Navigant Research Blog

States’ Roles in the Clean Power Plan

— June 25, 2015

Cross_Gatel_webThe U.S. Environmental Protection Agency (EPA) plans to finalize the Clean Power Plan (CPP) this summer; as part of the plan, states will have 1 to 3 years to submit State Implementation Plans (SIPs) to the EPA for review. Some states are already starting the planning process to develop an SIP, and most are beginning with stakeholder meetings that include utilities and other major players in their state. Other states are waiting to see the final regulation before they begin.

States face a complicated web of decisions when crafting SIPs. The figure below shows a simplified hierarchy of the paths that they may take. States are unlikely to go through the decision process in a linear fashion; instead, they will need to consider all options and narrow them down based on their existing policies, resources, and stakeholder goals, among other factors.

SIP Example Decision Process

 

CPP Decision Tree - Recreated

(Source: Navigant Consulting)

SIP or FIP?

The first decision a state needs to make is whether to submit an SIP. If a state does not submit an SIP, the EPA will impose a Federal Implementation Plan (FIP). The EPA has indicated that they may include insights on what an FIP will look like when they release the final rule this summer. Some states have passed legislation limiting their state agencies from submitting an SIP without legislative approval, which could impede those states from submitting an SIP at all.

A decision that will need to be made early in the process is whether or not a state wants to work with other states to submit a regional plan. There have been proposals, for instance from Duke Nicholas Institute, that individual plans could be crafted to be standalone and still allow trading of credits with other states, similar to the way that renewable energy credits (RECs) can be traded among states even though Renewable Portfolio Standard (RPS) policies were not coordinated prior to implementation. However, many states are already in discussions about coordination efforts— for example, 14 Midcontinent states submitted comments to the EPA on its proposal and held a stakeholder event on June 5.

If states do work together on regional implementation plans, under the proposed rule they would have an additional year before their plan is due to the EPA. This allows additional time to coordinate among the many players involved across all coordinating states, but narrows the amount of time between when the implementation plan is approved by the EPA and compliance begins— potentially as little as 1 year.

Targets and Policies

Another decisions that states must states weigh in on is whether or not to use the rate-based target laid out by the EPA or to convert it to a mass-based target. This decision is interrelated with the kind of policy regime a state chooses to include in its SIP. A rate-based target may be more appealing to states that impose individual unit obligations on fossil units in their state, as it eliminates the uncertainty surrounding future load growth. Conversely, a mass-based target may be easier to implement in the northeast where a mass-based cap-and-trade system already exists.

States will also need to determine how to integrate existing renewable and energy efficiency policies into their SIPs and decide if new policies are needed. These include RPS, energy efficiency standards, and updates to building codes, and can be combined with cap-and-trade, as in California, or standalone.

There are many additional considerations for states to take into account as they craft implementation plans. For the best overall outcome it is recommended that states start early, have meaningful stakeholder involvement throughout the process, and leverage modeling and analytical tools where possible.

 

Big Tech Players Take Next Steps in the Smart IoT Home Space

— June 24, 2015

Boatbuilder_webNo matter what it’s called—the smart home, connected home, or Internet of Things (IoT) home—many companies are moving forward with a variety of products to enhance comfort, convenience, and energy efficiency in the home. In particular, tech giants Apple and Google (Nest) have generated significant buzz lately and are poised to remain driving forces as the market continues to evolve.

Apple, Google, and More

Apple’s vision for its HomeKit platform is starting to become more visible, with some of the first devices entering the market that can be controlled via Siri through iPhones, iPads, and Apple Watches, according to a recent story on the MacRumors website. When HomeKit was announced a year ago, it was more of a vision of the possible. But now companies like Lutron (smart lighting kit) and Insteon (home automation hub) are selling HomeKit-enabled products. In addition, ecobee (smart thermostat) and Elgato (Eve sensing system) are prepared to launch HomeKit-enabled devices in a matter of weeks. Other manufacturers are expected to follow suit.

Meanwhile, Google has forged ahead with its own platform with the announcement of Brillo, its IoT operating system based on Android. Brillo has a communication layer called Weave that is designed to enable IoT devices to talk to one another and the cloud. Weave will also be used by Nest and Nest ecosystem devices so they can interoperate. Brillo is expected to be available in the third quarter of this year, and Weave will be offered in the fourth quarter.

It is not just Apple and Google shaping the IoT and smart home space, however. Industry groups are active as well, aiming to set standards across multiple operating systems and network protocols. For instance, the AllSeen Alliance and the Open Interconnect Consortium (OIC) are two groups working on open-source standards for the IoT that will include the home as well as other industry verticals.

Multiyear Competition

A few things to remember in this chaotic space: It is still early days as the smart IoT home market takes shape and the players jockey for position. Also, this is a multiyear competition, with no clear winners at this point. It is easy to see Apple and Google setting the stage to dominate given their strong brands among consumers. But companies like Samsung, ADT, Bosch, Qualcomm, and Honeywell, to name just a few, see opportunities as well and are focusing on the growing market possibilities that are expected to eventually include billions of new devices and billions of dollars in potential revenue. What’s more, there is room for startups to emerge or new partnerships to form that take the market in a new direction. For instance, ComEd has joined with Comcast and Nest Labs for a demand response program involving smart thermostats. For some guidance on what lies ahead, Navigant Research has a new report called IoT (Internet of Things) for Residential Customers that discusses these issues and challenges facing stakeholders.

 

Solar PV on Leased Buildings: Drivers, Barriers, and Solutions

— June 17, 2015

Andrea Romano co-authored this blog.

