Navigant Research Blog

Technology and Substance in Sustainability

— March 18, 2016

Springtime landscape over natural oilseed rape fieldSustainability has been a part of the corporate vernacular for decades. The concept has primarily been tied to corporate branding, but the priority, investments, and influence of the champions of sustainability has been limited—until now. Major moves by some of the world’s most influential businesses indicate that an important shift is underway. Sustainability is moving up the food chain as technology brings substance to targets, as future leaders demand real commitments, and as organizations acknowledge the real risks of inaction.

A recent GreenBiz article announced the “promotion” of sustainability at Microsoft. As the article highlights, the elevation in reporting only underscores the deepening commitment more corporations are making toward sustainability. As Rob Bernard, chief environmental strategist for Microsoft, explained, “It’s an acceleration, amplification and prioritization of sustainability within the company. It’s now a cross-company initiative that has a center of gravity in the president’s office.” Other tech giants and major corporations have similarly moved sustainability into the boardroom, indicating rising influence of the position.

Three Indicators of Change

Technology brings substance to sustainability. Let’s hone in on the metrics and actions that organizations are taking to meet their sustainability goals. LEED, ENERGY STAR, and the Carbon Disclosure Project (CDP) have helped businesses define their footprint and identify metrics for sustainability. However, there is momentum spurring something deeper. Technology is redefining energy use in buildings—a major contributor to most companies’ operational and environmental footprint. As we highlighted in a recent white paper, intelligent building technologies help customers meet the requirements of green labeling and provide ongoing insight into system improvements. Software can provide real-time data at the asset level that ensures efficiency improvements are maintained for meeting sustainability targets, but can also streamline operations and maintenance and deliver data for capital planning, thereby directly improving the bottom line.

Future leadership—the millennials—demand it. The makeup of the future workforce is a hot topic across industry as companies undergo long-term planning and implement strategies for recruitment and retention. We’ve hit the tipping point, and according to the Pew Research Center, millennials now make up the largest share of the U.S. workforce. This is important as these future leaders have different priorities and expectations. A recent survey by Sustainable Brands found that 60% of millennials are committed to increasing sustainability practices at their place of employment. This finding and others like it suggest that sustainability will only become more important from a corporate perspective as younger workers move up the ladder.

The threats are real. Take a look at sustainability reports for any major corporation and the topic often turns to climate change on page one. Despite the political wrangling in the United States, corporations are coming to terms with what climate change may mean for their business. They want clarity on regulation, they’re responding to shareholder demands, and they’re taking a stand in the public arena for climate change action. Recently, 17 top British executives signed a letter in the Independent acknowledging the value of standardization in expectations for climate risk disclosure in annual reporting. The message resonates in the United States as well, as the New York Times reported earlier this year. Major investors—including CalPERS (California Public Employees’ Retirement System), the Connecticut state investment fund, and Calvert Investments—made a public demand to the SEC (Securities and Exchange Commission) for the issuance of a rule to make climate change expectations concrete in public disclosure.

The evidence is clear: Sustainability is becoming a strategic imperative for major corporations. Technology can make sustainability goals attainable and economic, employees demand it, and shareholders are tying it to bottom line valuation.

 

Lone Smart Devices Less Effective than Those Paired with Programs and Services

— March 17, 2016

Home Thermostat DialThere is a wide variety of options on the market for consumers interested in better managing their energy consumption, becoming more environmentally friendly, and generating their own energy. Enabling technologies such as smart thermostats can help customers achieve these goals. They can also be a point of contact for utilities that want to increase customer engagement and improve customer satisfaction, a concept that is covered in Navigant Research’s recent Residential Customer Engagement research brief.

However, the problem with the way these technologies exist today is their lack of integration with other enabling technologies, demand-side management programs, and other energy services. In essence, enabling technologies themselves may not be as useful to consumers as one might think.

In fact, smart thermostats on their own may actually result in increased energy consumption, despite the popular belief that owning these devices will reduce a consumer’s energy use and energy bills. This increase in consumption can occur because of the remote control capabilities of smart thermostats, which allow consumers to adjust their thermostats preemptively (or before arriving at home), whereas traditional programmable thermostats can only be adjusted once a user is home. Because of this, on December 31, 2009, ENERGY STAR required that manufacturers cease the use of the ENERGY STAR label for thermostats, asserting that although thermostats do have the potential to save energy, it is not the thermostat itself so much that saves energy, but the behavior of the consumer and the thermostat’s connection or integration with other devices and systems.

This lack of integration between energy services and enabling technologies not only causes problems for consumers, but also vendors and companies. In a survey of 423 web and mobile application stakeholders, 74% reported that the lack of integration in existing tools affects their ability to use data effectively. Essentially, the existing technologies that we have today are not integrated, which leads to the data becoming siloed. This makes devices and enabling technologies themselves less valuable and less effective to the consumer.

Startup Solutions

However, several vendors in this space are offering integrated enabling technologies and energy services. Quby, a startup company founded in 2004 and acquired by the Dutch Utility Eneco, offers a white-label smart thermostat and energy display device where consumers can subscribe to energy services, such as monitoring power generated by rooftop solar panels and tracking home energy consumption. The company has seen success with utilities in Europe and plans to spread to the United States later this year. Salus, a subsidiary of Computime, manufactures devices, sensors, and control switches and offers an integrated energy management solution that utilizes combinations of its manufactured hardware devices with software to form a complete platform.

