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Report of the Panel on DOE’s Light-Duty Vehicle Hybrid Technology R&D Program

Basic hybrid electric vehicle (HEV) technology is relatively well established today and is reasonably well recognized by consumers owing to publicity surrounding the Toyota Prius and other hybrid light-duty vehicles now on the market or soon to be introduced. Current market penetration of HEVs in the United States is less than 2 percent of new vehicles, but it is increasing rapidly, assisted by significant federal and state incentives and to some extent by industry subsidies such as repair/warranty cost absorption. Extensive R&D on technologies for hybrid vehicles is being conducted around the world by automotive companies and their suppliers, as well as by government programs such as DOE’s FreedomCAR and Vehicle Technologies (FCVT) program.

INTRODUCTION AND OBJECTIVE OF STUDY

The Panel on Prospective Benefits of DOE’s Light-Duty Vehicle Hybrid R&D Technology Program is one of six expert panels convened under the auspices of the Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase Two) to conduct a beta test of the committee’s methodology for assessing prospective benefits of R&D programs. The NRC-appointed panel, composed of nine members with a mix of industrial and academic experience (see Attachment A), was asked to assess the potential benefits of DOE’s R&D activities that are focused on HEV technologies using more efficient internal combustion engine (ICE) power trains for light-duty vehicles.

The panel met in Washington, D.C., on October 3 and 4 and November 7 and 8, 2005. Both meetings included open, information-gathering sessions attended by DOE headquarters staff and contractors. The DOE representatives briefed the panel on light-duty vehicle R&D programs within the Office of Energy Efficiency and Renewable Energy (EERE) and on the approach used by DOE to estimate the prospective benefits of these programs in accordance with the requirements of the Government Performance and Results Act (GPRA).

The panel received guidance from its parent committee in developing its meeting agendas and applying the prospective benefits methodology. Its work was facilitated by a consultant who assisted all six panels and was, therefore, able to ensure consistency in the application of the methodology. In assessing the likelihood of technical success for DOE’s R&D programs, the panel drew on its own expert judgment and on the findings of the recent review of the research program of the FreedomCAR and Fuel Partnership (NRC, 2005b). That review included more detailed assessments of the current status of and future prospects for DOE’s R&D on light-duty hybrid vehicle technologies than were possible within the time and resource constraints of the current effort.

The panel’s detailed comments on the prospective benefits methodology are included later, but some observations are made here to set the context for the remainder of this report. The panel found that, in general, the methodology provided a good framework for establishing upper and lower bounds on the ultimate impact of the DOE program and for focused conversations among panel members and DOE representatives. However, the panel emphasizes that there is significant uncertainty in the estimate of prospective benefits of DOE’s program, measured in terms of reductions in fuel consumption. These benefits depend not only on the success of the research itself—its timely achievement of technical and cost goals—but also on factors beyond DOE’s control, including the outcomes of research being conducted by other organizations around the world and the timing and rate of commercialization of new vehicle technologies. The benefits will also depend on the future market penetration of lightduty hybrid vehicles, which is likely to be affected by factors such as oil prices, emissions regulations, and fuel economy standards. Estimates of anticipated benefits of research often depend on expert judgment regarding numerous technical and market factors about which there is considerable uncertainty. In the present case, the number of vehicles potentially affected is very large, because 16 million to 17 million new light-duty vehicles are sold in the United States each year.



