Solar PV and the Metastasis of GHG-emissions

Today, solar PV is all the rage. We're at it again, jumping on a technology before we have figured out the right way to use it. Wall street is loving it, but we are getting way ahead of ourselves... just remind me, how do we spell bubble again? As a society, it seems we keep looking for a silver bullet to fix our problem, and this is not realistic.

It does not matter that solar PV is "cheaper" in terms of component pricing. Solar thermal produces about five times the amount of energy for the same square area, so unless the cost of real estate is zero, solar thermal should be the winner in that battle. Granted, solar PV tends to be easier to integrate, but there is an obvious issue here, particularly in areas large urban areas, where you don't have one square inch to waste.

To use an analogy, if one year our government provides a tax incentive to sell more two-seater vehicles, and a father of five comes home with a two-seater instead of a family car, arguing that it was so cheap, most of us would side with the wife, if she divorced him. The five kids would have to take the bus from then on. Evidently, this would be a case of false economy, for it cannot solve your problem. How come we understand the fallacy of this proposition, yet in solar PV marketing, this is what is routinely done - selling people a solution that does not fit because it is "cheap." If in doubt, refer to the tax incentives.

Just like the two-seater cannot solve the transportation problem of a family of seven, solar PV panels cannot solve the energy problems of most homes and buildings in northern climes. In the south, it may work fine if your home is all electric, and you have enough roof space to economically generate adequate electricity, but in the north your energy bills are likely to be 70% oil and 30% electric, and yet the solar companies want you to jump up and down because they can save you 10% on your electric bills. That's the assumption anyway. It does not amount to the proverbial hill of beans, because 10% of your electric bill is 3% of your overall energy bills.

It actually gets worse, because the implicit assumption is that your roof space is valueless, which is likely not the case. If nothing else, that same roof space could be used for solar thermal equipment, which produces 4 to 5 times as much energy per square foot as does solar PV. Alternatively, one or more wind-turbines might be possible, and in all of these situations, it is one or the other, so you have to figure out what gives you the most bang for the buck.

Entropy and Climate Change

One of the first few things to realize about the whole climate change conundrum is that it is not solvable. The best we may be able to do is produce less entropy, and decelerate the decline of our physical universe. But in the end it's a lost cause, or, as Keynes would have it: "In the long run, we're all dead." The case in point is the Toyota Prius, which has a lifecycle environemental impact that is worse than a Hummer. So dream on.

For those who want to get into the final nitty-gritty of the issues, there is no better introduction that Alex Marchand's new book, The Universe is Virtual. Unless and until someone comes up with a better alternative to the second law of thermodynamics, the choices are limited, but right at the moment, the process is outright irrational, and we may be able to do better than we are. Again, the only thing we can do on the physical level, is to moderate the impact we are having, the problem is not solvable in any meaningful way as long as the laws of physics hold. If you want to stick to lighter fare, Jeremy Rifkin's, Entropy, is still always a fun read, although a bit dated.

The solar PV fallacy, oh to be green and foolish

These days the FTC has taken on greenwashing, and hopefully may be curbing some of the most egregious abuses, but if they got serious, very little of environmental business or products would be left standing, and certainly solar PV in its current form would have to be heavily restricted for the deceptive claims it makes.

What needs to be understood is that if we define the problem haphazardly, we are unlikely to solve the problem that we are presumably seeking to solve, in this case, reducing green house gases (GHG-emissions). To the promoters of solar PV, the problems is how much money can we make on selling solar PV installations (very little), or on financing solar PV (maybe something more), time will tell if it can be done profitably, but the current model of solar PPAs, solar leases, or even innovative lending like SolarCity's new MyPower program, will likely not be enough to make solar PV really viable in the long run.

At single family scale - Solar PV disappoints

The exception is if you live down south and you have enough roof real estate to generate close to all the electricity you really want, perhaps solar PV makes sense. But up north the problem remains that electricity is 20-30% of the energy budget, and tying up all your money and roof real estate for a project that saves you a few percentage points on your overall energy bills, and locks you out of solving the whole problem categorically is not a smart decision.

The current sales paradigm for solar PV mistakes a marginal cost savings for the basis of a capital improvement to the property, and a permanent alteration of its energy infrastructure. The result is an impairment of the physical asset (property) and the balance sheet (liability), and the simple most obvious problem is that if the next buyer does not want to assume the remaining liability, it can depress the value of a property, as reported by Bloomberg here. Typically the risks include:

• The lease or PPA may be under water at the time of the sale.
• Newer solar technology may be more efficient.
• Other technological alternatives offer superior economics.

If you are still in doubt, look at alternatives that are about to hit the market, like the Archimedes wind-turbine, and the Zonbak solar thermal solution, as well as a long-since proven solution of Geothermal Heat Pumps, which allows you to do complete central HVAC, heat your pool, and put a snowmelt in your driveway, while eliminating your oil bills.

One of the issues is that solar PV is still early in its developments, while Solar Thermal (85-95% efficiency), and geothermal (3-600% efficiency) are much higher, and mature, and wind turbines, in the right locations produce more energy per square area than solar PV does. Solar PV is now going from 15-18% efficiency and jumping by about 30% to 21-24% efficincies, while new technologies in the 30% and 40% efficiency ranges are in the pipeline for commercialization in the future.

Worse yet, as net-zero construction is growing and consistently profitable already for decades, just imagine selling your home 7 years from now when there is a new development of net-zero homes going up nearby. If those new homes offer $0 energy bills, and you are saving 3 or 5, or even 10% off your 2015 bill, what do you think that will do for the value of your property? The correct answer is: it will sell at a discount. Your investment in PV under those conditions is likely to produce a liability. You will be looking for ways to take those panels down in order not to depress the price of the house, and then you have a waste disposal problem on your hands.

