Navigant Research Blog

Federal Carbon Regulation Likely Dissolves, but Some States Fill the Void

— January 13, 2017

Cyber Security MonitoringA version of this article was originally published on Energy Central.

After months of litigation, a decision by the DC Circuit Court on the future of the Clean Power Plan (CPP) is expected to be announced early this year. Congressional Republicans and incoming president Donald Trump were both critical of the CPP on the campaign trail during the 2016 election, so the outlook for the CPP is bleak. The demise of the plan seems likely, though it will not be quick, however, as states that support the rule have promised to fight to protect it. New York, California, and other states are stepping up to fill the CPP’s void and continue to work toward decarbonization.

States Stepping Up

Continued progress is expected in greenhouse gas emissions reductions in New York as the state has implemented the Clean Energy Standard (CES), Reforming the Energy Vision (REV), and other emissions-related initiatives. The CES targets the use of renewables for 50% of electricity consumption by 2030. Navigant’s 2017 outlook for New York shows significant increases in energy efficiency, wind, and solar over previous cases without the CES. Some of these additions are already happening around the state, and growth is expected to continue through at least 2030. Additional initiatives at the state level that put an emphasis on distributed energy lead us to forecast that nearly half of all the solar capacity added in the state through 2040 will be distributed solar. New York is a member of the Northeast’s Regional Greenhouse Gas Initiative (RGGI) along with states from New England and PJM. As New York increases its deployment of energy efficiency and renewables, CO2 prices on the RGGI market will be driven down and other states in the market will be affected. This would also otherwise affect energy efficiency and renewable development in other RGGI states, except that these are mostly driven by other state imperatives.

California has also been a leader in decarbonization efforts for many years, and it is not expected that leadership from California will taper off anytime soon. California’s cap-and-trade market for CO2 is linked to Quebec, with plans to link with other Canadian provinces in the near future. The state is also on track to meet its aggressive Renewable Portfolio Standard (RPS) targets of 33% by 2020 and 50% by 2030.

Higher Emissions

Even though state policies are expected to continue to push the grid toward decarbonization, without a federal regulation on carbon, overall emissions from the industry will be higher. Without the CPP in place, MISO and other areas are expected to see less coal capacity retire. However, the economics of some older coal plants and even a few nuclear plants make it unlikely they will continue to operate through 2040.

Uncertainty in the industry will likely continue, and can make planning for the future difficult, particularly in a sector where planning is so important and highly regulated. Navigant’s 2017 Integrated Energy Market Outlook and Industry Trends webinar on January 25 will analyze how fundamental policy shifts are expected to impact coal retirements, energy, capacity, and prices as well as the potential impacts regarding supply and transmission expansion for gas and power over the next 25 years.

 

Wrapping Up a Tumultuous Year for Demand Response

— January 3, 2017

Power Line Test Equipment2016 started off with a bang for demand response (DR) with last January’s seminal Supreme Court decision on Federal Energy Regulatory Commission (FERC) Order 745. That beginning might have marked the high point for the year in DR as various events in the regulatory, market, and corporate realms had a mix of positive and negative effects on its overall growth.

Regulatory

Champagne bottles were popped on January 25 in the offices of EnerNOC and other DR companies and advocates after the Supreme Court gave an unexpectedly early and overwhelming 6-2 decision that reversed the US Court of Appeals’ decision on FERC 745 on both parts of the case. The ruling established that DR does fall under FERC’s jurisdiction, and that the payment of the full Locational Marginal Price (LMP) in the wholesale energy markets is just and reasonable.

It seemed like an auspicious start to 2016 for DR. However, counterbalancing the good news to some extent were the US Environmental Protection Agency’s (EPA) rules for emergency generators (EG) for demand response purposes. In 2015, the US Court of Appeals overturned an EPA rule which allowed 100 hours of EG use for emergency DR programs. It granted the EPA a 1-year stay, which expired on May 1, 2016. The EPA had no plans to make changes to the rule, meaning that the court’s ruling remained intact, affecting upward of 20% of DR resources in some markets.

Markets

On the market side, wholesale and retail developments affected DR prospects. The annual PJM Base Residual Auction (BRA) price results for the 2019/20 delivery year came in lower than most analysts predicted. There were actually more DR megawatts offered into this auction than the year prior, but fewer megawatts actually cleared, likely due to the reduced price. Only about 6% of DR megawatts cleared as Capacity Performance (CP), with the vast majority clearing as Base Capacity product. With the Base product set to be abolished for the next auction, there is a big question as to how much DR will clear in a CP-only environment.

While there may be no cohesive national energy plan for the United States, several individual states have taken matters into their own hands to modernize the electric grid, with New York and California taking the lead. In both states, utilities held auctions in 2016 to procure distributed energy resources (DER), including DR, to address electric grid needs. California’s investor-owned utilities—Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric—ran the second edition of the state’s Demand Response Auction Mechanism (DRAM). New York took the spotlight in the form of ConEd’s Brooklyn Queens Demand Management (BQDM) auctions in July.