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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) L Report of the Panel on DOE’s Light-Duty Vehicle Hybrid Technology R&D Program Basic hybrid electric vehicle (HEV) technology is relatively well established today and is reasonably well recognized by consumers owing to publicity surrounding the Toyota Prius and other hybrid light-duty vehicles now on the market or soon to be introduced. Current market penetration of HEVs in the United States is less than 2 percent of new vehicles, but it is increasing rapidly, assisted by significant federal and state incentives and to some extent by industry subsidies such as repair/warranty cost absorption. Extensive R&D on technologies for hybrid vehicles is being conducted around the world by automotive companies and their suppliers, as well as by government programs such as DOE’s FreedomCAR and Vehicle Technologies (FCVT) program. INTRODUCTION AND OBJECTIVE OF STUDY The Panel on Prospective Benefits of DOE’s Light-Duty Vehicle Hybrid R&D Technology Program is one of six expert panels convened under the auspices of the Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase Two) to conduct a beta test of the committee’s methodology for assessing prospective benefits of R&D programs. The NRC-appointed panel, composed of nine members with a mix of industrial and academic experience (see Attachment A), was asked to assess the potential benefits of DOE’s R&D activities that are focused on HEV technologies using more efficient internal combustion engine (ICE) power trains for light-duty vehicles. The panel met in Washington, D.C., on October 3 and 4 and November 7 and 8, 2005. Both meetings included open, information-gathering sessions attended by DOE headquarters staff and contractors. The DOE representatives briefed the panel on light-duty vehicle R&D programs within the Office of Energy Efficiency and Renewable Energy (EERE) and on the approach used by DOE to estimate the prospective benefits of these programs in accordance with the requirements of the Government Performance and Results Act (GPRA). The panel received guidance from its parent committee in developing its meeting agendas and applying the prospective benefits methodology. Its work was facilitated by a consultant who assisted all six panels and was, therefore, able to ensure consistency in the application of the methodology. In assessing the likelihood of technical success for DOE’s R&D programs, the panel drew on its own expert judgment and on the findings of the recent review of the research program of the FreedomCAR and Fuel Partnership (NRC, 2005b). That review included more detailed assessments of the current status of and future prospects for DOE’s R&D on light-duty hybrid vehicle technologies than were possible within the time and resource constraints of the current effort. The panel’s detailed comments on the prospective benefits methodology are included later, but some observations are made here to set the context for the remainder of this report. The panel found that, in general, the methodology provided a good framework for establishing upper and lower bounds on the ultimate impact of the DOE program and for focused conversations among panel members and DOE representatives. However, the panel emphasizes that there is significant uncertainty in the estimate of prospective benefits of DOE’s program, measured in terms of reductions in fuel consumption. These benefits depend not only on the success of the research itself—its timely achievement of technical and cost goals—but also on factors beyond DOE’s control, including the outcomes of research being conducted by other organizations around the world and the timing and rate of commercialization of new vehicle technologies. The benefits will also depend on the future market penetration of lightduty hybrid vehicles, which is likely to be affected by factors such as oil prices, emissions regulations, and fuel economy standards. Estimates of anticipated benefits of research often depend on expert judgment regarding numerous technical and market factors about which there is considerable uncertainty. In the present case, the number of vehicles potentially affected is very large, because 16 million to 17 million new light-duty vehicles are sold in the United States each year.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) Thus, relatively small differences in the probability of research success or in the market penetration rate—both of which are difficult to estimate with certainty—result in large differences in estimates of overall benefits. Consequently, the panel cautions that the quantitative results presented in its report should be considered in the context of a range of potential outcomes, not as a precise prediction of the results and benefits of the research program. SUMMARY OF DOE PROGRAM ON LIGHT-DUTY VEHICLE HYBRID TECHNOLOGY DOE’s R&D on technologies for light-duty hybrid vehicles with ICE power trains is conducted under the auspices of the FCVT program in EERE. The mission of the FCVT program is to “develop more energy-efficient and environmentally friendly highway transportation technologies that enable America to use less petroleum” (DOE, 2005c, pp. 1-13). Within the broad context of the FCVT program, light-duty hybrids with gasoline or diesel-fueled ICE power trains are seen as a step on the transition pathway toward the ultimate goal of fuel-cell-powered vehicles running on hydrogen. Because the FCVT program comprises much more than R&D for light-duty ICE hybrids, the panel’s first step in analyzing the materials received from DOE was to decide which parts of the program to include in its assessment. The FCVT budget for R&D related to passenger vehicles covers work on energy storage (high power energy storage, advanced battery development, and exploratory technology research), advanced power electronics and electric motors, materials (automotive lightweight materials and automotive propulsion materials), advanced combustion and fuels, and systems.1 The panel selected three of these areas on which to base its assessment: high power energy storage, automotive lightweight materials, and advanced combustion and fuels. The reasons for selecting these three technical areas are twofold. First, in the panel’s judgment, these areas are concerned with critical technologies for more fuel-efficient light-duty vehicles. Second, they consistently received the largest share of the FCVT funding for passenger vehicles in FY02, when the FCVT program was initiated, through FY05.2 Over that 4-year period, high power energy storage received 20 to 22 percent of each year’s funding (a total of $69 million), automotive lightweight materials received 18 to 21 percent of annual funding (a total of $62 million), and advanced combustion and fuels received 25 to 30 percent of annual funding (a total of $88.5 million). DOE’s FY06 budget request indicates a continuing emphasis on these three technology areas.3 At the second panel meeting, DOE representatives questioned the panel’s decision to focus on three technology areas rather than on the entirety of EERE’s R&D on lightduty vehicles with ICE power trains. The panel considers its approach appropriate for the purposes of the present assessment, in which reduced fuel consumption is the metric of success. The technology areas selected are critical if light-duty hybrid vehicles are to achieve greater commercial success. DOE’s research in these three areas could result in faster and/or broader market penetration by hybrid vehicles, and important fuel savings could result.4 The panel sees DOE’s role as focused on high-risk R&D on critical technologies, while leaving to others relatively low-risk technology development and the integration of vehicle subsystems into a marketable product. DOE PERFORMANCE GOALS AND PANEL ASSESSMENTS OF THE TECHNICAL AND MARKET RISKS DOE and its industry partners have developed performance goals for activities under the FCVT program. These goals comprise target dates, technical characteristics, and cost. The panel identified this last factor as particularly important, because the biggest challenge to market acceptability of hybrid vehicles is likely to be the incremental vehicle cost of achieving adequate vehicle performance, safety, and durability. As noted in the recent review of the research program of the FreedomCAR and Fuel Partnership (NRC, 2005b), the cost savings projected to be attributable to the higher fuel mileage of HEVs will probably not offset the higher initial cost of the vehicle at foreseeable fuel prices. Thus, further cost reductions may be necessary for hybrid vehicles to gain widespread acceptance and have a significant impact on fleet fuel mileage. The following sections identify the relevant DOE performance goals and discuss the panel’s assessments of technical and market risk for each of the three technical areas identified earlier—namely, high power energy storage, automotive lightweight materials, and advanced combustion and fuels.5 1 Ed Wall, director DOE Office of FreedomCAR and Vehicle Technologies, “Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase Two),” Presentation to the panel, October 3, 2005, Washington, D.C. 2 Ed Wall, director DOE Office of FreedomCAR and Vehicle Technologies, “Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase Two),” Presentation to the panel, October 3, 2005, Washington, D.C. 3 The next largest budget category from FY02 through FY05 was advanced power electronics and electric motors, which received 16 to 17 percent of the budget each year (a total of $54 million). Other categories each received less than 10 percent of annual funding. 4 As discussed below, improvements in energy efficiency resulting from DOE’s program may be manifested in the marketplace as vehicle attributes that are even more attractive to the consumer than greater fuel economy. 5 The benefits of DOE’s R&D may extend to vehicles with conventional power trains.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) High Power Energy Storage Hybrid vehicle drive trains use three main technologies: energy storage (batteries), electric motors, and power electronics. Of the three, the panel chose to focus on energy storage (batteries) as a surrogate for electric hybrid drive technology because, in the panel’s view, battery technology presented the largest technical and cost hurdles. Nonetheless, significant cost and technical concerns also exist with electric motors and power electronics. DOE Performance Goals DOE’s performance goal for hybrid energy storage is to develop, by 2010, electric drive train energy storage with 15-year life at 300 Wh with discharge power of 25 kilowatt (kW) for 10 seconds and at a cost of $20 per kilowatt (/kW) (DOE, 2005c). DOE activities on light duty vehicle hybrid technology aims to demonstrate technical achievements and to use cost modeling to determine whether cost targets could be achieved if the technology were implemented on a large scale. The panel notes that achievement of DOE’s performance goal would not eliminate technical risk or assure market availability of the technology at the stated target, and that several additional years (from 3 to 10) would be necessary for scale-up to high-volume vehicle production. Technical Risks Chemical batteries and ultracapacitors are the primary alternative devices for energy storage in HEVs. In addition to the energy storage requirements, technical challenges include cost, durability (number of charge cycles before performance deteriorates), low-temperature operation, and safety. Adequate durability (for example, 15-year calendar life or 150,000 miles) is essential, because the cost of battery replacement—approximately the same as replacing today’s conventional engine—would be a serious market deterrent to hybrid vehicles. Ultracapacitors have excellent durability, power capability, low-temperature performance, and safety, but are considered unlikely to achieve the cost objective in the foreseeable future. Nickel metal hydride (NiMH) batteries are relatively well developed today and commercially available, but they are projected by DOE to have little chance of meeting the long-term cost objective and 15-year durability. DOE anticipates that lithium ion (Li ion) or equivalent technology is necessary to meet the cost target of $20/kW. Other emerging energy storage technologies, such as lithiumsulfur batteries or a combination of batteries and capacitors, may be necessary to achieve the cost and performance targets. The recent review of the FreedomCAR and Fuel Partnership notes that efforts directed to the development of new materials and electrochemical couples in DOE’s electrical energy storage program present “the best chance to remove the major barriers of abuse tolerance, cost, and calendar life for high-power batteries” (NRC, 2005b, p. 77). The panel agrees that the fundamental research being supported by DOE may play a significant role in identifying potential breakthrough storage technologies. In the panel’s judgment, DOE’s technical and cost targets are unlikely to be achieved by 2010 because proven NiMH technology is unlikely to achieve the cost targets and 15-year life. The next-generation battery technology (Li ion) still has significant limitations, including safety and low-temperature performance, that require further development before volume commercialization. Li ion battery technology is more likely to be developed in an additional 10 years (i.e., by 2020), but even with the extended time frame, achieving the cost targets will still be difficult. For example, achieving adequate low-temperature performance and safety may entail added costs for enhancing the battery system. To reflect these important technical risks associated with meeting DOE’s performance goal, the panel estimated the probabilities of three alternative outcomes (see later discussion of decision tree): Meeting the performance goal by 2010, Meeting the performance goal by 2020, and Meeting the technical targets but a less aggressive cost target ($28/kW instead of $20/kW) in two time frames (present through 2010 and through 2020). Market Risks Adequate vehicle performance is essential for market acceptance of hybrid vehicles. The performance of wellengineered hybrids is generally considered acceptable and sometimes superior to that of CVs, but under some driving conditions (e.g., up long hills) the limited battery energy storage may be unable to maintain adequate performance. Other market risks associated with hybrid vehicle drive trains include unknown durability because of the greater complexity associated with the battery, electric motor, and power electronics. Adequate battery durability (15-year calendar life) is essential, because the high replacement cost—approximately that of replacing today’s conventional engine—would be another serious market deterrent to hybrid vehicles. Automotive Lightweight Materials The Automotive Lightweighting Materials activity covers a broad range of structural materials for body, chassis, and power train (engine and transmission) applications. The general objective is to reduce the weight of passenger vehicles without sacrificing performance, safety, or the recyclability. Another very challenging goal is to achieve significant weight reduction at little or no added cost. Weight reduction can be an important enabler for reducing a vehicle’s fuel con-

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) sumption, but, in general, vehicle manufacturers have been reluctant to use advanced lightweight materials because they are more expensive than conventional mild steel. A 5 percent reduction in vehicle mass can yield fuel savings of between 3 and 4 percent (Sovran, 2003). But premium materials add significant cost. For example, aluminum typically costs 1.3 to 2.0 times as much as steel, magnesium costs 1.5 to 2.5 times as much, and carbon-fiber-reinforced composites cost 2.0 to 10.0 times as much (NRC, 2005b, Table 3-7). Therefore progress in reducing the costs of lightweight materials, coupled with progress in reducing their fabrication and assembly costs, will expand their application. Materials activities include R&D in high-strength steel, aluminum, and both glass- and carbon-fiber-reinforced composites for body and chassis applications. Additional research is focused on cast aluminum and magnesium, aluminum metal matrix composites, titanium, and other advanced materials for potential drive-train and power-plant applications. DOE Performance Goals The specific goals for body, chassis, propulsion, and fuel system applications have been outlined by DOE (2005c). The embodiment of individual research objectives into systems applications to automotive vehicles will yield reductions in total vehicle weight. The system goals evaluation by the panel are as follows: By 2012, develop and validate advanced material technologies that will do the following: Enable reductions in the weight of body and chassis components of at least 60 percent and overall vehicle weight of 50 percent (relative to comparable 1997 vehicles); Exhibit performance, reliability, and safety characteristics comparable to those of conventional vehicle materials; and Enable commercially available aluminum, lightweight metal alloys, high-strength steels, and glass- and carbon-fiber composite materials with life-cycle costs equivalent to that of conventional steel. These performance improvements are referenced to a typical 1997 vehicle, for which the weight of the three primary components breaks down approximately as follows: (1) the complete body, 35 percent (the body-in-white—the body shell without doors, glass, or other closures such as hoods, trunk lids, and tail gates—is about 20 percent); (2) the chassis, 34 percent; and (3) the power train, 27 percent (NRC, 2000, p. 47). Technical Risk Clearly, to achieve a 50 percent weight reduction of the complete vehicle, it is necessary to make significant reductions in all three main components. If no weight reduction can be achieved in the power train (as might be the case for a hybrid vehicle, for example), the body and chassis weight must be reduced by substantially more than 50 percent to achieve an overall 50 percent weight reduction; this goal is extremely aggressive. For that reason, the panel elected to consider three levels of vehicle weight reduction: 10 percent, 25 percent, and a stretch goal of 50 percent. The panel assumed in each case that cost parity would be achieved and that vehicle structural performance requirements and recyclability goals would be met. It is logical to assume that manufacturers will apply premium materials in increasing order of cost/benefit. For example, it should be possible to achieve a weight reduction of 10 percent through the application of high-strength steels in the body and chassis. A more aggressive application of high strength steel and the use of aluminum for closures, as well as reductions in power-train weight, might be necessary to achieve a 25 percent weight reduction. Previous studies showed that extensive application of carbon-reinforced composites in the body and chassis would be required to achieve the very aggressive goal of 50 percent vehicle weight reduction (NRC, 2000, 2005b, Table 3-7). In body applications, high-strength steel has been shown to meet mechanical performance requirements (e.g., stiffness, crashworthiness). Indeed, in some production vehicles today, the body-in-white contains as much as 50 percent high-strength steel. Aluminum has seen extensive light-duty vehicle application, although in more restricted volumes due to its higher cost. Certain manufacturing issues (such as joining) also mean that aluminum has been used primarily for closures in high-volume applications. However, some lower volume vehicles have been aluminum intensive, proving the viability of an all-aluminum body. Carbon-reinforced composites have not seen extensive application in high-volume automotive products for several reasons. The material costs remain very high, and there are no high-volume fabrication and assembly systems for composite-intensive vehicles (this issue is discussed in more detail under the next subsection on market risks). While the panel does not believe that the technical goal of a 50 percent reduction in vehicle weight can be achieved by 2012, it assigned nonzero probabilities for success in achieving intermediate goals of 10 percent and 25 percent by 2012. DOE research in materials has contributed to the application of high-strength steels, aluminum, and glass-reinforced composites in vehicles and is expected to eventually contribute to vehicle weight reduction. Because DOE research in weight reduction of power-train components and other smaller components can be used across a broad range of vehicle applications, not just in light-duty or hybrid vehicles, the panel believes it is more likely to lead to success and reflected this opinion in its assignment of probabilities on the decision tree branch with DOE funding. However, the panel also believes that applications of high-strength steels and aluminum in the body or chassis require little additional

