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.

 

Street Lights Are the New Smart Phones

— May 11, 2016

BulbsJust as cell phones have evolved into multifunctional digital information devices, the once-humble street light is becoming a hub for monitoring a variety of urban activities and sharing data with networks.

Navigant Research identified this trend in its 2015 Smart Street Management report, stating that, “Smart street lighting is becoming one of the most attractive solutions for cities looking for an immediate effect on energy consumption and operational costs while also laying a foundation for a broader range of applications.”

As street lights are being upgraded to more efficient LEDs, pole owners are seizing the opportunity to add networking capabilities, sensors, cameras, and power management intelligence to leverage the lights’ distributed electrified reach to provide a variety of services across cities. The convergence of city management technologies with street lights was on display throughout the recent Intertraffic conference in Amsterdam.

Intertraffic Conference

Examples highlighted at Intertraffic included Streetline, of San Mateo, California, which is working with Cisco on using cameras fixed to street lights as a less expensive alternative to sensors to predict parking availability. According to Kurt Buechler, Streetline’s senior vice president, the cameras cost around $100 each and are connected to a cloud service that performs analysis on the collected data. Cisco is also working on integrating cameras and Internet of Things technologies to street lights in the Netherlands via its IT networks.

Also at Intertraffic, Spain’s Circontrol announced its Trilogy offering, which combines lighting, smart parking detection, and indicators that show parking availability. Circontrol also displayed an integrated parking facility energy management system that uniquely incorporates electric vehicle (EV) charging management. Intelligent transportation systems vendor Q-Free is combining its air quality monitoring technology with street lights in Medway, England.

EV Influence

Other companies taking advantage of the ubiquitous presence of powered street lights include BMW, which adds EV charging capabilities through its Light and Charge initiative. In the city of San Jose, California, the SmartPoles pilot project is using wireless technology from Ericsson and Philips’ energy efficient lighting equipment to reduce costs while providing more flexible lighting management.

The convergence of smart parking, traffic management, EVs, and environmental monitoring—often using connected street lights to collect and share data—will bring much more holistic views to smart city managers looking to understand the full effect of transportation on urban life. Standards for data collection and communications protocols are quickly evolving to enable this broader view and will be of growing importance as cities look to understand and mitigate the effect of increased congestion and urbanization.

 

Take Control of Your Future, Part II: The Power of Customer Choice and Changing Demands

— May 9, 2016

DataIn my last blog post, I discussed seven megatrends that are fundamentally changing how we produce and use power. In this blog, I discuss how customer choice and changing customer demands have become the leading drivers of industry transformation.

Move from “Big Power to Small Energy”

Customer choice is driving a large move from big power to small energy. More and more customers are choosing to install distributed energy resources (DER) on their premises. DER solutions include distributed generation, demand response, energy efficiency, distributed storage, microgrids, and electric vehicles. This year, DER deployments will reach 30 GW in the United States. According to the U.S. Energy Information Administration (EIA), central generation net capacity additions (new generation additions minus retirements) are estimated at 19.7 GW in 2016. This means that DER is already growing significantly faster than central generation. On a 5-year basis (2015-2019), DER in the United States is growing almost 3 times faster than central generation (168 GW vs. 57 GW). This trend varies by region because policy approaches, market dynamics, and structures vary. However, the overall move to small power will persist. In other words, the movement toward customer-centric solutions and DER will ultimately become commonplace worldwide.

Annual Installed DER Power Capacity Additions by DER Technology, United States: 2015-2024

Jan Blog Update(Source: Navigant analysis)

Customer Choice: Everything Is Changing

Customers want to self-generate and sell that power back to the grid. Customers also want new energy management products and services from their utility or other providers. The rise of the prosumer and active consumer movement is being fueled by three things:

  • A growing number of customers care about how and where their energy is generated and about the impacts of global warming.
  • Unprecedented and rapid technology advances are bringing greener energy choices directly to consumers.
  • New and disruptive entrants are rapidly emerging that give customers meaningful energy usage insights and options related to their homes, businesses, and transportation choices.

