Navigant Research Blog

Energy Efficiency Is an Imperative for Climate Change Adaptation

— August 1, 2016

HVAC Roof

There are two common ways climate change enters the public discourse in the United States: heated political rhetoric or targeted campaigns for increased investment in renewable energy. The problem is that while shifting away from fossil fuels is critical, energy efficiency—a significant opportunity to combat greenhouse gas (GHG) emissions—is often overlooked. Redefining the relationship between commercial buildings and energy is fundamental for tackling climate change because these facilities are not only contributing about 40% of the GHG emissions in the United States, but also are strikingly inefficient. Here are two reasons energy efficiency can move the needle on the fight against climate change and circumvent the political boondoggle.

Energy Efficiency Makes Economic Sense

The bottom line is that customers adopt technology and behavior changes that reduce costs or generate new revenue. Energy efficiency is straightforward. Take a simple scenario for a commercial building owner—the improvement in equipment performance (say a more efficient air conditioning unit) results in lower utility bills. The benefits are magnified when you start to consider the effects on the climate associated with energy efficient technologies.

In July 2016, a Navigant report was published for the U.S. Department of Energy. It provides a deep dive into the specifics of how the economic benefits of energy efficiency could be a revenue stream for deeper climate mitigation strategies. The report states that, “Given that energy costs account for the majority of lifecycle air conditioning costs, energy efficiency improvements can more than offset increases in upfront purchase costs to consumers that could result from switching to hydrofluorocarbon alternatives (refrigerants with lower global warming potential).” 

Energy Efficiency Provides a Robust Sustainability Strategy

Corporations are facing significant demand from shareholders and customers to address climate change. In fact, in late July, major corporate shareholders sent a collective letter to the U.S. Securities and Exchange Committee (SEC) demanding clarity on the material risks of climate change: “Based on our experience with these issues, we (45 investors representing $1.1 trillion in assets under management) believe it is critical for the SEC to improve reporting of material sustainability risks in issuers’ SEC filings, both because such disclosure is mandated by current law and because we need it to make informed investment and proxy voting decisions.”

There are two sides to the relationship between energy and climate change. The transformation of supply with renewables is important and will help shift the economy away from the fossil-fuel based generation people have relied on for hundreds of years. Let’s not forget the demand side of the equation. Changes in the way people operate equipment, utilize innovative technologies (such as automation and software), and direct behavioral modification can reduce carbon emissions while benefiting the economy. Navigant Research captures this dynamic relationship between energy supply and demand with ongoing thought leadership on the concept of the Energy Cloud—this is the transition from one-way power flow to a dynamic network of networks supporting two-way energy flows at the periphery of the grid. Buildings have a huge role to play in this new reality, as commercial buildings represent new business opportunities, tackle climate risk, and see broad business results. Energy efficiency can be the foundation of this new reality.

 

California Water Summit: A New Landscape for Water Management

— June 21, 2016

??????????????????Drought is not new to California, but 2012-2015 has been the driest 4 consecutive years in history. With climate change forcing us to face the idea of a new normal, the biggest question is: What if the next drought is even worse? This year’s California Water Summit highlighted how the discussion around California’s water situation is shifting focus from emergency measures to long-term preparation. This will require stakeholders to generate new solutions to address water management, both from the top down and the bottom up.

Top Down: Putting the Right Systems in Place

The California Department of Water Resources has been managing the variety of funding opportunities available to public utilities and others through Proposition 1. One focus area relates to the implementation of the Sustainable Groundwater Management Act (SGMA), which requires the formation of Groundwater Sustainability Agencies (GSAs) to oversee the management of the groundwater basins that provide over half of California’s water in dry years. The process of forming GSAs requires the input of many stakeholders on how to protect our watersheds from unsustainable use. As this effort evolves, it will be important to help these entities organize effectively and meet their planning requirements.

Another hot topic as resources become scarcer is that of water rights. Nobody wants to lose their access to water, but things have definitely changed since this fragmented system was put in place, resulting in suboptimal use of a precious resource. The summit called upon a number of Australians to share their experiences with the electronic water markets implemented in response to a culmination of factors, including their own drought that lasted over a decade. Though the endeavor was technologically challenging, the Australians said the largest obstacle was political inertia.

The California Water Summit also exhibited a strong focus on recycled water as an important water supply. Case studies showed the criticality of regulation and investment that support this resource as consumers become more comfortable with expanding its uses.

Bottom Up: Aligning the Resources

The Pre-Summit Workshop was dedicated to public-private partnerships, termed P3s, as a way to spur investment in water infrastructure. Various opportunities were discussed throughout conference sessions, including grant funding, which can take up to several years to secure. The summit wrapped up with a number of case studies that highlighted the importance of involving various stakeholders at every step in the process. One set of stakeholders to be particularly aware of is disadvantaged communities, as these sometimes overlap with areas hardest hit by drought.

