Navigant Research Blog

For Hospitals, a Path to Resilience

— January 27, 2015

My colleague Madeline Bergner recently wrote about efforts to reduce the greenhouse gas emissions from hospitals and other healthcare facilities.  That effort is paralleled by a movement to make these spaces less vulnerable to natural disasters and other disruptions, as well.

In December, President Obama gathered healthcare leaders to announce a set of new recommendations for making the country’s healthcare facilities more climate resilient.  Hurricane Sandy caused over $3 billion in damage to healthcare facilities alone, triggering federal attention to the issue.  At the event, the U.S. Department of Health and Human Services announced a web-based Climate Resilience Toolkit as well as a best-practices guide, “Primary Protection: Enhancing Health Care Resilience for a Changing Climate.”

The guide describes a number of issues that have caused hospitals to lose power during recent disasters.  These include reliance on local infrastructure (namely local [municipal] steam generation), aging infrastructure, and a reliance on onsite diesel generators, which are often poorly maintained and rely on limited fuel supplies.

A Holistic View

The report also cites a challenge in the approach to backup power.  Backup systems are viewed as having no value during normal operations, and therefore “are less likely to attract adequate investment and maintenance from the private sector.”  By viewing backup power as emergency-only, the hospital is viewing power in binary terms; the big diesel generator is there when you need it, and takes up space (and money) when you don’t.

A more holistic view of energy use can lead to a more resilient facility.  The report cites a number of strategies, including the use of combined heat and power, energy efficiency, and passive survivability.  This last concept drives building design and functionality so that hospitals can still function without power.  With operable windows, passive heating and cooling, and naturally ventilated spaces, these levels of resiliency can be accomplished.

Generator Hospital

Navigant Research’s reports on Grid-Tied Energy Storage present a range of technologies that can aid in power management all the time, not just during a crisis.  By viewing grid connectivity as a continuum, facilities can mitigate the effects of disasters and make money by selling power into the grid.  The resilient healthcare facility of the future may not just be one that can survive a disaster but one that provides power to the community 365 days a year.

In upstate New York, the town of Potsdam just announced a microgrid project that will connect 12 facilities using 3 MW of combined heat and power, 2 MW of solar, 2 MW of storage, and 900 kW of hydro-electric generation.  The local hospital is a key stakeholder in this project, led by Clarkson University.  Other partners include General Electric (GE) Global Research and GE Energy Consulting, National Grid, and the National Renewable Energy Laboratory.

Innovative technology is not only being deployed for the entire hospital facility.  At the Texas Scottish Rite Hospital for Children in Dallas, Texas, flywheel manufacturer Vycon installed two 300 kW flywheel systems just to power the imaging facility.  The benefits of flywheels include high reliability, power density, and overall quality, as well as the quiet nature of backup power.  While the hospital has only suffered a few power outages in recent decades, the protection of the expensive equipment from power spikes and voltage drops is of great value.

 

Cape Wind Project Faces New Hurdles

— January 26, 2015

The prospects for near-term offshore wind take-off in the United States dimmed at the end of 2014, as the two utilities that had agreed to buy the electricity output of the 468 MW Cape Wind offshore project terminated their contracts.  The deals collapsed because the developers of Cape Wind had failed to reach key contractual milestones for project financing and construction launch by December 31, 2014.  National Grid signed a conditional power purchase agreement (PPA) in 2010 for 50% of the project output, and utility NSTAR agreed to purchase an additional 27.5% of the project’s output in 2012.

Saying they do not regard the terminations as valid, Cape Wind officials claim that force majeure provisions in the contracts stipulate that the milestones should have been extended.  Once again, the embattled project is in a legal dispute – and this one with potentially show-stopping consequences.  No offshore wind project in the United States can proceed without the price certainty of a PPA.  The outcome of these contract disputes could deal a fatal blow to a project that has been under development for 14 years.

Not in My Ocean

Planning for Cape Wind has taken so long partly because it was the first to navigate the unchartered waters of offshore wind development in a country that has little offshore wind policy and, as yet, no steel in the water.  Vociferous and well-funded opposition to the project’s location off Nantucket Island – a popular vacation destination for the affluent and influential – plagued it from the beginning.  The developers have been fighting a two-front battle against the challenges of offshore wind and the legal hurdles put up by anti-wind activists, coastal homeowners, and conservative billionaires.

The unfortunate reality is that, while the United States has excellent offshore wind potential along the Eastern seaboard and growing need for diversified and clean electricity generation, U.S.  policies are ill-suited to support offshore wind.  The production tax credit (PTC) and investment tax credit (ITC) for renewable energy projects subsidize around 30% of the cost of building an offshore wind farm.  European countries like Germany, Denmark, and the United Kingdom provide similar levels of subsidy.  The major difference is that those incentives have been consistent and long-lived enough to support projects that are years in development.

Back and Forth

Unlike most developed countries, where tax law is permanent until changed through legislation or other decrees, many U.S. tax laws and incentives are increasingly enacted on a temporary basis.  This is partly because U.S. lawmakers count on industries like wind power to help finance their election campaigns.  As a result, tax favors are largely granted on a 1- or 2-year basis, resulting in boom and bust cycles (13 GW of wind installed in 2012 in the United States, for example, followed by 1 GW installed in 2013).  This also results in severe inefficiencies in manufacturing and human resources as factories lay off workers only to rehire again when incentives resume.

The onshore wind industry grudgingly copes with this back-and-forth because onshore wind can be built in 1- and 2-year cycles.  But offshore projects require much longer to develop and build.  Eventually, U.S. lawmakers may realize the benefits of offshore wind and provide suitable long-term incentives.  Unfortunately, that will likely come decades after more progressive countries in Europe – and now China – are far ahead in offshore wind.

