Navigant Research Blog

California Calculates the Value of Time in Energy Efficiency

— July 22, 2014

The 2013 update to California’s Title 24 building energy efficiency standards went into effect on July 1, 2014.  In addition to increasing overall building efficiency requirements over the 2008 standards, this update set out more stringent lighting requirements for both residential and non-residential buildings.

The 2013 update also includes changes to California’s time dependent valuation (TDV) calculation.   Used only in California, TDV is a tool to gauge the value of energy efficiency measures.  Unlike other metrics, such as site or source energy (measured in kBtu), TDV includes the cost to provide energy based on time of use, as well as other variations in cost due to climate, geography, and fuel type.

TDV was developed in 2005, and was updated in both 2008 and 2013, to help California meet the energy efficiency goals established in Title 24.  In the 2013 update, the California Energy Commission (CEC) changed the TDV calculation to account for climate sensitivity by separating California into 16 different climate zones.  This alteration helps reflect differences in energy costs driven by climate conditions, which vary considerably throughout California.

Finer Grained

One of the key barriers to wider TDV adoption is developing values for each climate zone.  As stated above, California alone has 16 climate zone values.  Another limitation is that many state officials are unaware of it: California is the only state that uses TDV, whereas metrics such as site and source energy are much more commonly employed both nationally and internationally.  Further, TDV does not account for the potential grid modernization costs necessary to export excess electricity back to the grid.

But since TDV accounts for differing energy costs based on a range of factors, it more accurately captures the societal cost of energy consumption that’s missed in assessments based only on source or site energy parameters.

In the coming years, as California tries to build more zero energy buildings (ZEBs), TDV will play an important role in determining whether a building meets the required energy use intensity to qualify as zero net energy.  The forthcoming Navigant Research report, Zero Energy Buildings, will provide an update to the 2012 iteration, and look further into the benefits and challenges associated with TDV as a metric.

 

In New York, Greening Older Buildings

— July 21, 2014

Building energy efficiency has reached the mainstream.  Clean energy technologies have become so common that technical training in renewable energy and energy efficiency retrofits is becoming more and more accessible.

Green City Force (GCF), a Brooklyn, New York-based non-profit, has trained nearly 300 young adults living under the poverty line in NYC for careers in the green economy with the group’s Clean Energy Corps.

The Clean Energy Corps supports a variety of projects related to energy and efficiency, including energy audits in low-income homes, urban agriculture, and energy efficiency retrofits.  The corps provides its members with an academic and technical training program to prepare them for college; the program leads to certification for entry-level work in energy efficiency and includes GPro, a nationally recognized certification in building science.

Retrofitting

One of the major partners for Green City Force, and for the Clean Energy Corps specifically, is the New York City Housing Authority (NYCHA).  More than 8.4 million people reside in New York City, and 615,199 of them are served by the authority’s Public Housing and Section 8 programs.  This represents 7.4% of the population of New York City.  Together, both programs cover 12.4% of the rental apartment stock in one of the most expensive cities in the world.

The Housing Authority’s property portfolio is equally impressive and rivals commercial housing developers.  The NYCHA oversees 334 developments, including 2,563 buildings and nearly 178,000 apartments.  In contrast, the Chicago Housing Authority has 21,000 apartments in 128 properties.  Los Angeles has 2,491 apartments across a portfolio of 93 properties.   Only 20% of the developments in NYCHA’s portfolio are less than 30 years old, and one-third of the authority’s developments are more than 50 years old.  Modern buildings are built with energy efficiency in mind, but older buildings have more room for improvement.

The More the Better

GCF develops service projects in partnership with the Housing Authority, city agencies, and other non-profits.  One example is the Love Where You Live Challenge, which bring corps members together with fellow NYCHA residents to reduce energy use in homes.  Corps members gain experience and skills, while the Authority reduces its energy costs.  NYCHA spends $535 million annually on utilities.

The NYCHA is not the only public agency using innovative approaches to promote energy efficiency.  The Washington Metropolitan Area Transit Authority (WMATA) recently awarded Philips Lighting a 10-year lighting performance contract to upgrade lighting across 25 parking garages to LED lighting.  Instead of paying out of pocket for the 13,000 fixtures, WMATA will share the savings in energy costs with Phillips over the 10-year period.

For disruptive technologies such as energy efficiency, the more business models in the market, the more accessible the clean energy economy becomes.

 

Amid Global Turmoil, Oil Prices Oddly Stable

— July 18, 2014

The world has entered a zone of maximum upheaval.  From the Atlas Mountains of North Africa to the Hindu Kush, in Afghanistan, the Middle East is in flames.  The destruction of a Malaysian airline over Ukraine, almost certainly shot down by Russian-backed separatist rebels, threatens war in the Black Sea region.  Libya is being torn apart by competing militias, while parts of Iraq are under assault by the murderous Islamist force known as ISIS.  Syria remains a bloody horror show, and Israeli troops have launched a ground invasion of Gaza.  At no time since the terror attacks of 2001 has the world seen such conflict and instability.

So why aren’t oil prices higher?

Prices spiked briefly after the news on July 17 that Malaysian Air flight 17, en route from Amsterdam to Kuala Lumpur, was shot down by a surface-to-air missile fired from eastern Ukraine.  U.S. oil futures rose $1.99 a barrel, up 2% on the New York Mercantile Exchange, to reach nearly $104.  That was the largest one-day jump since June 12, when ISIS launched its offensive in Iraq, according to The Wall Street Journal.  But markets quickly calmed: the next day, benchmark crude had retreated below $103 a barrel on the NYME.  The shocks of recent days had caused a tremor across world petroleum markets, not a tsunami.

