Last week I had the opportunity to hear Matt Golden in a small group setting speak about how California’s experience as an early adopter of renewable energy and energy efficiency may predict what New York may experience in the near future .
THE ENERGY DUCK
The adoption of solar – lots and lots of solar – is changing the traditional shape of the graph that shows when power is used in California. In most states, the hour-by-hour breakdown of how much weekday electricity is needed from the grid looks like what you would expect: relatively low usage during the night, a ramp up when people wake up and get ready for work or school, high usage during the workday, peaking towards early evening (especially on hot afternoons when AC runs the hardest) and then ramping down as people go to bed. See the line labeled “2013” in the graph below. But heavy adoption of solar takes a big bite out of afternoon usage on sunny days. In fact, in the spring or fall where AC may not be needed but the sun is shining brightly, the electricity needed takes more of a shape like this:
The “Duck Curve” 
This is known as the “duck curve” and is upending traditional utility business models. In the old days of coal power plants, a kWh saved was a kWh saved, whenever it was saved. But with the duck curve, a kWh saved in afternoon during a shoulder season isn’t needed as much – or might not be needed at all – and has less value to the grid supply.
In California, it may have less value towards carbon saving as well. California has a fair amount of base-loaded generation that can’t be ramped up and down or taken off line very fast – think nukes, and some coal plants. As distributed solar dumps power onto the grid in the afternoon, it has to go someplace – as Golden put it, “electrons are actually things – they have to go somewhere.” In California’s case, that’s Oregon, which can slow down the turbines in its dams (responsible for most of its electricity generation) to make less hydropower and accept California’s excess power instead. Paradoxically this means that during peak solar periods, Oregon uses California’s solar and coal generation instead of its own hydro, doing nothing for emissions reductions. To add insult to injury, California has to actually pay Oregon for the privilege of accepting its excess capacity!
BATTERY STORAGE DOESN'T CUT IT
So the duck curve adds costs and maybe carbon, and shows that when energy-efficient renewables become a bigger part of the grid, the time of day they generate power has a major impact. This could be addressed with energy storage of some sort. Charging batteries in the afternoon is a load on the grid, so the curve doesn’t bottom out. And that electricity is available again a few hours later to offset the evening spike that would otherwise occur. Lloyd Alter calls this “killing the duck.”
Golden pointed out that while violence against virtual waterfowl may be part of the solution, he says there’s not nearly enough storage to solve the problem on its own. For instance, the closing of California’s Diablo Canyon nuclear facility (the last coastal facility sited on a seismic fault – glad they’re getting around to that) will leave a gap of about 2,000 GWh of electric generation that needs to be filled somehow. California’s plan, because they’re California and they’re awesome, is to replace only half of that with new generation. That’s about 1,000 GWh. Total battery storage nationwide is projected to total just 8.5 GWh by 2020 . That’s right, across the whole country, all battery storage installed through 2020 is less than 1% of what California needs to take up the slack from just half of one closed nuke. What will take up the rest? Music to our industry’s ears: energy efficiency.
A MIDDLEMAN FOR EFFICIENCY
But Golden thinks energy efficiency at the required scale and reliability is going to take a comprehensive reworking of how regulators and utilities obtain it. While it’s normally streamlining to cut out the middleman, in this case a new layer between state energy efficiency programs and utility customers may be called for. Basically, there’s no way for state programs to dole out a few incentive dollars here for lighting, a few dollars there for heat pumps, and end up with gigawatts of energy efficiency at the right time of day and in the right location . These “aggregators” would have the responsibility of bundling up thousands of energy efficiency projects of many different types and presenting them to the utility as a single, guaranteed contribution to load reduction. By adjusting how much utilities pay for that load reduction based on time of day and location, aggregators will get a price signal about what efficiency to focus on.
Golden derided traditional energy efficiency programs as essentially “consumer financing.” A bank gives a borrower (let’s say a building owner) a loan, and the borrower uses the money to buy a thing (an LED lamp, a new boiler, new windows, or whatever). Then the borrower must pay back the loan. Hopefully energy is saved in the process, saving the owner money and making the whole thing worth it, but that’s generally not part of the economic transaction the bank engages in. If the owner sees no energy savings, they must still repay the loan. Logically, the financer is not buying energy efficiency from the customer; they are just lending them money. It’s the same thing your credit card company does when they lend you money to buy a cup of coffee, and as Golden quipped, no one calls that “coffee financing.” It’s just short-term debt. The goal here is different, with aggregators competing to supply actual energy reductions – not stuff – at the lowest price.
FINANCING ENERGY EFFICIENCY
This is essentially what ESCOs already do when they bid to undertake fixed price projects on behalf of clients, guaranteeing energy efficiency and taking their payback (and profit) out of the savings. Golden described a major tweak to this model in order to take it to scale. Predicting the energy savings from any individual project is a risky and inaccurate business. Some will save exactly what was expected, some will save less, and some will save more. Bundle enough projects together and aggregators can begin to use statistical analysis on the set, fitting them to a bell curve, normalizing for various factors, and in general slicing, dicing, hedging, and securitizing them like any other piece of the economy. This way, utilities can purchase guaranteed energy reductions at the right time and place – not hand out rebates for energy efficiency equipment and hope to get the desired result.
“Bundle enough projects together they can be sliced, diced, hedged, and securitized like any other piece of the economy.” Courtesy of Matt Golden.
Financing energy efficiency in this way is akin to financing energy generation infrastructure. A new power plant is securitized by the income stream from future energy generation, not by the value of its equipment. If aggregators do the same for energy efficiency, we can purchase verifiable carbon reductions like infrastructure instead of hoping they happen through consumer finance. Golden believes this is the key to getting the scale we need.
Once solar got started, the duck curve emerged very quickly in California, so Golden thinks this could be a near-term issue for New York. If so, what would be the ideal outcome for buildings in NYC? Using better metering could make measurement and verification easier while streamlining building operations. And making pay-for-performance the standard could bring lower energy bills to a much wider range of buildings. Doing the right thing for the grid and for carbon reductions may be a boon for owners and tenants, too.
1 Why should you care about Matt Golden’s opinion? Well, he led EDF’s Investor Confidence Project, redesigned the Energy Upgrade California smart meter efficiency modeling program, and helped create his own tablet-based home energy audit software.
2 From Golden’s blog at Greentech Media, How Energy Efficiency Can Help Manage the Duck Curve. Thanks to GTM for the image, and you should really check out their fantastic blogs and podcasts – especially The Energy Gang!
3 To be fair, Diablo Canyon isn’t slated to close until 2025. So if storage can scale up a couple of orders of magnitude in those five years, we’re good. Golden’s not counting on it.
4 In states as big as California and New York, the electrical system is split up into zones, so to keep the grid balanced it matters where things happen. In addition, different weather in different zones means that it could be snowing in one part of the state and sunny elsewhere, affecting how solar impacts carbon savings in that grid segment.