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Good COP/Bad COP: Balancing fabric efficiency, flow temperatures and heat pumps

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Heat pumps are widely recognised as the key technology to decarbonise building heat demand in Ireland. To receive grants for heat pumps, homeowners in Ireland are required to have a heat demand per unit of floor area, known as a ‘heat loss indicator’ (HLI), below a certain level. The HLI requirement was designed to protect households from high bills if they switched to a heat pump.  

There is a concern that the HLI is limiting heat pump deployment, thereby hindering Ireland’s goal of net zero in 2050. This review of the HLI policy and associated rules was undertaken alongside a discussion of heat pumping technologies and their operation, optimal performance and innovation. While there is still a major role for building fabric energy efficiency upgrades, innovation in heat pumping technologies means they may be able to more easily replace combustion-based technologies than has been previously assumed due to better performance and higher output temperatures.

To achieve more rapid and potentially smoother deployment of heat pumps, current HLI grant requirements should be reevaluated. Initially, the HLI requirements could be loosened, subject to relevant consumer advice and protections. In the longer term, a focus on flow temperatures and in-situ performance may be more appropriate. Building fabric efficiency requirements could be maintained but simplified. Finally, trials and programmes to evaluate heat pump performance in Irish buildings should be expanded and expedited in order to provide accurate and local data on this strategically important technology.

Making sense of India’s fast-changing policy landscape: Integrated modelling to inform decision-making

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With several notable recent economic reforms, India is one of the fastest-growing emerging economies. The country aspires to become a $5 trillion economy by 2024-25 and a $10 trillion one by 2030. There is ample evidence that India’s growth has been highly unequal in the past. Therefore, transforming this vision of growth into reality will require a comprehensive approach based on a multitude of policies targeting multiple domains. Further, the development trajectory should also be capable of tackling the key environmental challenges that India faces.

In the fast-changing policy landscape of a country as diverse as India, striving for equitable growth will not be possible without gauging regional implications of policy shifts. Equally important will be to understand the direction and distributive impacts of ongoing policies consistently and on a regular basis in conjunction with various decarbonisation goals recently endorsed by India.

A book released in December 2021, Economy-Wide Assessment of Regional Policies in India, takes on these questions. Making use of the outputs from the integrated energy-economy regional model called E3-India, it provides hopeful insight and offers powerful recommendations for India’s energy, economic and environmental policymaking at the national and state levels.

The book (edited by the lead author of this post) is a compilation of articles describing how various ongoing and announced sector-specific policies will, or will not, advance India’s social, economic and climate ambitions in both the near and longer terms nationally and across different states. The focus is largely on recent policies implemented in the primary, secondary and services sectors, including agriculture, capital goods, automobiles, electronics, information technology (IT-ITeS) and energy. The analyses also account for the effects of the COVID-19 pandemic and evaluate the impacts of different policy choices — especially with respect to environmental consequences and energy use — at the national and subnational levels.

The book takes a realistic look at the economic sensitivities and interdependencies at the national and state levels across India. Its aim is to broaden the scope of future action by reducing ambiguity and uncertainty in achieving the key policy targets — that is, by giving policymakers greater confidence that desired outcomes can be achieved. The major policies evaluated against a business-as-usual scenario include: the Agriculture Export Policy 2018; National Capital Goods Policy 2016; National Steel Policy 2017; Electrical Equipment Mission Plan 2012-2022; National Policy on Electronics 2019; Digital India initiative; National Software Policy 2019; Automotive Mission Plan 2026; and several subnational initiatives in a variety of sectors. In addition, the book evaluates regional impacts of national energy targets, along with economic impacts of existing Nationally Determined Contributions for India and economic impacts of Delhi’s airshed management. The book also takes a closer look at impacts of liquidity infusion in the context of COVID-19 through the Atmanirbhar package.

Sector-specific impact analyses of national policies reveal critical regional insights. For instance, the existing policy regime will lead to Gujarat state becoming a leader in international agricultural exports. Maharashtra, Karnataka and Haryana perform exceptionally well in the capital goods sector. With appropriate incentives in place, Haryana also emerges as a leader under the Automotive Mission Plan 2026 along with Tamil Nadu.