At societal scale - Solar PV disappoints again

New York State has an ambitious energy plan, but it sadly lacks realism. The top-line goals are 50% reductions in GHG-emissions by 2030, and 80% by 2050, but there is very little detail on how to get there. Too many line items in the plan achieve 15-25% reductions in GHG-emissions, and are financially burdensome like solar PV. To tie up a lot of capital, and assume unnecessary 20-30 year liabilities to save 3% on your energy bills, and lock yourself permanently out of better alternatives is counter productive. We are throwing good money after bad, and mostly it is consumers who are on the hook, deceived by government incentive programs.

This first round of Solar PV-madness will prove to be regressive for climate change in the long run, because it locks properties into 25% reduction of GHG-emissions, instead of pursuing the 75%, which would make a difference. So, not only are these owners locking themselves out of the real solution, the collective effect is that we are averaging down, and ensuring we will never achieve anything like 50% GHG-reductions by 2030 or 80% by 2050.

With the current approach GHG emission reduction will be limited to something in the 20-30% range with solar PV and some energy efficiency, and GHG-emissions will metastasize into an unsolvable problem, so present programs guarantee we will never make those glorious goals of 50by30 and 80by50. It sounded good while it lasted.

It's not those batteries either - thermal batteries are free

Remember the jokes about the Fisher ballpoint that could write upside down, and cost a million dollars to develop? Presumably the Russians used pencils instead. The truth is the Russians switched to Space-pens also. The point is clear however. We humans have a terrible tendency to reinvent the wheel.

In energy solutions for buildings, thermal solutions come in the form of passive design as well as active generating technologies such as solar thermal and geothermal. Batteries are cheap: it is also known as Domestic Hot Water, or depending on the application you can have some high temperature water storage. Overall, this is far cheaper and safer than the chemical batteries that are the norm for Solar PV.

Conclusion: time for method over myth

We have had the Internet bubble, and the subprime mortgage bubble, but now we have the budding distributed solar PV bubble. Some of the same people are promoting it, for the securitization machine was looking for work after the bust of subprime. Once rational analysis gains the upper hand--which may take a long time--this bubble of solar subprime will also burst, and it won't be pretty.

Having said that, there are plenty of good applications for Solar PV, but the mass market that is currently forecast will dry up sooner than later. Serious GHG emission reduction will have to wait until the Solar PV-mania gives way to a more methodical approach using Solar thermal, and other solutions, providing a whole-house solution, not a 3% savings on your bills.

Energy Efficiency, Killing Us Softly

St. Patrick's day reminded me that it is high time we learn to tell the real green from the fake stuff, beginning with energy efficiency, which has been unjustly conflated with sustainability, when in fact it does the opposite: it increases carbon emissions over time, except at a slower rate. It's high time the FTC should start taking on green washing, beginning with such seriously misleading names as the ConEdison Greenteam. The fact is that, when energy efficiency is pursued without further qualification, and it is applied to systems that are 95% driven by fossil fuels, we are shooting ourselves in the foot with a bazooka. Making a bad system better will solve nothing, except making fossil fuels viable longer, instead of finding a real solution. The fact is, efficiency applies equally to fossil fuel-based systems or renewable energy systems, but only renewable energy systems can reduce GHG-emissions. So we are reminded once again, that it does not pay to major in a minor, or, in the words of the incomparable computer scientist Donald Knuth:

Premature optimization is the root of all evil.

Here is the quote from Donald Knuth, discussed in an article, the Fallacy of Premature Optimization. The energy equivalent to this proposition is that:

Premature Energy Efficiency is the best prophylactic against deep energy retrofits. Or, to but it more simply, if you pursue energy efficiency first, without regard to the long term energy plan for a facility, you will incur sunk costs, if nothing else because of diminishing returns.

Let me count the ways

In no particular order, but with some attempt at logical grouping, here come all the reasons, with some links to other posts on this site or other sites where appropriate. A completely logical and progressive ordering is not feasible due to the interdependence of many of the items listed here.

