumer demands. Therefore, eco-friendly
solutions for pre-and post-harvest treatments of fruits and vegetables are increasingly gaining market share and have
demonstrated increased shelf-life and storability.
2015-2020
Over the next decade, the convergence of the industrial agriculture complex with the sustainable agriculture
movement will produce an advanced agriculture that will simultaneously raise production in developed and
developing countries, reduce agricultural waste and provide meaningful jobs. This will be due to the supply-side
response of technologies in responses to appropriate governmental policy that: (i) invests in infrastructure; and (ii) facilitates
private capital investing in technologies, improved production and irrigation.
78
Conservis Corporation Website, Terrestrial Carbon Analytics Corporation Website
USDA, John Deere
John Deere
81
AgraQuest Corporation Website, Organic Fertilizer Guide, http://www.extremelygreen.com/fertilizerguide.cfm.
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80
48 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
Growers, food processors and retailers will monitor the effects of climate on agricultural productivity. Sources of data that
predict crop yields based upon an integrated analysis of crop canopy from satellite imagery and ground-based measurements
82
can increase yield by improving crop planning, operations and harvest management . Trends in technology that use active
crop canopy sensors, geographical data loggers, handheld sensing equipment, crop canopy mapping systems, and sensorbased agrochemical control systems will continue to be rolled out, mostly in developed economies and in some emerging
economies.
Geographic Information System (GIS) technology will add increasing value to agricultural production. Geospatial analysis
that looks for certain agronomic and other conditions such as high prices or inputs (seed, equipment, fertilizer, fuel,
83
etc.) and land rents and purchases will optimize inputs and labor . Agricultural services based on GIS will enable
producers to automate record keeping, compliance activities and core farm operating processes so they can reduce costs,
84
grow profits and better manage risk . Farm management software will optimize best operating practices, maximize profits,
improve efficiency, and virtually eliminate the burden of record-keeping and reporting of crop production. Large efficiencies
and cost-savings can be achieved from planning and planting to harvest and distribution.
In attempting to increase yield and productivity of existing crops, biotechnology, including both native genes and foreign trans85
genes will be increasingly used to improve the insect protection and herbicide resistance of a plant . It will also find ways to
alter the need for inputs, such as seeds that require less water for a given amount of production. With the proliferation of
competing biotechnology traits, the most comprehensive form of insect protection and herbicide tolerance is on the horizon.
Irrigation technologies will comprise a new revolution of agricultural production globally. Technologies such as
advanced controls, custom corner, and GPS positioning & guidance play an important role for the commercial grower. In
addition, new developments in water pattern, pivot range, sprinkler and droplet design and custom pump systems will
seek to optimize water use and make can improved farm level economics, while simultaneously conserving water at the
86
regional level . The most important development in irrigation is now the variable rate irrigation that is computer-aided with
wireless communications, in order to integrate soil moisture data into the irrigation equipment. Machine optimization solutions
that use precision technology and wireless data networks can show higher levels of productivity and increased profitability.
On the harvesting side, logistics optimization, which can manage machinery from remote locations, routing of fleets requires
87
machine-to-machine communication .
The eco-friendly solutions to achieving a sustainable agriculture sector begin with Integrated Pest Management (IPM), and will
88
include the use of biopesticides, plant growth regulators and plant incorporated protectants . An IPM scheme must leave
little to no chemical residue, must have minimal impact on non-target organisms, and be not prone to pest resistance. The
form of pest management must enhance product quality reduce labor and increase harvest flexibility and worker and
environmental safety.
