Between the Poles

IEA projects that global energy demand will increase by a third by 2035, emissions by 20%

The International Energy Agency (IEA) has just released its annual World Energy Outlook 2013 with projections of energy demand and production through 2035.

Energy demand and supply

Energy demand is projected to increase by a third, driven primarily by emerging economies, China, India and the Middle East.  According to the most likely scenario, China is the primary driver for increased demand through 2020, when India becomes the primary driver. 

China is becoming the largest oil-importing country.  India is projected to become the largest importer of coal by the early 2020s. The IEA projects that the United States will meet all of its domestic energy demand from domestic sources by 2035.

Greenhouse gas emissions

Two-thirds of global of the world's greenhouse-gas emissions come from the energy sector.   The IEA projects that energy-related CO2 emissions will increase by 20% by 2035.  The IEA estimates that this will lead to a long-term average temperature increase of 3.6°C.

Energy efficiency

Energy efficiency is getting a lot of attention these days.  Measures aimed at improving the efficiency of buildings have been introduced in Europe and Japan .  In addition North America has been focusing on improving the energy efficiency of cars and other vehicles.   But the IEA still projects that  two-thirds of the economic potential of energy efficiency will remain untapped.  Government action is required to break down barriers to investment in energy efficiency including phasing out fossil-fuel subsidies, which the IEA estimates has risen globally to $544 billion in 2012.

Renewables for electric power

The IEA projects that renewables will account for nearly half of the increase in global power generation to 2035.  Wind and solar photovoltaics (PV) are projected to be responsible for nearly half of the expansion in renewables.

The largest absolute increase in renewable energy generation is projected to occur in China.  The IEA sees that in some markets (I have blogged extensively about solarPV becoming disruptive the U.S.), the rising share of renewable energy, especially solar PV, is creating business model challenges for the power industry, raising issues about about funding adequate investment and long-term reliability of supply.

The IEA projects that renewables will exceed 30% of the world's energy mix, moving ahead of natural gas in the next few years and competing with coal as the leading fuel for power generation by 2035.

The IEA projects that nuclear power generation will increase by two-thirds, with new plants being built primarily by China, Korea, India and Russia. 

The IEA also sees that capture and storage (CCS) technology could accelerate the decline in the CO2 emissions intensity of the power sector, but uncertainties about the commercial viability of CCS limits IEA projections of CCS deployment to only around 1% of the world's fossil fuel-fired power plants by 2035.

Coal

According to the IEA, coal continues to be a cheaper option than gas for generating electricity in many regions, but the IEA expects that government interventions to improve efficiency, curtail local air pollution and mitigate climate change will be the critical in determining the future of coal.  China has outlined plans to cap the share of coal in total energy use.

In the IEA most likely scenario, global coal demand increases by 17% to 2035.  The IEA projects that coal demand will decline in OECD countries and expand by one-third in non-OECD countries, primarily in India, China and Southeast Asia.  In China coal demand is expected to peak around 20205.   India, Indonesia, China and Australia are expected to be responsible for most of the increase in production.

Natural Gas

Growth in natural gas demand is expected to be largest emerging markets, especially China, where the IEA projects that natural gas demand will quadruple by 2035, and in the Middle East.  North America will continue to see a shift from coal to unconventional (shale) gas.  The IEA even sees some of the unconventional gas finding its way to international markets as LNG.

The IEA sees the decline in output from currently producing fields as being a major driver for investment through 2035.  The IEA projects that 790 billion barrels of total production will be required to meet demand through 2035.  Of this over half will be required to offset declines in production from existing fields.  For conventional fields the IEA estimates that output declines about 6% per year.  For unconventional fields the annual decline is much faster.   The IEA says that most unconventional plays are heavily dependent on continuous drilling to sustain output.

Energy prices and international competitiveness

The IEA report documents the large differences in the price of natural gas and electricity in different parts of the world.  For energy intensive products, this will tend to production and export from countries where gas and power costs are low, such as the United States and emerging economies.  The IEA projects that regional differences in natural gas prices will decline from the very high levels we are seeing today but large differences are projected to continue through to 2035.  Significant differences in the price of electricity will also continue.  Based on this, the IEA projects declining export of energy-intensive products from the E.U. and Japan and increases from emerging economies and the U.S.

