Navigant Research Blog

In California, IOU Filings Spell out DER Forecasts

— July 28, 2015

On July 1, California’s investor-owned utilities (IOUs) submitted the first iterations of their Distribution Resource Plans (DRPs), a new regulatory filing detailing how each will integrate distributed energy resources (DER) into their conventional planning process. Among a wealth of other information, these DRPs include a 10-year adoption forecast of different resource types, which will be used to analyze the range of potential impacts of DER on the electric grid. The California Public Utility Commission guidance provided a framework for three different DER growth scenarios, allowing each utility to use consistent underlying assumptions. The utility filings presented the forecasts with a variety of different metrics for different resources types, from annual energy impact to installed capacity to territory peak impact.

DER Coincident Peak Impact by Type, Trajectory Scenario: 2025

Trajectory Scenario(Source: Navigant Consulting)
Note: Figures display the Navigant estimate of territory peak impact based on the data provided in the resource plans.

DER Growth Scenarios

These scenarios include a low Trajectory case, a moderate High Growth case, and an aggressive Policy Impact case. The Trajectory case portrays business-as-usual based on the existing economic and regulatory drivers. The High Growth case incorporates improved cost-effectiveness for many of the technologies and results in higher adoption. Finally, the Policy Impact scenario assumes California pursues aspirational greenhouse gas reduction, zero net energy, and electric vehicle goals.

The utilities were also required to allocate their system-level resource projections down to individual distribution circuits in order to consider potential location-specific effects from increased DER concentrations. In this iteration, the method and level of detail for this allocation varies both by IOU and resource type, as many categories were not actively tracked in the conventional distribution planning process. However, future filings will likely place additional emphasis on this difficult but impactful component.

Peak Impact Forecast Scenarios

PG&E Peak Impact

SCE Peak Impact

SDG&E Peak Impact

(Source: Navigant Consulting)

Potential Grid Impacts

Each of these planning forecasts is used to determine potential impacts to the future distribution grid. The major categories are changes to the load growth forecast, consequences for grid operations and reliability, potential for capital investment deferral, and impacts to the planning process. While it is clear that these DRPs are the first step in an iterative process, it is also increasingly evident that these issues will have significant influence on the future of California’s electric power system. The variances and magnitudes of DER impacts estimated in the DRPs demonstrate the importance of incorporating location-specific DER adoption trends into California’s already complex load forecasting, procurement, and transmission planning processes. They also indicate the value of upcoming filings in the DRP proceeding that will seek to understand location-specific costs and benefits associated with DER.

 

Despite Bleak Chinese Construction Outlook, Still Hope for Green Buildings

— July 27, 2015

According to second quarter gross domestic product (GDP) data released by China, the miraculous decades-long growth of the Chinese economy is continuing. In reality, though, China’s GDP figures range in the territory of unreliable to laughable. As publicly traded companies announce their second quarter earnings, a picture of a more stagnant Chinese economy is emerging, and for construction, that picture is bleak.

How Low Can You Go?

United Technologies share price tumbled on July 21 (before receiving a little bit more bad news) as net sales and net income fell and performance failed to meet analyst expectations. The company’s Otis elevator and escalator products were projected to experience a 5% increase in orders in China for the year. Instead, the company recorded a 10% decline. The fall in elevator orders is a direct result of the fall in Chinese construction.

Unfortunately, construction in China does not appear to have a bright future. China’s government-led construction drive gobbled up massive amounts of commodities. In 2014, the country accounted for 40% of the world’s copper consumption, despite having just 20% of the world’s population. In just 3 years, China used more cement than the United States did in the entire 20th century. But, commodity prices have dropped, highlighting China’s cooling construction market. The Bloomberg Commodity index has fallen to its lowest level since 2009.

Darkest before the Dawn

Despite these construction headwinds, there is hope in high-performance buildings. The Chinese government is pushing green buildings, in part as a response to the country’s urban air pollution problem. Even though the construction boom has faded, advanced controls and building energy management systems are still poised for growth. As the focus shifts from completing construction to ensuring efficient operation, there is an opportunity for wider adoption and more sophisticated systems.

Other players in the building space are viewing China as a growth opportunity. Johnson Controls noted increased revenue on market expansion in China. Indeed, the company is investing in the Chinese market in anticipation of significant growth opportunities. Honeywell’s Automation and Controls Solutions (ACS) experienced double-digit growth in China in the second quarter of 2015. As China’s construction market continues to mature, the break-neck growth that has been characteristic has slowed substantially. The focus is shifting from more buildings to better buildings, creating opportunities for solutions that improve operational efficiency.

 

To Make Fast Charging Economical, Sites Need Frequent Visits

— July 27, 2015

The number of battery electric vehicle models on offer in the United States is expected to grow significantly during the next few years, with Audi, Chevrolet, Ford, Tesla, and others all expected to add to their fleets. For these models to be successful, the expansion of direct current (DC) fast charging stations to keep the cars charged will need to keep pace. While the business model for hosting a fast charging site is improving, offering the service can become quite expensive when demand charges are incurred.

