Disruption in U.S. Product Distribution Sectors
- September 19, 2017
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Many of electric utilities most important customers are large commercial and industrial facilities. When a major change occurs in an industry that has many such facilities throughout the U.S., the utilities and energy service firms that serve these need to be aware of this change and be prepared to help these customers adapt.
Such a major disruption is occurring in a number of very large related sectors in the U.S. economy. The combined size of these sectors in terms of receipts was approximately $13 Trillion in 2012. These industries cross over five sectors: Wholesale Trade (North American Industrial Classification System (NAICS) sector 42), Retail Trade (NAICS sectors 44 and 45), Transportation and Warehousing (NAICS sectors 48 and 49). The disruptions are primarily seen in large warehouse-like facilities that are primary assets for each of the above sectors.
These sectors and the changes that are occurring therein will strongly affect electricity consumption in these large facilities. These disruptions include:
- Reduced sales in brick and mortar stores and increased sales by on-line merchants resulting in major shifts in business patterns
- Growth of automation in fulfillment centers, increasing their efficiency and accelerating the above transition
- Growth in the use of electricity in fulfillment centers and similar facilities caused by increased automation and mobility electrification
2.Description of Sectors
The five sectors have many warehouses or warehouse-like facilities. For these, the energy consumption varies based on the factors below rather than their industry:
- Lighting distribution, intensity and efficiency
- Heating Ventilation and Air Conditioning (HVAC) operating parameters and efficiency
- Building insulation
- Any extra loads such as product refrigerators, freezers, information technology, automation-related and transportation-related equipment
A facility's energy consumption is generally rated by the energy use intensity (EUI), which is measured in kBTU/ft2-year. The EUI ranges from 20 kBTU/ft2-year to 550 kBTU/ft2-year for warehouse-like facilities (see the chart below and note that supermarkets/grocery stores and retail stores fall into this category).
In the above Chart, PM = Portfolio Manager. EPA’s ENERGY STAR Portfolio Manager is a tool that helps facility managers measure and track the energy and water use, waste and materials, and greenhouse gas emissions of their buildings, all in a secure online environment.
This sector includes: (1) Merchant Wholesalers, Durable Goods, (2) Merchant Wholesalers, Nondurable Goods and (3) Wholesale Electronic Markets, Agents and Brokers. If the goods have a shelf-life, they are nondurable. The total yearly receipts for this sector are $7.2 Trillion per year (2012). This sector had robust growth: 4.6% per year average between 2002 and 2012.
These businesses use information technology, and they may (or may not) also have warehouses. Although warehouses are not exclusive to wholesale, they are major facilities for this sector, so we will focus on these. However warehouses are also a major part of logistic services analyzed in subsection 2.4. Furthermore, wholesale warehouses appear to be evolving into logistic centers.
Warehouses for durable and nondurable goods are different due to the shelf-life issue. Non-durable goods: (1) require specialized climate control and (2) will spend less time in the warehouse so a facility will devote more resources to receiving, stocking and shipping.
This sector had receipts of $4.2 Trillion per year in 2012. This sector also had robust growth recently: between 2002 and 2012 it grew at an average rate of 3.3% per year. Several factors are common across most of the sector:
- Most retail firms have stores that stock and sell products to consumers (including other businesses)
- For most facilities, the location of stores strongly corresponds to the location of consumers (that is population density), however electronic sales are also included in these sectors, and facilities for these firms are somewhat independent of customer location.
- For a given category of retail outlets the size of each outlet can vary over a wide range
Specific to the last bullet, since the whole idea of this document is to define disruptions in large (warehouse-like) facilities, only the largest of retail outlets are of interest. Below are the industries within these sectors that should have such facilities.
- Furniture & Home Furnishings Stores (NAICS 442)
- Building Material and Garden Equipment and Supplies Dealers (NAICS 444)
- Grocery Stores (NAICS 4451)
- Department Stores (NAICS 4521)
- Warehouse Clubs and Supercenters (NAICS 4529)
- Large shopping centers/malls (no NAICS code)
All of these facilities have several things in common:
- Very large buildings and in many areas an even larger ratio of roof area-to-building-volume than most facilities, plus large parking-areas.
- Main loads are HVAC and lighting, and some also require product refrigeration.
- Facilities must be close to their customers, thus about a third U.S. of retail facilities are in high energy-cost states (mainly California and the Northeast).
Officially Electronic Sales is Electronic Shopping (NAICS 454111). Between 2002 and 2012 this subsector grew from $24 Billion to $157 Billion (an average of over 20% per year). Major brick and mortar outlets (as of 2017) are having their sales seriously eroded by electronic outlets like Amazon, eBay and many others. Many brick and mortar outlets have started a transition to incorporate web-based businesses into their conventional sales methods, but with a few unique wrinkles:
- Many brick-and-mortar stores assume the role of distributed warehouses (Costco, Home Depot and others).
