Show me the money: The business opportunity for grid-interactive buildings

Money case for grid-interaction
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Utilities, grid operators, homeowners, and private- and public-sector building owners and operators are all buzzing about buildings that dynamically interact with the electric grid. They present an exciting opportunity to go beyond net-zero energy and provide valuable benefits to the electric grid and provide a significant financial return for building owners. At this year’s Rocky Mountain Institute Electricity Innovation Lab (e-Lab) Accelerator event, I facilitated a session on a new initiative to support such grid-interactive buildings: the GridOptimal rating system. This emerging opportunity has the potential to make a great contribution to the electric grid and to building owners’ bottom lines.

Grid optimal buildings have grid-friendly load shapes and have the capabilities and the flexibility to provide services to the grid. Ultimately, because they support the grid, grid-interactive buildings support least-cost decarbonization of the grid, while providing cost savings and other value to building owners. 

Grid integrated buildings represent a long-sought opportunity for building owners and the utilities to play on the same team, and share the benefits of an opportunity that all sides can profit from. 

Grid integrated buildings also bring alignment between the trend of net-zero energy buildings (which have increased 700 percent in the past five years) and net-zero carbon buildings (a concept that often unravels as calculations quickly get complicated — it can be difficult to find the carbon intensity of a particular building and grid, although RMI’s WattTime subsidiary makes it much easier). 

While reducing carbon is the ultimate key to curbing climate change, those with the option to do so quite sensibly say, "Show me the money." Grid-integrated buildings are the means by which building owners can see a good return while doing good for the climate.

The status quo of net-zero energy and carbon buildings

Achieving a net-zero carbon building begins with the cornerstone of a super-energy efficient building (targeting an energy use intensity [EUI] of less than 30) with a good building envelope. Second, efficient HVAC approaches and controls help minimize energy use. This reduces not only the energy used (kWh) but also reduces peak demand (kW), and is known as optimizing the load factor of the building. Third, smart controls coupled with advanced submetering and technologies that enable load flexibility allow the building to shift demand, contributing to operational savings. Finally, solar photovoltaics (PV) coupled with energy storage optimize on-site energy generation to meet net-zero energy and carbon goals.

Even with each of those factors in place, all is not yet optimal for the grid or for an owner’s bottom line. Net-zero energy buildings are rarely net-zero carbon, and they may have even greater demand spikes on the grid (such as load factor) than net-zero carbon buildings. Therefore, the carbon intensity and grid-infrastructure needs of net-zero energy buildings actually could be comparable to standard buildings, causing the grid to draw on dirty, peaking power-generation sources at times of peak demand.

Separately, in high-solar penetration markets such as California and Colorado, curtailment (PDF) is becoming a common occurrence. That is, utilities shed renewable power generation (from solar and wind) due to electricity supply surpassing demand during the peak time of day. This is exemplified by the duck curve (PDF): daily load profiles showing PV generation is causing a steep drop in grid-required electricity when the sun comes up and a steep rise in it during the evening hours when the sun goes down. This introduces vulnerabilities to our grid and impedes the path to carbon neutrality. Let’s teach these ducks to fly (PDF), with more streamlined profiles (smoother load curves with less ramping).

To solve these problems, we need to make our buildings smarter, more flexible and more dynamic participants of the grid. Most important, we need to prove there is a business case for building owners.

How and why to create a grid-interactive building

Building owners can achieve grid-interactive buildings in several ways. Energy efficiency is always the lowest-cost, highest-impact carbon-reduction measure. Beyond efficiency, here are some additional, less-common measures to consider.

  1. Battery storage, which allows a building to supply its own electricity when demand is highest, avoiding costly demand charges. A recent blog by RMI details how battery storage can be cost-effective if the building has utility rate structures with demand charges as low as $9/kW. (Other studies by NREL and Clean Energy Group estimate that demand charges above $15/kW make battery storage economic, and GTM Research claims that by 2021, $11/kW demand charges will make battery storage economic.) A recent study (PDF) by NREL found that "some of the country’s highest demand charges were found to be in states not typically known for high electricity prices, such as Colorado, Nebraska, Arizona, and Georgia." If you haven’t checked your bill recently, check again.
  2. Thermal energy storage, for both heating and cooling
  3. Smart electric vehicle charging
  4. Smart controls and appliances, including grid-interactive electric water heaters; smart, programmable thermostats; smart controls on clothes dryers; and smart controls paired with high-thermal mass buildings

Those are some strategies we’re seeing in grid-interactive buildings, but the key question remains: Why should building owners and operators want to do so, amid the long list of management issues that continuously pull at them?

Building owners should care about grid integration services because such services save them money, and can provide new sources of revenue, including:

  1. Demand charge reduction — direct, reliable cost savings on utility bills (this is the biggest source of value today)
  2. Energy charge reduction — lower energy use
  3. Capacity/demand response — a payment from the utility
  4. Frequency regulation — a payment for regulation services benefiting the grid
  5. Resilience — avoided cost of interruption. For more on the cost of resilience, see a recently published report from the National Renewable Energy Laboratory (NREL) on "Valuing the Resilience Provided by Solar and Battery Energy Storage Systems (PDF)" The report shows that placing a value on the losses incurred from grid disruptions can make a PV and storage system a fiscally sound investment. This report referenced another report that valued the dollars per hour lost for a primary school at $2,368, a large hotel at $5,317 and a large office at $14,365. At these rates, battery storage becomes very attractive.

Using GridOptimal to achieve and fine-tune grid integrated buildings

This brings us to GridOptimal. GridOptimal is the result of an exciting initiative by the New Buildings Institute and the US Green Building Council to create a rating system that provides standardized metrics, tools and guidance to improve building-grid interactions. Creating a standardized metric will help on several fronts. In particular, utilities may incentivize grid-sensitive design, furthering the business case for implementation. A standardized metric also will enable designers and building owners to weigh tangible values, impacts and design solutions. GridOptimal supports least-cost decarbonization of the grid through better integration of building-scale distributed energy resources. Because a GridOptimal-rated building essentially announces the flexibility it can provide to the grid, this can help with accurate estimation and ultimately procurement of building-side resources, for utilities and regulators.

I’m so excited about the market opportunity for grid-interactive buildings and GridOptimal. This is the next frontier of buildings. RMI will continue to accelerate adoption of these innovative emerging design and grid-optimizing approaches by continuing to clarify the value proposition for building owners and operators.

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