Cost-effective Water-Energy Nexus: A California Case Study

Transcription

1 Cost-effective Water-Energy Nexus: A California Case Study Energy embedded in the provision of water has been the subject of numerous water-energy nexus studies that are nearly unanimous in recommending integrated evaluation of energy and water savings from demand-side management (DSM). Joint implementation of DSM, however, remains a rare exception. The recommendations and tools developed to date are either overly broad or too specific to readily implement across multiple utilities. We link a forward-looking marginal water supply approach and the well-established energy avoided cost framework to jointly value water and energy efficiency savings. As a case study set in the San Francisco Bay Area of California, we evaluate cold water, hot water and energy efficiency measures. While several measures fail cost-effectiveness tests when viewed from an energy or water utility perspective alone, they pass under an integrated approach. Thus, the integrated approach supports rational cost sharing between energy and water utilities and facilitates cooperation and increased funding for DSM. Eric Cutter, Ben Haley, Jim Williams and C.K. Woo I. Introduction The energy used in water supply has been one aspect of the water-energy nexus that has been studied over the last decade. Energy utilities have long employed demand-side management (DSM) including efficiency, conservation, loadshifting, demand response, and distributed generation to meet ever more ambitious load and greenhouse gas (GHG) emission reduction goals[1]. Seeking to add more cost-effective strategies to their tool chest, many utilities and policy makers are increasingly interested in documenting the benefits of saving energy by saving water. A significant amount of energy is used to supply clean water to end-users throughout the different stages of water supply, conveyance, treatment, distribution, and wastewater treatment. The energy consumed in water provision is often referred to as the upstream, indirect, or embedded energy in water. A number of reports, calculators, and toolkits now document water and energy interdependencies, thereby improving coordinated planning and methods to calculate avoided costs and embedded energy values for water [2,3,4,5,6,7]. To date, however, these efforts have been limited in several important regards. For the most part, they (a) make broad recommendations or highlight specific case studies without developing a general framework or calculating specific values or metrics; (b) require users to enter utilityspecific information, which varies widely in quality and availability and is only rarely available for public use or review; and (c) do not identify strategies for overcoming strong political and institutional barriers to coordinated funding and planning. As a result, The Electricity Journal 27 (5), July 2014: 1

2 integrated design and implementation of water and energy efficiency programs remains a rare exception. Energy and water utilities continue to develop and implement their respective efficiency programs largely independently of one another, thus missing cost-effective program opportunities that would be justified under the integrated approach. Incorporating water in the long established cost-effectiveness framework used by the electricity industry for DSM is a readily implementable approach that can be applied consistently across all energy and water utilities. The goal of this paper is to set forth this integrated approach and provide a case study to illustrate its practicality. The empirical findings thus obtained serve to motivate increased coordination between energy and water utilities, and improve DSM program funding and incentive levels. DSM competes with a broad range of resource options for attention and funding. Showing that DSM is cost-effective relative to other resources is a crucial justification for continued investment. The cost-effectiveness tests for DSM originated from the 1974 Warren-Alquist Act that established the California Energy Commission (CEC) and specified cost-effectiveness as a leading resource planning principle. The 1983 California Standard Practice Manual of Cost-Benefit analysis of Conservation and Load Management Programs (SPM) developed five costeffectiveness tests for evaluating energy efficiency programs. These approaches, with minor updates, continue to be the principal approaches used for evaluating energy efficiency programs across the United States [8]. The primary cost-effectiveness test used for DSM in most jurisdictions throughout the U.S. is the Total Resource Cost Test (TRC) [9]. The TRC compares the DSM s implementation cost against the resource costs avoided by DSM s energy savings. A TRC benefit-cost ratio above 1.0 indicates that the total costs of supplying and delivering energy in the region will decrease with the implementation of DSM. The California Public Utilities Commission (CPUC) has adopted the Distributed Energy Resources (DER) Avoided Cost Model to calculate the value of seven components included in the avoided cost framework: 1) Energy; 2) System capacity; 3) Transmission and distribution (T&D) capacity; 4) GHG emissions; 5) Ancillary services; 6) Losses and 7) Avoided Renewable Portfolio Standard (RPS) purchases[10,11]. These avoided cost values, which vary by time and location, are combined to quantify the benefits of DSM and determine which measures and programs are cost-effective. A. Use of proxy resources Using proxy resources to represent forward-looking short- and long-run marginal supplies simplifies the process of developing avoided costs for DSM programs. Rather than creating detailed cost estimates for each specific supply resource that would be procured in a resource plan, generic proxy resources are used instead. The premise of this approach is that the proxy resource can reasonably represent the region s marginal resource; this is notwithstanding that utility operational decisions involve complex considerations of safety, reliability, and economics. A proxy resource approach is tractable and transparent, allowing the use of public data that can be developed and debated in public proceedings. The Electricity Journal 27 (5), July 2014: 2

