Navigant Research Blog

Monetizing Energy Efficiency: Creating Additional Value Streams for Your Customers

— December 8, 2017

Much is transforming the global energy landscape these days. Building technologies are progressing from single point solutions to system and platform-based solutions utilizing the latest in smart digital technologies and the Internet of Things. Utilities are reshaping entire business models and strategies to integrate and enable a swiftly growing and diverse stock of distributed energy resources. These are just two of the more visible market evolutions. But as with most industry transformations, change does not happen all at once.

Large groups of buildings (of all sizes) lie along the continuum of advancement with regard to building technologies. Most organizations realize the potential benefits of energy efficiency; however, there are still hurdles that could prevent these types of projects from moving forward. According to a recent Navigant Research report, Energy Efficient Buildings Global Outlook, these hurdles include confusion about which technologies to adopt, what internal resources would be required to manage an advanced building, and how to best understand and calculate payback and ROI to get a project approved.

On the supply side, utilities are also realizing the benefits of making the buildings in their service territories more efficient. Utilities must be concerned with their conglomeration of generation assets to ensure a reliable future energy supply. Energy efficiency and demand-side management (DSM) are two ways that utilities manage this critical task. In fact, at less than 3 cents/kWh, energy efficiency is the most cost-effective source of energy compared to all other sources of generation.

For decades, utilities have had success reaching large commercial and industrial and even residential customers with incentive-based DSM programs like energy efficiency and demand response. PJM is an example of a regional transmission organization (RTO) that understands and actively pursues energy efficiency initiatives to include in its regional capacity planning. Over time, PJM has encouraged over a gigawatt of annual energy efficiency projects in its current and future capacity markets.

The one hurdle faced by utilities and RTOs is awareness of these programs. Small- to medium-sized businesses, energy service companies (ESCOs), and even larger commercial customers may not be fully aware of the availability of these programs. Incentives can go a long way toward clearing energy efficiency project hurdles. For example, utility and RTO incentives may be the final project piece that enables payback and ROI calculations to meet internal financial requirements. Organizations can benefit from working with outside specialists in this area to help understand what is available and how best to assess and include incentives in efficiency and sustainability initiatives.

Join the Conversation

Navigant Research is hosting a free webinar, Monetizing Energy Efficiency: Creating Additional Value Streams for Your Customers, on December 12 at 2 p.m. EST. I will be joined by Meg Kelly, Senior Director of Energy Efficiency, and Russ Newbold, Director of Sales Operations at CPower. Learn the benefits of utilizing PJM capacity credits as a value to you and your customers.

The webinar will help end-use customers—and ESCOs that serve customers—learn what capacity credits are, how to attain them, and how to make them a part of the value chain to earn more energy efficiency project business. This webinar will outline how to benefit from these credits and, for ESCOs, how to add value to proposals all the way through receiving the payments.

 

Is HVAC Disruption Possible?

— December 7, 2017

HVAC is ripe for disruption in global buildings of all kinds. Why? It is one of the highest energy consuming components installed in any building. Additionally, the chemical substances that HVAC equipment uses to cool a space are highly polluting and even dangerous to handle. Space heating and cooling, along with water heating, are estimated to account for nearly 60% of global energy consumption in buildings. The global building stock accounts for over one-third of final energy consumption, with an equally large amount of greenhouse gas emissions attributed to the space. Reducing the energy consumption and emissions of buildings is a necessity, or at least a significant opportunity, if the world hopes to meet its sustainability and emissions goals.

If It Ain’t Broke, Don’t Fix It?

So why is disruption of the heating and air cooling of buildings necessary? It’s not. Using today’s technologies, buildings can achieve net zero energy consumption. But this requires the implementation of renewable generation sources to offset consumption demand from heating, cooling, and other electrical loads. Demand can be reduced through the use of intelligent building management software and efficient technologies such as high performance insulation and building envelope materials, high performance windows, proper building siting, efficient lighting, and others. Even HVAC has improved in efficiency over time with advanced controls, ductless systems, variable refrigerant flow, and outside air handlers, for example. Intelligent building management tools such as building energy management systems tie these components together to optimize energy demand and consumption.

