Navigant Research Blog

Energy Efficiency Economics 101

— February 18, 2015

The frequently overlooked component for unlocking the great potential of energy efficiency in commercial buildings is the bottom line: cold hard cash. For commercial building owners and operators, especially those managing small and medium (under 50,000 square feet) facilities, the idea of installing energy-efficient equipment or energy management tools is a nice-to-have, not a need-to-have.

Tenant improvement and making a profit by keeping expenses low come before improving or replacing equipment with state-of-the-art efficient alternatives. A recent report from the National Institute of Building Sciences’ Council on Finance, Insurance and Real Estate contains a set of findings and recommendations on how small commercial buildings can implement energy-efficient retrofit projects.

Live Data

The report lays out the case for focusing on small and medium commercial buildings, a dormant $36 billion market opportunity that could provide huge employment opportunities (424,000 job-years) and carbon reductions (87 million metric tons a year). According to Navigant Research’s Energy Management for Small and Medium Buildings report, the energy management systems and services associated with this market are expected grow from $231.3 million in revenue in 2013 to $1.3 billion in 2022. The benefits are clear; what can be done?

The report recommends a few multi-tiered sets of actions that could help invigorate this market, at least in the United States. These include federal action, such as expanding research from the Commercial Buildings Energy Consumption Survey (CBECS), which is a critical tool for understanding the state of energy use in commercial buildings, but is only updated every 5 years. CBECS data could be used with benchmarking data to make the collective understanding of building energy data a living data set, providing a meaningful performance-based evaluation of how energy efficiency is actually deployed in existing buildings.

Increasing the Pace

Another recommendation is challenging in this political climate. The Section 179 (D) tax code, a part of the Energy Policy Act (EPAct) that incentivized commercial building energy efficiency, expired at the end of 2013. At $1.80 per square foot for the full achievement of 50% energy reduction, the incentive was helpful. The reliance on modeling was a challenge, and the improvement of benchmarking data drawn from a living version of CBECS could change that.

Finally, the report focuses on the variety of financing that can be made more available to this market. If energy efficiency financing can be presented as a secure investment with known outcomes and well-understood risks, the adjacent available pools of financing could, with some urging, be made available.  Increasing the deployment of utility-based on-bill financing is one possibility, but not all utilities in the United States would be open to that approach. Property Assessed Clean Energy (PACE) programs enable energy efficiency (or solar deployments) to be financed by local bonds, and repaid via local property taxes over time. The White House recently announced it would use the success of PACE in the multifamily residential market in California and apply it to federal Housing and Urban Development Department housing.

 

Differing Diesel Views Sow Auto Industry Confusion

— February 17, 2015

During January’s North American International Auto Show (NAIAS), several manufacturers announced new diesel models to help them meet increasingly stringent fuel economy standards. Nissan unveiled a second-generation Titan XD that straddles the line between light and heavy duty pickups. Nissan will initially build the Titan XD, scheduled to launch this fall, with only a diesel engine; gas trucks with V6 and V8 engines will come later.

GM will be introducing a diesel engine in its Chevy Colorado and GMC Canyon later this year that could potentially increase fuel economy from the current 27 mpg to 30 mpg. Fiat Chrysler announced it will be increasing production of the Dodge Ram 1500 EcoDiesel pickup from 10% of models to 20%.

In the world of diesel cars, Volkswagen will unveil the Golf Gran Turismo Diesel (GTD) car at the upcoming Geneva Motor Show in March. Later this year, Suzuki will add an automatic transmission and several other updates to its SX4 S-Cross.

A Particular Problem

Diesel cars and trucks usually attain higher fuel economy ratings than their gasoline counterparts. According to Navigant Research’s report, Automotive Fuel Efficiency Technologies, the share of diesel cars and light trucks in North America is expected to increase from 1% in 2015 to 2.8% in 2025 as automakers continue to introduce more fuel-efficient models.

However, across the Atlantic, cities are looking to decrease the number of diesel vehicles driving in urban areas due to concerns that diesel vehicles’ higher levels of particulate emissions are causing environmental and health problems.

Not in My Town

Paris Mayor Anne Hidalgo has designs on eliminating diesel vehicles from her city by 2020. Mayor Hidalgo recently announced a ban on some diesel delivery trucks and buses, beginning by July 2015. According to Paris24.com, Hidalgo will provide significant financial incentives for investing in less polluting vehicles. London Mayor Boris Johnson has similar concerns around particulate emissions and is doubling the congestion charges for driving diesel vehicles in the city center to £20.

One solution to reduce the amount of diesel emissions is to add a hybrid drivetrain to a diesel vehicle. Hybrid vehicles reduce the use of the diesel engine by relying on battery power during low speeds and when idling, thus reducing particulate emissions. According to Navigant Research’s report, Electric Drive Trucks and Buses, the currently small market for medium and heavy duty diesel hybrid trucks will grow by a 2014–2023 compound annual growth rate (CAGR) of 28.5% to nearly 95,000 units worldwide by 2023.