Navigant Consulting works with the U.S. Department of Energy’s (DOE’s) Better Buildings Alliance (BBA) to understand barriers and solutions to promoting solar PV adoption. Currently, we are focusing on solar PV on leased buildings. We have teamed with the SunShot Initiative to develop a request for information to better understand the barriers, benefits, and solutions to installing solar on leased buildings. We are encouraging those active in the solar industry to voice their opinions so that we can develop tool to meet the market’s needs.

Why Leased Buildings?

As of 2012, there were 5.6 million commercial buildings in the United States, comprising 87 billion SF of floor space and representing a huge sustainability and clean energy opportunity. However, a large portion of these buildings are multi-tenanted leased spaces facing a split incentive in that the building owner does not typically pay the energy bills, but would bear the upgrade costs. A number of green leasing initiatives have developed concepts, tools, and guides to overcome this barrier for energy efficiency, but have not focused on solar PV. As a result, Navigant is focusing on this issue in 2015.

Benefits of Solar PV

In many cases, solar PV benefits both the landlords and tenants, however, the division of the economic and environmental benefits depend on the structure of the building lease. The lists below demonstrate the potential benefits.

Solar Benefits for Landlords

  • Reduced utility electricity consumption leads to reduced operating costs and reduced exposure to volatility of energy prices
  • Enhances marketability of the building
  • Lowers occupancy costs, which facilitates the ability to charge higher rent
  • Improves tenant retention due to lower operating expenses

Solar Benefits for Tenants

  • Lowers electricity costs
  • Stabilizes electricity costs
  • Supports corporate sustainability goals
  • Demonstrates environmental responsibility to employees and the community

In general, for commercial buildings, reducing operating expenses through the installation of a PV system can provide a hedge against escalating energy prices. Buildings may see lower costs of capital and higher market value because of this reduced risk. Depending on how the lease is structured, some or all of these benefits can lead to increased revenue for the building owner. Additionally, solar helps diversify revenue streams, reducing the overall volatility of the property’s income.

Barriers to Solar PV

A number of factors impact the growth of the commercial solar market, with the greater obstacles being the lack of project standardization and high transaction costs. Within the commercial real estate market, owner-tenant facilities in particular have an added level of complexity including:

  • Split incentive: Energy costs often paid by tenants and solar PV system is purchased and owned by building owner
  • Short payback requirement: Building owners want 2- to 3-year payback
  • Timeframe discrepancy between building lease and solar PV system life: Solar PV system has a 20- to 25-year life, which is often greater than building leases
  • Property owner creditworthiness: Many properties owned by LLCs without publicly rated investment quality
  • Property ownership entity: Determines 30% Business Energy Investment Tax Credit eligibility

Overcoming the Barriers

While many barriers to installing solar PV on leased buildings exist, companies are developing innovative solutions to address or overcome these challenges. The figure below summarizes the ideas by system ownership. Navigant Consulting is currently working with the DOE and BBA on a guide summarizing these strategies and it will be available later this summer.

System Ownership Strategies

diagram

(Source: Navigant Consulting)

 

2014 U.S. Advanced Energy Market Reached Nearly $200 Billion

— June 15, 2015

Along with several colleagues, I recently completed work on the Advanced Energy Economy 2015 Market Report. This is the third year Navigant has produced the report, commissioned by Advanced Energy Economy, a national association of business leaders with the goal of making the global energy system more secure, clean, and affordable. The group has grown rapidly under the leadership of Graham Stevens, and effectively takes an inclusive approach to clean energy, transportation, buildings, and other key segments of the U.S. and global energy marketplace.

The annual report tallies revenue from electric vehicles, nuclear, biofuels, solar, and natural gas plants, along with demand response, smart parking systems, transmission, energy efficient lighting, and many others sectors. Today, the report encompasses a large portion of the Navigant Research library of data–spanning more than 60 market research reports and touching more than 80 different industries.

In 2014, the report concludes, the deployment of advanced energy technologies and services in the United States represented nearly a $200 billion market, and $1.3 trillion globally. That makes the global advanced energy market as big as the apparel and fashion industry worldwide, and almost 4 times the size of the semiconductor industry. In the United States, the market for advanced energy is bigger than the airline industry, equal to pharmaceuticals, and nearly as big as consumer electronics. U.S. advanced energy revenue grew 14% from 2013 to 2014–5 times faster than the U.S. economy overall.

Other findings worth highlighting include:

  • Building efficiency became the largest advanced energy sector, at $60 billion in 2014, led by residential energy efficient lighting ($9.7 billion).
  • The shale gas revolution in the United States has translated into an increase in sales of new generating equipment, with revenue from natural gas turbines up 48% year-over-year, to $6.4 billion.
  • Electric vehicle charging infrastructure continues to show strong growth, up 31% to 2014 revenue of $201.5 million. EV charging station revenue has risen 7-fold over the past 4 years.

The Growing Reach of the Energy Cloud

A number of the key trends covered in this report demonstrate the growing reach of the energy cloud. As detailed in Navigant Research’s recent white paper, The Energy Cloud, this term refers to the spread of intelligent networks of energy assets that are increasingly located onsite, commonly referred to as distributed energy resources (DER). These networks often come under fire from incumbent generators and grid operators for eating into utility revenue. Consumers, on the other hand, are benefiting from lower energy prices and a more reliable grid, thanks to the rapid proliferation of the cloud.

On the political side, the rapid growth of the advanced energy sector may offer policymakers a framework (backed up by plenty of data) that makes clean energy palatable to the diverse stakeholders looking for ways to comply with, and even profit from, the EPA’s Clean Power Plan.  It’s hard to argue against a $1.3 trillion market.

 

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