Biopesticide products can enhance crop quality and be used in conjunction with traditional chemicals while
89
providing a strong return on investment, are sustainable and add value at the grower, distributor and retailer . Some
of the areas that require advances are microbial, where the active ingredient is a microorganism that either occurs naturally or
is genetically engineered. They control pests by producing toxins, out-competing the damaging pathogen, producing antifungal compounds and by promoting root and top growth. Unlike conventional chemicals, which usually directly attack and kill
82
Conservis Corporation Website, Terrestrial Carbon Analytics Corporation Website
Terrestrial Carbon Analytics Corporation Website
Conservis Corporation Website, Terrestrial Carbon Analytics Corporation Website
85
“Biopesticides Provide More Options Plus Customer Satisfaction for Produce Buyers and Retailers”, Biopesticide Industry Alliance
86
Lindsay Corporation website
87
“From Dryland Farming To Satellite-Guided Pivot Irrigation”, Irrigation Advances. Volume 20 Issue 2 Fall 2011
88
“Guide to Understanding and Evaluating Biorational Products” 2006, Libertyville, IL: Valent BioSciences Corporation. “Biopesticides Offer Multiple Benefits for Agricultural
Dealers and Consultants”, Biopesticide Industry Alliance
89
“Biopesticides Offer Multiple Benefits for Agricultural Dealers and Consultants”, Biopesticide Industry Alliance
83
84
49 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
the pest, biochemical biopesticides are characterized by a non-toxic mode of action that may affect the growth and
90
development of a pest, its ability to reproduce, or pest ecology .
Plant Growth Regulators (PGRs) are compounds that effect major physiologic functions of plants, such as growth rate, seed
germination, bolting, fruit set and ripening, branching and many others. There are a variety of concrete examples of how
PGR’s meet the needs of growers in the fresh produce market. These include improved fruit quality, improved yield,
overcoming genetic limitations, reducing labor costs, and extend post-harvest life. Most chemical insecticides work by killing
insects outright, often targeting the nervous system. Often, beneficial insects are killed as well. Plant incorporatedprotectants, are pesticidal substances that plants produce from genetic material that has been added to the plant, such as
corn and cotton.
2020-2030
In the 2020 and beyond period, the target end-state of this sector is “smart” (and “climate smart”) agriculture with
advanced irrigation and precision technologies, benign environmental residues from chemicals, and an efficient
91
distribution and marketing system for producers and a consumer led demand market for sustainably grown foods .
For example, it is expected that biochar – a fine-grained, highly porous charcoal obtained from the carbonization of biomass –
will start to emerge at a commercial scale in the 2020-2030 period. This 2,000 year-old practice converts agricultural waste
into a soil enhancer (helping soils retain nutrients and water) that also holds carbon, boost food security and can discourage
deforestation. The practice is not yet widely used at large-scale, although it is expected that in the future biochar may be
added to soils in order to improve soil functions and to reduce emissions from biomass that would otherwise naturally degrade
92
to greenhouse gases (i.e. biochar also has carbon sequestration value) .
The continued debate around GMO intellectual property and the degree to which GMO crops outperform traditional hybrids
are expected to continue, and yet, while human health concerns surrounding GMO will continue to be the subject of much
research, many populations will have already consumed very large volumes of GMO product. The agriculture of 2020-2030
will be advanced, characterized by the integration of Information technology with advanced agronomy and
machinery. However, the deployment of these technologies and techniques will be geographically specific – we expect
dispersion of highly productive agricultural production regions from the US to Latin America to far out-compete the deployment
of advanced agricultural technologies in Africa and Asia.
90
Biopesticides in a Program with Traditional Chemicals Offer Growers Sustainable Solutions. Biopesticide Industry Alliance
“Climate-Smart Agriculture, Increased Productivity and Food Security, Enhanced Resilience and Reduced Carbon Emissions for Sustainable Development
Opportunities and Challenges for a Converging Agenda: Country Examples, 2011”. The International Bank for Reconstruction and Development / The World Bank
92
International Biochar Initiative
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50 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
Water
Figure 26: Evolution of Technologies for Water
Now
2015
Filtration
Filtration and Membrane Technology
Pre-Chlorination
Pre-Chlorination
Coagulation
Coagulation
Sedimentation
Sedimentation
Equipment (pipes/valves, etc)
Equipment (pipes/valves, etc)
Chemicals
Chemicals
Disinfection
Disinfection
Desalination
Monitoring / Metering
2020-2030
Filtration and Membrane Technology
Pre-Chlorination
Coagulation
Sedimentation
Equipment (pipes/valves, etc)
Chemicals (safety-oriented)
Disinfection
Desalination (mass)
Monitoring / Metering
Energy recovery devices (mass)
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Summary







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Demand for water is growing far faster than supply as a result of a rising global population as
well as GDP growth in many emerging and developing economies, and associated growth in
agricultural, industrial and residential (especially municipal) demand. The McKinsey Global
3
Institute expects water withdrawals of 6,900 km in 2030 relative to existing accessible, reliable,
3
93
sustainable supply of 4,200 km , resulting in a 40% gap between demand and supply .