3 B. Deferral value Utility capital investments are often long-lived and lumpy, thus justifying the present-worth method used by the DER Avoided Cost Methodology [12]. The present-worth method calculates a one-year deferral value as the difference between the present value of the expansion plan and the present value of the same plan deferred by one year, adjusted for inflation and technological progress. II. Adding water to the energy avoided cost framework Using proxy resource and present worth methods to represent DSM s avoided costs has a long established history in California s cost effectiveness analysis. To date, however, studies and regulatory approaches to embedded energy in water have paradoxically employed a backward-looking measurement and evaluation approach that focuses primarily on existing supplies [13,14,15,16,17]. These efforts have shown that the large number, diversity and local management of water agencies pose severe limits to the collection of historical data. Invariably, data are unavailable for a significant number of utilities, and gathering the data that are available is very expensive and time consuming. More importantly, the historical data gathered provides information about average and not marginal embedded energy. A forward-looking approach for embedded energy and avoided costs for water is even more crucial because many future supply options being considered are far more energy intensive than existing resources. For example, stricter water-quality regulations and emerging contaminants are forcing agencies to develop more energy-intensive treatment options such as UV radiation, ozonation, and reverse osmosis. The differences between energy use by traditional and new treatment techniques can be significant. Relatively pure local surface or groundwater can be treated for under 200 kwh/acre-feet (AF), whereas seawater desalination can approach 6,000 kwh/af [18,19,20]. Advanced treatment with ozone disinfection uses approximately 130 kwh/af, nearly 40 times more than chlorination, the traditional disinfection method [21]. III. Case study results Our case study is an integrated and energy cost-effectiveness analysis for the Santa Clara Valley Water District (SCVWD) in the San Francisco Bay Area of Northern California. SCVWD is a wholesale water agency that serves 12 retail water agencies in Santa Clara County. SCVWD is the eighth largest water district in California, supplying 370,000 AF of water per year on average, roughly 60 percent of which is imported from outside the county. Our case study considers seven efficiency measures selected to represent both cold and hot water efficiency with a range of savings levels (Table 1). Measure costs and definitions are taken from a combination of the SCVWD Water Use Efficiency Strategic Plan and from PG&E energy efficiency costeffectiveness reporting documents filed at the California Public Utilities Commission (CPUC) [22,23]. Water savings are shown in gallons per day (GPD). LED lighting is included as a representative energy efficiency measure adopted by numerous utility energy efficiency programs in California. The Electricity Journal 27 (5), July 2014: 3

4 Table 1. Summary of Efficiency Measures Evaluated Measure Cost End-Use Energy Savings Water Measure Life $ kwh GPD AF/Year Years SCVWD B/C Ratio PG&E TRC LED lighting Clothes washer (Single Family) High efficiency toilet - low use High efficiency toilet - high use Food steamer 1,250 7, Weather based irr. Controller - small Weather based irr. Controller - large A. Proxy resources for water Water resources are commonly sized in millions of gallons per day (MGD) of delivery capacity. One MGD is equivalent to 1,121 AF per year. To calculate the embedded energy in water and the avoided cost of water, we define three alternative proxy resources for new water supply for SCVWD. The first proxy is imported groundwater, a short-term supply option with no new capital investment. In wet years with excess supply, SCVWD can receive imported water and recharge local groundwater aquifers, which can be used in subsequent dry years [24,25]. The second proxy is a 20 MGD expansion of the Rinconada Water Treatment Plant at a cost of $184 Million [26]. The third and final proxy is a 20 MGD, $340 million Bay Bridge alternative for the Bay Area Regional Desalination Plant (BARDP) [27]. The estimated energy required to treat, store and deliver water from the plant to SCVWD is 2,167 kwh/af [28]. This option is representative of seawater desalination, the potential water source for 15 of the 17 desalination plants proposed in California [29]. The capital costs for the Bay Bridge alternative are similar in scale to the 50 MGD Carlsbad Desalination Plant that began construction in 2013 near San Diego with an estimated cost of $922 million [30]. Table 2 shows the capital and variable operating costs for each of the proxy resources. Our imported groundwater and local treatment plant proxies assume the same embedded energy as the SCVWD Mix. As most of the energy consumed for wastewater treatment is not volume dependent, we assume only 12 percent of the embedded energy is avoided with water efficiency [31]. The Electricity Journal 27 (5), July 2014: 4

