Navigant Research Blog

AESP Conference Makes DSM Gumbo in the Big Easy

— March 22, 2018

I hadn’t attended the Association of Energy Service Professional’s (AESP’s) annual conference in 10 years. I hadn’t been to New Orleans in 20 years. When the two came together in February, I decided it was time to kill two birds with one stone. Neither disappointed. I’ll focus on the conference here, but the beignets, bands, and Bourbon Street were as epic as I remembered.

Buzz-Worthy Presentations

The conference was twice as big as the last time I was there, and the topics have become much broader, reflecting the maturation of the industry. The opening session, Business Models – The Evolving Role of Demand-Side Management (DSM) in Utilities, was a shot across the comfort zone bow that most DSM professionals have settled into. Val Jensen, Senior Vice President of Customer Operations at ComEd, stated that while the energy efficiency group is now a driver of revenue for the company, he would like to see the end of energy efficiency programs as we know them today. He views it as an inefficient cottage industry that is not as unique as we think and is really more of a commodity. Energy efficiency program design is more a reflection of program evaluation than serving customers in a useful way. He believes that the utility should become a platform, where energy efficiency is a high value application that can be offered. The notion that utilities should make money from energy efficiency has been viewed as dirty, but being incented financially to do something is a powerful motivator.

After that wake-up call, I enjoyed seeing some of the presentations that were on the leading edges of DSM. There was a notable smattering of natural gas presentations—a field historically dominated by the electric side of the house. Integrating natural gas and electric DSM programs plays a growing role as utilities try to find more cost-effective ways to meet their goals. Converting fuel oil heating customers to natural gas, and natural gas HVAC applications to electric (like heat pumps) holds promise in saving energy and emissions.

Another buzz term I focused on was customer engagement, in part because I am working on a report covering that topic. A panel with three utility marketplace offerings, energyOrbit, Enervee, and Simple Energy, showed how customers could be enticed to make more efficient purchases by providing information and comparisons on product ratings and costs. It was even posited that traditional energy efficiency rebates could be rendered obsolete through superior data sharing, but that point was hotly contested by the panel.

Not Just a Bystander

I also participated in my own panel, Non-Wires Alternatives: The New Model to Integrate and Target DSM and DER, but that wasn’t nearly as intriguing as the talk on using drones for energy efficiency site visits!

All in all, it was great to get back to the AESP crowd and see some familiar faces as well as new, innovative companies and young, enthusiastic industry players carrying the mantle for the next generation of DSM.

 

How Long Can Companies Afford to Neglect Setting Science-Based Climate Targets?

— December 21, 2017

This blog post was prepared with contributions from Vincent Hoen, Jeroen Scheepmaker, and Frank Stern.

During the last 3 years, more than 300 companies have signed up to participate in the Science Based Targets initiative. The combined revenue of these companies runs into the billions of US dollars and includes high ranking Fortune 500 companies like Walmart, HP, CVS Health, and Procter & Gamble. Why are these companies committing to science-based targets? Are they willing to publicly disclose their emissions and commit to reducing their environmental impact?

Increased awareness of environmental responsibility, especially following the Paris Agreement, has increased overall consumer, city, and business willingness to act. The corporate sector is embracing science-based targets as an instrument to provide objective guidance on how to react to increasing pressure to have a credible climate strategy. Science-based targets show the fair contribution of any company to limit global warming to 2° or even 1.5° Celsius.

In addition, science-based targets help companies do the following:

  1. Mitigate climate risks and ensure investor acceptance.
  2. Meet climate disclosure recommendations (e.g., from the Financial Stability Board).
  3. Improve business relationships.
  4. Become a more attractive employer.

Let’s look at these points in a greater detail.

Science-Based Targets Become Part of Overall Credit Rating

Globally, well-accepted rating instruments such as the Dow Jones Sustainability Indices and CDP Climate Leadership Index are integrating science-based targets into their ratings and awarding credits for companies having an approved science-based target. Not committing to science-based targets can lead to lower credit ratings and less client and investor attractiveness.

