wp se5t 13 pike research

7/28/2019 WP SE5T 13 Pike Research

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Kerry-Ann Adamson, PhD

Research Director

Alex Lauderbaugh

Research Associate

Mackinnon Lawrence

Senior Research Analyst

Smart Energy: Five Metatrendsto Watch in 2013 and Beyond

Published 1Q 2013

WHITE PAPER


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Smart Energy: Five Metatrends to Watch in 2013 and Beyond

2013 Navigant Consulting, Inc. Notice: No material in this publication may be reproduced, stored in a retrieval system,or transmitted by any means, in whole or in part, without the express written permission of Navigant Consulting, Inc.

1

Section 1

INTRODUCTION

The smart energy paradigm is fast evolving from niche markets into a standardized part of the

energy portfolio. Consensus across the board from the oil majors to national governments to

technology developers indicates that a more diversified energy portfolio is developing. As a

result of this development, combined with the almost inexorabl e shift toward an electron-based

economy, a range of energy sources and advanced energy technologies has entered the market

and started to post healthy revenue.

Chart 1.1 gathers together information from seven high-growth fuel sources and energy

conversion technologies that are part of the smart energy sector. Together, these areas will

garner revenue of nearly $250 million in 2017.

Chart 1.1 Revenue of Seven High-Growth Areas in the Smart Energy Sector, World Markets: 2012-2017

(Source: Pike Research)

$-

$50

$100

$150

$200

$250

$300

2012 2013 2014 2015 2016 2017

($Millions)

Biopower

Biorefinery

Energy Storage for the Grid

Fuel Cells

Hydropower

Small Wind

Distributed Solar


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Instead of diving deep into each of the seven high-growth areas, this white paper views them at

a much higher level, highlighting five metatrends that are emerging. These trends will have an

increasing impact in 2013 and beyond. Essentially, they illustrate that power is expanding

geographically and advancing technically. The five smart energy metatrends Pike Research

has identified for 2013, in no particular order, are:

Energy is becoming increasingly democratized

Role of government innovation funds is changing

Technologies are converging

Southern African Power Pool is becoming the new BRIC

Role of utilities is changing


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3

Section 2

ENERGY IS BECOMING INCREASINGLY DEMOCRATIZED

At a fundamental l evel, d istributed generation (DG), a key part of the evolving smart energysector, represents the democratization of energy. In the same fashion that the Internet has

produced a democratization of information and knowledge, the availability of pico power-

producing technology, such as solar panels, small wind turbines, and residential combined heat

and power (resCHP) systems, enables people to produce, and sell if desired, their own power.

There will always be a large number of consumers who only want to consume and are happy to

allow utilities the responsibility of producing and consuming power. However, we are seeing a

subculture of consumers arise who are the groundbreaking lead adopters in this area.

Figure 2.1 shows the transition of the Internet from (in essence) an online library of information

into an organism that is growing and changing the way its users operate. As this process took

over a decade and is ongoing , the process of energy democratization will also take a long time.We will not start to see large impacts on the energy market for some time yet. At present, the

democratization of energy is in a phase that is the equivalent of 1996 in terms of Figure 2.1.

Yet, we are cognizant of the potential of this trend in a way that users and developers of the

Internet in 2006 were simply not.

Figure 2.1 Changing Democratization of Information from the Internet

(Source: Dipity)

One the key applications within this DG trend, and the democratization of energy, is resCHP.

With a basket of technology and size options availabl e, homeowners worldwide are increasingly

able to produce power and sell power from tens of watts up to a few kilowatts. They are

essentially transforming from passive consumers to active pico power plan t producers.


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Chart 2.1, taken from the 1Q 2012 Pike Resear ch Residential Combined Heat and Power

report, shows the capacity of resCHP. Pike Researchs forecasts anticipate a cumulative

installed capacity of 26,568 MW between 2010 and 2022. Note, though, that with an increase

in feed-in tariffs, a rise in systems available with islanding capability, and the removal of

barriers to allow small producers to sell excess power back to the grid, this could be seen as avery pessimistic forecast.