5 Table 2. Water Utility Proxy Resource Cost Summarya Capital Proxy Resource Size Capital Cost (2013) b Costs c Unit Costs Non-energy Variable Costs Total Embedded Energy (Indoor) d MGD $ Million $/AF-Yr. $/AF kwh/af Imported Groundwater 20 n/a $48 e 1,475 Rinconada Treatment Plant 20 $184 f $659 $140 g 1,475 Bay Bridge Desalination 20 $340 h $1,215 $343 i 3,159 a Santa Clara Valley Water District, From Watts to Water; Bay Area Regional Desalination Project, Bay Area Regional Desalination Project Institutional Task Technical Memorandum #2. Analysis of Feasible Scenarios. b Capital costs escalated from 2010 to 2013 with a 2 percent escalation rate. c Capital costs annualized with a 5 percent discount rate over 30-year life. d Indoor includes energy used by the customer to heat and process water, whereas outdoor embedded energy does not. e $60/AF treatment costs taken from BARDP Technical Memorandum, Table A-1, assume 20 percent of variable costs are electricity. f Santa Clara Valley Water District, 2013, May. Santa Clara Valley Water District Fiscal Year Capital Improvement Plan. Rinconada Water Treatment Plant. g Calculated from BARDP Pilot Report, Appendix I, Alternative No. 1, Table on p. I-2. h BARDP Technical Memorandum, Table 4, p. 15. i Bay Bridge/Contra Costa variable cost ratio of 1.26 calculated from BARDP Technical Memorandum, Table 4, p. 15. For simplicity and ease of comparison, we assume each of these resources can be deferred on a one-time basis for three years with water efficiency measures. We apply the present-worth method to calculate the dollar per acrefoot costs avoided by reduced water consumption. We begin with 390 MGD of demand in 2015, growing at 4.0 MGD per year through 2030 and 2.0 MGD thereafter, thus approximating the growth projections from SCVWD s Urban Water Management Plan [32]. We assume new resources are needed in 2019 for SCVWD and all demand not met with new supplies from our proxy resources are supplied at a marginal cost of $424/AF (excluding energy costs) from the SCVWD Water Use Efficiency Strategic Plan [33]. B. Water avoided costs We illustrate the impact of deferring capital investment by first considering the most expensive resource, the Bay Bridge Desalination Plant. When completed in 2019, the plant will raise the available capacity to 420 MGD. For the first several years, there is excess capacity and new supplies are not needed again until 2022 (Figure 1). In our deferral case, we add water efficiency in the years sufficient to defer the need for new resources until 2022 (Figure 2). Efficiency of 12 MGD is implemented in 2019, and an additional 4 MGD is implemented each year for the following two years. We assume the portfolio average useful life of efficiency measures is 15 years. (The useful lives for all the efficiency measures listed in Table 1 range from years)[34]. By 2034, the measures installed at the beginning of 2019 reach the end of life. A salvage value for the remaining useful life of the plant after 2035 is included in the deferral case. The Electricity Journal 27 (5), July 2014: 5

6 Figure 1. Bay Bridge Desalination Plant Base Case Procurement Plan Figure 2. Bay Bridge Desalination Plant Deferral Case Procurement Plan For the Bay Bridge Desalination Plant proxy resource, the net present value (NPV) savings are $48 and $94 million in fixed and non-energy variable costs. Dividing this value by the savings delivered over the 15 year life of the efficiency portfolio levelized avoided cost of $724/AF (Table 3). Including energy costs at the retail rate paid by the water utility to PG&E for electricity ($0.13/kWh in 2015 escalated at 2% per year) increases the total avoided costs from the water utility s perspective to $1,074/AF. The avoided cost values for the Rinconada Treatment plant and imported groundwater (no capital deferral) are calculated using the same approach (Table 3). The variable costs are shown for non-energy (e.g. chemicals), and energy costs (at the water utility s retail rate for electricity) separately. The total avoided cost without and with retail energy costs are shown in the next two columns. The final column shows published levelized costs for each of the three resources. 1 1 The TRC values energy savings at the utility avoided costs, not the energy utility s retail rate. We show the cost with the retail rate of electricity here for comparison with levelized cost estimates that are published from the perspective of a water utility paying retail rates for electricity. The Electricity Journal 27 (5), July 2014: 6