1. The obvious issue is that energy efficiency makes economic sense (to the extent that it is optimal) whether fossil fuel or renewable energy is used. Therefore, it is a secondary objective in an optimal design, not a primary one. The payback for efficiency comes from reduced energy bills in the future in the case of fossil fuels, or reduced capital expenditures in the present in the case of renewable energy (less installed capacity needed). Another way to state this is that energy efficiency does not generate energy: it is not an alternative method to generate energy.
2. Historically, the conflation of energy efficiency with "green" energy or sustainability, goes back to the energy crises of the 1970's. It was then thought, probably correctly, that the marginal dollar spent on reducing demand was more effective than investing it in increasing supply. The concept was enshrined by the thinking of Amory Lovins, who made the confusion complete by treating energy efficiency as the "fifth fuel." This type of thinking resulted in policy making that treats energy efficiency and renewable energy as interchangeable and complementary, or even additive, which most often is not the case, because different decisions would be made about energy efficiency in a fossil fuel infrastructure than in a renewable energy system. In truth, energy efficiency is not even an investment, it's a mere operational savings, and financially it should be treated accordingly. Renewable energy is truly an investment, a make versus buy decision, a permanent price hedge, and it improves building resilience, and adds value to the asset.
3. Then there is the famous Jevons paradox, which in effect states that increased efficiency increases demand, and therefore does no such thing as conserving energy. Jevons was speaking about coal, and by and large his predictions came true, and are equally relevant today about oil and gas.
4. It gets better (or worse, depending on your point of view). Steve Hallett, in The Efficiency Trap, takes his perspective from biological/systems thinking, and notes not only that greater efficiency lowers the cost of the energy input and stimulates demand, but there are often knock-on effects. For example not only did we fly more as flying became more efficient, but we also built more airports, etc. The end result is that energy efficiency "improvements" make the problem worse, not better, and we have plenty of historical examples to show this. At the other end, exploration costs are going up all the time, so that the massive carbon deposits we theoretically still have are becoming less and less economical to exploit (even aside from the GHG-emissions question). In short, energy efficiency keeps carbon energy more economical for a longer period of time, and therefore increases GHG-emissions over time, which is the opposite of what we want. Hallett's conclusion is simply that the road to hell is paved with efficiency. In his words: "Efficiency promises to conserve, but actually consumes. Efficiency is a trap."
5. The Jevons paradox and the efficiency trap are bad enough on a macro level, but on an individual project basis we see that if we do our economics right you cannot save yourself rich: energy efficiency yields diminishing returns whereas renewable energy generated on-site can bring compound returns. The truth quickly becomes evident if proper capital budgeting is done for the energy infrastructure of a building (home). Thus, within a given building retrofit, energy efficiency (of the fossil fuel-based infrastructure) competes against renewable energy. As long as payback of the equipment from marginal savings is used for decisions, energy efficiency will initially always seem to outperform renewable energy, but when 30-year cash flow analysis is used, renewable options often prove more attractive. Compound returns can be achieved from engineering synergies by integrating several technologies.
6. On the margin it is already clear that net-zero building is the healthiest construction sector, and has been so for several decades, regardless of economic cycles, and in downturns these buildings have kept their value better than other buildings. Since in the larger economic sense the rate of change at the margin drives valuation, it should be clear that fossil fuel buildings are going to continue to lose value at an accelerating rate.
7. Therefore, any older buildings worth preserving should switch to renewable energy and attempt to become net-zero or near-zero, and buildings that cannot make the switch to renewable energy will be the slums of the future, and ultimately headed for demolition. Along those lines the current fashion (think NYC Clean Heat) of switching fuels mostly from coal and heavy fuel to natural gas, amounts to capital destruction. The same applies for energy efficiency initiatives such as New York's Local Law 84/87/88: these measures constitute majoring in a minor, and therefore guarantee failure in the form of strongly suboptimal outcomes, including, at the extremes, the preservation of some buildings that should be demolished, and the failure to convert other buildings to renewable energy when they have the potential.
8. A systems approach is needed, and almost all policies and incentives have been targeted at the technology (widgets) level, not the system level. The smallest system, the economic atom of real estate is a single property (house, building), and above that are neighborhoods, towns, cities, regions, states, countries, and eventually the whole world. In some cases regional planning can be very effective, but we should engage everyone from the smallest economic unit of a single property on up. Incentivizing specific technologies leads to market distortions and bad engineering. Solar PPA's are a case in point. At 17% efficiency, Solar PV should be the last choice, as solar thermal is 98% efficient (or arguably more, because process heat is easy to store for intra-day usage, which gives you higher returns than selling your kWh's back to the grid or using expensive chemical batteries).
   Incentives for individual widgets reinforce a bad financial habit of evaluating options based on the payback of the equipment from energy savings, which flies in the face of optimal design on the level of the property as a whole. The Baucus energy tax proposal focuses on overall GHG-reductions, but so far addresses only the supply side of the grid. Clearly, the demand side should be included due to the huge potential for generating energy on-site with renewable energy.
9. Green finance, so-called, has been a mixed bag of various flavors of asset backed lending, justified by the fact that it is theoretically "low risk" because it offers what are deemed to be largely self-liquidating propositions, based on energy savings. This is a complete fallacy, and energy efficiency loans and solar PPAs may be the subprime loan scandal of future years. In many cases it is the ease of finance, ease of installation (solar PV!), and Wall Street greed, fueled by misplaced incentives, which are fleecing property owners of their equity, locking them into a suboptimal solution. They waste their roof space, and borrowing capacity when with the same space, using solar thermal (98% efficient), they could have easily provided complete HVAC, reduced GHG-emissions by over 50% while homes and buildings become much more valuable in the process.
10. Securitization of energy efficiency loan portfolios has already encountered some headwinds, and these issues will only become more evident as analysts learn to understand the absence of a sound economic foundation. The typical 15-25% "energy savings," is easily wiped out by both energy price hikes (the winter of 2014 gave us a taste of that!), and by comparable buildings going the renewable route and eliminating 50-90% of their energy bills, and GHG-emissions. (See #6 above).
11. The combination of technology-level incentives (such as tax incentives based on Energy Star ratings), and decision making based on marginal payback of equipment, and partial solutions, lead to either the wrong decisions from a whole building level, in some cases such that they lock buildings out of other, superior solutions, or else they risk "cherry picking" a whole building solution - which benefits the financiers who want to write "easy loans," but rob the building owners of the potential to add value.
12. Policies which limp on the dueling concepts of Energy Efficiency and Renewable Energy recall the roulette player who puts equal amounts of black and red. Treating Energy Efficiency as an alternative to Renewable Energy, or as a proxy for GHG-reductions ensures policy failure.

New York State Energy Plan

The review period for the 2014 Draft New York State Energy Plan is still open, and I have supplied my comments along the lines indicated here. On the whole, the plan has the laudable objective of 50% GHG-reductions by 2030 and 80% by 2050, but otherwise continues the errors that have ensured past policy failure by including energy efficiency and fuel switching in the options. Both of these options are environmentally counterproductive, and ensure minor GHG-reductions in the short term at best, and of course, if we want to achieve the objective of 50% GHG-reduction by 2030 and 80% by 2050, we should focus only on projects that can achieve over 50% GHG reduction. Therefore, neither fuel switching nor energy efficiency should be in the plan.

Letting the market take care of energy efficiency

There is huge potential for renewable energy retrofits that can produce 50% or better GHG-reductions right away, and more later, and in ways that make economic sense today, if property owners make use of the right decision-making models. The EPA provides the Energy Star Portfolio Manager to assess projects on a whole building basis, and the resulting models should be evaluated based on a 30-year CAPM cash flow analysis. This will quickly show that many renewable options that seemed expensive are actually economical based on the long tail of zero energy bills, while the 15-25% "energy savings"  from energy efficiency upgrades will quickly be found wanting, unless some of them can be integrated to directly increase the payoff from renewable energy options.

In short, competitive pressures will become more effective if policies and incentives support renewable energy first, and leave it to fossil fuel companies and their customers to work out arrangements for energy efficiency wherever it is economically justifiable.

Conclusion

We are now experiencing a paradigm shift from the fossil-fuel era to the renewable era, and there is huge potential for quantum improvements, even on a building retrofit basis. The major impediment to GHG-reductions is not technology but proper financial analysis along with incentives and programs that reinforce the wrong decisions. In short, as in any other paradigm change, it is our thinking that gets in the way, but that can be corrected. Once you get it, it's obvious. The 2014 New York State Energy Plan should focus on Renewable Energy, and leave Energy Efficiency to the market.

