Navigant Research Blog

A Retail Focus on Energy Efficiency and the Clean Power Plan

— May 28, 2015

Frank Stern and David Purcell contributed to this blog.

The U.S. Environmental Protection Agency (EPA) issued its proposed Clean Power Plan (CPP) rule in June 2014 to reduce carbon emissions from existing fossil-fired electric generating units (EGUs) over 25 MW. The rule is primarily focused on coal-fired plants across the United States. Total carbon reductions targeted by the EPA are substantial: the CPP proposes carbon emission reductions totaling 30% relative to 2005 emissions by 2030, with alternative approaches totaling approximately 23% in reductions by 2025. During the public comment period, the proposed rule received nearly 4 million comments from utilities, states, and other stakeholders. The EPA’s final rule is expected sometime this summer.

While the CPP does not propose state-by-state least-cost planning or specifically require energy efficiency (EE) for carbon reduction compliance, states should pursue EE because, as discussed below, EE is recognized by the EPA and numerous states as a highly cost-effective resource and a prudent investment. Reaching the EPA’s Building Block 4 (BB4) 1.5% annual EE savings goal is likely to require a focused effort in many states. A recommended approach to working toward the savings goal is developing an EE retail strategy.

Advantages of Using EE

Using BB4 to reach a portion of states’ CPP requirements is important since:

  • EE is typically a least-cost resource for reducing carbon emissions
  • EE provides positive economic benefits, while reducing carbon emissions
  • EE will decrease energy demand, allowing utilities greater supply-side flexibility to implement other Building Blocks through 2029

Considerations in Meeting BB4 EE Savings Targets

States with larger utility EE portfolios and growing programs are likely to meet BB4 goals more easily than states with less developed programs and low annual savings. Existing EE portfolios could require increasing EE measure incentive levels to drive participation. Rather than relying only on existing portfolios, it is more likely that all regions of a state and its utilities (including munis and co-ops) should be involved in reaching the BB4 goal.

The figure below shows that states that have undertaken EE program development have growing EE portfolio savings near 1.5% and have higher first-year costs than other states. Many states have not undertaken EE initiatives for extended periods and resulting incentive levels are low in comparison.

 Southeast Incremental Savings vs. First Year Cost of Savings: 2011

Southeast Incremental Savings

      (Source: Navigant Analysis)

While the CPP compliance period does not begin until 2020, states and utilities should consider increased BB4 efforts today to gain momentum toward the 1.5% savings goal. Potential studies can be used to determine maximum achievable EE savings. Such studies can reveal the range of electricity savings and benefits expected over time. In determining EE’s role in reaching CPP goals, states and utilities should assess EE potential to decide how to approach developing BB4 savings.

Central to an EE retail approach is understanding and using potential studies, benefit/cost analyses, and evaluations of EE portfolios to gain an understanding of the benefits and challenges of expanding EE portfolios. Designing and implementing EE programs with proper financial incentives and cost recovery mechanisms can lead to positive net benefits for utilities, customers, and regional economies.

Initiatives, Policies, and Programs

There are a number of approaches to support development of EE initiatives at a utility or in a state to meet the EPA goals. Some initiatives include:

  • Establish energy savings targets within a company or at the state level
  • Assess state performance incentives and cost-recovery mechanisms that move EE toward being equal to other supply-side resources
  • Integrate EE into the resource planning process in regulated markets– incorporate EE into electric integrated resource planning as an equal resource option to generation
  • Require stringent evaluation, measurement and verification of EE programs

State policies should be assessed to create proper incentives and foster growth. Cost recovery as the sole incentive to implement EE portfolios is insufficient to foster savings. Financial incentives and policies that place EE on similar or equal footing to supply-side resources is needed for utilities to actively move toward the 1.5% target.

