Navigant Research Blog

Google Has Reached 100% Renewable Energy, so I’m Issuing a New Challenge

— April 19, 2018

As consumers press companies to be more conscious of their environmental impact and sustainability, corporate procurement of renewable energy has gained momentum around the world. Some 130 companies have signed the RE100 pledge to make their operations run on 100% renewable energy. One of the companies that started this trend was Google.

Google’s First Renewable Steps

In 2010, Google started a journey to replace the electricity it uses with renewable sources by signing its first power purchase agreement (PPA) with a 114 MW wind farm in Iowa.

To ensure that its purchases have a meaningful impact on the environment, Google has followed the concept of additionality, which means that all the electricity it buys is funding new renewable energy projects.

In 2017—2.6 GW over 20 projects and 7 years later—Google announced that it reached its 100% renewables target. This is a massive achievement, especially considering that Google began these plans when grid parity was little more than a dream for wind, and solar energy was a technology that only rich Californians and Germans put on their roofs.

My Challenge to Google

While Google’s achievement should be applauded, I believe it is possible to move that target further afield. It is true that Google is buying all its electricity from renewable sources, but it is unlikely that all the electricity it is using comes from renewable sources. This is because solar and wind, Google’s choices for renewable sources, are both variable, while Google’s electricity demand is not. In other words, there are times and locations when Google must use electricity that comes from traditional sources, while simultaneously the electricity generated from the renewable projects funded via Google’s PPAs is curtailed and lost.

So, here is my challenge to Google (or any company willing to accept it—looking at Apple, Amazon, Microsoft) to move its energy program forward:

  • Work with the 20 projects it has funded to ensure they have onsite storage, which reduces the chance of curtailments and increases impact on the grid. This also means the balancing cost is not passed to other ratepayers.
  • Ensure all energy assets (distributed generation and loads) are part of demand response programs or virtual power
    plants, which makes the flexibility of these resources open to grid operators.
  • Make sure any new electricity procured is locally generated, and has no impact on the grid (or that the sites at least fulfill bullets 1 and 2 above).
  • Encourage employees to take their own energy consumption choices along the same journey!

Major Companies Should Continue to Set a High Bar

This is not an easy challenge, but it’s also not impossible. It’s probably as difficult as the goal to achieve 100% procurement of renewables seemed in 2010, when Google embarked on this mission. Google addressed these concepts in a white paper released in 2016, but mostly in a future tense. In my opinion, the technologies and regulations to make this possible are already here and are starting to reach scale. Now it is up to Google and other visionary organizations and individuals to make this happen.

 

Heating: The Next Frontier of Decarbonization?

— April 12, 2018

Low carbon energy is gaining steam in fast-growing technologies like solar PV and battery EVs, but a key lagging sector—heating—may see a pickup in its own decarbonization. Alongside transport, the CEO of E.ON UK recently mentioned heating as a specific area where the company wants to play a larger role, suggesting perhaps that renewable electricity has more sustainable momentum than heating. This agrees with trends Navigant Research has been following and projecting, as outlined in this blog.

Though global data on heating alone is somewhat limited, for example heating and cooling in Europe accounts for 51% of final energy use, the stakes are indeed high. Together, transport, electricity, and heat accounted for about two-thirds of global CO2 emissions in 2015, according to the International Energy Agency.

Multiple Pathways Will Decarbonize Heating

There are several parallel paths to decarbonizing this sector—one that has traditionally relied on burning fossil fuels onsite. Among these paths, fuels can be decarbonized, heat production processes can be made more efficient, and heat sharing business models can be expanded.

Fuel decarbonization is covered in depth in a new report for the Gas for Climate consortium by Ecofys, a Navigant Company. The report concludes that renewable gas—including biomethane and power-to-gas—can help achieve a net-zero carbon energy system in the European Union by 2050, while saving €138 billion annually compared to a scenario without any gas. The report mentions space heating and industrial heating as benefiting from gas especially during the coldest winter snaps, when the fuel can be dispatched in huge bursts for both heat and power.

Heat production can also be made more efficient with the use of heat pumps and a variety of combined heat and power (CHP) technologies such as fuel cells. Heat pumps are broadly adopted for heating and cooling applications and, especially in high adoption places like Europe, look to provide a compelling bridge between clean electricity and heating and cooling. Meanwhile, CHP systems are being embraced in ever-smaller applications, much smaller than traditional multi-megawatt systems. This is enabled in part by improved packaged systems in the 1 kW-100 kW range, which open massively larger markets than before. Navigant Research forecasts significant growth in CHP in microgrids, and smaller package systems such as micro-CHP fuel cells ready to rise in Europe and elsewhere following significant sales in Japan.

Winning Energy Solutions Serve Multiple Sectors

Energy use in most sectors increasingly overlap. Renewable gas usage can be used for transport, electricity generation, and space heating, among other things, and heat pumps also provide a key link between electricity and heating and cooling.

As a final example, consider thermal storage systems such as those at University of California, Irvine (UCI), where 44% of total energy is used for space cooling. On a high PV penetration electrical grid that values flexibility, the cold thermal storage well pays for itself by allowing the campus to shift loads across the day, saving millions of dollars in demand charges while offering an efficient and lower carbon solution.

This type of system works well on large campuses that can share the load across many buildings—in UCI’s case, 8 million SF. But the same basic concept applies to district energy systems that dispense heat and cooling to many facilities and households, especially in certain larger cities. If there is a serious desire to keep this planet from overheating, these types of models should be embraced in ever-smaller, and more flexible, applications.

 

The US ITC Was Reinstated for Fuel Cells: Is It Enough to Recharge the Industry?

