Navigant Research Blog

Efficiency Directive Could Boost Energy Services in Europe

— May 27, 2014

Last month the United Kingdom published its National Energy Efficiency Action Plan (NEEAP) in compliance with the European Union (EU) Energy Efficiency Directive (EED), which is to be legally implemented by June 5, 2014.  Addressing energy efficiency in the broadest sense, the EED targets a 20% reduction in primary energy consumption by 2020Responsible for 40% of final energy consumption and 36% of greenhouse gas emissions, the building sector constitutes a key target for this directive.

The EED is as remarkable for its comprehensive coverage as it is for its ambitious goals.  Compared to previous measures such as the Energy Performance of Buildings Directive, the EED is distinctive in targeting the existing building stock, not just new construction, and thus engages with an important and previously neglected source of energy consumption.  In formulating their responses, member states must construct long-term renovation strategies that address the specific characteristics of the building stock in their countries.  For companies operating in the smart building sector, the published Energy Efficiency Plans (EEPs) hint at some potentially promising market developments.

Frame in Place

Unfortunately, all but three EEPs (from Denmark, the Republic of Ireland, and Croatia) were criticized in a report published by the Coalition for Energy Savings for lacking detail, miscalculating savings targets, and relying heavily on exemptions, collectively reducing the potential annual decrease in primary energy consumption to 0.8% from the targeted 1.5%.  For the United Kingdom, traditionally considered a leading market for energy efficiency in Europe, such a finding is disappointing.  Yet, the plans do illuminate the routes that EU member states are choosing to pursue to accomplish their energy efficiency goals.  Significantly, the U.K. NEEAP advocates the establishment and expansion of the energy services sector as a cornerstone aspect in realizing a low carbon building stock.  As a nascent business model in Europe, the policy attention directed at energy performance contracting (EPC) could help energy services across Europe.

To promote the EPC model, especially among small- and medium-sized enterprises, the U.K. government will provide additional information on typical contracts, maintain a list of accredited EPC providers with the development of quality labels, and deliver a guide to best EPC practices.  Referring to Greater London Authority’s innovative RE:FIT pilot, in which public organizations use energy service companies (ESCOs) to implement energy efficiency measures along with boarder energy management plans, the U.K. NEEAP asserts government ambitions to roll the RE:FIT program out nationally.  That could significantly expand the market opportunity for ESCOs.

Thus, even though national responses to the EED have been criticized for their shortcomings, they represent an unprecedented framework for addressing the energy consumption of Europe’s aging buildings.  In the United Kingdom, this is being translated into favorable terms for the ESCO market.  It will be interesting to see to what degree the EPC model can penetrate the U.K. market.


Big Business Buys into Big Wind

— May 23, 2014

Thirteen billion Snickers bars.  That’s how many chocolate treats can be produced annually from the wind power purchase agreement (PPA) that Snickers-maker Mars Inc. signed in late April that effectively underwrites a new 200 MW wind plant near Lamesa, Texas.

Mars thus joined a swelling chorus of big corporations that are investing in, and powering their businesses with, wind power.  Corporate purchases of renewable energy certificates (RECs) aren’t new.  But several tech-savvy firms are increasingly going beyond REC purchases and are opting for direct purchases of bulk wholesale renewable energy from individual wind plants and making equity investments in projects – effectively becoming new customers for wind plants beyond the traditional utility base.

Utilities have typically been the only customers that sign PPAs with wind plant developers and owners.  However, companies like Mars Inc., Google, Intel, Ikea, and Facebook (just to name a few) represent a new customer base for wind plant developers.  And these are not small, symbolic greenwashing pursuits.  These are real and substantial investments enabling the construction of significant new wind power plants.

Earth Day Deal

Google in particular has been on a wind buying spree.  Fittingly, on Earth Day, April 22, Google announced it had inked a deal with MidAmerican Energy to purchase 407 MW of wind power.  Unlike most utilities, which purchase wind power from independent power producers, the Iowa-based utility has strongly embraced wind by becoming a wind plant developer and owner itself.  With Google’s PPA in support, MidAmerican will build out its wind plant capacity by the end of 2015 and will sell the equivalent amount of power and bundled RECs to Google to partially power its data centers in Iowa.

This comes on the heels of Google signing PPAs totaling 101 MW in Sweden, 239.2 MW in Texas, 100.8 MW in Oklahoma, and 114 MW in Iowa, as well as the equity purchase of a 161 MW wind plant in Texas.  All told, the search engine giant has over 1 GW of wind PPAs in addition to equity investments.  None of these deals are behind the meter arrangements providing direct power, but these deals are structured in markets close to where Google operates its power-hungry data centers, thus ensuring that its investments are greening the electricity grid where the company operates facilities and that some proportion of the facilities’ consumption is produced from these local wind investments.

No Assembly Required

The Lamesa plant underwritten by Mars Inc.’s PPA is being developed in partnership with Sumitomo and BNB Renewable Energy, and is expected to go online by the end of 2015.  The expected 800,000 MWh of annual electricity generated by the facility is more than the Mars Inc. company’s annual electricity needs at its 37 U.S. factories and 70 workplaces.

Somewhere in those Mars Inc. offices, most likely, sits some furniture from Ikea.  The Swedish furniture giant also announced in April that it would purchase a 98 MW wind plant developed by Apex Clean Energy in Illinois.  No doubt, the equity investment is sweetened by the company’s appetite for tax credits, but it also offsets the equivalent of 165% of the electricity consumed by Ikea’s 38 stores in the United States.

Social media giant Facebook is not far behind.  In late 2013, Facebook announced a deal – also with MidAmerican Energy – to buy all the output from a 138 MW wind plant developed by RPM Access that would offset the energy needs of the company’s new data center under construction in Altoona, Iowa.

