Navigant Research Blog

Business, Buildings, and Tackling Climate Change

— October 23, 2015

On October 19, the White House announced expansive commitments from corporate America to continue the battle against climate change. This announcement underscores the hope for effective global policy development at the United Nations Climate Convention in Paris, or COP21, at the end of November. The signatories represent 81 companies operating in all 50 states, employing over 9 million people, and generating more than $3 trillion in annual revenue. These companies also span industries, representing a spectrum from heavy industry to high tech, as well as service businesses. An independent consortium of long-term investors has also announced a commitment to invest $1.2 billion in clean energy development.

The growing corporate commitments reflect an understanding of customer demand. Alex Gorsky, chief executive of Johnson & Johnson, explained to the Financial Times, “Just as the opinion of customers, and in our case patients, around the world are more sensitized to this issue … they are demanding more from the companies from which they purchase their products.”

The Role of Buildings

There is an opportunity to focus major efforts for climate change adaptation and mitigation in buildings. From siting renewables and clean energy to major improvements in energy efficiency (EE), better operations and use of commercial and industrial facilities can have a major impact on countries’ greenhouse gas (GHG) emissions profiles. In fact, in preparation for COP21, the UN has prioritized EE as a major mechanism to reach GHG emissions reductions goals: “According to the International Energy Agency, increasing EE accounts globally for 49% of the measures needed to achieve the emission peak and meet the +2 degrees target. EE is also relevant for sustainable economic development and offers multiple benefits including local job creation, increased productivity and competitiveness for companies, reduction of pollution, improvements in health, energy access and energy security. A significant scaling up of global investment in EE is urgently needed.”

Intelligent building solutions could be the cornerstone of EE strategy for tackling climate change. In a recent report, Navigant Research detailed how building energy management systems can provide the analytics and software tools for measuring efficiency improvements, tracking return on investment (ROI), and ensuring ongoing performance. Intelligent lighting and advanced heating, ventilation, and air conditioning (HVAC) solutions can optimize system performance and at the same time improve the occupant experience in buildings while improving EE. The list goes on and on when the benefits of IT-enabled building solutions are considered. These innovations in building technologies hold the promise of EE, cost savings, tenant satisfaction, and even climate resiliency. Navigant Research will be watching the events that unfold at COP21 and tracking developments on even broader commitments to intelligent buildings and EE for tackling climate change.


Intelligent Buildings as a Bridge to Climate Resilience

— October 21, 2015

On October 6, the Environmental Defense Fund (EDF) showcased the benefits of intelligent building technologies outside the facility walls. The business case for investment in intelligent building solutions can be amplified by the capacity to support grid reliability and resiliency in addition to direct economic and performance benefits. The Federal Energy Regulatory Commission (FERC) has ruled that demand response (DR) and energy efficiency resources must be allowed to participate in the PJM market on equal footing with other capacity resource. In fact, in Chicago, a collaborative pilot with the PJM Interconnection known as the Combined Capacity Asset Performance Project is demonstrating this opportunity. After the fallout of the polar vortex of 2014, PJM established these requirements to ensure that capacity resources would be immediately responsive at any time year-round. These requirements move away from PJM’s former model, which allowed for summer-only DR participation; the Chicago pilot is poised to show just how well intelligent buildings can fare in these circumstances.

“Demand response has demonstrated its potential to cut peak electricity demand, help balance the grid, and save customers money. The project offers an inventive way to preserve and grow this valuable resource in the PJM market. The collaboration will serve as a strategic model for buildings, which will be able to combine their demand response potential to enter the market where they wouldn’t be able to participate on their own,” explained Andrew Barbeau, president of the Accelerate Group and senior clean energy consultant for EDF.

Sounds Great, but What Gives?

The development of the DR market has not been a smooth ride. Three months following the FERC ruling in July 2015, the Supreme Court debated DR’s validity for generating revenue while maximizing grid reliability. As Penn State professor Seth Blumsack explained, “The case, however, ultimately goes far beyond demand response. The issue at hand is all about the ability of the federal government to set market rules for local power systems—that is, the portion of the grid that reaches individual homes and businesses—versus the regional grid that transports power over long distances across the United States.” It is yet to be seen how the court will rule on the issue.

DR-Enabling Technology Expected to Overcome Regulatory Uncertainty

If anything can pull the brakes on market development, it’s market uncertainty. Luckily, in this market, the enabling technology is expected to continue selling. On the commercial building side, the critical layer is the software and services that orchestrate load management. Navigant Research follows these solutions through its Building Innovations program. The future is bright for building management systems; not only do these systems provide the software analytics and services that can not only support DR, but they also provide load management for the customer to generate internal financial benefits. For example, a customer may integrate a software solution that provides insight into energy consumption across their portfolio. The information can direct change in equipment operations that can deliver new revenue streams formally (through DR participation), or informally by actively shifting the energy load to reduce peak demand charges. In the end, the building energy management system investment is a win-win. This kind of benefit underscores the optimistic outlook for intelligent buildings that will be grid-ready as the DR market prevails over regulatory uncertainty.


VW Diesel Cheating Threatens Consumer Trust of Automotive Software

— October 19, 2015

In late 2007, U.S. gasoline prices were headed toward an all-time high of $4 per gallon and the financial collapse was still a year away. With more restrictive emissions standards being phased in and Congress moving to impose dramatically increased fuel economy standards, automakers and suppliers were scrambling to figure out how to comply without making vehicles so expensive that mainstream consumers could no longer afford them. Tesla was already on its third complete redesign of the Roadster transmission and was months from starting customer deliveries of its then unproven battery technology. Thus, many automakers were looking to the European market, where diesel technology was already so popular.

