White Paper Managing risk from unstable energy prices and supply interruptions.

Transcription

1 Energy Performance Services We make it happen. Better. White Paper Managing risk from unstable energy prices and supply interruptions. Feb 2014 Energy Resilience

2 Objective Energy resilience is critical for organizations that require a stable energy source or have a significant energy spend. The role of energy in our lives is changing. We are increasingly relying on energy-intensive information and communication technology to connect with each other and move our economy. As these coincide with increasingly severe weather events, fluctuating energy prices, and aging energy infrastructure, threats to energy security are no longer just a national problem they have become a local one. Organizations from local governments to hospitals to military bases are looking carefully at strategies to ensure their own energy resilience. While total energy independence is rarely a practical approach, organizations can use a combination of proven management strategies and advanced technology to increase their energy resilience and protect their core mission. Spectrum of Energy Resilience Cost of system shock (long event) Cost of system shock (short event) Cost of operation Cost capital expenditure The term energy resilience, as employed in this piece, refers to the ability of a particular institution or community to ensure that shocks to the energy system (price changes, shortages or outages) do not cause significant harm to their economic or social welfare. There is a spectrum of energy resilience that organizations must consider with total grid reliance and no energy planning on one end, and a fully independent energy system and robust planning efforts on the other. Communities and organizations are starting to look carefully at their risk, and identifyopportunities to pursue energy resilience. Full reliance on the power grid. No emergency planning around outage events. Some back-up power options from batteries or emergency generators. Energy storage/ generators and renewable systems paired with power control systems. Some emergency planning in place. On-site generation, renewables and energy storage in a microgrid that can handle at least 50% of site load for extended periods. Operating fully independently from the power grid with hardened access to fuel supplies and plans for a variety of emergency events. 1

3 Today s Energy Challenges A v ariety of anthropogenic factors threaten our current energy system, including terrorist attacks, delays in the supply chain, and price hikes. It is mother nature, however, that s responsible for the greatest number of energy interruptions. Extreme weather events have been increasing in frequency over the last decade, and this trend is expected to continue. The Intergovernmental Panel on Climate Change predicted in its 2013 report that extreme precipitation events over most of the mid-latitude land masses and over wet tropical regions will very likely become more intense and more frequent by the end of this century, as global mean surface temperature increases. In addition to these external threats, the condition of our own national energy infrastructure further imperils our energy security. In their 2009 Report Card for America s Infrastructure, the American Society of Civil Engineers (ASCE) gave the US energy infrastructure a D- (poor). The report included several key indicators of the impending challenges of the grid: Electricity demand has increased by about 25% since 1990 while construction of transmission facilities has decreased by about 30%. 70% of U.S. transmission lines and power transformers are 25 years or older. 60% of circuit breakers are more than 30 years old. Equipment failure will increasingly lead to intermittent failures in power quality and availability. The report goes on to say that Unless substantial amounts of capital are invested over the next several decades in new generation, transmission, and distribution facilities, service quality will degrade and costs will go up. These findings were corroborated in a U.S. Department of Energy report in July of 2013 that stated: Increasing temperatures, decreasing water availability, more intense storm events, and sea level rise will each independently, and in some cases in combination, affect the ability of the United States to produce and transmit electricity from fossil, nuclear, and existing and emerging renewable energy sources Federal, state, and local governments and the private sector are already responding to the threat of climate change. These efforts include the deployment of energy technologies that are more climate-resilient, assessment of vulnerabilities in the energy sector, adaptation planning efforts, and policies that can facilitate these efforts. However, the pace, scale, and scope of combined public and private efforts to improve the climate preparedness and resilience of the energy sector will need to increase, given the challenges identified. Greater resilience will require improved technologies, polices, information, and stakeholder engagement. While most U.S. utilities are making at least some investment in infrastructure and Smart Grid technologies, the grid itself will continue to become less stable in the foreseeable future. Today, most end-users are completely reliant on the grid. The projected increase in outage events will progressively take a toll on businesses, communities, public health and our military readiness. These impacts were demonstrated with tragic results in recent weather events like Hurricanes Katrina and Sandy, as well as a long string of blackouts over the last 15 years caused by equipment failure. Communities and businesses are realizing that they need to implement new strategies to prepare for shocks to their energy supply. The limited capacity of older equipment is resulting in an increase in congestion points in the grid leading to increased brownouts and blackouts. Better Energy 2