 

As Smart Grid Spreads, Substations Go Automated

— February 17, 2015

Navigant Research estimates that there are approximately 47,000 distribution substations (D-subs) across the United States, including privately owned substations (such as for large commercial sites or military bases), and another 12,500 transmission substations. We understand that the vast majority of critical transmission substations are automated—that is, they are connected to utility operations centers by communications networks, which allow personnel to monitor and control what happens inside these substations.

When it comes to the distribution grid, however, the level of visibility and automation in substations varies widely. Some utilities report that they have brought fiber to virtually all of their substations; others indicate that their visibility into the distribution grid is limited. We know that this is changing and that the percentage of D-subs with connectivity and automation capabilities is growing, but we also know that those sites historically served by leased copper lines for supervisory control and data acquisition (SCADA) are now in need of a new solution as telephone companies abandon their legacy copper networks.

Our present forecasts for automated substations estimate that total distribution grid substation connectivity was approximately 34% at the end of 2014; over the next 8 years, Navigant Research expects D-sub connectivity to exceed 50%.

Whither Substation Automation?

These figures are important for quantifying the evolution of the smart grid. You can’t have an estimate for automated substations if you don’t know how many substations there are to begin with. Absent government databases, though, it can be tough to nail down infrastructure statistics like these, and so I’m turning to the readers of this blog.

I’d like to invite readers to share anecdotal or specific data related to a few key questions related to overall infrastructure and the status of smart technology deployment.

What do you think? What percentage of your distribution substations are connected?  What technologies (fiber, microwave, T-1, etc.) are used for that connectivity? How quickly, if at all, is your company investing in D-sub connectivity, and why? Interesting anecdotes related to the topic of substation automation are welcome! I hope you’ll take the time to send your thoughts and data points to richelle.elberg@navigant.com.

Next time around I’ll explore distribution feeder automation and other distribution grid smart technology. Below is our forecast for distribution substation connectivity, which underlies the networking forecasts in the Navigant Research report, Smart Grid Networking and Communications.

United States Distribution Substation Connectivity Outlook

(Source: Navigant Research)

 

Going Ductless, AC Systems Gain Efficiency

— February 17, 2015

If the rest of the world used air conditioning like the United States, we’d be in trouble. Luckily, that is not the case. The presence of ductless split systems (which are ubiquitous almost everywhere else in the world) in U.S. homes is dwarfed by ducted central air conditioning units. Ducted units circulate air within a house to maintain an appropriate temperature, whereas ductless systems circulate refrigerant. Typical efficiencies of ducted central air conditioners run from 13 seasonal energy efficiency ratio (SEER), a measure of the energy consumed by an air conditioner based on its electricity consumption, to 21 SEER. Ductless split systems far more efficient; they’re available up to 33 SEER.

Many factors contribute to the slow adoption in the United States. U.S. houses are designed for and typically supplied with ducted systems. Running ducts through wood-framed American homes is far easier than in concrete, stone, or brick houses, which are more common abroad. But, general resistance to change among consumers, contractors, and distributors is the biggest factor that is holding back greater adoption. Ductless manufacturers have acknowledged this and are working to lower the barriers for switching that each stakeholder faces.

Changes to the Equipment

For contractors and distributors, ductless split system manufacturers reduce the burden of inventory management. Systems can come in a variety of configurations. One outdoor condensing unit can be connected to several indoor units (multi-zone) or just a single indoor unit (single-zone). Previously, these configurations required different units for multi-zone and single-zone configuration, and even units that have the same capacity aren’t interchangeable. But, earlier this year, Haier introduced its FlexFit ductless system, which can use the same indoor units in both single-zone and multi-zone configurations.

Similarly, several manufacturers of ductless split systems have eliminated cooling-only units and provide heat pump capability to all units.  Mechanically, the only difference between the two is a four-way valve. All heat pumps are capable of cooling, so providing a heat pump for a cooling application does not create any functional problems. Indeed, it appears that the logistics improvements associated with reducing the number of models offset the slightly higher cost of materials.

Is It Enough?

To win over reluctant consumers, LG Electronics has long focused on the aesthetics of the system. A traditional ducted system has a discreet register hidden on a wall, ceiling, or floor. Ductless systems entail indoor units in occupied spaces. To some, the units are unsightly. But, LG’s design-oriented Art Cool product line, featuring low profiles and designer color finishes, is an attempt at making indoor units pretty. Additionally, the company’s Art Cool Gallery hides the indoor unit in a picture frame that can be personalized with artwork or photography.

Navigant Research expects ductless systems to expand in North America in the future. But, even at aggressive growth rates, it will take years for ductless systems to reach parity with ducted ones. Cost remains a factor. Depending on the complexity of the system and whether ductwork already exists, installation of a ductless system can be much more expensive than the installation of a ducted system. Even if the United States never sees the same penetration rate as the rest of the world, though, ductless split systems will drive energy efficiency improvements in residential air conditioning.

 

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