No Lost Sleep

“At any given point of time, global financial markets are always at risk from geopolitical disturbances, but this time around nobody’s losing sleep over it,”  wrote Malini  Bhupta in the  Business Standard, India’s leading economic newspaper, in a column headlined “Markets shrug off geopolitical risks as oil prices remain stable.”

Before the latest outrage in Ukraine, oil prices had actually been easing: in mid-July U.S. crude fell below $100 a barrel for the first time since May.  That’s not to say that prices aren’t high; as Steve LeVine, of Quartz, points out, geopolitical disturbances have removed around 3.5 million barrels of oil a day from world markets since last fall, and if the world were a more stable and peaceful place, oil prices would likely be well below $100 a barrel.  But given the current unrest, a price per barrel of $125, or higher, would not be startling.

The ability of the market to absorb multiple shocks and keep prices relatively stable is an indication of structural changes that have taken place in recent years.

Awash in Conflict, and Oil

According to Liam Denning, writing in The Wall Street Journal’s “Heard on the Street” column, the “forward curve” – the price of oil scheduled for delivery months or years in the future, based on the trade in futures contracts – has flipped in recent weeks, meaning that prices for contracts nearer in time are now lower than those further out.  When the curve slopes upward like that, it’s an indication that supplies are plentiful.  “The global oil market no longer looks quite so panicked about Iraq,” commented Denning.

More broadly, the world’s supply of oil has been climbing for years, and continues to do so despite the current crises.  What’s more, the sources of that supply have diversified; the Middle East no longer has as a dominant role in world production as it did 10 or even 5 years ago.

Defying “peak oil” predictions, world crude production increased roughly 50% over the last 30 years, rising from about 50 million barrels a day in 1983 to 76 million in 2012.  Regions that were negligible producers before the turn of the century are now significant oil suppliers: Africa’s production has doubled since 1983, as has South America’s.  Despite the current civil war, oil production in Iraq has soared, growing from about 300,000 barrels a day in 1991 to 3 million in 2012.  Driven by new drilling in the tar sands, Canada has more than doubled its production in the last 20 years.

And then, of course, there’s the United States, which in 2011 became a net exporter of petroleum products for the first time since the post-World War II era.  In  short, the world is awash in petroleum, and barring an all-out war between Putin’s Russia and the West, is likely to remain that way for some time.

 

How Can the United States Pay for Road Upkeep?

— July 17, 2014

More vehicles throng U.S. roads each year, expansion necessary to support them and with less money to fund road repairs.  The root of the problem is that road construction funds are largely derived from taxes on gasoline and diesel fuel, and U.S. consumption of both is declining and will continue to decline.  The increasing fuel economy of new vehicles combined with rising penetrations of alternative fuel vehicles (AFVs) is having a marked impact on U.S. fuel demand.

In the upcoming report Global Fuel Consumption, Navigant Research forecasts that liquid fuels (gasoline, diesel, and biofuels) consumed by U.S. vehicles will decrease from approximately 160 billion gallons in 2014 to around 104 billion gallons in 2035.  Meanwhile, forecasts from the Navigant Research reports Light Duty Vehicles and Medium and Heavy Duty Vehicles indicate that the U.S. vehicle fleet will grow from approximately 250 million to nearly 270 million in 2027 before beginning a slow decline.

More Per Gallon

If the status quo funding mechanism is maintained, annual federal gasoline and diesel tax revenue will decline from current levels of about $30 billion to near $20 billion in 2035.  Meanwhile, over the same time, the fleet of vehicles in use will grow by 10 million.  However, in the near term, the federal Highway Trust Fund and Mass Transit Fund are headed for insolvency before the end of the year.

A number of short-term funding options have been proposed that will likely push a decision on a long-term solution out past the November mid-term elections.  However, one long-term solution emerged last month from two U.S. senators who proposed raising the federal gasoline and diesel tax by $0.06 per gallon over 2 years and then indexing the tax to inflation for following years.  The tax has been stagnant since 1993, at $.184/gallon of gasoline and $.244/gallon of diesel.  Raising it would probably be the easiest long-term solution to implement, since the machinery for tax collection is already in place.

U.S. Federal Gasoline/Diesel Tax Revenue and Vehicles in Use, United States: 2014-2035

(Source: Navigant Research)

What this proposal has in ease of implementation, though, it lacks in political appeal and fairness.  Taxes are a bitter pill for any Republican member to swallow, and pushing through a hike on gasoline and diesel, no matter how small or sensible, is likely to be impossible.  Additionally, as the tax stands now and the proposal will maintain, motorists who drive newer fuel efficient vehicles pay less tax, and those who drive AFVs pay no tax per mile driven, despite that they are using the same roads as owners of less fuel efficient conventional vehicles who bear more of the tax burden.  As the tax was designed to make those who use the road pay for the road, the above scenario is an unintended consequence to the advantage of alternative fuel and fuel efficient vehicle owners.

Dollars Per Mile

In early 2009, Secretary of Transportation Ray LaHood recommended that the federal government should look into a vehicle miles traveled (VMT) tax.  The VMT tax would clock vehicle owners’ mileage and then tax them on a per-mile basis.  While this solution would not be easy to implement, it would be a fair way of collecting taxes in line with the original purpose of federal gasoline and diesel taxes.  It could also be used as a tool to manage traffic along specifically congested corridors.

Despite the suitability of a VMT tax, it is unlikely it will emerge as a legitimate policy option in the near term, due to a lack of political support and a tested method for implementation.  Rather, owners of older conventional vehicles will likely pay more at the pump – or traffic is only going to get worse.

 

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