Navigant Research Blog

KPIs Essential to Managing Energy Efficiency, Sustainability

— July 10, 2018

Influenced by initiatives such as the United Nations Framework Convention on Climate Change, stakeholders in sustainable energy and environmentally conscious professionals gathered in May for the Environmental Leader and Energy Management Conference at the Tech Center in Denver, Colorado. The conference represented a nexus of industry leaders eager to explore trends and share best practices and solutions to some of the biggest energy challenges businesses face today. Along with maintaining a competitive advantage, other economic trends for sustainable energy that were explored by the conference included:

  • Establishing baselines for managing energy efficiency
  • Building a business case for monitoring energy use and Internet of Things (IoT) by establishing benchmarks
  • Understanding how energy is being used and possibly wasted through key performance indicators (KPIs)
  • Partnering to achieve sustainability goals through mission driven strategies
  • Understanding the circular economy and tracking the supply chain for designing sustainability

Do Not Underestimate the Importance of KPIs

These trends, among other topics, were discussed during multiple workshops and plenary sessions over the course of 3 days. I attended the first day of the conference, which included talks led by the US Department of Energy, Tesla, and National Renewable Energy Lab, to name a few. Several sessions emphasized the importance of establishing baselines and determining KPIs for managing energy efficiency and sustainability. Key takeaways from these talks included understanding what constitutes a quality KPI, realizing how KPIs can negatively impact a company, and realizing that not everyone uses the same metric for measuring efficiency.

Although businesses may have common end goals, the means to those ends can vary widely as strategy plays a fundamental role in determining the success of a company. Part of that strategy involves setting the right benchmarks and using the right metrics. For managers of generation, it’s important to be clear about their goals in order to understand which benchmark to optimize. In his plenary presentation, Tim Ritchie from Buddy Platform explained that the business case for IoT is built on finding the right benchmark. His firm’s Buddy Ohm is one such product that can monitor critical systems and reduce energy inputs. Understanding baseline energy use is crucial for developing meaningful KPIs and effectively targeting underperforming areas.

Companies Turn to IoT

As IoT is heralding a new age for commercial buildings, energy companies today are turning to IoT technology to monitor and reduce energy use and resource consumption. IoT is starting to unlock value for smarter commercial buildings, which is helping to connect aggregators of data for managing and processing information and provide real-time insights. These solutions offer non-energy benefits as well, such as occupancy health and satisfaction, enabling scalability and optimization for customers.

 

Takeaways from Reversapalooza: One Analyst’s Perspective on Blockchain

— May 15, 2018

I recently returned from Reversapalooza, a 2-day event hosted by Nori and designed to explore the role of blockchain technology in reversing climate change. There were farmers, economists, policymakers, academics, and representatives from many other professions in attendance. In the conversations that ensued, blockchain took a backseat to Nori’s larger mission.

Blockchain is a hot topic at conferences globally and in many sectors, but this event was one of the few large-scale conversations I have participated in where the “hash everything and put it on the blockchain” crowd were a minority. The event gave me the opportunity to reflect on how blockchain is perceived by stakeholders with a wide range of familiarity with the technology. The majority of customers who will be the end users of blockchain-based solutions probably won’t understand the underlying systems, but they still need to be able to engage with the system.

Blockchain Attracts People, but It Can Also Alienate Them

Blockchain generates a huge amount of interest even outside of tech-savvy circles. I have yet to speak with someone who has heard about blockchain and doesn’t care to learn more about it. It is very tempting for early innovators to put blockchain front and center to capitalize on that interest.

However, once you get people in the door, you need to be prepared to explain in simple terms what blockchain brings to the table and why you’re talking about it in the first place. The technology is complex and difficult to visualize. Without proper care, it can begin to sound suspiciously like wizardry.

Demonstrations Help Clarify Blockchain

Nori worked hard at Reversapalooza to create interactive exercises that demystified some aspects of the customer experience with blockchain-based systems. One gave folks in the room hands-on experience with trading mock carbon removal credits (CRCs), and a second used 10 copies of the Seattle Times, some simple addition, and a 5-dollar bill to illustrate the fundamental steps involved in building a blockchain.

