Navigant Research Blog

Do Water and Electricity Mix?

— July 21, 2016

Plant - WaterThe water-energy nexus is the interaction between energy, water, and all the aspects of generation and distribution that are involved with each. Many times, this nexus is used to describe the amount of energy used to distribute water and wastewater between water treatment facilities and end uses. This energy use is by no means small. In the United States, energy generated for water ranges from around 4% to 19%; California alone consumes 19% of its electricity for water and wastewater. Variations in energy generation are caused by geographic differences; hilly regions need to expend more energy to pump water across variations in altitude, and arid areas pump source water from aquifers deep underground.

Another aspect of the water-energy nexus is the amount of water it takes to produce electricity. Certain generation types (such as hydroelectric) have an obvious liquid component, but others are less apparent. New innovations in renewable energy, while still consuming water, help to preserve the resource by utilizing more region-specific energies.

A Flood of Electricity Generation

In Hawaii, an ocean thermal energy conversion (OTEC) plant recently began operations. This OTEC plant draws in warm surface water from the ocean, vaporizing ammonia and spinning a turbine, which generates electricity. The ammonia is condensed by water extracted from deep in the ocean. Other types of OTEC plants do not use ammonia at all, but utilize vaporized ocean water to power the turbine. This is the first plant of its kind in the world, though it is worth noting that the United States has been researching OTEC technologies since 1974. Makai Ocean Engineering and the Hawaii Natural Energy Institute developed this 100 kW facility as a way to test the OTEC process, and the plant produces enough energy to power 120 Hawaiian homes for a year.

For cities farther from the water, solar power might seem like the way to go. However, to get the most out of solar, many plant operators are turning to auxiliary steam components. For example, the Ivanpah Solar Power Facility in the Mojave Desert of California utilizes heliostat mirrors to focus sunlight on solar power towers. These towers are heated by the solar energy, and steam is created to drive a steam turbine. The combination of steam power and photovoltaics makes this plant one of the largest solar installations at 377 MW capacity. In addition, its air cooling system means that other than the water used to generate energy, the plant uses 90% less water than other solar thermal technologies with wet cooling systems. However, there are drawbacks to solar power at this concentration. On May 19, 2016, one of the solar generating towers at Ivanpah caught fire due to improperly tracking mirrors that focused sunlight on the wrong part of the tower. There have also been reports of effects on wildlife, such as birds and tortoises. The issues in the development of high intensity renewable energy must be ironed out before these types of plants become widespread.

Renewable energy is important, and not just for the conservation of fossil fuels. Well-integrated renewable energy will utilize the natural resources of the region to produce sufficient electricity without wasting scarce ones. Traditional electricity production uses large quantities of water, but renewables (even those designed specifically to utilize water) can help conserve this. Producing energy may be a very water-intensive process, but many innovations in electricity production hold the promise that this market is becoming less thirsty.


Energy Efficiency Is Not Lost in the Supermarket

— July 18, 2016

ControlsLast month, national grocery store chain Trader Joe’s made headlines when it agreed to reduce greenhouse gas emissions from refrigeration equipment at 453 of its stores. The federal government alleged that Trader Joe’s had violated the Clean Air Act by failing to repair leaks of R-22, which is used as a coolant in refrigerators but which also depletes the ozone and has 1,800 times more global warming potential than CO2. In addition, the government alleged that the company failed to keep appropriate service records.

Under the proposed settlement with the U.S. Department of Justice and the U.S. Environmental Protection Agency, Trader Joe’s will spend an estimated $2 million over the next 3 years to reduce its leak rate to less than half the average in the grocery store sector and to use non-ozone depleting refrigerants at all new stores. It also agreed to improve its leak monitoring and recordkeeping. This is the third settlement federal authorities have reached with a national supermarket chain over refrigeration practices. Previously, Safeway agreed to pay $600,000 in penalties and reduce its emissions in 2013. The following year, Costco also agreed to pay $335,000 in penalties and take similar emissions-reducing actions.

Reducing Operating Costs

An average-sized grocery store releases 1,900 tons of carbon emissions annually. By reducing the amount of ozone-depleting refrigerants and potent greenhouse gases, the Trader Joe’s settlement will help address major global environmental problems. An added benefit of repairing refrigerant leaks is improved energy efficiency of the system, which can save electricity. In fact, supermarkets are one of the most electricity-intense types of commercial buildings due to the large amount of power needed for food refrigeration. Refrigeration accounts for around 50% of electricity consumption in supermarkets. Every year, an average-sized grocery store spends more than $200,000 on energy costs. Consequently, energy efficiency technologies that help reduce energy consumption can significantly reduce operating costs and improve profit margins. According to ENERGY STAR, a 10% reduction in energy costs can boost net profit margins by as much as 16%.

