Which Energy Options Will Make It to Your Final Four?

Published to LA Confidential, Winter 2015

If there’s one constant in the energy business, it’s that things are always changing:

  • Only 6 years ago, who would have thought that the average price of natural gas would drop by about 67%?
  • Remember when some people thought the U.S. was running out of oil – until new extraction techniques reversed that Doomsday scenario?
  • Or when everybody said, “you can’t economically store electricity,” and now battery prices are beginning to plunge?

In the ongoing competition for greater efficiency and cheaper supply, energy customers are often the winners. With changing regulations, markets, and technology, it’s challenging to make choices that will provide an acceptable pay back. However, Advancements in LED lighting, for example, have taken effect so quickly that some equipment has become obsolete during its installation. In an almost instant replay of how fast PCs outstripped mainframes, LEDs  are noticeably taking over much of the lighting market when, only a decade ago, they were mostly used just in exit signs.

Fortunately, utility and government incentives as well as better analytical tools make it easier to choose winning energy options. Better data e.g., from smart meters, also helps tally “scores” more accurately. Ever-expanding technical training and professional certification continues to add qualified players to the roster. To assist both customers and consultants make better energy choices, the U.S. Department of Energy (DOE) offers a wide range of free energy analysis tools at: http://apps1.eere.energy.gov/buildings/tools_directory/subjects_sub.cfm.

While there’s no such thing as a sure bet, some options are likely to remain prohibitive favorites. Here are some wins that might make it to your Final Four:

  • Unless a shift in geopolitics results in a further and permanent decline in oil prices, boiler conversions from oil to natural gas are a good idea. Despite media noise about “plunging” crude oil and gasoline prices, such variations are typically temporary until OPEC re-adjusts the world market price. Furthermore, $3 a gallon fuel oil is no bargain when natural gas (on a delivered Btu basis) is half that price.
  • Where space permits, thermal storage for cooling continues to be top seeded. In many parts of the US, the fastest growing cost component of electric tariffs is peak demand. Shifting at least part of one’s chiller load to times when rates are much lower can cut summer electric bills. The advent of distributed thermal storage for small packaged A/C systems is opening the door to many facilities lacking central chiller plants.
  • Eliminating old forms of lighting e.g., incandescent, T12 fluorescent, regardless of the replacement technology, saves in multiple ways. Waiting for the “best” technological option to stand out will only ensure continued high costs.
  • Due to significant efficiency improvements in packaged A/C units, switching out 20-year old models is nearly always a win as typical Seasonal Energy Efficiency Ratios (SEER) are now double, or better, than those they are replacing.

Whichever team you bet on, there may always be another one with a better bench waiting to walk on the court, but never betting means never winning. Don’t stand on the sidelines. Use a good energy consultant to help you make a few good picks. Put your money on more than one option and one of those Cinderella teams may just make you a big winner!

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Will the New Congress Make a Fast Break– or Can We Expect a Slow Down?

Published to LA Confidential, Winter 2015

As control of the U.S. Senate changes hands and Republicans begin chairing its committees, what changes in energy policy may we expect?

At about the same time the Senate majority switched parties, the last legal battle surrounding the Keystone XL Pipeline was settled in a Nebraska court. That set the stage for the first Congressional energy battle of the 114th Congress. How that battle shakes out will also inform debates on fracking regulations and exporting of oil and natural gas. Such decisions may also impact the president’s position on using energy as a foreign policy tool. A recent example of this is the impact of lower energy prices combined with trade sanctions on both Russia and Iran’s economies. Do the recent advantages in foreign policy impact energy and environmental decisions put both parties on the same side of some of these issues? The Senate majority is too thin to overcome presidential vetoes, so probably not.

Other areas to be addressed by the new majority include the status of our energy infrastructure, regulatory impediments to energy development, renewable subsidies and climate change policies.  It is unlikely that there will be much agreement on these issues.

The Republican majority in the Senate will not only enable them to carry new legislation to the president, but it will also put them at the head of key energy committees through which such bills must pass before actually reaching a vote.