- Items can be purchased on the web and delivered to the nearest store with no shipping charges.
- Items can be immediately picked up at a store if they are in stock.
- Dedicated near-store parking for item-pickup
This industry includes NAICS 48 and 49. Spending was $1.48 Trillion in 2015. The subsectors in this sector are:
Logistic services: includes inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply and demand planning, third-party logistics management, and other support services. Logistics services are involved at all levels in the planning and execution of the movement of goods.
Air and express delivery services (EDS): Expedited, time-sensitive, and end-to-end services for documents, small parcels, and high-value items. An $82 billion industry in the United States, EDS firms also provide the export infrastructure for many exporters, particularly small and medium-sized businesses that cannot afford to operate their own supply chain.
Freight rail: High volumes of heavy cargo and products are transported long distances throughout the U.S. via the U.S. rail network.
Maritime: This subsector includes carriers, seaports, terminals, and labor involved in the movement of cargo and passengers by water.
Trucking: Over-the-road transportation of cargo is provided by motor vehicles over short and medium distances. The American Trucking Associations report that trucks move nearly 10.5 billion tons of freight, 70.1 percent of the modal share of all freight tonnage transported domestically.
In this subsection we will primarily look at logistic services, and the primary facilities will be logistic centers. The primary firms that employ these facilities are either firms focused on distribution and/or sales of a specific range of products (large grocery store chains, home improvement store chains and web businesses like Amazon for instance), or a third-party logistics provider (Ryder, Exel/DHL and Penske Logistics for instance). Note that Amazon (and other product-sellers) offer third-party logistics services that are tightly integrated into their direct sales (go through the link below).
Logistic services are where major disruptions are occurring, and the new facilities that are the main beneficiaries of the disrupting technologies are the logistic centers. Since we are focused on logistic centers, we will not focus on air and maritime facilities, however, we will briefly focus on trucking, to the extent that changes in technology will impact logistic centers.
Logistics services, as defined above, are “…involved at all levels in the planning and execution of the movement of goods.” Logistic centers are, essentially, redistribution centers. That is, they accept shipments of goods, store (warehouse) these for some period of time, and then ship them to retail outlets or directly to consumers.
The transformation of an industry is often driven by new technology, and this is the case with logistics centers. Relating to these centers as facilities, and more specifically, how they use energy, the primary technologies that will drive the future transformation are:
Robotics / automation: When goods are received at a center, they must be (1) off-loaded (mainly from trucks or containers), (2) distributed to storage locations and placed in those locations. Then when the logistics information system receives a request for goods the center must (3) retrieve the goods requested, (4) package the goods for shipment, and (5) load the goods on the carrier (again, generally on a truck or in a container). For many centers these tasks are largely performed manually by employees, frequently using forklifts or similar mobility devices. However, this is starting to change.
Since the logistics information system knows where all goods are to be unloaded, stored and loaded, a robotic or other automated systems can store and retrieve the goods with limited involvement by employees.
Batteries / electric propulsion: As the volumes of batteries continue to increase, prices of these will continue to come down, and they will inevitably migrate to other applications as dictated by economics. Two of these applications will be logistical mobility devices (like forklifts and robots) and heavy trucks (especially short-haul). A large percentage of the former already use electric power and are starting to migrate to quickly replaceable battery packs. Electric heavy trucks have been produced in limited numbers. As the price of mobility batteries continues to come down, and the performance increases, it is inevitable that these trucks will proliferate.
The disruptive changes described in the prior section are explored in more detail below.
In an earlier section we defined the basic processes in a logistic center:
- Off-load incoming goods
- Distribute goods to storage locations and place goods in those locations (put-away)
- When an order is received retrieve (pick) the goods requested.
- Package the goods for shipment
- Load the goods on the carrier
Automation generally mainly focuses on steps 2 and 3, and human workers are still heavily involved in steps 1, 4 and 5, with assistance from automation.
Attempts to automate warehouses are not new. The first attempts were in the 1980s, but were largely unsuccessful. In the 1990s automated storage and retrieval systems (AS/RS) became more efficient and more widely deployed. Since 2000 automation systems have steadily increased their penetration into warehouses, focusing on AS/RS processes. A typical system might consist of a series of conveyer belts with goods and package sorting gates linking:
- The carriers to the storage areas.
- The storage areas to order-fulfillment positions
- Order-fulfillment positions to outbound carriers
The storage areas are filled with specialized racks (a.k.a. matrices), robots (matrix rovers), and elevators to move incoming goods from conveyer belts to the racks and outgoing goods to conveyer belts.
More recently fully-mobile, battery-powered robots have eliminated the need for most conveyer belts and matrix rovers.
Some of the most innovative systems were made by Kiva Systems. These systems use small, mobile racks carried by small fully-mobile robots (below).
Each rack is kept in a storage area (figure below) until a put-away or pick is to be made to/from the rack. The robot then lifts and carries the rack from the storage area to either a put-away area near the loading dock or the fulfillment area for packaging and shipment.
In 2012 Kiva Systems was purchased by Amazon, who uses Kiva’s technology in their logistic centers. Many other major firms also use Kiva Technology, including:
- The Gap
- Office Depot
- Toys R Us
However, as of mid-2017 Amazon appears to be reducing support for other firms. This seems to indicate that Amazon will keep Kiva Systems’ (now Amazon Robotics) technology in-house, and instead of selling logistic center technology, sell logistics services (go through link in section 2.4).
The following other firms make logistic center robotics products:
- Fetch Robotics, San Jose, CA http://fetchrobotics.com/
- Locus Robotics, Wilmington, MA http://www.locusrobotics.com/
- RightHand Robotics, Inc., Sumerville, MA https://www.righthandrobotics.com/
Most energy-using machines and systems of all scales are increasingly obtaining that energy from electricity. One of the factors driving that and the increase in fully-mobile machines is the availability of more powerful and efficient batteries.
Specific to the subject of this paper, there are many reasons for the mobile machines in (and servicing) logistic centers to use electric power:
- Electrically powered autonomous mobile devices can automatically recharge themselves.
- Electricity is the least-cost fuel, especially with in-facility generation.
- In-facility electric devices emit no air pollution. In a high-density logistic center with many employees, air pollution could be a major issue.
- Both in-facility mobile carriers and large trucks that service facilities have no direct greenhouse gas emissions.
Also, there will be many stationary machines in an automated logistics center that will be electrically powered, including:
- Conveyer belts
- Heating ventilation and air conditioning (HVAC) equipment (including those for specialized environments like freezers)
- Information technology systems
- Communication systems
Overall when a conventional warehouse is converted to a fully automated logistic center, the electricity use will increase dramatically.
The electric vehicle market is growing at a rapid pace. The total population of electric light vehicles (excluding hybrids) has grown from less than 300,000 in 2015 to 450,000 this year (2017), and is projected to grow to 3.77 Million by 2025. This creates potential facilitation and challenges for logistic center energy systems as described below.
The above described growth in electric vehicles (EVs) produce batteries and other components that are of the right scale for other applications, including other mobility applications and MW-scale battery energy storage systems (BESS). The BESS are able to deliver megawatts of power and megawatt-hours of energy that will help logistic centers manage their large electric load. See section 4.2 for more BESS information.
One challenge that was touched on briefly earlier was the impending proliferation of electric heavy trucks. These trucks will need to be charged or have their batteries swapped at logistic centers. The following firms are producing or have announced electric heavy trucks:
- Short-haul (urban) heavy eTrucks have been deployed (in Europe) by Daimler. They recently announced that they would be introducing around ten smaller electric trucks in New York City, with three going to UPS. These trucks will be Mitsubishi Fuso eCanter medium box vans (Mitsubishi Fuso Truck and Bus Corporation is part of Daimler Trucks). These trucks can each carry up to 3-1/2 tons. Daimler has indicated that they will produce 500 of these trucks next year, and ramp to full production by 2020. They have also indicated that they will produce more heavy electric trucks.
- Morgan-Olsen has delivered medium-duty box trucks with Motiv Power Systems all-electric drive trains.
- Chanje (pronounced “change”) has a strong team and investors (mostly Chinese), and apparently has built a prototype of a medium duty panel van.
- This month (Sep 2017) Cummins released a prototype 18,000-pound tractor cab, built by Roush, with a 140kWh battery. It is capable of hauling a 22-ton trailer and has a range of 100 miles. Cummins also announced diesel engine/generator that could extend the range of the battery to 300 miles. They hope to sell the power-train to heavy vehicle manufacturers.
- Tesla Inc. plans to unveil an electric class-8 semi-truck next month (Oct. 26 at the SpaceX facility in Hawthorne, CA).
The most challenging situations will occur when a conventional warehouse, distribution center or manually-staffed fulfillment center is automated and electrified. The existing facility electric distribution system probably will not be able to support the increased electric load without extensive upgrades. Even the local electric utility transmission and distribution system may need to be upgraded, especially considering that logistic centers tend to clustered together (near highways and other transportation junctions).
In regions with high demand charges and energy prices, the electric loads described above will increase these, especially during peak demand periods.
There are many potential ways to distribute generation (and/or storage) of electric power including electric utility ownership of distributed energy resources. In the subsections below the methods that are most applicable to logistic centers are described.
In most of the U.S. logistic centers, like warehouses, are spread out over a large area, with an equally large area for movement and parking of carriers (generally heavy or medium trucks) and employee parking. The large areas make photovoltaic generation (hereafter PV) a good fit. Also PV has recently become dramatically more cost-effective.
PV offers the following benefits:
- Lowest costs (see below)
- Increasing reliability: manufacturers typically warranty PV Panels for 20 years
- The emergence of renewable self-generation incentives
PV pricing is being driven down rapidly (see the chart below). DOE’s SunShot Initiative planned to reduce the cost of PV-generated electricity by about 75% between 2010 and 2020. As of September 2017, PV pricing is below SunShot’s 2020 cost target of $1 per watt for utility-scale PV.
Historical, current, and SunShot 2020 target system prices for the utility, commercial, and residential sectors (weighted national average for fixed-tilt systems)
The main down-side for PV is intermittency. In order for any electric energy source to be usable for load mitigation and peak demand-reduction it must have a predictable and dispatchable output. Because of the rapid variability of PV, an electricity source that can respond instantly is required. For logistic centers battery energy storage systems are recommended as the best way to mitigate short-term variability (see section 4.2).
PV is a good fit for logistic centers, but some facilities will not have enough space for a PV deployment that will completely support their energy needs. There is also the problem of PV intermittency. Battery energy storage systems (BESS) can mitigate the intermittency, but these are expensive (although in their prices are rapidly decreasing). For facilities where PVs will not fit, and those that need a lower cost solution for long-term PV variability microturbines might be a good solutions. Capital costs of microturbines are in the same range as PV arrays, they are relatively small, and they can be dispatched to supplement long-term PV variability, allowing a smaller BESS to manage short-term variability.
Reciprocating engines provide much of the electricity in the world, especially in remote areas. These are mainly diesel generators. In the U.S., due to increasingly stringent environmental requirements, diesels are being limited to back-up service. Natural-gas fueled spark-ignition generators use automotive technology, including emission controls, and thus can meet the most stringent emissions requirements. Also gas-powered generators tend to be smaller and quieter than diesel generators.
Although the generators in sections 4.1.1 through 4.1.3 are considered the best fit for logistic centers, the following are other reasonable options for self-generation.
Industrial-scale Gas Turbine-Generator Sets: These are similar to microturbines reviewed above, but larger, ranging from 5 MW to around 60 MW. The largest units are also more efficient than microturbines, and also more reliable and long-lived since they meet electric utility standards. The downsides are: they are very large, very difficult to permit, and require substantial maintenance.
Combined Cooling Heat and Power: These can use the gas-turbine generator set described above, a microturbine or certain-types of fuel cells (below). All of these output heat, and the heat can be converted to chilled air or water by using an absorption refrigeration / chiller. By using the heat output of an electric generator, efficiency is increased. The downside is complexity and high-maintenance, although these systems are common and well-proven.
Fuel-Cells: There are many types of fuel cells, and depending on the type, they will either use hydrogen, generally reformed from natural gas, or natural gas directly. The main downsides of these designs is that they are both expensive and complex.
4.2.Battery Energy Storage Systems (BESS)
There are many types of battery energy storage systems, but in this brief document we will focus on the technology most likely to dominate the market in the next decade. These are lithium-ion batteries that are similar in scale to electric vehicle batteries. This chemistry has had the largest sales and most rapid growth in recent years.
The lowest current battery pricing for utility-scale lithium ion BESS seems to be around $300/kWh. A recent cost for smaller-scale BESS might be for the Tesla Powerwall 2 stationary battery system. These each cost $5,500 and store 14 kWh with a 7 kW peak output. This includes all of the supporting hardware (including an inverter), and even at this small-scale this is $400/kWh or $785 per kW.
Lithium-ion BESS technology been well proven, with more than 60 utility-scale (MW-scale) systems delivered, and these systems have been delivered by at least ten manufacturers.
The primary advantage of a BESS is its ability to respond very quickly to deliver power to service loads and absorb power to charge the batteries. This allows these systems to play a critical role when properly applied in assuring facility electric distribution systems (et al) are not overloaded, demand set-points are not exceeded and renewable generation is not wasted.
Many strategies can be used individually or in combination to decrease overall energy costs and mitigate new loads, but the only reasonable way to evaluate them is through computer-simulation and evaluation of proposed strategies. The computer simulation tools used for this should be able to support all or most strategies contemplated, all of the energy components and systems that might be used in implementing these strategies and also the most complex utility tariffs.
An important part of any energy optimization system is the energy control system. This system executes applications required for optimum facility energy operations. The inputs to and outputs of these applications are executed through interfaces with other systems (like PV inverter controllers or facility energy management systems) and/or direct interfaces with generators, meters and battery energy storage systems. The energy system controller should have a graphic user interface and support all protocols for other systems and devices it will need to interact with. The controller should also be able to provide the long-term and short-term optimization and control applications required to provide intended benefits.
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