Fortunately, there are ample energy efficiency and emissions-reducing investment opportunities for the retail sector. Some efficiency upgrades specifically target the supermarket segment and refrigeration practice. For example, Axiom Exergy’s Refrigeration Battery stores cooling, not electricity. The battery stores refrigeration when electricity costs are the lowest and deploys it when electricity costs are the highest, reducing on-peak demand by up to 40%. Thermal storage tanks and software optimizing the charge cycle can be easily added on to an existing system.

The Retrofit Market

The average supermarket size in the United States is 47,000 square feet, placing these stores in the small and midsize building class. Navigant Research defines small and medium commercial buildings (SMCBs) as those ranging from less than 10,000 square feet up to 100,000 square feet, and most supermarkets fall under this class. While approximately two-thirds of the global building floor space is occupied by SMCBs and more than 90% of commercial buildings are small or midsize, SMCBs have not yet seen the same penetration of energy efficiency technologies as larger facilities. However, with the largest commercial buildings already engaged in energy efficiency retrofits, the focus is expected to shift to SMCBs. According to Navigant Research’s Energy Efficiency Retrofits for Small and Medium Commercial Buildings report, the SMCB retrofit market is expected to grow from $24.1 billion in 2016 to $38.6 billion in 2025.


Integrated DER Maturity Assessment, Part II of III

— July 18, 2016

Energy CloudAs introduced in the first post in this series, Navigant has created the Integrated Distributed Energy Resources (iDER) Maturity Model for electric utilities in an effort to help utilities understand and appropriately adopt DER. DER adoption is one of the most disruptive factors affecting the grid today and into the future. Many North American utilities are unprepared for the dynamic impact these resources will have on current grid operations. For utilities to take control of their future, an iDER strategy and approach is critical. The iDER Maturity Model provides the benchmark for a utility to measure their current state, a guideline for what a mature utility looks like, and a starting point for what the next steps should be.

Navigant’s multifaceted iDER Maturity Model benchmarks a utility against five maturity levels across the following major dimensions:

  • Leadership
  • Regulation and Policy
  • Business Models
  • Customer
  • Operations
  • Technology

For each category, Navigant also defined a one to five “maturity level” scale, as shown in the table below, ranging from Level 1: Inactive DER, to Level 5: Fully Mature iDER Business. By ranking a utility’s maturity across each dimension, Navigant has created a matrix that utilities can leverage to understand and map out a profitable path to the future. To illustrate the maturity levels, two utility profiles describe how organizational initiatives can be benchmarked against our iDER Maturity Model and how the matrix can be used to identify next steps.

iDER Maturity Level Descriptions

iDER Descriptions

(Source: Navigant) 

iDER Maturity Model Benchmarking Categories

iDER Benchmarking

(Source: Navigant)

Example Utility A: Business as Usual Market (Maturity Level 1 to 2)

A utility in a state representative of business as usual (BAU) stayed the course on investing in traditional generation assets and was reluctant to even pursue advanced metering infrastructure (AMI) investments. However, disappointing load growth and increased federal regulations targeting fossil generation of late are undermining long-standing assumptions, causing management to reevaluate priorities. This includes surveying DER opportunities and contemplating shifting investments toward assets and services that would support DER. The question remains of whether these efforts will be too little too late as the utility’s customers increasingly become targets for third-party providers of energy services.

This utility is behind the curve and should use the iDER Maturity Model to identify the starting points for piloting DER initiatives. In addition to planning investments in AMI, the utility needs to begin redesigning and overbuilding targeted portions of its distribution grid, as well as installing control and safety schemes to allow for the two-way power flows seen with high DER penetration. For customers, the utility also needs to begin development of a streamlined process for integrating rooftop solar and electric vehicle (EV) charging stations, and to pilot mutually beneficial customer DER programs. On the operations side, the utility leadership needs to develop IT/OT tools and processes for its operators to manage DER and to help bring DER from the fringe into the mainstream within its organization.

Example Utility B: Grid Reform Market (Maturity Level 3 to 4)

A utility that operates in what could be characterized as a grid reform state (i.e., under aggressive renewable and distributed policies) has taken a decidedly Energy Cloud mindset. Anticipating a more networked grid, this utility has begun developing new services—integrating EV charging with demand response (DR), offering bring your own device programs to customers, etc.—to serve an integrated, plug-and-play electricity system that it believes will enhance the value of individual assets across the network. With the goal of shifting away from the traditional ratepayer model, this utility is taking steps to provide customers maximum flexibility and choice in how they use energy in order to maximize value across the network. To accomplish this, this utility is proactively building collaborative partnerships with technology providers.

This utility has a leg up on many utilities, but can still leverage the iDER Maturity Model to clarify its vision of the future and identify next steps. The utility should focus on expanding the membership to its DER programs through improved customer outreach, possibly implementing a new customer portal, and offering new DER programs in transactive energy, rapid DR response, and targeted residential programs.  On the operations and technology sides, it will be very important to integrate all DER management systems with other IT/OT systems, such as customer information systems (CIS), advanced distribution management systems (ADMS), and meter data management systems (MDMS), to remove organizational and operations silos. As DER penetration grows, operators need to see DER as just one more lever they can pull in managing the grid, just like dispatching additional generation. Finally, as IT/OT systems become more interconnected and complex, the communications network limitations can often become a hindrance—the utility should utilize grid edge intelligence as possible and ensure network security and latency issues are resolved.


