Navigant Research Blog

Take Control of Your Future, Part III: Rising Number of Carbon Emissions Reduction Policies and Regulations

— May 16, 2016

Energy CloudMaggie Shober and Rob Neumann also contributed to this post.

My recent blog discussed seven megatrends that are fundamentally changing how we produce and use power. In the second part of the series, I focused on the power of customer choice and changing demands. Here, we will discuss the rising number of carbon emissions reduction policies and how this trend is fundamentally changing the power industry.

What’s Happening with Carbon Emissions Policies Globally?

The long-term impact of the Paris Climate Agreement will be significant. This agreement will focus on limiting global warming to well below 2°C (3.6°F) by the year 2100. Each nation sets its own target for reducing emissions and updates that mark each year. A record number of countries (175) signed the agreement on the first available day. Governments must now ratify and approve the agreement, which could take months or years. The agreement goes into effect once 55 countries representing at least 55% of global emissions formally join. It’s clear that the tone and tenor of the Paris Climate Agreement is providing a guiding light for nations to reduce emissions.

The biggest news was the full commitment of China. The country, together with United States, was one of the first to sign the final Paris Climate Agreement. The United States and China account for nearly 40% of global carbon emissions. It does appear that China is serious about reducing emissions, since the country has made significant investments in renewables, electric vehicles, green cities, and more. Already the world leader in wind power, China is set to overtake Germany this year in solar power (see chart below).

Renewable Energy Growth in Major Economies

Jan Blog 3

(Source: World Resources Institute)

We see that other countries are not waiting. This week, Germany announced a €17 billion ($19.2 billion) campaign—that’s right, billions—to boost energy efficiency. The ultimate goal is to cut the country’s energy consumption in half by 2050. This is part of meeting domestic and Paris Climate Agreement emissions reduction targets. The campaign could prove bearish for European Union (EU) carbon prices if it reduces demand for power and heating in Germany, the top economy (and emitter) of all the EU’s 28 member states.

Many other initiatives at the regional, country, state, and local levels are currently being designed and implemented in support of carbon emissions reductions, accelerated by the agreement. Importantly, the EU is seeking swift approval and implementation of the Paris Climate Agreement at the United Nation’s Bonn Climate Change Conference in Bonn, Germany this week.

U.S. Carbon Regulation

And then we have the Clean Power Plan (CPP). The CPP has been stayed by the U.S. Supreme Court until a final resolution of the case passes through the federal courts. Litigation may not be resolved until 2018, although it’s possible a resolution could be reached sooner. There has been a great deal of discussion on compliance with the CPP. Our analysis continues to show that cost-effective compliance includes a variety of options that are tailored to regional characteristics. A recent deep dive by Navigant into a southeastern state with modest renewable resources showed that trading with other states and developing energy efficiency programs and portfolios are key strategies for reducing overall compliance costs. Compliance strategies depend on existing resources; older coal resources on the margin for retirement are able to get a large bang for their buck on the emissions balancing sheet through replacement with gas, renewables, and energy efficiency.

Navigant also investigated the effects of deploying additional energy efficiency resources in order to decrease CO2 emissions in two regions: California and PJM. We found that additional energy efficiency reduces CO2 emissions, overall cost of compliance, and system congestion. The cost to serve load is reduced by 3%-5% in California and PJM. System congestion relief is also likely to occur, which further reduces the cost to serve load. This last point is important, since large, urban utilities are focused on reducing congestion points—and energy efficiency can be used as a solution.

Other Ongoing Developments

Even though the CPP is on hold, many individual states, cities, and utilities continue to move toward the CPP goals to reduce carbon emissions, plan for an advanced energy economy, and meet cleaner generation goals. The CPP parameters are being used as a guide for emissions reductions:

  • Last month, Maryland lawmakers approved the Clean Energy Jobs Act of 2016 (SB 921) by large majorities in both houses, increasing the state’s Renewable Portfolio Standard (RPS) to 25% by 2020.
  • As part of the New York Reforming the Energy Vision (REV) proceedings, the New York Public Service Commission introduced an order that requires placing a value on carbon emissions, focusing on distributed generation portfolios, and compensating customers for their distributed electricity generation.
  • Over the past year, six states led by Tennessee (plus Georgia, Michigan, Minnesota, Oregon, and Pennsylvania), the U.S. Department of Energy (DOE), and a few other national organizations have been developing a National Energy Efficiency Registry (NEER) to allow states to track and trade energy efficiency emissions credits for CPP and emissions compliance purposes.
  • Last week, San Diego announced its pledge to get 100% of its energy from clean and renewable power with a Climate Action Plan that sets the boldest citywide clean energy law in the United States. With this announcement, San Diego is the largest U.S. city to join the growing trend of cities choosing clean energy. Already, at least 12 other U.S. cities, including San Francisco, San Jose, Burlington (Vermont), and Aspen, have committed to 100% clean energy. Globally, numerous cities have committed to 100% clean energy, including Copenhagen, Denmark; Munich, Germany; and the Isle of Wight, England.
  • Meanwhile, many utilities are decommissioning or converting their existing coal plants and investing in utility-scale renewables, as well as distributed energy resources. As example, AEP is in the process of decommissioning 11 coal plants, representing approximately 6,500 MW of coal-fired generating capacity as part of its plan to comply with the Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards. The company is simultaneously making significant investments in renewables, with a total capacity of close to 4,000 MW by mid-2016.