Where we see this movement picking up pace is in the increased number of commercial and industrial (C&I) customers that are choosing to implement their own more sustainable energy solutions. Amazon, Apple, Cisco, Google, Honda, Walmart, and other large energy users have increased their focus on installing onsite solar. Walmart has 142 MW of solar PV capacity at 348 installations in the United States, according to the Solar Energy Industries Association’s (SEIA’s) Solar Means Business 2015: Top U.S. Corporate Solar Users report. The retail company has a 100% renewable energy target, together with 57 others currently as part of RE100. And then there is the “Power Forward” movement, where 215 Fortune 500 companies are pursuing their own investments in local greenhouse gas (GHG) reductions, sustainability, or renewable energy initiatives. Power Forward 2.0 states that if incumbent utilities are not proactive (e.g., offer power purchases agreements, financing, rates, or project development), then they will be bypassed in favor of third-party energy providers (including non-regulated subsidiaries of incumbent utilities).

What Is New?

The focus on customer engagement and improving the customer experience is not new. In recent years, utilities have tried to improve the customer experience by introducing broader self-service, multi-channel options, and advanced information on energy products and usage. Such improvements include offering energy management applications like DTE’s Insight app.

What is new (and isn’t getting enough attention) are the actual implications of customer choice. With the increased availability of DER and new energy management technologies, the breadth and diversity of customer needs and interests that the utility will have to deal with are growing exponentially. Meeting diverse and changing customer demands is forcing utilities to rethink their role in the energy value chain. The range of possible services goes well beyond what they currently provide, including building energy management solutions, fast demand response, distributed generation, storage, microgrids, etc. Utilities must understand the full impact of all this on their customer service processes and systems. They must also understand how DER and advanced energy management solutions will affect their strategy, product innovation, business models, and the way they operate the grid. Taking an integrated and holistic approach is key.

Who Else Wants to Play?

Besides the incumbent utility, we see new entrants coming into the market that are focused on meeting the changing demands of large energy users. In the last 6 months, we have seen several announcements of new business models going after this market. Some examples are described below.

  • Edison International is launching a business that will help reduce energy costs, improve efficiency, and offer more environmentally friendly options for large energy users. The company’s new subsidiary, Edison Energy, aims to serve commercial buildings, data centers, retail centers, healthcare operations, and educational institutions nationwide.
  • Duke Energy’s Commercial portfolio president, Greg Wolf, has said, “In addition to utility-scale solar projects, we’ve also made investments in distributed generation and energy management systems for commercial and industrial companies.” Last year, Duke Renewables bought majority stakes in REC Solar (for commercial businesses) and Phoenix Energy (energy management systems and services for C&I customers).
  • GE Current combines GE’s products and services in energy efficiency, solar, storage, and onsite power with our digital and analytical capabilities to provide customers—hospitals, universities, retail stores, and cities—with more profitable energy solutions,” said Jeff Immelt, Chairman and CEO of General Electric (GE). Customers include Walgreens, Simon Property Group, Hilton Worldwide, JPMorgan Chase, Hospital Corporation of America, Intel, and Trane.

What Does All This Mean for the Incumbent Utility?

The incumbent utility (which includes the traditional competitive retailer not offering DER) has to adapt. Customers will look for better, greener, and cheaper alternatives, and more and more of these alternatives are becoming available. What’s more, the fight has started for the business of large C&I customers. If only a small percentage of large C&I customers switch over, the incumbent utilities will be in trouble. This will affect their revenue streams, roles, and the cost versus value of the centralized managed grid.

Facing declining revenue as customers consume less and produce more of their own power, utilities are faced with potential stranded generation (and eventually transmission and distribution) assets. This makes it even harder to make large investments (aimed at improving reliability and resilience) in their current grid while also making it more intelligent. And finally, they have to make investments in developing DER capabilities, offerings, and businesses. Given these challenges, utilities must play both defense and offense.

An updated defensive strategy will entail:

  • Engaging with customers to understand their customer choices and changing demands vis-a-vis price and reliability.
  • Engaging with regulators to find equitable ways to charge net metering customers for transmission and distribution services that fairly address the cost to serve.
  • Improving customer service and grid reliability at the lowest prices possible.
  • Developing utility-owned renewable assets to appeal to environmentally conscious customers.

