Energy Exchange

Hawaii Making Waves In Financing Clean Energy

By / Published: February 5, 2013

Public Utility Commission orders on-bill program to finance clean energy

Last Friday evening, February 1, the Hawaii Public Utilities Commission (PUC) issued a landmark decision and order to create an on-bill program, very much in line with EDF’s recommendations for on-bill repayment (OBR), that will provide access to low-cost financing for solar and energy efficiency projects for homeowners and small businesses.  This decision comes 18 months after the State passed legislation directing the PUC to investigate an on-bill program and authorized the Commission to implement the program (by decision and order or by rules) if the on-bill program was found to be viable.

The PUC decision determined that a statewide on-bill program is viable, and specified program design criteria that the Commission deems necessary to achieve viability.  EDF has been working to shape the proposal with key stakeholders including environmental groups, lenders and the Hawaii State Energy Office.

The specified criteria include the following components that EDF believes are critical for achieving both success and scale:

  1. bill neutrality (project savings exceed financing payment obligations)
  2. tariff-based obligation
  3. tariff is tied to the utility meter and therefore transferable
  4. standard collection procedures, including disconnection for non-payment of OBR obligation
  5. pro-rata allocation of partial payments

Since the terminology can be confusing, it is worth noting that this is not a typical ratepayer-funded on-bill finance program, despite having the same designation. The Hawaii program leverages private capital, and the PUC supports participation by multiple sources of capital rather than a single financing entity.  EDF believes both of these elements are critical to scaling the program and meeting the needs of a diverse set of property owners.

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Also posted in On-bill repayment, Renewable Energy / Tagged , , , | Read 3 Responses

Do We Need Breakthroughs Or A Simple “Carbon Diet?”

By Jackie Roberts / Published: January 29, 2013

Over the weekend, The New Republic published an interview with President Obama, where he noted the following: “On climate change, it’s a daunting task. But we know what releases carbon into the atmosphere, and we have tools right now that would start scaling that back, although we’d still need some big technological breakthrough.”  How accurate is the call for breakthroughs and what do we really need?

First, let’s look at where we don’t need breakthroughs, but instead more deployment – energy efficiency, of course, being Exhibit A.  Creative financing, such as on-bill repayment (OBR), at scale can speed up deployment here.  Similarly, unlocking clean energy to reduce carbon emissions from the electricity sector hinges on affordability.  Wind energy is already competitive with fossil fuels, in large part because the cost of wind energy has come down around 65 percent in the last 20 years, according to the National Renewable Energy Laboratory (yes, declining natural gas prices provide new competition, but EIA projects that natural gas prices will begin to increase in 2018, and wind power purchase agreements are signed for around 20 years at a fixed price).  Residential solar is verging on the tipping point for “grid parity,” or the point at which a source of power becomes cost competitive with other sources.  Bell Labs first introduced solar cells in the 1950s.  Environment California’s Research & Policy Center recently reported that they expect solar to reach grid parity in mid-2014 to 2016 at the outset. 

Of course, progress in lowering costs and increasing efficiency comes on the heels of many smaller innovations.  For example, innovations in materials science underlie many of the most promising technology evolutions, such as the role of carbon fiber as a basic raw material for wind turbine blades or the use of Gallium Arsenide wafers to reduce manufacturing costs for solar cells.  But, nonetheless, given our country’s strength in materials science (think of our leadership with companies like Dow, Dupont and 3M), such innovations seem imminently feasible and in my mind don’t require a major “breakthrough.” 

We’ve also delivered numerous hardware and software innovations to transform our electric grid into a more resilient, smart, “green” grid.  Even carbon capture and storage, to some a high stakes technology bet, is actually just a new configuration or application of engineering equipment we have installed and used for decades, such as heat exchangers, chillers, absorbers, pumps and compressors.

Where would I wave a wand for a breakthrough?  A cheap, reliable and efficient energy storage system wouldn’t hurt, one that replaces the clunky compressed air systems or the size limitations of batteries.  But, overall, the declining cost curves for clean energy solutions, due to innovations large and small, tell us an important story:  solving the climate crises is not unaffordable or necessarily a drag on our recovering economy as many fear.  It is certainly not infeasible nor hinging on that one great technological breakthrough. 

We need non-technological breakthroughs.  Like the new head of the World Bank, Dr. Jim Kim, who in Davos described wanting to make “everything the Bank does aligned with the effort to slow down climate change.”  And it is certainly cheaper than repeating the $50 billion recovery price tags that we might face time and again as Superstorm Sandy becomes the new normal. 

