Navigant Research Blog

Is HVAC Disruption Possible?

— December 7, 2017

HVAC is ripe for disruption in global buildings of all kinds. Why? It is one of the highest energy consuming components installed in any building. Additionally, the chemical substances that HVAC equipment uses to cool a space are highly polluting and even dangerous to handle. Space heating and cooling, along with water heating, are estimated to account for nearly 60% of global energy consumption in buildings. The global building stock accounts for over one-third of final energy consumption, with an equally large amount of greenhouse gas emissions attributed to the space. Reducing the energy consumption and emissions of buildings is a necessity, or at least a significant opportunity, if the world hopes to meet its sustainability and emissions goals.

If It Ain’t Broke, Don’t Fix It?

So why is disruption of the heating and air cooling of buildings necessary? It’s not. Using today’s technologies, buildings can achieve net zero energy consumption. But this requires the implementation of renewable generation sources to offset consumption demand from heating, cooling, and other electrical loads. Demand can be reduced through the use of intelligent building management software and efficient technologies such as high performance insulation and building envelope materials, high performance windows, proper building siting, efficient lighting, and others. Even HVAC has improved in efficiency over time with advanced controls, ductless systems, variable refrigerant flow, and outside air handlers, for example. Intelligent building management tools such as building energy management systems tie these components together to optimize energy demand and consumption.

The above are optimizations of existing technologies, but they are not truly disruptive. Disruptive technologies make existing technologies irrelevant, changing the model of how a technology or process is used. Companies that fail to recognize the market adoption of the new disruptive technology will be left behind.

If It Ain’t Broke … Disrupt It!

Let’s look at a few examples. Smartphones existed before the iPhone, but Apple created a transition in how people use these devices. Trains reduced the time necessary to travel west from weeks or months to several days. SpaceX reduced the cost of access to space by a factor of 10 through reusability. Elon Musk’s new company, Boring, will reduce the cost of digging subterranean tunnels by around the same factor. In all these instances, the efficiency gained is measured in factors, not increments. If the HVAC operational model can be disrupted by similar factors, the global building stock drag on energy demand and emissions will be reduced significantly.

So let’s disrupt HVAC! That’s always easier said than done. It may be impossible to disrupt this industry if governed by, for example, the immutable laws of thermodynamics. But it is an area ripe for disruption mainly due to the significance of savings that can be achieved. Are there technologies that exist or that are being researched that can achieve this disruption, like solid-state heating and cooling? Maybe so. Disruptive technologies sometimes hide in plain sight for long periods of time.

Other headwinds to HVAC disruption also exist. Large incumbent HVAC vendors have the resources to maintain their market positions. There are high barriers to entry and large capital costs in this industry, making it more difficult for startups to innovate. It is a highly regulated industry. However, it is also in high and increasing demand in certain parts of the world, and building tenants are requiring more and more with regard to air quality, comfort, and individualized space conditioning.

The thing about disruption is that the naysayers win until they don’t. That was the case with the iPhone. In the case of HVAC, let’s hope someone’s collective vision gets blurred enough to capitalize on this huge opportunity.

 

Beyond Energy and Pizza

— November 7, 2017

As November rolls through and autumn settles in the Northern Hemisphere, attention quite naturally turns to energy. Not only was October Energy Action month, but the changing of seasons marks a time to reflect on how the built environment consumes energy. As we put our air conditioners away and turn our heaters on, autumn gives us time to reflect: Can we be doing this better?

Indeed, there is near universal consensus that action should be taken to reduce energy intensity and carbon emissions. But taking steps to increase energy efficiency affects far more than just energy costs and greenhouse gases. To explore this concept, let’s look at a theoretical pizza parlor (October was also national pizza month, after all). What energy action should this restaurant take?