A key part of the problem is that the “real” cost of the resource and its limited availability is not
accurately reflected in water prices, because water is a treated as a public resource in most of the
world.
In addition, water is very much a “local” resource, given the high density/weight of the resource,
making transportation highly energy intensive and costly. Water markets across the world reflect
this characteristic. As a result there is no global market for water, and it is inefficient to transport
water any significant distance.
Growing water stress will drive be a shift to “cultivating water as a renewable resource rather
than hunting it to extinction”, offering substantial opportunities for new technologies and
94
business models, with total revenue potential of $961 billion in 2020 .
Vast municipal water leakage presents a clear current and future technology opportunity in water
equipment, in particular reliable, well-constructed pipes and valves for efficient transport and
distribution of water and wastewater that will ultimately improve efficiency and reduce
maintenance costs. Monitoring and metering will also help improve efficiency of water
distribution and ensure suppliers are receiving revenues appropriate to the amount of water they
are providing.
Physical and chemical equipment that “clean” water to varying levels of quality also represent
current and future technology opportunities, and represent current standard technology in the
global water industry.
In the 2015-2020 timeframe advanced membranes and desalination of seawater are expected to
become increasingly prevalent technologies. The latter is an energy intensive process and will
require energy recovery and new, innovative technologies to improve efficiency, for example
through the development of carbon nanotubes, which are expected in the 2020-2030 timeframe.
Assumes no efficiency gains and demand of 6,900 km3 in 2030. Source: “Charting our Water Future”, Water Resources Group, 2009
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
51 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
Water is a fundamental but increasingly scarce resource. Demand is growing far faster than supply as a result of
inefficient and outdated infrastructure (due to historic underinvestment), rising global population as well as GDP growth in
many emerging and developing economies, and associated growth in agricultural, industrial and residential (particularly
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municipal) demand – demand is expected to grow 41%; a higher growth rate even than primary energy (33%) or food
96
(27%) . This, combined with poor water management, excessive waste and pollution of water resources in many parts of the
world, and growing resource pressure from climate change, is driving growing concerns over a severe supply-demand
mismatch in the coming decades – indeed the Water Resources Group expects a 40% gap between existing accessible,
97
reliable supply and water withdrawals in 2030. This points to a clear need for massive investment in increasing water
supply – McKinsey forecasts a 139% increase in water supply necessary over the 2010 to 2030 period (relative to 19902010) in order “to meet increasing demand and to ensure accessible, sustainable and reliable provision”.
A key part of the problem is that the “true cost” of the resource and its limited availability is not accurately reflected
in water prices. This is because water is treated as a public resource in most of the world, and there is an absence of
98
ownership rights over water resources. As a result there can be an “economic disincentive for stewardship” or investment in
this sector, and consequently there has been historic under-investment in water infrastructure, and it tends to be centralized
and (mis-)managed without the following three key elements in mind: (i) efficiency throughout the supply chain; (ii) best
practices; and (iii) cutting-edge technologies.
Additionally, water is very much a “local” resource, given the high density and weight of the resource, making
transportation highly energy intensive and costly. As a result, water can be described as a “hyper local commodity”,
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priced locally and consumed locally, as transporting water any significant distance is very inefficient – as a result, the water
industry has a highly fragmented structure, heavily influenced by local dynamics (e.g. regulations, water availability). These
characteristics make investing in water difficult, particularly as in much of the developed world the production and
distribution of water is controlled by regulated utilities and it is thus an inexpensive resource. In other areas of the
world there are substantial investment opportunities, as water is more commoditized and valuable, particularly in countries
that suffer water scarcity – these countries may also have difficulty attracting water-intensive industries due to the costs of
operations. Once again then, the intricate linkages between energy prices and environmental services – in this case, water –
are established. Going forward, population growth and weather disruptions (due to climate change) are also expected to
exacerbate these trends in much of the world.