Chart 2.1 resCHP from Single and Multi-Family Dwellings, World Markets: 2010-2022


In 2013 specifically, Pike Research expects to see growing concern from transmission and

distribution companies about the potential impact of an increased number of small producers

that they cannot control in terms of load available to be fed into the grid. This concern will

likely lead to a call from grid owners and operating companies to be allowed to be able to

control when and how much electricity is drawn from the resCHP systems. Meanwhile,

adopters of resCHP systems will likely push back on allowing such control by grid owners and

operating companies.

Thus, in addition to the increased adoption of DG technologies in 2013 and the increased

removal of barriers to sell on the g rid, Pike Research expects it to be a key year in terms of

opening up discussions. Two important parameters will likely be set: the rules of the game for

producing, selling, and controlling decentralized power and the amount of democracy the

adopters are to be allowed.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

(MW

)


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5

Section 3

ROLE OF GOVERNMENT INNOVATION FUNDS IS CHANGING

Global cleantech investment is down.

The cleantech industry is dead.

Not quite. But what we are seeing is a change in the roles of the private equity markets and

quasi-independent government-funded innovation funds.

In the Western world, the role of the private equ ity markets has traditionally been to shoulder

innovation-based risk. The assumption has been that for every certain amount of investment

bets, a number of these would pay with large dollar returns. Meanwhile, the role of government

has been to promote innovation in the broadest sense and support research and development

(R&D)-based organizations with funding in somewhat general program streams.

During the dot-com boom, every fund jumped into the high-tech sector, often on the back of

promise with a large dash of hope mixed in. Most, but critically not all, lost and badly. Those

that won, seeing large returns, backed companies such as Google. In 2008, before the global

economic downturn, cleantech investment from the private equity market was riding high, with a

common question being: What is the Google of energy? Solar, wind, fuel cells, and battery

technology saw year-to-year overall increases in investment. But in the complex, often

commodity-based and subsidized energy marketplace, early revenue (or fast return on

investment) has proved elusive for most cleantech companies. Then came the economic

downturn, and private equity markets started shying away from high-r isk investment with a

longer-than-average time to exit. This exit of the private equity market left in a gap in the

innovation chain and quasi-government-funded innovation funds have stepped in.

What is interesting with this shift is that rather than investing in only one company, these new

funds are providing funding for specific tailored R&D (or projects) to groups of companies. The

funding comes with the strict caveat that it should be focused on moving the companies through

the innovation chain. This is very different from providing funding for basic R&D research

simply to reach point A.

Figure 3.1 Innovation Process Is Changing


Traditional PE Investment Space

Government Innovation Funds PE Markets


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A good example of this type of funding was a 2012/2013 call from the Uni ted Kingdoms

Technology Strategy Board (TSB). This $8 million (5 million) funding call was meant to seek

to facilitate the development of new relationships between fuel cell / electrolysers stack and

system developers and companies from outside the industry with technologies or products

which could address outstanding supply chain / manu facturing needs. The aim was to helpcompanies develop innovative manufacturing and bu ild a robust supply chain that would then

allow them to move faster and more efficiently along the innovation chain. Note that because

this call is still ongoing, Pike Research will not be able to analyze the results and impacts of

this funding until 2014 at the earliest.

Pike Research forecasts that the gap left by the private equity markets will continue to be filled

by government-backed innovation funds in 2013. These funds are able to shoulder a higher

level of risk at an earlier stage in the innovation process and are able to focus on the societal

good that some technologies could bring, rather than the potential short-term gain.


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Section 4

TECHNOLOGIES ARE CONVERGING

One of the most exciting trends, from a technology perspective, that emerged in 2012 and willhave a large impact in 2013 on the smart energy market is the convergence of technolog ies.