4 Energy Resilience as a Strategy Energy Independence is usually discussed on a national level. Politicians often make promises to decrease our dependence on foreign oil, and work toward a future in which we produce all of the energy we will need within our borders. These goals have gone largely unrealized, however, in part because they are based on an impractical premise. Increasingly, the conversation is shifting away from complete energy independence, and toward an energy strategy that allows us to withstand and adapt to any kind of shock to the energy system. Instead of failing to achieve energy independence, we could instead succeed in building true energy resilience. While the United States can and should continue to pursue strategies of energy resilience on a national level, Hitachi Consulting believes that the real opportunity to affect energy resilience exists on the level of individual institutions and businesses, and that efforts in this area represent an emerging market trend. As the market looks for energy resilience strategies and technologies, those with a clear understanding of both the challenges and solutions will be called upon to lead these efforts and reduce risk for their clients. Strategic Energy Planning Any energy resilience effort begins with good analysis and strategic planning. The U.S. Department of Energy s Community Energy Strategic Planning Academy developed a community energy planning cycle (pictured below). This nine-step plan is a valuable roadmap for a planning effort, but it is by no means the only effective approach. Every organization should ensure that their process matches their specific needs, strengths, and priorities. However, the basic approach of gathering the right stakeholders, conducting analysis on needs and opportunities, prioritizing efforts based on goals and budget, and effective implementation are all going to be critical. In order to make this process a success (with proper budget allocation and buy-in from stakeholders) a solid business case will need to be developed. In his book, The Industrial Energy Harvest, Christopher Russell talks about quantifying the cost of doing nothing as the critical element to making the business case for energy efficiency efforts. These costs should include all energy expenditures that could otherwise be avoided. In the case of energy resiliency, we can add those bills to the potentially catastrophic costs of losing access to energy for an extended period of time. Any energy resilience planning effort will require expertise not just to identify effective strategies, but to quantify the risks associated with potential energy system shocks. The Process for Developing a Community Energy Planning Cycle Step 9 M&V and Plan Alterations Step 1 Identify/Convene Stakeholders Step 2 Form Leadership Team Step 8 Identify Funding Source Step 3 Develop Energy Vision Step 7 Identify Funding Source Step 4 Develop Energy Baseline Step 6 Identify, Evaluate, and Rank Programs & Policies Step 5 Goals 3

5 Energy Efficiency Approaches Using less energy (or at least slowing the growth in energy consumption) must be Using less energy (or at least slowing the growth in energy consumption) must be considered the the first tactic employed in an energy resilience plan. Minimizing energy consumption will reduce the impact of price shocks, and decrease the burdon of replacing energy supply in case of blackout. Efficiency efforts also have the benefit of strong financial payback. There are two key approaches to reducing energy consumption at an institutional level. The first is energy efficiency doing more work with less energy. Energy efficiency is typically about the technologies we use, such as higher MPG cars, more efficient lighting, and buildings that retain heat and cold better. The other approach is energy conservation finding ways to reduce the energy we need in the first place. This typically includes changing the way people behave or the way an institution operates. Conservation efforts are sometimes easier because they require less in the way of capital and technical retrofits. However, they can be harder to attain when there is no central authority sufficient to mandate them, or when they require a change in the mindsets and default behaviors of individuals. Identifying, financing and implementing efficiency and conservation projects requires experienced experts. Organizations that are lacking the internal expertise or capacity to deploy this kind of work can benefit by teaming with external partners to make the most of their opportunities. The graphic below ANALYSIS STRATEGIC PLANNING Energy Portfolio Benchmarking Energy Audits of Select Facilities ECM Identification Technology Type and Maintenance is a simplified version of Hitachi Consulting s approach to portfolio energy performance improvement, an approach we have used to identify and deploy tens of millions of dollars worth of energy saving measures. The key to this approach is portfolio-wide evalution of technologies, operations, skills and real-world performance. This data can then be used to identify problem areas and best practices. When clients have finite resources to invest in performance improvement, the Hitachi Consulting approach provides prioritization of opportunities and mechanisms to accomplish more with less capital. Operating Procedures and Coordination Opportunities Best Practices Team Skills and Resources PERFORMANCE IMPROVEMENT Managed implementation of energy conservation measures Financing of large, portfolio-wide retrofit opportunities Training and communication program development PERFORMANCE MANAGEMENT Customized business intelligence solutions to track performance On-deck technical expertise for program management and support 4