Renewable Energy, the Star of the Show

Renewable Energy has been the step-child of energy policy, which has been dominated by Energy Efficiency (EE). This emphasis on EE is really a relic of the energy crises of the last century, when it was thought the cost of energy and energy independence were the issue, and not so much the environmental dimension. Times have changed. Reducing Green House Gas emissions (GHG-emissions) now has taken center stage. Renewable Energy (RE) is the only path that will get us the reduction in GHG-emissions which are now generally seen as a priority. The simple truth is that Energy Efficiency is not a generating technology, it only improves the performance of whatever system you have, be it based on fossil fuels, or based on renewable energy, therefore, it is equally applicable to both. The only real choice is between Fossil Fuels (FF) and Renewable Energy (RE), and RE is what we want, not more FF, or for our addiction to FF to last longer.

In the public dialog, and in public policy, EE is mostly treated as an end in itself, which results in policies that achieve the opposite of what we want to achieve, assuming that a reduction of GHG-emissions is really our goal. The reason for this is simple. Our existing systems are overwhelmingly based on Fossil Fuels, and if you improve them with EE, you are throwing good money after bad by making FF economically more attractive. If we make fossil fuels cheaper to use, people will use more of them and will use them for a longer time, which is strongly regressive for climate risk. If the government is subsidizing EE without further qualification, they are subsidizing the fossil fuel industry, which is the opposite of what they want to do.

The only rational policy towards GHG-reductions is one that minimizes GHG-emissions through Renewable Energy, and leaves it to the Fossil Fuel industry and their customers to make their systems as efficient as possible. It is not rational to subsidize Fossil Fuels indirectly by subsidizing Energy Efficiency without qualification.

Renewable Energy Failure in NYC

Despite many signature projects that demonstrate what's possible, New York City overall has fallen into the trap of prioritizing EE, hand in hand with state programs like NYSERDA, as well as various federal programs. Even worse, the NYC Clean Heat program diverted a large portion of the housing stock to natural gas for heat, in a laudable attempt to reduce particulates emissions and GHG-emissions, but by doing so missed the opportunity to begin the serious conversion to RE, which would have produced quantum advances in reducing GHG-emissions. As we now know, the switch from coal to gas, and from heavy fuels to gas, yield no reductions in GHG-emissions, except a displacement. So nominally NYC wins a little in the short run, but in the long run it is meaningless.

Typical EE projects yield 15-25% reductions in energy costs, mostly "savings" on fossil fuel bills, and these seem easily justifiable, however in many cases we are missing the opportunity for radical conversions to RE, which could easily produce over 50% reductions in GHG-emissions, and be financially successful for building owners, far more so than the EE projects that are now the norm. If proper capital budgeting were utilized throughout, it would become quickly apparent that in many cases integrated RE solutions for buildings have superior long-term economics, and PACE financing is a readily available vehicle to address the heavy up-front capital investment required for these projects. Simply put, every RE component we can retrofit in a building comes with a lifetime of no energy bills equivalent to the amount of energy it provides.

In the winter of 2014 New Yorkers paid the price for the massive shift to natural gas. Electricity in January 2012 was 7 cents/kWh (ConEd), in 2013 it was 13 cents and in 2014 it was 22 cents. Winter normally had low electric rates, now it has some of the highest rates of the year. New York City has become massively, recklessly and unnecessarily dependent on a single fuel: natural gas. Building resilience has been made infinitely worse as a result, while at the same time we're spending money on improving building resilience. The single biggest thing we could do for building resilience is to stop converting buildings to natural gas, and encourage them to switch to renewable energy instead.

It's all economics and finance

The problem is not technology, there are more options every single day, The big things that are holding us back are practicing proper economic and financial analysis, to understand how rewarding RE retrofits really are. Thirty years worth of free energy will beat out 15-25% energy savings in most projects, especially if there are integration opportunities that produce legitimate engineering synergies which compound the returns from individual technologies. That geothermal heat pump combined with a wind turbine, or solar PV, becomes an energy harvesting system, and hot water storage tanks are cheaper and more environmentally friendly than batteries.

The primary importance of economics and finance is driven home forcefully by the fact that the 2014 Draft New York State Energy Plan cites the inroads of solar PV on Long Island as a success.  This is a success that is driven by Asset Backed Lending/Leasing based on marginal energy savings, and achieves shallow results, compared to what could be done if financial analysis were done right, and projects were engineered for the long-term. If property owners were to use proper capital budgeting techniques and did 30 year models, there is no way that 17% efficient solar PV should win over 98% efficient solar thermal installations. People are saving 10% on their electric bill, when with the same roof space they could do central HVAC and Domestic Hot Water for their entire property. This approach is more work, so it does not get done, but we as a society lose. Property owners who sign for these solar panels in most cases miss an opportunity for a major value enhancement to their properties.

C40Cities needs to prioritize renewable energy

I have submitted an Open Letter to C40Cities in hopes that this group will start addressing these issues, and not have the rest of the world repeat the mistakes that were made in New York. Appearances always deceive, and this case is no different: in the short run some reductions in GHG-reductions were realized, but because it all came from EE and from fuel switching, it merely extends the reign of fossil fuel and is therefore regressive with respect to climate risk in the long run.

Will New York become a leader in renewable energy?

Recently, I submitted an open letter to Governor Andrew Cuomo pertaining to the Green Bank. The Green Bank initiative could be coming at the right time for Mayor de Blasio, who has an interesting challenge. To his eternal credit, Mayor Bloomberg got climate change and energy policy the attention it deserved, but some key programs have been counterproductive, even if that is not widely recognized as yet. I have documented these issues with an open letter to Mayor de Blasio. Further clues are in my letter to C40Cities. Clearly, there is a big opportunity for the de Blasio administration to change course with some of the programs that have us going backwards instead of forwards. The opportunity for New York City to become a leader in this area is certainly there. Our infrastructure lends itself to rapid progress, but it will require the necessary regulatory changes to enable such developments, for besides bad financial analysis, regulatory hurdles are the principal brake on a breakthrough to clean energy.

Conclusion: Lasting Reductions in GHG-emissions from Renewable Energy

It is time to break the stranglehold of the fossil fuel era by pursuing renewable energy breakthroughs that are well within reach, but often ignored, because EE seemed "cheaper" and "easier." Heretofore, we did not realize that the short-term reductions in GHG-emissions from Energy Efficiency would ensure long-term losses. Therefore, the time has now come to focus on creating the breakthroughs in renewable energy with projects that achieve in excess of 50% reductions in GHG-emissions, and New York City can certainly become a leader in the context of the C40Cities, much to the benefit of its citizens.

NYC Energy Efficiency Paralysis - Open Letter to Mayor de Blasio

Energy Efficiency (aka EE) is the most confusing issue in the entire green dialog. It is about time that the FTC took action against anyone claiming that energy efficiency is green all by itself. It depends. If you make a fossil-fuel-based system more efficient, arguably you are reducing GHG-emissions somewhat, but that is seriously deceptive: you are simply extending the competitiveness of fossil-fuels, which is the opposite of what we want to achieve, if reducing GHG-emissions is the objective. If reducing GHG-emissions is what we want, that should be the focus, and Site Derived Renewable Energy (SDRE) is the only real answer.

Most programs nationwide are still stuck in the 1970's energy crisis. At that time, it was thought the issue was simply energy economics, which could be addressed by cleverly realizing that a dollar spent on reducing demand had more of an effect than a dollar spent on increasing supply. The environmental dimension, Green House Gas-emissions was not really on the radar yet. Also, there were not as many building-mounted renewable technologies available as there are today. But efficiency of fossil fuel systems has overstayed its welcome, and is not a major concern for a "green" future. Local Laws 84/87/88 need an overhaul for shifting the focus to SDRE, based on proper capital budgeting for energy infrastructure, not incremental spending on marginal efficiency of fossil fuel-based systems, which leads to capital destruction, not building appreciation--as explained in many ways on this blog.

PlaNYC was a Breakthrough of Sorts

PlaNYC was a breakthrough in beginning to take these issues seriously, but it was heavily compromised by the old efficiency paradigm, and ended up putting marginal energy savings front and center. At some point particulates emissions from #6 and #4 oil became another bad proxy for GHG-reductions. This was merely another diversion from the real issue, and the NYC Clean Heat program was the result, causing a rapid shift to natural gas, resulting in an ominous city-wide dependence on a single fuel. Moreover, by the time of this writing it is accepted wisdom that natural gas is about as polluting as coal, when you add in the losses of methane in production and transportation.

Renewable Energy in NYC under Mayor de Blasio?

We can only hope so. The time has come. I come from the school of hard knocks, having learned as a home owner that I unthinkingly spent myself silly on energy efficiency for two decades, without accomplishing anything. At long last, in recent years I finally began to think about the problem more seriously, and since then the issues have become clear to me. NYC has another chance with another administration. Will we move to the new paradigm? I decided that at the very least I should throw in a suggestion or two in the form of an Open Letter to Mayor Bill de Blasio.

Alternatives to PLaNYC: Pushing Renewable Energy

The open letter to Mayor de Blasio focuses primarily on the NYC Clean Heat program, and the very deleterious spate of natural gas conversions it has brought about. It touches upon the mistaken economics that have driven other elements of PlaNYC, such as Local Law 84 (actually, both LL84 and LL87). These regulations simply push efficiency, and thereby assure the opposite of what they would accomplish: they serve to extend the rule of fossil-fuels with marginal energy savings, and have building owners fritter away capital on incremental improvements, instead of investing it in SDRE.

Energy efficiency is mostly about guilt-free shopping, which is why manufacturers love the Energy Star label, but it does nothing to solve the GHG-emissions problem. Instead, it makes it more intractable by making fossil fuels economical longer. Below I am providing a series of explanatory notes to the Open Letter, some additional comments, and some references that may be helpful.

Notes and References for Open Letter

1. NYC Clean Heat is regressive: By now even the Sierra club is coming back from its advocacy for natural gas over coal (remember Bloomberg donated $50mln for that campaign in 2011?). The evidence is overwhelming that switching to natural gas is regressive for climate change. So converting buildings from #6 and #4 oil to natural gas was a subsidy to the gas industry, and capital destruction for the owners of buildings. SDRE retrofits could have given building values a serious boost, instead of just some small time energy savings at best.
2. The DaBX PlaNYC2020 report was an alternative plan to maximize Site Derived Renewable Energy, and make real reductions in GHG-emissions. We focused on NYC's old line C- and D-class apartment buildings, all in all some 15,000 buildings, a large percentage of which might be able to do such retrofits. We pointed out that these conversions should be done over 5-10 years to maximize the value of existing plant. We emphasized proper capital budgeting techniques to make the right long-term economic decisions.
3. The Urban Green Council later made a more general case with their 90 by 50 report describing generalized solutions across all major building types in the city. The report reinforced the important point that the optimal way of implementing retrofits is over time, by leveraging the economic life-cycle of building energy infrastructure components. Forcing everything to be done at once makes projects uneconomical. The report emphasizes generating renewable energy on site as well, but fails to understand the deleterious economics that result from the focus on marginal energy savings.
4. Geothermal energy is strategically important. It is in fact the single most powerful SDRE option for energy retrofits in NYC. New York's bedrock is an ideal substrate, and with 400% efficiency, nothing beats it: 1 joule of energy in (electrical) yields 4 joule output (heat). At a minimum, buildings can do a Domestic Hot Water solution, but the design needs to be optimized for harvesting of energy, either from time of use metering, or from wind turbines or solar PV. Whenever feasible, it should be part of energy retrofits because of the energy storage capability. In exceptional cases (if there are sufficient grounds), it may be able to provide the total BTU load for buildings. Remember insulation helps too!
5. Solar thermal is a hands down winner at 98% efficiency, and no PV should ever be considered (17% efficiency) if you can do solar thermal at all. The point of generating electricity is that it can be easily transported, but when generating renewable energy on site, you don't have a transportation problem, and retrofitting is becoming easier all the time, although on balance a thermal retrofit is harder than PV. There are many ways conversions can be done towards integrated HVAC even in older buildings, given today's hydronic air handlers, etc. With the forecasts of 3x more 90 degree days in summer by 2050, the time is now to start planning that transition, for buildings that don't offer centralized HVAC will be marked for demolition sooner or later. The old model based on window air conditioners is past its prime.
6. Hydronic heat is more energy efficient. Yet with the NYC Clean Heat program, in most cases, buildings have just switched from oil to gas, and continue to heat with steam. What is needed is a thorough understanding of the economics of conversion to hydronic systems, which in turn ties in with the potential for solar thermal and geothermal. Here is a report from NYSERDA, documenting up to 40% energy savings by switching from steam to hydronic systems.
7. Building mounted wind turbines are coming of age and typically offer more bang for the buck than solar PV, if the building has the right location to use wind energy. Then, there are hybrid solar PV/Thermal (PVT) systems which leverage the best of both solar technologies. In other words, SDRE, Site Derived Renewable Energy, is becoming increasingly realistic for retrofits, especially when considering that in a building you can harvest thermal energy in a variety of ways, as pre-heated hot water from geothermal or as high temperature process heat from solar thermal. All such designs solve the biggest problem of renewables, energy storage. Within a building, bridging the daily cycles does not need to be a problem.
8. Along the fourth dimension: timing is everything. One of the ways NYC Clean Heat is very regressive, is because it once more ignores the factor of time, and aims for a one time conversion for a short-term goal, which moreover now proves elusive, once we realized that the environmental benefit of natural gas is nil. The tie-in of this program with the NYSERDA MPP reinforces that short-term orientation. Long-term building economics dictate that you should generally not replace things before their time. What should be done is long-term planning for an SDRE retrofit, so that at every step of the way, you can pre-engineer the next steps. Both our DaBx PlaNYC2020 and the UGC 90 by 50 report advocate this longitudinal approach, but you need to make the plan first, otherwise you will be designing yourself into a corner.
9. Exemptions from NYC Clean Heat. Once it is understood that far greater advances in the reduction of GHG-emissions are possible with onsite renewable energy, the city should encourage exemptions on that basis, and give buildings 10 or 20 years to comply, provided they start out with a project that yields at least 30-50% reductions in GHG-emissions. Anything above 30% GHG-reductions can generally not be done with energy efficiency alone. The beauty is, that if it's planned right, SDRE will yield superior building economics, and thus increase building values, so that building preservation is ensured with SDRE conversions.
10. Building resiliency is a central point. In the new flood zones, building resilience is mandatory, and in a much more profound way than discussed here. Resilience is a value that ensures buildings can stay at least partially functional in an outage. The switch to natural gas has undermined building resilience in a disastrous way, and it should be reversed as soon as possible.
11. The disaster of becoming overly dependent on natural gas was amply demonstrated in the winter of 2014. Not only were heating bills going up, but more and more electricity is generated with natural gas also, and while january in the past was normally the low season for electrical rates, in 2014 rates were at an all-time high. For my own apartment the ConEdison (spot/variable) rates were ca 7 cents/kWh in 2012, 13 cents in 2013, and 22 cents in 2014.
12. NYC did not have any pipeline ruptures in 2014, as happened in the Midwest. But the city has a very constrained gas distribution system, depending on a few major pipelines, and there are no backup storage facilities (off-shore LNG anyone?). New York production of natural gas is also coming to a stand-still because of environmental concerns.
13. PACE financing is the obvious means that is in place already, and NYC will need it. It is politically a worthwhile project to support as long as it is tied to projects that accomplish at least 30-50% GHG-reductions initially. Once owners have the taste, and make proper long-term capital plans for energy, the potential for building appreciation is enormous. For at every level, if you can generate your own energy on site, that investment in SDRE is a permanent energy price hedge. 50% is really the optimal point to strive for in the initial project, since then the building is "over the hump" with dependence on fossil fuels.

Converting PlaNYC from communism to capitalism

PlaNYC as is, as well as other similar plans everywhere, operate in the central-planning style of the infamous 20 year plans of the former Soviet Union, which were designed to fail, as I've argued here. The mistake is to take the macro view of "energy efficiency" and then ram it down to the micro level with laws and incentives, instead of to engage the economic self-interest of property owners. Property owners should be in the business of maximizing property values, and government- the public interest- should incentivize reductions in GHG-emissions. Energy efficiency is not a proxy for GHG-reductions. Energy efficiency of fossil fuel systems makes GHG-emissions more intractable, so if we subsidize it, we indirectly subsidize the fossil fuel industry.

The energy benchmarking and audits of LL84/87 are a positive. The requirements to tinker with marginal efficiency improvements without totally rethinking the system is regressive, and bad policy. The market might take care of it - or at least need a lot less help than we're spending now on making building owners do things they don't want to do. Net zero construction has been healthier than any other area of construction for many decades, net zero or near zero buildings keep their values better than anything. Once we get building owners to perform serious renewable retrofits, the economics will force others to comply, or die. The simple fact is that with today's technology, 80-90% reductions are possible in many existing buildings, if the buildings follow a deliberate renewable retrofit strategy--the 90 by 50 report from Urban Green Council demonstrates the point. The first project should be in the 30-50% (GHG-reductions) range, and that is more than any energy efficiency project can do. Competitively, the pressure will be on.

Conclusion: Renewable Energy over "Energy Efficiency"

Once more, energy efficiency tends to mean making fossil fuel systems more efficient, and that is not a worthwhile goal for public support. PACE finance is an option that will enable the massive capital investments needed, to facilitate moving energy from liabilities to assets by means of SDRE. The focus needs to shift from energy efficiency of fossil fuel systems to site derived renewable energy and the city can exceed the parameters of PlaNYC completely if it does so.

Geothermal Heat Pumps Strategic Renewable for NYC

It is time to revisit geothermal heat pumps, and the battle of renewable energy versus energy efficiency. It has been noted with some regularity on this blog that NYC Clean Heat, and its comrade in arms the NYSERDA MPP are destroying real estate values in NYC, and not contributing much to reducing GHG reductions. I was an early advocate for geothermal heat pumps as the single most strategic renewable technology for energy retrofits in NYC buildings, and in April of 2013, then Mayor Bloomberg finally commissioned a serious study of geothermal energy for New York.  We had been advocates (with my consulting firm DaBX) since 2011 at least in our PlaNYC2020 report, and then hurricane Sandy did its bit to promote geothermal heat pumps. It is time now to demonstrate why not only does geothermal have "certain advantages," but is actually the single most important strategic renewable energy technology in the city.

Multi-family Buildings and Geothermal Heat Pumps

In general, if you are looking at any building, energy that you can generate on-site with renewable energy technology (Site Derived Renewable Energy, or SDRE) has numerous advantages. Most importantly, financially, if you analyze long-term (say 30 years) cash flows, thirty years of no cost energy often beats out the "savings" of 15-25% that are achieved by most energy efficiency overhauls. This pays for the heavy capital commitment up front.

1. The first advantage is that you have no transportation losses.
2. A second efficiency factor is that because there are no transportation losses, you can often save the conversion to electricity and pure thermal technologies win the day, because heating and cooling are the larger part of the energy budget, often 75%.
3. On top of that, if you are operating with pure process heat, you have a pretty economical way of storing that either at high temperature (i.e. process heat from solar thermal), or as pre-heated hot water (from geothermal).

A geothermal heat pump is 400% efficient: for every joule of energy it uses (electricity), it returns 4. To take the simplest application in a building, for Domestic Hot Water (DHW), it was traditionally provided by a coil in the boiler, and the efficiency of such systems is typically in the range of 45-75%, in particular because those boilers were oversized relative to the need for hot water, and the need for hot water is year round.

Why the NYSERDA MPP marginalizes Renewable Energy (RE)

The NYSERDA MPP is built on a set of mistaken assumptions and foolish economics. It bundles a set of energy efficiency programs and incentivizes the building owner to deliver efficiency retrofits that score above (currently) 15% gain. It all but marginalizes renewable energy. It all results in owners trying to find the cheapest way to qualify for the incentives, and technologies are selected based on their marginal energy savings, just to get the incentives, in terms of advantaged financing etc. The program focuses on energy efficiency (EE), which always yields high returns at first,  but suffers diminishing returns later, and it is biased against renewable energy (RE) projects, which are capital-intensive at first, but come with a "long tail" of free energy.

The Math of Geothermal Heat Pumps

Here is the typical math for a geothermal heat pump in the DHW application - based on the assumption that the prices for the BTU inputs (oil, gas, electric) are all the same:

1. Old situation: DHW from a coil in the boiler - oil/steam, usually 60% efficient (between 45-75%)
2. New situation: DHW from geothermal heat pump (electric, 400% efficient), and natural gas secondary heat cum backup at 95% efficient, in about 70/30 proportions, so that the combined efficiency is 0.7*400+.3*.95 =280%+29%= 309% efficient.
3. Let's round it off: 60% efficient vs 300% efficient
4. Therefore, if the Btu pricing was all the same that would be the comparison, meaning in case OLD our marginal energy cost is 1.67x the Btu demand, and in case NEW it is 0.33x the Btu demand. In other words the marginal Btu input of the new system is ca 20% of what it would be under the old system.
5. In real life this picture is then complicated by the pricing differences between oil/gas/electric,  but the point is clear, the innate efficiency of the solution is staggering.
6. We should emphasize again, if we can generate any of our own electricity, with wind energy or solar PV, we can store it as pre-heated hot water, and get a higher return than selling it back to the utility.

Geothermal Heat Pumps: The Math of Effective Btus

Again, this beautiful equation will evidently have different outcomes depending on the actual pricing of the different energy sources.

1. We were buying oil to heat the hot water, and the Btu value of #6 fuel is approximately 153,000 Btu per gallon. In the winter of 2014, in NYC, a gallon of #6 goes for $4.00, therefore, the cost per 1000 Btu is 2.61 cents.
2. We are substituting this with electricity, which in the winter of 2014 in NYC, goes for about $0.25 per KwH, and the thermal value of a kWh is about  3,214 Btu. The cost per 1000 Btu therefore is ca. 7.78 cents; and with natural gas as a secondary fuel, which goes for about $1.25 per therm (100,000 Btu) and therefore costs ca 1.25 cents per 1000 Btu.
3. For argument's sake, we needed 1,000,000 Btus for a given quantity of DHW, and the comparison now becomes: Old style (oil/steam): 1.67 x $0.0261 x 1000 = $43.59, and New style (geothermal plus gas): (0.7 x 7,78 x .25 + 0.3 x 1.25/.95) = 1.36 + 0.39 = 1.75 cents per 1000 Btu, or $17.50 for 1,000,000 Btu.
4. Now, if we can generate some of that electricity ourselves with a wind turbine or with solar PV, we have the benefit of storage, which gives us a higher return than selling it back to the grid, and we are compounding our savings.
5. In short, most building owners got taken to the cleaners when they invested lots of money in converting to natural gas, and made some small savings and efficiency improvements, but long-term they are still at the whim of energy prices. Their buildings have become LESS resilient. With DHW being 30-50% of Btu requirements in the typical apartment building, the geothermal solution would be a hands down winner, and perhaps a first step towards a mostly renewable heating and cooling solution...
6. From the standpoint of clean energy and reducing GHG emissions, we are now servicing 70% of this Btu requirement (DHW) with electrically driven geothermal heat pumps, with 400% efficiency. In short, 75% of the 70% is GHG-free, representing over 50% of this requirement is now free of GHG-emissions.

What really happened...

The conversion to natural gas under the NYC Clean Heat program, combined with the NYSERDA MPP has been neutral event for GHG-emissions because, while gas burns cleaner, the production and transportation losses of methane make it about as bad as coal for overall air quality, although within city limits there would be some reduction of smog.

Only very few buildings made the conversion to geothermal hot water systems, and when they did, these systems were most often wrongly designed, as just water heaters, and not with a view to pre-engineering whole building energy solutions, in which boilers might eventually be replaced with a solar thermal plant, at most with only a simple boiler for backup.

In most cases, conversions were from oil to gas, which reduced building resiliency, for we are now in a city that is wholly dependent on a single fuel, and if you watched the news tonight, one pipeline explosion could cause a tremendous amount of havoc, as they are finding out in the Mid West.

Conclusion

Energy efficiency programs mean that building owners are paying for making energy from the grid more economical, instead of investing in their properties and generating their own energy with (mostly) thermal technologies. Though finally geothermal heat pumps seem to be getting some more recognition, it is clear again that energy efficiency gets prioritized by current programs at the expense of renewable energy, and ultimately to the financial detriment of building owners.

Baucus Energy Tax Reform Misses with GHG-emissions Reduction

The Baucus Energy Tax Reform Proposal, which has reduction of GHG-emissions as its focus, risks aggravating the very problem it is trying to cure. As drafted, for all its merit, and precedent-setting simplification, it would exclude an entire class of technology that offers more bang for the buck in GHG-reduction: all forms of thermal technology that can be deployed at the demand-side of the grid.

The proposal limits itself to addressing electricity generation, and production of transportation fuels. In other words, it limits itself to addressing the production of energy at the supply side of the grid, and thereby reinforces the grid model, at the very time that technologically we are capable of building microgrids, and net-zero or near-zero buildings (including retrofits), and because of the increasing demand for building resiliency, we should be stimulating more Site Derived Renewable Energy (SDRE), for that eliminates at least one energy conversion (from whatever to electricity), as well as the transport problem for either gas, or oil, or electricity.

Net-zero, Near-zero, Thermal Energy to the Rescue

The conversion to electricity goes with energy losses, as does its transportation, yet evidently it has redeeming value because of the ease of distribution, but the quiet revolution that is going on for the last decennia is the consistent growth and profitability of Net-Zero Energy Building (NZEB) construction. With natural gas it is already becoming an accepted fact that the production and transportation losses are so significant, that it is just as bad as coal on a system-wide basis.

The next frontier is Near-Zero Energy Retrofits, and in all cases the difference between mere energy efficiency (typically with a 20-30% reduction of energy bills), and any solution that maximizes the use of renewable energy technologies, both active and passive (Site Derived Renewable Energy - SDRE), is that projects can achieve 70/80/90% reductions in Green House Gas (GHG-emissions) with SDRE, and be absolutely economical. The extreme example is the Zenesis house, but in general Near-Zero Emissions is a tremendous achievement for existing construction, and any retrofit achieving over 50% GHG Emission Reduction should qualify.

The key technologies are thermal, both active and passive, including solar thermal and geothermal, and harvesting process heat from either the sun directly or from the ground with a ground source heat pump. The normal transportation losses with process heat do not apply if you are using the energy on-site, and you are saving energy conversions, plus you have an easy way of storing the energy in either high-temperature process heat storage or low temperature pre-heated Domestic Hot Water, as well as various other related, passive solutions. So the batteries are cheap, whereas with the centralized grid, and electricity in general, batteries are expensive, and very environmentally unfriendly.

Technological Non-neutrality and More GHG-emissions

The stated goal of technology neutrality would therefore not be achieved by this proposal, for the most efficient solutions, thermal technologies at the demand side, i.e. in buildings would be excluded from this tax treatment, whereas they would be big winners if the new technology neutral regime applied to them, since they produce far more bang for the buck than the grid-based alternatives. For example solar thermal is about 500% more efficient in converting the Sun's energy, and if you add the benefit of the ease of storage for off-peak use, that advantage becomes even greater. Plus, by nature it does not produce the fluctuations on the grid that come from solar PV.

In short, this proposal would exclude the very technologies that offer the most bang for the buck (the words used in the proposal staff discussion documents), and the greatest reductions in GHG-emissions, as well as reduce demand on the grid, and improve building resiliency, all of which are highly desirable outcomes today. Especially greater resiliency is of extreme relevance for the coastal communities and many other areas, where the reliability of the grid is questionable. The current proposal would reinforce the centralized generating model at the exact time when the nation needs more decentralization.

Building retrofits:
reducing GHG-emissions by excluding energy efficiency and including SDRE

Mere energy efficiency retrofits should probably be excluded from the tax incentives, for they are an indirect subsidy to the energy companies, not the building owners. Moreover, they are generally a solution with diminishing returns to property owners, not to energy companies. They typically achieve only 20-30% energy savings, and maybe the energy companies should sponsor them as customer retention programs. What should be included is Site Derived Renewable Energy (which may include energy efficiency upgrades). If these incentives are structured correctly, there will be a huge increase in building level renewable energy retrofits, with all the desirable outcomes noted above: greater resilience, reduced demand on the grid.

The Audit Problem: Verifying Results of GHG-reductions

The staff discussions of the energy tax proposal reflect concern about verification for retrofits on the demand side of the grid. Verification does not need to be hard, for long term lenders have a similar interests. Requiring audited GHG-reductions based on clear standards are the answer, and the EPA's Energy Star Portfolio Manager provides the framework.

Conclusion: net-zero and near zero buildings reduce GHG-emissions faster

There is a huge potential for GHG-reduction through on-site energy generation with renewable technology (SDRE), in the form of net-zero or near-zero construction and retrofits. Retrofits will obviously be the larger market. The more these solutions gain traction, the more demand will be removed from the grid and building resiliency will increase. As long as these proposed simplifications of the energy tax structure are limited to the supply-side of the grid, they will greatly impede the most promising technologies available, and they will aggravate the problem of technology neutrality which they are trying to solve. The most bang for the buck in GHG-reduction is on the demand side, with net-zero and near-zero construction and retrofits.