To date, technologies and energy sources have evolved independent of each other. They have

each carved, or attempted to carve, out market niches for themselves. However, with the

emergence of energy storage in all i ts varied forms, technologies are starting to come together

into systems from components into integrated solutions.

Figure 4.1 All the Pieces Coming Together


This technology convergence is occurring at the same time as a type of market convergence

whereby market demand is increasing for solutions, not technology providers. One example of

this technology and market convergence from 2012 comes from India.

In January 2012, the Telecom Regulatory Authority of India (TRAI) issued a directive requiring

that 50% of all rural telecom base station towers and 33% of all urban towers in the country to

be powered by hybrid solutions within 5 years. To put this another way, of the 3 million base

stations already deployed in India, over 1 m illion of these must have hybrid solutions installed

by 2017.

Market-ViableEnergy

Production

Technology

Energy Storage

Market Need /

Market Pain

Market Pull

New Business

Models

Regulation


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According to the directi ve, hybrid solutions involve a combinat ion of renewable energy sources,

such as hydrogen fuel cells, and grid electricity. It is this emphasis on solutions at a systems

level, not just the adoption of a technology, that is pushing the market toward the convergence

of technology into solutions. But without the energy storage option, this merging would not be

possible. Thus, we are looking at a real convergence point. The missing piece of thetechnology solution is becoming available as the market is increasingly requiring a combined

systems approach.

In 2013, this convergence of technology availability and market demand will see a leap in sales

of systems with an integrated approach, including power creation and energy storage. In terms

of specific markets that are experiencing this convergence, Pike Research forecasts a

significant increase in sales of renewable or alternative energy solutions into the off-grid mobile

base station market.

In a 1Q 2013 report titled Off-Grid Power for Mobile Base Stations, Pike Research produced a

forecast with two scenarios to model revenue from this single market. Revenue according to

the base and optimistic scenarios for off-grid power for mobile base stations is shown in

Chart 4.1 below. The reason for the obvious uptick is that with the emergence of all the pieces

of the technology puzzle, combinations of renewable ene rgy, batteries, and fuel cells are

available on the market at an economic price point that allows for a less than 5-year payback in

some high-need countries.

Chart 4.1 Off-Grid Base Station Power Revenue by Forecast Scenario, World Markets: 2012-2020


$-

$5,000

$10,000

$15,000

$20,000

$25,000

2012 2013 2014 2015 2016 2017 2018 2019 2020

($Millions)

Base Scenario

Optimistic Scenario


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Section 5

SOUTHERN AFRICAN POWER POOL IS BECOMING THE NEW BRIC

The Southern African Power Pool ( SAPP) is a consortium of 12 utilities operating across 12neighboring countries in Africa (Angola, Botswana, Democratic Republic of the Congo, Lesotho,

Malawi, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe).

Those 12 countries constitute a current capacity of 54 GW and a population of 189 million

people. The aim of SAPP is to create a common market for electricity with all utilities acting

without taking advantage of one another. Table 5.1 shows the regions interdependence with

Eskom, the state-owned utility monolith in South Africa.

Table 5.1 Southern African Power Pool, Utilities and Fuel Production: 2010

Utility

Baseload/

Hydro Coal Nuclear

CombinedCycle Gas

Turbine Distillate TotalBPC - 132 - - 70 202

EDM 498 - - - 51 549

ENE 760 267 - 160 - 1,187

Eskom 286 - - 1 - 287

Eskom 2,000 37,831 1,930 - 2,409 44,170

LEC 72 - - - - 72

NamPower 240 132 - - 21 393

SEC 63 9 - - - 72

SNEL 2,442 - - - 2,442

Tanesco 561 - - 485 78 1,124

ZESA 750 1,295 - - - 2,045



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Table 5.2 provides a set of base statistics on the regi on, showing that although many of the

countries actually have fairly high penetrations of renewab le energy into their energy

landscape, there is a real problem with rural electrification. The SAPP region overall aims to

increase its average electricity access rate to 31.5% and do so in a way that is sustainable,

creates high-value local jobs, and increases the beneficiation of local resources.

