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.

 

Are Corporate Clean Energy Initiatives Real?

— December 10, 2014

In November, Amazon made a commitment to power its infrastructure with 100% renewable energy over the long term.  Among tech companies, Amazon is late to the game in announcing its sustainability goal; Apple, Google, and Facebook had already released similar pledges over the past few years.  Although cloud computing is more environmentally friendly than previous computing technologies, according to Amazon, a “significant amount of unused server capacity and wasted energy consumption” still occurs when powering data center infrastructure.

Since 2008, businesses and corporations around the world have begun to more actively pursue sustainability initiatives.  Between 1992 and 2012, the number of corporations worldwide issuing corporate social responsibility (CSR) reports jumped from 26 to around 7,500.

Fortune 500 Leads the Way

Many of the leaders in corporate sustainability are part of the Fortune 500.  In 2013, 43% of Fortune 500 companies had established goals for greenhouse gas (GHG) reductions, energy efficiency, renewable energy, or some combination of the three, and 60% of Fortune 100 companies had set sustainability targets.  Although large corporations have made progress in establishing sustainability initiatives, only 75 of the Fortune 500 had specific energy efficiency targets in place by 2013.  GHG reduction targets made up the greatest share of climate and energy initiatives.

Companies with long-standing commitments to reducing energy use have already seen energy and dollar savings from these initiatives.  Walmart, for example, laid out plans in 2013 to save $1 billion globally per year through energy efficiency and renewable energy programs.  The company has a long-term aspirational goal to achieve 100% renewable energy.  In the shorter term, by the end of 2020, Walmart aims to reduce emissions intensity by 30% from 2010 levels and produce or procure 7 billion kWh of renewable energy worldwide.

The Trouble with Long Term

Kohl’s is another leader in corporate sustainability efforts.  It has been implementing green building methods since 2005, and it had 432 LEED-certified stores as of June 2014, representing a full 37% of the company’s 1,160 stores across the United States.  The 432 stores represent a total floor space of 35,616,240 square feet.  Kohl’s plans to reduce absolute emissions and emissions intensity on a per-square-foot basis by 20%, both by 2020, compared to 2010 levels.

Although the growing prevalence of CSR and sustainability goals is encouraging, broad long-term goals have raised concern from some environmental groups.  Setting goals without defined milestones makes it more difficult to hold companies accountable for the clean energy initiatives they have in place.  Many companies, Amazon included, have not specified a roadmap to achieve their energy goals – an obvious next step to ensure those goals are achieved.  Publicly committing to a clean energy future is only a first step.

 

Severe Drought Hastens Hydropower’s Slow Decline

— November 4, 2014

Coal retirements, the shale gas bonanza, post-Fukushima Daiichi nuclear curtailments, the rising adoption of distributed generation, and emerging price parity for solar PV and wind – the dynamic changes affecting electricity grids worldwide are many.  Now, with prolonged droughts affecting leading global economies, like Brazil and California (the world’s seventh and eighth largest economies by gross domestic product [GDP], respectively), a slow decline in the prominence of hydropower is in the mix.

Historically, hydropower has been the primary source of clean and renewable energy in both economies.  Its decline has had a more severe impact on Brazil’s grid, but in both places, this development is expected to continue to coincide with a further rise in gas-fired generation and renewables.  Due to the current cost of renewables, the consequences of this shift may be a rise in greenhouse gas emissions in each country’s electric power sector.

California Copes

With a fleet of 300 dams, California is among the nation’s leaders in hydropower generation.  However, hydro in the state has declined from peaks in the 1950s, when it was responsible for more than half of the state’s generation mix, to just 9% in 2013.  Having prepared for hydro’s decline by broadening its generation mix over the last several decades, the California grid remains mostly insulated from the worst effects of nearly a half decade of severe drought.

California generates around 55% to 60% of its power from natural gas and has seen a 30% increase in gas-fired generation since 2002.  Meanwhile, California’s leading investor-owned utilities across the state – Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) – are on track to meet or exceed their 33% renewable procurement obligations by 2020 under the state’s Renewable Portfolio Standard (RPS) policy.

Brazil Gasps

Facing its worst drought in 40 years, meanwhile, Brazil has been more severely affected by reduced hydropower generation than California.  Currently, the second leading producer of hydroelectric power in the world, trailing only China, Brazil relies on hydro for more than three-fourths of its generation.  According to data published by BP earlier this year, hydropower consumption fell 7% in 2013.

This rapid decline has prompted severe rationing in 19 cities, undermined hydropower generation, and resulted in blackouts across the country.  In the run up to the 2014 World Cup, the Brazilian government provided more than $5 billion to subsidize electric utilities, replacing lost hydroelectric generation with fossil fuel-fired generation, including large amounts of liquefied natural gas.  While this helped stabilize the grid during the event, it has nearly doubled greenhouse gas emissions from the power sector.

Brazil’s experience provides a harsh lesson for drought-stricken areas with a high dependence on hydropower.  Although natural gas is a low-carbon alternative relative to coal-based generation, it may stall or reverse carbon mitigation efforts when used in place of hydropower.  Renewables can help make up the difference, but even with sharp declines in the price of solar PV and wind, they remain far more expensive than hydropower or natural gas.  While both California and Brazil are in a hole with respect to water supply and hydroelectric generation, persistent drought is unlikely to result in a significant increase in new renewables spending without the introduction of new subsidies.

 

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