Navigant Research Blog

The Breadbasket Running Dry

— May 22, 2015

NASA scientists recently predicted that California has just 1 year of water left to the catastrophic tune of a million Facebook users simultaneously hitting the Share button. California’s water problems are not entirely self-inflicted, coming in the middle of what is reportedly the worst drought in 1,200 years. However, some of these problems are caused by poor water management.

California’s water laws dedicate around 40% of total water to farming and agriculture—about 80% of what isn’t strictly devoted to maintaining wildlife and the environment. Farming requires a lot of water, and California water law does not improve the situation. There is a huge incentive for farmers to waste water, meaning the so-called breadbasket of America can’t sustainably keep producing the same crops it currently does. California, if it were a country, would have the eighth largest economy in the world, so shutting down the pipes is not exactly an option.

Technology to the Rescue

So, what is being done to keep lawns green in The Golden State? Water appliance standards have been enacted, which are projected to save more than 100 billion gallons per year. But even massive usage restrictions won’t be enough to keep California going. William Shatner has proposed a $30 billion Kickstarter campaign for a pipeline that could transport water, above ground, from Seattle into Lake Mead. Orange County began recharging its drinking water aquifer with purified wastewater in 2008, but the catchphrase toilet-to-tap makes this a less-than-popular option in the public eye.

One solution that appears more glamorous is the desalination of seawater. In Carlsbad, California, construction is underway on a $1 billion desalination plant, the largest in the Western Hemisphere. Due to open in early 2016, this plant could provide up to 50 million gallons of fresh water each day, supplying around 112,000 households. Desalination is, however, massively expensive and can discharge large amounts of concentrated brine directly into the ocean. Permanent desalination plants (such as the one in Carlsbad) can only treat around 35%–50% of the water they bring in, according to Stanley Weiner, CEO of STW resources.

Salttech, a Norwegian company, recently demonstrated its DyVaR Zero Liquid Discharge (ZLD) water processing technology in Midland, Texas. This technology promises to recover up to 97% of the water processed, and discharge only solid salt and minerals, thus eliminating the problem of brine disposal to the ocean. Salttech has plans to begin an ocean desalination project on the coast of California. This technology also claims to be economical, reducing the cost of desalination from $1,850–$2,000 per acre-foot to $1,100–$1,350 per acre-foot, also according to Stanley Weiner. With the cost of desalinated water currently hovering around twice that of imported water, these technologies must make some major cost reductions before they can be widely adopted. Until then, California may have to start construction on Mr. Shatner’s pipeline.

 

A Retail Focus on Energy Efficiency and the Clean Power Plan

— May 21, 2015

Frank Stern and David Purcell contributed to
this blog.

The U.S. Environmental Protection Agency (EPA) issued its proposed Clean Power Plan (CPP) rule in June 2014 to reduce carbon emissions from existing fossil-fired electric generating units (EGUs) over 25 MW. The rule is primarily focused on coal-fired plants across the United States. Total carbon reductions targeted by the EPA are substantial: the CPP proposes carbon emission reductions totaling 30% relative to 2005 emissions by 2030, with alternative approaches totaling approximately 23% in reductions by 2025. During the public comment period, the proposed rule received nearly 4 million comments from utilities, states, and other stakeholders. The EPA’s final rule is expected sometime this summer.

While the CPP does not propose state-by-state least-cost planning or specifically require energy efficiency (EE) for carbon reduction compliance, states should pursue EE because, as discussed below, EE is recognized by the EPA and numerous states as a highly cost-effective resource and is a prudent investment. Reaching the EPA’s Building Block 4 (BB4) 1.5% annual EE savings goal is likely to require a focused effort in many states. A recommended approach to working toward the savings goal is developing an EE retail strategy.

Advantages of Using EE

Using BB4 to reach a portion of states’ CPP requirements is important since:

  • EE is typically a least-cost resource for reducing carbon emissions
  • EE provides positive economic benefits, while reducing carbon emissions
  • EE will decrease energy demand, allowing utilities  greater supply-side flexibility to implement other Building Blocks through 2029

Considerations in Meeting BB4 EE Savings Targets

States with larger utility EE portfolios and growing programs are likely to meet BB4 goals more easily than states with less developed programs and low annual savings. Existing EE portfolios could require increasing EE measure incentive levels to drive participation. Rather than relying only on existing portfolios, it is more likely that all regions of a state and its utilities (including munis and co-ops) should be involved in reaching the BB4 goal.

The figure below shows that states that have undertaken EE program development have growing EE portfolio savings near 1.5% and have higher first-year costs than other states. Many states have not undertaken EE initiatives for extended periods and resulting incentive levels are low in comparison.

Southeast Incremental Savings vs. First Year Cost of Savings – 2011

Southeast Incremental Savings

      (Source: Navigant Analysis)

While the CPP compliance period does not begin until 2020, states and utilities should consider increased BB4 efforts today to gain momentum toward the 1.5% savings goal. Potential studies can be used to determine maximum achievable EE savings. Such studies can reveal the range of electricity savings and benefits expected over time. In determining EE’s role in reaching CPP goals, states and utilities should assess EE potential to decide how to approach developing BB4 savings.

Central to an EE retail approach is understanding and using potential studies, benefit/cost analyses, and evaluations of EE portfolios to gain an understanding of the benefits and challenges of expanding EE portfolios. Designing and implementing EE programs with proper financial incentives and cost recovery mechanisms can lead to positive net benefits for utilities, customers, and regional economies.