One immediate action may be efforts to roll back EPA (Environmental Protection Administration) regulations based on executive orders that implement restrictions on coal fired generation.  Most prior challenges to the Clean Air Act have been unsuccessful. This leaves legislative reversals of EPA regulations as the main option for change, although the veto issue makes this difficult. The Environment and Public Works Committee has long exercised oversight of the EPA. An opponent of climate change action is now its chair, so expect a spirited discussion of the various new rules that affect power plant emissions. Several controversial EPA rules are slated to take effect in 2015, including those that cut haze, cross-state emissions, mercury, and other toxins.

Other executive actions planned for 2015 include methane emissions standards related to oil and gas extraction; stricter regulations on fracking, Arctic drilling, train transportation of oil, and offshore drilling.

The Senate Committee on Energy and Natural Resources runs the court on all energy-related legislation. Its new chair has a long and aggressive wish list. Aside from pushing the Keystone XL issue, it also includes the development of natural gas and oil exporting facilities, accelerated drilling, and an overall goal of eliminating all oil imports from OPEC (Organization of the Petroleum Exporting Countries) by 2020 (which now accounts for about a third of U.S. oil imports). In various statements and white papers, strong support has also been expressed for nuclear and fusion power; incentive-based energy efficiency programs; grid infrastructure funding; and, eliminating subsidies for renewable sources by 2020.

On the other side of the aisle is an energy efficiency bill that would further tighten building codes, raise appliance efficiency standards, and support renewables.

Bottom line: expect more of the same gridlock, with a few compromises nibbling at the edges of major issues. On one side we have the president utilizing his executive prerogative to influence policy and the minority party pushing traditional energy policies. On the other side the majority party is looking to expand energy development and exportation while curbing coal restrictions. It seems like nothing has really changed.

We may have to go to the replay booth to determine how this one will turn out.

Don’t Let the Clock Run out on DMP Incentives

Published to LA Confidential, Winter 2015

In March 2014, NYSERDA and Con Edison kicked off a very generous, but short-term, program to cut 125 MW off the utility’s summer peak demand. Unlike most existing energy-related incentive programs focused on reducing energy use i.e., kWh, the Demand Management Program (DMP) only rewards kW reductions. Also, it only applies if those reductions are both permanent and occur between 2 PM and 6 PM on weekdays between June 1 and September 30.

Incentive programs pre-dating DMP continue to provide funding for energy and peak demand reduction. Customers may apply for such incentives for both the original programs and DMP for any energy measure that yields both kWh and kW reductions. The net result may be a significant incentive boost. For a recent lighting upgrade, the DMP addition doubled the standard incentive and customers may see a quadruple of the incentive for other technologies.

The increase in funding from DMP varies widely depending on the type of measure, ranging from approximately $500/kW for switching to non-electric cooling to $2,600/kW for thermal storage. Funding for any given measure, is capped at 50% of the total installation cost except for Demand Response Enablement, which has a 75% cap.  A minimum of a 50 kW reduction is required per application, but reductions at small facilities may be aggregated.  More details about the DMP are available at: https://www.nyserda.ny.gov/All-Programs/Programs/Demand-Management-Program

Here’s the kicker. To secure the additional funds, a project must be installed and operational by June 1, 2016. Working backwards, assuming a 6-month time frame to cover auditing, design, procurement, and installation, means many projects need to start before the end of 2015. For larger or more complex projects, a longer development period may be required.

Why is all this extra money being offered now? Due to a variety of factors, it is possible that one or both nuclear power plants at Indian Point within Westchester County may be shut down in the next few years. As one contingency against such a loss of generation, a big reduction in summer peak demand is being sought, and a great deal of money is on the table. Such financial “bank shots” are unlikely to be seen again for a long time, if ever.

