Between the Poles

Large public project in U.S. mandates BIM for full-life-cycle construction

One of the largest municipal bond-financed construction projects in the United States has mandated building information modeling (BIM), targetting not only design and construction, but as a permanent record of college assets for use during operations and maintenance.  The Los Angeles Community College District (LACCD) is the largest community college district in the United States and serves more than 250,000 students annually at nine colleges, spread throughout the greater Los Angeles area. More than 70% of LACCD students are underserved minorities and over 40% of students are over the age of 25.

LACCD has received funding through taxpayer-approved bonds and the State of California to launch its BuildLACCD sustainable building project. BuildLACCD is a $9.5 billion building program is funded mainly by bonds approved by Los Angeles voters in 2001-2016.  The objectives of the project is modernizing and improving campus facilities to enhance opportunities for students from lower-income communities and involved designing and constructing more than 65 new buildings, as well as remodeling many others.  The LACCD consuders itself a leader in environmentally responsible construction. The BuildLACCD Sustainable Building Program is enabling LACCD to not only modernize its colleges but to build more than 40 new structures that will meet Leadership in Energy and Environmental Design (LEED) standards.  LACCD is generating solar power on its campuses and taking other steps to reduce the colleges' carbon footprint. The final phase of the project has mandated a building information modeling (BIM) approach, requiring that each building be modeled in 3D and managed using BIM processes.

I have blogged about the innovative BIM program at LACCD.   About twelve years ago it was decided to capture 3D BIM models of all the buildings on the LACCD  campuses. One of the most important motivations for creating these models was that BIM models would facilitate energy performance analyses of LACCD buildings - which supports the current building program, which targets zero energy usage.  The models include interior power, water, mechanical, and lighting systems together with 2D models of underground infrastructure on the nine LACCD campuses.

There are interesting and unique aspects of how these models were captured.  Perhaps most importantly, the models were created entirely by LACCD students.  Existing structures were laser scanned and BIM models were developed from the point clouds by students. In addition to creating the models themselves this has created a large BIM skilled labour pool in Los Angeles.

The second important aspect of capturing BIM models of college buildings is that to ensure a uniform representation of all the buildings across all of the campuses and interoperability with various applications,  standards should be used wherever possible.  The initial standards adopted include Industry Foundation Classes (IFC), Spatial Data Standards for Facilities, Infrastructure, and (SDSFIE), OMNIClass, and COBIE.  The BIM models were stored in a spatially-enabled relational database using real world coordinates.  Real world coordinates and spatial SQL enabled the models to be easily integrated with geospatial data from a variety of sources. The models could then be used for a variety of purposes including visualization, energy performance modeling, predictive maintenance,  and safety and security simulations.

The final phase of the BuildLACCD project involves more than 500 participants representing nearly a thousand different trades. The plan targets capturing data associated with assets in the planning and design phase so this information can later be utilized by facility directors and campus project directors for maintenance and operations. For the widespread community college with nine campuses this requires a common geospatial coordinate system so that all facilities can be viewed on a map and users can see each building spatially in reference to other facilities including utilities and roads and vegetation. The LACCD database buildings currently houses more than 3 million files totaling five terabytes of data.  The data is stored in Bentley Projectwise which provides a common interface and foundation for a standardized, collaborative BIM approach. ProjectWise is the central repository for all information, including models, drawings, specifications, photographs, and all other project data.

Automating sustainable building design using BIM and energy performance modeling

At the CanBIM Regional Session in Vancouver, Mark Cichy, Associate, Director of Computational Design and Research, at DIALOG, gave a fascinating talk about automating the process of designing sustainable buildings.  Specifically the talk focussed on applying computational design based on BIM and building energy modeling to optimizing building energy performance in the context of sustainable baseline standards such as LEED, AIA 2030, Living Building, and others.  This is important for DIALOG which has just committed to AIA 2030.

The primary motivation for energy performance modeling is currently aggressive building codes that push energy efficiency, for example, customer driven certification such as LEED and other "green" certification, and financial incentives from local governments and power utilities to reduce energy consumption, peak load or both. The EU, US and Japanese governments have already mandated net zero energy, near zero energy and zero emissions for public and other buildings starting as early as 2018.