Results were mixed, but any explanation of blockchain must strike a difficult balance between oversimplification and a black hole of technical details. Overall, attendees left the conference knowing more about blockchain than they did when they came into the room.

Blockchain Should Never Be in the Driver’s Seat

I dream of the day when blockchain becomes a means to an end for companies like Nori, and panels devoted to its specifics are no longer necessary. When was the last time you attended a conference with a panel on database mechanics?

Today, companies that use blockchain but neglect to explain it risk appearing like they don’t know what they’re doing. They can’t afford to push it completely into the background. But startups and established players alike must recognize that blockchain, by itself, is not a value proposition. Succeeding in this space requires a clear mission and purpose—a goal where blockchain makes sense as the means to an end.

What Did Reversapalooza Do Right?

Reversapalooza succeeded because Nori kept blockchain in the backseat (or at least in the passenger seat). The event was about reversing climate change and the many processes—behavioral, economic, geological, and scientific—that are necessary to achieve that goal. Within that context, attendees could see the value of a trusted, decentralized ledger that could track CRCs and compare it against the carbon offset markets and other mechanisms that currently exist.

 

Developing Energy Strategies That Can Be Readily Deployed: A Socio-Political Merit Order

— May 1, 2018

This blog post was prepared with contributions from Jan Cihlar

The challenge brought by the energy transition is every bit as political and emotional as it is techno-economic. Yet today almost all energy modelling is based on least-cost optimisation from integrated assessment models for global climate change analyses of national energy strategies. A new approach must be considered, one that takes societal and political preferences into greater consideration: a socio-political merit order.

Limits to Least-Cost Modelling

As consultant to the UK Department of Energy and Climate Change, David MacKay advised against supporting solar PV as it would just add costs to the system: “The only reason that solar got on the table was because of democracy. The MPs wanted to have a solar feed-in tariff.”

Decision-making processes go far beyond the techno-economic reality of the solutions. As Andris Piebalgs, former EU Commissioner for Energy stated: “Energy efficiency involves a lot of nitty-gritty, a lot of incentives, and a lot of regulations. And there’s no ribbon to cut. It’s very important to be able to cut a red ribbon.”

These are both examples of how policymakers deviate from what energy analysis considers the best solution. And they are not alone, public attitudes towards different energy technologies can vary significantly across regions or social segments.

Least-cost optimisation has its merits; our financial resources are limited, and it is valuable to know how certain objectives can be achieved at the lowest costs. But when a rapid transition to a low carbon energy system is necessary, there is a strong case for options and technologies that are well accepted in society by the public, and by companies and nongovernmental organisations.

Enter the Socio-Political Merit Order

Least-cost optimisation for energy strategies can be expanded as a set of new procedures that will allow for a socio-political merit order. Merit is about preferences: preferences of citizens and, none less important, of policymakers and corporate decision makers. The aspects of the merit order include:

  • Financial costs and benefits
  • Environmental impacts
  • Employment and local economics
  • Inertia
  • Perceived risks and trust
  • Cognitive biases
  • Legislation and implementation hassle
  • Last, but not least, the X-factor

Aspects Determining the Socio-Political Merit Order

(Source: Ecofys, a Navigant company)

What Is Already Known about the Socio-Political Merit Order?

The socio-political merit order is dynamic and will vary over time. Yet, there are ways to look inside of this evolving black box—typically with the help of surveys or dialogue processes, and potentially in the near future, by utilising large sets of unstructured internet data.

For instance, we already know that solar and wind energy are most often the winners in public surveys, while coal and nuclear generally are the losers. Less information is available on preferences amongst policymakers. The private sector presents yet another arena; there, decisions are not purely driven by cost-benefit analysis, but also by factors such as public acceptance, non-monetary implementation barriers, and regulatory risks.