Tamil Nadu exhibits diversified leadership by outperforming in the electronics and IT-ITeS sphere along with Delhi and Uttar Pradesh. The state emerges as a front-runner in renewable capacity installation as well, along with Maharashtra, Karnataka and Andhra Pradesh. In contrast, the resource-rich and income-poor states like Chhattisgarh, Odisha and Jharkhand show a greater growth potential only in the capital goods sector.

We find that the more advanced states, like Maharashtra and Tamil Nadu, are already in a position to take up diversified policy action in the short run and direct resources to expand their markets through further integration in the global value chains. Most other Indian states still rely on few specialised sectors and will be able to diversify in the medium to long run only if sustained policy support in terms of investment in both infrastructure and capacity-building is provided. In a country as large as India, with different states endowed with distinct economic and geographic characteristics, formulating policies to strengthen regional value chains is critical for equitable growth of states across all regions.

Regional analysis of sector-specific policies highlights the nuances of regional variations in a particular sector, but in reality, various sectors are highly interconnected. The implementation of a policy in one region therefore has direct and immediate effects in its implementation in other regions and sectors. An integrated analysis that captures the essence of multiple policies simultaneously working together in diversified sectors and development areas is demonstrated in the final synthesis of this book. The comprehensiveness and granularity of the modelling outputs will enable readers (and other researchers, who can download and use the E3-India model free of charge) to derive nuanced and more informed policy insights.

By clearly outlining the short-run as well as the medium- and long-run priority sectors at a regional level in conjunction with impacts of ongoing energy transitions, this book intends to serve as a comprehensive guide for evidence-based economic and energy policymaking in India. Shaping these regional insights into deliverable policy actions ultimately lies in the hands of the policymakers. The book and the E3-India model serve as a primer and a tool to facilitate evidence-based policymaking at the regional level, enabling policymakers to leverage and strengthen India’s unique socioeconomic and geographical diversity, while moving toward national economic growth targets equitably and with a lower carbon footprint.

A Song in the Key of E: Emissions, Efficiency, Equity, and Electrification

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A lot of folks out there (including we at RAP) have, for the last four decades, been devising ways to make utilities more economically efficient, their customers more energy-efficient, and the power system cleaner, sustainable, more equitable, and non-emitting. But now they have a problem: the world has changed, and suddenly we need more of that thing that they for so long tried to constrain. Now that the time has finally come to make the leap that has to be made if our climate crisis is to be solved, we’re like the proverbial deer in the headlights — if only for a moment. The prospect of wild load growth in electric demand is a bit hard to swallow at first. It’s both frightening and, well, electrifying.

Efficiency has been the central theme of electric sector reform for nearly a half century. It is the recognition that meeting a society’s energy needs is not simply a matter of “more is better” but rather of “no more than is necessary (and it’d better be as environmentally benign as possible).” This insight meant that we should not use energy when it was cheaper and more valuable to save it. And it meant that the traditional business model of the monopoly electric utility had to change—that profitability could no longer be linked to growth in commodity sales but to the least-cost provision of energy service and achievement of express public policy objectives.

So what’s the problem?

Well, it turns out that we need more, lots more, of a particular kind of energy — electricity from non-emitting resources — if we’re going to decarbonize as much of the economy as we possibly can. We need clean electricity for transportation, heating and cooling, agriculture, and industry. Are the regulatory reforms that we’ve advanced in the past thirty-odd years — in particular, integrated resource planning, revenue decoupling, and systems of performance-based rewards and penalties — appropriate to a vision that calls for a great expansion in our use of electricity and therefore a sea change in how we produce and deliver it?

The answer is yes, and it shouldn’t surprise us. It follows directly from an approach to economic analysis and policy — aimed at maximizing the net societal benefits of energy use — that we’ve relied on for decades. Thirty years ago, given the costs, expectations, and constraints we faced, the analyses pointed us in certain directions. Today, given different costs, expanded expectations, and more urgent constraints, they point us in new directions. In both cases, they told us how to minimize the costs — that is, maximize the benefits — of our desired path.