Brexit and the Future of Energy in the United Kingdom, Part 2

— July 14, 2016

Bangkok SkylineIn my previous post in this two-part series, I discussed different potential scenarios for the U.K. energy sector after Brexit; here I examine Brexit’s impact on energy investment and energy industry in the country.

Brexit has caused widespread economic uncertainty and market volatility. Though the FTSE100 index has recovered from its initial decline, the pound is still trading well below its pre-election levels. While it’s not an economic disaster, Brexit-related uncertainty will expose the United Kingdom to greater instability when economic shocks do occur. The days of the country being a safe economic haven are over.

The U.K. energy industry relies heavily on capital investment to build large-scale assets—in recent years, this investment has gone into both onshore and offshore wind, the conversion of coal generation to biomass, and grid reinforcement. The United Kingdom is a 16% shareholder of the European Investment Bank (EIB), which provides ultra-low-cost funding to European infrastructure projects. In the 5 years leading up to 2015, the U.K. energy industry received more EIB funds—28% —than any other industry. However, Brexit will make it harder to access EIB funds for new projects. The bank has no provision in its statute for countries leaving the EU; the bank recently told Newsnight that “some U.K. projects, which previously would have stood a good chance, are now less likely to be approved.”

Interconnector Uncertainty

There will also be significant uncertainty regarding the country’s interconnector projects with mainland Europe. The United Kingdom’s participation in the single market provided investors with enough certainty to create a business case for interconnection. Before progressing with these projects, investors will require assurances that the country will be able to access cheap power from its European neighbors when its power prices are high, and vice versa. Future EU-imposed tariffs on the sale of electricity between a post-Brexit United Kingdom and the rest of Europe will kill interconnection projects, as without significant price arbitrage, there is no business case.

A new nuclear power station at Hinkley Point is central to the country’s long-term energy security, given the country’s rapidly decreasing capacity margin as older coal-fired generation plants are decommissioned. However, the country’s credit rating has been cut, along with many of its banks. This will likely raise the cost of capital for these large-scale energy projects, and may sound the death knell for the Hinkley Point project. The French government-owned lead partner EDF was on the verge of pulling out of the project before the Brexit vote; early indications suggest EDF will pull the plug.

Capacity Shortfalls

If Hinkley Point isn’t built, how will the United Kingdom address its falling capacity margin? One way will be to continue with its renewables program. However, the public is as hostile to onshore turbines as it is to European bureaucrats. To date, the United Kingdom has been a guiding light in offshore wind; however, these projects are more expensive per kilowatt of capacity than onshore projects. And with a higher cost of capital and an uncertain commitment to renewables, the country may find it difficult to find investment partners willing to commit to future offshore developments.

The capacity shortfall could be made up with domestic solar, but the ruling Conservative Party has already demonstrated its antipathy to subsidies by slashing the feed-in tariffs for domestic solar. With the threat of a post-Brexit recession, the government is more likely to remove incentives than introduce more generous ones.

What is more likely is a retrenchment from the country’s previous renewables obligations and a refocus on fossil fuel-powered generation—including the extension of the life of coal-fired generation—at least in the short- to medium-term. With historically low gas prices, we could see a resurgence in gas-fired generation. Fracking could also be back on the United Kingdom’s agenda: post-Brexit, the country will be free from the generally anti-fracking European body politic.

Siemens has gone on record about its uncertainty regarding future investment in the U.K. economy; this position is entirely expected. Most companies currently considering investment in the United Kingdom’s energy industry are expected to follow Siemens’ lead and wait until new prime minister Theresa May takes office and provides more clarity on what Brexit means for the country’s energy industry. While we just don’t know the extent of the fallout from Brexit on the U.K. energy sector, we do know that there will be an impact, and that it will most likely be negative—there are few positives to draw from the British public’s decision.

Potential Opportunity

So far, so gloomy. But is there a silver lining to what many see as a very gray cloud? While there is much to be pessimistic about, there are some potential positives to take from Brexit. Amber Rudd, the U.K. Energy Secretary, recently stood by the country’s commitment to address climate change, and suggested the United Kingdom could adopt more ambitious targets for CO2 reduction: 57% reduction from 1992 levels by 2032.

It can’t be disputed that Brexit has increased the risk of losing EDF as a partner for the Hinkley Point nuclear plant. However, this does not mean the project has to end. Brexit could unshackle the United Kingdom from EU regulations on nuclear power and, more importantly, wider procurement rules. The lower-valued pound will make it harder for U.K. companies to pay for goods and services beyond its own borders, but makes it cheaper for foreign companies—for instance, those in the United States or Japan—to make investments. Some may view Brexit uncertainty as an opportunity to enter the U.K. market at a lower cost.


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