Research and consulting group Lux conducted a 2008 research report into “Water Cultivation: The Path to Profit in Meeting
Water Needs”, and argue that growing water stress will drive a shift to “cultivating water as a renewable resource rather than
hunting it to extinction” (see Figure 27 below). This new approach will be embodied in three principles that oppose today’s
norms: (i) efficiency – maximizing economic output per unit of water (for example, in agriculture); (ii) reuse and recycling –
turning water from a throwaway consumable into a durable asset; and (iii) source diversification – drawing water from a variety
of sources according to lowest lifecycle cost. In order to achieve the future of “water cultivation” current and new technologies
will need to be deployed, as well as new pricing and business models. This offers substantial opportunities for new
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technologies and business models, with total revenue potential of $961 billion in 2020, according to Lux .
95
McKinsey expects 65% of this demand will come from agriculture, 25% from water-intensive industries, and 10% from municipal demand. Source: “Resource Revolution:
Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
96
Water withdrawals are forecast to grow from 4,500 km3 in 2010 to 5,500 km3 in 2020 and 6,350 km3 in 2030. Source: “Resource Revolution: Meeting the world’s energy,
materials, food and water needs”, McKinsey Global Institute, November 2011
97
Assumes no efficiency gains and demand of 6,900 km3 in 2030. Source: “Charting our Water Future”, Water Resources Group, 2009
98
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
99
The only exception to this is the luxury bottled water market, in which water is actually transported globally – although this remains a tiny portion of overall global production
and consumption of water
100
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
52 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
Figure 27: Water Hunting to Water Cultivation
Source: Lux Research, 2008
Current Situation-2015
Water leakage rates are very high in many countries at present – even many developed economies experience severe
municipal water leakage due to aging infrastructure: for example while Germany has a leakage rate of only about 5%,
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102
the UK loses 25% of total treated water , the US 18%, and in developing economies leakage can exceed 50% . As
municipal water is valued at about 15 times as much as bulk water (used in agriculture), reducing this leakage offers huge
economic – as well as resource-saving – benefits. In fact, “reducing water leakage” is ranked number 4 of 15 key
resource productivity opportunities in McKinsey’s recent “Resource Revolution” report, which looks at how to meet
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the world’s growing energy, materials, food and water needs . Given the vast scale of this opportunity, a clear current
and future technology opportunity in the water sector is in equipment, in particular reliable, well-constructed pipes and valves
for efficient transport and distribution of water and wastewater that will ultimately improve efficiency and reduce maintenance
costs.
According to Lux, water equipment was a $64 billion market in 2007. A component (21% or $13 billion) of this is physical
equipment, which “removes particles from water or disinfects biological contaminants through physical means – like
mechanical removal or denaturing from ultraviolet light – rather than through chemical reactions”. Filtration and
sedimentation are both standard techniques currently used to physically “clean” water, and this is a rapidly growing
market segment, with key areas for innovation, particularly in energy-efficient variants of current equipment.
Filtration and sedimentation involve the removal of solids from water during the treatment process, and treated solids are
typically disposed of at landfills or applied to agricultural land – this treatment process requires extensive equipment and
101
102
103
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
“Resource Revolution: Meeting the world’s energy, materials, food and water needs”, McKinsey Global Institute, November 2011
53 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
innovation is on the rise to transfer solids into a fuel source, even though disposal of solids is becoming increasingly difficult
104
because of stringent legislation .
Another current method to “clean” water is via chemical treatment, which “improve[s] the quality of the water by aiding particle
105
settling, inactivating microorganisms in the water, optimizing filtration processes, or adjusting water pH .” Disinfection, prechlorination and chemicals all fall into this category, with the number of chemicals used to treat water in any given facility
varying widely, depending on initial and target water quality – typically, a drinking water facility would use only one chemical
(usually chlorine), while a facility treating degraded water may use a mix of several chemicals due to the relatively high
concentration of suspended solids and bacteria. Lux recently valued this market at $8.9 billion (2007).