Popular Energy Conservation Measures

The first answer is likely an evaluation of HVAC systems. According to the most recent Johnson Controls Energy Efficiency Indicator Survey, investments in HVAC improvements were the most popular energy conservation measure last year. For restaurants, kitchen exhaust can create a substantial cost. Cooking causes grease to splatter and can create odors, steam, and smoke, all of which need to be exhausted out of the kitchen. The wood-burning oven in the pizza parlor, for instance, will need to exhaust all of its smoke out of the restaurant. But replacing this air with conditioned outside air can be expensive, particularly in hot and cold climates.

Air Challenges

Some restaurant owners take a shortcut by shutting off their make-up air unit. This puts the entire restaurant under negative pressure, which forces air to infiltrate in through cracks in doors and windows. Though it may save some on utility bills, it is ultimately a Pyrrhic victory: it creates an unpleasant, drafty environment in the dining room and it could even pull in odors from outside. A far better energy action would be to ensure that ventilation and all HVAC are properly balanced, all equipment is properly maintained, and any old, inefficient equipment is replaced with ENERGY STAR equipment.

Lighting Challenges

After HVAC, lighting should be the next concern. LED retrofits typically provide quick payback in energy savings based on the initial investment. But in addition to energy, lighting (like HVAC) creates the atmosphere of the pizza restaurant. That atmosphere affects patron behavior and will ultimately drive business performance. According to a study published in the Journal of Marketing Research, consumers are more likely to select less healthy food options in restaurants that are dimly lit and healthier options when restaurants are bright. That’s great news for the pizza parlor: by installing dimming controls on lighting, it’s possible to not only cut back on energy, but also drive pizza sales.

The Broad View of Energy

Taking action on energy stretches far beyond utility bills and carbon emissions. Those are noble objectives, but building owners and operators are increasingly looking beyond these effects to justify investment in the built environment. Though simplistic, the pizza parlor example highlights how to improve the customer experience and drive sales with investments in energy action. In reality, a broader set of controls, analytics, and efficient equipment can help many businesses reduce costs and increase revenue.

 

Innovators Wanted for DER Solutions: Part 3

— November 7, 2017

Coauthored by Brett Feldman

Earlier this year, Navigant Research wrote about innovations required to overcome challenges to widespread distributed energy resources (DER) adoption and integration. Next, we offered examples of some companies and products looking to address those gaps from different perspectives, with varying levels of success so far. Here, we follow up with a few more examples related to business models, customer relationships, market structures, and organizational paradigms.

Models

Edison Energy is an unregulated business unit of Edison International, the parent company of regulated utility Southern California Edison. It is branded as an advisory and services company that can design energy solutions—on both the supply and demand side—for large energy users. It is one of the major early competitors demonstrating the emerging energy as a service business model, having made rapid strides into the market by acquiring four startups—collectively, a $100 million investment (SoCore Energy, ENERActive Solutions, Delta Energy Services, and Altenex).

However, Edison Energy has also struggled to find its footing, despite the aggressive approach to acquiring new capabilities. It is now undergoing a major shake-up at the executive level, including the departure of its president in July 2017 after a strategic review by its parent company.

Relationships

The customer relationship with utilities, energy usage, and technology providers is changing. Utilities are now expected to offer a wider array of customer-facing services, offer a digital experience, and accommodate customer self-generation like solar PV. In many cases, utilities and technology providers are increasingly competing for the same customers (e.g., as a demand response program provider).

At the same time, other vendors are finding new products and services to sell to utilities to help them meet changing customer needs. Schneider Electric is one such vendor tapping into this transformation. In this case, Schneider Electric is marketing its WiserAir smart thermostat to utilities as a way to engage customers with an energy management platform before a competitor does.

Markets

Transactive energy is a hot topic in the energy industry and a concept that has great potential for DER markets. Transactive energy would allow customers with DER to trade power and grid services with each other and their utilities, leveraging blockchain technology for encrypted trading between parties. Policymakers and technology vendors have been the loudest proponents of transactive energy so far, but utilities are cautious about the value/benefits of such a market.