 

With Cheap Oil Flowing, U.S. Looks to Next Energy Revolution

— January 26, 2015

With oil prices continuing to languish and Saudi Arabia moving through a royal succession upon the death of King Abdullah, the idea that the “OPEC era is over” has gained credence among government officials and industry analysts. “Did the United States kill OPEC?” asks New York Times economics reporter Eduardo Porter. The answer, he argues, is essentially yes: “The Nixon administration and Congress laid the foundation of an industrial policy that over the span of four decades developed the technologies needed to unleash American shale oil and natural gas onto world markets,” thus loosening OPEC’s grip.

The reality is a bit more complicated than that: OPEC still produces nearly 40% of the world’s oil; the United States produces less than 18%. And oil at $50 a barrel could actually increase OPEC’s power as producers of unconventional reserves, which are more costly to produce, are driven from the market. Like the coal industry, OPEC is not going anywhere anytime soon.

The Big Opportunity

The shale revolution does, however, offer some other welcome knock-on effects, if policymakers are alert and astute enough to take advantage of them.  “Cheaper oil and gas will contribute an estimated $2,000 per American household this year, and $74 billion to state and federal governments coffers,” note Ted Nordhaus and Michael Shellenberger of the Breakthrough Institute, a San Francisco-based energy and climate think tank. The Breakthrough Institute has done extensive research on the role of public-private partnerships in the development of the seismic and drilling technology advances that underlie the shale revolution. Should the government choose to take advantage of it, this windfall could fund a multi-decade R&D program for renewable energy similar to the one that led to the shale boom.

“We can afford to spend a tiny fraction of the benefits of the bounty that cheap oil and gas have brought so that our children and grandchildren can similarly benefit from cheap and clean energy in the future,” declare Nordhaus and Shellenberger.

The Gas Tax Solution

That’s an inspiring concept. The execution is likely to be messy, though. Any such spending would probably need congressional support, or at least consent – and the U.S. Senate only last week finally reached agreement that “climate change is real and not a hoax.” That’s a long way from dedicating billions to develop alternative energy sources.

One suggestion put forth by clean energy activists is an increase in the U.S. gas tax. A few cents extra per gallon (on gas that’s about half the price it was a year ago) could help fund a massive crash program to develop inexpensive, clean energy technology (not to mention shore up the failing U.S. Highway Trust Fund).

But raising the gas tax is like the National Popular Vote – a terrific idea that’s unlikely to happen in our lifetimes. Even though polls consistently indicate that consumers are willing to spend slightly more for the energy they consume in order to limit climate change, actually slapping extra taxes on motorists at the pump is unlikely to be a winning move in Washington – which explains why President Obama left it out of his call for a “bipartisan infrastructure plan” in his State of the Union address.

 

What It Will Take To Transform Buildings in Large Cities

— January 22, 2015

From New York to Los Angeles, a growing number of the largest U.S. cities are recognizing that tackling building efficiency translates into progress toward climate resilience.  The underlying assumption is that better information leads to action.  As these cities compile baselines on commercial building energy use and educate the public on the cost-effective opportunities for energy reductions, the next question that arises is whether building owners will take action.

New York State of Mind

New York City was the first to launch a comprehensive strategy to tackle energy waste in commercial buildings through four local laws under the Greener, Greater Buildings Plan.  The complementary laws not only mandate energy benchmarking but require performance upgrades to meet local energy codes for citywide renovations, major retrofits in buildings over 50,000 SF to meet lighting efficiency standards, and the installation of submeters by 2025.  Mayor Bill de Blasio has continued the commitment to improving the city’s climate readiness and, in September, announced a new goal for a citywide 80% reduction in greenhouse gas emissions by 2050.   According to a recent article in The New York Times, the mayor’s office estimates that the energy efficiency advances in buildings deliver tremendous economic benefits.  According to the director of the Mayor’s Office of Recovery and Resiliency, the city spends $800 million a year to run its facilities, and energy efficiency retrofits could generate $180 million in annual savings by 2025.

Best Practices

The City Energy Project (CEP), a national initiative directed by the Institute for Market Transformation (IMT) and the Natural Resources Defense Council (NRDC), aims to help 10 cities design energy efficiency plans and share best practices for promoting change in their largest commercial buildings.   Atlanta, Boston, Chicago, Denver, Houston, Kansas City (Missouri), Los Angeles, Orlando, Philadelphia, and Salt Lake City have each joined the project, according to the CEP fact sheet. As outlined on the CEP website, in 3 to 5 years, the initiative will create transparency on building energy use and create financial vehicles for investment in energy efficiency.

New financing channels are a critical element in the mission to tackle commercial building energy efficiency.  While many of the most attainable energy efficiency improvements can be low-cost or no-cost improvements through scheduling and procedures, transformational changes require capital investment.  The challenge is how to engage building owners with financing mechanisms that enable those investments.

Opening the Purse

At the 2014 World Energy Engineering Conference, held in October in Washington, D.C., several sessions honed in on the challenge of financing energy efficiency.  The market recognizes the opportunity and benefits associated with energy efficiency, but the reality is that capital budgets are tight.  Former President Bill Clinton, the keynote speaker, declared, “Financing is holding back the energy revolution.”

In Navigant Research’s view, the challenge is two-fold.  On one hand, there is the opportunity to adjust perspectives on energy efficiency investment.  Advocacy efforts, such as the CEP, could help building owners broaden their views from a focus on payback to a longer-term view of how energy efficiency and intelligent building investments enhance the value of their facilities.  On the other hand, our research suggests that a change is underway in the performance contracting and shared savings models that have helped fuel investment in energy efficiency historically.   Watch for a new report on energy service companies and the transformation of intelligent buildings financing in 2015 as a part of our Building Innovations Service.

 

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