Navigant Research Blog

What It Will Take To Transform Buildings in Large Cities

— January 22, 2015

From New York to Los Angeles, a growing number of the largest U.S. cities are recognizing that tackling building efficiency translates into progress toward climate resilience.  The underlying assumption is that better information leads to action.  As these cities compile baselines on commercial building energy use and educate the public on the cost-effective opportunities for energy reductions, the next question that arises is whether building owners will take action.

New York State of Mind

New York City was the first to launch a comprehensive strategy to tackle energy waste in commercial buildings through four local laws under the Greener, Greater Buildings Plan.  The complementary laws not only mandate energy benchmarking but require performance upgrades to meet local energy codes for citywide renovations, major retrofits in buildings over 50,000 SF to meet lighting efficiency standards, and the installation of submeters by 2025.  Mayor Bill de Blasio has continued the commitment to improving the city’s climate readiness and, in September, announced a new goal for a citywide 80% reduction in greenhouse gas emissions by 2050.   According to a recent article in The New York Times, the mayor’s office estimates that the energy efficiency advances in buildings deliver tremendous economic benefits.  According to the director of the Mayor’s Office of Recovery and Resiliency, the city spends $800 million a year to run its facilities, and energy efficiency retrofits could generate $180 million in annual savings by 2025.

Best Practices

The City Energy Project (CEP), a national initiative directed by the Institute for Market Transformation (IMT) and the Natural Resources Defense Council (NRDC), aims to help 10 cities design energy efficiency plans and share best practices for promoting change in their largest commercial buildings.   Atlanta, Boston, Chicago, Denver, Houston, Kansas City (Missouri), Los Angeles, Orlando, Philadelphia, and Salt Lake City have each joined the project, according to the CEP fact sheet. As outlined on the CEP website, in 3 to 5 years, the initiative will create transparency on building energy use and create financial vehicles for investment in energy efficiency.

New financing channels are a critical element in the mission to tackle commercial building energy efficiency.  While many of the most attainable energy efficiency improvements can be low-cost or no-cost improvements through scheduling and procedures, transformational changes require capital investment.  The challenge is how to engage building owners with financing mechanisms that enable those investments.

Opening the Purse

At the 2014 World Energy Engineering Conference, held in October in Washington, D.C., several sessions honed in on the challenge of financing energy efficiency.  The market recognizes the opportunity and benefits associated with energy efficiency, but the reality is that capital budgets are tight.  Former President Bill Clinton, the keynote speaker, declared, “Financing is holding back the energy revolution.”

In Navigant Research’s view, the challenge is two-fold.  On one hand, there is the opportunity to adjust perspectives on energy efficiency investment.  Advocacy efforts, such as the CEP, could help building owners broaden their views from a focus on payback to a longer-term view of how energy efficiency and intelligent building investments enhance the value of their facilities.  On the other hand, our research suggests that a change is underway in the performance contracting and shared savings models that have helped fuel investment in energy efficiency historically.   Watch for a new report on energy service companies and the transformation of intelligent buildings financing in 2015 as a part of our Building Innovations Service.

 

The Energy Efficiency Way to Emissions Reductions

— January 15, 2015

The Obama administration has few levers to pull to shift the United States’ position on climate change, besides enforcing the Clean Air Act of 1970.  That legislation authorizes the U.S. Environmental Protection Agency (EPA) to enforce regulations on power plants and associated pollutants.  The Clean Air Act put the onus on individual states to design programs to follow the EPA’s federal guidelines.  Last June, the EPA released its Clean Power Plan (CPP), with a new ambitious target: carbon emission reductions totaling 30% relative to 2005 emissions by 2030.  The proposed rule includes the following primary components:

  • Four building blocks that define the EPA’s Best Strategy for Emissions Reductions
  • State-by-state 2030 carbon emissions reduction targets and interim targets based on a 2012 base year
  • Numerous alternative emissions reduction strategies, including renewables, under-construction nuclear generation, and energy efficiency

Cost-Effective Efficiency

Not surprisingly, some legislators are arguing that the CPP is unconstitutional, functioning as a federalization of states’ activities via the EPA.  Some utilities are also not happy with the CPP, as they are going to have to be held to real climate goals.  Utilities that burn coal or other fossil fuels inefficiently will have to pay to upgrade their facilities or face stiff penalties.

In a recent white paper, Navigant reported that energy efficiency is a cost-effective way for states, utilities, and businesses to achieve the CPP targets, with considerably less investment than upgrading or building new power plants.  Of all the building blocks, energy efficiency is the only one that is not a form of generation.  From a cost perspective, energy efficiency is a highly competitive approach to offsetting supply requirements and reducing carbon emissions.   This approach can be used for both overall total load reductions, but also for peak shaving (i.e., reducing the carbon intensity of electricity demand at the times when the grid is dirtiest – usually in the afternoons).

The Challenges

The major challenge for using energy efficiency as a way to achieve policy goals lies in how and where it is implemented.  Utility energy efficiency programs are one approach, and are forecast to grow, according to the Lawrence Berkeley National Laboratory (LBNL).

Energy Efficiency Spending by Utilities

(Source: Lawrence Berkeley National Laboratory)

Many utility programs require 5 or 6 years to mature and develop savings streams that persist.   Developing efficiency programs today will allow the savings potential to grow prior to the start of the CPP requirements.

