Navigant Research Blog

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.


Tesla Announcement Highlights Importance of Energy Storage Partnerships

— June 9, 2015

Tesla Motor’s April announcement of stationary energy storage solutions brought an unprecedented level of attention to the burgeoning energy storage industry, benefiting all stakeholders.  Competing products providing storage for residential, commercial, and industrial customers are already on the market, however.

These systems are designed for a variety of distributed energy storage applications—currently some of the fastest-growing areas of the global storage market.  Navigant Research estimates that the global installed capacity of residential and commercial energy storage systems will grow from around 246 MW in 2015 to over 10,484 MW by 2024, with lithium ion (Li-ion) expected to account for 58% of total capacity.

The new product launches from Tesla highlight the growing importance of partnerships within the industry.  While Tesla provides a sleek battery module, the company does not offer bidirectional inverters or installation services.  The energy storage ecosystem is comprised primarily of companies like Tesla, with specialized offerings that must seek out partners to offer the complete solutions that customers demand.  (Navigant Research’s recent report Energy Storage Enabling Technologies analyzes the value chain within this industry.)

Tesla has established partnerships to complete their offering and provide storage systems for a range of end users through channel partners.  The systems will be available through solar PV provider SolarCity, demand response aggregator EnerNOC, and engineering/construction specialist Black & Veatch, among others.  These partnerships each target different market segments, each requiring varying business models and product specifications.  With Tesla’s plans, competition has intensified in the distributed storage market, as several leading companies have recently announced new partnerships to offer similar integrated solutions.

Competition Heating Up

Partnerships are essential for most storage market players: battery manufacturers need supply agreements for their products and system integrators need component suppliers, while software and power electronics providers look for integrators and developers to get their products into complete solutions.

Electrical solutions provider Gexpro recently announced an agreement with battery manufacturer LG Chem, the power conversion provider for Ideal Power, and energy management software vendor Geli to offer a fully integrated battery energy storage systems (BESS) for commercial and industrial (C&I) customers.  This follows similar announcements from LG Chem to provide Li-ion batteries in the Northeast United States through an agreement with energy services company OneEnergy for C&I customers and Eguana for residential customers.

Other notable relationships recently announced include solar PV provider SunPower partnering with storage system vendors Stem and Sunverge to offer BESSs for their C&I solar customers.  Additionally, leading Li-ion battery vendor Samsung SDI recently announced supply agreements with GreenCharge Networks, as well as with microgrid developer ABB.

Aside from battery vendors, other companies in the market are establishing similar relationships to solidify their offerings.  Notably, microinverter manufacturer Enphase, which is developing energy storage solutions utilizing its products, recently announced an agreement with battery vendor ELIIY.

Coming into Focus

While supply agreements and distribution partnerships have been developing in the stationary storage market for some time, more recent announcements targeting C&I customers are increasingly important.  In this segment, it is crucial for companies to offer integrated solutions that are easy to operate and quick to install.  As a result, leading companies are joining forces to combine their specialties into the most effective offering.  We explore these relationships within the energy storage ecosystem through various reports, including the recently published Navigant Research Leaderboard Report: Energy Storage System Integrators and an upcoming Leaderboard Report on Li-ion grid storage.


As Coal Declines, Low-Emissions Engine Plants Spread

— December 22, 2014

In September, the world’s largest reciprocating engine power plant was completed in Jordan.  IPP3, as it’s called, has 38 Wärtsilä 50DF engines, with a total capacity of 573 MW in the extreme desert conditions of Jordan.    The plant uses tri-fuel engines that can run on natural gas, heavy fuel oil, and light fuel oil.  They can start and ramp up to full capacity in less than 10 minutes, and they can do this multiple times a day without any maintenance cost impact.

The modular nature of the plant also allows it to operate at peak efficiency (45%-50%) across its entire output range by shutting down individual engines as needed and leaving others at high load.  In addition, the plant will enable Jordan’s existing turbine plants to operate more efficiently, as they will be used for baseload while IPP3 fills in the gaps where there is fluctuation in demand.

Reliable, Flexible, and (Relatively) Clean

IPP3 is fitted with a nitrate (NOx) control system for reducing emissions and meeting strict environmental health and safety guidelines set by the International Finance Corporation.  The plant follows international requirements for sulfides and particulates as well, and it is expected to produce 35% fewer carbon emissions than an existing steam turbine plant would if both used heavy fuel oil.  IPP3 will also have a close to zero usage of water once gas is employed as fuel, minimizing its environmental footprint.

So what makes this plant important?  It’s important because before IPP3, Jordan’s utility professionals had never contemplated the installation of a reciprocating engine plant, preferring to generate baseload power through combined-cycle gas turbine (CCGT) facilities, which have peak efficiencies of 55% to 60%.  It’s also important because many utility professionals around the world, not just in Jordan, are looking for a solution that is reliable, offers fuel and operational flexibility, is quick-starting and efficient across a wide range of loads, and consumes less water and produces fewer emissions.

