Converging Building Efficiency Trends and the Potential Impact on Traditional Electric Utilities

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by Robert Wilkins, Danfoss

The Environmental Protection Agency estimates that buildings use 65 percent of the electricity in the U.S. Some buildings are improving in individual areas through better technologies and integrated design strategies, but total building energy use is on the rise, driven by growing plug loads and data systems. This is a growing issue for building owners, equipment manufacturers and electric grid operators.

Electric utilities play an increasingly significant role in the operation of commercial buildings from power availability and reliability to the total cost of operation. But as the way in which buildings consume and even produce energy changes, so, too, could the role of electric utilities.

Converging Trends and Emerging Technologies

Five trends are poised to converge:

1. There is ever-growing, wide-reaching interest in energy efficiency to reduce costs, carbon and surface pollution.

2. Recent global and domestic actions such as the Obama administration’s Climate Action Plan have helped reignite public consciousness of and a nationwide conversation about the climate change and energy nexus.

3. There is a growing focus on electricity demand and utility peak loads caused partly by population growth and deepening penetration of electronic systems that are taxing the aging U.S. infrastructure. A more connected, data-driven and technology-abundant culture increasingly strains homes and buildings.

4. Renewable energy sources are beginning to offset electricity demands, but these technologies are variable.

5. Attention is called to another trend: the natural gas supplies that have been unearthed and made abundant by fracking. As a cleaner fossil fuel, natural gas provides benefits to improve efficiency and can be stored to manage peak loads or periods of interrupted generation from solar and wind. Gas also does not require the massive generating stations needed to receive, store, handle and burn coal and clean up the effluent.

Emerging and maturing technologies could further transform energy. Building equipment is improving energy use and preparing buildings to respond better to and offset peak utility loads. High-efficiency, variable-speed air conditioning and chiller systems improve energy efficiency over a full-year cycle by continuously and more precisely matching heating and cooling output to the load, and they provide enhanced demand response performance by providing greater kilowatt reduction per British thermal unit of cooling reduction. Small combined heat and power (CHP) systems provide a clean heating source and are becoming more economic. On-site photovoltaic generation is decreasing in cost and can produce energy largely coincident with peak air conditioning loads. And storage systems-from thermal and battery storage systems to smart water heaters and electric vehicles-also are maturing in the market.

Communication protocols such as OpenADR 2.0 can facilitate more robust communication between buildings and utilities. The Department of Energy (DOE) is evaluating and encouraging a broad-based communications network among utilities and buildings that would have transactional capabilities among buildings to assist in the trading of demand response commitments. This multiway communication is enhanced by smart grid technology and meters.

These trends and technologies are creating possibilities for commercial building efficiency and utilities. As it becomes easier and more cost-effective to reduce energy use and produce and store energy on-site, distributed generation becomes attractive for commercial buildings and campuses. This could lessen grid stress and energy waste by recovering heat rather than emitting it. The combined effect is a direct impact on energy efficiency and productivity and the U.S. economy. Plus, they enhance the control of peak loads, which defers building power plants.

Accelerating Action, Change

Public and private sectors have been pursuing actions that would accelerate the improvement of commercial building performance and affect traditional utilities. As a first step, building labeling programs to benchmark a building’s operational energy use would enable the communication of building efficiency metrics for owners, managers and tenants to improve rental and resale values of high-performance buildings. These programs have garnered interest and support of organizations such as the U.S. Green Building Council.

Support also is growing for on-bill financing programs that would allow property owners to finance the upfront costs of efficiency improvements via electric or natural gas utilities. This financing would encourage investment in energy efficiency improvements by tying the investment cost to the building or meter, allowing it to be transferred across owners or shared by tenants. It also would provide investment opportunities for utilities if mechanisms were put in place to provide a comparable or enhanced return on investment compared to traditional utility investments.

Manufacturer and utility organizations are considering the implications of these convergences. The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) has established a Smart/Connected Equipment Committee to assess opportunities for connected HVAC equipment and develop recommendations for AHRI members. AHRI also formed a working group focused on a building system approach to energy efficiency, which promises to be a source of significant energy savings. The Consortium for Energy Efficiency is developing a connected equipment committee and is collaborating with its AHRI counterpart to assess the efficiency opportunity and explore emerging technologies and smart grid connectivity. Gas utilities and organizations also have begun exploring gas marketing and efficiency programs to meet and anticipate changing market demand.

The DOE has been monitoring these developments and is holding public meetings to consider broadening the concept of interconnected buildings and equipment to provide for building-to-building transactional communications.

For electric utilities, the changing landscape of building energy use and energy efficiency technologies could present challenges and opportunities. As buildings become more energy-efficient and use parallel energy sources such as on-site solar PV and CHP generation and utility-supplied energy, traditional utility loads could decline. Building owners could investigate backup or emergency services, further reducing utility load factors, but also require utility investment to provide the backup services. This could result in higher utility rates, which would further encourage building owners to consider alternatives.

The utility-building relationship would be affected further by the EPA’s proposed regulations under Section 111(d) of the Clean Air Act. As states set and comply with guidelines for emissions reductions as soon as 2020, utilities and buildings would play a central role.

The confluence of technologies, market trends and regulatory requirements likely foreshadows two decades of change for electric utilities. Such change often creates opportunities for those poised to exploit them. Investment opportunities would not be in traditional generation and transmission assets, but rather in energy efficiency, CHP systems, solar PV and distributed energy storage and high-performance HVAC equipment with enhanced energy efficiency and demand response benefits.

Such a transformation requires a regulatory open mind to innovate rate structures that help shape demand, as well as tools such as rate-basing or on-bill financing of distributed energy investments. Energy efficiency and demand response programs must move from isolated customer programs to being considered together as integrated demand-side management strategies that are further unified with strategies for rate structures and investment recovery mechanisms and tactics for investing in distributed generation.

The confluence of market trends and technologies and a new utility strategy could bring the U.S. to a model that could pay big dividends and change how buildings, end users and utilities think, operate and interact.

Robert Wilkins recently retired as vice president of public affairs at Danfoss, a global manufacturer of components and controls for high-efficiency air conditioning, commercial refrigeration and motion systems. He previously worked as vice president of marketing at Florida Power and Light Co. and serves as chairman of the Smart/Connected Equipment Committee of the Air-Conditioning, Heating, and Refrigeration Institute.

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