It’s not just up to the utilities.   By focusing on the bottom line – the financial savings – the business community can help states achieve their CPP goals, whether they realize it or not.  Navigant Research’s report, Energy Efficient Buildings: Global Outlook, found that the current energy efficient building market is generating over $300 billion annually and is expected to grow, in major part, because the software and hardware works, and saves end-users money.  If the EPA uses the green of a dollar to promote the CPP, it could help states reach its targets.

 

The Geopolitics of Energy Efficiency

— January 15, 2015

The crisis in Ukraine has put the country’s energy security at risk.  Among other threats to the country’s economic stability, natural gas supply is a lingering concern.  In December, Naftogaz, Ukraine’s state-owned gas company, managed to settle the $3.1 billion debt it owed to Russia’s Gazprom, averting the risk of gas supply being shut down.  Longer term, there’s a little-noticed solution: Investing in energy efficiency could help Ukraine avoid importing any gas from Russia.

According to the International Energy Agency, Ukraine’s energy intensity is nearly 3 times greater than the average for Organisation for Economic Co-operation and Development (OECD) countries and 25% greater than the average for non-OECD European and Eurasian countries.  Energy efficiency has not been a priority in the former Soviet republics.  Subsidies provided by the gas monopoly that were designed to keep the populace complacent also created a disincentive to upgrade Soviet-era equipment and controls.

After the Fall

After the fall of the Berlin Wall, many of the same problems plaguing Ukraine were faced by East Germans.  But, since reunification, hundreds of buildings with poor thermal characteristics in East Germany have been demolished and replaced with more efficient ones.  Additionally, in the buildings that remain, major upgrades were made to the thermal envelope and heating systems were replaced.  As a result, total energy use in Germany fell between 1996 and 2008.

To be sure, some modernization projects are happening in Ukraine.  In Odessa, upgrades to a district heating network provided total energy savings of 50%.  But antiquated heating systems in Ukraine suffer from years of neglected maintenance.  In addition to the equipment, heating controls are an issue.  Many systems only have basic on-off control, they are either heating at full blast or are off – a terribly wasteful limitation.    Easy efficiency investment opportunities with short paybacks are abundant in Ukraine.  But, as with many energy efficiency investments, financing is the hurdle.  The problem is especially acute in Ukraine, as loans from the International Monetary Fund are keeping the country afloat.

Future of Financing

Worldwide, major changes in financing options seem to be in store for 2015, aimed at lowering the cash needed for energy efficient investments.  By converting upfront capital investments into operating savings through innovative finance, more projects will get the green light.  To date, energy service companies (ESCOs) have served as the primary means of outside funding for energy efficiency improvement projects.  But new approaches, such as independent energy savings insurance products, are beginning to emerge.  Currently, private real estate fund managers have $110 billion of equity available for investment, an all-time high.  As the situation in Ukraine demonstrated, there are abundant opportunities for investment being overlooked.  The changing world of energy efficiency financing appears to be the clearest way to bridge that gap.

 

Outage Management Technology Looks to an Integrated Future

— December 30, 2014

First deployed in the 1970s, outage management systems (OMSs) were originally designed to incorporate outage notifications from external sources to create a map view of the outage and generate an optimized power restoration plan.  Today, with smart grids revolutionizing power delivery through telecommunications and automation, OMSs have evolved into something much more sophisticated.  However, it’s also become less and less clear what an OMS actually is.

Conventional OMSs understand the outage, determine the correct course of action to take, and issue switching orders for the control room operator and/or distribution management or supervisory control and data acquisition (SCADA) system.  Though these systems can be linked, each one typically maintains a separate database, meaning that no system holds a complete understanding of the network state or restoration process.  Now, vendors are combining outage management with distribution management and SCADA, creating what is often called an advanced distribution management system (ADMS).  Incorporating a single system map and database, ADMSs can manage the engineering grid with the restoration process in real time, resulting in faster, more informed action to restore power.

Real-Time Resilience

On the communications side, new OMSs may integrate real-time, two-way information from the customer call center, the interactive voice response (IVR) system, smart meters, mobile crews, and even social media.  This enables the system to update itself immediately upon the reception of outside information and exchange pertinent notifications and updates with mobile crews and customers.  Again, OMSs have traditionally not managed these different communications media; they’ve only exchanged limited information with them.  Now, due to proliferating open standards, the pace of this exchange has increased, and new platforms, such as social media, are increasingly involved.

Analytics solutions represent another game-changer for OMSs and grid resiliency/reliability efforts.  Analytics technology combines notifications, voltage readings, and outside sources, such as weather, to inform preventive maintenance efforts, increase the accuracy of damage assessment, and improve the efficiency of the restoration plan.  Analytics systems can be integrated into a combined DMS/OMS/SCADA, ADMS, or purchased as a separate overlay to enhance systems.

All Together Now

Navigant Research expects growth for standalone OMSs to decline as more utilities adopt ADMS strategies, but market demand for improved reliability and lowering outage costs will continue to drive adoption of products and services to support advanced outage management — analytics, customer engagement tools, and distribution automation. As Navigant Research’s report, Outage Management Systems, makes clear, these systems certainly aren’t what they used to be.  Not only are they more dynamic, reliable, and flexible, but they’re also used by utilities in new ways that require traditionally siloed departments that manage engineering, operations, and communications to work closely together.

Not all utilities will adopt a full ADMS solution from a single vendor—it’s likely that many will configure systems in a more integrated fashion and will move toward a combined management philosophy, where outage management is one application within a platform that manages operations, engineering, and even customer engagement during events.

 

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