Computational energy modeling is about optimizing energy usage over the entire lifecycle of the building for multiple objectives.  Currently energy performance modeling typically follows a fairly lengthy process starting with a BIM model of a design.

1. Use Revit to create a BIM model of the building.  The model can be either conceptual or detailed, but there are specific requirements it must satisfy to be useful for energy performance modeling. 
2. Create custom schedules in Revit to provide an information framework for the data that is required as input for the energy performance analysis and for storing the results of the analysis.
3. Generate a gbXML model from Revit.
4. Import the gbXML model into an energy performance modeling software such as IES.
5. Clean-up the model and add external features such as nearby buildings.
6. Run the energy performance analysis.

Mark discussed automating this process using generative design based on parameterized BIM models to optimize energy performance in the context of LEED or AIA 2030 or another sustainability standard.  There are a number of BIM algorithmic design and energy performance tools that can be used to help do this.  Mark mentioned Revit, Dynamo, Grasshopper, Ladybug, and IES. Dynamo extends BIM modeling to include algorithmic design. Grasshopper is an algorithmic design application for Rhino.  Ladybug is a free and open source environmental plugin for Grasshopper to help designers create an environmentally-conscious architectural design.  IES is the industry standard tool for detailed energy performance modeling for compliance purposes.  It is a standalone application that takes input from 3D design tools and assesses the design from the perspective of energy performance.

One of the key challenges that is required to enable automating the sustainable building design process is integrating IES with Revit so that every change in Revit is modeled at the same time in IES.  This requires a tight integration of IES into Revit, something that cannot currently be done with IES, but Mark is optimistic that this will be possible in the future.  The other part is generative design based on a parametric BIM model. 

Mark gave a real world example of optimizing a building with respect to different facade designs, lighting performance, and heating performance.  Pretty amazing - this represents significant progress toward integrating generative design and energy performance modeling that will make it much easier to design sustainable buildings compliant with a standard such as LEED and AIA 2030.

Vancouver's strategy for zero emissions buildings by 2030

New buildings in Vancouver will be zero-emissions or zero-emissions ready by 2030 or earlier. Vancouver will achieve this by a combination of energy usage reporting, incentives to the private sector, regulation including rezoning and building code changes,and increasing public awareness about low carbon building construction and operation.

At a Canadian BIM Council (CanBIM) conference in Vancouver, Brad Badelt, Assistant Director of Sustainability at the City of Vancouver, outlined how Vancouver intends to meet the goals defined in its 2015 renewable city strategy; 100% renewable energy by 2050 and a reduction of 80% in emissions compared to 2007.

Vancouver is already 31% renewable because the electric power used by buildings is almost entirely renewable. Currently building heating relies almost entirely on natural gas. Vancouver has had electric buses for years and municipal rail (Skytrain) is electric. 57% of CO₂ emissions come from heating buildings. Currently almost half of new building floorspace in Vancouver is single family residential.

In 2050 Vancouver's building stock is projected be 30‎% built prior to 2010, 30% current or upcoming, and 40% zero emissions buildings. The more that can be done right now to move toward zero-energy-ready buildings, the less retrofitting will be required to achieve Vancouver's emissions goals.

Vancouver's strategy for achieving all new buildings being zero-emissions-ready by 2030 is multi-faceted.  It includes regulation: to gradually restrict greenhouse gas (GHG) emissions, reduce heat loss, and limiting total energy use; city leadership: all new city-owned buildings will be zero emissions; incentives: incentivizing the private sector to move toward zero-emissions building; and capacity building: investing in tools to develop and share knowledge and to remove barriers.  One of the things that Vancouver is doing right now is creating a Zero Emissions Building Centre of Excellence, scheduled to open in May, which is the first in Canada.  BIM and energy performance modeling will have a key role in the drive toward reduced buildings emissions.

In Vancouver's zero emissions strategy the next frontier is embodied carbon - emissions sourced to the materials and energy used in the construction of buildings. Vancouver plans to first require embodied emissions reporting followed eventually by regulation. One thing that is definitely in the works is encouraging the use of a lot more wood in construction. This is partly due to the intention to reduce embodied carbon and partly due to using the excess capacity resulting from U.S. duties on softwood imports.