2015-2020
As discussed, simple filtration is the current dominant technology for attaining drinkable water resources. Advanced
membranes that require lower pressure for effective operation and therefore use less energy are also expected to be
a more prevalent technology in the 2015 to 2020 time period and beyond. Attaining fresh water through the desalination
of seawater is a technology that also exists now, but is expected to become far more prevalent in the 2015 to 2020 (and
beyond) timeframe, as chronic water stress becomes more prevalent. Desalination is far more energy-intensive – and
thus costly – than conventional treatment of freshwater sources, and is therefore not widely used at present given
the low price of water, making this technology un-economic. However, as water prices begin to reflect the resource’s
scarcity, we expect desalination to become a crucial technology, particularly in countries experiencing severe water stress.
Given the drive toward efficiency in all sectors, and particularly those that rely on finite resources (i.e. energy, water,
agriculture, waste, etc), new desalination technologies that use “low-grade or waste heat instead of electricity have the
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potential to substantially reduce energy inputs” are expected to be a key water technology by 2020 .
The drive to efficiency in water management will not just involve a shift toward efficiency of production of freshwater resources, but also efficiency of distribution (e.g. minimizing leakage), and reduction, reuse and recycling of
waste-water. Desalination waste streams, for example, contain concentrated salt and other contaminants removed during
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treatment, as well as up to 50% of the feed water that enters the facility . Industrial and energy waste-water streams also
contain high concentrations of valuable metals or chemicals that are typically stored or discharged to the environment – either
before or after the waste-water is cleaned (e.g. shale gas waste-water). This is currently a controversial practice due to the
environmental implications, but also represents substantial waste of both the water and the metals or chemicals in the wastewater. According to Lux, many companies have recognized this and are developing innovative technologies to solve pollution
problems, investigating how to convert the waste into an asset by extracting valuable resources from waste effluent, and
seeking to minimize waste volume.
In addition to the aforementioned economic and resource benefits of reducing water leakage, a large portion of treated water
does not earn revenue in because of faulty metering – in Indian cities, for example, the World Bank estimates that 40% of
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water production does not earn revenue due to leaks or because it is not invoiced to customers due to a lack of metering .
As water becomes an increasingly valuable commodity, monitoring water consumption via metering will also be a key
technology growth area.
2020-2030
Similarly to water and agriculture, energy and water are inextricably linked because conventional energy generation requires
huge amounts of water and huge amounts of energy are also required for the treatment and distribution of water. Thus, water
104
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
107
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
108
“Designing an effective leakage reduction and management program”, World Bank, April 2008. As cited in McKinsey…
105
106
54 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
systems themselves require large amounts of water to produce the energy necessary to operate, as well as large amounts of
increasingly expensive energy. In recognition of this, energy recovery approaches are expected to be widely used to reduce
the energy footprint of water treatment systems by capturing (or recovering) waste energy throughout the treatment process.
Future, large-scale water technologies are expected to incorporate energy recovery devices, particularly in highlyenergy intensive processes such as desalination. These may include innovative technologies such as microbial fuel cells
that feed off wastewater (bacteria creates electrical power by oxidizing sugars present in wastewater), or simpler solutions
such as cogeneration plants co-located with wastewater treatment facilities. These more innovative energy recovery
technologies are currently at the pre-revenue, venture capital stage, but are being pursued by growing numbers of companies
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as a vast potential revenue opportunity .
There are also vast potential opportunities for nanotechnologies in the next generation of water technologies. For
example, in desalination, carbon nanotube membranes are outlined as a very promising technology by Lux, and are currently
in the developmental (or lab) stage. This technology works by “a unique nanoscale effect… that enables water molecules to
line up single file and move through the nanotubes’ hollow centers at a rate 1,000 times greater than conventional theory
would predict… [with] salt rejection occurring at the end of the nanotubes because of charge differences.” The potential
advantage is that vastly lower pressure differences reduce energy requirements and enable higher loading rates (i.e. flux). If
deployed at scale, carbon nanotubes could thereby potentially lower the costs of desalination considerably. However, there
are still many unknowns in the process and commercialization of the technology is likely a decade or so off.