The above are optimizations of existing technologies, but they are not truly disruptive. Disruptive technologies make existing technologies irrelevant, changing the model of how a technology or process is used. Companies that fail to recognize the market adoption of the new disruptive technology will be left behind.

If It Ain’t Broke … Disrupt It!

Let’s look at a few examples. Smartphones existed before the iPhone, but Apple created a transition in how people use these devices. Trains reduced the time necessary to travel west from weeks or months to several days. SpaceX reduced the cost of access to space by a factor of 10 through reusability. Elon Musk’s new company, Boring, will reduce the cost of digging subterranean tunnels by around the same factor. In all these instances, the efficiency gained is measured in factors, not increments. If the HVAC operational model can be disrupted by similar factors, the global building stock drag on energy demand and emissions will be reduced significantly.

So let’s disrupt HVAC! That’s always easier said than done. It may be impossible to disrupt this industry if governed by, for example, the immutable laws of thermodynamics. But it is an area ripe for disruption mainly due to the significance of savings that can be achieved. Are there technologies that exist or that are being researched that can achieve this disruption, like solid-state heating and cooling? Maybe so. Disruptive technologies sometimes hide in plain sight for long periods of time.

Other headwinds to HVAC disruption also exist. Large incumbent HVAC vendors have the resources to maintain their market positions. There are high barriers to entry and large capital costs in this industry, making it more difficult for startups to innovate. It is a highly regulated industry. However, it is also in high and increasing demand in certain parts of the world, and building tenants are requiring more and more with regard to air quality, comfort, and individualized space conditioning.

The thing about disruption is that the naysayers win until they don’t. That was the case with the iPhone. In the case of HVAC, let’s hope someone’s collective vision gets blurred enough to capitalize on this huge opportunity.

 

Reimagining Energy Efficiency as a Pillar in the Climate Action Strategy

— December 5, 2017

A recent Wall Street Journal blog post by Sam Ori from the University of Chicago, “Why Government Energy-Efficiency Programs Sound Great–But Often Don’t Work” starkly criticizes energy efficiency programs and ideas on how to revisit residential program design. The author’s conclusion is sound, but there is more to be said on how energy efficiency can become a sturdier pillar in the strategy to combat climate change. Ori points out, “there is an opportunity for policymakers to rethink the ways they choose, design, implement, and evaluate energy-efficiency programs.” Based on ongoing Navigant Research analysis, policymakers play a role, but the challenge requires a balanced two-pronged approach.

Utilities Are Only Part of the Equation

The reality is that a transformation of the energy industry is underway. A more dynamic, digital infrastructure of renewable, distributed, and non-traditional resources is being applied in the commercial buildings context. Navigant Research characterizes this new energy ecosystem as the Energy Cloud. In the buildings sector, rapid adoption of behind-the-meter energy management technologies, alongside onsite power generation and storage and ongoing investments in information technologies on the utility side of the meter, are redefining the relationship between electricity supply and demand.

This means federal and state policy and electric utilities will no longer be the gatekeepers of energy supply or the rule makers for how to orchestrate shifts in energy demand. Energy efficiency improvements are crucial for building optimization, which is made possible by intelligent technologies—notably the uptake of Internet of Things infrastructure and analytics. Navigant Research’s recent Building-to-Grid Integration report outlines how the intelligent building represents a conceptual paradigm shift for businesses through the integration of facilities management and IT. The intelligent building unifies strategy, investment, and decision-making. The door is open to market influencers, utilities, and many others that can introduce creative ways to utilize existing technology infrastructure, deploy new solutions, and analyze increasing data streams to optimize facility operations that meet broad business demands with energy efficiency savings as a byproduct.

Do Not Undervalue Energy Efficiency for Commercial and Industrial Customers

The Wall Street Journal blog outlined some significant challenges to realizing greater carbon emissions savings from energy efficiency in the residential sector, but missed one important part of the climate change big picture: tackling commercial and industrial (C&I) building energy use. C&I facilities are important because they not only consume more energy, but are also more energy-intensive per SF of floor space compared to residential customers.