Infrastructure is composed not only of large civic construction projects, but also of the more subtle IT networks that enable more precise management of water-related systems. These investments are also necessary as utilities seek to eliminate inefficiencies from leaks and other sources of waste. As the saying goes, “You can’t manage what you don’t measure.” We can expect increasing focus on (and hopefully investment in) California water data over the next few years.

 

City and Regional Governments Ramp Up Fight Against Climate Change

— June 20, 2016

BiofuelGlobally, climate action and greenhouse gas (GHG) reduction programs are becoming increasingly prevalent as electricity costs and climate change become larger areas of concern for residents. In North America alone, cities such as Boston, Los Angeles, Portland, San Francisco, Minneapolis, Vancouver, and Toronto have defined ambitious targets for improving sustainability and reducing GHG emissions and energy consumption.

While national aspirations were largely aligned during the United Nations Framework Convention on Climate Change COP21 Paris conference, the global partnership lacks meaningful implementation and enforcement mechanisms. In the United States in particular, climate change is heavily politicized, and little action is being taken on a national legislative basis to combat the problem.

Climate Action Plans of Selected Cities

Climate Action PLans of Selected Smart Cities_RC blog

(Source: Navigant Research)

To fill the gap from strong city action and low levels of national alignment, several state and provincial governments have recently taken bold action to combat climate change. The province of Ontario unveiled its new sweeping Climate Change Action Plan in June 2016. The initiative is expected to spend up to $8.3 billion on a range of clean technology programs, largely funded from the provinces’ cap-and-trade program. The Climate Change Action plan aims to quickly transition the province toward more energy efficient heating systems, electric and hybrid cars (via a rebate of up to $14,000), promote the conversion of diesel-powered trucks to natural gas, and help the industrial and agricultural sectors adopt low-carbon technologies.

State and Provincial Collaboration

The state of California, well-known for its clean energy leadership, has a cap-and-trade program that is linked to three Canadian provinces: Quebec, Manitoba, and Ontario. Cap-and-trade programs now cover 61.8 million people across North America—38.8 million in California, 13.6 million in Ontario, 8.2 million in Quebec, and 1.2 million in Manitoba. Each of these programs are designed to drive down emissions and set aggressive GHG reduction targets. Over 17% of the combined North American population (354.1 million people, with 318.9 million from the United States and 35.2 million from Canada) is now participating—knowingly or unknowingly—in a cap-and-trade program without any national or regional framework in place. This figure is anticipated to grow significantly as more states and provinces look to fill the void left by national governments by creating enforceable programs that reduce overall GHG emissions levels.

 

Take Control of Your Future, Part III: Rising Number of Carbon Emissions Reduction Policies and Regulations

— May 16, 2016

Energy CloudMaggie Shober and Rob Neumann also contributed to this post.

My recent blog discussed seven megatrends that are fundamentally changing how we produce and use power. In the second part of the series, I focused on the power of customer choice and changing demands. Here, we will discuss the rising number of carbon emissions reduction policies and how this trend is fundamentally changing the power industry.

What’s Happening with Carbon Emissions Policies Globally?

The long-term impact of the Paris Climate Agreement will be significant. This agreement will focus on limiting global warming to well below 2°C (3.6°F) by the year 2100. Each nation sets its own target for reducing emissions and updates that mark each year. A record number of countries (175) signed the agreement on the first available day. Governments must now ratify and approve the agreement, which could take months or years. The agreement goes into effect once 55 countries representing at least 55% of global emissions formally join. It’s clear that the tone and tenor of the Paris Climate Agreement is providing a guiding light for nations to reduce emissions.

The biggest news was the full commitment of China. The country, together with United States, was one of the first to sign the final Paris Climate Agreement. The United States and China account for nearly 40% of global carbon emissions. It does appear that China is serious about reducing emissions, since the country has made significant investments in renewables, electric vehicles, green cities, and more. Already the world leader in wind power, China is set to overtake Germany this year in solar power (see chart below).

Renewable Energy Growth in Major Economies

Jan Blog 3

(Source: World Resources Institute)

We see that other countries are not waiting. This week, Germany announced a €17 billion ($19.2 billion) campaign—that’s right, billions—to boost energy efficiency. The ultimate goal is to cut the country’s energy consumption in half by 2050. This is part of meeting domestic and Paris Climate Agreement emissions reduction targets. The campaign could prove bearish for European Union (EU) carbon prices if it reduces demand for power and heating in Germany, the top economy (and emitter) of all the EU’s 28 member states.