Waste
Figure 28: Evolution of Technologies for Waste
Now
2015
Recycling
Recycling
E-cycling
Sustainable Packaging
Landfill
Anaerobic Digestion
Mechanical Heat & Biological
Treatment
Waste-to-energy
Landfill
Anaerobic Digestion
Mechanical Heat & Biological Treatment
Waste-to-energy
More end uses from plastic recyclate
Material Management Strategies
2020-2030
Recycling
E-cycling
Sustainable Packaging
Advanced Materials/Recycling
Landfill
Anaerobic Digestion
Mechanical Heat & Biological Treatment
Waste-to-energy
More end uses from plastic recyclate
Material Management Strategies
Advanced Waste Sorting
Source: DBCCA Analysis 2012
Note: see Figure 3 for key to technology color coding
Summary


109
With growing recognition that the world’s natural resources are scarce, finite and costly to
acquire, waste management has moved up the agenda for many economies.
Against a backdrop of relatively high energy and commodity prices and increased environmental
concerns the recycling industry is at a unique point, benefiting from an unprecedented number of
positive dynamics and growth catalysts.
“Water Cultivation: The Path to Profit in Meeting Water Needs”, Lux, 2008
55 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste




“Greening” the waste sector refers to a shift from less-preferred waste treatment and disposal
methods such as incineration and different forms of landfill towards Reducing, Re-using and
Recycling waste (known as the 3R’s).
To achieve a global economy where waste is minimized, radical changes to supply chain
management are needed.
Countries face different waste challenges, but overall the path to waste reduction is the same:
prevention and reduction of waste at the source is essential.
Mobilizing investment in to greening the waste sector will require a number of enabling
conditions including financing, policy and regulatory measures, incentives and institutional
arrangements.
As the demand for materials grows worldwide, it makes sense to adopt a waste management hierarchy that is ranked
according to environmental impact – see Figure 29 below. Amid the rapid consumption of the earth’s resources there is
great potential to create new markets by recycling and reusing existing metals, minerals, plastic, wood and other
110
materials. As a result the global waste market, from collection to recycling, is now estimated at $410 billion a year.
In the first instance, greening the waste sector requires minimizing waste. Where waste cannot be avoided, recovery of
materials and energy from waste as well as remanufacturing and recycling waste into usable products should be the second
option.
Figure 29: The Waste Management Hierarchy
Most Preferred
PREVENTION
PREPRING FOR REUSE
RECYCLING
OTHER
RECYCLING
DISPOSAL
Least
Preferred
Source: UNEP, 2011; DBCCA Analysis, 2012
At a global scale, the waste management sector makes a relatively minor contribution to GHG emissions. However the waste
sector is in a unique position to move from being a minor source of global emissions to becoming a major saver of emissions.
Although minor levels of emissions are released through waste treatment and disposal, the prevention and recovery of wastes
111
avoids emissions in all other sectors of the economy.
110
111
“Towards a Green Economy”, UNEP, 2011
“Waste and Climate Change: Global Trends and Strategy Framework”, UNEP 2010
56 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
The overall, long-term vision for waste is to create a global circular economy where material use and waste generation are
minimized, any unavoidable waste is recycled or remanufactured and then any remaining waste is treated in a manner that is
least harmful to the environment. These zero waste economies should be the overall aim out to mid-century, particularly as
waste management makes up a component of carbon emissions – small relative to other sectors such as energy, but still
significant. In addition, extracting, producing and using ever increasing volumes of material resource will inevitably have
environmental consequences. The challenge is to create a system that enables economic prosperity to co-exist with a
healthy global environment by using less and making more efficient use of the materials that are consumed.
Currently the types of waste that really do not have to be wasted include (but are not limited to) office paper, cardboard,
electronic products, wood scrap, food waste, scrap metal and certain plastics. Currently between 3 and 4.5 billion tones of
municipal and industrial waste is produced annually. A major share of municipal solid waste originates from urban
112
settlements with 0.77 billion tones being produced by 25 OECD countries alone.
