Navigant Research Blog

States’ Roles in the Clean Power Plan

— June 25, 2015

Cross_Gatel_webThe U.S. Environmental Protection Agency (EPA) plans to finalize the Clean Power Plan (CPP) this summer; as part of the plan, states will have 1 to 3 years to submit State Implementation Plans (SIPs) to the EPA for review. Some states are already starting the planning process to develop an SIP, and most are beginning with stakeholder meetings that include utilities and other major players in their state. Other states are waiting to see the final regulation before they begin.

States face a complicated web of decisions when crafting SIPs. The figure below shows a simplified hierarchy of the paths that they may take. States are unlikely to go through the decision process in a linear fashion; instead, they will need to consider all options and narrow them down based on their existing policies, resources, and stakeholder goals, among other factors.

SIP Example Decision Process

 

CPP Decision Tree - Recreated

(Source: Navigant Consulting)

SIP or FIP?

The first decision a state needs to make is whether to submit an SIP. If a state does not submit an SIP, the EPA will impose a Federal Implementation Plan (FIP). The EPA has indicated that they may include insights on what an FIP will look like when they release the final rule this summer. Some states have passed legislation limiting their state agencies from submitting an SIP without legislative approval, which could impede those states from submitting an SIP at all.

A decision that will need to be made early in the process is whether or not a state wants to work with other states to submit a regional plan. There have been proposals, for instance from Duke Nicholas Institute, that individual plans could be crafted to be standalone and still allow trading of credits with other states, similar to the way that renewable energy credits (RECs) can be traded among states even though Renewable Portfolio Standard (RPS) policies were not coordinated prior to implementation. However, many states are already in discussions about coordination efforts— for example, 14 Midcontinent states submitted comments to the EPA on its proposal and held a stakeholder event on June 5.

If states do work together on regional implementation plans, under the proposed rule they would have an additional year before their plan is due to the EPA. This allows additional time to coordinate among the many players involved across all coordinating states, but narrows the amount of time between when the implementation plan is approved by the EPA and compliance begins— potentially as little as 1 year.

Targets and Policies

Another decisions that states must states weigh in on is whether or not to use the rate-based target laid out by the EPA or to convert it to a mass-based target. This decision is interrelated with the kind of policy regime a state chooses to include in its SIP. A rate-based target may be more appealing to states that impose individual unit obligations on fossil units in their state, as it eliminates the uncertainty surrounding future load growth. Conversely, a mass-based target may be easier to implement in the northeast where a mass-based cap-and-trade system already exists.

States will also need to determine how to integrate existing renewable and energy efficiency policies into their SIPs and decide if new policies are needed. These include RPS, energy efficiency standards, and updates to building codes, and can be combined with cap-and-trade, as in California, or standalone.

There are many additional considerations for states to take into account as they craft implementation plans. For the best overall outcome it is recommended that states start early, have meaningful stakeholder involvement throughout the process, and leverage modeling and analytical tools where possible.

 

A Microcosm of Massachusetts Solar Policy

— June 19, 2015

I grew up in Massachusetts, went away for school, spent my 20s exploring other parts of the country, and came back home to settle down and start a family. Working in the energy industry, I closely follow state policy from a professional perspective. However, my personal and extracurricular worlds have also now become entwined in the ongoing soap opera that is the Massachusetts solar policy and its politics: the good, the bad, and the ugly.

For the first 8 years of home ownership, I lived in a condo, where I could not control what was done with the exterior of the structure. I would have loved to install solar while there, but it was not possible due to the building restrictions. I did get the condo association to undertake an energy audit with the local utility, which resulted in several thousands of dollars of savings on our condo fees. This was before Community Solar came into being, which has since flourished in Massachusetts and is perfect for the condo/apartment dweller who can’t install on-site panels.