Utilities are also mindful of the influence of market forces on the reliability of their distribution systems and the large amount of software and grid technology that would be required to manage such a market. These are some of the primary reasons that a true transactive marketplace is still a relatively distant goal, even in California, which has been investigating DER for more than 10 years and is making progress on locational pricing for grid resources.

Organization

Many of the industry changes associated with DER have major repercussions for regulatory and utility organizational structures. These repercussions are most apparent in New York, under the Reforming the Energy Vision (REV) initiative. In 2016, the New York Public Service Commission approved structural reforms to electric utility regulations related to the alignment of utility shareholder financial interests and customer interests. Under the order, utilities have four ways of achieving earnings: (1) traditional cost-of-service earnings; (2) earnings tied to achievement of alternatives that reduce utility capital spending and provide definitive consumer benefit; (3) earnings from market-facing platform activities; and (4) transitional outcome-based performance measures. Changes to earnings, ratemaking approaches, and technology deployment will have a major influence on the affected utilities and how they are regulated.

 

Innovators Wanted for DER Solutions: Part 2

— September 21, 2017

Coauthored by Brett Feldman

Earlier this year, Navigant Research blogged about innovations required to overcome challenges to widespread distributed energy resources (DER) adoption and integration. This blog highlights examples of companies and products looking to address those gaps from different perspectives, with varying levels of success so far.

Hardware

 Tesla’s recent innovation in solar PV is the Solar Roof system, a glass solar tile product for homes that has a warranty of the lifetime of the house. The Solar Roof can also integrate with the Tesla Powerwall home battery. The out-of-pocket cost for a typical home in Maryland is estimated at $52,000 (pre-tax credit), but Tesla estimates that the system could earn a modest return of $8,000 over 30 years after, accounting for the tax credit and the value of the energy generated. Customers can choose to finance their Solar Roof through their home mortgage. The Solar Roof is a hardware solution that has the potential to increase the life of residential solar PV installations, improve the value of a home, and be more attractive to customers. However, the Solar Roof rollout appears to be moving slowly, with customer installations about to start and then ramp up through 2017. And as with many hardware innovations, price can be a barrier. Various analysts, including those at GTM, calculated a cost of $6.30/W, which is approximately double traditional solar PV prices today. Additionally, there may be complications for building-integrated PV receiving the federal Investment Tax Credit.

Software

In 2016, Tendril launched a new cloud software product called Orchestrated Energy, a residential continuous demand management solution for utilities that calculates a home’s heating and cooling needs, predicts customer behavior, and integrates connected devices to optimize system operation under a unique dispatch schedule. In pilot programs, the software solution reduced HVAC peak load by up to 50% and energy consumption from cooling by up to 20%. The solution is scalable and device-agnostic, and customers can interact with it via Tendril’s MyHome mobile app. The Orchestrated Energy software solution innovates by providing a seamless, optimized customer home energy management experience. Interestingly, there remains some doubt in the industry as to whether utilities are ready for this advanced software.

Platforms

Current, powered by GE is a startup within GE that offers advanced energy technologies—primarily combining LEDs and solar with networked sensors and software—for commercial and industrial facilities. It offers a single-source platform for energy management across multiple client sites, leveraging GE’s Predix, the cloud platform for all of the company’s Industrial Internet applications. Notably, Current has 125 plus partners providing apps for a variety of enterprise and municipal services (e.g., workspace/productivity management, asset management, and urban mobility/traffic planning) as add-ons to its Intelligent LEDs and the Predix Platform. In August 2017, Current announced a deal to install solar on 50 Home Depots in the United States in partnership with Tesla. Current has also partnered with AT&T to sell Internet-connected sensors to cities as a smart city infrastructure solution. San Diego was the first major city to sign on. The ability to leverage GE’s hardware and software is a strong starting point for the business, but the company has struggled to clearly define a strategy. In December 2016, GTM reported that Current is undergoing restructuring.

In the next installment, we will lay out other solutions related to business models, strategic relationships, market structures, and regulatory models.

 

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