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) research—as noted above, these materials are already in production. The panel expects, moreover, that material suppliers and automobile manufacturers will continue to focus on further reductions in manufacturing costs, even without DOE participation. Market Risks Automobile manufacturers have been slow to utilize lightweight materials in body and chassis applications for several reasons. Certainly, cost has been an impediment. For body and chassis applications, perhaps the most important impediment is that the introduction of new materials impacts the existing fabrication and assembly processes. Market fragmentation has forced manufacturers to increase their ability to fabricate and assemble multiple body styles on a single assembly line. This is done using advanced assembly systems and technologies that have been refined for application to a steel body. This manufacturing footprint is amenable to the introduction of high-strength steels with little disruption. Furthermore, it can accommodate aluminum closures (doors, hoods, deck lids) with minimal disruption. On the other hand, to convert fabrication and assembly systems to accept carbon- or glass-reinforced composites would require a major development activity to prove the feasibility of manufacturing composite-intensive bodies in high volume. Commercialization would require an enormous capital investment for converting assembly plants. The panel is not aware of any significant development activity that would enable such a transformation in vehicle body manufacturing. For this reason, it believes that extensive application of advanced composites in vehicle bodies is virtually impossible by 2012. This would limit vehicle weight reduction opportunities to well below the 50 percent goal. This conclusion is consistent with the findings of the Committee on Review of the FreedomCAR and Fuel Research Program (NRC, 2005b). In addition to capital costs, ease of implementation is important for the introduction of new technology into high-volume production. This explains why manufacturers have relied primarily on continuous improvement of the power train for efficiency improvements (NRC, 2001). For new material systems, first applications will occur in subsystems and components that can be easily integrated into final assembly. Early applications will probably occur in systems that are not safety critical until field experience can assure that the material systems will not degrade overall product safety. Applications to specialty vehicles can provide valuable field experience, but low-volume production may not easily carry over to high-volume applications unless the manufacturing technology is scalable. The price of fuel can influence the rate at which new lightweight systems are commercialized. The panel noted that light-duty vehicle weight has remained nearly constant over the past several years (EPA, 2005). In fact, U.S. vehicle fleet weight has increased with the shift from cars to trucks and sport utility vehicles, although this trend may begin to reverse itself with the current relatively high cost of gasoline. To improve overall vehicle performance, automobile manufacturers have focused more on improving the efficiency of the power train than on material substitution (NRC, 2001). Indeed, in the recent past, they have used the improvements in engine efficiency to enhance performance rather than improve fuel economy (EPA, 2005). Therefore, a significant market risk is that weight savings through material substitution may not be applied in high volume applications if fuel costs remain similar to those that prevailed in the early 2000s. On the other hand, improvements in fuel efficiency attributable only to power-plant and drive-train improvements will eventually reach technological limits. At that point, weight reduction technologies can provide very important options for additional efficiency. Finally, the panel notes that weight reduction will be an important enabler for the market success of hybrid vehicles. Purpose-built hybrid vehicles that optimize the entire vehicle system for fuel efficiency will very likely achieve the greatest market acceptance. Advanced Combustion and Fuels The focus of the engine, emissions, and fuels research activities in FCVT is to support the development of improved internal combustion engines that have the potential for high efficiency while achieving near-zero emissions. Recognizing that the engine and its fuel and emission control systems are interdependent, the research also looks at potential advancements in emission control technologies and considers a new generation of transportation fuels, both petroleum- and nonpetroleum-based. The ultimate goal of the FCVT program is to reduce the U.S. dependence on petroleum-based fuels. Therefore, particular attention is being paid to high-efficiency, compression ignition (diesel-like) engines and the trade-offs between maximum thermal efficiency and engine-out exhaust emissions, including a fundamental understanding of in-cylinder combustion processes. Depending on the resulting level of criteria pollutants and the chemistry of the exhaust gas, which varies over a range of operating conditions, different exhaust aftertreatment technologies, their conversion efficiencies, and durability issues must be considered. However, in most cases, the fuel preparation (injection) systems, intake air boosting systems, exhaust gas recirculation (EGR) system (if needed), engine control systems (fuel, boost, EGR, etc.), and aftertreatment systems (diesel particulate filter, oxidation catalyst, NOx-trap, selective catalytic reduction, etc.) being researched represent significant cost penalties compared to the port-injected, naturally aspirated, three-way-catalyst power trains that dominate the U.S. light-duty vehicle market, justifying the combustion, aftertreatment, and fuels research being funded under the FCVT program. Furthermore, the panel believes that a coop-

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) erative effort between government, the automotive industry, and the transportation fuels industry is necessary to expedite advancements that can also be applied to more conventional vehicles and future generations of hybrid vehicles (see also NRC, 2005b). DOE Performance Goals The technical goals of the combustion, emission control, and fuels activities are to demonstrate significant improvements in engine peak- and part-load brake thermal efficiencies (compared to current production, EPA-compliant, gasoline-fueled engines) that meet Tier 2, Bin 5, emission standards and 150,000-mile durability requirements and can be produced at reasonable cost in high volume. Specific targets include increasing peak brake thermal efficiency from the levels found in production gasoline (about 33 or 34 percent) to 42 percent in 2007, 44 percent in 2009, and 45 percent in 2010. In addition, part-load—2 bar brake mean effective pressure (bmep) at 1,500 rpm-brake thermal efficiency is targeted to improve from about 20 to 22 percent (for current, throttled, lambda-1-controlled power trains) to 27, 29, and 31 percent in 2007, 2009, and 2011. Technical Risks Conversion to unthrottled, direct-injection diesel engines has already demonstrated 40-42 percent peak brake thermal efficiencies in light-duty passenger vehicles sold in Europe. The technical risk is to accomplish this while controlling full-load, lean, stratified combustion-generated particulate and NOx emissions to stringent Tier 2, Bin 5, standards for 150,000 miles at a total power train cost of $30/kW. Further advancements, approaching 45 percent peak brake efficiency while minimizing the efficiency penalties associated with existing lean-combustion aftertreatment systems, will be extremely challenging. The technical target is to keep the efficiency penalties associated with emissions control to <3 percent in 2007 and <1 percent in 2009 and beyond. The goal of achieving 45 percent peak brake efficiency would require significant advancements in many areas, including high-pressure, direct-injection fuel injection systems; more efficient boosting (turbocharging/supercharging) systems; reduced friction components; reduction in parasitic and accessory loads; higher strength/lighter weight powertrain materials to accommodate combustion pressures, which could approach 220 bar or more; advanced fuel injection and combustion process controls to support low-temperature combustion (LTC) processes; and new methods for noise control. LTC methods, including homogeneous charge compression ignition (HCCI), are interesting because they could significantly reduce engine-out NOx emissions, which would facilitate less complex and lower cost aftertreatments. However, some LTC processes also produce high combustion pressures, require extremely high boosting levels, and still require aftertreatment for hydrocarbon and particulate emissions. Since LTC has seen only limited applicability under relatively low engine load conditions where combustion stability can be maintained, the need for transition to more conventional combustion processes under high-load conditions may remain, which would still necessitate NOx aftertreatment. Additional R&D is required to define the petroleum and nonpetroleum fuels that will facilitate the combustion performance and decrease exhaust emissions needed to achieve future fuel efficiency targets and the tightening of exhaust emission standards. Programs must specify these fuels and involve the fuels suppliers early on to avoid delays in commercial introduction of more efficient engine systems. For advanced conventional spark-ignited engines, higher octane gasoline could be needed for turbocharged systems. This could require gasoline with higher aromatics or ethanol content, raising the question of cold-start performance in winter. In addition, lower sulfur levels could be needed to improve the performance of catalysts, depending on the oxygen content of the exhaust gas and the potential for catalyst poisoning. Sulfur content would be even more important if spark-ignited LTC is employed, to minimize the potential for particulate formation. For HCCI-based LTC, a more volatile fuel with a higher cetane number could be needed to enhance combustion. Greater volatility would compensate for lower fuel injection pressure (e.g., 100 bar), which would otherwise produce larger droplets that inhibit mixing. This suggests the need for a new diesel fuel with enhanced cetane number, higher volatility, and lower sulfur content. The desire to expand the use of non-petroleum-based alternative fuels adds to the complexity of the plethora of fuel mixtures and combinations that might be considered. Most alternative fuels currently being considered, such as FischerTropsch-derived diesel fuel, so-called biodiesel (methyl ester-based), and alcohol-based fuels, contain little or no sulfur but exhibit other properties that could significantly influence combustion and emissions, such as very low vapor pressure (alcohol fuels) or low lubricity (biodiesel). New and modified engines could also require modifications to the lubricating oils used so that lubricant requirements will need to be defined further as the program moves forward. While it is directionally easier to modify commercial lubricants than fuels, in part because of the much smaller quantities involved, changes to commercial facilities could be needed and must be anticipated. Based on these technical risks, the panel thought it extremely unlikely that the 45 percent target could be achieved by 2010 in a production-feasible configuration that would also meet Tier 2, Bin 5, emission standards at 150,000 miles and for a cost of $30/kW. However, the panel believes that advancements beyond the state of the art will be facilitated by the planned research activities and has assessed the like-