McKinsey identifies the reduction of food
waste as a key target area in resource productivity,
To date, reduction and reuse strategies, while prioritized by waste management specialists, have not been implemented to a
significant degree. With regard to organic food waste, for example, it is estimated that reducing this waste by 30% in
developed countries (at the point of consumption) could save around 40 million hectares of cropland. In North American and
Oceania, a third of fruits and vegetables purchased end up being thrown away compared to sub-Saharan Africa where only
5% is wasted. Consumer food waste is also more water and energy intensive than post harvest waste due to energy used in
113
transport, packing, processing, distribution and preparation at home. In developed nations the majority of food waste occurs
in processing, packaging and distribution. In developing nations, poor storage facilities and insufficient infrastructure mean a
portion of food is wasted after harvest. Reducing food waste would also have the added benefit of cutting the amount of water
used in agriculture.
Current Situation-2015
Most of the solid waste in developed countries currently gets sent to landfills, although incineration with energy
recovery (i.e. generation) is increasing. This latter approach is dominant in the Netherlands, Germany, Denmark, Japan,
Belgium, Switzerland and Sweden while landfill disposal is dominant in most of the other EU countries (Greece and Portugal
have among the highest landfill rates), the US, Canada and Australia. In many OECD countries currently the majority of waste
emissions come from methane emitted from landfills. Reducing landfill will thus be critical to achieving sustainable, low
carbon economic growth, and in recognition of this fact some countries are providing financial incentives for authorities to find
alternative ways of handling waste. In the UK, for example, there is a landfill tax in order to incentivize the reduction and
recovery of waste over landfills.
Recycling of waste reduces the amount going to landfill or incineration and also generates revenue to cover some of
the costs of waste collection, as well as the environmental benefits of conserving limited natural resources and
reducing the release of greenhouse gases from landfill plants. Due to these benefits, recycling is an important waste
management strategy in many developed and some developing nations today, and is most cost effective when using large
quantities of uniform waste material as this reduces the costs of sorting waste. The sector generates $200 billion in annual
revenue, according to the US Bureau of International Recycling and has grown to become a significant part of the global
114
economy.
The US EPA separates municipal waste into two categories: product wastes and non-product wastes. Product wastes include
all durable goods (appliances, books, furniture) and non-durable goods such as newspapers, nappies and packaging. The
non-product waste material includes food scraps and inorganic waste. Unlike product-related wastes, the quantity of nonproduct waste has not increased in the past ten years. An issue with recycling rates is that demand, and therefore prices for
112
113
114
UNEP, 2010
McKinsey & Company “Resource Revolution: Meeting the world’s energy, materials, food and water needs”, November, 2011
“Green is the color of money”, Cannacord, August 2011
57 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
many recycled goods (with the exception of metals) are low, in part because industries have been reluctant to invest in
systems to process recycled material. However with increased trade of goods and awareness of resource depletion and
energy prices this may well change over the course of the decade.
Mechanical biological treatment (MBT) encompasses sorting of mixed residual waste and separation of a fine, organic
fraction for subsequent biological treatment. The biological component may include anaerobic digestion or aerobic composting
to produce a biologically stable product for land application. Anaerobic Digestion is a form of energy generation from
organic waste via the breakdown of biodegradable material in the absence of oxygen by microbes. It is already widely used to
treat wastewater in the UK and can be used to treat other organic wastes, including domestic food wastes. In the latter case
anaerobic digestion has the dual effect of reducing organic waste and also recovering some of the energy used in its original
production. Anaerobic digestion can provide a source of biogas. The biogas can be used to generate electricity and heat to
power on-site equipment and the excess electricity can be exported to the National Grid. Other possible uses include biogas
being upgraded to biomethane and injected into the gas grid and using it as a vehicle fuel. It is expected that this method of
waste disposal will be widely used out to 2020 and beyond. MBT systems and Anaerobic Digestion systems vary in terms of
sophistication, scale and outputs and will both continue to form a key part of waste processing through 2020.
Computers and other electronic equipment, which contains lead, cadmium, barium and other toxic materials – commonly
referred to as e-waste – are of growing concern with respect to disposal. In the US, e-waste is estimated to amount to 2.5
million tons per year, of which only around 10% is recycled. Around 70% of heavy metals in landfills come from e-waste.
To reduce e-waste going to landfill the EU has adopted the Waste Electrical and Electronic Equipment Directive requiring
producers to take responsibility for recovering and recycling electronic waste. Similar initiatives are expected in other
developed economies over the next several years.
