Happy 2050

Utilities have a central role to play in promoting energy efficiency and they no doubt have expertise to bring to the table. What complicates the matter is the basic mistrust felt by customers: Why would any energy company wish to sell less of its product?

A motivator for Utilities is certainly to reduce peak load

Peak power capacity is more expensive, more inefficient and more polluting than base demand capacity. Add to this the fact that growth in demand drives an even higher growth in peak demand & you can see how the total value of avoided capacity costs is a great motivation for energy efficiency: measures to reduce electricity demand are cheaper than building extra peak generation capacity.

But if that’s not enough to overcome the inherent disincentives to utility investment in energy efficiency, regulators & legislators have come up with interesting risk/reward financial mechanisms

In the US, some Public Utility Commissions have allowed Investor-Owned Utilities to adopt rate mechanisms that break the link between sales and revenue.

The decoupling calculation typically compares the IOU’s revenue requirement – as determined by the PUC in the most recent rate case – with the actual revenue collected. The difference between the two is the amount of under (or over) recovery. This amount is divided by the kWhs sold to determine the per-kWh adjustment factor to be applied to the rates during the next period.

These counterintuitive decoupling mechanisms – though subject to criticism – actually remove the disincentive for utilities to promote energy efficiency.

In Europe, Energy Efficiency Obligation is the policy tool predominantly used

The idea is that some part of the energy chain (supplier/ retailer or distributor) has a legal obligation to promote and stimulate investment, which will save energy in their customers’ households or premises.

1- Governments typically decide which sector will be obligated & the target because of the inherent environmental and societal impacts.

In the UK for instance, the obligated companies have to ensure that there are savings for low-income households.

The choice to regulate suppliers versus distributors has pros & cons. Distributors are regional monopolies with more stability but suppliers have strong links to the customers and, in a liberalized market, more marketing skills. Suppliers may also have less of a disincentive to reduce the amount of energy supplied because they can create new energy services to compensate for revenue loss.

2- A Regulator is then often appointed to oversee and verify the energy efficiency obligation process

For a lot of measures, utilities use “ex-ante” or “engineering” estimates – with random sampling procedure of audits – to lower implementation and verification costs. Although actual savings will vary by households for say a new appliance, the average value will be true because of the large numbers of households involved. For C&I customers, engineering estimates, based on scaling methods, are generally used.

As eligible measures are defined in advance by the M&V authority, this can mitigate against bringing in innovative technologies. To counteract this side effect, France, Italy and the UK allow energy suppliers to put in innovative solutions and monitor the savings they will subsequently claim. This option is rarely used though when 20% of energy can be saved through widespread application of existing and proven technologies.

3- If the obligation can be met by buying or selling energy saving credits, this is usually called “White Certificates”.

Most countries have penalties for those energy companies that will not fulfill their obligations & most programs allow banking, which also benefits the energy efficiency industry for longer term planning.

As governments typically have a variety of policies designed to improve energy efficiency in all end use sectors, concerns about additionality & double-subsidy are big. In France, certain energy efficiency measures can be offset against income tax but if you’re directly using central funding, it is not considered additional.

The bottom line is that the “selling less is more” trend is here to stay.

All these policies are meant to either encourage the development of ESCOs and/or change the mindset of energy companies so they see themselves moving from being suppliers of a commodity to becoming providers of sustainable energy solutions.

The general idea behind smart grid implementations is to layer a communication network alongside the power grid. “Sensors”, strategically located on the grid, are then connected to the network & generate data. The promise of the Smart Grid is that the collected data can be analyzed and transformed into actionable information, essentially becoming a decision making tool for utilities. This enhanced visibility – if processed properly – can yield greater energy efficiency, improve operations, fault management, maintenance processes and change the way utilities interact with their customers.

As the smart grid champions energy efficiency, the old paradigm of selling more electrons to generate more revenue can’t be relevant much longer & new business models will have to emerge. Decoupling is one of these counterintuitive models, which addresses this issue but overall the inherent heavy regulation makes it complex. It is a good starting point to change mentalities but is it sustainable in the long run?

The smart grid has the potential to give back what it takes away in terms of revenue

If the commodity sale of electrons is bound to decline, a sustainable growth path is to compensate for lost revenues by creating value-added services. This is where the smart grid data comes into play. The extra insight, acquired through the analysis of the collected data, enables non-trivial connections, which become the fertile ground for emerging services that cater to previously unidentified needs.

Granted: this is easier said that done – even if regulation hurdles are set aside. If other companies in the business of turning data into gold have taught us anything, the big challenge is to generate value that is worth paying for, without spooking people with the insight their utility now has into their behaviors.

