CONSERVATION POTENTIAL REVIEW February 2012
www.C-3.ca
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1.0 C3 Conservation Potential Review Report 1.1 Background Energy efficiency is an economic opportunity that has been seized only partially in Alberta. Capturing the full opportunity, or even more of it, would have several meaningful benefits. It would improve productivity and competitiveness; avoid the need for costly infrastructure such as generating stations and transmission lines; seed new businesses; create jobs; stimulate technological innovation; boost the financial position of households; reduce the vulnerability of households and business to energy price increases; and moderate impacts on the environment. For more than a decade, C3 has partnered with government, corporations, and municipalities to help Alberta residents and companies use energy more efficiently and seize these benefits. Specifically, through residential, commercial, and transportation energy efficiency programs, C3 has helped facilitate decisions by Albertans that have resulted in the avoidance of nearly $200 million in direct energy expenditures and prevented 1.6 megatonnes (Mt) of greenhouse gas (GHG) emissions. Since 2008 a key policy driver for these reductions has been Alberta’s Climate Change Strategy. It calls for a 50-per cent reduction in GHG emissions by 2050, as compared with ’business-asusual’ emissions that would be expected in the absence of additional reduction policies and measures. The 50-per cent reduction represents a 14-per cent reduction from 2005 levels – a total of 200 Mt of GHG emissions avoided. The strategy outlined three priority approaches for reducing GHG emissions in the province – conservation and energy efficiency; carbon capture and storage; and greening energy production. Of the required 200-Mt reduction in business-asusual emissions in 2050, energy efficiency and conservation measures are expected to account for about 12 per cent – some 24 Mt. The package of policies and measures to deliver the full 24 Mt reductions is still being shaped. With the election of Premier Redford in October 2011, government interest in energy efficiency appears to have risen in priority. The premier has emphasized the need for integrated solutions to Alberta’s challenges and stressed energy efficiency and sustainability as key pillars of a vibrant and competitive Alberta. Four departments have been mandated to work together to design and implement an initiative to make Alberta “the national leader in energy efficiency and sustainability.” 1 Though much has been accomplished over the past decade, more can be done. A case in point: even though energy intensity in Alberta’s homes is declining gradually, it remains significantly higher than it is in other provinces. It is 26 per cent greater than in our prairie neighbour, Saskatchewan; 85 per cent higher than in the best-performing province, British Columbia; and nearly 40 per cent higher than is the average for Canada. Looking ahead, if action to improve the energy efficiency of Alberta’s homes is not ramped up, and if historical trends in energy intensity across all provinces continue, the gap between Alberta and the rest of Canada will widen.
1
Premier Alison M. Redford, letter to Minister of the Environment and Water, Diana McQueen, November 3, 2011.
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Against this background, C3 has produced a Conservation Potential Review (CPR) covering the period up to 2025, with a particular focus on the near term to 2015, focusing on energy use by, and within, Alberta’s residential, commercial and institutional buildings. The CPR answers the following questions germane to the development of an effective energy efficiency strategy and demonstrates that Alberta has abundant untapped cost-effective opportunities to use energy more wisely. How large might the potential energy, cost, and GHG savings be from energy efficiency improvements to our buildings? What level of investment would be required to seize them? Where are the most cost-effective opportunities to pursue?