According to a new report from the Idaho National Laboratory, offering DC fast charging can increase a host site’s utility bill by 15% to 100%, depending on the rate schedule. The report, which culls data from the U.S. Department of Energy’s (DOE’s) EV Project, illustrates how charges can vary greatly depending on the service territory.

How It Works

Utilities assess demand charges each month if a business exceeds specified amounts of power consumed within peak hours during a single period, usually tracked in 15 minute increments. DC fast chargers can boost power consumption by up to 60 kW, which, depending on the rate schedule and overall power consumption, is more than enough to push many businesses into demand charge territory.  And demand charges aren’t a one-time event, as they are levied monthly for up to a year or more.

For small business owners looking to fast charge electric vehicles (EVs), the price can be especially steep. The report states that “power demanded by DC [fast charging] has a more significant impact on electric utility costs for smaller commercial businesses than for larger ones.” In one example, a single charging session that puts a location above its allotted power consumption could cost $482 for that month and subsequent months. DC fast charging locations often charge $10 or less for a single charging session (such as NRG’s growing EVgo network that charges $0.10 per minute in Denver), which could create significant losses for site owners.

Therefore, if demand charges are incurred, sharing that cost among many charging sessions will make offering EV charging more economical, according to the Idaho National Laboratory. Understanding how offering DC fast charging will impact the utility bill is complicated, as each utility offers multiple tiers and rate schedules for power consumption.

Other Options

An alternative to the often severe demand charge fees is to purchase an energy storage system that would power the EV chargers at times of peak demand. Several companies, including Nissan, are entering the energy storage market to serve this developing niche.

Demand charge rate structures are a moving target in some areas as they undergo periodic revisions, which can sometimes result in contentious public utility commission hearings, as is happening now in Austin and Oklahoma.  Simplifying and limiting the fees for offering DC fast charging, such as through separate EV metering or rates, could encourage today’s reluctant business owners who are wary of the fiscal impact to begin to offer the service.

 

Momentum Builds for Reinstatement of Wind Tax Credits

— July 24, 2015

The legislative effort to renew the expired wind energy tax credits took a big step this week in Congress as supporters of wind energy secured a 2-year extension of the wind credits. The Senate Finance Committee voted 23 to 3 to extend roughly $95 billion in 52 tax breaks for various industries and interests, including wind.

The Production Tax Credit (PTC) provides $0.023/kWh in tax credits for a 10-year duration to wind plant owners. A 30% Investment Tax Credit (ITC) is also included as an alternative. Both are comparable in value, offsetting around 30% of the installed cost of a wind plant.

The package also includes a 2-year extension of the 50% bonus depreciation, which allows an owner in a new wind plant to deduct 50% of the tax basis in wind turbine capital costs and depreciate the other 50% over the normal depreciation period. The PTC/ITC extension also includes geothermal, biomass, landfill gas, and ocean energy projects. Notably, solar energy was excluded from the package, but intense lobbying is underway from that industry to get it included.

The tax credits for wind, which expired in 2014, must be renewed to prevent the U.S. wind market from collapsing as it does from time to time when Congress fails to renew them. The wind industry is currently in a build cycle, with over 8,600 MW expected to be brought online this year of more than 13,600 MW under construction. This momentum, however, is riding on special start construction and other safe-harbor regulations provided by the Internal Revenue Service (IRS) that allows wind plants to qualify for the tax credits if construction is finished by the end of 2016.

The new 2-year extension would re-enact the PTC and ITC for a 2-year period through the end of 2016, and wind projects would have to begin construction during this 2-year window to be eligible. IRS guidance to the wind industry in recent years has allowed a 2-year window for wind plants to be built, and this is expected to be applied to this new extension. In practice, new wind plants that meet IRS guidelines for either starting construction or meeting other safe-harbor regulations will have 2 years to finalize construction. The ultimate result would be securing stable wind turbine installations in the United States from now through 2018.

Promising but Uncertain

The path forward for these tax extenders to be signed into law is promising but uncertain. It is promising because the wind industry tax credits on their own could be a hard sell in today’s polarized Congress, but when rolled into a larger package that appeases broad industry interests, Congress is more likely to approve the package. Also, the well-known but not well publicized reality in the wind industry is that most U.S. wind plants are majority owned by so-called tax equity financial firms, usually large banks, all of whom have the large tax bills necessary to fully monetize the tax credits. These companies have enormous lobbying power that can help get their interests over the finishing line.

Passage by the full Senate is required, plus a reconciliation with a House version of the bill that has yet to emerge. Importantly, lawmakers are moving ahead with this extenders package now instead of the end of the year when a last minute rush can doom even the most straight-forward and uncontentious legislation. Allowing the extender effort to fall into next year would be even worse, as the effort would become entangled and politicized by the 2016 presidential and congressional elections. All eyes in the wind industry will be on this effort going forward.

 

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Electric Vehicles, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Smart Grid Practice, Smart Transportation Practice, Smart Transportation Program, Utility Innovations

By Author


{"userID":"","pageName":"Blog","path":"\/blog","date":"7\/29\/2015"}