Getting to More Robust Energy Visions and Scenarios

With more clarity about individual and societal inclinations, the question will be how to represent these in energy and climate modelling. Converting non-monetary barriers and drivers into cost categories might just miss the point, as it suggests that technology choices are an optimisation problem. More detailed knowledge of social preferences is required, and we need to better understand how the preferences interact with the merit order of actual private and public decision-making. Ecofys, a Navigant company, has already developed a decarbonisation scenario for the global energy system where the initial principles of the socio-political merit order are applied to achieve maximum feasibility. Such approaches can lead to the creation of strategies that have broader citizen support and that can be implemented more rapidly.

 

In a “Daytona 500” Rally for Climate Pledges, 2018’s Race Is on from Davos to Denver

— April 5, 2018

At the World Economic Forum (WEF) in Davos, Anand Mahindra, chairman of the Mahindra Group, challenged 500 businesses to set a science-based target (SBT) aligned with the Paris Agreement ahead of September 2018’s Global Climate Action Summit in California (dubbed the Mahindra Challenge). Today, there are 369 companies committed to the SBT Initiative.

Racing Forward

On March 1, 2018, companies raced forward with pledges at the 2018 Climate Leadership Conference (CLC) in Denver. VISA committed to 100% renewable energy by 2019 and L’Oréal intends to reach carbon neutrality across all its US-based facilities after a deal to procure renewable landfill gas. After being bestowed CLC awards, 15 other companies also put points on the scoreboard.

At WEF New York on March 20, McDonald’s put forward its Scale for Good climate commitment as the first restaurant company to adopt a SBT, including:

  • Partnering with franchisees to reduce restaurant and office emissions offices 36% by 2030 below a 2015 base year.
  • Collaborating with suppliers and producers, McDonald’s committed to a 31% reduction in emissions intensity per metric ton of food and packaging across the supply chain by 2030 below 2015 levels.

McDonald’s expects to prevent 150 million metric tons of CO2 equivalent from being released to the atmosphere by 2030.

On March 27, MIT hosted the XLI Global Change Forum with the title, Science-Based Targets: Rationale and Challenge. The opening panel was led by Navigant and highlighted the practice of setting targets with two pharma titans, Novartis and Biogen, and perspectives from the UN Framework Convention on Climate Change (UNFCCC).

Officials and Race Organizers

The SBT Initiative defines and promotes best practices in target setting and offers guidance to reduce barriers, and independently assesses and approves companies’ targets. It also maintains an online site that lists all companies setting SBTs.

We Mean Business (WMB) is a global coalition of the most influential businesses acting on climate change. It catalyzes businesses to drive policy and accelerate the transition to a low carbon economy. WMB maintains an online site that recognizes companies taking action.

We Are Still In is a national coalition of more than 2,700 cities, states, businesses, and universities demonstrating an American commitment to tackling climate change, a clean energy future, and upholding the Paris Agreement. To date, We Are Still In is the largest US coalition in support of climate action.

SBT setting is already a part of the yearly CDP climate questionnaire and scoring process, and the data is used regularly by institutional investors.

Publicize a Pledge

Companies have sights set on four events: the Global Climate Action Summit, Climate Week NYC, UNFCCC COP24, and WEF 2019 Davos. At these events, and at the BSR and Net Impact conferences, new climate pledges will be publicized. 

Why Is 2018 a Special Year?

Public awareness focuses on five things as 2018 serves as a pivot point:

  1. The June 2017 White House announcement threatening the Paris Agreement
  2. As global stock takes dates, 2020 and 2030 loom closer on the calendar
  3. Climate impacts are getting more intense
  4. Investors and other stakeholders are demanding plans (e.g., Black Rock)
  5. Governor Brown hosting the Global Climate Action Summit in California

Tuning Up Strategies

Like Daytona, engines in the race to tackle climate change need tuning. From diagnostics to data management to testing the efficacy of abatement measures, Navigant improves strategies, gets them approved and recognized, and identifies the best places for amplification on a global stage. Now is the time to join the 2018 race. Start your engines!

 

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