EU energy efficient building market reaches $83.5 billion in 2017

The EU has set three goals for reducing greenhouse gas emissions under the catch phrase 20-20-20 by 2020

1. Reduce greenhouse gas emissions by at least 20% from 1990 levels by 2020
2. Increase the share of renewable energy sources in energy consumption to 20%
3. 20% increase in energy efficiency

The legislation driving the 2020 goals are the Effort Sharing Decision, Renewable Energy Directive. and the Energy Efficiency Directive. The EU is on track to meet the 20% target for 2020.  In 2015, EU emissions were already 22% below 1990 levels.  According to national projections, emissions will further decrease until 2020 and showing a significant overshoot of EU 2020 goals. 

As an example the largest member state, Germany, has about 1.7 million non-residential buildings. Of these office and administration buildings comprise the largest share(22%), retail (14%), agricultural (14%) and hotels, cafés and restaurants (13%). Public buildings of the federal, state and local Government are about 20% of all non-residential buildings by floor area.  Efforts to reduce energy consumption in buildings 2000 to 2012 resulted in a decline in space heating consumption from 205 kWh/square meter/year in 2000 to 147 kWh/square meter/year in 2000 in 2012.  The central goal of the German Federal Government is to further reduce the heating requirements of new and existing buildings to achieve a nearly carbon neutral building stock by 2050.

Under the Paris agreement, the EU has agreed to reduce its greenhouse gas emissions by at least 40% by 2030. In addition, the EU also has targets for renewable energy and energy savings of at least 27% by 2030. The Paris Agreement obliges the EU to review  its legislation to achieve the 2030 targets before 2018 when world leaders will gather to assess progress in its implementation.  According to Member States' projections based on existing measures, in 2030, the total EU emissions are estimated to be 26 % below 1990 levels.  Therefore, new mitigation policies are being put in place so that the EU target of at least a 40 % domestic reduction in greenhouse gas emissions compared to 1990 in reached in 2030.  A 2017 survey has found that nearly 90% of EU citizens believe it is important for their national government to provide support for improving energy efficiency by 2030.

Energy efficient buildings have been one of three priorities in the EU to meet 2020 emissions goals and this will be intensified to meet the 2030 goals. The Energy Performance of Buildings Directive (EPBD) and the Energy Efficiency Directive (EED), have been the legislative drivers for improving the energy efficiency of buildings. In Western Europe intelligent building technologies and net zero energy buildings are key to meeting energy efficiency goals. A new Navigant Research report analyzes the market for energy efficient building technologies in Western and Eastern Europe with a focus on HVAC, lighting, building controls, water efficiency, water heating, and building envelope. According to Navigant Research, energy efficient building technology spending in Western and Eastern Europe reached $83.5 billion in 2017. It is projected to grow steadily to $111.9 billion by 2026.

Smart building market expected to grow 34% annually

A report "Smart Building Market - Global Forecast to 2021" projects that  the smart building market will grow by 34 % annually from 2016 through 2021.  The market size, estimated at $ 5.7 Billion in 2016, is expected to grow to $ 25 Billion in 2021.  From Markets and Markets' perspective the smart building industry is comprised of intelligent security systems, building energy management systems, infrastructure management systems (parking, water, and elevators), and network and communications management systems.  The major vendors covered in the smart building market for this study include ABB Group (Switzerland), International Business Machines (IBM) Corporation (U.S.), Schneider Electric SE (France), Siemens AG (Germany), Cisco Systems, Inc. (U.S.), Honeywell International Inc.(U.S), Delta Controls (Canada), Johnson Controls (U.S), United Technologies Corporation (U.S), and BuildingIQ (Australia).  Accenture, TCS, Wipro, HP, and Capgemini are market players providing assessment, consulting, system integration, and support services to smart building solutions.

The drivers for this boom in smart building technology are energy efficiency and reducing CO2 emissions, government initiatives for smart building projects, growing demand for integrated security and safety systems, and the proliferation of sensors and smart appliances comprising the Internet of Things (IoT).