Many other initiatives at the regional, country, state, and local levels are currently being designed and implemented in support of carbon emissions reductions, accelerated by the agreement. Importantly, the EU is seeking swift approval and implementation of the Paris Climate Agreement at the United Nation’s Bonn Climate Change Conference in Bonn, Germany this week.

U.S. Carbon Regulation

And then we have the Clean Power Plan (CPP). The CPP has been stayed by the U.S. Supreme Court until a final resolution of the case passes through the federal courts. Litigation may not be resolved until 2018, although it’s possible a resolution could be reached sooner. There has been a great deal of discussion on compliance with the CPP. Our analysis continues to show that cost-effective compliance includes a variety of options that are tailored to regional characteristics. A recent deep dive by Navigant into a southeastern state with modest renewable resources showed that trading with other states and developing energy efficiency programs and portfolios are key strategies for reducing overall compliance costs. Compliance strategies depend on existing resources; older coal resources on the margin for retirement are able to get a large bang for their buck on the emissions balancing sheet through replacement with gas, renewables, and energy efficiency.

Navigant also investigated the effects of deploying additional energy efficiency resources in order to decrease CO2 emissions in two regions: California and PJM. We found that additional energy efficiency reduces CO2 emissions, overall cost of compliance, and system congestion. The cost to serve load is reduced by 3%-5% in California and PJM. System congestion relief is also likely to occur, which further reduces the cost to serve load. This last point is important, since large, urban utilities are focused on reducing congestion points—and energy efficiency can be used as a solution.

Other Ongoing Developments

Even though the CPP is on hold, many individual states, cities, and utilities continue to move toward the CPP goals to reduce carbon emissions, plan for an advanced energy economy, and meet cleaner generation goals. The CPP parameters are being used as a guide for emissions reductions:

  • Last month, Maryland lawmakers approved the Clean Energy Jobs Act of 2016 (SB 921) by large majorities in both houses, increasing the state’s Renewable Portfolio Standard (RPS) to 25% by 2020.
  • As part of the New York Reforming the Energy Vision (REV) proceedings, the New York Public Service Commission introduced an order that requires placing a value on carbon emissions, focusing on distributed generation portfolios, and compensating customers for their distributed electricity generation.
  • Over the past year, six states led by Tennessee (plus Georgia, Michigan, Minnesota, Oregon, and Pennsylvania), the U.S. Department of Energy (DOE), and a few other national organizations have been developing a National Energy Efficiency Registry (NEER) to allow states to track and trade energy efficiency emissions credits for CPP and emissions compliance purposes.
  • Last week, San Diego announced its pledge to get 100% of its energy from clean and renewable power with a Climate Action Plan that sets the boldest citywide clean energy law in the United States. With this announcement, San Diego is the largest U.S. city to join the growing trend of cities choosing clean energy. Already, at least 12 other U.S. cities, including San Francisco, San Jose, Burlington (Vermont), and Aspen, have committed to 100% clean energy. Globally, numerous cities have committed to 100% clean energy, including Copenhagen, Denmark; Munich, Germany; and the Isle of Wight, England.
  • Meanwhile, many utilities are decommissioning or converting their existing coal plants and investing in utility-scale renewables, as well as distributed energy resources. As example, AEP is in the process of decommissioning 11 coal plants, representing approximately 6,500 MW of coal-fired generating capacity as part of its plan to comply with the Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards. The company is simultaneously making significant investments in renewables, with a total capacity of close to 4,000 MW by mid-2016.

What Does This All Mean?

The sustainability objectives of government, policymakers, utilities, and their customers are more closely aligned than ever before. In my last blog, I discussed how customer choice and changing customer demands are shifting toward supporting sustainability. States and regulators will continue to discuss how sustainable targets can be met without affecting jobs and the access to safe, reliable, and affordable power. And utilities will continue to evolve to support cleaner, more distributed, and more intelligent energy generation, distribution, and consumption.

Recommended action items for states and utilities include:

  • Understand the possibilities, costs, and full impacts of low-carbon generation and distributed energy resources (energy efficiency, demand response, and others).
  • Implement a workable framework and develop an integrated plan to move toward lower emissions goals, since it’s likely that decreased emission requirements will be in place in the near future.
  • Leverage existing state and neighboring utility designs and efforts to develop joint plans, policies, and goals.
  • Implement (pilot) initiatives that include renewable energy and other low-carbon generation into a reduced emissions framework while also incorporating energy efficiency and distributed generation as resources into the decreased emissions planning process.

This post is the third in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. My next blog will cover shifting power-generating sources. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.

 

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