Economic value of open data estimated at $3 trillion annually

Open data has been gathering momentum among governments ever since United States Federal Government data was placed in the public domain.  The principle of free and open access to government geospatial data has been adopted by many governments including US Federal, Canada, Japan, South Africa, Brazil, California state and counties, and by the City of Vancouver and other cities.  G8 leaders (Canada, France, Germany, Italy, Japan, Russia, United Kingdom, United States, and the European Union) recently signed a charter on open data.  But being able to access prepared maps and other derived material is just a first step, governments need to provide access to raw geospatial data in commonly used Web-friendly formats.  In May 2013, President Obama issued an Executive Order making open and machine readable the new default for federal government information in the United States. 

A major motivation for open data has been government transparency.  But there is also a strong belief that open data contributes to the economy.  I blogged earlier about a study by a team at Cambridge University commissioned by the Treasury that found that making all Ordnance Survey data (geospatial data)  free would cost the government £12m but bring a net gain of £156m.  Australia and New Zealand have commissioned studies of the contribution of spatial data to the national economy that have concluded that with appropriate government policies the contribution to the GDP, estimated to be on the order of 1%, could be doubled.

McKinsey Global Institute (MGI) have just published a study that seeks to quantify the value of open data by examining applications in seven fields of the global economy: education, transportation, consumer products, electricity, oil and gas, health care, and consumer finance.  Their research found that seven sectors alone would generate more than $3 trillion a year in additional value as a result of open data.

For each of the sectors they looked at, MGI identified ways that open data could create economic value and identified potential barriers to adoption.

Electricity sector

For example in the electricity sector, MGI identified five levers for using open data to improve efficiency across the electricity value chain:

1. improved generation investment
2. efficient generation operations
3. optimized investment in transmission and distribution
4. efficient transmission and distribution operations
5. optimized retail and consumption

By using publicly available data such as siting applications, resource planning documents, and regulatory filings, utilities can streamline the permitting process for new power projects.

ƒƒ By sharing benchmarking data about processes such as maintenance routines and equipment utilization, power companies can optimize the performance of generating operations.

Open data can help optimize investments in transmission and distribution.

Sharing data gathered via “smart grid” technologies can help identify efficiency opportunities in transmission and distribution operations.

Open data makes it possible to compare products and services so that residential and business users make better decisions about which appliances, equipment an electric service to use.

Electric power usage data combined with community-wide data can show customers how their energy use compares with neighbors and peer organizations.

MGI estimates that open data has the potential to add $340 billion to $580 billion of value annually across the electricity value chain.

Economic potential

MGI found that the benefits of open data has a large potential economic value including increased efficiency, new products and services, and a consumer surplus (cost savings, convenience, better products).  The concluded that it benefits consumers more than businesses, by creating price and product transparency as well as new channels to provide feedback that improves the quality of goods and services (including public ones).

But open data involves business risks, including the potential release of negative information; the potential consumer backlash from aggressive open-data use; and the inadvertent release of confidential information.

The barriers to wider use of open data include privacy issues and the need for legal and regulatory frameworks.  To address these issues MGI recommends that governments need to play a central role by developing and implementing policies to mitigate consumer and business concerns about the misuse of open data and to help set standards that will allow the potential economic and social benefits to materialize.

Top 600 cities with one fifth of world population projected to generate 60% of GDP by 2025

The global urban population is growing by 65 million annually.  More than half of the world’s population is already living in cities, and these cities generate more than 80 percent of global GDP.   It is expected that urbanization will continue to be one of the biggest drivers of global economic growth.  The productivity improvement from urbanization has already delivered substantial economic growth and helped radically reduce poverty in countries such as China and Brazil.

The McKinsey Global Institute (MGI) in a report Urban world:Mapping the economic power of cities (also summarized in Foreign Affairs) has projected the growth of urbanization demographically and economically over the next 15 years.   The report is based on a number of assumptions that together represent a possible future scenaio and relies on MGI's Cityscope database of more than 2,000 cities that coalesces MGI regional research on cities. Together, the 2000 cities of the MGI Cityscope are projected to contribute 75 percent of global GDP growth to 2025. 

MGI projects that 600 urban agglomerations, representing a fifth of the world’s population, will generate 60 percent of global GDP in 2025.