7 Table 3. Summary of Water Avoided Costs per AF of Conservation Proxy Resource Capital Deferral Variable Costs Nonenergy Energy Non- Energy Avoided Cost Total Avoided Cost Levelized Cost Years $/AF $/AF $/AF $/AF $/AF $/AF Imported Groundwater n/a $397 $ $629 $442 a Rinconada Treatment Plant 3 $ ,093 b Bay Bridge Desal. Plant ,047 2,349 c a Santa Clara Valley Water District, From Watts to Water, May b Santa Clara Valley Water District, 2012 Water Supply and Infrastructure Master Plan, Oct c BARDP, Project Institutional Task Technical Memorandum #2, 2011 IV. Results We summarize TRC results from four perspectives: (1) The avoided cost framework as is currently implemented by the energy utility with end use energy (EU) and no consideration of water. (2) The framework expands to consider both end-use and embedded energy in water (EW). (3) The framework reflects a water utility perspective to include embedded energy in water (EW) and water avoided costs (W). (4) The framework reflects a regional perspective with all three avoided costs. From the energy utility perspective, small water measures are not cost-effective for any of the proxy water resources, and high use toilets are just barely cost effective only with the Bay Bridge desalination proxy (Table 4 and Figure 3). Moving from the short-run proxy resource of imported groundwater to the far more capital and energy intensive desalination plant does not significantly increase the TRC results for any of the measures. Even with energy intensive desalination, including embedded energy alone yields only a modest increase in TRC ratios. From the water utility perspective, all measures except the clothes washer are costeffective or nearly so for all three proxy resources. The regional combined TRC with all benefits included finds most, but not all measures cost effective with the groundwater proxy resource. With the desalination plant, however, nearly all water saving measures are more cost-effective than LED lighting. Taking the regional combined perspective has a significant impact on cost-effectiveness. Even so, embedded energy and avoided water costs based on a short-term marginal supply such as increased groundwater may still be insufficient to justify that small water saving measures are cost-effective. A forward looking, proxy resource that includes a deferral value for capital investment, however, can lead to ratios of ~2.0 that match or exceed portfolio average TRCs for many utilities. The Electricity Journal 27 (5), July 2014: 7

8 Table 4. TRC Results a a Note that the LED TRC results are slightly higher than those reported by PG&E (2.0 vs. 1.9) because we have not included free-rider costs, a provision that is currently unique to California. Figure 3. TRC Results for Imported Groundwater and Bay Bridge Desalination Proxy Resources. Note logarithmic scale for cost-test ratio on vertical axis V. Conclusions Our California case study demonstrates what an integrated approach to waterenergy efficiency evaluation can mean for the CPUC s comprehensive costeffectiveness framework. Our main conclusions are as follows. First, our case study finds that cost-effective opportunities for efficiency and GHG reductions are likely being overlooked without an integrated waterenergy cost-effectiveness framework. Second, a forwardlooking, marginal avoided cost of water results in more efficiency measures being costeffective than an average cost approach. Finally, including water avoided costs has a much bigger impact on costeffectiveness. Including embedded energy alone is insufficient to achieve costeffectiveness for most measures studied. Acknowledgements The authors gratefully acknowledge the financial support and input from the Regulatory Assistance Project (RAP). RAP initiated and sponsored a Water-Energy Nexus project to develop three case studies illustrating how integrated water, energy and The Electricity Journal 27 (5), July 2014: 8