Furthermore, C&I customers can be effective partners in tackling energy efficiency improvements because the scale of their effectiveness (and business perspectives) can help accelerate change. First, the energy savings potential of a single large building, single customer with multiple buildings, or a campus simply delivers a greater volume reduction in energy use and therefore carbon savings. In order to meet the magnitude of savings to combat climate change in a significant way (as outlined in the Wall Street Journal blog), business customers need to participate. Second, business customers understand the risks that climate change presents to their bottom lines and the mounting environmental, social, and economic challenges tied to unfettered energy consumption. This sector deserves credit for showing leadership through sustainability initiatives. Read more about how C&I customers invest in sustainability and combat climate change in Navigant Research’s report Intelligent Building Technologies for Sustainability.

As Ori summed up, “Energy efficiency offers significant potential as part of a portfolio of climate policies. But that potential will only be realized if we crack the code to get programs structured to deliver results. If we don’t, dealing with climate change will be much more expensive than we realize.” Want to hear more about Navigant Research’s perspective on the importance of energy efficiency? Register for our upcoming webinar, Monetizing Energy Efficiency, with Tom Machinchick.

 

Evolving Smart City Strategies: Five Trends and a New Challenge

— December 5, 2017

During research for the UK Smart Cities Index 2017, we had the opportunity to discuss the current state of smart city development with smart city leaders and other key stakeholders. They are now seeing years of work on developing city innovation programs coming to fruition as smart city programs become central to city strategies and successful projects are deployed at greater scale. This momentum is reflected in a number of emerging trends.

Bridges between Innovation and Operations

The leading cities have laid strong foundations for the development of innovation both technically (in terms of test beds and platforms) and culturally (in terms of a trusted ecosystem of partners). The challenge now is to integrate this innovation culture with the day-to-day operations of the city. These cities are strengthening the links between innovation teams and city departments. New pilots and demonstrations are also being more closely aligned to city strategies and priorities.

Emergence of City Platforms

Cities are developing more cohesive strategies for the deployment of new technologies. In particular, they are taking a more strategic view on the future deployment of Internet of Things (IoT) technologies and the necessary communications infrastructure. These cities have deployed or are planning large-scale deployments of low power networks, are vying to be test beds for 5G technologies, and are looking at future fiber needs to support these ambitions.

From Smart Cities to Smart Places

Smart city programs are branching out to include multiple local authorities and agencies at different tiers of government. A city-region approach enables closer integration across a range of services and offers the benefits of scale when applying for funding or tendering for new services or solutions. It also enables smaller cities and towns to be involved in more ambitious programs. At the other end of the scale, there is a growing focus on the development of smart districts and communities within cities.

City Partnerships

There is a strong desire among city leaders to build more public-private sector partnerships. One of the most notable developments in this regard is the increasingly close relationships that smart city programs are developing with local universities. Universities are not only providing research support, but are also often active players in defining projects, securing funding, defining strategies, and contributing to or providing leadership of programs.

A Holistic View on City Challenges

The opportunity to take a more holistic view of city challenges is one of the foundational concepts of the smart city movement. However, it is much harder to achieve in practice. The leading cities are now taking their experience with diverse pilot projects to develop approaches that embed such a perspective in the design of programs, scoping of projects, and measurement of benefits. Some cities, for example, are combining this with a focus on smart districts or communities where the complex interconnection between transport, health, energy, housing issues, and innovations can be tested at scale.

Learning to Manage Risk

These positive developments are leading to fresh assessments of the challenges facing smart city initiatives. While funding unsurprisingly continues to be a significant issue, the most commonly cited challenge to the wider adoption of new technologies was the ability of local government to accept and manage the risks associated with innovation—in financial, organizational, cultural, and technical terms. Finding new ways for cities to manage these risks—and the role that the private sector, national government, and other partners can play in reducing or underwriting that risk—may be the most important innovation of all.

 

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