Playing offense is even more important. Utilities must:

  • Create new revenue streams through the development of new business models, products, and services.
  • Transform their organizations and culture in order to fully integrate sales, customer service, and operations.
  • Upgrade the grid and operations to facilitate the integration of DER.

The above objectives can only be accomplished by implementing new business models that include developing, owning, and operating integrated DER such as community solar, customer-sited storage, microgrids, charging stations, building energy management systems, and home energy management systems. These goals also require utilities to provide third-party financing for DER and offer new products and services focused on energy efficiency and demand response.

There is no going back to the old ways of doing business. Utilities must lead—by playing both defense and offense—or they run the risk of being sidelined.

This is the second in a series of posts in which I will discuss each of the power industry megatrends and impacts (“so what?”) in more detail. My next blog will cover the rising number of carbon emissions reduction policies and regulations. Stay tuned.

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

 

Ford Decides to Stick with 100-Mile EVs – for Now

— April 29, 2016

EV RefuelingDuring the recent SAE 2016 World Congress in Detroit, there was much discussion among attendees and speakers about the future of electric vehicles (EVs). For the most part, there was agreement that a 200-mile nominal range on a charge will be the minimum needed to get mainstream customers to start accepting EVs as a viable transportation alternative. One notable exception to that opinion, at least publicly, came from Kevin Layden, Ford director of electrification engineering, who told Automotive News that a 100-mile range provided a better balance of weight and cost while meeting the needs of most drivers.

Not coincidentally, this fall, Ford is slated to release an upgraded version of its sole battery electric vehicle (BEV), the Focus Electric, with that same 100-mile range. There is little reason to doubt that Ford has no immediate plans to directly challenge the Chevrolet Bolt (which is set to launch at nearly the same time as the refreshed Focus) or the upcoming Tesla Model 3.

Late BEV Addition

The current Focus debuted in 2011 and the BEV variant was a late addition to program. In fact, it wasn’t even originally conceived by Ford. Engineers at supplier Magna International built a pair of prototypes in 2008 to demonstrate their EV engineering capabilities and Ford adopted the program late in the year as part of its recovery plan following the financial meltdown. The next-generation Focus was already well in development by that time, but Ford worked with Magna to adapt the electric drive system and battery packaging to the new model. The packaging results were less than optimal, with severely compromised cargo space compared to the competitors such as the Nissan LEAF or the later Volkswagen e-Golf.

While advances in battery technology in the years since have enabled Ford to boost the original 76-mile range to 100 miles, packing in twice as much capacity into this generation of the Focus would simply be impossible. Given that like other large automakers, Ford still needs to sell a certain number of plug-in vehicles (PEVs) every year in order to meet the California Zero Emission Vehicle (ZEV) mandates, and it’s no surprise that the priority right now is to sell the upgraded Focus Electric as is. Given the new competition from the Bolt, Ford will likely emphasize the starting price before incentives of $29,170 for the Focus, some $10,000 less than its original price in 2012.

More Models on the Way

While Ford marketing tries to sell the current-generation Focus Electric for the next 2 to 3 years, the product development team is no doubt working overtime to match or beat the benchmarks set by Chevrolet and Tesla for the next-generation model. In December 2015, Ford announced a $4.5 billion investment to launch 13 new electrified models by 2020 and the chances are excellent that at least one of those will be a 200-mile BEV that can sell for $30,000. The next-generation Focus platform is expected to debut in 2018 and Ford will likely have made allowances in the design to package larger batteries to meet the market demand for EV capability. During the 1Q 2016 financial results call on April 28, Ford CEO Mark Fields commented that the company wants to be in a leadership position on EVs, implying that Ford intends to build longer-range models in the coming years.

Navigant Research’s Electric Vehicle Market Forecast report projects global light duty BEV sales of almost 1.6 million in 2024, with nearly 462,000 in the United States. If manufacturers are to meet their individual sales targets under the California EV mandates, they will have to create products that are meet increasing customer expectations. With multiple manufacturers openly committing to affordable BEVs with 200 miles or more of range, only very inexpensive vehicles are likely to be deemed acceptable with less.

 

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