What Does This All Mean?

The sustainability objectives of government, policymakers, utilities, and their customers are more closely aligned than ever before. In my last blog, I discussed how customer choice and changing customer demands are shifting toward supporting sustainability. States and regulators will continue to discuss how sustainable targets can be met without affecting jobs and the access to safe, reliable, and affordable power. And utilities will continue to evolve to support cleaner, more distributed, and more intelligent energy generation, distribution, and consumption.

Recommended action items for states and utilities include:

  • Understand the possibilities, costs, and full impacts of low-carbon generation and distributed energy resources (energy efficiency, demand response, and others).
  • Implement a workable framework and develop an integrated plan to move toward lower emissions goals, since it’s likely that decreased emission requirements will be in place in the near future.
  • Leverage existing state and neighboring utility designs and efforts to develop joint plans, policies, and goals.
  • Implement (pilot) initiatives that include renewable energy and other low-carbon generation into a reduced emissions framework while also incorporating energy efficiency and distributed generation as resources into the decreased emissions planning process.

This post is the third in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. My next blog will cover shifting power-generating sources. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.

 

Software and Services to Deepen the Benefits of Factory Energy Management

— September 1, 2015

The manufacturing sector is realizing the opportunity to generate impressive financial savings with energy efficiency. Recently, the Institute for Market Transformation (IMT) released a series of case studies showcasing the benefits of energy efficiency investments, including an example from a lab at the University of Minnesota and an Ohio factory. From retrocommissioning to equipment retrofits, factory owners are realizing significant improvements to their bottom lines through investment in energy efficiency measures. An upcoming Navigant Research report on industrial energy management systems (IEMSs) finds that a growing market for software and services can help industrial customers expand the opportunity for energy efficiency benefits with solutions for measuring, monitoring, and predicting the impact of operational and equipment changes.

IEMSs are defined by software and services offered to reduce energy use and costs while meeting the operational requirements of the facility’s business. These solutions provide site-level insights on equipment and operational performance and enterprisewide perspectives for continuous business improvement.  Industrial customers can leverage an IEMS as a cost-effective tool for internal transparency on energy consumption and analytics to support strategic changes in energy use for regulatory or corporate policy compliance.

Energy Management as a Differentiator

When oil prices continue to drive downward to historic lows, the question of why manufacturers would care about energy efficiency is a logical one. The fact is that energy efficiency still has a real and significant business value for the industrial sector. Executives in charge of industrial facilities are becoming more aware of the benefits of strategic energy management as a competitive differentiator and source of opportunity for business improvement. These customers are demanding more integrated systems in terms of operations and enterprise IT that utilize granular equipment and operations data for predictive maintenance and optimization of equipment and operations. IEMSs are becoming the go-to solution for leveraging data to deliver economic and business benefits.

The IMT case study from the University of Minnesota illustrated how organizational commitments can drive interest in efficiency. The university’s senior energy auditor explained, “We implement energy conservation projects as a key component of the University’s sustainability goal of becoming carbon neutral by 2050.” In Ohio at the Tusco Display factory case study, the company CEO explains how real benefit of energy efficiency is that economic and sustainability benefits go hand in hand: “Over the last 10 years, we have increased both production and per person productivity while cutting energy usage by 41 percent. We will continue to invest in energy efficiency because it’s good stewardship with a long-term, positive impact on our bottom line, too.”

Watch for our new Industrial Energy Management Systems report, coming soon!

 

Speed Bumps on the Road to the Smarter Home

— August 20, 2015

While more smart home technology keeps rolling out from manufacturers, some of the targeted customers are finding the systems do not always satisfy their expectations or have shortcomings. This was pointed out recently in a Wall Street Journal piece that noted the downsides of the latest systems that control lighting, door locks, and thermostats, among other things.

Not Worth the Trouble?

One of those people is a professor of mechanical engineering who is also head of the Berkeley Energy and Climate Institute at UC Berkeley. He received a smart thermostat as a gift, but has yet to install it because it wasn’t worth the trouble, according to the story. Another is a tech-savvy contractor who finds his smart home control system is too complicated, particularly when things go wrong. He now tells his own clients to avoid automated systems.