Two years ago, my family moved into our own house in Franklin, Massachusetts. Literally, the first day we arrived, we had an energy audit and I contacted a solar company to get an estimate for a rooftop array. Without any utility bill history, the company had to estimate our electricity usage based on average square footage values and created a proposal. Knowing that our household would be more efficient than the average, I decided to hold off until we got some real data for a year to avoid unnecessarily overbuilding the solar. It turned out that we use about half the electricity of a typical house our size in our area (according to our OPower report), so it was a good thing we didn’t take the plunge right away.

Worth the Wait

After a year of data collection, I started compiling the plethora of mail offers that we received from various solar companies in preparation for getting some new quotes. Then, I heard about the new concept of municipal solar aggregation, promoted by the Massachusetts Clean Energy Center as Solarize Massachusetts. I figured as long as I was going to do it, I might as well take advantage of bulk pricing and get others in town to benefit from solar, as well. I spearheaded the Franklin Solar Challenge, where a committee of community volunteers put together an RFP and selected a vendor to work with who provided the best combination of pricing, product options, and service. I got my system installed in April after the harsh New England winter and got my first utility bill with $0 due and a bill credit! Over 100 homeowners have expressed interest, and we are on our way to getting the best bulk pricing available for everyone who participates.

 The Results

Brett house

(Source: Brett Feldman) 

But Wait… There’s More

The other side to the solar story in Mass is the fact that the net metering caps in certain utility territories are being hit now, meaning that no new projects above residential-scale can be installed. The state government and stakeholders are trying to work out a solution, but in the meantime things are on hold. I am on the Town Council in Franklin, the elected governing body of the town. We own a large piece of property along a highway that would be perfect for solar development, but due to the cap, it can’t be done at this time and the space might be used for condos and office buildings instead.

So there is a personal story for you that offers insight into the various aspects of solar drama in Massachusetts.

 

Did CAFE Save Lincoln from Extinction?

— June 18, 2015

Wetpaint_webOne year after Mark Fields succeeded Alan Mulally as the CEO of Ford, the company’s premium Lincoln division is finally showing some signs of life after years of decline and ironically, fuel economy regulations may be part of the reason why. Not so long ago, it was appearing increasingly likely that Ford was going to allow Lincoln to simply wither away and die.

When Mulally moved to Dearborn in 2006 to take over the automaker that put the masses on wheels, Ford was in dire straits. He quickly formulated a restructuring plan that included divesting all of the premium brands that the company had acquired including Volvo, Jaguar, Land Rover, and Aston Martin—refocusing only on Ford. Even Mercury and Lincoln were put on the chopping block, although only the former was discontinued in 2010.

Ford was the first U.S.-based automaker to introduce hybrid electric vehicles (HEVs) in the 2006 Escape Hybrid and has consistently been second to Toyota in U.S. HEV sales since then. In 2010, Ford added a hybrid option to the Lincoln MKZ sedan, and it has consistently been a popular setup in the midsize luxury sedan. Despite the popularity of the battery-assisted MKZ, Lincoln has yet to offer any plug-in powertrains in any models, but that may soon change.

Changes Coming

2015 looks like it may be a turning point for plug-in hybrid electric vehicles (PHEVs) in premium vehicles. At the 2015 North American International Auto Show, the big three German premium brands—Audi, BMW and Mercedes-Benz—showed new production PHEV models, and all three have committed to adding plug-in options to all of their mainstream models in the coming years. According to Navigant Research’s Electric Vehicle Market Forecasts, luxury brands are expected to account for 50% of global light duty plug-in electric vehicle (PEV) sales by 2018.

Automakers are pursuing this strategy of creating premium PEVs for several reasons.  Fuel economy and CO2 emissions standards are getting increasingly stringent and mainstream cars have already adopted the most affordable technologies for improving fuel efficiency. To add plug-in electrification would significantly increase the cost, pricing these vehicles out of the market. However, the heavier, more powerful luxury vehicles still have a lot of room to improve.