Science-Based Targets Will Be Part of Recommended Climate Risk Disclosure

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (FSB-TCFD) recommends companies perform scenario analysis on their portfolios to assess climate-related risks and opportunities. Setting science-based targets is the tool for meeting these recommendations, as science-based targets are based on the leading climate scenarios of the International Energy Agency. They provide key insights into the required transformations for a company and a direct link to climate risks and opportunities. By setting science-based targets, companies are also well-prepared for upcoming policies that make a climate impact disclosure mandatory.

Science-Based Targets Result in Improved Business Relationships

An important trend is companies not only focusing on their own operations but also on value chain impacts. For instance, Walmart’s Project Gigaton implemented a suppliers program to achieve its climate objective and science-based target. A solid climate strategy with a science-based target ensures that companies act in line with the demands of the purchasing departments of supply chain partners. Companies can develop more intimate client relationships and secure longer-term contracts when a science-based target is in place.

Sustainability Increases Employer Attractiveness

Last but not least, it is known that companies with a strong climate strategy will be more attractive not only for clients and investors, but also for (new) employees. Young professionals have a strong preference for companies with a green image. A science-based target is a great instrument to drive an ambitious sustainability program.

Benefits of Science-Based Targets

Science-based targets are being embraced on a large scale by corporate leaders because they provide the perfect framework for a credible climate and energy strategy. These targets are at the heart of climate-related risk disclosures and will continue to have an increasing effect on companies’ credit ratings. In addition, science-based targets ensure soft benefits, including communicative value, improved supplier relations, and a more attractive working environment. Acting now allows companies to join the ranks of sustainability leaders and show shareholders, investors, clients, suppliers, and employees that the company has a credible response to prevent climate change.

 

Sustainability as a Business Model

— December 12, 2017

Energy efficiency and emissions goals form an important piece of sustainability initiatives for many corporations and other professional entities. Sustainability is often solely associated with energy and climate-related metrics, but it is not the only factor contributing to a sustainable organization. Investors are starting to recognize what a sustainability-focused business approach can mean for long-term organizational success. Increasingly, sustainability performance (or environmental and social governance) is being defined more broadly to include social issues such as education, injustice, and poverty.

UN Sustainable Development Goals

In 2015, the UN launched the 2030 Agenda for Sustainable Development with the support of 193 nations. This agenda includes a set of 17 sustainable development goals (SDGs) and 169 targets that came into effect in January 2016. The purpose of the SDGs is to create standards that can measure progress on key issues like combating poverty, climate change, and injustice—among others. The UN agenda is designed to create an economic environment where the deployment of capital resources is considered in terms of economic, social, and environmental criteria. SDGs foster a discussion on investment quality beyond just the expected financials.

Socially Responsible Investment: A Growing Track Record of Outperformance       

Socially responsible investing may have begun in the 1700s with the Quakers, who refused to support “sinful” businesses such as tobacco, firearms, and the slave trade. More recently, sustainable investing has taken on the guise of promoting environmentally sustainable businesses, although financial performance is at the fore. The Morgan Stanley Institute for Sustainable Investing performed a study on over 10,000 sustainable equity funds that found that these investments have met or exceeded the performance of comparable traditional investments. UBS, a leading global investment bank, claims to have $970 billion, or 35% of its investable portfolio, placed in socially conscious investments. Al Gore’s sustainability-focused private investment fund, Generation Investment Management (GIM), has returned about 16.3% after fees since September 2014, while the MSCI World Index has returned 7.7% over the same period. Assessing the sustainability of companies can be done using the Dow Jones Sustainability Indices, which are a group of benchmarks that track the stock performance of companies in terms of economic, environmental, and social criteria.

The Foundation of High Performing Companies

Why do sustainable companies often outperform their peers? For Gore and GIM, not only is sustainability good for humanity, it is also a significant indicator of investment risk, management integrity and quality, robustness of business models, and products and services that are aligned with real-world problems and needs. Put together, these characteristics can identify high performing companies that provide consistent returns. An interesting note about GIM and its investment thesis is that it has broadened the scope of the definition of sustainability to include company diversity, human resources practices, community interaction, employee benefits, healthcare, and the values and ethics of the C-suite—along with the usual energy- and climate-related strategies. Each sustainable investment decision is aimed at choosing the factors that are most important to the sector where the company competes.

Many companies that use Navigant’s Energy research and services deliver energy-related products and services that can help their own customers meet sustainability goals. However, energy and emissions are only a small component of sustainable participation in the global economy. Similar to the dramatic efficiency results that can be achieved with a holistic approach to commercial building energy management, corporate sustainability efforts—and often business performance—can be dramatically improved with a more holistic view of what sustainable business performance means and how it can be achieved. There do not have to be any tradeoffs, and the real-world results are starting to speak for themselves.

 

Monetizing Energy Efficiency: Creating Additional Value Streams for Your Customers

— December 8, 2017

Much is transforming the global energy landscape these days. Building technologies are progressing from single point solutions to system and platform-based solutions utilizing the latest in smart digital technologies and the Internet of Things. Utilities are reshaping entire business models and strategies to integrate and enable a swiftly growing and diverse stock of distributed energy resources. These are just two of the more visible market evolutions. But as with most industry transformations, change does not happen all at once.

Large groups of buildings (of all sizes) lie along the continuum of advancement with regard to building technologies. Most organizations realize the potential benefits of energy efficiency; however, there are still hurdles that could prevent these types of projects from moving forward. According to a recent Navigant Research report, Energy Efficient Buildings Global Outlook, these hurdles include confusion about which technologies to adopt, what internal resources would be required to manage an advanced building, and how to best understand and calculate payback and ROI to get a project approved.

On the supply side, utilities are also realizing the benefits of making the buildings in their service territories more efficient. Utilities must be concerned with their conglomeration of generation assets to ensure a reliable future energy supply. Energy efficiency and demand-side management (DSM) are two ways that utilities manage this critical task. In fact, at less than 3 cents/kWh, energy efficiency is the most cost-effective source of energy compared to all other sources of generation.

For decades, utilities have had success reaching large commercial and industrial and even residential customers with incentive-based DSM programs like energy efficiency and demand response. PJM is an example of a regional transmission organization (RTO) that understands and actively pursues energy efficiency initiatives to include in its regional capacity planning. Over time, PJM has encouraged over a gigawatt of annual energy efficiency projects in its current and future capacity markets.

The one hurdle faced by utilities and RTOs is awareness of these programs. Small- to medium-sized businesses, energy service companies (ESCOs), and even larger commercial customers may not be fully aware of the availability of these programs. Incentives can go a long way toward clearing energy efficiency project hurdles. For example, utility and RTO incentives may be the final project piece that enables payback and ROI calculations to meet internal financial requirements. Organizations can benefit from working with outside specialists in this area to help understand what is available and how best to assess and include incentives in efficiency and sustainability initiatives.

Join the Conversation

Navigant Research is hosting a free webinar, Monetizing Energy Efficiency: Creating Additional Value Streams for Your Customers, on December 12 at 2 p.m. EST. I will be joined by Meg Kelly, Senior Director of Energy Efficiency, and Russ Newbold, Director of Sales Operations at CPower. Learn the benefits of utilizing PJM capacity credits as a value to you and your customers.

The webinar will help end-use customers—and ESCOs that serve customers—learn what capacity credits are, how to attain them, and how to make them a part of the value chain to earn more energy efficiency project business. This webinar will outline how to benefit from these credits and, for ESCOs, how to add value to proposals all the way through receiving the payments.

 

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Digital Utility Strategies, Electric Vehicles, Energy Technologies, Finance & Investing, Policy & Regulation, Renewable Energy, Smart Energy Program, Transportation Efficiencies, Utility Transformations

By Author


{"userID":"","pageName":"Energy Efficiency","path":"\/tag\/energy-efficiency?page=2","date":"5\/26\/2018"}