According to the International Energy Agency, about 40% of the world’s energy is consumed by buildings.  72% of electric power demand in the U.S. is from buildings.  Growing urbanization is expected to increase energy demand from buildings. 

Europe's 20-20-20 goal and mandating near-zero-energy buildings starting in 2018/2019 is expected to drive the largest geographic market share in the smart building market.

Canada prices carbon

The Canadian government has announced a a pan-Canadian policy on climate change including a floor price on carbon beginning in 2018.  The Paris agreement commits Canada to a 30 per cent reduction in greenhouse gases from 2005 levels by 2030.  The floor price of carbon starts at a minimum of $10 per tonne of GHG emissions in 2018, rising by $10 each year to $50 per tonne by 2022. All of the money raised will be returned to the respective provinces, who can, in turn, distribute those funds to their citizens in the form of tax cuts.  The federal program will be compatible with existing provincial carbon pricing programs.  Ontario and Quebec already have a cap-and-trade program.  British Columbia already has a carbon tax of $30 per tonne.  Alberta has announced it will have a $20 per tonne carbon tax beginning in 2017, rising to $30 a tonne in 2018.  Eight of ten provinces have signed onto the agreement.  The federal government said it will impose a carbon price on the two non-signatory jurisdictions, Saskatchewan and Manitoba. The final agreement includes a list of already announced measures including new building codes to improve building energy efficiency, more charging stations for electric cars, expanding clean electricity sources and upgrading power grids.

Net zero energy building market growing rapidly

Energy efficiency

The IEA has projected that a cumulative $44 trillion in investment will be needed in the global energy supply over the next 15 years. Another $23 trillion will be required for energy efficiency improvements.  Worldwide 40% of energy is consumed by buildings.  In the U.S. 70 % of electric power goes to buildings.  Measures aimed at improving the efficiency of buildings have been introduced in Europe, the U.S., Japan and other jurisdictions.

Zero energy buildings

Zero energy buildings are loosely defined as buildings that generate as much energy as they consume.  But there is as yet no single standards body defining what a zero energy building is.  Different countries and even within the same country different bodies define zero energy buildings in different ways.  According to a new report from Navigant Research, global zero energy building revenue is projected to grow from less than $100 billion in 2016 to $1.4 trillion by 2035.

Nearly zero energy buildings in the E.U.

The European Union (EU) has taken a leading role in focussing energy conservation efforts on the energy efficiency of buildings.  The EU has mandatory carbon emission reduction standards, referred to as the 20-20-20 standard, which among other things requires the EU to improve energy efficiency by 20% by 2020.  Another important objective is reducing its dependence on imported energy, which currently accounts for half of EU energy usage.  In 2002 the European Commission promulgated the Energy Performance of Buildings Directive (EPBD) which requires all EU member states to upgrade their building regulations and to introduce energy certification schemes for buildings.  About a year ago the European Commission (EC) proposed a new Energy Efficiency Directive (EED) , also known as the EPBD recast, which imposes a legal obligation for all member states to establish energy saving schemes, with the public sector leading by example.

Energy efficiency is especially critical for Germany which not only needs to comply with the 20-20-20 standard, but also to find energy sources to replace its (non-emitting) nuclear power plants that are scheduled to be closed by 2022.  In Germany buildings currently account for 40 percent of power consumption and a third of CO2 emissions. The German 40 year master plan calls for aggressive energy efficiency policies including new insulation standards and for all buildings in Germany to be refurbished in line with the new insulation standards by 2050, reducing energy requirements for heating by 20 percent by 2020 and by 80 percent by 2050, and providing tax relief on energy taxes to companies contributing to energy savings.

A major area of focus in the EU is “nearly zero energy” buildings.  A nearly zero energy building on average over a year generates as much energy from renewable energy sources as it consumes.  For new buildings, the EPBD recast fixes 2020/2021 as the deadline for all new buildings to be designed to be nearly zero energy.  For public buildings the deadline is even sooner, by 2018/2019.