To support successful smart grid services, the ICT platform required won’t be trivial … or cheap

“If a utility tried to collect consumption data at a central site every 15 minutes, each customer would generate almost 100 transactions per day. This number is a multiple of the number of banking, credit card and airline transactions that a household generates per day, which implies that the smart grid would necessitate an IT infrastructure larger than that of the banking, credit card and airline industries together (Source).

This gives an idea of the task ahead for utilities. But the ICT architecture necessary for data collection & analysis is only half of the equation. Successful services, issued from big data, will themselves generate lots of traffic with queries from smart grid applications, stakeholders and actual consumers: the serving ICT infrastructure will be no small feat either.

Utilities with millions of smart meters – for which off-the-shelf IT solutions won’t cut it – face a strategic choice. Will they heavily invest to ramp up skills internally? Or will they look for outsourced solutions? In any case, the price tag will be significant and the question becomes: is there a way to recoup the cost incurred with the additional revenue?

What would Amazon.com do?

Amazon.com began as an online bookstore and became the largest online retailer in the US thanks to a combination of computational skills, IT and operational savvy. They now leverage all of it in Amazon Web Services. They essentially managed to piggyback on their internal IT know-how to pull in a whole new category of customers that outsource their IT infrastructure on its cloud-computing platform. This transformation may have happened more by evolution than design but it turned out to be quite a visionary move.

Could a utility pull a similar move? After bearing the cost of building up the platform & skills to manage the tsunami of smart grid data, the best return on this huge investment could be for the utility to resell its newly acquired expertise and become a managed MDM service provider to other utilities overwhelmed by their data.

Would that be a blatant lack of focus or a visionary move?

Whichever way we look at this conundrum – whether you consider the unavoidable depletion of fossil fuels’ resources or analyze the dire consequences of carbon emissions on the climate – the logical & inescapable conclusion is that the current global trends of energy consumption are simply unsustainable for another century. Change will happen before 2100 and it is better to manage the transition rather than let it happen to us.

So where do we go from there?

The solutions we typically hear of belong to either one of these categories:

-   Use less energy

-   Use other forms of energy

-   “Twist” existing solutions and make them cleaner

All of the above can and should be taken into account in an overall action plan to reduce greenhouse gases’ emissions and the dependence to fossil fuels. But there are pitfalls to avoid before jumping right into action.

The best of intentions can still very much contribute to the problem

Teleworking is promoted as green because it reduces air pollution and GHG emissions from car commute. In 1999, the US Department of Transportation estimated that commuting behaviors accounted for nearly a 1/3 of all vehicular miles traveled so the environmental impact from a systematic adoption of telecommuting practices could potentially be substantial.

Let’s imagine you now work from home and squeeze in a few laundry loads between business calls – using the daytime electrical mix rather than the evening one. Let’s say you now heat up your house all day long, instead of turning the thermostat down before leaving for work, like you used to. What if the flex-offices, which have been set up for the occasional face-to-face meetings, have air-conditioning running and appliances plugged-in all the time, regardless of whether actual people are using the space? When you factor in all sorts of rebound effects that come courtesy of the new behavior, does telecommuting still deliver a positive “green” return on investment?

Teleworking is a handy example to showcase how things are not as clear-cut as we’d want them to be but it’s hardly the only one. Biofuels or reforestation, to name a few, are other examples of solutions that can backfire pretty badly when not managed properly.

Do the math first

Knowing that a solution has the potential to provide environmental benefits is not always enough: hard figures need to prove which usage scenario provides the sought after “green RoI”.

That is why a thorough GHG footprint assessment must be the first step for a company – or an individual for that matter – looking at reducing its environmental impact. The figures yielded from the assessment will be the cornerstone of a sound environmental strategy: it identifies the low-hanging reduction opportunities and gives the necessary perspective to select which solutions make most sense for a specific situation.

Based on popularity index and media coverage, renewable energies certainly look like they are high up on the list of things we ought to do. Today, the contribution of non-fossil energies to the global supply is a little short of 20%, but let’s take a more specific look at renewables.

Source: International Energy Agency – Key World Energy Statistics 2008 – Total Primary Energy Supply 2006

Biomass

The first source of renewable energy globally is wood-burning (half of the 20%). It is only renewable though if we burn fewer trees than we plant, which is a big constraint when considering growth potential. If larger portions of land are used to harvest energy, more intensive agricultural practices will be used elsewhere to boost yields and keep the production constant. Such practices are big consumers of fossil fuels and rather harmful to the environment.

It may sometimes make sense locally (for instance, forests in France are gaining in surface) but wood-burning’s contribution to global energy production is unlikely to increase by much. 