Americans love the quick technical fix.  But, today we have affordable answers right in front of us, it’s the willpower we may be lacking.  So, just as most of us believe that rather than wait for a dieting breakthrough, the best answer to weight loss is reduced consumption and more exercise – we need to go on a carbon diet.  Our economic and environmental health depend on it.

Also posted in Climate, Demand Response, Grid Modernization, On-bill repayment, Washington, DC / Comments are closed

Nature: The Rebound Effect Is Overplayed

By Gernot Wagner / Published: January 24, 2013

This commentary was originally posted on EDF’s Market Forces blog.

Trying to put the rebound effect for energy efficiency in its rightful place is like playing a game of wack-a-mole. Predictably every couple of years, someone new discovers the counter-intuitive appeal of showing how more efficient energy policies may lead to more energy use. Wham! Told you there’s something wrong with those clean-car standards. Well, not so fast.

Yes, the rebound effect is real. But it’s also small. And what’s there is actually positive! Why shouldn’t people who can now afford to due to more efficient energy technologies be able to improve their lives?

Together with three co-authors (Ken Gillingham at Yale, Dave Rapson at University of California, Davis, and Matt Kotchen, currently on leave from Yale to serve as Deputy Assistant Secretary for Environment and Energy at the U.S. Treasury), I surveyed a bajillion+1 energy efficiency rebound studies. Nature then made us cut down those references to 6. We settled at 9.

We couldn’t find a single study that has the rebound be above 100% or anything close to it, what’s necessary to nix energy efficiency savings. The maximum number you can get is 60%, and that’s already quite a stretch. Think 30% as the upper bound for actual behavioral responses. Yes, we are more efficient today than we were a hundred years ago, and we also use more energy today. But that’s far from talking about the rebound effect. It’s simply economic growth.

Establishing a causal link between efficiency and energy use isn’t quite as simple. In the end, the rebound effect comes in four forms. Buy a more fuel-efficient car, and driving that next mile just became cheaper. The result: a bit more driving, to the tune of 5 to a maximum of 30%, although most likely much closer to 5-10% of the initial fuel savings. Then there’s the indirect effect: Drivers may now use some of the savings to buy other products that consume energy.

You can already see that we can’t just add these two effects. If you spend some of the gas money on driving more, you have less to spend on that plane ticket, and vice versa.

Then there are two macroeconomic effects: one via the price and one via technological advances. They are the trickiest to pin down and could, in theory, be the largest. But theory lends a helping hand in getting an upper bound: the basic demand-and-supply relationship tells us that the macroeconomic price effect can’t be more than 100%.

And once again, all these effects aren’t anywhere near that threshold. 60% is as high as it gets for the combined effect, and only in rare circumstances. For the most part, it’s much closer to 5 to perhaps 30%.

So where does that leave us?

When designing energy efficiency policies like clean-car standards, consider the rebound effect, much like the government already does. The Department of Energy’s model uses a highly appropriate 10% rebound figure for the car standards. And that’s about it. Not much else to see here.

If you did want to take it a step further — full disclosure: a step I couldn’t convince my three co-authors to take in the Nature piece itself — everything else equal, the existence of the rebound effect may prompt us to use even stricter energy efficiency standards. If you have an overall target in mind, and the rebound effect shaves off a bit, you ought to consider using a slightly stricter target to get back to where you wanted to be.

For more, check out the full Nature piece. Well worth the $32 to put the rebound effect in its rightful place once and for all.

Posted in Energy Efficiency / Tagged | Comments are closed

Energy Crunch: Saving Energy In Texas Schools Is A Win-Win

By Kate Zerrenner / Published: January 17, 2013

This commentary was originally posted on EDF’s Texas Clean Air Matters blog.

The Texas Legislature is back in session, and there will be, as always, a lot of discussion about how to fund schools. The school system in our state seems to be chronically short of funds to meet the demands of our growing state and its children.

But while the state-level politicians discuss, some school districts are taking matters into their own hands where they can. In the summer 2012, the Houston Independent School District (HISD), the seventh largest school district in the U.S. and the state’s largest, hosted a student through the EDF Climate Corps program. The program trains graduate students to find energy savings in their host institutions or companies. The Climate Corps fellow at HISD found several potential projects to help save the district money. For example, HISD has approximately 1,000 temporary buildings. The fellow found that if all the trailer-type temporary buildings’ lighting and wall air conditioning units and box heaters were upgraded and had insulation installed, at an upfront cost of $453,000, the district would realize over $62,000 in annual savings, nearly 700 kilowatt hours in annual electricity savings, and an annual reduction of approximately 400 metric tons of carbon dioxide. And that’s just one project!

