Navigant Research Blog

EPA Heads to Court with CPP

— August 28, 2015

The Clean Power Plan (CPP) has been a hot topic in recent months. It is about to get even hotter as 15 states band together in opposition to take the final ruling to court (details of the CPP can be found in the following links: link 1 and link 2).

Early Resistance

The CPP has met resistance since day 1, with federal court challenges filed well before the final rule was released by the Environmental Protection Agency (EPA) on August 3, 2015. Portions of the CPP were even shed in anticipation of a legal fight. The draft CPP rule included four Building Blocks (BBs):

  • BB1: Heat rate reductions
  • BB2: Switching from coal to gas
  • BB3: Renewables
  • BB4: Focused on energy efficiency (EE)

The EPA removed BB4 in order to strengthen the CPP’s legal position since EE is a demand-reducing resource, not a supply resource covered by the Clean Air Act (CAA, the CPP’s core federal law). Dropping BB4 removed a key legal concern cited by many who commented on the proposed CPP rule. However, a large block of states still oppose the CPP and plan to file in federal court to block implementation of the rule. Arguments against the rule range from its potential to substantially alter the power industry and the economic drivers of that business to unemployment and the threat of weakened power reliability.

CAA Battle

The CPP is not the only EPA rule being challenged in the courts. Florida is leading a group of 17 states over EPA startup, shutdown, and malfunction (SSM) rules. These states argue that the CAA gives the federal government the authority to set standards involving harmful pollutants, but it is up to the states to determine how they want to implement those standards.

The CAA is often upheld by the Supreme Court despite vigorously fought cases against the EPA. In the case of Coalition for Responsible Regulation v. EPA (2012), various state and industry group petitioners challenged all four EPA greenhouse gas (GHG) actions, alleging that they are based on improper constructions of the CAA. The Court upheld the GHG actions, supporting the EPA’s interpretation of the CAA in those cases. The Court also upheld provisions of the CAA in the Chamber of Commerce v. EPA (2011) case that permit the EPA to allow California to set its own automobile emissions standards. In this case, the U.S. Chamber of Commerce and National Automobile Dealers Association could not prove that these standards would cause any economic harm.

Primed for an Ongoing Battle

If the CAA’s previous Court success is any indication of the future, states need to prepare now for how they will meet the EPA’s CPP requirements. While numerous states fight the CPP (most recent state count was more than 15), many more are already preparing plans to reduce carbon emissions. In fact, a study conducted by the Union of Concerned Scientists shows that the 31 states that have already made commitments to the CPP will be more than halfway toward meeting their 2022 benchmarks, and 21 of these states will actually surpass it. Georgia, North Carolina, and South Carolina, all of which are suing the EPA, are also on track to exceed their 2022 benchmarks. The ongoing battle between states’ rights and the implementation of federal EPA rules will be on full display once the final CPP is published in the Federal Register (on or about November 3, 2015) and the opposing states file their federal court cases. The outcome of those joint cases will have a great impact on the future of the U.S. power industry.

 

The Clean Power Plan Final Rule: A Boon for Energy Efficiency

— August 10, 2015

This week, the Obama administration and U.S. Environmental Protection Agency (EPA) released the Clean Power Plan Final Rule. The EPA moves this first nationwide greenhouse gas (GHG) reduction policy forward under the authority of the Clean Air Act section 111(d) and establishes CO2 emissions guidelines for existing fossil fuel-fired power plants. In order to achieve the estimated 32% reduction in GHG emissions by 2030 (from a 2005 baseline), each state will need to implement a formal compliance plan. So how will the Clean Power Plan (CPP) trickle down to the buildings segment?

Benefits of Energy Efficiency

The need for flexibility and inclusion of cost-effective solutions in order to meet the reduction target was a paramount message that emerged from the 4.3 million comments received during the rule-making process. As a result, the final rule enables states to leverage the most cost-effective option, energy efficiency, as a means of compliance. In fact, a 2014 Lawrence Berkeley National Laboratory study found that the average total cost of saved electricity through utility demand-side management (DSM) programs was less than $0.05 per kWh. In another 2014 study, the American Council for an Energy-Efficient Economy (ACEEE) estimated the levelized cost of electricity generation options and also concluded the benefits of energy efficiency from an economic standpoint, as illustrated in the figure below.

Levelized Costs of Electricity Resource Options

Casey Blog(Source: American Council for an Energy-Efficient Economy)

Utilities have recognized the benefits of energy efficiency in achieving GHG reduction targets. In California, for example, the state investor-owned utilities (IOUs) have long offered customer incentives to improve building efficiency. The benefits have made a mark, and even in light of a federal mandate from the CPP, Pacific Gas and Electric’s (PG&E’s) CEO expressed the company’s support of moving toward a lower carbon energy future with the statement: “I congratulate the Administration on finalizing the Clean Power Plan rule and greatly appreciate the significant outreach and engagement with our sector … It is expected that this first-ever national program to reduce greenhouse gas emissions from the power sector will advance investments in clean energy technologies throughout the country and provide tremendous environmental benefit.”

Regulatory Compliance and Opportunities

The Clean Energy Incentive Program is a critical element of flexibility under the CPP that enables states to award early action emissions rate credits (ERCs) and allowances to eligible demand-side energy efficiency projects that reduce end-use energy demand in 2020 and/or 2021 for those projects implemented after September 6, 2018. The goal is to accelerate activity in the early stages of the regulatory compliance period.

In the end, there are huge opportunities for energy efficiency in buildings. Demand-side energy efficiency projects implemented in low-income communities, for example, will receive 2 credits for 1 MWh of avoided electricity production, as the EPA will match each credit offered by the state. The door will open to much broader opportunities across the building sectors. It can even be stipulated that the momentum will accelerate the adoption of intelligent building solutions, including building energy management systems, as tools for measuring performance baselines and automated measurement and verification.