Corporate

2016 saw several corporate activities with major and emerging players in the DR arena, beginning in May with the announcement that Opower was being bought by Oracle for over $500 million. Later that same day, word spread that CPower acquired rival Johnson Control’s Integrated Demand Resources business. Not to be overlooked, AutoGrid, a demand response management system and data analytics vendor, announced a new $20 million investment led by Energy Impact Partners. Finally, EnerNOC undertook several actions that raised questions about its future direction. First, it announced that it was ready to divest its acquisition of Pulse Energy’s utility customer engagement business from a couple of years ago, essentially laying off 5% of its North American workforce. A few months later, the company announced a restructuring, which included laying off 200 employees, mainly focused on the enterprise software side of the business. I don’t foresee 2017 being as active as the last, but a new administration in the White House could bring unforeseen changes to the DR landscape.

 

Better Late Than Never for Smart Cities in Australia

— December 29, 2016

SmartCityAs noted by my colleague Eric Woods in a previous blog, despite being one of the most urbanized countries in the world (with around 90% of the population living in urban areas), Australian cities have played a relatively small and subdued role in the development of smart city concepts and project demonstrations. While Sydney and Melbourne have been promoting building energy reporting and energy efficiency and a number of cities have sustainability goals (e.g., the Sydney 2030 program), there has been little in the way of significant focus and innovation around the key issues of urban development and sustainability.

Federal Government Taking a Larger Role

However, the focus on smart cities in Australia is now beginning to intensify as the federal government is taking the challenge of updating city infrastructure more seriously. 2017 appears poised to be a significant year for smart city development as the Australian government’s recently announced AUS $50 million ($35.8 million) Smart Cities and Suburbs Program will provide funding to support projects that use innovative technology-based approaches to improve livability and sustainability of cities, building on and supporting the country’s national Smart Cities Plan, which was launched in April 2016. Draft guidelines for the 4-year Smart Cities and Suburbs Program were recently released, and the first round of grant funding is expected to be opened in the first half of 2017.

The draft guidelines include four program priority areas and their key goals:

  • Smart Infrastructure to improve safety, efficiency, reliability, and the delivery of essential services
  • Smart Precincts to make community precincts more livable, productive, sustainable, and safe
  • Smart Services to deliver citizen-centric local government services and improve community engagement
  • Smart Planning to build adaptable and resilient cities through improved land use and strategic planning

These priority areas are indicative of where many global smart city projects and challenges are present today. If successful outcomes and innovative solutions can be achieved from the new plethora of smart city projects to come in Australia, the country could transform from its current follower position into a leadership role as part of the global pursuit of smart cities.

 

US Government Struggles with IoT Vision, but Opportunity Exists to Get It Right

— December 21, 2016

CodeThe US government needs to up its Internet of Things (IoT) game according to a new report, calling efforts so far uncoordinated and lacking a strategic vision. I tend to agree. The report, produced by the Center for Data Innovation, does, however, credit the government for having initiated an array of activities in support of IoT action in the private sector.

Report authors Daniel Castro and Joshua New note the many potential benefits of IoT technology across a variety of economic sectors, such as manufacturing, agriculture, transportation, and healthcare. Noticeably absent, however, is energy (which could be a mere oversight). Nonetheless, the authors characterize current government IoT projects as relatively small-scale and one-off.

The report joins a growing number of voices opining about what should be done by government in the wake of the October 2016 Mirai botnet attack. A letter from Senator Mark Warner (D-Va.) to outgoing Federal Communications Commission Chairman Tom Wheeler raised legitimate concerns surrounding wirelessly connected consumer devices. (Warner is a co-founder of the Senate Cybersecurity Caucus.) Wheeler’s response points out the need for postponing next steps until the Trump administration is in place.

Security experts like Bruce Schneier have also told Congress of the imminent need for oversight of the IoT because of the potential for serious dangers if left unchecked. Schneier said the recent botnet attack illustrated the catastrophic risks involved, and he has urged action now while there is time to make smart decisions.

Blockchain to the Rescue?        

Others are suggesting Trump and his advisors consider blockchain technology. The idea would be to leverage the consensus mechanism inherent to blockchain that enables all of the computers in a system to agree on which new data is valid and which is a threat. My colleague Stuart Ravens explored the blockchain concept for distributed energy in a recent report, and the technology could be useful for multiple industries.

While there is ample evidence to be concerned about the federal government’s role in regard to the IoT, officials are at least struggling with the issues and are not clueless to its significance at this point. They see the economic value of IoT technologies and the opportunity to get it right with regulations, especially with a new team in place come January. There is reason to believe the IoT will get the attention it deserves in the coming years, or they could blow it. But at least they are on notice to seize the chance to provide a framework for success, from both a security and an economic perspective.

 

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