The student’s work built on the findings of an audit funded through the State Energy Conservation Office (SECO) in 2007, which estimated that with recommended upgrades, HISD could cut its annual energy costs by $15 million!

Since the 2007 audit was performed, Houston voters have approved two bonds to help upgrade their school district, including one in November 2012. In the last bond vote, they approved, by a margin of nearly 2:1, a $1.89 billion bond to replace and repair 40 schools in HISD. In recent years, HISD has committed to ensuring all new and future buildings meet Leadership in Energy and Environment Design (LEED) standards for green building.

In 2009, the Texas Legislature passed Senate Bill 300, which was signed by Governor Perry. It requires school districts to develop long-term energy plans. It leaves it up to the boards of trustees of the individual school districts to determine if they want to submit the plan to SECO to help finance measures for plan compliance. There is no way to determine which school districts have developed plans or are implementing them. This Legislature could require school districts to report to SECO or could establish some minimum standards for building new school facilities or renovating existing ones.

Nationwide, schools spend more than $6 billion on energy costs, and the US Department of Energy National Renewable Energy Lab estimates that most schools could save about 25 percent of that by implementing smart energy measures. Those savings could pay 40 million new textbooks, 30,000 new teachers or 1.5 million new computers every year.

Some relatively simple measures such as daylighting (using windows and skylights to bring in natural light) have a double benefit—in addition to saving the average middle school tens of thousands of dollars in energy costs, daylighting technologies are also proven to improve students’ academic performance. One study in North Carolina showed that students who attended daylight schools scored up to 14 percent better on tests than the equivalent non- daylight school students. Smarter energy technologies and conservation measures lead to lower electricity costs, but also to lower maintenance costs, better indoor air quality, and free up money that can be used on other necessities, such as hiring teachers or buying more computers.

There is often an upfront cost to installing these energy efficiency technologies (although many conservation measures, such as turning off vending machine lights require no cost and only save money), but in most cases, school districts are in a good position to take advantage of several financing options. SECO operates the LoanSTAR program, which uses a revolving loan mechanism to fund energy efficiency projects for public buildings, including those in school districts. SECO also operates the Texas Cool Schools grant program, which helps Texas schools lower their operating costs by purchasing new and more energy-efficient heating, ventilation and air conditioning (HVAC) systems.

Performance contracting is another way to finance upfront costs for schools. Under performance contracts, contractors pay the upfront costs, which are recouped through a portion of the resulting savings, and even guarantee net savings for the building owner.

As we start this new Legislative Session in Texas, and parallel debates happen about our impending energy crunch and how to fund schools, doesn’t it make sense to merge these two issues? Help our school districts reduce energy costs (and in the process improve indoor air quality, student performance, and water efficiency) and enable them to spend their money on improving education, and reduce stress on the grid. Don’t the schoolchildren of Texas deserve that?

Also posted in Texas / Comments are closed

EDF’s Investor Confidence Project Helps Achieve The Potential Of Energy Efficiency

By EDF Blogs / Published: January 15, 2013

This blog post was written by guest blogger Matt Golden, Senior Energy Finance Consultant.

The EDF Investor Confidence Project (ICP) has been a two-year process to help standardize the commercial energy efficiency industry. Working with a wide range of project advisors, the first set of protocols designed for large commercial building projects are now available for a public beta on our website www.EEperformance.org. The goal is to simplify the process of creating an investment-quality energy efficiency project, reducing engineering-related transaction costs and increasing deal flow and savings.

We believe that the Investor Confidence Project represents a “silver buckshot” that, when combined with other efforts underway such as On-bill repayment (OBR), Commercial PACE and benchmarking programs, can help deliver a sustainable, private capital-driven market.  This will help spur economic development in these challenging times and achieve the potential of energy efficiency as a clean and cost-effective climate and energy policy.

While there are many technical standards regarding how to engineer various aspects of a project, we currently lack a meta layer that creates standardization at the project level. Ultimately, a project’s performance is only as good as the sum of its parts. The ICP protocols are combinations of the existing technical standards in the market, offering clear definitions for how a project is engineered, documented and ultimately measured. In the short-run, this can greatly accelerate channels and increase volume, and, over the long-term, can lead to increased access to lower-cost capital.