Adding PHEV powertrains with more powerful engines to a Mercedes-Benz S-Class, the new Cadillac CT6, or potentially the upcoming Lincoln Continental enables manufacturers to dramatically improve efficiency while maintaining—or even improving—performance. Most importantly, customers in the luxury segments are more willing to absorb the cost premium for the additional hardware, allowing manufacturers to maintain profitability.

The Upside to Lincoln

For Ford, making an investment to revive Lincoln provides an opportunity make a significant contribution to its corporate average fuel economy while preserving the affordability and profitability of Ford-branded cars, trucks, and SUVs. Since current Lincoln products are closely related to Ford-brand equivalents with similar fuel economy and comparatively low sales volumes, eliminating the premium models wouldn’t have a notable impact on the fleet average.

On the other hand, Lincoln is revamping its entire lineup with all-new products in the next five years, starting with the MKX crossover this year and the new Continental sedan in 2016. No powertrain details of the production Continental have been announced yet, but it would be surprising if Lincoln doesn’t follow the lead of the rival Cadillac CT6 with a PHEV sooner rather than later. Using Ford’s established PHEV technology, Lincoln could quickly become more competitive and provide a boost to its parent with better margins and mileage.

 

Biofuels: A Guide for the Next Couple of Years

— June 16, 2015

Six months after its official deadline to propose the Renewable Fuel Standard for 2014 (yes, 2014), the U.S. Environmental Protection Agency (EPA) has finally released a draft proposal for the annual standards for 2014, 2015, 2016, and for the 2017 biomass-diesel volume.

The EPA played it safe for 2014, matching the standards with the actual consumption of biofuels such as transportation fuel, heating oil, or jet fuel in the contiguous United States and Hawaii. For the upcoming years, the EPA is proposing a slight increase in the total mandate: 9.2% in 2 years. Most of the growth is expected to come from advanced biofuels, which are set to increase by almost 31% by 2016, while conventional biofuels (grain-based ethanol) are expected to grow only grow 5.6% in the same period. The mandate will likely not make too many people happy, and that is probably good.

Fats Are In, Carbs Are Out

For conventional biofuels, the news is not good but perhaps not surprising. In the original mandate, conventional biofuels had a target for 2015 of 15 billion gallons (1.6 billion gallons more than in the new proposal), but the adoption of ethanol has been limited by what the industry calls a blending wall, or a technical/regulatory limit that impedes older gasoline vehicles to consume fuel blends containing more than 10% of ethanol by volume.

The supply-demand balance in the industry seems in favor of buyers. The Renewables Fuel Association reported June 1 that operating capacity of the industry was 14.57 billion gallons per year, which implies that the mandate will cover 92% of its capacity in 2015 and 96% in 2016. They might be able to sell more ethanol if enough gasoline in consumed in the United States (increasing the volumes allowed under the blending wall), but they will have to price it below gasoline to attract buyers. The lower mandate is expected to hit harder the producers with old and inefficient plants. Leading producers like POET, Green Plains Renewable Energy (GPRE), or Abengoa are anticipated to perform well.

The picture for the rest of the industry is rosier. The new standards for biomass-based diesel (produced from vegetable oils or animal fats) is high enough to absorb the current capacity. The National Biodiesel Board plant database aggregate capacity  sums 808 million gallons, although it does not account for the whole biomass-based diesel industry. The new standard will benefit producers like the Renewable Energy Group (REGI) and Neste Oil – both large producers of biomass-based diesel.

The Underdog Story

Finally, the EPA kept a large enough carve-out for cellulosic fuels. The United States used 26 million gallons of ethanol-equivalent cellulosic fuels in the first four months of 2015. If the country continues producing them at the same rate, the annual production would reach 78 million gallons, or 28 million gallons below the 2015 mandate. Although a lot of investment has gone into technologies that promise to produce liquid fuels from cellulosic material, it is the biogas producers that are benefiting the most from this mandate, as they are supplying virtually all the cellulosic-based biofuels. This is surprising given that biogas was only approved as a cellulosic fuel halfway through last year.

 

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