6 On-Site Generation Approaches Once an organization has reduced its energy consumption with efficiency and conservation measures, it must find a way to securely deliver that reduced amount of energy to its critical operations. While efficiency projects may be familiar to management staff, on-site generation can seem daunting and complex. The good news is that on-site generation technologies have become more scalable and cost-effective over time with a larger pool of real-world case studies to evaluate. Even more than energy performance projects, evaluating on-site generation opportunities requires a high level of expertise. There are numerous firms that can provide support to end users in this area. Typically, this kind of evaluation will look at things like energy needs, rate structures, available fuel resources (renewable and fossil), the physical environment, and utility policies/incentives. Some common technologies being deployed for on-site generation today include: Combined Heat and Power (CHP) Highly efficient plants (typically using natural gas turbines) that utilize their waste heat and increase generation efficiency from the typical 33 percent to 80 percent. As natural gas lines are typically less vulnerable to supply interruption than electricity lines, this is seen as a valuable option. Back-up Generators Fossil fuel-burning generators that are designed to be used only in case of emergency. Typically dependent on fuel stored in on-site tanks. Many organizations already have some version of this technology to reduce the impact of brief service interruption Fuel Cells Systems that convert natural gas to hydrogen in order to provide on-demand electricity supply. Biomass Plants that burn biological byproducts of other processes (such as farming or manufacturing) in order to power a turbine. (Can also be designed in a CHP configuration). Solar Panels or other installations that turn sunlight into usable energy either in the form of electricity (photovoltaic) or heat (solar-thermal). Wind Turbines (from small, buildingmounted systems to large, free-standing systems) that capture wind energy and convert it to electricity. This list is not exhaustive, but covers some of the major technologies being used today. Most large organizations will use a blended approach, deploying something like solar where it makes sense but having some fossil fuel generation to support a larger portion of the operations and possibly backup generators for emergencies. Note that it is not necessary to meet your entire load requirements with on-site generation in order to move along the resilience spectrum. Organizations with on-site generation that meets part of their total load can identify priorities to be powered in black-out scenarios such as first responders, data centers, research laboratories or places where people will be congregating. How much flexibility is provided by the system is highly dependent upon design. For the most flexible and responsive system, many organizations are deploying a full microgrid. 5

7 Microgrid Development On-site generation is limited in its ability to provide flexible energy solutions across a portfolio of buildings. In order to achieve this functionality, organizations need to deploy a local electrical wire network and a power control system. These systems constitute what is referred to as a microgrid. A microgrid is defined based on three criteria: 1. A group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that; 2. Acts as a single controllable entity with respect to the grid and; 3. Connects and disconnects from said grid to enable it to operate in both grid-connected or Island Mode. Truly dynamic microgrids will also employ energy storage (to smooth out load from renewables or store additional capacity for peak times). These systems are complex but are a major step along the energy resilience spectrum. This has been demonstrated by organizations like Princeton University in New Jersey and CoOp City in New York both of which have robust microgrids and experienced no service interruptions after Hurricane Sandy brought down their local electric utility grid. Microgrids (particularly those that incorporate battery storage or electric vehicle charging stations) also provide a facility or community with more flexibility in how and when they use energy from the grid. This means that they can generate energy when it is cheapest and avoid using energy when it is most expensive. If, for instance, the cost of electricity is high and natural gas is low, on-site operation of a natural gas fed CHP plant may be optimal. If natural gas prices soar, the client can draw more from the grid. Most utilities also provide considerable economic incentives to customers that can curtail load at certain times. The microgrid market is expected to grow exponentially in the next twenty years. According to a report from Pike Research, the total worldwide capacity of distributed generation contained in microgrids is expected to more than quintuple over the next six years, growing from 764 megawatts (MW) in 2012 to nearly 4,000 MW in The total installed capacity grew over 100 percent during 2012 and more than 400 individual projects are currently in operation or under development worldwide. The regulatory and incentive environment is becoming friendlier towards microgrid development. The US Federal Energy Regulatory Commission recently proposed reforms to the interconnection regulations for small generators those with a capacity of 20 MW or less. If the power generation of a proposed microgrid is renewable or otherwise sustainable, development is encouraged by a laundry list of state and local incentives. Most states have created renewable portfolio standards for power producers, making a certain level of renewable generation mandatory. Similarly, governments worldwide have set goals for renewable generation, and put in place policies specifically designed to support the development of microgrids and distributed generation. States like Connecticut and New York are encouraging microgrid development through policy and state financing. 6