 

July Proved a Pivotal Month for Renewable Power

— August 3, 2015

The news stream started early on July 3, when the German government published a white paper presenting its proposal for power market reform known as Strommarkt 2.0, or Electricity Market 2.0. The proposed reform is focused around three ideas: the energy supply must be reliable, it must be environmentally friendly, and it must be cost-effective—even with a growing share of wind and solar power.

To achieve these focus points, the white paper proposed 20 pillars to support the new market. The most important are that the price is set by a free market, there is constant monitoring of the security of supply, a capacity reserve (but not a capacity market) will be introduced, and the power market will evolve to be balanced.

While the proposal does not affect renewables directly (Germany has been actively tweaking its incentives in the last 2 years to reduce impact on electricity bills), it does introduce the flexibility necessary to allow further growth of renewables in the country, which is a must if the country wants to meet its 80% renewables target in 2015.

More News

A couple weeks later, on July 17, the European Union (EU) Commission proposed a new regulatory package that set the stepping stones of its EU strategy. While most of the proposal is geared toward empowering consumers so they can make better decisions affecting their energy consumption, it also advocates for a new single-market design at the European level. This design will add flexibility to the system to facilitate the expansion of renewables, promote cross-border competition, allow decentralized electricity generation (including for self-consumption), and support the emergence of innovative energy service companies.

And a few days later, on July 22, the U.K. Department of Energy and Climate Change (DECC) announced a revamp of its solar and biomass policy support, ending solar feed-in tariffs for projects under 5 MW (projects above 5 MW were not eligible). DECC also said that it will remove subsidies that had been guaranteed to new biomass conversions and co-firing projects, including existing plants that were intended to burn higher shares of biomass. Finally, DECC announced it would delay new Contract for Difference tenders indefinitely.

Meanwhile, France announced a significant shift in its energy policy. On July 23, the French National Assembly approved its energy transition law. In it, the country announced that it will reduce its reliance on nuclear energy to 50% of its generated power by 2025, from 75% today, capping its nuclear power installed capacity at 63.2 GW. The country also set the share of renewable energy at 32% of its demand. In addition, France introduced a long-term target for carbon tax. Currently standing at €14.50 ($15.90) per tonne, this tax will increase to €22 ($24) in 2016, then to €56 ($62) in 2020, rising to €100 ($110) in 2030.

Overall, with their new intents, the EU, Germany, and France seem settled in their way forward, while the United Kingdom’s energy  policy is consistent at being inconsistent. After all, this is the third time it has changed policies in about 5 years.

A couple weeks later, on July 17, the European Union (EU) Commission proposed a new regulatory package that set the stepping stones of its EU strategy. While most of the proposal is geared toward empowering consumers so they can make better decisions affecting their energy consumption, it also advocates for a new single-market design at the European level. This design will add flexibility to the system to facilitate the expansion of renewables, promote cross-border competition, allow decentralized electricity generation (including for self-consumption), and support the emergence of innovative energy service companies.

 

Smart Cities: It’s All Relative

— July 29, 2015

Cities around the world are increasingly adopting technologies to improve the quality of life in the modern city, where traffic congestion, air pollution, and a lack of mobility are often the norm. Many smart city technologies are also being developed to deal with specific issues in energy distribution, energy and water management, transportation optimization, and public safety and security. Navigant Research defines a smart city as the integration of technology into a strategic approach to sustainability, citizen well-being, and economic development.

Currently, the level of smart city technology integration varies greatly by region. What is considered to be one of the leading smart cities in Brazil, for example, may be far behind some of the leading cities in Denmark. To illustrate this, let’s compare Curitiba, Brazil with Copenhagen, Denmark.

Apples to Oranges

Curitiba has one of the most advanced recycling programs in Brazil, yet the city recycles just 20% of its waste.  In Copenhagen, 57% of total waste was recycled in 2009. Additionally, incineration centers are converting waste to energy by using steam from the water that is heated in the incinerator ovens. Roughly 80% of this steam energy is being used in the municipal heating system, and 20% is being fed back into the electricity grid. While Curitiba deserves significant praise for pioneering a very successful bus rapid transit (BRT) system, the city is still struggling with congestion and has just recently made initial plans for subway system infrastructure. Conversely, Copenhagen Metro began operation in 2002 (22 stations, nine of which are underground), and a driverless light metro supplements the larger S-train rapid transit system. Back in Brazil, Curitiba has the highest rate of public transport use in Brazil (45% of journeys), while in Copenhagen, it is estimated that 50% of all citizens commute by bicycle every day.

Beyond specific projects, broader climate action goals between these two cities are also quite different. Copenhagen aims to become the first carbon-neutral city in the world by 2025. The city has established targets in energy efficiency, renewable energy, and green building standards (all new buildings must be carbon neutral by 2020). Navigant Research has been unable to identify any city-level sustainability or climate action plans in Curitiba.

GDP Considerations

This comparative analysis by no means intends to detract from the tremendous achievements and progress in sustainability that Curitiba has attained. Instead, it seeks to illustrate the regional nature and context of what constitutes a leading smart city. With a gross domestic product (GDP) per capita of roughly $60,000 in Copenhagen, a much larger volume of resources is available for smart city development than in Curitiba, where GDP per capita is estimated to be $13,000.

The global smart city technology market is forecast to be worth more than $27.5 billion annually by 2023, according to Navigant Research’s Smart Cities report. Cumulative global investment in smart city technologies over the decade is expected to be $174.4 billion.

Annual Smart City Technology Revenue by Region, World Markets: 2014-2023

Smart Cities Revenue

(Source: Navigant Research)

 

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