Navigant Research Blog

Reimagining the Traditional Water Utility Business Model

— May 23, 2016

Plant - WaterUtilities in the water sector are confronted by a number of significant challenges in today’s environment. Aging infrastructure (and the significant cost and complexity of capital improvement programs), the cost and lack of diversity of water supplies, requirements associated with new legislative and regulatory mandates, and customer rate concerns are a few prominent examples. Meanwhile, even for the most resilient utilities, uncertainty around the pace and character of recovery in the broader macroeconomy and the continued impact of water conservation continue to affect customer demand characteristics and expectations regarding near-term financial performance.

Given these factors, decision makers are evaluating methods of enhancing near-term financial performance while considering actions to ensure long-term strategic market positioning. Actions are being taken in the face of cost and revenue results that are not in line with expectations; meanwhile, the long-term dynamics of the water sector continue to be influenced by significant game changers such as climate change, the impact of new and disruptive technologies, aging workforce challenges, and the emergence of new market players.

Objectives of Change

This combination of near-term financial challenges and large-scale structural changes in the sector are driving many water utilities to pursue both near-term cost reduction initiatives as well as programs that reimagine aspects of the traditional water utility business model itself. Importantly, near-term cost reduction initiatives and long-term strategic planning and transformation efforts drive changes to an organization’s service catalog (i.e., what the organization does), its business processes, organizational designs, staffing, and workforce and talent management practices. However, the objectives of change in these areas are distinct and may be at odds with one another depending on the objective.

Change Program Objectives

Water blog table (Source: Navigant)

As reflected in the above table, both cost reduction and strategic repositioning initiatives require transformation across an organization. Navigant’s work with water utility clients confirms that the change management challenge associated with significant transformation increases significantly when near-term cost reduction and long-term strategic change programs are pursued concurrently. In addition to complex program management, actively managing the change—and building and sustaining support across the organization—is critical for utilities that aim to design and deliver a new strategic vision while meeting near-term cost and efficiency objectives. Specifically, our experience working with utilities on both of these initiatives has found that:

  • Near-term cost reduction and strategic innovation planning are often not managed and understood as a comprehensive program.
    • Properly positioning the utility requires a roadmap that connects the dots across business processes and organizational and technology initiatives and which also understands the change management journey across all planning horizons.
  • Insufficient attention is dedicated to continuously monitoring the organizational energy supporting or undermining transformation objectives.
    • Organizations may achieve cost reduction objectives, but they can significantly erode positive energy needed to achieve longer-term, innovative, and strategic change objectives.

Leading significant organizational change can be difficult, even in the best of circumstances. Maintaining a focus on the people and cultural aspect of change (the importance of organizational energy) when delivering business transformation is critical, particularly in times of significant transformation. Considering transformation goals and objectives holistically, and understanding the levers available to delivering change optimally across the entire planning horizon, is central to successfully navigating the current environment.


Fracking Boom Drives Increase in Wastewater Treatment

— May 23, 2016

PipelineHydraulic fracturing (commonly referred to as fracking) has been around for many decades, but only recently has it been at the forefront of oil & gas exploration in the United States. Even with the recent downturn in natural gas prices, producers are continuing to frack. According to Scientific American, hydraulic fracturing consumes up to 9.6 million gallons of water per well, and many wells are located in arid regions like Texas.

There are a number of opinions about the process, both favorable and unfavorable. But one thing is for certain: hydraulic fracturing consumes a large amount of water and produces a great quantity of wastewater. This wastewater can be in the form of flowback (fracturing fluid that flows back to the surface of the well after injection) or produced water (water that was already in the aquifer). These present different challenges to treatment and disposal, as flowback water contains components which make it viscous, and produced water tends to have very high levels of dissolved salts. Treatment of this water is usually overlooked in favor of injecting it deep underground in Class II injection wells. However, with increasing public awareness of fracking and advancing treatment technologies for complex contaminants in water, treatment and recycle of wastewater is becoming more viable.

Increasing Regulations

The United States and Canada are the major players in the fracking waste treatment business today. Despite rumors of the lack of regulation, hydraulic fracturing is heavily regulated, and more stringent regulations are being passed at local, state, and federal levels. Along with heavy regulation on the practice itself comes heavy regulation on the disposal and treatment of associated wastewater. For example, in Pennsylvania, the U.S. Environmental Protection Agency regulates the permitting of Class II underground disposal wells. In many other states, these are the main sink for produced and flowback water. In Pennsylvania, there are only seven active disposal wells for oil & gas use; increasing regulation, as well as changes in the economic conditions, are causing the market for water treatment to expand rapidly.