Zero emissions buildings in Japan

Japan‘s announced mid-term emission reduction target is to cut Japan's GHG emissions by 25% by 2020 compared with 1990, subject to international negotiations.  But Japan has said that it plans to revise this target in light of the Fukushima accident and presumably in light of the decision to shut down its nuclear power plants by 2040.  According to an analysis by the Ministry of Economy, Trade and Industry (METI), the largest reduction will need to be realized in commercial sector, by about 27%. Residential/commercial-sector accounts for 30% or more of final energy consumption and has increased remarkably compared to the industrial and transportation sectors.  Energy saving measures for commercial buildings are urgently required, since the commercial sector including office buildings consumes more than half of total energy consumption in the residential/commercial sector. Moreover its growth has been more striking than that of the residential sector.

The Government of Japan put forward its "zero emissions buildings" target in April, 2009.  It defines a zero emissions building (ZEB) as one that has net zero CO2 emissions on an annual basis through energy efficiency and renewable energy generation on-site.  The announced objective ia that all new public buildings will be zero emissions by 2030.

Zero net energy buildings in the U.S.

The U.S. Energy Independence and Security Act of 2007 (EISA 2007) requires that by 2030 all new Federal facilities must be "zero net energy" (ZNE) buildings.  On October 19, 2007, the California Public Utilities Commission (CPUC) adopted aggressive targets for ZNE

• All new residential construction in California will be zero net energy by 2020
• All new commercial construction in California will be zero net energy by 2030
• 50% of existing commercial buildings will be retrofit to ZNE by 2030.

According to the New Buildings Institute (NBI) there are 332 ZNE (zero net energy) verified and emerging commercial and multifamily buildings in the U.S. and Canada. The ZNE buildings on this list have either achieved or committed to the goal of producing as much renewable energy onsite as they consume over the course of a year.

Low carbon climate-resilient infrastructure requires private funding

A Report by the Global Commission on the Economy and Climate has recommended that since more than 60% of the world’s greenhouse gas (GHG) emissions are sourced from the world's existing stock of infrastructure, ensuring infrastructure is built to deliver sustainability is the only way to meet the COP21 goal  of keeping warming below 2°C and to guarantee long-term, inclusive and resilient growth. Infrastructure underpins core economic activity and is an essential foundation for achieving inclusive sustainable growth.  Investing in sustainable infrastructure is key for reigniting global growth and reducing climate risk.

The Global Commission is chaired by former President of Mexico Felipe Calderón and co-chaired by the climate economist Lord Nicholas Stern.

The report estimates that $90 trillion in sustainable infrastructure investment will be required over the next 15 years.  It stresses that this will require a shift in the world's construction and financial sectors to ensure that this money, which will be increasingly private, is spent on low-carbon, energy-efficient projects. 

Change in infrastructure spending required for a 2°C scenario (percentage change in expenditure over 2015-2030 compared to Business-as-usual)

The report has adopted a broad definition of infrastructure which includes both traditional types of infrastructure; energy, public transport, buildings, water supply, and sanitation and also natural infrastructure; forest landscapes, wetlands and watershed protection.  Infrastructure underpins core economic activity and is an essential foundation for achieving inclusive sustainable growth. It is indispensable for development and poverty elimination, as it enhances access to basic services, education and work opportunities, and can boost human capital and quality of life.

Investment is needed to replace ageing infrastructure in advanced economies and to accommodate higher growth and structural change in emerging market and developing countries. This will require a significant increase globally, from the estimated US$3.4 trillion per year currently invested in infrastructure to about US$6 trillion per year. The Global Commission found that it does not need to cost much more to ensure that this new infrastructure is compatible with climate goals, and the additional up-front costs can be fully offset by efficiency gains and fuel savings over the infrastructure lifecycle.

Importance of private infrastructure financing

Transforming the financial system and its intermediaries is essential to scaling up sustainable infrastructure finance.  Public finance and investment will continue to play a critical role, particularly in low-income countries.  But large amounts of private capital are needed and this will only flow if the right market signals are present within the financial system. The report suggests that reforms are needed in the financial regulatory system as well as other policy reforms, specifically, to price carbon to level the playing field between sustainable and unsustainable options in order to encourage private investment in sustainable infrastructure.