2015-2020
From mid-decade onwards the growing trend will be for reduction or reuse – countries progressively stopping or at
least significantly minimizing waste going to landfill. However, we expect there will always be a role for landfill as it acts
as a capacity balancer to dispose of waste that cannot be processed in any other way. But over time it is expected that more
and more valuable end-uses will be found for materials.
Over the next decade we expect significant progress in improving the capture rates of re-usables, recyclables and clean
compostables in door to door collections. Also advocating waste avoidance strategies for local businesses, developing local
uses for some materials and developing alternatives to some toxins in products and offering better industrial designs to
industry on packaging and products.
Plastic recycling is a key challenge as so much recyclable plastic, mainly in the form of plastic bottles, is landfilled
each year. Explosive growth in demand for plastic items has not been met by sufficient plastic recycling efforts, and given
that recycling plastic requires more energy than recycling glass or metal, recycling rates for plastic are particularly low. From
an environmental perspective the lack of recycling of plastics has significant consequences. Although there is enough
demand for plastic recyclate there is a broken infrastructure between consumers and plastics recyclers. Part of the problem is
lack of curbside collection programs and consumer confusion over what can and cannot be recycled. The two highest value
categories within the recycling industry are non-ferrous metals and plastics. Powder Impression Moulding, a process held by
ERT plc allows businesses to improve their environmental footprint by adding new value to mixed plastic waste streams by
conversion into viable lucrative products, which in turn can be recycled at the end of their life.
Aside from recycling of plastic packaging and goods, sustainable packaging overall will be a key growth market through
the coming decade. The development of packaging methods and materials that effectively protect goods while not
contributing to unnecessary waste is high on many manufacturers’ agenda’s. Several different approaches may be used to
create sustainable packaging, including the use of recycled, recyclable and biodegradable materials, reducing the amount of
packaging used to deliver a product. Many firms are currently investigating different ways of packaging goods in sustainable
58 Cleaner Technologies: Evolving Towards a Sustainable End-State
Agriculture, Water and Waste
ways. By carefully testing different packaging materials, manufacturers and distributors can determine the exact
amount of packaging needed to protect items. Lighter packaging will also mean that less fuel is needed to ship
packages.
2020-2030
The key to the long-term, future of efficient waste management is a need to continually recognize that materials
traditionally considered “wastes”, suitable only for landfill, may be able to be reused and recycled. “Industrial
ecology”, or taking an integrated approach to the study of material and energy flows through industrial systems, is already the
mantra of many industries and will continue to be important in resource management.
New technologies could enable extractive industries to become more efficient and less wasteful. This has important future
advances in energy efficiency, efficient use of materials and materials substitution. Technology improvements may
revolutionize reuse, reclamation and recycling of materials that are now viewed as waste and could increase the safety of
disposal practices for wastes that remain.
With regard to recycling, we also expect evolution towards single stream recycling, where consumers can put all recyclables
into a single container. With single stream recycling all recyclates are taken to material recovery facilities and sorted using
advanced processing equipment based on machinery. Reports show that this sort of recycling increases recyclable
material volume by 20-30% as it makes it far easier for people to recycle without having to separate materials before
collection. In addition to single-stream recycling, sensor technology (to accurately identify different materials based on
physical properties) for advanced waste sorting offers an opportunity to produce more homogeneous waste streams.
Automated material sorting is still not attractive to many recycling firms as it does not offer a reasonable return on investment.
But the technologies are progressing rapidly and the necessary sensor computing power is becoming cheaper. The economic
situation in automated material sorting will mean that it can broadly penetrate the waste market from 2020 onwards.
As previously noted, e-waste is a growing concern and so we also expect to see an increase in electronics recycling, and
consolidation of scrap suppliers – partly in response to consolidation within the steel industry. Indeed this type of increased
recycling and consolidation will be critical as the worldwide market for electronic waste is forecast to rise to $21 billion by
115
2020, compared to $9 billion in 2009.
115
“E-Waste Management Market to 2020”, GBI Research, 2010
59 Cleaner Technologies: Evolving Towards a Sustainable End-State
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60 Cleaner Technologies: Evolving Towards a Sustainable End-State