Initiatives, Policies, and Programs

There are a number of approaches to support development of EE initiatives at a utility or in a state to meet the EPA goals. Some initiatives include:

  • Establish energy savings targets within a company or at the state level
  • Assess state performance incentives and cost-recovery mechanisms that move EE toward being equal to other supply-side resources
  • Integrate EE into the resource planning process in regulated markets – incorporate EE into electric integrated resource planning as an equal resource option to generation
  • Require stringent evaluation, measurement and verification of EE programs

State policies should be assessed to create proper incentives and foster growth. Cost recovery as the sole incentive to implement EE portfolios is insufficient to foster savings. Financial incentives and policies that place EE on similar or equal footing to supply-side resources is needed for utilities to actively move toward the 1.5% target.

 

Oregon Boldly Enters the Road Tax Debate

— May 21, 2015

 The decaying road infrastructure in the United States is obvious to everyone, yet state and federal legislators have done nothing for decades. Despite the constant threat of injury due to failing roads and bridges, hiking the federal gas tax is viewed as a death sentence for politicians, who have not raised the levy since 1993. Back then the gas tax represented 17.1 % of the total retail price of gas; in 2014, it constituted only 5.3%.

Gas tax revenue has not kept up with inflation, which has resulted in tax revenue for the federal Highway Trust Fund to be taken from other revenue sources to remain solvent. The Fund, which is $52 billion in the red over the past decade, will run out of money at the end of May unless Congress acts to reauthorize funding.

The lack of federal funds is squeezing states to do more on their own to repair their infrastructure, and Oregon is one of at least 10 states that are attempting to raise revenue. In July, Oregon will test moving from a fixed per-gallon tax to a per-mile-driven fee. The challenge with testing the program with 5,000 volunteers is that the self-selecting audience is likely to save money since drivers with low fuel economy vehicles are unlikely to join, knowing that they would pay more by participating. However, if those who do participate react positively, then Oregon is more likely to move to implement the plan for all drivers.

Fee Hikes

The move to a per-mile fee is in response to decreasing use of fuel (and therefore tax revenue) per mile driven due to increasing fuel economy and the arrival of plug-in electric vehicles (PEVs). Some states have considered adding an annual registration fee for PEVs, which don’t pay road taxes on the electricity that powers the vehicles.
While this would raise revenue, it could reduce sales of PEVs if the overall fuel savings were then reduced. A more equitable solution would be to combine a per-mile-driven tax with annual registration fees that consider another negative impact of driving—greenhouse gas emissions. Having more costly registration fees for vehicles with higher emissions (i.e., low fuel economy) could keep the overall cost of driving a PEV, hybrid, or other fuel efficient vehicle sufficiently cheaper to encourage their purchase.

Other states considering changes to gas and road taxes to increase revenue include Illinois and Nebraska. The Nebraska legislature on May 14 overrode the governor’s veto of a law that would raise the gas tax.

Bridges Out Ahead

“Once again, the Legislature has chosen to prioritize tax hikes over tax relief measures that Nebraskan need and deserve,” Nebraska governor Pete Ricketts said, as quoted by the Associated Press.

On the federal level, Rep. Peter DeFazio, a Democrat who is also from Oregon, has proposed redirecting funds from the estate tax to the Highway Trust Fund rather than repealing it. This initiative, like most other bills related to infrastructure funding, has little chance of passing despite the considerable benefits, including creating 13,000 jobs per $1 billion spent.

Sadly, it will likely take a series of bridge collapses such as what happened recently in Jacksonville, Florida or other such calamities for the public to pressure state and federal legislators to take serious action on infrastructure.

 

The Overlooked Renewable

— May 19, 2015

Hydropower may account for just 7% of U.S. electricity generating capacity, but this sometimes overlooked renewable energy source could play a more significant role. That’s one of the conclusions from a first of its kind study on hydropower that quantifies the size, scope, and variability of hydropower in the United States.

The new U.S. Department of Energy (DOE) study (2014 Hydropower Market Report) describes a diverse fleet of hydropower plants that collectively produce enough electricity to power more than 20 million homes. The report also notes that the size of the hydropower fleet has grown in the last decade, mainly as owners have upgraded existing hydro assets, with a net increase of nearly 1.5 GW from 2005 to 2013. Total investment in hydropower amounted to more than $6 billion for refurbishments, replacements, and upgrades during that timeframe.

 One Major Hurdle

On the plus side, the report indicates that the United States has more than 77 GW of potential hydropower capacity, and that the current development pipeline encompasses a mix of proposed projects at non-powered dams, conduits, and undeveloped rivers or streams. These projects, as well as large-scale pumped storage hydropower (PSH) projects, account for the bulk of current development plans. However, there is a major hurdle that clouds this picture. The widely available bond, grant, and tax-credit programs that helped drive development of hydropower projects in recent years have gone away, and new projects are likely to depend on alternative funding sources, which more than likely means a slower pace for upcoming projects.

Without a doubt, hydropower has it limits and cannot be thought of as a viable alternative in certain regions – drought areas of the Southwest come to mind. But given its potential for adding tens of gigawatts of untapped power, it should be part of the overall energy conversation because of its proven track record as a source of clean, reliable power, despite the potential funding hurdles.

 

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