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) lihood of reaching some intermediate performance levels, including efficiency, emissions, and cost parameters. In addition, the panel believes that the research being done on advanced combustion, emissions control, and fuels will produce advancements that can also be applied to the power trains of conventional light-duty vehicles and produce significant fuel consumption savings in parallel with the planned application to hybrid vehicle platforms. Market Risks The market risk associated with the advanced combustion, emissions control, and fuels activity is primarily related to the uncertainty of achieving the target performance parameters at the right cost and to questions about the ability of the advanced concepts to satisfy the durability and reliability requirements for high-volume automotive production. In addition, there are customer acceptance issues associated with several of the technologies currently being developed. Diesel combustion and other compression-ignitiontype processes achieve very high combustion pressures, and the associated rate of pressure rise produces noise levels that have historically been unacceptable for light-duty passenger vehicle applications. Techniques to control power-train noise without sacrificing engine efficiency, power-train weight, and exhaust emissions must therefore be developed, as is being done in Europe. The durability of increasingly complex aftertreatment systems is also a market risk that must be overcome. In addition to the requirement to achieve regulated emission levels for 150,000 miles of consumer use, many of the techniques currently being researched suffer from premature failures due to wear, thermal cycling, excessive temperatures, and variable fuel composition. These must all be overcome in order to achieve reliability levels that are acceptable for high-volume automotive markets. Furthermore, variations in fuel and feedstock composition or in handling procedures would call for significant changes in fuel refining, formulation, and distribution. Perhaps the most difficult change would be the introduction of an additional fuel, especially a gaseous fuel. This would entail either the replacement of an existing fuel or new facilities to provide sufficient fuel distribution. The nationwide introduction of lead-free gasoline in the 1970s exemplifies not only the ability of the fuel industry to respond but also the time and investment required. The minimal penetration of alcohol fuels, which were introduced in the late 1980s, is an example of market failure (to date) of an alternative fuel strategy. Reducing sulfur levels in any existing fuel also has important implications. Refineries would require additional hydrotreating facilities to remove sulfur and to manufacture the requisite hydrogen. Higher octane gasoline would also require additional refining facilities to boost aromatics and isoparaffins contents. Higher cetane diesel fuel would require changes to reduce aromatics content while maintaining adequate cold flow properties in winter. A significant change in volatility could change the need for conversion (cracking) in refining. New facilities would be needed to produce alternative fuels such as alcohols or biodiesel. All of these potential changes would involve added investment by the fuels industry and would increase the cost of fuel to the consumer. As the trade-offs between engine performance/cost and fuel properties are defined, refiners will need to define preferred routes to providing alternative fuels. From these studies, a plan and schedule for commercialization could be set up. The studies would also provide guidance on increased fuel cost, allowing the overall engine system to be optimized from a consumer perspective. RESULTS AND DISCUSSION Decision Trees and Estimated Probabilities of Technical Success The panel used the decision analysis methodology developed by the parent committee to generate quantitative estimates of the likelihood of achieving DOE’s performance goals in the three key technology areas (high power energy storage, automotive lightweight materials, and advanced combustion and fuels) both with and without the DOE program. The estimated probabilities of success with the DOE program assume that sufficient funding will be available for DOE to continue its work at current levels. Because the research projects in the three key areas are essentially independent and nonoverlapping, the probabilities of technical success under each scenario were evaluated separately for each area. High Power Energy Storage The panel identified two key areas of uncertainty related to achieving DOE’s goals for the hybrid and electric propulsion subprogram. The first is uncertainty about the ability to reach the battery performance and cost targets specified by DOE: “electric drive train energy storage with a 15-year life at 300 watt-hours (Wh) with a discharge power of 25 kW for 10 seconds and $20/kW cost.” The second is uncertainty about whether those technical goals can be achieved by 2010, DOE’s target year for such improvements. Figure L-1 illustrates a decision tree for the technical uncertainties in battery performance. The first node represents a decision about DOE funding of the research program. The second node represents uncertainty about the level of technical improvements in batteries that will be enabled by research completed by 2010. Three levels of technical success were defined as follows: High success is the achievement of DOE’s goal for both battery performance and cost: 15-year life at 300 Wh with

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) FIGURE L-1 Decision tree representing the panel’s evaluation of the batteries program. a discharge power of 25 kW for 10 seconds and $20/kW cost. Moderate success is the achievement of DOE’s goals for battery performance, but at a cost of $28/kW. Low success is making incremental improvements over current levels of battery performance and costs (10 percent incremental improvement in 2010). The third node in Figure L-1 represents uncertainty about the level of technical improvements in batteries that will be enabled by research completed in 2020. The same three levels of technical success were used to characterize this uncertainty except that “low success” was defined as a 30 percent incremental improvement over current performance. Each panelist estimated the likelihood of achieving each

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) of these levels of technical success in each time period, both with and without the DOE research program, under each of the three global scenarios. The probabilities on each branch in Figure L-1 show the average of the panelist’s individual assessments of the likelihood of each outcome under the three global scenarios: AEO Reference Case, High Oil and Gas Prices, and Carbon Constrained. In discussions, the panelists focused first on whether and to what degree the DOE program would increase the probability of achieving the higher levels of technical success and second on the absolute probabilities of being able to achieve those levels of success. In interpreting Figure L-1 (and similar Figures L-2 and L-3), it is important to note that the method used requires that the probability estimates for alternatives on each branch sum to unity. Thus, if DOE funding increases the probability of achieving more challenging goals, the probability of achieving a lesser goal can appear to be lower with DOE funding than without DOE funding. This is an FIGURE L-2 Decision tree representing the panel’s evaluation of the lightweighting research program.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) FIGURE L-3 Decision tree representing the panel’s evaluation of the advanced combustion engines program. artifact of the method, implying that all the probabilities for a given scenario need to be considered simultaneously when interpreting the figures. Automotive Lightweight Materials The panel identified two key technical uncertainties relating to DOE’s goals for the projects in the automotive lightweight materials area. The first uncertainty is the weight reduction that is technically achievable by 2012, and the second uncertainty is the increased cost of such a lighter vehicle. Figure L-2 illustrates the decision tree representing the panel’s assessment of these uncertainties. Uncertainty about weight reduction was characterized by the vehicle weight reduction enabled by technology demonstrated by 2012 (compared to 1997 vehicle weight). Uncertainty about the cost of lightweighting was characterized by the cost of the lighter vehicles relative to the cost of heavier conventional vehicles. Again, each panelist estimated the likelihood of achieving each level of technical success in each time period, both with and without the DOE research program, under each of the three global scenarios. Advanced Combustion and Fuels The panel also identified two areas of uncertainty related to DOE’s goals for the advanced combustion engines and emissions control projects. The first uncertainty was identified as the peak brake thermal efficiency that is technically achievable based on technologies demonstrated by 2010, and the second was the fuel efficiency penalty to meet EPA emissions guidelines. Figure L-3 represents this structure in the decision-tree format. Effect of Technology Improvements on Vehicle Fuel Economy and Cost In the model used by the panel, benefits from DOE’s hybrid vehicle R&D program are assumed to accrue when more fuel-efficient vehicles are adopted in the marketplace (see later discussion). These vehicles need not necessarily be hybrids because the benefits of DOE’s R&D may extend to vehicles with conventional power trains. Thus, both HEVs and CVs need to be considered when estimating benefits. Each of the three technology areas evaluated—high-power energy storage, automotive lightweight materials, and