Navigant Research’s recently published Wastewater Treatment Technologies in Natural Gas Hydraulic Fracturing report analyzes the wastewater treatment market between 2016 and 2025. According to the report, revenue from treating water is expected to surpass revenue from deep well injection of produced water in 2018 and is expected to continue to grow from there. This represents a great opportunity for many of the small companies entering this market. Currently, advanced oxidation, membrane filtration, and reverse osmosis are popular treatment options for flowback and produced water streams. With the rapidly growing available revenue in fracking waste treatment, it will be interesting to see which other treatment technologies are adapted.

Revenue from Hydraulic Fracturing Wastewater Treatment by Disposal Type, United States: 2016-2025

Anne Blog Fracking(Source: Navigant Research)



Take Control of Your Future, Part III: Rising Number of Carbon Emissions Reduction Policies and Regulations

— May 16, 2016

Energy CloudMaggie Shober and Rob Neumann also contributed to this post.

My recent blog discussed seven megatrends that are fundamentally changing how we produce and use power. In the second part of the series, I focused on the power of customer choice and changing demands. Here, we will discuss the rising number of carbon emissions reduction policies and how this trend is fundamentally changing the power industry.

What’s Happening with Carbon Emissions Policies Globally?

The long-term impact of the Paris Climate Agreement will be significant. This agreement will focus on limiting global warming to well below 2°C (3.6°F) by the year 2100. Each nation sets its own target for reducing emissions and updates that mark each year. A record number of countries (175) signed the agreement on the first available day. Governments must now ratify and approve the agreement, which could take months or years. The agreement goes into effect once 55 countries representing at least 55% of global emissions formally join. It’s clear that the tone and tenor of the Paris Climate Agreement is providing a guiding light for nations to reduce emissions.

The biggest news was the full commitment of China. The country, together with United States, was one of the first to sign the final Paris Climate Agreement. The United States and China account for nearly 40% of global carbon emissions. It does appear that China is serious about reducing emissions, since the country has made significant investments in renewables, electric vehicles, green cities, and more. Already the world leader in wind power, China is set to overtake Germany this year in solar power (see chart below).

Renewable Energy Growth in Major Economies

Jan Blog 3

(Source: World Resources Institute)

We see that other countries are not waiting. This week, Germany announced a €17 billion ($19.2 billion) campaign—that’s right, billions—to boost energy efficiency. The ultimate goal is to cut the country’s energy consumption in half by 2050. This is part of meeting domestic and Paris Climate Agreement emissions reduction targets. The campaign could prove bearish for European Union (EU) carbon prices if it reduces demand for power and heating in Germany, the top economy (and emitter) of all the EU’s 28 member states.

Many other initiatives at the regional, country, state, and local levels are currently being designed and implemented in support of carbon emissions reductions, accelerated by the agreement. Importantly, the EU is seeking swift approval and implementation of the Paris Climate Agreement at the United Nation’s Bonn Climate Change Conference in Bonn, Germany this week.

U.S. Carbon Regulation

And then we have the Clean Power Plan (CPP). The CPP has been stayed by the U.S. Supreme Court until a final resolution of the case passes through the federal courts. Litigation may not be resolved until 2018, although it’s possible a resolution could be reached sooner. There has been a great deal of discussion on compliance with the CPP. Our analysis continues to show that cost-effective compliance includes a variety of options that are tailored to regional characteristics. A recent deep dive by Navigant into a southeastern state with modest renewable resources showed that trading with other states and developing energy efficiency programs and portfolios are key strategies for reducing overall compliance costs. Compliance strategies depend on existing resources; older coal resources on the margin for retirement are able to get a large bang for their buck on the emissions balancing sheet through replacement with gas, renewables, and energy efficiency.

Navigant also investigated the effects of deploying additional energy efficiency resources in order to decrease CO2 emissions in two regions: California and PJM. We found that additional energy efficiency reduces CO2 emissions, overall cost of compliance, and system congestion. The cost to serve load is reduced by 3%-5% in California and PJM. System congestion relief is also likely to occur, which further reduces the cost to serve load. This last point is important, since large, urban utilities are focused on reducing congestion points—and energy efficiency can be used as a solution.

Other Ongoing Developments

Even though the CPP is on hold, many individual states, cities, and utilities continue to move toward the CPP goals to reduce carbon emissions, plan for an advanced energy economy, and meet cleaner generation goals. The CPP parameters are being used as a guide for emissions reductions:

  • Last month, Maryland lawmakers approved the Clean Energy Jobs Act of 2016 (SB 921) by large majorities in both houses, increasing the state’s Renewable Portfolio Standard (RPS) to 25% by 2020.
  • As part of the New York Reforming the Energy Vision (REV) proceedings, the New York Public Service Commission introduced an order that requires placing a value on carbon emissions, focusing on distributed generation portfolios, and compensating customers for their distributed electricity generation.
  • Over the past year, six states led by Tennessee (plus Georgia, Michigan, Minnesota, Oregon, and Pennsylvania), the U.S. Department of Energy (DOE), and a few other national organizations have been developing a National Energy Efficiency Registry (NEER) to allow states to track and trade energy efficiency emissions credits for CPP and emissions compliance purposes.
  • Last week, San Diego announced its pledge to get 100% of its energy from clean and renewable power with a Climate Action Plan that sets the boldest citywide clean energy law in the United States. With this announcement, San Diego is the largest U.S. city to join the growing trend of cities choosing clean energy. Already, at least 12 other U.S. cities, including San Francisco, San Jose, Burlington (Vermont), and Aspen, have committed to 100% clean energy. Globally, numerous cities have committed to 100% clean energy, including Copenhagen, Denmark; Munich, Germany; and the Isle of Wight, England.
  • Meanwhile, many utilities are decommissioning or converting their existing coal plants and investing in utility-scale renewables, as well as distributed energy resources. As example, AEP is in the process of decommissioning 11 coal plants, representing approximately 6,500 MW of coal-fired generating capacity as part of its plan to comply with the Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards. The company is simultaneously making significant investments in renewables, with a total capacity of close to 4,000 MW by mid-2016.

What Does This All Mean?

The sustainability objectives of government, policymakers, utilities, and their customers are more closely aligned than ever before. In my last blog, I discussed how customer choice and changing customer demands are shifting toward supporting sustainability. States and regulators will continue to discuss how sustainable targets can be met without affecting jobs and the access to safe, reliable, and affordable power. And utilities will continue to evolve to support cleaner, more distributed, and more intelligent energy generation, distribution, and consumption.

Recommended action items for states and utilities include:

  • Understand the possibilities, costs, and full impacts of low-carbon generation and distributed energy resources (energy efficiency, demand response, and others).
  • Implement a workable framework and develop an integrated plan to move toward lower emissions goals, since it’s likely that decreased emission requirements will be in place in the near future.
  • Leverage existing state and neighboring utility designs and efforts to develop joint plans, policies, and goals.
  • Implement (pilot) initiatives that include renewable energy and other low-carbon generation into a reduced emissions framework while also incorporating energy efficiency and distributed generation as resources into the decreased emissions planning process.

This post is the third in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. My next blog will cover shifting power-generating sources. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.


A Case Study in Solar Leadership from an Unlikely Source—New Jersey

— May 11, 2016

Rooftop SolarWhen thinking of solar energy here in the United States, what one place comes to mind? Sun-laden states such as California and Arizona are often conjured up when envisioning solar energy across the country. While countries like Germany have broken this generalization, there’s another case study here in the United States that is proving the viability of solar nationwide—New Jersey. This unexpected leader in solar energy has taken advantage of its open lands, brownfields, and vast amount of rooftop space to spur solar energy generation across the state.

REC Programs

New Jersey’s movement toward the adoption of solar began in 2005 with the initiation of the country’s first solar-exclusive renewable energy certificate (REC) program. Under this system, solar energy generators are allocated credits dubbed SRECs (Solar Renewable Energy Certificates) for every 1,000 kWh of generation. These credits in turn can be bought and sold in an open marketplace. This has led to a mix of utility-scale projects as well as an influx of residential and commercial properties (retailers, self-storage facilities, sports complexes, grocery stores, government buildings, etc.) installing solar. Since the inception of this program, New Jersey businesses and citizens alike have demonstrated the environmental and monetary benefits that come along with the early adoption of solar energy systems.

This isn’t to say that the program hasn’t had its bumps in the road. There was a need for policy adjustment in 2012 after falling technology costs and federal incentives led to a surplus in the supply of solar energy. This outpacing of demand caused SREC prices to plunge, decreasing overall demand for solar energy installations and investment. The state adjusted its strategy with the signing of the solar resurrection bill. This legislation improved marketplace volatility by adjusting the state’s renewable portfolio standard/solar carve-out framework and promoting the development of solar installations at landfills and brownfields.

Expanding Adoption

States with solar carve-outs and SREC markets now include New Jersey, Massachusetts, Pennsylvania, Ohio, Maryland, and the District of Columbia. Expanding beyond this Northeastern territory would greatly improve the potential for solar energy to make its next leap toward wide-scale acceptance. The adoption of solar energy within large corporations should be highlighted, as it not only creates a valuable source of energy but can also provide retailers and their stakeholders with a business case for solar. With companies such as Walmart and Kohl’s prescribing to this solar energy program in New Jersey, it not only proves the viability of solar within these organizations but also enhances the legitimacy of the technology as a whole. Brownfields and landfills are also worth mentioning as they can inject value into otherwise forgotten properties.

While the thought of brownfields and superfund sites often evoke imagery of pollution, outdated technologies, and shameful practices, New Jersey has chosen to redefine these wasteful properties by putting them back to work for their communities rather than detracting from them. The United States has come a long way since the early days of solar but more progress is needed to reach industry maturity. The next big leap may lie in other states looking to New Jersey’s example of how long-term renewable energy planning can provide benefits to its constituents and communities alike. 


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