Navigant Research Blog

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.

 

Despite Bleak Chinese Construction Outlook, Still Hope for Green Buildings

— July 27, 2015

According to second quarter gross domestic product (GDP) data released by China, the miraculous decades-long growth of the Chinese economy is continuing. In reality, though, China’s GDP figures range in the territory of unreliable to laughable. As publicly traded companies announce their second quarter earnings, a picture of a more stagnant Chinese economy is emerging, and for construction, that picture is bleak.

How Low Can You Go?

United Technologies’ share price tumbled on July 21 (before receiving a little bit more bad news) as net sales and net income fell and performance failed to meet analyst expectations. The company’s Otis elevator and escalator products were projected to experience a 5% increase in orders in China for the year. Instead, the company recorded a 10% decline. The fall in elevator orders is a direct result of the fall in Chinese construction.

Unfortunately, construction in China does not appear to have a bright future. China’s government-led construction drive gobbled up massive amounts of commodities. In 2014, the country accounted for 40% of the world’s copper consumption, despite having just 20% of the world’s population. In just 3 years, China used more cement than the United States did in the entire 20th century. But, commodity prices have dropped, highlighting China’s cooling construction market. The Bloomberg Commodity index has fallen to its lowest level since 2009.

Darkest before the Dawn

Despite these construction headwinds, there is hope in high-performance buildings. The Chinese government is pushing green buildings, in part as a response to the country’s urban air pollution problem. Even though the construction boom has faded, advanced controls and building energy management systems are still poised for growth. As the focus shifts from completing construction to ensuring efficient operation, there is an opportunity for wider adoption and more sophisticated systems.

Other players in the building space are viewing China as a growth opportunity. Johnson Controls noted increased revenue on market expansion in China. Indeed, the company is investing in the Chinese market in anticipation of significant growth opportunities. Honeywell’s Automation and Controls Solutions (ACS) experienced double-digit growth in China in the second quarter of 2015. As China’s construction market continues to mature, the break-neck growth that has been characteristic has slowed substantially. The focus is shifting from more buildings to better buildings, creating opportunities for solutions that improve operational efficiency.

 

Industrial Energy Management Systems – Tools to Overcome the Biggest Barriers to Energy Efficiency

— July 9, 2015

The U.S. Department of Energy (DOE) has released a report to Congress and an accompanying study on the barriers to industrial energy efficiency as mandated under the authority of the American Energy Manufacturing Technical Corrections Act.  The study concludes that if specific economic and financial, regulatory, and informational barriers can be overcome, there is the potential to deliver energy savings of 15% to 32% by 2025 in the industrial sector.  Industrial energy management systems (IEMSs), as defined by Navigant Research, are viable tools to help overcome some of the biggest barriers identified by the DOE and help industrial customers realize cost savings, operational efficiencies, and sustainability improvements.

An IEMS analyzes and manages data associated with energy consumption and operations within an industrial facility, and it also delivers actionable information to building stakeholders.  The system’s analytics-based tools help industrial customers make more strategic investments and equipment improvements and monitor the impacts of energy efficiency measures from capital-intensive system replacement to no-cost operational changes.  Broader adoption of IEMSs can help the industrial segment overcome specific barriers to deep improvements in energy efficiency, as identified by the DOE:

  1. Failure to recognize non-energy benefits of efficiency: Not considering non-energy or co-benefits of an end-use energy efficiency project weakens the business case.
  2. Split incentives: Companies often split costs and benefits for energy efficiency projects between business units, which complicates decision-making.
  3. Energy price trends: Volatile energy prices can create uncertainty in investment returns, leading to delayed decisions on energy efficiency projects.

The Specifics

First, the most sophisticated IEMS enables customers to shift the maintenance paradigm from a reactive to predictive approach.  IEMS-supported predictive maintenance is more strategic and reduces costs by prioritizing and streamlining response to alarms and managing equipment before it causes the most costly impacts of downtime. This is a critical non-energy benefit for industrial customers.

Second, an IEMS can be an effective tool for overcoming the split incentive. When the capital expenditure of an energy efficiency improvement is covered by the budget of one business unit, but the savings are realized through reduced operating expenses from a different business unit, an organization is often unable to overcome this internal hurdle to investment.  An IEMS can utilize the equipment and facility data to inform each business unit of costs and derive the proportionate energy savings generated by the energy efficiency investment. An industrial customer could use this capacity to quantify costs and allocate capital expenditures across the organization to help generate broader vested interest in energy efficiency.

Finally, an IEMS gives customers insight into their facility’s performance, tools for capital planning, and strategies for operations and maintenance (O&M) that can help limit the impact of energy price uncertainty or volatility.  An IEMS gives customers transparency into the impact of variable energy costs, and some even provide services for energy procurement that can further reduce the uncertainty and risks associated with energy price volatility.

Watch for a new Navigant Research report on IEMSs, expected to publish this year in our Building Innovations research service.

 

Japan’s METI Supporting Smart City Projects

— July 2, 2015

According to Navigant Research, a smart city is characterized by the integration of technology into a strategic approach to sustainability, citizen well-being, and economic development. While there may be various definitions of a smart city, in many cases, smart cities are desired in order to cope with the growing urban population, achieve sustainability goals, and maintain economic competitiveness through innovation and technology development. In addition, city resilience—the ability to recover from catastrophic events—has become increasingly important in the context of climate change.

In Japan, smart city projects are being led by the central government and local governments, as well as by the private sector. However, due to the centralized political model and events requiring national response, such as the Great East Japan Earthquake in 2011, large-scale smart city projects are usually initiated by the central government through the Ministry of Economy, Trade and Industry (METI). After the 2011 earthquake and Fukushima Daiichi nuclear accident, Japan had a distinct motive to promote smart cities as means to reconstruct affected urban areas.

Subsidized Projects

There have been two waves of smart city projects subsidized by the METI under its Science, Technology and Innovation budget. The first wave of projects is the Test Projects for Next-Generation Energy and Social System. In 2010, METI solicited local governments for smart city project applications. In April 2010, four cities were selected—Yokohama, Toyota City, Keihanna, and Kitakyushu—to receive METI subsidies that amount to ¥126.5 million. Initially, the pilot cities focused on improving the quality of life and showcasing innovative technologies. However, after the 2011 earthquake, there was a paradigm shift to work toward reducing energy consumption and improving energy efficiency.

These four cities have become the first successful operational pilots in Japan. Some areas of success include demand response programs, which reduced consumption during peak period by 20% in Kitakyushu; home energy management (HEM) programs in which 1,500 homes in Yokohama had HEM systems installed in 2013; vehicle-to-grid (V2G) technology; and smart metering. Details on these projects and updates can be found on the Japan Smart City Portal.

In 2012, METI pursued a second wave of subsidized smart city projects to reconstruct cities affected by the earthquake to become more resilient. In 2012, 10 cities were selected for the Projects for Promoting Introduction of Smart Communities program with a budget of ¥8.06 billion. Also, because of the widespread shutdown of the nation’s nuclear power plants post-Fukushima, Japan has been decidedly promoting renewable energy resources to meet its demand. In 2012, the country introduced a feed-in tariff system, as well. While the second wave of smart city projects is still in the planning stage, thanks to the earlier success in the four pilot cities, Japan is getting closer to realizing its aspiration to create the Japanese model of smart cities to export.

 

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