The growth in enabling technologies is allowing consumers to participate in energy activities that were not possible or accessible before, and they are enabling additional points of contact between utilities and their consumers. However, it is important to keep in mind that these technologies are much more useful to consumers, vendors, and utilities when integrated with programs, energy services, and other enabling technologies. The integration of these devices is the key to saving energy and reducing consumption, not necessarily the device itself.

 

Integrated Demand Side Management Gathers Steam Through Targeted Approaches

— March 17, 2016

Network switch and UTP ethernet cablesIntegrated demand-side management (IDSM) has been a topic among DSM professionals and utilities in the United States for a decade. However, efforts to integrate energy efficiency and demand response (DR) in utility programs thus far has been challenging, and little progress has been made. Traditionally, energy efficiency and DR have been siloed within utilities, with misaligned goals and barriers to transferring funds between programs. Yet, the integration of DSM programs has become increasingly popular, especially in places such as California, where the combination of these programs has been used as a fundamental part of the state’s energy planning and strategy.

There is no standard definition of IDSM at this point in time, but the most common definition combines energy efficiency and DR technologies. There is also an aspect of integrating electric and gas DSM programs. More recently, integration has evolved to include other resources such as energy storage, solar, and fossil fuel-based distributed generation. The key drivers for advancing IDSM include technical, policy, and economic factors, such as increasing DSM goals and regulatory pressures, program cost reduction potential, targeted DSM, grid modernization, and smart thermostats.

Barriers to Overcome

However, the slow rate of IDSM program development points to a number of barriers to be overcome. These include utility organizational structures and budgets that are siloed and hard to cross-promote; energy audits that don’t consider both types of measures; cost-effectiveness and measurement and verification challenges with accounting for both types of benefits and potential double-counting; vendor conflicts of interest; and niche, early-adopter customer markets that may not accurately reflect the mass market potential for these offerings.

The move toward targeting DSM to specific distribution-level areas with high load growth or infrastructure constraints appears to be a growing trend. Historically, DSM programs were administered state- or utility-territorywide as a means to reduce overall system energy usage. As the electric grid has aged and general load growth has slowed due to economic conditions and the success of large-scale DSM programs, a more discreet form of DSM may be more effective and efficient. Even if systemwide load growth slows, many utilities will still have areas on their network with higher growth rates due to residential or commercial development.

An all-of-the-above DSM approach is valuable in such cases, since it may be unrealistic to have separate energy efficiency and DR vendors and marketing efforts to a small geographic territory. A combined effort makes sense so as to not overload customers with multiple messages. The concept of a non-wires alternative (NWA) has entered the lexicon, where a utility will look at other means of meeting its reliability requirements at a lower cost than a traditional distribution capital expenditure upgrade. Utilities such as Con Edison, National Grid, and Central Hudson have recently initiated such targeted DSM programs to address acute system needs.

Navigant Research’s new report, Integrated Demand Side Management, covers these topics and case studies in addition to forecasting of future growth of IDSM. As utility models, policies, and technologies evolve, the integration of various resources will only increase in practice and importance.

 

A Tragedy of Interests in Stalled Exelon-Pepco Merger

— March 17, 2016

modern square and skyscrapersExelon Corp.—the technologically progressive parent company to Commonwealth Edison (ComEd), PECO, and Baltimore Gas and Electric (BGE)—has faced multiple setbacks in its bid to integrate Pepco, which would make for the largest utility merger to date in North America. In 2014, Exelon’s and Pepco’s boards of directors unanimously approved a cash-based merger between the two companies. Both have been early smart grid movers, with Exelon’s subsidiary ComEd being among the technological leaders in both smart grid and smart cities innovation, and BGE receiving $200 million in Smart Grid Investment Grant (SGIG) funding for 2008-2012. Pepco Holdings, Inc. (Washington, D.C.) received over $50 million from SGIG for investments in advanced metering infrastructure, distribution automation, and customer experience improvement.

Ratepayer Advocacy, of Sorts

Following over 12 months of negotiations with the District of Columbia Public Services Commission (PSC), the merger has been delayed due to controversy over the insulation of residential ratepayers through 2019. The original plan, heavily advocated by D.C. mayor Muriel Bowser, had negotiated over $78 million to support environmental projects, low-income assistance, and workforce training initiatives, while funding a cap on residential rates for the next 4 years.

The PSC’s argument in rejecting the merger was that the plan created an imbalanced structure of support for residential ratepayers that federal funds and private businesses already supported. As such, it countered with a plan to place the $78 million in PSC-controlled escrow accounts, with none of that being set aside specifically to offset rate increase.  That plan has been rejected by Bowser, for the obvious reason that it removes her core requirement of placing financial protections on rates for citizens.

In order for the merger to continue, all nine parties involved in drafting the original version must agree to a revised merger proposition. And consensus among these groups, including the Apartment and Office Building Association (which supports the PSC ruling and protests the lack of assurances against commercial rate increases), and the D.C. Office of the People’s Council (which has rejected the PSC’s proposed changes reason similar to Bowser) might be a taller order than had been originally anticipated by the companies.

 

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