These deals demonstrate that large energy users are increasingly educating themselves on the role wind energy can play in their efforts to achieve a sustainable triple bottom line that balances social, environmental, and economic business needs.


British Columbia Wrestles with Energy Future

— May 23, 2014

Today, British Columbia has one of the cleanest (and lowest cost) power generation systems in the world, with over 90% of its electricity generated from hydroelectric dams.  BC Hydro, the provincial government utility, projects an image of a benevolent partner for both industry and First Nation (the Canadian term equivalent to Native American in the United States) communities.  For example, the utility’s obligation to serve extends out even to those communities not connected to its power grid.  To its credit, BC Hydro claims that it hopes to meet 78% of new demand with energy efficiency and other forms of demand-side management.

At the same time, the lack of regulatory scrutiny of its activities has led critics to charge that its decision-making lacks transparency and, worse, requires a radical overhaul in light of new technologies and market realities favoring small over large resources.  These issues have become magnified due to the controversy surrounding the liquefied natural gas (LNG) developments proposed to be powered up by a hydroelectric facility at a new dam on the Peace River, known as Site C, and could have lasting repercussions in British Columbia, not just for regional economic development, but for independent power producers looking to develop non-hydro renewable resources, such as wind farms, over the next decade.  I got a full view of the controversy and the issues surrounding it at the recent BC Power Summit in Vancouver.

What Does “Clean” Mean?

The BC government wants to create the “cleanest” LNG industry in the world, a response to critics who contend new plans to explore fracking and other forms of shale natural gas exploration are a boondoggle in the making.  While the prime motivation for developing Site C is to export LNG to markets in Asia Pacific, LNG could also power up gas-fired generation capacity within the province itself.  Unlike most markets in the United States, where natural gas displaces coal and lowers overall prices, LNG could not only raise prices for BC consumers, but also increase greenhouse gas emissions.

Yet, the largest controversy revolves around how best to provide power for the massive LNG infrastructure contemplated for drilling and terminal operations.  The leading proposal is to construct a large hydroelectric dam in the vicinity, which would exceed 1,000 MW in capacity.  In the process, the Peace River valley would be flooded, and that, according to First Nation indigenous peoples, would violate past treaties with the Canadian federal and provincial governments.  Furthermore, the hydroelectric development would have major impacts on grizzly bears and a host of other wildlife species.

An Alternative to Diesel

Renewable lobbies such as Clean Energy Canada have put together portfolios of wind, solar, and natural gas that could provide an equivalent amount of electricity as Site C hydro, with only a 2% cost increase over the preferred hydroelectric option.  But it appears the writing is on the wall and British Columbia will probably move forward with what will likely be its last major hydro project.

Many of the 30 or so remote First Nation communities in BC still rely upon diesel as their primary source of power generation as they are not interconnected to the BC Hydro power grid.  Perhaps the oddest twist to this story is that there are proposals circulating to ship LNG to these First Nation communities – which might actually shrink their carbon footprints, in light of the need to also truck diesel fuel over long distances.  Companies such as Koho Power Corporation are working to transform these communities into microgrids, incorporating distributed renewables.


Energy Consumption Falling in the Transportation Sector

— May 21, 2014

Climate change has been in the news a lot lately due to recently published reports from the United Nations, the White House, NASA, and myriad other scientific institutions that have highlighted the consequences of increasing levels of CO2 in the Earth’s atmosphere.  While there are many ways to reduce per capita energy consumption, one of the greatest opportunities lies in making light duty vehicles (LDVs) more energy efficient.  In no other sector is the potential for reduction so high and the pathway to achievement so accessible.

Not all energy consumption is carbon intense, but an overwhelming majority of the energy consumed in the transportation sector, born from the burning of oil, is.  Burning a gallon of gasoline (with 10% ethanol) consumes around 112,000 BTUs of energy and emits 8,887 grams of CO2.  It’s also estimated that gasoline requires around 6 kWh (20,500 BTUs) of grid-sourced electricity to refine 1 gallon of gasoline from crude oil, and the 2010 emissions factor of the U.S. grid was estimated to be 690 grams/kWh.

The Widening Gap

Given the average fuel economy of 24.7 mpg for new LDVs in 2013, the average new car in the United States consumes 5,364 BTUs/mile, emitting roughly 527 grams of CO2/mile.  The fuel economy of 2013 models has improved from the prior year by 1.2 mpg, meaning that the average car purchased in 2013 saves 274 BTUs/mile and 27 grams of CO2/mile over 2012 models, an improvement of nearly 5%.

Navigant Research estimates that, thanks to Corporate Average Fuel Economy (CAFE) standards, the average fuel economy of a new LDV will be 52% higher in 2025 than in 2013.  This means that the average new LDV will use 1,836 fewer BTUs/mile and emit 180 fewer grams of CO2/mile than 2013 models, equaling improvements of roughly 66%.

Meanwhile, the sales-weighted average of a 2013 battery electric vehicle (BEV) had a 3.1 miles/kWh rating.  This means that 2013 BEVs consume 1,100 BTUs/mile and emit roughly 222 grams of CO2/mile, a reduction of nearly 80% in energy consumption and nearly 58% in carbon emissions from conventional 2013 cars.

These calculations do not include full lifecycle emissions and energy consumption characteristics of either the gasoline or electricity supply chain; a more comprehensive analysis would no doubt improve the returns of BEVs over conventional petroleum-powered vehicles.  Additionally, a static figure of 690 grams/kWh is used to assess grid-sourced carbon emissions.  The carbon emissions intensity of the grid varies significantly by location, as seen here, and the grid will become much cleaner over time due to increased penetrations of wind and solar in the generation portfolio – furthering the energy and emissions efficiency gap between gasoline and electricity as a fuel.


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