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) advanced combustion and fuels—would affect fuel efficiency and vehicle cost if implemented in new vehicles. Thus, to estimate the prospective benefits, the technical success scenarios had to be translated into fuel economy estimates for vehicles (conventional and hybrid electric) implementing those technologies. In addition, the effect on vehicle costs of implementing the technologies had to be derived using the estimated costs for the improved technologies. Fuel Economy Technical advances in the lightweight materials and advanced combustion engines areas could lead to fuel economy improvements in both CVs and HEVs as a result of reduced vehicle weight and improved engine efficiency. Improved high-power battery performance could further improve the fuel economy of hybrids by enabling increased hybridization benefits, such as increased brake energy capture and more electric assist during the drive cycle. However, improvement in hybrid fuel economy due to improvement in battery performance is likely to be relatively small (perhaps 5 percent), and better battery technology would primarily benefit HEVs by reducing vehicle costs (see later). The panel’s estimates of the improvements in fuel economy that could result from specific technical improvements are summarized in Table L-1. On the assumption that the fuel economy improvements from each of the technical improvements are additive, the estimates in Table L-1 were translated into estimated fuel economy improvements for vehicles with combinations of technical improvements, as shown in Table L-2. Table L-2 also shows the estimated probability of achieving the technical improvements associated with each combination of technical improvements. The table shows the probabilities TABLE L-1 Panel Estimates of Fuel Economy Improvements Relative to Conventional Vehicles R&D Activity Weight Reductiona(%) Engine Efficiencyb(%) Fuel Economy Penalty Due to Emissions Control (%) Estimated Fuel Economy Improvementa Advanced combustion n/a 45 1 1.25     45 3 1.22     42 1 1.15     42 3 1.12 Batteries and energy storage n/a n/a n/a 1.3 Automotive lightweighting 25 n/a n/a 1.12   10 n/a n/a 1.05 NOTE: n/a, not applicable. aRelative to a conventional vehicle. bBrake thermal efficiency. TABLE L-2 Panel Estimates of Fuel Economy Improvement for Vehicles with Specified Technical Improvements Technical Improvements (%) Estimated Fuel Economy Improvement Relative to 2006 Conventional Vehicles Probability of Achieving Improvements Vehicle Weight Reduction Engine Efficiency Emissions Penalty Conventional Vehicles Hybrid Electric Vehicles With DOE Program Without DOE Program 25 45 1 1.40 1.82 .03 .02 25 45 3 1.37 1.78 .04 .03 25 42 1 1.29 1.67 .14 .11 25 42 3 1.25 1.63 .19 .21 10 45 1 1.31 1.71 .05 .03 10 45 3 1.28 1.67 .06 .05 10 42 1 1.21 1.57 .20 .19 10 42 3 1.18 1.53 .29 .36

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) with and without the DOE program based on panel averages for the Reference Case. DOE uses the Powertrain Systems Analysis Toolkit (PSAT) to estimate fuel economy and high-level, market-relevant characteristics based on specific vehicle technical characteristics. DOE staff provided the panel with a summary of the PSAT personal vehicle assumptions and results from the FY2006 GPRA analysis (DOE, 2005b), which the panel compared with its own estimates. The panel’s estimated fuel economy improvements for specific technical advances mapped fairly closely with improvements from the PSAT analysis. Vehicle Costs The panel’s assessments of technical success for batteries and for the lightweight materials research areas included explicit consideration of the manufacturing costs required to achieve the technical improvement. Thus, for every set of technical outcomes shown in Table L-2, we can derive an approximate assessment of the costs for a vehicle with those characteristics, including an estimate of the uncertainty surrounding the costs. For estimating benefits, the relevant metrics are (1) the incremental cost for HEVs over conventional vehicles and (2) the incremental cost of lighter weight, more efficient conventional vehicles over today’s vehicles (2006). To estimate the incremental cost of HEVs associated with the batteries research, the following assumptions were made: Current (2006) incremental retail costs for hybridization are about $2,500 for a midsize vehicle6 (incremental manufacturing costs are about $1,984). The battery costs account for about 64 percent of the increased manufacturing costs for hybrids.7 Current (2006) battery costs are about $35/kW. Based on these assumptions, the impact on vehicle costs of the batteries research is to reduce the incremental cost of hybrids by $690 if battery costs are reduced to $20/kW, by $320 if battery costs are reduced to $28/kW, and by $160 if battery costs are reduced by 10 percent. To estimate the incremental costs of lighter, more efficient conventional vehicles, the panel used the incremental costs defined as part of the assessment of technical success for automotive lightweighting: a 2 percent increase, a 10 percent increase, and an increase of >10 percent. The panel noted that if the vehicle costs for lightweighting increase more than 10 percent, the technologies would not be implemented because they would not be viable in the market. Additional Unquantified Benefits Work on electric-hybrid drive technology—batteries, power electronics, and electric motors—may also yield fuel economy benefits for conventional and, in the future, fuel cell vehicles. For example, this work may help to reduce costs and improve the performance of integrated starter-alternator and 42-volt systems, which provide fuel economy benefits and are in the process of being commercialized today. Also the work supports the development of fuel cell vehicles that will require similar motor and power electronics and (probably) battery technology. For the purposes of the approximations in Tables L-1 and L-2, the estimated fuel economy improvement associated with battery technologies reflects only the greater fuel economy of hybrids compared to conventional vehicles. The improvements resulting from increased hybridization benefits and the implementation of better batteries, electric motors, and power electronics in conventional vehicles were not quantified for this assessment. The estimated vehicle cost reductions associated with the success of work in the batteries and energy storage area are based solely on the estimated reductions in battery costs and therefore do not include any cost reductions that might be associated with other advances in power electronics and electric motor technologies resulting from DOE’s electric hybrid drive technology program. Effect of Technology Improvements on Market Risk Fuel economy is not the only real or perceived benefit of hybrids. However, it is generally believed that fuel cost savings must pay back the incremental vehicle cost to the consumer within a few (3-6) years for hybrids to achieve substantial market penetration, and the panel believes, accordingly, that the greatest challenge to substantial market penetration of hybrid vehicles is their incremental cost. HEVs have penetrated less than 2 percent of the U.S. market for new vehicles, but this penetration is increasing rapidly, assisted by significant federal and state incentives and somewhat by industry subsidies (such as repair/warranty cost absorption). Large financial subsidies by government or industry are unlikely to be viable in the long term, however, and alternatives to hybrids for similar fuel savings—such as more fuel-efficient conventional engines—are under development and may be preferred if the price of hybrid vehicles does not drop sufficiently. In determining the benefits of R&D on hybrid technologies, it is necessary to project when and to what extent vehicles with these new technologies will enter the vehicle fleet. The DOE target years represent the time by which DOE expects to demonstrate technical success incorporated into cost modeling that predicts that cost targets could be achieved if the technology is implemented in high volume. The panel recognizes that this definition of success does not 6 Based on EPA (2005b). 7 Based on EPA (2005b).