The Investor Confidence Project is happy to announce (and thank) our new ICP Allies, who have committed to piloting the ICP protocols in 2013. SciEnergy, Energi, Sustainable Real Estate Solutions, Bright Power, The Association for Energy Affordability, kWhOURS, Inc., Performance Systems Development, Clean Energy Finance and Investment Authority, Rocky Mountain Institute, Institute for Market Transformation, The Centre for Building Performance and the Building Energy Retrofit Institute are moving towards adopting the ICP Energy Efficiency Performance Protocol for Large Commercial Projects as their preferred method for estimating, measuring and reporting savings for large commercial projects.

We have been experiencing a ground swell of support coming from both public programs and market players, who have been instrumental in helping us identify this critical need and develop a set of protocols that balance engineering best practices with market-based realities. While ICP initially focused on financial investors as the key customers, we are now seeing a wide variety of users, including utilities, public programs, insurers and energy service companies, in addition to equity and debt investors and of course building owners.

As we roll-out this initiative in 2013 and achieve critical mass, our focus is now on gaining real-world feedback. We are also embarking on developing two additional protocols tailored to multi-family building retrofits and smaller commercial projects. If you are interested in learning more, or getting involved, please let us know by visiting the ICP website for more details about the project and our Large Commercial protocol.

Also posted in Investor Confidence Project / Comments are closed

NERC Demands Action From ERCOT To Keep The Lights On In Texas

By / Published: January 14, 2013

This commentary was originally posted on EDF’s Texas Clean Air Matters blog.

Last week was a busy one in Texas, with the beginning of the 83rd Legislative session attention was focused on incoming lawmakers, both seasoned and freshmen, and the opportunity that only happens every two years to address serious issues in Texas including water scarcity, education, tax issues, and of course energy issues.

So it’s understandable that no one seems to have noticed a strongly worded letter to the Electric Reliability Council of Texas (ERCOT) from the North American Electric Reliability Corporation (NERC) last Monday demanding more action to ensure electric reliability in Texas, and asking ERCOT to report back to NERC by April 30 on additional actions taken. NERC isn’t some federal boogey man either; it’s a corporation founded by the electric industry to create commonly accepted standards for electric reliability across North America, usually through voluntary compliance. President Bush’s Energy Policy Act of 2005 gave the corporation “the authority to create and enforce compliance with Reliability Standards,” which is where this letter comes into play.

In their 2012 report, NERC highlighted ERCOT as the only region in North America that was not maintaining adequate electric reserves to meet demand, and with this letter they made it very clear that the actions taken to date have not done enough to mitigate that risk. In the letter, NERC President Gerry Cauley notes that the PUC and ERCOT are continuing to address energy reliability issues, but finds that “solutions have not yet sufficiently materialized to address NERC’s reserve margin concern.”

Cauley goes on to say that “it is still unclear to us how ERCOT intends to mitigate issues that may arise on the current trajectory and when new resources may be available to meet growing demand.” So according to the corporation whose membership consists mostly of utilities, grid operators, large and small customers, and electric regulators, the actions that the PUC and ERCOT have taken at this point are not enough to ensure we’ll have reliable electric supply, risking blackouts as soon as this summer.

As lawmakers settle into Austin for the next few months they’ll certainly be paying close attention to this issue, though many have indicated they would prefer that ERCOT and the PUC develop the solutions to this problem. Cauley’s letter serves as notice that the PUC and ERCOT need to be more aggressive if they want to ensure a reliable supply of power in Texas. Certainly both agencies are putting serious time and effort into keeping the lights on in Texas, including effort so expand existing demand response programs, but NERC clearly thinks they need to be doing more.

All of this reminds me of the Texas drought: a year ago it was a huge looming crises, but a break in the weather took everyone’s mind off of the drying rivers and lakes, even though they never really recovered. Lately the drought has been back in the news as Texans realize that we’re basically in the same place that we were in 2011.

No one could accuse ERCOT or the PUC of sitting idly by or pretending this risk isn’t real. However, they have yet to send a strong enough signal to the market to spur investors in demand response or any other resources to develop new projects. About the only thing that has been done is the extension of the federal production tax credit for wind energy, which has wind developers racing to build new projects in Texas. The concern is that the solutions they’ve begun work on to date may not get us to where we need to be by this summer.

This letter is a reminder that the energy crunch hasn’t gone away, things are not likely to change in the near term if serious action isn’t taken soon. That is a risk we can’t afford to take given a looming drought, a growing economy and a stagnant electric market. NERC has asked ERCOT to report to them on their progress by April 30, near the end of our biennial legislative session, and one in which the critical PUC/ERCOT sunset legislation is expected to pass, maybe legislators should consider a similar request.

Also posted in Demand Response, Texas / Tagged , | Comments are closed