 

Submarine Cable Project to Link Canada, New York

— May 26, 2015

The Champlain Hudson Power Express Project is an epic example of the creative solutions that major transmission utilities and third parties are undertaking to interconnect adjacent markets across borders. This hybrid 337-mile project will carry more than 1,000 MW of renewable power from Canada to the New York metropolitan areas. The project includes sections of high-voltage direct current (HVDC) submarine power cables running through Lake Champlain, the Hudson, East, and Harlem Rivers, with other sections using HVDC underground with the existing Delaware & Hudson Railroad and CSX Transportation railroad right of ways.

The $2.2 billion dollar project is expected to be completed and commissioned in 2017, linking the Montreal area to the New York City neighborhood of Astoria, Queens.  The transmission link between Canada and New York is being developed by Transmission Developers Inc. (TDI), a Blackstone Group, L.P, and is designed to transport electricity from hydropower and wind resources in eastern Canada and feed it directly into the New York City electricity market. The Quebec section of the line and high-voltage alternating current (HVAC) to HVDC converter station is being built and will be operated by TransÉnergie, the transmission division of Hydro-Québec, one of the largest Canadian utilities.

The following graphic shows the scope of the project, starting out at the Hertel converter station in Quebec, where HVAC is converted to HVDC.  The HVDC line runs under Lake Champlain for over 100 miles and then through railroad right of ways for 126 miles.  It then runs under the Hudson River to New York City over about 100 miles, with a few underground transitions in New York City.

Champlain Hudson Power Express

Champlain Hudson Power Express

(Source: Transmission Developers, Inc.)

It’s clear that these HVDC submarine and underground systems are complex solutions that have less environmental impact than overhead transmission lines with associated right of way and eminent domain issues.

The majority of HVDC submarine electric transmission projects are being planned and completed in the European market, where tremendous off-shore wind resources in the Nordic countries, Germany, and the United Kingdom are coming online. It’s great to see that creative projects such as the Champlain Hudson Power Express transmission system are also happening in North America. Over the next 5 to 10 years, this type of interconnection/intertie between independent system operator/regional transmission organization (ISO/RTO) regions and countries will be critical to delivering adequate and increasingly renewable power resources. For more information, look for my upcoming report (expected to publish in 2Q 2015) on submarine electric transmission, which will include regional and global forecasts for capacity and revenue through 2024.

 

 

Bristol, U.K. Plans To Be Open, Programmable City

— May 20, 2015

The City of Bristol’s selection as the European Green Capital 2015 is an example of the increasingly visible role that U.K. cities are taking in the evolution of smart city ideas and solutions.  The title may be largely symbolic, but it is one that many European cities covet as a validation of their innovation in sustainable living and development.  As with all such awards, there is plenty of skepticism as to how far the realities match the rhetoric, but the scope and ambition of the city’s program are impressive. Bristol has been keen to build on the award and use it to add significant momentum to an already impressive list of projects cutting across the energy, transportation, building, and technology sectors.

A good example of Bristol’s ambition is the recently launched Bristol is Open, a joint venture between the city council and the University of Bristol to develop an open, high-speed network that will foster innovation across multiple city applications. The project has funding support from the U.K.’s Department of Culture, Media and Sport and Innovate UK, and is also building on the supercomputing capabilities of the University of Bristol.

Experimentation as a Service

A core element of the project is a City Operating System (CityOS), developed by the University’s High Performance Networks research group. The CItyOS will manage the machine-to-machine communications across the city using a software defined network (SDN)  approach to improve manageability, integration, and accessibility.  The network is being developed according to OpenDaylight standards as part of the project’s commitment to openness, which extends to procurement and data management, as well as hardware and software.  All the data generated will be anonymized and made public through the city’s open data portal. The project team will also proactively share its findings with other cities, technology companies, universities, and citizens. The network will be used by technology companies, research organizations and small and medium-sized enterprises to develop and experiment with new solutions in urban mobility, energy efficiency, environmental monitoring, and health. The team has defined its approach as City Experimentation as a Service.