9 greenhouse gas cost-benefit analysis could alter resource investment decisions in China, India and California. In particular we wish to thank Ken Colburn and Riley Allen for sponsoring this work and providing valuable input and review. The authors are solely responsible for all opinions expressed in this paper. References 1 J. Williams et al., "The technology path to deep greenhouse gas emissions cuts by 2050: the pivotal role of electricity." Science vol. 335, no. 6064, pp , Heather Cooley and Kristina Donnelly. WATER-ENERGY SYNERGIES: Coordinating Efficiency Programs in California, Pacific Institute, /water-energy-synergies. 3 Western Resource Advocates, Conservation Synergy The Case for Integrating Water and Energy Efficiency Programs, Rachel Young, Saving Water and Energy Together : Helping Utilities Build Better Programs, E13H, Oct Juliet Christian-Smith and Heather Cooley, Pricing Practices in the Electricity Sector to Promote Conservation and Efficiency Lessons for the Water Sector, pp. 1 26, See Rachel Young and Eric Mackres, Tackling the Nexus : Exemplary Programs That Save Both Energy and Water, American Council for an Energy-Efficient Economy, E131, Jan t/files/publications/researchreports /e131.pdf. 7 See Alliance for Water Efficiency Water Conservation Tracking Tool, ncy.org/tracking-tool.aspx, CUWCC Direct Utility Avoided Costs/Environmental Benefits Model, and Pacific Institute CE2 Model, /573/ 8 The California SPM was first developed in February It was later revised and updated in and 2001 and a Correction Memo was issued in The 2001 California SPM and 2007 Correction Memo can be found at: gy/electric/energy+efficiency/em+a nd+v/ 9 Lazar and Colburn. Recognizing the Full Value of Energy Efficiency 10 See R and D For a detailed description of the DER Avoided Cost Methodology see Energy and Environmental Economics, California Net Energy Metering Ratepayer Impacts Evaluation, 2013, Appendix C. 11 See Distributed Energy Resources Avoided Cost Model produced by Energy and Environmental Economics for the CPUC at gy/solar/nem_cost_effectiveness_e valuation.htm. 12 Ren Orans, Area-Specific Marginal Costing for Electric Utilities: Case Study Of Transmission And Distribution Costs, Ph.D. Thesis, Stanford University, Klein et al. California s Water - Energy Relationship, 14 Navigant Consulting, Refining Estimates of Water-Related Energy Use in California, CDC , Dec GEI Consultants/Navigant Consulting, Embedded Energy in Water Studies - Study 1, GEI Consultants/Navigant Consulting, Embedded Energy in Water Studies - Study Aquacraft, Embedded Energy in Water Study 3 : End-use Water Demand Profiles, California Public Utilities Commission, CALMAC Study ID CPU0052, Apr An acre-foot is the amount of water to cover 1 acre to a depth of 1 foot or 325,851 gallons. 19 H. Cooley and M. Heberger, Key Issues for Seawater Desalination in California. Energy and Greenhouse Gas Emissions, May GEI Consultants/Navigant Consulting, Embedded Energy in Water Studies - Study 2, Table 9-1 in SBW Consulting, Inc Municipal Water Treatment Plant Energy Baseline Study. Prepared for the Pacific Gas and Electric Company. /pdfs/biz/rebates/water_treatment /watertreatmentbaselinestudyrepo rt.pdf 22 Santa Clara Valley Water District, Water Use Efficiency Strategic Plan: Phase 1, Sep Appendix B. 23 Pacific Gas and Electric Company, Exhibit PGE-03: Appendix A.3_E3 Calculator Files, Jul The Electricity Journal 27 (5), July 2014: 9

10 24 Santa Clara Valley Water District, From Watts to Water, May Santa Clara Valley Water District, 2012 Water Supply and Infrastructure Master Plan, Oct Santa Clara Valley Water District Santa Clara Valley Water District Fiscal Year Capital Improvement Plan. May Rinconada Water Treatment Plant, increasing plant capacity from 80 to 100 MGD. 27 Bay Area Regional Desalination Project, Bay Area Regional Desalination Project Institutional Task Technical Memorandum #2. Analysis of Feasible Scenarios, September p $160 million escalated from 2010 to 2013 at 2 percent per year. 28 Kennedy/Jenks Consultants, Bay Area Regional Desalination Project Greenhouse Gas Analysis, Table c Pacific Institute, Proposed Seawater Desalination Plants in California July 2012, salination_2013/maps.htm/propos ed_desal_plants.htm, accessed January 20, J. Resnick-Ault, Private Equity Purifies Pacific to Boost California Water, Bloomberg Sustainability, 08-Feb Electric Power Research Institute, U.S. Water Consumption for Power Production The Next Half Century, Water and Sustainability, vol. 3. EPRI, p. 0, Santa Clara Valley Water District, 2010 Urban Water Management Plan, SCVWD, Water Use Efficiency Strategic Plan 2008, marginal cost of water savings of $530/AF escalated at 2 percent per year, p. xv. 34 SCVWD, From Watts to Water 2011 The Electricity Journal 27 (5), July 2014: 10