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1.2 Scope of the CPR The CPR is a ‘potential study’. A potential study may be defined as a quantitative analysis of the amount of energy efficiency improvements that exist (maximum potential), are cost-effective (economic potential), or could be realized in a defined area though the implementation of energy efficiency initiatives (achievable and program potential). The CPR quantified the maximum and economic potential for energy efficiency improvements in homes and buildings in Alberta (see Figure 1). Figure 1: Types of energy efficiency potential studies Maximum Potential Potential energy savings assuming full penetration of energy efficiency initiatives to close the identified ‘energy efficiency gap’ SCOPE OF THE CPR
Economic Potential Takes into account what is cost-effective
Achievable Potential Takes into account real-world barriers, administration costs, and capacity of administrators and delivery agents to ramp up activity over time FUTURE STEPS
Program Potential Takes into account funding levels for energy efficiency initiatives
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1.3 Changes in projected energy use To determine potential savings from energy efficiency improvements, the study first projected the energy intensity of homes and buildings in Alberta and in each of the other provinces assuming a continuation of past consumption trends. The projections for Alberta were next contrasted with a situation in which Alberta was assumed to be the most energy efficient province (i.e., to have an energy intensity equivalent to the best performing province). The difference characterizes the so-called ‘energy efficiency gap’. For homes the projected ‘gap’ between Alberta and the best performing province equates to about 45 Petajoules (PJ) per year by 2015 (roughly equivalent to the energy consumed by 303,000 homes in Alberta in 2009). The projected ‘gap’ for commercial and institutional buildings equates to about 25 PJ per year by 2015. The study then estimated the extent to which cost-effective expenditures on energy efficiency measures could close these gaps — lower energy consumption, energy costs and GHG emissions. By cost-effective we mean energy efficiency measures where the present value of the total cost of purchasing, installing and operating that measure is less than the present value of the total value of associated energy savings. Cost-effective energy efficiency measures have the potential to reduce energy use in homes and buildings across all three sectors by about 52 PJ per year by 2015, or 13.2 per cent from the projected situation in the absence of these measures (See Figure 2). Cost-effective measures are not available to close the other 18 PJ of the ‘gap’ given assumed costs, effectiveness, and electricity and natural gas prices. The most cost-effective improvement opportunities reside with auxiliary equipment in commercial and institutional buildings. The three biggest opportunities — in terms of total energy savings — are in residential heating, ventilation and air conditioning (HVAC) (20.5 PJ), commercial and institutional HVAC (12.1 PJ), and residential water heating (9.5 PJ).
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Figure 2. Changes in projected energy use in residential, commercial and institutional buildings by 2015 with implementation of all cost-effective energy efficiency measures - contribution of individual areas to total reductions
Note: groups of energy efficiency measures are ranked from left to right in order of decreasing cost-effectiveness in terms of greenhouse gas (GHG) emission savings. R denotes residential homes; C&I denotes commercial and institutional buildings.
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1.4 Projected required total expenditure on cost-effective energy-saving measures To achieve the projected energy savings owners of residential, commercial, and institutional buildings need to purchase, install, and operate the required cost-effective energy saving measures. Seizing the full projected 52 PJ energy saving by 2015 is estimated to require a total expenditure by households and businesses of roughly $326 million per year. The total expenditure on each group of cost-effective energy efficiency measures required to achieve the full 52-PJ energy saving by 2015 is depicted in Figure 3. All cost-effective residential HVAC measures, for example, require the largest expenditure of $93 million per year by 2015 to achieve a 20.5 PJ energy saving. To seize the most cost-effective opportunities in auxiliary equipment in commercial and institutional buildings requires total expenditures of about $7 million per year. Figure 3. Total required expenditures by 2015 of implementing all cost-effective energy-efficiency measures in residential, commercial and institutional buildings in Alberta - contribution of individual areas to total expenditures
The $326-million expenditure on the full array of cost-effective energy efficiency measures yields significant benefits, in addition to the 52 PJ of energy conserved. The following sections examines these important benefits.