8 Emergency Preparedness The best technical resources are only useful if an organization is prepared to leverage them effectively during an energy system shock. An organization must determine which facilities will be powered with onsite generation in the event of a grid outage. Planners must think about which facilities are critical in a variety of ways. Public and employee safety should always top the list. After that there are several different priorities that should be evaluated including economic, research, social justice, and the facilitation of a rapid recovery. Any energy resilience plan must include education around contingency plans and communications pathways with partners and constituencies. The citizens, employees or patrons of an organization will need to know how the system is designed to respond so that they can plan accordingly. Another priority is working with local utilities and first responders to communicate resources and priorities. The plan should spell out those pathways of communication and how they will be used to help the organization and the community. These lines of communication need to be established and regularly practiced. Benefits Power outages cost the US approximately $104-$164 billion annually. Even brief outages can damage equipment or idle labor, which wastes critical resources, creating ripple effects for downstream firms. Hitachi Consulting s clients remember events like hurricane Sandy, the Fukushima disaster, and the July 2012 blackouts in Northern India. Every event that interrupts power for more than a day or two (the typical supply of backup generators) will result in a significant financial loss for businesses and hardship for communities. More than that, these outages can affect organizations ability to achieve their core mission - whether that is protecting the country, caring for the sick, or connecting people with wireless communications. Beyond just responding to risk, energy resilience strategies provide a number of benefits in the absence of energy system shocks. Considerable cost savings are realized from energy efficiency programs and the flexibility to shift loads away from peak hours and use whatever fuels are cheapest. Using less energy, capturing and using thermal energy (through CHP) and generating power on-site (thus reducing transmission line loss) all result in fewer emissions and a lower carbon footprint. Finally, having a resilient energy system can be a major selling point in attracting residents, tenants, and clients. For all of these reasons, Hitachi Consulting believes that energy resilience will become a priority of businesses and local governments all over the globe. Summary Energy resilience is not an all or nothing endeavor. Each organization has to conduct the business case analysis to determine what position along the energy resilience spectrum makes the most sense for them and then plan for the investments to get there. Once that is known, there are a host of strategies and technologies available to help move organizations to their desired location along that spectrum. This piece has introduced a few of these concepts, but the complex reality of pursuing energy resilience will require deeper engagement. If energy resilience is a priority for your organization, please contact us to find out how we can help. 7

9 About the Author Brian Levite is a Certified Energy Manager that has spent 14 years in the energy industry. For most of that time, Mr. Levite has worked to help organizations develop strategic plans and programs around energy. He has worked with the Environmental Protection Agency s ENERGY STAR program, the Department of Energy s (DOE) Office of Energy Efficiency and Renewable Energy, the National Renewable Energy Laboratory, and multiple state and local governments. Mr. Levite was the one of the lead instructors for DOE s Community Energy Strategic Planning Academy. He has presented on energy planning topics at multiple national and regional conferences. He has a Bachelors Degree in Environmental Policy and a Masters Degree in Public Policy. Mr. Levite currently works for Hitachi Consulting, supporting public and private clients with energy performance management. About Hitachi, Ltd. Hitachi, Ltd. (TSE: 6501), headquartered in Tokyo, Japan, is a leading global electronics company with approximately 320,000 employees worldwide. Fiscal 2011 (ended March 31, 2012) consolidated revenues totaled 9,665 billion yen. Hitachi is focusing more than ever on the Social Innovation Business, which includes information and telecommunication systems, power systems, industrial, transportation and urban development systems, as well as the sophisticated materials and key devices that support them. For more information on Hitachi, please visit the company s website at We make it happen. Better. Hitachi Consulting is the business consulting capability of Hitachi, Ltd., a global technology leader and a catalyst of societal change. In that same spirit-and building on its technology heritage-hitachi Consulting is a catalyst of positive business change, propelling companies ahead by enabling superior operational performance. Working within their existing processes and focusing on targeted functional challenges, we help our clients respond to dynamic global change with insight and agility. Our unique approach- strategic pragmatism - produces consistent, measurable business results and delivers an exceptional consulting experience. 8 Dallas, Wellington Dallas Parkway Suite 800, DallasTX Tel: Fax: