Navigant Research Blog

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.

 

Wind Turbine Manufacturers Shuffle Market Share in a Record 2014

— May 20, 2015

Each spring, Navigant’s annual tally of previous-year wind turbine installation market shares are a closely watched barometer of how all the major wind turbine vendors are progressing in the global marketplace. This analysis is a key part of the 20th annual World Wind Energy Market Update 2015, produced by BTM Consult, a part of Navigant.

Last year was a high water mark for the industry overall, with 25,474 wind turbines installed, representing a record of 51,230 MW. Cumulative installed capacity climbed to 372 GW by the end of the year. China again held the title of the world’s largest annual market with 23.3 GW of new wind power installed in 2014, and Germany remained a distant second with 5.1 GW, followed by the United States with 4.9 GW.

The revival of the U.S. and German markets caused a significant shake-up in the rankings of the world’s top 10 wind turbine suppliers in 2014:

  • Vestas remained the No. 1 supplier after strong sales both onshore and offshore.
  • Siemens jumped two positions to second in 2014 due to strong sales in the offshore sector and the good shape of the German market. Interestingly, had more planned 2014 offshore wind been fully commissioned and grid-connected, Siemens would have challenged Vestas’ position for the first time in wind power history.
  • GE Energy recovered after a renewal of wind tax credit support in its home market in the United States and rose from a ranking of fifth to third in a technical draw with Goldwind. Only 31 MW separate the companies in 2014.
  • Goldwind dropped from No. 2 to No. 4 despite its strong performance at home. Its small footprint outside China means it did not benefit from the good year in Germany, Brazil, and the United States.
  • Enercon moved down two places to No. 5, as it relies largely on the growth of its home market Germany, in which it supplied nearly 40% of the turbines installed in 2014.
  • Suzlon Group rose one position to No. 6, supported by its then subsidiary Senvion (its divestment has just been finalized) and its operations in India. Navigant Research expects that with the division of the group, both Senvion and the remaining part of Suzlon will drop from the top 10 rankings in 2015.
  • United Power moved up one position as the world’s No. 7 supplier on the rush to install capacity in China in 2014.
  • Gamesa had a strong performance in the Americas and India, which allowed it to remain as one of the top 10 suppliers globally, coming in eighth place for 2014 installations, down from sixth in 2013.
  • Ming Yang remained in ninth position in 2014, pulled by the growth of its home market, China.
  • Envision crept into last place in the top 10 supplier list in 2014 thanks to the spectacular growth in its home market, becoming the fourth Chinese manufacturer in the top 10 chart. In 2013, Envision was No. 11.
  • Nordex had a record year, installing nearly 1.5 GW, up from over 1.2 GW in 2013, when it made it into the last spot in the top 10 group. However, it slipped out of the top 10 ranking based on the huge volume of wind plants installed by the other major vendors, particularly those in China. The next five in line after the top 10, in addition to Nordex, are all Chinese: XEMC, Sewind (Shanghai Electric), Dongfang, and CSIC. Acciona and Alstom are ranked a distant 23rd and 24th.

For more information, see World Wind Energy Market Update 2015.

 

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.

 

Offshore Wind Farm a Milestone for New England Energy

— May 18, 2015

At an industrial facility in Rhode Island, work has finally begun on what will likely be America’s first offshore wind farm. Originally proposed in 2008, Providence-based company Deepwater Wind’s project has overcome significant headwinds to receive permits, sign power purchase agreements, and finally begin construction. Made up of only five turbines, work on the relatively small project comes at a time when New England’s energy future faces uncertainty. The region generates almost no energy locally, being dependent primarily on natural gas and coal imports from other parts of the country. As a result, consumers are susceptible to volatile rates due to severe weather and supply constraints. A proposal to expand natural gas pipelines represents one way forward for the region, while the wind farm on Block Island represents a very different path.

As a former resident of Block Island, I have been intently following the progress of this project since its initial announcement. While working on the ferry to the mainland, I spent many hours on a nearly empty ship hauling truckloads of diesel fuel to be burned at the island’s one power plant. It comes as no surprise that island residents have to pay some of the highest electricity rates in the country, around $0.50 per kWh. These rates are significantly higher than even Hawaii, where expensive electricity has set off a rush of solar PV and other local energy generation.

Looking Ahead

The wind farm is a crucial component of Block Island’s energy future. Deepwater Wind claims that once operational, the farm could reduce island electricity rates by nearly 40%. Many island communities around the world have recently initiated ambitious plans to wean themselves off imported fuels completely by integrating locally generated energy. Local energy storage has been an important aspect of many islands’ plans to reduce dependence on imported energy, as discussed in a recent post by my colleague Anissa Dehamna. A great example of this can be found on Kodiak Island in Alaska. Global power electronics provider ABB worked with the local electric cooperative to install both battery and flywheel-based energy storage systems to help stabilize the output from the island’s wind turbines, and to store excess power generated at night to be used at times of high demand. The addition of energy storage on Kodiak Island has enabled up to 100% penetration for renewable energy and greatly reduced diesel consumption.

The development of the wind farm on Block Island will present great opportunities to demonstrate the value that other clean energy technologies can provide. The island is an interesting case due to the dramatically smaller population outside of the summer months. There are only around 1,000 year-round residents on the island, meaning demand for electricity most of the year is only a fraction of summer demand. For most of the year, the 30 MW output from the wind farm will be far more than is needed to power the island. By integrating local energy storage, the island could easily be a net exporter of energy through the soon-to-be-built transmission line connecting the mainland while only ever using locally produced clean energy. This can provide substantial benefits to residents through lower electricity rates and a much cleaner, more reliable power system.

 

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