Navigant Research Blog

The Energy Efficiency Way to Emissions Reductions

— January 15, 2015

The Obama administration has few levers to pull to shift the United States’ position on climate change, besides enforcing the Clean Air Act of 1970.  That legislation authorizes the U.S. Environmental Protection Agency (EPA) to enforce regulations on power plants and associated pollutants.  The Clean Air Act put the onus on individual states to design programs to follow the EPA’s federal guidelines.  Last June, the EPA released its Clean Power Plan (CPP), with a new ambitious target: carbon emission reductions totaling 30% relative to 2005 emissions by 2030.  The proposed rule includes the following primary components:

  • Four building blocks that define the EPA’s Best Strategy for Emissions Reductions
  • State-by-state 2030 carbon emissions reduction targets and interim targets based on a 2012 base year
  • Numerous alternative emissions reduction strategies, including renewables, under-construction nuclear generation, and energy efficiency

Cost-Effective Efficiency

Not surprisingly, some legislators are arguing that the CPP is unconstitutional, functioning as a federalization of states’ activities via the EPA.  Some utilities are also not happy with the CPP, as they are going to have to be held to real climate goals.  Utilities that burn coal or other fossil fuels inefficiently will have to pay to upgrade their facilities or face stiff penalties.

In a recent white paper, Navigant reported that energy efficiency is a cost-effective way for states, utilities, and businesses to achieve the CPP targets, with considerably less investment than upgrading or building new power plants.  Of all the building blocks, energy efficiency is the only one that is not a form of generation.  From a cost perspective, energy efficiency is a highly competitive approach to offsetting supply requirements and reducing carbon emissions.   This approach can be used for both overall total load reductions, but also for peak shaving (i.e., reducing the carbon intensity of electricity demand at the times when the grid is dirtiest – usually in the afternoons).

The Challenges

The major challenge for using energy efficiency as a way to achieve policy goals lies in how and where it is implemented.  Utility energy efficiency programs are one approach, and are forecast to grow, according to the Lawrence Berkeley National Laboratory (LBNL).

Energy Efficiency Spending by Utilities

(Source: Lawrence Berkeley National Laboratory)

Many utility programs require 5 or 6 years to mature and develop savings streams that persist.   Developing efficiency programs today will allow the savings potential to grow prior to the start of the CPP requirements.

It’s not just up to the utilities.   By focusing on the bottom line – the financial savings – the business community can help states achieve their CPP goals, whether they realize it or not.  Navigant Research’s report, Energy Efficient Buildings: Global Outlook, found that the current energy efficient building market is generating over $300 billion annually and is expected to grow, in major part, because the software and hardware works, and saves end-users money.  If the EPA uses the green of a dollar to promote the CPP, it could help states reach its targets.

 

California Sets an Ambitious Energy Agenda

— January 9, 2015

Living in California, it’s easy to forget that the rest of the world doesn’t always see things in the same way.  Given the ambitious energy and climate change goals outlined in Governor Brown’s inaugural address on January 5, this divergence may only grow.

What exactly did the governor propose?  Here’s a snapshot summary of targets he set for the state by 2030:

  • Increase from one-third to one-half the portion of the state’s electricity derived from renewable sources
  • Reduce today’s petroleum use in cars and trucks by up to 50%
  • Double the efficiency of energy use in existing buildings while also making building heating fuels cleaner

The Center of Innovation

For investors in and developers of clean energy technology, Brown’s targets mean that California will continue to lead the United States in terms of R&D and commercialization of renewable energy, electric vehicles, and smart building automation products.

Perhaps the biggest surprise for skeptics of Left Coast policy aspirations is that data suggests California is likely to meet its AB 32 goal of reducing emissions of greenhouse gases to 431 million tons by 2020.  While the rest of the world continues to heat up and multilateral emissions reductions efforts by the United Nations in Lima, Peru late last year once again faltered, the only U.S. state to pass climate legislation with concrete objectives appears to be on its way to actually reaching those targets, despite a long list of hiccups and controversies.

Changing the Game

Will California meet Brown’s new goals?  That’s impossible to predict, but the real questions now lie in the details.  I, for one, was delighted to see the governor mention microgrids, since apparently he agrees that distributed renewables (such as rooftop solar PV) will be game changers.  The best way to transform such distributed energy resources from problems for the grid into solutions for climate change – including resilient communities that can keep the lights on during extreme weather events – is through the islanding capabilities of microgrids.

When I first started covering wind power in the ‘80s for the national trade press, I often dealt with skeptical East Coast editors.  “Do those wind turbines really work?” they would ask.  “Isn’t that just one of those California things?”  This was, of course, during Brown’s original tenure as governor, when he was dubbed Governor Moonbeam by the national press.  From a handful of wind farms jump-started by flawed but effective tax credits, a global industry was spawned that now generates an accumulated 321,559 MW of electrical capacity, or just under 3% of the world’s total electricity, according to Navigant Research’s most recent World Market Update report on the wind industry.  That’s up from less than 1% of California’s total electricity in 1985, 30 years ago.