The project will make use of three networks: a 30-GB  fiber optic network, a series of Wi-Fi wireless networks along the Brunel Mile area of the city, and a radio frequency mesh network based on city lampposts.  The aim is to eventually expand the networks beyond the city center into the wider city region, creating an open, programmable region covering one million people. Among the partners already signed up for the project is Silver Spring Networks, which is providing the  mesh network technology to connect the city’s streetlights and to provide a platform for other applications, such as traffic monitoring, air quality control, and safety cameras.

Creating the Digital City

The Bristol project is an example of how  the Internet of Things (IoT) and smart city concepts are coming out of the labs and small-scale pilots and onto the streets of major cities.  Other examples include an extended smart street lighting network in Copenhagen and Barcelona’s plan to develop a multi-application Urban Platform.

If successful, the Bristol model could be a showcase for how network infrastructure and a CityOS can provide a shared capability for access and innovation.

 

For Swiss-German Hydropower Subsidies, an Imbalance Flows

— May 14, 2015

During a recent vacation in Switzerland, I made a day trip to the beautiful city of Thun, where the Aare River cuts through the middle of the city. As I sipped white wine and watched the river flow, I thought about how high the water level was, how fast the currents were moving, and how this must be good for the Alpine country’s hydropower production. When I mentioned this to my Swiss-German friend, Marco, he gave me an interesting perspective on hydropower and foreign renewable energy subsidization.

Marco, a Swiss citizen living in Germany, explained to me that hydroelectricity is the backbone of Swiss energy. Switzerland generates 58% of its energy from hydroelectricity, and the rest of the country’s energy comes from nuclear (36%), thermal, biomass, solar, and wind power (6%). The system works well, where nuclear power and hydroelectricity ensure stability in meeting electricity demand, while the newer renewables assist with peak loads and exports to neighboring countries.

Opening the Flood Gates

However, Marco explained, Germany, which shares a border with Switzerland, has caused trouble for the Swiss energy system with its renewables policy. Germany’s high solar and wind subsidies have dramatically lowered the price of electricity (although private households pay for subsidies as part of their energy bill), and now large hydroelectric facilities in Switzerland, which are not subsidized, are no longer profitable. In fact, 24 of the 25 hydroelectric facilities planned for construction in Switzerland are unprofitable. This means that hydroelectricity investment has been put on hold because it cannot compete. With hydroelectricity costs on the rise and the Swiss on the outs with nuclear power, the country may have to revert back to old coal plants or electricity imports from neighboring countries—which would likely come from coal. Ironically, Switzerland has responded to this subsidy problem by starting its own subsidy for smaller hydroelectric facilities (<10 MW).

The German subsidies have even farther-reaching consequences, some of which hinder the success of the very energy technologies they are supporting. The boom of solar and wind has led to an increased need for electricity storage, as both energy sources are unsteady. Alpiq, a major Swiss energy producer, is investing €1.5 billion ($1.71 billion) in a new pumped storage facility in the Alps, but the project’s economic success is uncertain. If these facilities do not prove profitable, their construction will come to a halt. Without these storage facilities, wind and solar offer little benefit to the energy supply.

In the United States, wind power generators beg for consistent and reliable subsidies to help take care of initial investment expenses, so it is hard to believe that subsidies for any renewable energy could be negative. However, Marco made it clear that he thinks there must be changes to restore balance in the system (i.e., abolishing or reforming German subsidies). As a concerned Swiss citizen, he believes that this would stop the spiraling subsidization and increase CO2-free electricity. He is not the only Swiss-German who feels this way.

Alpiq published a report (which can be viewed here) that came to very similar conclusions. Regardless of whether you believe subsidies for renewable energies are positive or negative, hydropower in Switzerland is in a dire situation and reforms in subsidies are needed to restore balance. For me, it was a tragedy to sit in Switzerland, sipping wine and watching the beautiful river flow, knowing that perfectly viable hydroelectricity will not be generated.

To learn more about German subsidies with respect to wind, see Navigant Research’s World Wind Energy Market Update 2015.

 

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