Table 5.2 Background Data, Southern African Power Pool: 2008 and 2009

CountryPopulation

(Millions)Electricity

Capacity (MW)Renewables

Installed (MW)Electricity

Access Rate (%)

Angola 19 1,155 498 30%

Botswana 2 292 - 45%

Democratic Republic ofthe Congo

3.8 148 119 37%

Lesotho 2.1 76 76 16%

Malawi 14.9 315 290 9%

Mozambique 23.4 2,428 2,179 12%Namibia 2.2 264 249 34%

South Africa 50 44,100 675 75%

Swaziland 1.2 130 120 45%

Tanzania 45 1,006 579 14%

Zambia 12.9 1,680 1,672 19%

Zimbabwe 12.6 2,099 754 42%

Total 189 53,693 7,211

(Source: International Renewable Energy Agency)

Table 5.3 outlines the specific known targets for new renewable energy additions and rural

electrification by country.

Table 5.3 Renewable Energy Policy Targets in Southern African Power Pool: 2012

Country Renewable Energy Targets

Angola Not known

Botswana Not known

Democratic Republic ofthe Congo

Not known

Lesotho 35% rural electrification to come from renewables by 2020

Malawi 7% of primary energy from renewables by 2020

Mozambique

6,000 MW of wind, solar, and hydro capacity (2,000 MW each)

Installation of 82,000 solar PV systems, 1,000 biodigesters, 3,000 windturbine pumping systems, 5,000 renewable energy-based productivesystems, and 100,000 solar heater in rural areas

Namibia Not known


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Country Renewable Energy Targets

South Africa

10,000 GWh of renewables produced by 2013

3,100 MW of renewable capacity by 2013, including 500 MW of windand 50 MW of concentrating solar power

4% of electricity generation from renewables by 2013 13% of electricity generation from renewables by 2020

2 bid windows were opened in 2012, with another due in 2013

Swaziland

20% of all public buildings installed with solar water heaters by 2014

Develop solar water heater standards by 2012

Establish fiscal incentives to promote renewable energy by 2013

Establish a demonstration center for renewable energy technologies by2015

Tanzania Not known

Zambia Not known

Zimbabwe 10% share of biofuels by 2015

(Source: International Renewable Energy Agency)

In 2013, Pike Research expects to see cleantech investment in SAPP reach roughly $10 billion,

with the split between internal and foreign i nvestment heavily weighted toward foreign

investment. To put this in context, the total cleantech investment in the entire Middle East and

Afr ica region between 2004 and 2011 was $11.8 bi ll ion ($2.4 bi ll ion i n 2011).

Pike Research also forecasts that global attention on southern Africa will increase in 2013 due

to the projected finds of natural gas and the potential to exploit coal bed methane. As a result

of these fuel sources, the regions carbon footprint in the short term could dip. The new fuel

sources will likely be substituted for new coal-fired plant baseload capacity while more

renewable energy and alternative energy capacity are introduced.

The number of large renewable energy projects in the pipeline, such as the highly ambitious

Grand Inga Dam in the Democratic Repub lic of the Congo (with a capacity of 39 GW), is

expected to increase. Meanwhile, the push for upgraded transmission line rights across the

SAPP region and increased electrification will become stronger and stronger. Thus, 2013

should be the year that SAPP starts to take a place on the world stage in terms of the smart

energy market.


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Section 6

ROLE OF UTILITIES IS CHANGING

Traditionally, electric utilities control two types of assets: power generation and gr id control.Electricity production from coal, natural gas, nuclear, wind, solar, and other sources fall into the

power generation category. Grid control is composed of transmission and distribution lines,

transformers, voltage regulators, substations, and other associated equipment. Electric utilities

tend to create natural monopolies because o f economies of scale.