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1.5 Projected direct cost savings from cost-effective energy efficiency expenditures The implementation of energy efficiency measures is projected to result in energy savings and therefore direct cost savings by consumers. Implementing all of the measures deemed costeffective in homes and buildings across all three sectors is estimated to reduce energy supply costs by about $662 million (see Figure 4). Given the required expenditure of $326 million, the resulting average benefit-cost ratio across all cost-effective energy-saving opportunities is roughly 2.0. That is, for every dollar spent a savings of two dollars is generated. Spending $7 million per year on the most cost-effective opportunities in auxiliary equipment in commercial and institutional buildings yields energy cost savings of about $80 million; the resulting benefit-cost ratio is 10.8:1. Seizing all cost-effective opportunities to save energy from domestic hot water heating produces cost savings of around $83 million per year. However, given the required expenditure of $74 million per year, the resulting benefit-cost ratio is only 1.1:1. Figure 4. Total energy supply cost savings by 2015 from implementing all cost-effective energy-saving measures in residential, commercial and institutional buildings in Alberta - contribution of individual areas to total energy supply cost savings
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1.6 Changes in projected GHG emissions The CPR determines that when all cost-effective energy efficiency measures are implemented in homes and buildings across the three sectors, GHG emissions are reduced by about 3.7 Mt carbon dioxide equivalents (CO2-e) by 2015 or 12.5 per cent below the projected situation in the absence of these measures. Figures 5 and 6 illustrate the extent to which introducing costeffective energy efficiency measures in specific areas contribute to the estimated overall GHG emission reduction. Figure 5. Changes in projected GHG emissions in residential, commercial and institutional buildings by 2015 with the implementation of all cost-effective energy efficiency measures
Figure 6 depicts the GHG emission reductions that can be realized in individual energy use areas. Residential HVAC provides the greatest potential GHG emission reduction (1.2 Mt CO2-e). This is followed by HVAC in the commercial and institutional buildings (0.7 Mt CO2-e) and improvements to residential water heating (0.5 Mt CO2-e). However, the most cost-effective opportunities lie with auxiliary equipment in commercial and institutional buildings: a total expenditure of $7 million per year by 2015 produces annual energy cost savings of $80 million and annual GHG emission reductions of 0.4 Mt CO2-e, equating to a net benefit of about $185 for every tonne of CO2-e avoided 2.
2
That is: ($80 million less $7 million) divided by 0.4 Mt CO2-e equals roughly $185 per t CO2-e avoided.
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Performing the same type of calculation for all energy-saving measures considered in the CPR, and ranking them in order of decreasing net benefit (or increasing net cost) produces the GHG abatement cost curve shown in Figure 7. The curve shows all cost-effective energy efficiency improvements identified by the CPR (those measures falling below the horizontal zero line) as well as some of the improvements estimated not to be cost-effective (those measures lying above the horizontal zero line) given assumed costs, effectiveness, and electricity and natural gas prices. In moving from left-to-right along the curve, the identified areas for energy efficiency improvements become increasingly less cost-effective. Note that the curve provides a slightly more detailed breakdown of the cost-effective energy-saving opportunities than depicted in the above figures. Figure 6. Changes in projected GHG emissions in residential, commercial and institutional buildings by 2015 in Alberta — contribution of individual areas to total reductions
These potential GHG emission reductions are based on estimates of avoided energy use — both natural gas and electricity — in Alberta’s residential, commercial and institutional sectors. Reductions in natural gas and electricity use are converted to changes in GHG emissions using estimated GHG emission intensities per unit of energy supplied.
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Figure 7. Alberta GHG abatement cost curve for energy-saving measures in residential, commercial and institutional buildings by 2015 in Alberta
The width of a bar represents the potential volume of GHG emission reductions. The height of a bar represents the associated net cost of realizing the corresponding GHG emission reductions. If the bar falls below the horizontal zero line then the measure is said to have a positive net benefit (or negative net cost). Or put another way, implementing the measure produces (present value) energy cost savings in excess of the (present value) cost of purchasing, installing, and operating that measure. It is therefore said to be ‘cost-effective’.
The GHG abatement cost curve shown in Figure 7 contains useful information for policy-makers. It highlights areas where particular types of policies are needed to improve energy efficiency in our homes and commercial and institutional buildings. Untapped cost-effective opportunities (the portion of the curve below the horizontal zero line) only exist because of a number of well recognized barriers that reduce the take-up of energy-saving technologies and practices. To seize the untapped potential, a specific set of policies are needed, including building codes, equipment standards, public procurement requirements, and programs focused on overcoming specific informational and financial barriers. Opportunities for energy efficiency improvements that, at present, are marginally not costeffective (those areas just above the horizontal zero line) require a different set of policies, which must first focus on making the opportunities cost-effective. For example, market-based instruments to put a price on GHG emissions would help make marginal energy efficiency measures more financially viable. A different set of policies again is needed for those energy efficiency improvements that are a long way from being cost-effective given current market conditions (those areas at the extreme right hand side of the curve). New, innovative technologies will tend to fall into this category. In these cases, the focus of policies will be to support basic R&D, applied R&D and demonstration projects.