At a conceptual level, the problem isn’t daunting. It’s time to truly look at the energy system in its entirety, not just the electric system. How do we minimize the total costs of energy production and use, while meeting our climate, economic, and social goals?

It’s simple. The least-cost path is characterized by massive fuel-switching — from fossil fuels to clean, emissions-free sources, primarily electricity. But it’s not that simple. It doesn’t relieve us of the duty to make sure those new loads are as efficient as possible and are managed as efficiently as possible — indeed, it insists upon it, since any waste only increases costs. It isn’t right simply to say “Electrify!” How we electrify matters.

The good news is that our planning tools and regulatory methods are up to the task. We know how to think about the problem, consider alternatives, test uncertain futures. We know how to change course when circumstances dictate. And we know that utilities and market actors respond to the forces that act upon them, which means that we should still care deeply about whether their private financial incentives align with the public interest. We want these players to be successful by doing the right things.

So what does this mean for the utility business model? For the “wires” sides of the business — transmission and distribution — in both vertically integrated and competitively restructured markets, there’s still every reason to remove the “throughput incentive.” Whether load is growing or not, a utility whose revenues and profits are a direct function of kilowatt-hour sales (that is, of kWh deliveries) has a very powerful incentive to encourage usage, even if that usage is inefficient. We shouldn’t think that, simply because the electricity is clean, we have license to be profligate. The recent decision of the Massachusetts Department of Public Utilities to scrap Eversource’s decoupling regime, on the grounds that good ol’ fashioned price-only regulation will encourage the company to promote electrification. Probably it will, but, alas, it won’t give the utility much, if any, reason to care whether the electrification is in the best interests of society.

Revenue decoupling remains a critical element of a regulatory regime that aims for least-cost investment in, and operation of, the grid. It keeps the regulated monopoly focused on efficient operations. But, by itself, it doesn’t guarantee utility enthusiasm for preferred outcomes. Legal and regulatory obligations go a long way to solving that problem, but there’s a place for carrots and sticks too. Performance measures, with achievement rewards and penalties, overlaid on a decoupling mechanism, are powerful drivers of policy objectives.

What about the commodity side of the business? Again, in both vertically integrated and restructured markets, investment has been and will continue to be propelled in significant measure by policy requirements, such as renewable portfolio standards and emissions reductions requirements (e.g., cap-and-invest programs). These have been effective in transforming our resource portfolios and, moreover, have helped drive deep cost reductions in clean energy technologies, so that now the relative costs begin to favor the preferred investments. Important wholesale market reforms are still needed, but the outlook is good.

In those places where utilities remain vertically integrated, the question of how power costs should be recovered is of acute interest, especially where price risk has been shifted to consumers by means of fuel adjustment clauses and power-cost pass-throughs. How these mechanisms, intended to insulate shareholders from the volatility of global energy prices, distort management imperatives to manage power costs and investment for the long-term good of both consumers and shareholders has been well understood for decades. It’s time to revisit these tools, to consider whether and how they can be reformed to better align private incentives with the public good. Utilities and other load-serving entities possess the comparative advantage for bearing price, climate, and other market risks. Some simple fixes to power-cost recovery mechanisms will go a long way to reordering those risks and creating the environment in which clean, reliable electricity flourishes.

By all means, let’s let utilities and other market actors make money providing the energy and energy services we want. And that includes where increased load is societally most efficient—which is to say, the least-cost means of meeting demand for reliable, equitable service and, among other things, our climate goals.

Stay tuned for more blogs in this series. We’ll dig into some of the knottier regulatory challenges that large growth in load raises and try to answer the question: “Just what does a regulatory scheme look like that promises to achieve these ends?”

Grid Operations and Why They Matter for Air Quality — Part 2

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In the second part of a training for the Mid-Atlantic Regional Air Management Association (MARAMA), Nancy Seidman explored the air quality and health benefits of energy efficiency and electrification.

Grid Operations and Why They Matter for Air Quality — Part 1

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In a training for the Mid-Atlantic Regional Air Management Association (MARAMA), Nancy Seidman discussed regional transmission and opportunities for collaboration among air quality regulators, state energy offices and utility commissions.