In this report MGI projects one scenario of how cities will evolve demographically and economically over the next 15 years.  There are some surprising conclusions that may change government and companies strategies in how they investment in markets in the future.

Regional distribution

Top cities in 2025 by: 

              pop                  gdp         gdp_growth

1. Tokyo             New York     Shanghai
2. Mumbai        Tokyo            Beijing
3. Shanghai     Shanghai     New York
4. Beijing          London        Tianjin
5. Delhi             Beijing         Chongqing
6. Kolkata         Los Angeles Shenzhen
7. Dhaka           Paris            Guangzhou
8. Sao Paulo   Chicago        Nanjing
9. Mexico City  Rhein-Ruhr  Hangzhou
10. New York     Shenzhen     Chengdu

Over the next 15 years, the regional distribution of the top 600 cities will change. One third of developed cities (developed regions comprise the United States and Canada, Western Europe, Australasia, Japan, and South Korea) will no longer be among the top 600. By 2025, 136 new cities are projeted to enter the top 600, all of them from the developing world.   100 of them are projected to come from from China alone. India is projected to contribute 13 new cities in the top 600 by 2025 and eight will come from Latin America.

Distribution by size

In 2007 developed economies and emerging market megacities (developing cities with populations greater rhan 10 million) together represent 74 % of global GDP in 2007. But according to MGI megacities have not benn driving global growth for the past 15 years and this trend is projected to continue.  MGI projects that today's 23 megacities will cotnribute only about 10% of global growth to 2025. 

The economic role of large cities varies among regions. China’s rapid growth depends on the growth of its megacities and the emergence of new ones.  According to MGI India’s urbanization is at a relatively early stage, while in Latin America rapidly growing middleweight cities are contributing more to GDP growth than its largest cities.

MGI projects that 407 emerging market middleweight cities will deliver nearly 40 percent of global growth by 2025, more than the aggregated developed world and emerging market megacities.  Of these 13 middleweight cities (Chicao + 12 in emerging markets primarily China) are projected to become megacities by 2025.

Age distribution

MGI project that the 423 cities from developing regions will contribute almost 80 percent of growth in the 65-plus age group in the City 600 over the next 15 years.

Conclusion

MGI's research suggests that to find opportunities we need shift focus from economies as a whole to cities within them, and from megacities to the rapidly groing middleweights, particularly in emerging markets.

In a nutshell in 2007

• 1.5 billion people live in these 600 cities—22 percent of global population
• They generated $30 trillion of GDP in 2007, more than half of global GDP
• They support 485 million households with average per capita GDP above $20,000
• Of these the top 100 cities generated $21 trillion of GDP in 2007 - 38 % of the global total.

In 2025 according to MGI's projection

• 2.0 billion people will live in these 600 cities - 25% of the global population
• They will generate $64 trillion of GDP, 60% of global GDP
• They will support 735 million households with average per capita GDP of $32,000, of which 235 million households in developing cities will have income above $20,000 per annum.

 

Geo-clusters to play a key role in fostering innovation for energy efficient buildings

The EU has set three goals for reducing greenhouse gas emissions under the catch phrase 20-20-20 by 2020,  reduce greenhouse gas emissions by 20% from 1990 levels, increase the share of renewable energy sources in energy consumption to 20%, and increase energy efficiency by 20%.

The European Commission (EC) believes that it is on track for meeting the first two of these goals.  But for the third current projections indicate that the EU is tracking toward only a 10% reduction in energy consumption, half the target of 20%.

To get the EU back on track for the 20-20-20 energy efficiency goal, the European Commission (EC) has proposed a new Energy Efficiency Directive (EED).

Geo-clusters

A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. The term was introduced by Michael Porter in The Competitive Advantage of Nations (1990).

"Geo-clusters" are virtual trans-national areas where strong similarities are found (i.e. climate, culture and behaviour, construction typologies, economy, energy price and policies and gross domestic product, to name a few).

The goal is to locate similarities relating to energy efficient buildings across the EU by combining parameters and indicators organized in homogeneous layers.  For example, a technological layer (i.e. building typologies, technologies, ..), a context layer (i.e. climatic conditions, ...), a socio-economic layer (i.e. macroeconomic indicators, behavioural aspects,…), and a political-strategic layer (i.e. standards and regulations, energy policies, ..).  According to Michael Porter clusters have the potential to affect competition in three ways

• Increasing the productivity of the companies in the cluster
• Driving innovation in the field
• Stimulating new businesses in the field

The firms and institutions in a cluster must share four critical characteristics:

• Proximity; they need to be close in space to allow positive spill-overs and the sharing of common resources
• Linkages; their activities need to share a common goal
• Interactions; for positive cluster effects active interaction has to be present
• Critical mass; there needs to be sufficient number of participants present for the interactions to have a meaningful impact on companies’ performance.

The Cluster Observatory provides a single access point to information and analysis of clusters and cluster policy in Europe. The Cluster Observatory also produces analysis and reports on regional competitiveness conditions, transnational cluster networks, clusters in emerging industries, and studies on better practices in cluster organisations.

Geo-clusters for energy efficient buildings in the European Union

The Energy Efficient Buildings Association (E2BA) is a Europe wide industry driven research and demonstration program for energy efficient buildings. It developed a research and innovation roadmap “Towards the creation of a high-tech building industry. Turning energy efficiency into a sustainable business”, which sets the priorities in the built environment for the period 2014-2020.  It is understood that innovation will be the key for sustainable development and competitiveness of the regions and amplifying the  productivity of local resources.

It introduced the concept of geo-clusters which are virtual trans-national areas where strong similarities are found in terms of climate, culture and behaviour, construction typologies, economy, energy price and policies, and gross domestic product.

The GE2O project was formed to apply geo-clustering to the development of energy efficient buildings across Europe.   The GE2O Project will develop a proof-of-concept of a geo-cluster approach by means of a multidimensional mapping tool. The geo-cluster mapping tool will provide, based on similarities across Europe, relevant information about where and how a program or service can be implemented, which program or service can be used in a specific situation, and where opportunities exist to develop a new program or service.

The information identified for geoclustering identification for energy efficient buildings includes

1. Characterization of energy use in buildings
2. Characterization of buildings
3. Characterization of the construction sector – employment aspects
4. Characterization of the construction sector – dynamic aspects
5. Regulation
6. Climate
7. Environmental and social consideration layer

Based on these data layers, the objective is to gather information on the existing stock of clusters spread over Europe related to energy efficient buildings.  In this context a cluster is a joint initiative for enenrgy efficient buildings in a geographic area that brings together companies, research centres, educational institutions in order to develop synergies and cooperative efforts.  Membership must be on a voluntary basis. The goal is to stimulate businesses, increase productivity and drive innovation. 

Between April and June 2012, 68 datasheets were collected for a number of countries. Among them, 56 were considered to meet the definition of a cluster for energy efficient buildings.

Thanks to Gene Roe for pointing me to this.

Adding the social cost of air pollution could make coal generated electric power 60% more expensive in the United States

In this fascinating study the authors present a way of including the costs of air pollution (sulfur dioxide, nitrogen oxides, volatile organic compounds, ammonia, particulate matter, and CO2) into the standard set of national accounts used to calculate gross domestic product (GDP) and other national economic indicators. 

With this approach a price for coal or natural-gas generated electricity can be calculated that includes the cost of air pollution including such things as impacts on human health, decreased timber and agriculture yields, reduced visibility, accelerated depreciation of materials, and reductions in recreation services. 

For example, the study finds that when these impacts are included the cost of coal generated electricity increases by 60 % in states relying on coal.  This could make coal uncompetitive with other sources of electric power.

Including air pollution in national economic accounts

National economic accounts cover activities that are included in market activities.  For example, The annual input-output accounts (I-O accounts) measure productive activity occurring in the economy by measuring by industry, the total value of output by commodity and the use of such commodities as an input to each industry’s production process. Gross domestic product (GDP), probably the most quoted economic statistic, can be computed using the I-O accounts.

In the generally used system of national accounts external activities such as pollution that do not participate in a market are by definition excluded. In regulated industries, firms often already engage in some abatement. In this case some costs are already included in the existing national accounts. However, damages from any remaining emissions are not incorporated into the accounts.  

This study presents a framework to integrate external damages, referred to as gross external damages (GED), into the system of the national economic accounts.  It only looks at market activities, so that for example, pollution from households (homes and cars), which is a non-market activity, is not counted. In this framework air pollution becomes another cost of doing business. This approach allows a social price of coal or natural gas to be calculated that reflects the social cost of air pollution from each energy source.

Cost of air pollution in the United States

This study relates six major air pollutants

• sulfur dioxide (SO2)
• nitrogen oxides (NOx)
• volatile organic compounds (VOCs)
• ammonia (NH3)
• fine particulate matter (PM2.5)
• coarse particulate matter (PM10–PM2.5)
• CO2 (for electric power generation only)

to the physical and economic consequences (social costs) of these emissions on society. This paper takes the position that emissions should be valued by the damage they cause. With this assumption the pollution caused by each industry are included in the national accounts as both a cost and an (unwanted) output.

Using empirical estimates of the marginal damages (in effect, the prices) associated with each emission in every county in the Unites States, the contribution of air pollution damages to national accounts by industry have been calculated for the United States. The GED reported in this study is the annual damages from emissions in the year 2002. The analysis of greenhouse gases is an exception because they are calculated as the present value of future damages from 2002 emissions.

The study estimates that aggregate pollution damages, GED, from the market sector for all industries in 2002 were $184 billion. The study breaks this down by sector and by industry and in addition to GED calculates the GED as a percentage of the total market value for each industry, referred to as GED/VA. The sector with the largest GED is utilities with a GED of $63 billion of damages, about 34 percent of the total damages produced by market activity.

(It should be notes that pollution from households (homes and cars), which reflects nonmarket activity, is not included in the $184 billion.  To put this is context emissions from light duty cars and trucks produced over $37 billion in air pollution damage and residential combustion of fossil fuels and wood generated $17 billion in damages in the year 2002.)

For the electric power industry, the damages from CO2 emissions are included in the gross emissions, referred to as GED*.  The CO2 share of GED* for coal-fired generators is between 5 percent and 40 percent. Although coal-fired plants generate a great deal of CO2, they generate greater damages due to other pollutants  such as SO2.  Emissions of CO2 have the largest percent  impact on the damages from natural gas–fired power plants (40 percent to 90 percent) because natural  gas–fired power plants generate very small amounts of other pollutants.

In 2002, residential consumers of electricity paid an average market price of 8.4 cents/kwh.  Residential electricity prices vary by the primary fuel type used in electricity generation.

In states that primarily rely on coal-fired power, residential electricity prices averaged 6 cents/kwh. The average GED*/kwh of coal-generated electricity is 60 percent of the average residential retail price of electricity in these states.   The costs associated with air pollution significantly increases the social cost of coal generation to 9.6 cents/Kwh vs 6 cents/Kwh.  An increase of this magnitude could make coal uncompetitive compares to other sources of electricity.

In states that rely primarily on natural gas, residential electricity prices averaged 11 cents/kwh. The average GED*/kwh of natural gas–generated electricity is 5 percent of the average residential retail price of electricity in natural-gas states.  The social cost of natural gas generation is 11.5 cents/kWh.

Details of the calculation

The Air Pollution Emission Experiments and Policy(APEEP) analysis model is an integrated assessment economic model of air pollution for the United States. The APEEP model connects emissions of six major pollutants to the physical and economic consequences of these discharges on society. The effects included in the model calculations are adverse consequences for human health, decreased timber and agriculture yields, reduced visibility, accelerated depreciation of materials, and reductions in recreation services. In addition, for the electric power generation sector, damages from carbon dioxide emissions are also calculated.

APEEP employs the US EPA national emission inventory of air pollution emissions in the United States, along with an air quality model to calculate the resulting air pollution concentrations across the country. Using detailed, county-level inventories, the model determines exposures to these emitted pollutants, and APEEP computes the resulting physical consequences by relying on dose-response functions. Finally, the model expresses these physical effects in monetary terms using standard estimates of the value of mortality and morbidity risks. APEEP generates national concentrations, exposures, and damages,

The US EPA national emission inventory of air pollution emissions includes 10,000 emission sources representing a complete inventory of all anthropogenic sources of these six pollutants in the United States. The inventory reported in 2006 is the most recent USEPA inventory and measures emissions in 2002. The 2002 inventory includes 656 large point sources (individually documented facilities). The inventory also includes area sources from vehicles and stationary ground sources aggregated by county for the entire contiguous United States. The emissions are identified by a North American Industry Classification System (NAICS) industry code.

One of the important results of the damage estimates is that most of the damages due to exposures to air pollution result from human health effects, specifically premature fatalities. To count human exposures, APEEP contains an inventory of populations in each county subdivided into 19 age groups. The population is divided by age because age is a key determinant of human health effects.

Translating the health effects into economic losses requires determining an economic value for premature mortality.  A key assumption is the magnitude of the value placed on mortality risks. This study values mortality risks using evidence from both revealed preference studies and stated preference studies in the literature. Specifically, the study uses a value of a statistical life (VSL) of $6 million per premature mortality. This figure represents the mean of 28 studies reviewed by the USEPA and it is used by the agency in their analyses of the benefits and costs of the Clean Air Act.

Gross external damages (GED) are defined as the marginal damages of emissions(the price) times the total quantity of emissions. If the polluter receives the permits without cost, GED is the correct measure of the omitted environmental costs of that industry. If, however, the polluter pays for the pollution (either by buying permits or through pollution taxes), the costs of the pollution would be part of the firm’s cost of production under standard accounting principles. To avoid double counting, the costs of the permits should be subtracted from GED to obtain net external damages,

CO2 emissions have been calculated for the fossil fuel electric power generators by the Energy Information Administration (EIA). Several studies have estimated the global damages per ton of 2002 emissions as a present value of future damages, also referred to as the social cost of carbon. The study uses the value of $27/tC as the most probable estimate with $6/tC as a lower bound and $65/tC as an upper bound. It is expected that as concentrations of CO2 increase in the atmosphere, the social cost of carbon will increase.

Economic impact of weather-related power outages estimated at $18 billion to $33 billion annually

The White House has just released a report The Economic Benefits of Increasing Electric Grid Resilience to Weather Outages that was prepared by the President’s Council of Economic Advisers and the Department of Energy’s Office of Electricity Delivery and Energy Reliability, with assistance from the White House Office of Science and Technology. 

The U.S. power grid connects more than 144 million customers over 450,000 miles of high voltage transmission lines to 5,800 major power plants with a total capacity of roughly a thousand GW. The grid not only supplies power to residential, commercial and industrial customers, but 99 % of all U.S. Department of Defense installations located within the United States rely on the commercial electric grid for power.

Severe weather is the single leading cause of power outages in the United States. Outages caused by severe weather  account for 58 percent of outages observed since 2002 and 87 percent of outages affecting 50,000 or more customers. In all, 679 widespread outages occurred between 2003 and 2012 due to severe weather.

Economic impact of outages caused by extreme weather events

It estimates that between 2003 and 2012 weather-related outages are estimated to have cost the U.S. economy an inflation-adjusted annual average of $18 billion to $33 billion. But annual costs fluctuate significantly from a high in 2008 of $40 billion to $75 billion to a low in 2007 of $5 to 10 billion.  The financial impact of outages includes lost output and wages, spoiled inventory, delayed production, inconvenience and the cost of restarting industrial operation.

(In constant 2012 dolllars)

2012 $27 - $52 billion

2011 $19 - $36

2010 $13 - $25

2009  $8 - $14 

2008 $40 - $75

2007  $5 - $10

2006 $23 - $43

2005 $14 - $27

2004 $14 - $27

2003 $14 - $26

Aging transmission grid

Projected construction of transmission lines remains well below the rates experienced between 1960 and 1990. Seventy percent of the grid's transmission lines and power transformers are now over 25 years old and the average age of power plants is over 30 years.

Climate change likely to increase extreme weather events

The IPCC and other scientific sources forecast the increased probablility of more severe hurricanes, winter storms, heat waves, floods and other extreme weather events being the primary impact of global climate change.  The incidence of both major power outages and severe weather is increasing. Data from the U.S. Energy Information Administration show that weather-related outages have increased significantly since 1992.

Grid modernization (aka smart grid)

In June 2011, President Obama released A Policy Framework for the 21st Century Grid which set out a strategy for modernizing the electric grid. The initiative is aimed at applying smart grid technologies to increase the grid’s efficiency, reliability, and resilience.  This involves hardening the grid to make it less vulnerable to weather-related outages and recovery/reconstitution to reduce the time it takes to restore power after an outage occurs.