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The cost curve also shows the total net cost of meeting a defined GHG emission reduction target, and the specific energy efficiency opportunities that need to be mobilized to realize that target. For example, if policy-makers wanted to reduce GHG emissions from residential, commercial and institutional buildings by about 0.5 Mt CO2-e by 2015 at least cost, they would need to help mobilize expenditures of about $13 million per year on cost-effective measures to reduce energy consumption by commercial and institutional auxiliary equipment, and residential lighting and appliances. In general: If by 2015 policy-makers in Alberta wanted to reduce projected GHG emissions (Mt CO2-e) by …
0.40
or
0.45
or
0.53
or
0.65
or
1.83
or
2.56
or
2.77
or
3.16
or
3.66
Then policies are needed to help mobilize the following level of expenditure ($ million) in cost-effective energy-saving measures …
$7
or
$9
or
$13
or
$21
or
$114
or
$173
or
$198
or
$252
or
$326
And projected energy use (PJ) by residential, commercial and institutional buildings will fall by …
2.7
or
3.1
or
3.6
or
5.8
or
17.9
or
38.3
or
39.7
or
42.3
or
51.8
or
$457
or
$499
or
$570
or
$662
And households and business energy costs ($ million) will fall by …
$80
or
$92
or
$109
or
$128
or
$330
The GHG abatement cost curve could also help policy-makers identify the maximum level of GHG emission savings that can be expected from energy efficiency improvements for a given level of expenditure. For example, the maximum GHG emissions savings that can be realized for an expenditure of $13 is just over 0.5 Mt CO2-e. This is found by starting at the far left side of the curve, investing in the most cost-effective energy efficiency measures, and moving right, continuing to invest in increasingly less cost-effective measures until the entire budget is consumed. With a total budget of $13 million, the GHG emission savings are maximized by seizing all cost-effective opportunities to reduce energy use by commercial and institutional auxiliary equipment and by residential lighting and appliances.
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1.7 Impact on forecast growth in electricity generation capacity If all cost-effective energy efficiency measures are implemented in residential, commercial and institutional buildings, the CPR estimates that annual demand for electricity would be reduced by about 2,900 gigawatt hours (GWh) by 2015, by 6,500 GWh by 2020 and by 9,500 GWh by 2025. The Alberta Electric System Operator (AESO) predicts electricity demand by Alberta’s residential, commercial and institutional buildings will grow from 24,500 GWh in 2010 to approximately 36,400 GWh by 2025, or by 11,900 GWh over that time period. By implementing all cost-effective energy efficiency measures and reducing power demand by 9,500 GWh in 2025, energy efficiency improvements offset nearly 80 per cent of projected growth in electricity demand. Based on AESO’s projections, installed electricity generating capacity would need to grow from approximately 3,300 MW in 2010 to 5,000 MW by 2025 to meet projected growth in demand by residential, commercial and institutional buildings. The CPR estimates that by implementing all cost-effective energy efficiency measures, the growth in electricity demand by homes and buildings can instead be met by 3,700 MW of installed capacity and an addition of only 400 MW relative to 2010 levels. Investment in cost-effective energy efficiency measures can thus offset a significant portion of the projected need for additional generating units over the period 2010-2025. It is also likely that estimated reductions in electricity demand and additions to capacity will reduce the need for additional transmission lines and other related infrastructure.
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1.8 Next steps The CPR generated empirical evidence to answer the following: •
How large might the potential energy, cost, and GHG savings be from energy efficiency improvements in Alberta’s residential, commercial and institutional buildings?
•
What level of expenditure by home and building owners would be required to seize them?
•
Where are the most cost-effective opportunities to pursue?
As a next step, C3 is preparing a best practice planning framework for developing energy efficiency initiatives. The framework will recognize optimal policy and program choices, the reality of limited resources and the need to get the most from every dollar spent. To support the framework, and help Alberta realize its ambition to be a national leader on energy efficiency, C3 is also looking at alternative ways to fund, administer and deliver energy efficiency initiatives in Alberta.