Private investment requires financial returns.  Efficiency in construction and operation and maintenance of infrastructure is essential. Increasing productivity drives technological innovation. Many governments as well as private sector engineering and construction firms have identified building information modeling (BIM) as a key foundation for increasing construction productivity.  Owners are beginning to recognize the benefits of full lifecycle BIM especially when augmented by geospatial technology.

Energy

The report estimates that energy infrastructure will require investment of US$25 trillion, or nearly a third of total core infrastructure investment over the coming 15 years. In addition energy efficiency will require investment of about the same magnitude.  Building sustainable energy infrastructure encourages economic growth, reduces air pollution and greenhouse gas emissions, and plays a key role in building resilience.

Energy efficiency

The report found that energy efficiency is a highly cost-effective way to manage demand and reduce the investment requirements for overall energy supply. Increasing energy efficiency in industry, buildings and transport could achieve up to half of the emission reductions needed globally to peak greenhouse gas emissions by 2020 according to the IEA.  Energy efficiency investments in IEA member countries since 1990 have avoided US$5.7 trillion of energy expenditure.  The IEA estimates further investments could boost global GDP by US$18 trillion by 2035, increasing growth by as much as 1.1% per year.  Energy efficiency measures are estimated to create up to three times as many jobs as fossil fuel supply investments per dollar of investment.

A key recommendation of the Global Commission’s 2015 report was to scale up commitments by development banks working with governments and the private sector to invest at least US$1 trillion per year by 2030 in clean energy, including energy efficiency.

Air pollution

Outdoor air pollution, much of which is associated with fossil fuels, is linked to nearly 4 million premature deaths per year. In China, it is estimated that air pollution killed around 1.6 million people in China in 2013. In India, the air pollution toll in 2013 stood at 1.4 million deaths.  In Europe, coal plant emissions account for more than 18,200 premature deaths, about 8,500 new cases of chronic bronchitis, and over 4 million lost working days each year.  Analysis for the Global Commission shows that the health and mortality burden of air pollution amounts to as much as 4% or more of GDP in some countries. Recent analysis by the OECD has found that globally air pollution-related healthcare costs alone are projected to increase from US$21 billion in 2015 to US$176 billion in 2060.

Cities

It is estimated that by 2050, two-thirds of the global population will live in cities, and over 70% of the global demand for infrastructure over the next 15 years is expected to be in urban areas.  How cities develop is important both for growth and for climate change.  The report emphasizes that investment in sustainable infrastructure is essential to make cities inclusive, safe, and resilient.

Global Commission

The global commission is supported by governmental and private sector leaders: Sharan Burrow, General Secretary, International Trade Union Confederation (ITUC), Australia; Suma Chakrabarti, President, European Bank for Reconstruction and Development (EBRD); Helen Clark, Administrator, UN Development Programme (UNDP); Former Prime Minister of New Zealand; Jamshyd Godrej Chairman and Managing Director, Godrej & Boyce Mfg Co. Ltd., India; Stuart Gulliver, Group Chief Executive, HSBC Holdings plc and Chairman of The Hongkong and Shanghai Banking Corporation Limited; Angel Gurría, Secretary-General, Organisation for Economic Co-operation and Development (OECD); Chad O. Holliday, Chairman, Shell, United States; and Sri Mulyani Indrawati, Finance Minister of Indonesia

BIM adoption in the UK surpasses 50%

The UK Government's goal for construction industry is to reduce the CAPEX for public construction projects.  To reach its goal for the construction industry the UK Government has undertaken several initiatives, one of which is a commitment to embrace Building Information Modelling (BIM) in Government projects. The drivers for this incredible effort to transform the UK public construction industry over a 4-year time frame are to reduce costs, improve delivery times, lower emissions and create export opportunities for UK firms. The Government’s mandate for Level 2 BIM came into force in April of this year.  Since then any public sector project that is funded by HM Government will need to be done through collaborative 3D BIM. 

The NBS does a National BIM survey annually to determine what the increasing adoption of BIM in the construction industry means for construction product manufacturers.  More than 1000 people responded to this year's survey.  It represents one of the most accurate depiction of BIM adoption and usage in the UK. 

According to the survey 54 % of designers are currently using BIM.  Another 42% are aware of BIM, but are not yet using it.  Only 4% don't know what BIM is.  It is interesting to compare this to 2011, when only 13% of people were using BIM and 43% did not know what it was.  Of designers who reponded that they are aware of BIM, 86% expect to be using BIM by next year, and 97% within five years. The Government is already reporting significant cost savings through BIM and is making further investment in it.  It is concluded that BIM adoption will continue to rise in the UK.

In the NBS National BIM survey, designers were asked whether they feel that BIM will help the UK construction industry reach the Government's targets. 63% of the respondents felt that BIM will lower costs by about a third.  57% responded that BIM will bring about a 50% reduction in the overall time, from inception to completion, for new build and refurbished assets.  39% believe  that BIM will reduce emissions in the built environment.  

The maturity of BIM in the UK and the rise in BIM adoption globally is believed to represent an opportunity for UK manufacturers, but fewer than a third of the respondents believe that BIM will help reduce the trade gap between UK exports and imports of construction products and materials.

New York PSC takes major step toward transactive energy with REV

Gartner has predicted that by 2020 the largest electric power company will be an Uber-like behemoth that will not own assets but will simply manage energy suppliers and energy consumers in an open market.  This business model requires transactive energy, where energy flows are determined by market forces.

The New York Public Service Commission (NYPSC) has taken a major step toward a future of transactive energy.  New York's "Reforming the Energy Vision" (REV) is moving the New York state electric utility industry toward a radical redefinition of utilities as we have known them over the past hundred years since Tesla and Edison created the electric power industry.  In the future in New York State the utility industry will be comprised of distributed system platform (DSP) providers, basically providing the grid but not directly selling energy, and a competitive energy market with consumers and many energy providers including bulk power generators and distributed energy generators including you and me with rooftop solar panels.  This model has similarities with the UK model which is disrupting the traditional energy market in the UK..  The development of the REV model is being closely watched by many utilities who see the writing on the wall and hear the death knell of the utility business model we have known for the past 100 years.

In 2014, Governor Cuomo announced REV with the intention to develop an integrated energy network able to combine a central grid and distributed power generation.

May 19, 2016 the New York State Public Service Commission (NYPSC) adopted Order Adopting a Ratemaking and Utility Revenue Model Policy Framework (Download New York REV Ratemaking May 2016 NYPUC {D6EC8F0B-6141-4A82-A857-B79CF0A71BF0}), an order that outlines ratesetting for a multi-year regulatory-driven process to reform the electric power utility business model in New York State.  The NYPSC has made it clear that this process has to occur much more rapidly than regulators and utilities are accustomed to. The order states that the historic pace of regulatory change is inadequate, because recent developments in this and other industries demonstrate that slow and deliberate progress is not always an option and may no longer be acceptable.   The NYPSC intends to establish a regulatory environment that encourages faster adoption of business model change that it sees as necessary.

For the electric utility industry which is facing large infrastructure needs, decreasing system efficiency, environmental demands, weather and customer driven resilience requirements, customers who want more choice, and technology that is decentralizing the grid, the current utility and regulatory model could lead to grid defection, stranded investments and increasing financial challenges.  The NYPSC has recognized that the structure of competitive markets outside of the utility industry has changed dramatically and the utility sector, which has been insulated from the opportunities and the competitive pressures of the modern information economy, is now going to have to change rapidly.  Technology in a competitive market reduces excess inventory, increases asset utilization, and makes possible innovative marketing strategies.  As a result, the traditional utility’s role has evolved to a platform service that enables transactive energy in the form of a multi-sided market in which buyers and sellers interact. 

In February 2015 the NYPSC adopted a regulatory policy framework Regulatory Policy Framework and Implementation Plan ( Download New York REV Framework NYPUC {0B599D87-445B-4197-9815-24C27623A6A0}) for REV which defined the framework for changing regulatory rules for ratemaking.   The key elements of the framework are