Urban Observatory compares cities visually

One of the coolest things at the ESRI User Conference is the Urban Observatory developed by Richard Saul Wurman, creator of TED, Jon Kamen of the film company @radical.media, and Jack Dangermond of ESRI.   Urban Observatory allows you to simultaneously compare data about work, people, places, movement, and systems for different cities.  The exhibit at ESRI UC features large digital displays of maps, images, video, and authoritative data for cities around the world.

Business benefits of INSPIRE geospatial standards for small to medium enterprises

At the INSPIRE conference in Florence, Maria Betti, Director of the Institute for Environment and Sustainability gave an overview of where the INSPIRE initiative is today. 

The original INSPIRE Directive was issued  Mar 14, .2007, so it has been about a 5 to 6 year effort involving 30 countries and 23 languages. The major components

• Network Services Regulation
• Data and Services Sharing

were adopted in 2009/2010 and 2010/2011, respectively.  The Data Specification Annexes II and III including 25 data themes (with Annex I a total of 34 themes), an incredible cross-disciplinary participatory effort by hundreds of experts and many organizations, has been accepted unanimously by the INSPIRE Committee and been adopted by the European Commission and just needs adoption by the European Parliament, which is expected by October 2013.  So the first phase of INSPIRE has been completed and INSPIRE is now moving into the implementation and maintenance phase during which time a Commission Expert Group on Inspire Implementation and Maintenance will be responsible for it.

Business benefits

I blogged previously about some business benefits of INSPIRE reported by local governments.  Maria Betti reported on a survey that was done among small to medium enterprises (SMEs) in the European information communications technology (ICT) sector. 

It is estimated that there are 480 000 of these small to medium enterprises in the ICT sector in Europe.  90% of these have less than 10 employees.  Of these it is estimated that 2% of these are in the geospatial information (GI) segment. In 2013 SmeSpire conducted interviews with 250 of these GI SMEs.  They found that the primary business benefits that have been realized by these SMEs are

• New products/services - realized 43.5% (foreseen 78.0%)
• New methods of producing procudts and services- realized 35.1% (foreseen 70.2 %)
• New customer groups/geographic markets- realized 34.6% (foreseen 75.9%)
• Producing in less time or at lower cost- realized 30.4% (foreseen 67.0%)

Maria Betti concluded that the impact of INSPIRE is already quite high among SMEs and it is expected to go much higher.

UK investing £300 billion in infrastructure 2012-2015

I have blogged previously about the UK National Infrastructure Plan which plans to invest hundreds of billions of pounds in the next 10 yrs on infrastructure including high speed rail, energy, aviation, water and wastewater, roads and highways, and high speed broadband.  It is intended that up to 70% of the funding is to come from the private sector.  That means that the program has to provide attractive returns with relatively low risk to attract private capital.

At a Construct IT event at Network Rail in Manchester, Keith Waller from Infrastructure UK provided an update on where the National Infrastructure Plan is right now, some of the challenges, and what the Government is doing to address the challenges.

National Infrastructure Plan

The UK National Infrastructure Plan is designed to provide a long term vision and medium term planning across all sectors which are broken down as transport, energy, communications, waste, water, flood, and intellectual capital.  The total cost is estimated to be £300 billion across 500 projects for the period 2012 to 2015.  A critical objective objective is 2/3 of the total investment is be private capital.   Most UK infrastructure investment is already led by the private sector. For example, water, energy, and communicatons are almost entirely privately funded.  Transport is about 2/3 private and public/private partnerships.  Intellectual capital is mostly public.  Flood is mostly public/private partnerships.  To attract additonal private funds the government has guaranteed £ 40 billion in loans to date.  It is also developing a new approach to public private investment, referred to as PF2, tmake PPP more attractive to private companies.  It appears that the average annual investment in infrastructure had increased by over 10% in 2010-2012

Average annual public and private investment in infrastructure
2005-2010 £29 billion
2010-2012 £33 billion

The UK Government seems to be committed to making this plan happen.  It has identifeid 40 projects and programs that are of national significance and critical for growth.  It has set up a Cabinet Committee chaired by the Chief Secretary of the Treasury to improve poor coordination and planning and eliminate regulatory holds ups to ensure delivery.  A new commercial Secretary Lord Deighton with a reputation for getting things done has been tasked with delivery of the infrastructure plan.