These are anecdotal examples, to be sure, and may not reflect the experiences of satisfied smart home technology customers. But these stories do highlight some of the barriers to smart home technology adoption and the related Internet of Things (IoT) trend, which has gripped many in the high-tech, home automation, and energy sectors. These barriers (as noted in Navigant Research’s IoT for Residential Customers report) include complexity, pricing, and data security.

Moreover, a Bluetooth Special Interest Group survey released earlier this year underscored what consumers consider as key factors in deciding what to purchase. More than half of the survey respondents (54%) said smart home solutions need to be straightforward to use and 41% said they should be easy to set up; 4 in 10 of the respondents (42%) said offering products at competitive prices is important; and an equal number (42%) said keeping their data secure is essential.

Too Complex

While conducting research into IoT trends, many of the vendors and stakeholders I spoke with mentioned complexity as a barrier for smart home tech adoption. It is an age old problem: How to solve thorny problems, like increasing energy efficiency in a home, with improved products that don’t require the consumer to do too much? In other words, bring the benefits but hide the complexity.

Some manufacturers have done this. And despite the professor mentioned above who has yet to bother with his, smart thermostats from Nest, Honeywell, and ecobee (to name just a few) can boost efficiency without sacrificing comfort and without too difficult a setup. They aren’t perfect answers, of course, and tend to be more expensive than common offerings. But other hardware and solutions providers should take note: It is possible to conceal the complexity behind smart home devices. And it should be a top priority in designing solutions, especially when even geeks among us are reluctant to engage.

 

Solar PV on Leased Buildings: Drivers, Barriers, and Solutions

— June 17, 2015

Andrea Romano co-authored this blog.

Navigant Consulting works with the U.S. Department of Energy’s (DOE’s) Better Buildings Alliance (BBA) to understand barriers and solutions to promoting solar PV adoption. Currently, we are focusing on solar PV on leased buildings. We have teamed with the SunShot Initiative to develop a request for information to better understand the barriers, benefits, and solutions to installing solar on leased buildings. We are encouraging those active in the solar industry to voice their opinions so that we can develop tool to meet the market’s needs.

Why Leased Buildings?

As of 2012, there were 5.6 million commercial buildings in the United States, comprising 87 billion SF of floor space and representing a huge sustainability and clean energy opportunity. However, a large portion of these buildings are multi-tenanted leased spaces facing a split incentive in that the building owner does not typically pay the energy bills, but would bear the upgrade costs. A number of green leasing initiatives have developed concepts, tools, and guides to overcome this barrier for energy efficiency, but have not focused on solar PV. As a result, Navigant is focusing on this issue in 2015.

Benefits of Solar PV

In many cases, solar PV benefits both the landlords and tenants; however, the division of the economic and environmental benefits depends on the structure of the building lease. The lists below demonstrate the potential benefits.

Solar Benefits for Landlords

  • Reduces operating costs and exposure to volatility of energy prices (due to reduced utility electricity consumption)
  • Enhances marketability of the building
  • Lowers occupancy costs, which facilitates the ability to charge higher rent
  • Improves tenant retention due to lower operating expenses

Solar Benefits for Tenants

  • Lowers electricity costs
  • Stabilizes electricity costs
  • Supports corporate sustainability goals
  • Demonstrates environmental responsibility to employees and the community

In general, for commercial buildings, reducing operating expenses through the installation of a PV system can provide a hedge against escalating energy prices. Buildings may see lower costs of capital and higher market value because of this reduced risk. Depending on how the lease is structured, some or all of these benefits can lead to increased revenue for the building owner. Additionally, solar helps diversify revenue streams, reducing the overall volatility of the property’s income.

Barriers to Solar PV

A number of factors affect the growth of the commercial solar market, with the greater obstacles being the lack of project standardization and high transaction costs. Within the commercial real estate market, owner-tenant facilities in particular have an added level of complexity:

  • Split incentive: Energy costs often paid by tenants and solar PV system is purchased and owned by building owner
  • Short payback requirement: Building owners want 2- to 3-year payback
  • Timeframe discrepancy between building lease and solar PV system life: Solar PV system has a 20- to 25-year life, which is often longer than building leases
  • Property owner creditworthiness: Many properties owned by LLCs without publicly rated investment quality
  • Property ownership entity: Determines 30% Business Energy Investment Tax Credit eligibility

Overcoming the Barriers

While many barriers to installing solar PV on leased buildings exist, companies are developing innovative solutions to address or overcome these challenges. The figure below summarizes the ideas by system ownership. Navigant Consulting is currently working with the DOE and BBA on a guide summarizing these strategies, and it will be available later this summer.

System Ownership Strategies

diagram

(Source: Navigant Consulting)

 

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