At the 2008 Detroit Auto Show, we saw an array of diesel-powered production and concept vehicles from Audi, BMW, Mercedes-Benz, Cadillac, Saturn, Jeep, Hyundai, Mitsubishi, Acura, and Land Rover. Several of these automakers, along with suppliers such as Bosch and Honeywell, openly talked about diesel capturing 10% to 15% of the American market by 2015, while J.D. Power and Associates projected that 17% of American cars would be diesel-powered. Prior to the current Volkswagen scandal, diesel cars accounted for just under 2% of sales in 2015.

Diesel has been an appealing solution for American drivers who do a lot of intercity highway driving, where the regenerative braking benefits of hybrid technology are less of a factor, as well as in larger vehicle segments where greater hauling capacity is required. The inherent efficiency of the diesel engine meant that CO2 emissions could be slashed by 25% or more, and technologies—including common rail fuel injection, particulate filters and selective catalytic reduction—would address the traditional noise and emissions issues associated with compression ignition. At least, that was the theory up until the last few weeks.

Special Code

Volkswagen (VW) and its premium brand Audi have acknowledged using special code in the powertrain control software that specifically looks for the conditions associated with running an emissions test in the lab to trigger a fuel delivery strategy that enables cleaner emissions. On the open road, the engine management strategy switches to one that delivers better fuel efficiency and performance but also increases NOx emissions, which contribute to smog.

Several factors contributed to VW’s ability to do this, including the use of standardized lab tests for fuel economy and emissions certification. When the test conditions are well-known and limited, it is quite straightforward to develop control software that meets the letter of the law in the lab while violating it in real-world conditions. Since the source code is closely held by the manufacturers, it’s difficult to verify cheating, logical flaws, or security vulnerabilities.

A Matter of Trust

Since gaming emissions requirements is comparatively easy and not unprecedented, as others (including Ford and Honda) have paid fines for installing defeat devices, the current scandal has the potential for a much more wide-ranging impact on the transportation industry. In addition to electrification, manufacturers are relying on connectivity and automation to enable both efficiency and safety improvements in the coming years. Navigant Research’s Autonomous Vehicles report projects that by 2035, more than 80 million vehicles will be sold annually with some degree of autonomous capability. However, if consumers don’t feel that they can trust manufacturers such as VW, they are far less likely to be willing to pay for the premium features.

When automakers break consumers’ trust, they jeopardize the potential benefits to society and the environment from these technologies. Regulators and manufacturers will need to act decisively, such as the Environmental Protection Agency’s decision to road test all diesels, to ensure consumer trust can be restored.


How High Can We Go with Renewable Goals?

— October 19, 2015

California Governor Jerry Brown signed legislation recently that (once again) ups the state’s commitment to renewable energy. This is the third such increase in the state’s Renewable Portfolio Standard (RPS), boosting overall reliance upon renewables such as solar and wind to 50% by 2030.

While other states such as Hawaii and Vermont have approved even higher mandates (100% by 2045 and 75% by 2032, respectively), the sheer size of the California marketand its historical role as a trendsetteris significant.

While these noble goals may raise questions among those worried about aggressive programs to combat global climate change or about impacts on the economy (in terms of higher cost electricity and loss of jobs among traditional resources such as coal), there is really a larger issue. Where will these renewables be located on the grid?

Big goals like these tend to lend themselves to large-scale renewable projects such as wind farms. In the case of California, ambitious goals on renewable procurements have prompted the California Independent System Operator (CAISO) to expand its footprint both north and east, arguing that better coordination among so-called balancing authorities is the best way to increase renewables without requiring expensive fill-in-the-gap resources, such as gas-fired peaking plants. PacifiCorp is among the most noteworthy participants in this expansion of energy imbalance markets.

Into the Wind

This bigger-is-better frame of mind is based on sound thinking on past experience, which verifies that the larger the control area, the less of an issue variability in wind imposes on grid reliability. This makes inherent sense; if the wind suddenly dies down, chances are it is picking up in another location, especially if the balancing authority can mix and match resources over a wide swath of terrain. This is why old-school thinking that dates back to when I first started writing about wind power argued that wind could only supply up to 10% of our power.

Of course, countries such as Denmark have blown these kind of assumptions out of the water (literally). The country currently derives roughly 30% of its total electricity from wind, most now coming from wind turbines placed offshore. At times this year, Denmark produced the equivalent of 140% of its own electricity demand from wind power. Interestingly enough, Denmark has set a goal of 100% renewable energy not only for electricity by 2050, but also for heating and transportation!

Yet, for me, the more interesting trend is not large-scale commitments to wind, but the evolving innovation at the distribution retail-level with, onsite solar PV being increasingly linked to batteries. Let’s call this a bottoms-approach to high renewables reliance (and resilience).

The Frequency and voltage issues are major concerns in Hawaiiwhere the balancing authority is relatively small and isolatedbecome magnified in a microgrid. Distributed energy resources (DER) are on the rise. Solar PV is expected to emerge as the lowest cost resource of all over time. It is not unreasonable to foresee a time when nearly every residence and/or commercial complex will have a default option of onsite solar PV.

These two trends—larger wholesale renewable balancing markets and smaller distributed DER networks such as microgrids—are fueling passionate debates about the best path forward to addressing climate change through increases in renewable energy generation.

We have to harness both simultaneously in order to meet these renewable aggressive goals. Nothing ever goes as planned in this world, especially when it comes to energy (oil pricing being a great example), so we need to hedge our bets.


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