However, these monopolies are eroding, and new technologies and business models are poised

to take advantage. When the emergence of independent power producers (IPPs), energy

service companies (ESCOs), and cooperative energy compan ies is combined with the growth in

feed-in-tariffs for individuals, utilities are (in some cases) transformed from bei ng the central

producer, distributor, and controller to being the purchaser and aggregator of power. However,

the electricity sector is currently at a junction where utilities will have to develop a strategy forensuring stability of the grid, continued revenue, and the continued ability to serve their

customer base.

Microgrids, for example, present an interesting situation for centralized utilities. On the one

hand, they are dismantling the monopoly on which utilities have thrived for more than a half

century. On the other hand, microgrids present a brand new type of flexibility to the central

grid. Since microgrids can island to reduce load, they can be treated as demand response (DR)

resources in times of grid stress. Furthermore, because they have their own generation, they

can divert some of their internal distributed energy resources (DER) to the central grid.

Note also that the responses of microgrids to central grid conditions are not solely based on

need; they can be economically induced. For instance, if a microgrid can shed non-essential

load at a time of high central gr id energy cost, it can profit from the disparity between its cost of

operation and the central grids electricity price. Because of this flexibility, microgrids can take

advantage of deregulated markets and may be more profitable than the larger grid in which they

are embedded.

It is likely that electric utilities in North America and Europe will have much to learn from the

utilities that mature in the developing world. In regions currently lacking a central grid, utilities

will come to represent flexible and robust machines, instead of the slow-moving giants of the

developed world. Ultimately, the system that grants individuals and companies the most stable

and least expensive source of electricity will lead the market. This model will likely come from

a fresh perspective on how to generate and distribute the electricity that is currently evolving inthe developing world.


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Section 7

ACRONYM AND ABBREVIATION LIST

Brazil, Russia, India, and China .............................................................................................................. BRIC

Demand Response .................................................................................................................................... DR

Distributed Energy Resources ................................................................................................................. DER

Distributed Generation .............................................................................................................................. DG

Energy Service Company ...................................................................................................................... ESCO

Gigawatt .................................................................................................................................................. GW

Gigawatt-Hour ........................................................................................................................................ GWh

Independent Power Producer ..................................................................................................................... IPP

Institute of Electrical and Electronics Engineer s ...................................................................................... IEEE

Megawatt ................................................................................................................................................. MW

Photovoltaics ............................................................................................................................................. PV

Research and Development ..................................................................................................................... R&D

Residential Combined Heat and Power ............................................................................................... resCHP

Southern African Power Pool ................................................................................................................. SAPP

Technology Strategy Board ...................................................................................................................... TSB

Telecom Regulatory Authority of India ..................................................................................................... TRAI

United Kingdom ...................................................................................................................................... U.K.

United States .......................................................................................................................................... U.S.


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Section 8

TABLE OF CONTENTS

Section 1 ........................................................................................................................................................... 1 Introduction ...................................................................................................................................................... 1Section 2 ........................................................................................................................................................... 3 Energy Is Becoming Increasingly Democratized ............................................................................................... 3Section 3 ........................................................................................................................................................... 5 Role of Government Innovation Funds Is Changing ......................................................................................... 5Section 4 ........................................................................................................................................................... 7

Technologies Are Converging ........................................................................................................................... 7Section 5 ........................................................................................................................................................... 9 Southern African Power Pool Is Becoming t he New BRIC ................................................................................ 9Section 6 .......................................................................................................................................................... 12Role of Utilities Is Changing ............................................................................................................................ 12Section 7 .......................................................................................................................................................... 13Acronym and Abbreviation List ....................................................................................................................... 13Section 8 .......................................................................................................................................................... 14Table of Contents ............................................................................................................................................. 14Section 9 .......................................................................................................................................................... 15Table of Charts and Figures ............................................................................................................................. 15Section 10 ........................................................................................................................................................ 16Scope of Study ................................................................................................................................................. 16Sources and Methodology ............................................................................................................................... 16Notes ................................................................................................................................................................ 17