Hydro

Second on the list is hydroelectricity at 2.2% of global energy supply. There are apparently more than 48,000 large dams worldwide and they prove very useful in Norway (100% of electricity) or Brazil (85%). A significant number of new sites are suitable to produce hydroelectricity (though not in Europe) so there is indeed growth potential: on average, one new dam is built every day.

KWh from waterpower could be increased, with estimates ranging from a factor 2 to 10 but it is not exactly harmless to the environment and trade-offs have to be carefully examined.

Geothermal, solar, wind & biofuels

Geothermal energy comes in third position … way behind. Geothermal, solar, wind, biofuels’ cumulative contribution is a dismal 0.6%.

So what’s the growth potential?

Renewable energies hold a great potential in the long-term. But the imperative to dramatically reduce fossil fuels’ dependence is short-term.

Doubling or tripling the contribution of renewable energies to the global production over the next few decades already sounds ambitious, given the current state. It will be quite a test to see how President Obama’s call to double renewable energy in 3 years plays out. 

What should be also be emphasized is that an absolute increase is NOT the end goal: it will only help if this accrued production is a substitute to fossil fuel burning.

The decline of oil production will start in less than a generation and burning all coal, oil & natural gas would only take a short century. Since fossil fuel is the fabric of modern life, most people would agree that the better option is to manage the decline.

But what exactly does it mean – “managing” the decline? Well I think it means having the answers to 3 fundamental questions:

- By how much do we need to reduce our consumption?

- How quickly do we need to attain the reduction targets?

- What are the tools we’ll use to get there?

We tackle these three questions in this video. Enjoy!..

As we are making progress with our practical guide to talking with skeptics, I am setting aside – at least for now – all concerns on climate change, to assess the severity of a potential energy crisis on its own merits.

Energy is the fabric of our modern lives and fossil fuel abundance is what makes us so resilient today in the face of adversity – whether climatic or else. We have argued that the giant climate crisis in the making is happening precisely because we have used a large portion of fossil fuels’ reserves. But let’s explore the other side of the coin with the first video: The more we burn fossil fuel, the more we put ourselves and future generations at the mercy of adversity, with less and less energy as a mean to face it.

The best estimate from the IPCC is that the global average temperature of the earth’s surface has increased a 0.6ºC (+/- 0.2ºC) over the last 100 years.

When the objection is raised that this past increase is a natural phenomenon – as opposed to the consequence of human greenhouse gases’ emissions – the implicit foregone conclusion is that mankind is off the hook.

The truth is that one does not exclude the other. If nature is a factor, then both natural variability and the increase of greenhouse gases’ concentration in the troposphere will have cumulative effect in future temperature rise – making climate change an even bigger crisis.

Before we worry sick(er) about a double whammy effect, is there evidence that rules out natural variability as a factor in past warming?

Evidence #1

The IPCC report shows the following variation of the earth’s surface temperature for the past 1,000 years and for the past 140 years

Source: http://www.ipcc.ch/ipccreports/tar/vol4/english/pdf/wg1spm.pdf

The rise over the 20^th century is visible and represents a clear break from a previous stable to mild-cooling trend. But the magnitude of the recent increase is in the error range of older temperature measurements. So no definitive answer can be drawn from these graphs only.

Evidence #2

Since the rise after 1970 is pretty steep, let’s look for any major change to the natural factors that influence our climate during that same time period.

• No noticeable changes were observed for volcanoes’ activities.
• For solar radiation, the story is more convoluted. In the mid-70s, scientists noticed that the rate of evaporation was dropping, although you’d expect it to increase with global warming. Scientists were stunned to discover that the sun had actually been growing dimmer with less and less sunlight reaching earth’s surface. This had likely been caused by an increase in particles like aerosols in the atmosphere, due to human activities. This trend switched in the 90s, just as global aerosol levels started to decline.

If anything, global dimming created a cooling effect that may have partially masked the effect of greenhouse gases on global warming.

Evidence #3

Temperatures have risen more quickly during the night and winter, than during the day and summer in temperate countries.

The greenhouse effect is constant throughout the day: it “blocks” terrestrial radiation with the same intensity all day long. On the other hand, solar heating is null at night and lower in the winter. So the greenhouse effect has a bigger influence on temperatures when there is no sun, i.e. at night and in the winter.

The observed pattern is therefore consistent with the additional greenhouse effect human emissions have generated.

Evidence #4

In its 2001 report, the IPCC stated that no climate model could reproduce the temperature rise of the second half of the 20^th century without factoring in anthropogenic greenhouse gases emissions.

The inescapable conclusion to all of this? Natural phenomenon or not, we need to change our current ways of doing business and living our lives. Go & check towards a happy 2050 to determine how worried we should be!