While many large institutions and owner-occupied facilities have been running the court on the standard incentive programs for years, much of commercial real estate has limited its involvement to lighting upgrades during tenant changes and build-outs. Many old and inefficient packaged HVAC units serving such spaces are approaching, or beyond their useful lifespan. Under its Local Law 87 (LL87), New York City requires all buildings over 50,000 square feet to perform energy audits over the next few years. However, those who wait until the last minute to audit may miss out on opportunities to replace the old units before they finally conk out.

In the last 20 years, the Seasonal Energy Efficiency Ratios (SEER) for such machines has nearly doubled, meaning they use about half as much energy to provide the same cooling as their ancestors. Getting up to 50% of the installation cost now is a good way to cover the eventual cost to replace those clunkers. Since tenants that have their own packaged units usually pay for their own electricity used for cooling, offering a high efficiency HVAC system is an added perk to spark interest. Additionally, gas and steam fired cooling systems installed back in the ’90s may be reaching the end of their useful lifespan. Now is a good time to replace them with another gas or steam system to secure a DMP incentive.

NYC power customers are advised to accelerate their LL87 compliance by having their energy consultants identify, and help them act on energy upgrades that take advantage of DMP funding – before it’s gone.

Will Demand Response Dollars Get Benched?

Published to LA Confidential, Winter 2015

Several recent legal challenges related to Demand Response (DR) may have a long term impact on Demand Response programs, including how Demand Response participants get paid, and by whom.

The issues involve two separate cases about how energy and capacity are treated in DR programs. In one case, grid operators and power plants followed the Federal Energy Regulatory Commission’s (FERC) Order 745 for three years until it was challenged in the Pennsylvania, New Jersey, and Maryland Regional Transmission Organization (PJM RTO) market by a group of power producers. Order 745 sets the value of DR payments in energy markets to equal the hourly wholesale Locational Marginal Price (LMP) in effect at the time of demand reduction. This mechanism trims demand from the generators at times when hourly pricing is highest thereby cutting into their revenue during these high-priced periods.

Among the various arguments against FERC’s order was that the Federal Power Act, the foundation of FERC’s authority,    allowed it to supersede state authority over electricity pricing, which would not apply to resources at the customer side of the meter, such as Demand Response; the argument was that this is the jurisdiction of the state. As a result, the District Court for the District of Columbia overturned Order 745, which has resulted in a request for a decision from the Supreme Court. If the Supreme Court elects to hear the case and overturns the lower court ruling, we will revert to business as usual. However, if the Supreme Court upholds the decision or declines to hear the case, the requested changes will be implemented initially in the PJM and later in other states.

The other challenge involves several major wholesale power suppliers that called upon FERC in October 2014, to end the practice that enables DR participants to be treated as direct competitors to generators in capacity auctions. This impacts another major source of generator revenue. If FERC does not agree with the suppliers’ request, they may sue FERC. Because the case before the Supreme Court involves FERC’s jurisdiction over DR in wholesale markets, a decision regarding it may also impact this challenge, as well.

The bottom line for both of these cases, according to DR providers, is that customer revenue from DR will, at a minimum, be shifted to the distribution side. This may increase wholesale supply costs, however, the ISO/RTO’s will have to consider how they will consider DR as a modifier to customer demand in the wholesale markets.

Because the FERC process only impacts the market at the RTO/ISO level, utility based Demand Response will not be impacted. Therefore, we can expect the Con Edison programs to continue. However, programs like the NYISO Special Case Resource program may provide lower customer benefits.

Additional support for utility based demand response, which deals with local distribution issues was provided by the New York State Public Service Commission (NYS PSC) in its Reforming the Energy Vision proceeding (REV). REV sees DR as one of a wide variety of distributed energy resources which will enable utilities to manage load and optimize system operations. In its report, the PSC called on all NYS utilities to develop demand response tariffs.

At this point, the future of DR pricing and revenue is a jump ball. Customers participating in these programs are encouraged to continue doing so, but should be aware that the expected revenue may change. We will have more clarity once the Supreme Court rules. Since such rulings typically occur between April and July, this one could be a buzzer beater for summer 2015 DR revenue.