Navigant Research Blog

Deploying Energy Efficiency to Lower CO2 Emissions and Comply with the Clean Power Plan

— May 17, 2016

Cloud ComputingThis post originally appeared on the Association of Energy Services Professionals (AESP) website.

This article was co-authored by Frank Stern and Rob Neumann. Amanvir Chahal and David Purcell also contributed.

There has been a great deal of discussion on compliance with the Clean Power Plan (CPP). Surprisingly, there is little discussion of specific costs and benefits in leveraging energy efficiency (EE) to reduce CO2 and move toward complying with the CPP. Navigant investigated the effects of deploying additional EE resources to decrease CO2 emissions in two regions—California and PJM [1]. Our analysis shows that deploying additional EE for CPP compliance results in reduced CO2, as would be expected, but it also reduces costs and system congestion. Additional EE can reduce cost to serve load by 3% to 5% in California and PJM, which reduces costs annually up to $825 million in California and $1.5 billion in PJM. Another benefit of deployed EE is system congestion relief, which reduces the cost to serve load—this is important since large, urban utilities are focused on reducing congestion points, and EE can be used as a solution.

CPP and CO2 Reduction Timeline

The CPP has been stayed by the U.S. Supreme Court until final resolution of the case through the federal courts. The U.S. Supreme Court may not have final resolution of the case until 2018, although it could be sooner. Regardless, many states and regions continue to move toward the CPP goals to reduce carbon emissions, plan for an advanced energy economy, and meet cleaner generation goals. It is not known at this time if the deadlines in the CPP will be modified.

Modeling EE for CO2 Reduction

Navigant has been modeling supply resources for many years and has been including EE as a modeled resource. For this analysis, we focused on modeling PJM Transmission Interconnection and the state of California. To establish our EE base case across California and PJM, we included levels of EE modeled in each of Navigant’s most recent PROMOD and POM [2] transmission model runs. The data and assumptions in these runs are updated and verified with industry experts each quarter. Variables in the model include (i) rate of EE adoption over time, (ii) amount of EE compared to new generation, and (iii) varying amounts of EE deployed. EE was modeled across CA and PJM for the three cases (high/medium/low)—each case was run for 2025 and 2030. These years are important since 2025 is the middle of the CPP implementation period and 2030 is the first year of full compliance with the rule (final goal). The low case included a 50% reduction in EE from the base case, while the high case included a 50% increase in EE from the base case—the base case in 2030 is 33 million MWh for PJM and 24 million MWh for California.

Modeled Results

Deployed EE can provide up to 8.8% of California’s and 3.6% of PJM’s overall CPP Compliance goal in 2030. There is also a reduction in the cost to serve generation load based upon deployed EE. In PJM, the cost savings from the low EE case to the high EE case results in over $1.5 billion in savings annually in 2030 (3.6% of total cost to serve load), while in California, the same metric results in up to $825 million in savings annually in 2030 (4.7% of the cost to serve load). To state it in different terms, the cost to increase EE in 2030 to assist meeting CPP requirements is approximately $900 million in PJM and $550 million in California, which results in an EE return on investment of $600 million in PJM and $300 million in California. This lowers 2030 system capacity requirements by 5.6% in PJM and 10.7% in California. The lower savings and returns in California are due to aggressive renewable and EE policies already underway today in advance of CPP compliance.

Another benefit of deployed EE is reduced system congestion, which reduces the cost to serve load. EE will lower the need for new thermal generation on the system and put downward pressure on capacity and resource prices. Our model shows that system congestion is reduced by approximately 1.5% and is seen systemwide. This amounts to cost reductions of more than $765 million a year in PJM and $270 million a year in California. This system congestion finding is important, since there are various efforts underway across the nation to improve congestion (e.g., Con Edison Brooklyn/Queens Demand Management Initiative).

Conclusion

CPP initiatives would benefit greatly by incorporating additional EE into the planning process. EE reduces emissions and systems costs and pushes out the need for large, costly new generation projects. Specifically, we showed that CO2 emissions would be significantly lowered in PJM and California in both 2025 and 2030, while system costs are lowered in PJM and CA by at least 3% and 5%, respectively. This all adds up to longer glide paths for meeting regulatory requirements or when state goals have to be implemented. By including EE as a resource into the resource mix, system planners and environmental offices gain significant benefits in the form of decreasing costs, flattening demand and a zero-emitting resource.


[1] PROMOD IV is a detailed hourly chronological market model that simulates the dispatch and operation of the wholesale electricity market. It replicates the least cost optimization decision criteria used by system operators and utilities in the market while observing generating operational limitations and transmission constraints. The Proprietary Portfolio Optimization Model (POM) is leveraged for regional analysis of regulatory impacts.

[2] PJM coordinates movement of electricity through all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia – numerous states and diverse regions.

 

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.

 

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.

 

Energy Efficiency in the Pacific Northwest Is Here to Stay

— December 7, 2015

Seven years ago, I helped author a Climate Solutions report, Carbon Free Prosperity, which analyzed the potential for Oregon and Washington to reach a goal of 74%-78% carbon-free electricity by 2025. In 2008, this target was considered aggressive, but achievable, due to the extensive hydroelectric resources already in place in the two states. This target requires considerable energy efficiency measures to be in place and new policy support to spur the uptake of new wind power, solar PV, biomass, and even wave, tidal, and concentrating solar power. The plan was coordinated with the Northwest Power & Conservation Council (NPCC), a regional planning powerhouse that is arguably one of the most influential entities in the region. At the end of 2015, new policies and regulations are now in the works to surpass the original goal—bringing the region closer to 90% carbon-free electricity by 2030—and energy efficiency remains the driving force. And while maybe not as headline-driven as companies like SolarCity, Tesla, Nest, other Bay Area-type companies, or General Electric, a steady cadre of Northwest energy efficiency and energy solution providers have weathered the considerable ups and downs of the hard-to-predict energy market.

In the Carbon Free Prosperity report, the successful recruitment and presence of leading companies such as Vestas (North American Headquarters), Iberdrola, SolarWorld, Solaicx, XsunX, Sanyo, and other big names across the clean energy sector were touted. But it remains the case that events and policy matter. Following the national trend, a lack of certainty around key national incentives (and rapid cost declines in solar PV in particular), many of these companies face a highly challenging marketplace, with operations in the Pacific Northwest reigned back considerably in the past 5 years, including several that never fully got off the ground. This was also the case for companies down south, in Silicon Valley, and across the country.

In the Northwest, it is often said that if you shake a tree, an energy efficiency expert falls out. The region is home to several leading national companies such as CLEAResult, Ecova, and more (often formed through the acquisition of local firms such as PECI, Fluid Market Strategies, Quantec, and others). Many of these companies, in addition to some smaller, residential weatherization-focused counterparts, experienced similar boom and bust as their electricity-generation counterparts following the American Recovery & Reinvestment Act, which provided depending somewhere between $20 and $40 billion for energy efficiency. What remains today is a highly experienced network of negawatt providers, supplanted by a regional emphasis on energy efficiency and regional entities such as the Bonneville Power Administration and the NPCC. These two powerhouses essentially enshrine energy efficiency as the leading source of new energy procurement. Both should enable the long-term success of the Pacific Northwest’s energy service companies, as well as the possibility of greater than 78% of Oregon and Washington’s power coming from carbon-free sources.

 

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