Sometimes, the only way to leap forward is to go out on a limb on the policy front, and then see if entrepreneurs and capital markets are up to the task.  Only time will tell which is the wiser course – the prudent go-slow pace of national politics or the risk-taking adventure being drawn up in Sacramento.  I know where I’m placing my bets.

 

New Transmission Replaces Retiring Coal Plants

— December 23, 2014

In my drive across the country last summer, two unexpected features of the landscape stood out.  First, driving across Nevada and Utah, the silhouette of coal power plants frequently loomed on the horizon.  Second, the sweeping vistas almost anyplace across the western half of the United States now almost always include electric transmission towers and power lines. The recent U.S. Environmental Protection Agency (EPA) Clean Power Plan (CPP) will certainly change that landscape, as aging coal generation plants are retired and dismantled. Driving between Green River and Provo, Utah, I passed through a beautiful canyon and within a few hundred yards of the Price Canyon coal-fired plant, which is scheduled for retirement due to age, EPA compliance regulations, and a constrained location.

If the EPA plan is implemented as currently written, there will be an increase in transmission planning and spending as the transmission grid is reconfigured to address coal generation plant retirements and new transmission capacity is required to deliver wind and solar resources to utilities in other parts of the country.

Out of the West

In previous Navigant Research blogs, I have discussed the development of a north-south transmission highway between the northern Midwest wind farms and the population centers in Nebraska, Kansas, and Texas.  However, coal plant retirements across the lower Midwest, East Coast, and southeastern U.S. will have a serious impact on electric reliability across those regions, according to the North American Electric Reliability Corporation (NERC). Forward-thinking electric transmission companies are anticipating this and are now building new west-to-east transmission to deliver wind power from the High Plains to population centers in the Midwest and Southeast that will be hit hard by the retirements.

In November, the Rock Island Clean Line LLC filed petitions with the Iowa Utilities Board to obtain new electric transmission line franchises.  Rock Island plans to construct, maintain, and operate an electric transmission line across 16 Iowa counties.  The project is an approximately 500-mile overhead, high-voltage direct current (DC) transmission line that will deliver 3,500 MW of wind energy generation from northwest Iowa to cities in Illinois and other eastern states.

When you look at the distribution of existing coal-fired generation plans across the United States, it’s easy to imagine where additional new transmission lines will be needed. The map below shows the distribution of the coal generation fleet across the United States.

Coal Power Plant Locations and Size, United States: September 2014

(Source: Energy Velocity Maps)

Perhaps another transmission superhighway, using ultra-high-voltage alternating current and high-voltage DC transmission lines to move energy from the High Plains to the Midwest and Southeast, will take shape in the coming years.

 

Commercial Real Estate Holders Realize the Value of Energy Management

— December 23, 2014

Conventional wisdom states that the split incentive of tenant-occupied commercial buildings undercuts the benefits of energy efficiency and smart building development.  Those tides are shifting, though, and major commercial real estate (CRE) firms are doubling down on investment and promoting the value of strategic energy management.  In the last few months, major CRE firms have announced new strategies and corporate perspectives that highlight the promising future for smart commercial buildings.

America Realty Advisors has discussed a new sustainability strategy for its $6 billion commercial real estate portfolio in a recent article in National Real Estate Investor.  The first steps include benchmarking energy and water use and conducting targeted energy audits at under-performing facilities.  CRE firms are seeing that smart, efficient buildings translate to stronger bottom lines.  American Realty Advisors’ managing director Jay Butterfield explained in the article: “We have seen that firms successfully reducing a property’s energy usage by 30% may realize increases of up to 5% in both net operating income and asset value.”

Making a Stand

JLL has also taken its stance on energy efficiency and sustainability to the front lines, promoting its IntelliCommand energy management system as a service offering and taking a stand on climate change.  In a recent editorial supporting the U.S. Environmental Protection Agency’s (EPA’s) Clean Power Plan, JLL’s Dan Probst explained, “Our energy efficiency initiatives have helped our commercial real estate clients reduce their greenhouse gas emissions by 12 million metric tons while saving them $2.5 billion in energy costs over the past seven years.”

The benefits of strategic energy management go beyond the CRE giants and their flagship Class A buildings.  Two recent examples demonstrate the economic impacts of energy efficiency upgrades in Class B buildings.  In Houston, a 24-story office building and historic landmark went through significant upgrades in 2011, including the installation of a building energy management system, and Hines (the real estate management company that manages the building) is touting the benefits.  Hines sees this kind of strategic energy management focus helping lower capitalization rate, generate operations and maintenance (O&M) savings, and stay competitive.

Too Big to Ignore

Meanwhile, according to The New York Times, the benefits of energy efficiency in Class B buildings are too big to dismiss.  The energy and sustainability benefits of Class B upgrades in New York are underscored by the added benefit of helping building owners prepare for the energy reductions targets for 2020, under the bundle of laws supporting the PlaNYC climate change agenda.

The mounting risks of climate change, rising demand for sustainable workplaces, and maturing market of smart building technologies are combining to spark momentum in CRE strategic energy management investments.  These CRE early adopters are laying the groundwork for the growing penetration of smart building investments in commercial buildings.

 

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