• The reformed electric system will be driven by consumers and non-utility providers, and it will be enabled by utilities acting as Distributed System Platform (DSP) providers. Utilities are responsible for reliability, and the functions needed to enable distributed markets are integrally bound to the functions needed to ensure reliability.
• It is our conclusion that requiring the utilities to serve as DSPs under our regulatory authority and supervision is in the best interests of New York consumers.
• By expanding the role of the utilities to include DSP functions, utilities will have the regulatory obligation, operational capability, and economic incentive to optimize the use of DER (distributed energy generation).
• As the platform provider, utilities will not participate as owners of DER where a market participant can and will provide these services. Thus, with the few exceptions discussed, DER will remain a non-utility service provided by the competitive market.
• In order for distributed generation to compete on an equal footing, interconnection with the grid must be enabled through technical rules and processes that are not only safe but also efficient and expeditious.
• Each utility will serve as the platform for interface among its customers, aggregators, and the distribution system. Utilities will respond to new trends by adding value, thereby retaining customer base and the ability to raise capital on reasonable terms. Simultaneously the utility will serve as a seamless interface between aggregated customers and the NYISO (The New York Independent System Operator (NYISO) operates competitive wholesale electric power markets).

Reforming ratemaking

The NYPSC cites three principles of the Framework Order as particularly relevant to the reform of ratemaking.

1. The unidirectional grid must evolve into a diversified distributed model engaging customers and third parties.
2. Ensuring universal, reliable, resilient, and secure delivery service at just and reasonable prices remains a function of regulated utilities.
3. The overall efficiency of the system and consumer value and choice must be improved by achieving a more productive mix of utility and third-party investment.

The NYPSC states that utilities will remain regulated, but will have new ways of generating revenue and creating investor value:

1. traditional cost-of-service earnings
2. earnings tied to achievement of alternatives that reduce utility capital spending and provide consumer benefit
3. earnings from market-facing platform activities
4. transitional outcome-based performance measures.

The new ways of generating revenue are intended to create a regulatory environment where utilities can create shareholder value, comparable to or superior to conventional investments, by integrating third-party solutions and capital that improve the efficiency, resiliency and flexibility of the physical networks, reduce consumer total costs and achieve the State’s policy objectives.

Specifics

The specific measures that the NYPSC intends to mandate for the utility sector in New York State includes

• Platform service revenues - new forms of utility revenues associated with the operation and facilitation of distribution-level markets.
• Earning Adjustment Mechanisms- there are temporary, short-term measures that are intended to bridge the transition form the current business model to the new model.
  • System efficiency: Each utility will propose a peak reduction target and a load factor improvement target.
  • Energy efficiency: The Clean Energy Advisory Council will develop targets for energy efficiency.
  • Customer engagement:  Utilities will be able to propose positive opportunities based on customer uptake in innovative engagement programs.
  • Interconnection: A positive earning opportunity will be developed based on satisfaction surveys of DER providers regarding utilities’ progress in timely and cost-effective interconnection approvals.
  • Affordability: To assist low-income conumers, affordability metrics will be established as scorecards, and financial incentives will be established in rate cases as appropriate.
• Greenhouse Gas reductions: The NYPSC is considering a Clean Energy Standard to achieve the State’s target of 50% renewable generation by 2030.
• Competitive market-based earnings: Unregulated utility subsidiaries are authorized to engage in competitive value-added services.
• Data access. The conditions under which utilities may charge for individual customer usage data are established. Standard reporting of aggregate customer data is provided for. Certain basic levels of information will be free of charge, while utilities may charge a fee for provision of more refined data or analysis.
• Opt-in rate design: Voluntary participation in advanced rate design will be encouraged by financial incentives and scorecard metrics
• Mass-market rate design:  An analytic approach will be used to examine bill impacts, for different types of consumers, Programs will be targeted toward different categories of consumers
  • Traditional consumers — customers who don't actively manage their energy consumption
  • Active consumers — customers who use DER with the purpose of reducing their bills
  • Prosumers — those customers who install solar PV generation or other technologies that allow them to sell energy to the grid

It was also recommended that a method be developed for valuing the contributions of distributed energy generation (DER).  This is intended to be used in valuing DER such as solar PV.  It would be used to reform net energy metering (NEM).  Net metering allows solar users to receive credit for excess power back to the grid at retail rates. In the immediate future it is recommended that the current NEM policy should be continued for small rooftop installations.  (A partnership of solar providers and utilities has just filed a proposal for maintaining NEM with the NYPSC)