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) eliminate technical risk or assure market availability of the technology at the stated target, and that several additional years (from 3 to 10) would be necessary for scale-up to volume vehicle production. The panel does not presently have adequate information to determine if DOE’s cost and performance targets will allow HEVs to penetrate the market or if DOE-projected fuel economy benefits are reasonable. Recent vehicle fuel economy modeling by DOE (2005b) suggests that the fuel economy benefit of hybrid vehicles versus advanced conventional vehicles may have been overstated in DOE’s previous NEMS and MARKAL models. This would increase the market risk and cost challenge for hybrid vehicles. Quantifying Benefits The economic, environmental, and security benefits of DOE’s research in light-duty vehicle hybrid technology depend on the degree to which the technical goals are reached and to which the technologies penetrate the marketplace. Specifically, the research, if successful, will lead to more fuel efficient vehicles in the market and on the road, which will result in reduced gasoline consumption. The reduced gasoline consumption leads directly to other benefits: economic benefits from reduced consumer expenditures for gasoline, environmental benefits from reduced carbon dioxide and other emissions, and security benefits from reduced demand for oil. To quantify these benefits, the panel needed to estimate the reduction in gasoline consumption over time that could be attributed to the light-duty vehicle hybrid technology program. The model used by the panel is adapted from a vintage stock model developed by the Committee on Alternatives and Strategies for Hydrogen Production and Use (NRC, 2004b). It produces estimates of the total vehicle miles driven by year and by vehicle type based on assumptions about the vehicle sales and average vehicle lifetime (14 years and about 142,000 miles). Combined with estimates of the number of HEVs in the fleet, the panel used this model to derive estimates of the total number of vehicle miles per year for conventional vehicles and HEVs. The panel considered two different “market success” scenarios for HEVs: one where sales of HEVs were estimated to grow relatively quickly (“High HEV”) and one where that market growth is significantly slower (“Low HEV”). Figure L-4 shows the fraction of new vehicles of each type (conventional and HEV) sold in each year under the two HEV market success scenarios. Figure L-5 shows the fraction of total vehicle miles driven by each type of vehicle by year. The panel’s three decision trees (Figures L-1 through L-3) identified many different possible outcomes of research on light-duty hybrids, all of which could be translated into estimated changes in fuel economy and estimated changes in vehicle costs. Overall, the trees specify 145 different possible FIGURE L-4 Fraction of new vehicles purchased that are conventional and hybrid electric, for two HEV market scenarios.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) FIGURE L-5 Fraction of total vehicle miles driven by year by vehicle type, for two HEV market scenarios. outcomes (hereinafter called “cases”) for fuel economy and costs for conventional and HEVs.8 For each of these cases, the benefits model calculates the total fuel consumption, emissions, and consumer expenditures on vehicles and gasoline by year for each year through 2050. Attachment B describes the model and these calculations in more detail. The panel’s assessments result in two probabilities that can be assigned to each of the 145 cases: the probability of the outcome with DOE’s research, and the probability of the outcome without DOE’s research. Economic Benefits The expected economic benefits of DOE’s research are calculated as the difference in expected value of total consumer expenditures with and without the program. For example, Figure L-6 shows the expected value (the probability-weighted average) of consumer expenditures for vehicles and fuel in the Low HEV market scenario assuming Reference Case prices, with and without the program, as well as the uncertainty about those expenditures.9 The expected economic benefit of the program is the difference in the expected value with and without the program: about $5.9 billion. Results of these benefits calculation for the two different HEV market success cases and for the three global scenarios are shown in the results matrix in Figure L-7. Environmental Benefits The primary environmental benefits anticipated from this research are a reduction in total carbon emissions as a result of having more fuel-efficient conventional vehicles and HEVs on the road. The benefits model estimates the total carbon emissions associated with each case by multiplying the total fuel use by 3.04 kg carbon per gallon of gasoline burned.10 As with the economic benefits, the model produces an estimate by year of the total carbon emissions from automobiles for each case, and the expected environmental benefit of DOE’s program is the difference in the expected value of total emissions with and without the program. Using a 3 percent annual discount rate, the total carbon emissions reduction attributable to the program in the Reference Case 8 Twelve possible outcomes for fuel economy improvements based on the results of lightweighting and the engine efficiency research, multiplied by two possible outcomes for the costs of lightweighting, multiplied by six possible outcomes for the costs of batteries, which impact the incremental cost for hybridization, results in 144 possible outcomes. The 145th outcome is associated with incremental vehicle costs of more than 10 percent, judged by the panel not to be viable in the market. In that outcome it is assumed that the technologies are not implemented and that the benefits are not realized in the market. 9 Annual expenditures from 2006 through 2050, discounted at 3 percent real, as recommended by the full committee. Note that the summary matrix includes economic benefits calculated at two different discount rates. 10 It is assumed that a gallon of gasoline, when used in an internal combustion engine, would release 2.42 kg of carbon (or 8.87 kg of carbon dioxide). The supply chain (reservoir to pump) for gasoline is about 79.5 percent efficient. Therefore, about 3.04 kg of carbon is released into the atmosphere per gallon of gasoline consumed (3.04 is calculated as the ratio of 2.42 to 0.795).

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) FIGURE L-6 Range and likelihood of discounted total consumer expenditures for vehicles and gas between 2006 and 2050, assuming the Low HEV market scenario and Reference Case prices. The distributions of outcomes with and without the DOE program are shown. The vertical lines represent the expected value of each distribution (the probability-weighted average), and the expected economic benefit of the program is the reduction in the expected total consumer expenditures. is about 28 million metric tons. Results of these benefits calculations for the two different HEV market success cases and for the three global scenarios are shown in the results matrix (Figure L-7). Security Benefits The primary security benefits anticipated from this research derive from a reduction in gasoline use and, as a result, a lower demand for imported oil. As described above, the benefits model produces and estimate of the total amount of gasoline consumed in each case evaluated. The security benefit of DOE’s program can be estimated by the reduction in the expected total gasoline demand with and without the program. Using a 3 percent annual discount rate, the expected value of the total reduction in gasoline consumption from 2006 to 2050 attributable to the program is about 9.8 billion gallons in the Reference Case. Results of these benefits calculation for the two different HEV market success cases and for the three global scenarios are shown in the results matrix (Figure L-7). FINDINGS Benefits of DOE’s Light-Duty Hybrid Vehicle R&D Finding 1: DOE’s light-duty hybrid vehicle R&D program is likely to yield important technology advances that could improve the fuel economy for light-duty vehicles in the United States. The panel notes that the technology advances resulting from DOE’s program will not necessarily be used to improve the fuel economy of new vehicles. Depending on regulatory requirements and market drivers, automobile manufacturers may choose to use new and improved technologies to enhance vehicle performance and other attributes that are more attractive to consumers than improved fuel economy. Accordingly, while DOE’s program will probably make it possible to achieve higher fuel economy, there is no guarantee, under existing regulations that the desired reduction in petroleum use will result. Demand-side policies to complement supply-side technology development are likely to be critical in achieving fuel economy benefits. Finding 2: The methods currently used by DOE to assess the potential fuel economy benefits of its light-duty hybrid vehicles R&D tend to be overly optimistic in estimating the impact and timing of technology advances. When DOE estimates the potential fuel economy benefits of its light-duty hybrid vehicles R&D efforts, it assumes that the program’s very ambitious performance and cost goals will be met by the relevant target date(s). In contrast, the panel considered it unlikely that any of DOE’s R&D efforts in electric hybrid technology, lightweight materials,

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) FIGURE L-7 Results matrix of the Panel on DOE’s Light-Duty Vehicle Hybrid Technology R&D Program. and combustion would achieve the ambitious (stretch) goals within the specified time frames. As discussed later, partial success could certainly result in important benefits, albeit more modest than indicated by DOE’s estimates. In the panel’s judgment, DOE underestimates both the lead time required for new technologies to be implemented in production vehicles and the time associated with commer-cialization ramp-up. A lead time of several years is required to introduce a new technology into a production vehicle. For technologies that are radically different from those in use, the lead time can be far longer, particularly if major changes in manufacturing and assembly processes are needed, as would be the case with the use of carbon-fiber-reinforced composites for body and chassis applications. Such radical changes are likely to require large capital investments by the automobile manufacturers. Thus, market penetration of new technologies is likely to be slow unless there are clear opportunities for manufacturers to amortize their investments over a relatively short period or unless new regulatory requirements (e.g., more demanding emissions standards) drive the implementation process. The panel experienced some difficulty in establishing

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) what baseline DOE used in its benefits assessment. For such an assessment to be useful, the baseline for the comparison needs to be clearly defined. In the present case, selecting an appropriate baseline presents some challenges. If a late-1990s vehicle is the starting point, the anticipated incremental improvements in such a vehicle over time need to be taken into account. If no allowance is made for these improvements, then the benefits of DOE’s program will be overestimated. However, some parts of DOE’s program, notably in the advanced combustion and fuels area, are likely to contribute to the incremental improvements in the efficiency of conventional (nonhybrid) vehicles and should, therefore, be included when assessing the overall benefits of the program. Finally, the panel noted that DOE does not distinguish the R&D it funds from R&D funded by others, including private industry and research organizations within the United States and overseas. All outcomes “associated with” the types of technologies DOE is investigating are used in the agency’s benefits calculations. Because no attempt is made to extract the benefits directly attributable to DOE’s program, the benefits of the program are overestimated. Finding 3: Important fuel economy benefits could accrue even if DOE’s R&D on light-duty hybrid vehicles fails to achieve its ambitious cost and performance goals. Advances in the three areas of DOE’s hybrid vehicle R&D program examined by the panel—electric hybrid technology, lightweight materials, and combustion and fuels—could result in improved fuel economy for conventional ICE vehicles even if there are only relatively modest improvements in performance and cost. Incremental technological improvements may be more readily incorporated into production vehicles than more ambitious advanced technologies and could have important benefits because the number of vehicles potentially affected is larger and the time required for significant implementation is shorter. Incremental innovation rather than radical innovation is a special skill of industry, and DOE’s industry partners will play a key role in guiding the R&D. As noted in the recent review of the FreedomCAR and Fuel Partnership (NRC, 2005b), R&D in the advanced combustion and fuels area appears particularly likely to yield commercial benefits. Improvements in engine and aftertreatment technologies could be incorporated into new vehicles quite rapidly, and even relatively small incremental improvements could have an important impact on the nation’s fuel consumption when implemented in the 16 to 17 million new light-duty vehicles sold in the United States every year. Finding 4: DOE’s R&D on light-duty hybrid vehicles has benefits above and beyond the potential for improved fuel economy. Although the potential for improved fuel economy was the only metric used by the panel for quantifying the prospective benefits of DOE’s R&D, other benefits have resulted, or are likely to result, from the program. For example, improvements in vehicle reliability, recyclability, and performance can be anticipated. Also, hybrid vehicles with ICE power trains are one step on what might be a transition pathway to hydrogen-fueled fuel cell vehicles, and some of DOE’s R&D may find application in those more futuristic vehicles. Other benefits are harder to measure but nonetheless important. The program provides educational and training opportunities for researchers and contributes to their professional development. There is also a widely held view that one of the most important benefits of DOE’s advanced vehicle technology programs in general has been the leverage provided by joint government-industry research. DOE programs are a small fraction of the worldwide effort being applied toward hybrid vehicle technologies. In the panel’s view, DOE efforts are likely to have been a catalyst for some non-DOE development, although it is difficult to substantiate this assertion or to assess the benefits derived from such a catalyst function. Methodology Used by the Panel to Assess Prospective Benefits Finding 5: The prospective benefits assessment methodology used by the panel to assess DOE’s light-duty hybrid vehicle R&D offers value for managing this and similar research programs and for reviewing progress. In particular, the methodology Provides a framework for efficient and focused conversations between the reviewers of a research program and its proponents; Makes the decision process more transparent; and Helps to focus the attention of managers and reviewers on the most valuable program elements. Applying the prospective benefits methodology to DOE’s light-duty vehicle hybrid technology R&D program required the panel to specify key items that were not always apparent from the documents and information provided by DOE. In particular, some of the program goals were not described explicitly and completely. For example, setting a cost target of $28/kW for a battery by the year 2010 does not describe the objective adequately for assessment purposes. Does the cost target mean a customer could actually buy a battery at that cost? Does it mean that the technology exists that in principle would allow a commercial firm to make such a product? Does it mean the 500,000th production unit or the first? All these conditions must be specified for the assessment method to succeed, and both reviewers and proponents are forced to state their goals quite explicitly.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) Equally important, the method focuses much of the conversation between reviewers and DOE staff around the goals. The template for presenting evaluation results and the decision trees used for technical and market risks provide a framework for structured conversation between program managers and their reviewers. This framework highlights areas of disagreement and so helps to focus the discussions on the key issues. The same holds true when program managers use the evaluation method as a management tool. The structured conversations do not dispense with the need for informed, subjective judgment in evaluating the research. The method requires the judgment of knowledgable professionals at every step. Indeed, the program being evaluated could not be considered research if all elements of judgment were replaced with fact. LESSONS FOR FUTURE APPLICATIONS OF THE METHODOLOGY The panel offers six practical considerations, which may be useful for future applications of the methodology: A review group unfamiliar with this approach will probably require a skilled facilitator to guide the members in applying it. The use of conditional probabilities requires continued mental discipline on the part of the panel members. Panel members who were more knowledgeable about a particular program element tended to be less optimistic about its probability of success, perhaps because they are more familiar with its problems. The method requires that probability estimates for alternative options sum to one. This can make it difficult to interpret the decision trees. For example, if DOE funding increases the probability of achieving more challenging goals, the probability of achieving a lesser goal can appear to be lower with DOE funding than without DOE funding. This is an artifact of the method and means that reviewers must look at all the probabilities simultaneously to understand what the trees really mean. DOE also commented on this feature when completing the decision trees. A research program can offer value if it achieves only a part of its goals. The method does not capture this well because the analyst must specify the partial achievement in advance and include that probability as an extension of the decision tree analysis. Successful research can pay for itself by providing a range of benefits. This method, however, focuses on fuel economy as the single desideratum and does not quantify ancillary benefits—greater safety, superior vehicle performance, and so forth. However, these benefits can help the product embodying the technology to gain market share. ATTACHMENT A PANEL MEMBERS’ BIOGRAPHIES Wesley L. Harris (NAE), Chair, is Charles Stark Draper Professor of Aeronautics and Astronautics at the Massachusetts Institute of Technology and head of the Department of Aeronautics and Astronautics. Previously he was associate administrator of aeronautics at NASA and vice president and chief academic officer of the Space Institute at the University of Tennessee. His research interests include theoretical and experimental unsteady aerodynamics and aeroacoustics; computational fluid dynamics; and government policy impact on procurement of high technology systems. He is a member of the National Academy of Engineering, a fellow of the AIAA and of the AHS. He has been awarded several honorary doctoral degrees and has held several endowed professorships for visiting professors at U.S. universities. David L. Bodde serves as a professor and senior fellow at Clemson University. There, he directs innovation and policy at the International Center for Automotive Research. Prior to joining Clemson University, Dr. Bodde held the Charles N. Kimball Chair in Technology and Innovation at the University of Missouri in Kansas City. Dr. Bodde serves on the boards of directors of several energy and technology companies, including Great Plains Energy, the Commerce Funds, and EPRI Solutions. His executive experience includes vice president, Midwest Research Institute; assistant director of the Congressional Budget Office; and deputy assistant secretary in the U.S. Department of Energy. He was once a soldier and served in the Army in Vietnam. He has extensive experience of energy policy and technology assessment, and his current work is directed at the role of entrepreneurs in the innovation and commercialization of energy technologies. He has served on a number of NRC committees, is a member of the Board on Energy and Environmental Systems, and a member of the NRC Committee on Review of the Research Program of the FreedomCAR and Fuel Partnership. He has a doctorate in business administration, Harvard University, M.S. degrees in nuclear engineering (1972) and management (1973), and a B.S. from the United States Military Academy. Robert Epperly is president of Epperly Associates, Inc., a consulting firm. From 1994 to 1997, he was president of Catalytica Advanced Technologies, Inc., a company that develops new catalytic technologies for the petroleum and chemical industries. Prior to joining Catalytica, he was general manager of Exxon Corporate Research and earlier was director of the Exxon Fuels Research Laboratory. After leaving Exxon, he was chief executive officer of Fuel Tech, N.V., a company developing new combustion and air pollution control technology. Mr. Epperly has authored or coauthored over 50 publications on technical and managerial topics, including two books, and has 38 U.S. patents. He has extensive experience in fuels, engines, catalysis, air pollution

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) control, and R&D management. He served as a member of the NRC’s Standing Committee on Review of the Research Program of the Partnership for a New Generation of Vehicles (PNGV), which was a government-industry R&D program from 1993 to 2001 developing advanced vehicle technologies. He received an M.S. in chemical engineering from Virginia Tech. David Friedman is the research director, Clean Vehicles Program, Union of Concerned Scientists (UCS), in Washington, D.C. He is the author or coauthor of more than 30 technical papers and reports on advancements in conventional, fuel cell, and HEVs and alternative energy sources, with an emphasis on clean and efficient technologies. Before joining UCS in 2001, he worked for the University of California at Davis in the Fuel Cell Vehicle Modeling Program, developing simulation tools to evaluate fuel cell technology for automotive applications. He worked on the UC Davis FutureCar team to build a hybrid electric family car that doubled its fuel economy. He previously worked at Arthur D. Little researching fuel cell, battery electric, and hybrid electric vehicle technologies, as well as photovoltaics. He served as a member of the NRC Panel on the Benefits of Fuel Cell R&D of the Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase One) and is currently a member of the NRC Committee on National Tire Efficiency. He earned a bachelor’s degree in mechanical engineering from Worcester Polytechnic Institute and in 2005 was a doctoral candidate in transportation technology and policy at UC Davis. Larry J. Howell is a consultant to industry and government, specializing in the management of R&D for business innovation, automotive technology, telematics, and vehicle structures and materials. Previous positions include executive director, science, General Motors Research and Development Center, in which capacity he served as chief scientist for GM, overseeing the GM R&D Center’s six science labs: Thermal and Energy Systems; Electrical and Controls Integration; Materials and Processes; Enterprise Systems; Chemical and Environmental Sciences; and Vehicle Analysis and Dynamics. Dr. Howell had global responsibility for joint research with universities, government agencies, and GM’s alliance partners. He also served as secretary to GM’s Corporate Science Advisory Committee, which reports on technology issues to the General Motors board of directors. Other positions at GM included director of body and vehicle integration at GM Research; member of the General Motors Research Laboratories; and head of the Engineering Mechanics Department at GM Research. Prior to joining GM, he worked for General Dynamics Corporation as a principal investigator of research related to the structural dynamics of the space shuttle. In 1984, he completed the Executive Program at Dartmouth’s Amos Tuck School of Business Administration. He is a member of the American Institute of Aeronautics and Astronautics (AIAA), the American Society of Mechanical Engineers (ASME), the Society of Automotive Engineers (SAE), and Sigma Xi. He served on an NRC study on the use of lightweight materials in 21st century army trucks, and has served on the College of Engineering advisory boards of the University of Illinois and Western Michigan University. He represented GM as a member of the Industrial Research Institute (IRI) and has served on the IRI board of directors. He is now an emeritus member of IRI. Dr. Howell earned his bachelor’s, master’s and doctoratal degrees in aeronautical and astronautical engineering at the University of Illinois, Urbana. Allan D. Murray is president of Ecoplexus Inc., an automotive technology services company. Previously, he spent most of his career and has held a number of positions at Ford Motor Company, including technology director for the Partnership for a New Generation of Vehicles (PNGV) program, a government-industry partnership to develop advanced, affordable fuel-efficient vehicles; and manager, technology strategy, Plastic and Trim Products Division. As technology director of the PNGV program, he led government-industry research and development teams pursuing advanced vehicle construction, power trains, fuel cells, batteries, and power electronics. In his other positions he also led leading-edge automotive plastic and composite products, processes, and methodologies. He has extensive experience in bringing advanced automotive technologies and products from concept through production and has a broad-based knowledge of automotive systems and economics. He served as chairman and president of the nonprofit Michigan Materials and Processes Institute, the first automotive engineer elected a fellow of the Society of Plastics Engineers, and is a member of the Society of Automotive Engineers. He served as a member of the Panel on Benefits of Fuel Cell R&D for the Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase One). He has a Ph.D. and an M.S. in metallurgical engineering and materials science, Carnegie Mellon University; a B.S. in metallurgical engineering, University of British Columbia; and an M.B.A., Wayne State University. William F. Powers (NAE) is retired vice president, research, Ford Motor Company. In his approximately 20 years at Ford he served as director, Vehicle, Powertrain and Systems Research; director, Product and Manufacturing Systems; program manager, Specialty Car Programs; and executive director, Ford Research Laboratory and Information Technology. Prior positions include professor, Department of Aerospace Engineering, University of Michigan, during which time he consulted with NASA, Northrop, Caterpillar, and Ford; research engineer, University of Texas; and mathematician and aerospace engineer, NASA Marshall Space Flight Center. He is a fellow, Institute of Electrical and Electronics Engineers; member, National Academy of Engineering; foreign member,

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) Royal Swedish Academy of Engineering Sciences. He has extensive expertise in advanced research and development of automotive technology. He is a member of the NRC’s Board on Energy and Environmental Systems and recently served on the Committee on Alternatives and Strategies for Future Hydrogen Production and Use. He has a B.S. in aerospace engineering, University of Florida, and a Ph.D. in engineering mechanics, University of Texas, Austin. Gary W. Rogers is president, chief executive officer and sole director, FEV Engine Technology, Inc. He is also president, FEV Test Systems, Inc. His previous positions included director, Power Plant Engineering Services Division, and senior analytical engineer, Failure Analysis Associates, Inc.; design development engineer, Garrett Turbine Engine Company; and exploration geophysicist, Shell Oil Company. He has extensive experience in research, design, and development of advanced engine and power train systems, including homogeneous and direct-injected gasoline engines, high-speed direction injection (HSDI) passenger car diesel engines, heavy-duty diesel engines, hybrid vehicle systems, gas turbines, pumps, and compressors. He provides corporate leadership for a multinational research, design, and development organization specializing in engines and energy systems. He is a member of the Society of Automotive Engineers, is an advisor to the Defense Advanced Research Projects Agency on heavy-fuel engines, and sits on the advisory board to the College of Engineering and Computer Science, Oakland University, Rochester, Michigan. He served as a member of the NRC Committee on Review of DOE’s Office of Heavy Vehicle Technologies Program, and served on the NRC Committee on the Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. He also recently supported the Department of Transportation’s National Highway Traffic Safety Administration by conducting a peer review of the NHTSA CAFE model. He as a B.S.M.E. from Northern Arizona University. James Lee Sweeney is professor and former chairman, Department of Engineering-Economic Systems and Operations Research, Stanford University. He has been a consultant, a director of the Office of Energy Systems, a director of the Office of Quantitative Methods, and a director of the Office of Energy Systems Modeling and Forecasting, Federal Energy Administration. At Stanford University, he has been chairman, Institute of Energy Studies; director, Center for Economic Policy Research; and director, Energy Modeling Forum. He has served on several NRC committees, including the Committee on the National Energy Modeling System, the Committee on Impact and Effectiveness of Corporate Average Fuel Economy (CAFE) Standards, and the Committee on the Human Dimensions of Global Change. He served on the Committee on Prospective Benefits of DOE’s R&D on Energy Efficiency and Fossil Energy (Phase One), helping to develop the framework and methodology that committee applied to evaluating benefits. His research and writings address economic and policy issues important for natural resource production and use, energy markets including oil, natural gas and electricity, environmental protection, and the use of mathematical models to analyze energy markets. He has a B.S. degree from the Massachusetts Institute of Technology and a Ph.D. in engineering-economic systems from Stanford University. ATTACHMENT B DESCRIPTION OF THE BENEFITS MODEL Model Description To quantify economic, environmental, and security benefits, the panel used a simple model that tracks fuel use and costs, incremental vehicle costs, and carbon emissions from the light-duty vehicle fleet. The model used by the panel is adapted from a vintage stock model developed by the Committee on Alternatives and Strategies for Hydrogen Production and Use (NRC, 2004b). This model includes assumptions about the total vehicle miles driven by year as a vehicle ages (14 years and about 142,000 miles over that life, with more miles on newer vehicles), about total vehicle sales per year (assumed to grow at about 2 percent per year starting in 2004), and about current and future trends in vehicle fuel economy. Based on these assumptions, the model produces estimates, by year, of the total vehicle miles driven, the average fuel economy of vehicles on the road, the total gasoline consumed, and the total carbon emissions. The model covers the period from 1987 through 2050; the panel was concerned only with the projections from 2006 through 2050. The panel modified the model by including three types of light-duty vehicles that are assumed to compete for the total volume of light-duty vehicles sold in each year. Base case conventional vehicles (CVs) are defined as having fuel economy performance that increases by about 10 percent between 2005 and 2015 and then increases slowly over time at about 1 percent per year. New CVs are defined as CVs that incorporate new technologies aimed at improving fuel efficiency, typically at some increased cost over the base case conventional vehicles. The fuel economy associated with new CVs is based on the results of the panel’s decision tree assessments: Overall, 145 different fuel economy improvements and incremental vehicle costs “cases” were identified. Finally, the model also includes hybrid electric vehicles (HEVs). HEVs are assumed to have 30 percent better fuel economy than the CVs on which they are based. There are also incremental costs associated with HEVs: In 2006 that incremental cost is assumed to be $2,500; in future years, the incremental cost depends on the results of R&D on batteries. The total fuel consumption depends on the type and quantity of light-duty vehicles that are on the road in any given year. Rather than explicitly model the competition between HEVs and CVs, the panel chose to define two HEV market

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) conditions and evaluate the benefit of the program under both conditions. In the Low HEV market condition, HEV sales increase linearly from today’s market share to about 12 percent of new vehicle sales in 2050. In the High HEV condition, HEV sales increase exponentially from today and ultimately account for about 40 percent of new vehicle sales in 2050. The market acceptance of new CVs was assumed to be strictly a function of the trade-off between increased capital costs and decreased lifetime fuel costs. To determine which type of CV would be purchased in any given year, a simple cost comparison is made of the total capital and fuel costs assuming a 14-year vehicle life, annual vehicle mileage over the life of the vehicle, and a consumer discount rate of 7 percent. Whichever vehicle has the lower discounted total cost is assumed to capture the entire market for CVs in that year. Calculating Fuel Usage, Fuel Expenditures, Incremental Vehicle Cost, and Carbon Emissions for a Given Set of Vehicle Characteristics Based on the market assumptions (total vehicles sold, fraction of total vehicles that are HEVs, and fraction of CVs that implement new technologies) and fuel economy estimates for the three vehicle types, the model produces an estimate of annual gasoline usage by light-duty vehicles annually from 2006 through 2050. The estimated gasoline usage is then translated into economic expenditures and carbon emissions. Economic expenditures on gasoline are estimated based on the projected price of gasoline (excluding taxes) by year and the total volume of gasoline used. The price of gasoline is estimated based on the price of oil: Refining and distribution are assumed to add about 42 cents per gallon to the crude oil price. The price of oil is defined by the global scenarios being considered: the 2005 Reference Case prices and twice those prices for the High Oil and Gas Prices scenario. The price of oil in the Carbon Constrained scenario is assumed to be the same as in the Reference Case. Prices were assumed to be constant after 2025 through 2050. Annual carbon emissions are calculated based on the total gasoline usage and an estimated 3.04 kg carbon emitted per gallon of gasoline consumed. Finally, HEVs and new CVs will cost the consumer more than base case CVs, and those incremental costs must be accounted for in the estimate of the total economic impact of the new technologies. In 2005, HEVs cost approximately $2,500 more than comparable CVs. As with the fuel economy estimates, the incremental costs of HEVs and of new CVs are defined for the specific case being evaluated. The incremental per-vehicle costs are multiplied by the number of vehicles of each type that are sold to produce an estimate of the incremental vehicle costs by year. Estimating the Benefit of the DOE R&D Program As described above, the panel’s discussion and assessment of the technical risks associated with DOE’s R&D activities resulted in the identification of 145 “cases,” or different possible outcomes for fuel economy and incremental vehicle cost for new CVs and HEVs. The assessment also results in two probabilities for each case: the probability of that outcome with DOE’s research program and the probability of the outcome without DOE’s research program. The expected economic benefit of the DOE program is the difference in the expected value of total consumer expenditures on vehicles and fuel with the program and those expenditures without the program. The expected value of total consumer expenditures in each case is calculated as the probability-weighted average of the expenditures in each of the 145 cases. The total consumer expenditures is calculated as the discounted net present value of fuel costs and incremental vehicle costs between 2006 and 2050, discounted at 3 percent or 7 percent real. Similar calculations for the difference in the expected value of carbon emissions and gasoline consumption yield values for the expected environmental and security benefits of the DOE program.