— March 20, 2018

In an 11th hour move, the US federal Investment Tax Credit (ITC) was reinstated for certain orphaned generating technologies in February’s congressional tax bill. Among the technologies extended, fuel cells have the highest incentive: as much as 30% of the system cost can be taken as a tax credit. For stationary systems made by the likes of Bloom Energy, Fuel Cell Energy, and Doosan, the credit can be worth around $0.02/kWh on a levelized cost basis—a significant amount that can decide whether a project gets built.

Will it be enough to reignite an industry that largely treaded water in the US in 2017? That depends on whether industry players can address certain key issues.

Capital Costs Must Be Lowered

The high capital costs of fuel cells remain the biggest hurdle to mass adoption. Installed capital costs vary widely but typically range from about $4,000/kW to $8,000/kW. By contrast, turbines, microturbines, and reciprocating gensets are significantly cheaper per kilowatt—as low as $1,000 or less for certain gensets and turbines. Fuel cells make up for this with high efficiency, but that advantage is hobbled in a world of low natural gas prices. Cost declines in recent years have been promising, but more must be done. Incentive certainty should help drive investment, volume, and thus economies of scale, but more must be done with manufacturing process improvement and the use of lower cost assemblies and materials.

Flexibility and Load Following Must Be Improved

The US electrical grid is experiencing increasing volatility thanks in part to fast growth among intermittent renewables. This has led to demand for flexible, dispatchable technologies like battery storage. The higher temperature fuel cells popular in the +500 kW range tend not to follow load well. This is a disadvantage, especially for applications like microgrids that value islanding from the grid. Pairing the fuel cell with battery storage (a la Bloom Energy) can help overcome this lack of flexibility

Carbon Emissions Still Represent a Liability

Despite super-low levels of criteria pollutant emissions, fuel cells using natural gas still emit carbon dioxide. This can be a significant liability when compared with, for example, the emissions-free PV-plus-storage systems that continue to fall in price. Though fuel cell emissions per megawatt-hour tend to be lower than most electrical grids right now, those grids are focused on decarbonizing. This is of special interest among corporate buyers thinking increasingly about sustainability. Low carbon fuels like biogas are a key decarbonizing pathway. Some programs, like California’s SGIP, encourage biogas market transformation by requiring increasing amounts of biogas in covered systems. Using biogas as a fuel is a strategy for fuel cells to compete better on system carbon emissions.

Fuel Cell Technology Needs More than Just the ITC

The reinstatement of the ITC gives a welcome boost to the stationary fuel cell industry in the US. It lowers both uncertainty and costs to the end user, and enhances economies of scale. But more yet is needed to truly scale the industry. Cost cuts have been aggressive in recent years but must continue. The ITC is scheduled to phase out over 5 years, dropping to 22% before ending in 2022, giving fuel cell companies a clear timeline for hitting lower cost targets. Pairing up with other dispatchable technologies like batteries may help fill the gaps in load following capability. And to limit carbon emissions, alternative fuels like biogas and green hydrogen will become increasingly important fuels. Fuel cell technology still shows great promise, but there is much yet to be done.

 

Is BlackRock’s Climate Change Announcement a Spark or a Sleeper?

— March 13, 2018

BlackRock, the world’s largest asset manager, has taken on long-term investing, and this will have some cascading impacts throughout the investment community. According to CEO Larry Fink, “To sustain [long-term] performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends—from slow wage growth to rising automation to climate change—affect your potential for growth.”

This is a clear statement that climate change is a relevant and crucial factor when examining long-term performance. Climate change can be evaluated with respect to direct impacts on a portfolio or a business (e.g., sea level rise, increased storms, and natural disasters), or climate change impacts can be evaluated indirectly (e.g., how a portfolio or a business can respond [positively or negatively] to regulatory shifts or consumer trends).

But what does BlackRock’s pronouncement mean for the corporate community at large? Certainly corporations pay attention when big players act. For example, Walmart’s sustainability programs are maturing and focusing on its supply chain, and Coca Cola now regularly reports on its sustainability progress. This is leadership in action. But for the long tail of smaller businesses (even in the Fortune 1000), what BlackRock’s announcement will trigger is uncertain. Below are some possibilities.

BlackRock Triggers the Avalanche

It is possible that BlackRock’s approach will influence decision makers in the board room and in the investment houses to take immediate action with respect to their operations and portfolios. Recent announcements by Amazon, JPMorgan, Chase, and Berkshire Hathaway to create their own healthcare system in light of rising costs and government stagnation shows how the big players in corporate America are taking charge of initiatives funded by governments in other countries. We Are Still In is another such effort.

Companies Will Want to Be First to Be Third

Other large financial and investment companies may follow BlackRock’s approach. But the majority of corporates may wait until more Fortune 1000 companies start turning these announcements into action before they act. This could come in the form of seeing who signs up for science-based targets (only 342 as of this witting) or reports their emissions to CDP. The second wave of “light green” companies will follow, triggering the race to be “first to be third”—or to be relevant—before climate impacts become table stakes.

Silence

It is possible that not much will happen in corporate America. While the benefits of long-term planning are becoming clearer in Europe—especially accounting for climate impacts and carbon accounting—that is a different market. The concepts of the circular economy, direct climate change impacts, and carbon accounting are still unknown to most businesses in the US. They may be paying attention more and more, but until climate and sustainability action is clearly a stick or a carrot, they could be slow to act.

So, what does this mean? Which scenario will play out? It is too early to tell, but this is a newly fast-moving environment. Navigant will be watching this space closely.

 

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