Reciprocal Benefits

And, as in Jordan, many other utility professionals are choosing reciprocating engines.  Wärtsilä alone has been installing an impressive number of large gensets recently.  For example, a 175 MW gas engine plant was completed by Wärtsilä in South Africa for Sasol, one of the country’s largest industrial companies, in December 2012.  The company is also in the process of building the 200 MW Pesanggaran Bali power plant, which will be the largest engine-based power plant in Indonesia when it is completed in 2015.

In the United States, Wärtsilä has been contracted to supply a 56 MW Smart Power Generation power plant in Oklahoma, and the company is expected to install a 50 MW plant in Hawaii on the island of Oahu, pending approval of the Hawaii Public Utilities Commission.  There is also a 225 MW plant being proposed in Texas and, reportedly, another 225 MW plant already under construction in Oregon.  All of the plants in the United States will be used to balance wind and solar generation on the grid.  With cheap natural gas, emissions standards, and the grids around the world becoming increasingly unstable, it appears that reciprocating engines’ stock is on the rise.

For more detail on the future of reciprocating engines, please see Navigant Research’s report, Natural Gas Generator Sets.


Alaska Leads the World in Microgrid Deployments

— December 17, 2014

Many utilities view microgrids as a threat, due to intentional islanding and/or the effects of reduced customer load on long-term revenue projections.  However, a small but growing number of utilities view the microgrids they own and operate – known as utility distribution microgrids (UDMs) – as the next logical extension of their efforts to deploy smart grid technology.  As I’ve noted earlier, the developed world can learn interesting lessons in this field from the developing world.

Navigant Research’s new report, Utility Distribution Microgrids, shows that the total UDM market represents over $2.4 billion of economic activity today, with the bulk of this investment flowing into projects located in the Asia Pacific region.  As noted in an earlier report, Microgrids, North America is the overall market leader.  Yet, when it comes to utilities, both Asia Pacific and Europe are ahead in near-term deployments and related implementation revenues.  All told, under the base scenario, Navigant Research expects the UDM market to reach $5.8 billion in annual revenue by 2023, growing at a compound annual rate (CAGR) of 10.2%.

However, there’s one important exception to this market generalization: Alaska.

Across the Tundra

“Over the last decade, Alaska has quietly emerged as a global leader in the development and operation of microgrids,” declared Gwen Holdmann, director of the Alaska Center for Energy and Power at the University of Alaska Fairbanks, in a recent interview.  A particular focus has been hybrid conventional-renewable-storage systems, networks that have “logged more than 2 million hours of continuous operating experience for these types of systems,” according to Holdmann.  The state boasts a portfolio of somewhere between 200 and 250 permanently islanded microgrids ranging from 30 kW – about the size of a city block – to large remote hydro systems over 100 MW in size.  These microgrids, many in operation for over 50 years, provide electric power service exclusively to isolated rural populations.  Total capacity exceeds 800 MW, the largest installed base of microgrids in the world today (though China may overtake Alaska by the end of next year).

Holdmann clearly takes pride in what Alaska has accomplished with these scattered, isolated hybrid power systems, which tap fuels as diverse as wind, solar, hydro, biomass, and tidal currents, along with diesel.  While other pundits may point to New York, California, or Hawaii as the centers of North American microgrid development, Alaska has been developing cutting-edge microgrids for quite some time.  “The State of Alaska alone has invested over $250 million in developing and integrating renewable energy projects to serve these microgrids, – far more per capita than any other state in the country,” Holdmann said.

Integration Experts

The advent of advanced technology deployment to these rural systems has forced Alaska utilities and developers to become expert in microgrid development and operation.  By far the greatest challenge was, and remains, the high-penetration integration of intermittent renewables, such as solar, wind, and hydrokinetic, with traditional diesel or natural gas fueled electric power generation.  Nevertheless, Alaskans have repeatedly achieved higher renewable penetration levels than nearly any other place in the world, under incredibly harsh conditions, including daylight hours that shrink to a couple hours a day in the winter and winds that can exceed 100 miles an hour – enough to literally tear apart many conventional wind turbines not designed to stand up to such speeds.

Many Alaskan utilities have set up voluntary goals to reach 70% or 80% renewable penetration within the next 8 to 10 years.  Kodiak Electric Association, which serves Kodiak Island on the southern coast of Alaska, reports that it has achieved 99.7% renewable energy penetration so far in 2014, using a hybrid wind/hydro/diesel/battery/flywheel microgrid.

Mainland U.S. utilities could learn a lot from the innovators up north, where the smart grid is already delivering on the promise of a more cost-effective and sustainable power grid today.


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