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Section 9

TABLE OF CHARTS AND FIGURES

Chart 1.1 Revenue of Seven High-Growth Areas in the Smart Energy Sector, World Markets: 2012-2017 ........ 1Chart 2.1 resCHP from Single and Multi-Family Dwellings, World Markets: 2010-2022 .................................... 4Chart 4.1 Off-Grid Base Station Power Revenue by Forecast Scenario, World Markets: 2012-2020 ................. 8

Figure 2.1 Changing Democratization of Information from the Internet ............................................................. 3Figure 3.1 Innovation Process Is Changing .................................................................................................... 5Figure 4.1

All the Pieces Coming Together .. ... .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. .. ... .. .. ... .. .. .. ... .. .. ... .. .. ... 7

Table 5.1 Southern African Power Pool, Utilities and Fuel Production: 2010 ................................................... 9Table 5.2 Background Data, Southern African Power Pool: 2008 and 2009 .................................................... 10Table 5.3 Renewable Energy Policy Targets in Southern African Power Pool: 2012 ....................................... 10


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Section 10

SCOPE OF STUDY

Pike Research has prepared this white paper to provide current and interested stakeholders a t all levels of thesmart energy sector, including developers, analysts, investors, and policy makers, with an overview of five key

metatrends that will affect the sector during 2013. Its major objective is to provide an understanding of some

of the significant market developments and movements that are likely to happen in the smart energy sector

over the course of 2013. Note that the report does not aim to offer an exhaustive assessment of the trends

and their impacts, as Pike Research will provide comprehensive analyses in more in-depth reports during 2013.

SOURCES AND METHODOLOGY

Pike Researchs industry analysts utilize a variety of research sources in preparing Research Reports. The keycomponent of Pike Researchs analysis is primary research gained from phone and in-person in terviews with

industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in

ensuring that they speak with representatives from every part o f the value chain, including but not limited to

technology companies, utilities and other service providers, industry associations, governmen t agencies, and

the investment community.

Additional analysis includes secondary research conducted by Pike Researchs analysts and its s taff of

research assistants. Where applicable, all secondary research sources are appropriately cited within this

report.

These primary and secondary research sources, combined with the analysts industry expertise, are

synthesized into the qualitative and quantitative analysis presented in Pike Researchs reports. Great care is

taken in making sure that all analysis is well-suppo rted by facts, but where the facts are unknown and

assumptions must be made, analysts document their assumptions and are prepared to explain their

methodology, both within the body of a report and in direct conversations with clients.

Pike Research, a part of the Navigant Consulting, Inc. Energy Practice, is a market research group whose goal

is to present an objective, unbiased view of market opportunities within its coverage areas. Pike Research is

not beholden to any special interests and is thus able to offer clear, actionable advice to he lp clients succeed

in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in

cleantech markets.


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NOTES

CAGR refers to compound average annual growth rate, using the formula:

CAGR = (End Year Value Start Year Value)(1/steps)

1.

CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given,

the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well.

Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and

sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2013 U.S.

dollars unless otherwise noted. Percentages may not add up to 100 due to rounding.


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Published 1Q 2013

2013 Navigant Consulting, Inc.

1320 Pearl Street, Suite 300

Boulder, CO 80302 USA

Tel: +1.303.997.7609

http://www.navigant.com/pikeresearch

This publication is provided by Pike Research, a part of the Navigant Consulting, Inc. (Navigant) Energy

Practice and has been provided for informational purposes only. This publication may be used only as

expressly permitted by license from Navigant and may not otherwise be reproduced, recorded, photocopied,

distributed, displayed, modified, extracted, accessed, or used without the express written permission of

Navigant. Navigant makes no claim to any government data and other data obtained from public sources found

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or implied warranty, guaranty, or representation concer ning the information contained in this publication, i ts

merchantability, or its fitness for a particular purpose of function. Any reference to any specific commercial

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