Reducing the cost of infrastructure

A McKinsey study suggested that more private sector involvement in infrastructure projects could result in an estimated 30% improvement in construction productivity over 5-10 years, resulting from the combination of 5-15% reduction in the cost of design and planning, 5-10% in engineeering, 5-10% in materials purchase and sub-contracting, 3-5% in construction, and  3-5% from organizational enablers.  They estimate that this would translate into a 20% reduction in overall infrastructure spend.

McKinsey suggested that governments and infrastructure investors could reduce risks and increase returns by focussing on three areas,

mproving productivity of existing and new assets

For example, by tuning the regulatory and market structure to improve efficiency and expand capacity.

Making the economic model more attractive to investors

By being smarter about matching capacity expansions to demand and  finding additional sources of revenue.

Reducing cost and risk by improving project delivery

By allowing more competition, pushing more risk on to contractors, and encouraging engineering, procurement and construction (EPC) companies to increase their build capabilities.

UK Infrastructure Cost Review

A major Government focus is reducing the cost of infrastructure.  For example, in a series of public consultations it has asked why it is more expensive to develop infrastructure in the UK ?  The conclusion is that it is the Government's fault.

Basically, the reason that was arrived at is that economic cycles are bad for investment. The rise and fall in the GDP for example is amplified for the construction industry (typically 10% ot GDP) so that peaks are higher and the valleys more severe for the construction indusry than for the economy as a whole.  Looking specifically at infrastructure, in 2012 output was down 13%, while orders were up 38% compared to the previous year.  A study of the water industry concluded that because of the economic cycle every 5 years  20,000-40,000 jobs are lost which adds £7 to everyone's water bill.

An important factor contributng to the economic cycles is that in the past the Government (not singling out any particular party and government) has frequently changed its mind about infrastructure and uncertainty is not conducive to investment.  Some ministers have had a long term strategy which is very good for the industry because it encourages investment, but others are rather short term resulting in a "start/stop" approach to policy. 

The conclusion is that the most important thing that the government can do is establish a long term policy that persists across elections and other political events.  This not only encourages investment, but also allows other sectors to plan for the demands of infrastructure, for example, to estimate skills requirements in order to implement educational and training programs to produce the reauired skills.

Industry outlook in the process, power and marine (energy) sector

At the HxGN conference in Las Vegas this morning, a very intriguing perspective on the process, power and marine (PP&M) industry (weighted toeward energy) outlook was presented by Gerhard Sallinger, President of Intergraph Process Power & Marine, which is part of Hexagon at the HxGN conference this morning.

Industry outlook

• First of all project sizes are getting bigger in the energy sector.  Gerhard mentioned an Alberta oil plant project seven years ago that cost $6-7 billion which was considered large at the time.  Currently bidding is underway for a $60 billion LNG terminal in Mozambique.
• What this means is that modular prefabrication will be increasingly used, indeed required, for projects of this size.  One of the advantages of modular prefab is that it reduces the number of workers on-site.
• Gerhard is expecting that energy demand will increase by a 1/3 by 2030.  He expects the total capex for energy-related infrastructure to exceed $1 trillion.  What he is seeing from Intergraph's customers is that gas is booming, green continues to grow, and nuclear is coming back - projects are actually being built, not just planned, in Turkey, the US, China, and other countries.
• Shipbuilding continues to be depressed, but offshore (oil platforms) is growing.
• He sees shale gas on the rise, and went so far as to predict that it will shake up the industry.  For one thing, it is cheaper than offshore oil (or oil sands I would add from a Canadian perspective).  But from a software vender's persepctive shale gas plants are simple compared to other forms of energy and his team is looking into what the implications of this are for plant design software.

From a vender perspective, which can be one measure of the health of an industry and the directions it is headed, PP&M has been seeing solid revenue growth, in fact Q1 2013 was their best quarter ever according to Gerhard.  About one third share of the PP&M revenue came from the Americas, one third from EMEA, and one third from Asia.  Gerhard singled out Asia is having the greatest growth potential, calling if highly dynamic.