Pace is the Trick* - C-PACE and Financing Energy Upgrades for New Hampshire Commercial Buildings

I work hard in my writing to present facts and not opinions about energy matters. For that reason , I tend not to take a strong position on popular energy topics as I see my role chiefly as an educator. As I have said more than once about energy (and believe me, my students in the Franklin Pierce University MBA in Energy and Sustainability Studies program hear it often enough) - there is no free lunch when it comes to energy matters. Every energy-related decision we make has costs and consequences for ourselves and for others.  The very best we can hope for when making energy related decisions is to understand these costs and seek to reduce their consequences for present and future generations. My students have described me as an “energy agnostic” as I weigh, in my teaching, equally the value of fossil fuels, nuclear energy and renewable energy sources.

However, when it comes to energy savings I am anything but agnostic. I believe we can accomplish far more for our energy futures and the planet through energy savings than we can by arguing about energy sources, renewable energy, deregulation or climate change. When it comes to energy savings, I can be that crazy, wild-eyed, bushy-bearded zealot who corners you at the Christmas party and who simply does not shut up. So when I come across a program that will promote energy efficiency and savings, I tend to become very enthusiastic.

In this post, I want to tell you about an important issue that will come up for a vote in the New Hampshire legislature early in January 2014 that relates to financing energy efficiency improvements in NH commercial buildings. The legislation deals with a financing tool called PACE which is a mechanism whereby payments for energy efficiency investments are done through property tax like assessments. The program provides a great way to get sorely needed energy efficiency investments made in NH’s building stock. I think it is a good idea and I hope you will too and that you will go ahead and encourage your representative to vote for House Bill 532. However, I openly admit to a bias on this issue so be sure to read my disclaimer at the end of this post.

If we look at energy consumption in NH using data provided by the Energy Information Agency (EIA), we see that most of the energy used in the State is consumed by transportation, homes, commercial buildings and industrial operations.

Omitting the transportation component, if we total up the residential and commercial slices plus 50% of the industrial slice (which is my estimate of the portion of industrial operations that is associated with the heating, cooling, and lighting of buildings), we determine that almost 60% of NH energy consumption is associated with buildings. So if we want to reduce energy usage in NH, clearly the focus should be on reducing energy use in buildings. In fact, it has been estimated that we could achieve savings of 23% on residential, commercial and industrial energy consumption just by implementing building related energy efficiency projects with a positive financial return.

I highlight positive financial return as the remarkable feature of many of these building-related energy efficiency (EE) investments (- such as new heating systems, air sealing and insulation and making sure the systems actually function as specified) because they do pay for themselves over time through lower energy costs. In spite of this, one of the biggest challenges in upgrading a building, whether it be a home, a factory or a store, is finding the upfront money to do so.

There are a lot of programs, including government subsidies, utility rebate programs, etc., out there to partly fund these sorts of investments but moving forward is often stymied by two barriers, the most important of which is that we don’t have the money to retrofit our homes or buildings. Even though we know that the investment will pay for itself over the longer term, we simply do not have the cash on hand to make the investment.

The other barrier to implementation is that we tend to have a short term view of these projects. Most business and homeowners look for paybacks of capital investments in three years or less, but many comprehensive EE projects have longer paybacks. Some might say looking for rapid paybacks on energy related investments is shortsighted, but as a previous CEO and business owner, I do understand these pressures. Intellectually, we believe in long term returns but the reality is that if you own or run a business – three years out is indeed long term planning. And when it comes to homes, the long term horizon is not that much longer because the average length of time for ownership of a home in the US is five years.

Many of us, when looking to make a major investment in our homes such as an updated kitchen or bathroom, justify our investment by the aesthetic and functional value we get out of it and also by convincing ourselves that those investments will be recouped via the increased value of our home that a future buyer will recognize. The problem with energy related investments is that the value of the investment are not obvious. There are no gleaming granite countertops, or Jacuzzi bathtubs that demonstrate your investment. Instead, there is hidden insulation, airtight windows, a higher efficiency furnace; the way these investments manifest themselves is in lower utility bills. These investments, once paid off, do indeed put money into the pockets of home or building owners, but, unfortunately, this is often overlooked by the potential new owner and by the appraiser. In the few houses I have sold, I don’t recall once being asked by the purchaser for a copy of my utility bills. Nor, I am embarrassed to admit, did I look carefully at the utility bills for the homes I purchased.

So the dilemma is this: The savings are real, but they require a substantial upfront investment. If you have to sell or move in the short term, you cannot recover your investment and, as a consequence, many of us don’t make the investment.

Well, there is a program that takes care of these investment recovery concerns. In 2010, the NH Legislature adopted House Bill 1554, an Act which allowed municipalities to establish energy efficiency and clean energy districts. The key aspect of this bill was that it permitted municipalities to set up programs to fund energy improvements in buildings and then it allowed repayment of the investments through  property tax like assessments.

The specific language in the bill that relates to these assessments is as follows:

“VII. [A municipality may] Enter into agreements with property owners in which the property owners consent to make energy conservation and efficiency improvements or clean energy improvements to their property and to have the municipality include a special assessment to pay for such improvements on their property tax bills, their bills for water or sewer service or another municipal service, or separate bills, provided that such agreements shall not affect the tax liability or municipal services charges of other participating or nonparticipating property owners in the district.” 

This program is known as PACE: which stands for Property Assessed Clean Energy. The fundamental feature of the program is that it permits an energy related building investment to be repaid through a property tax like assessment and that the investment is associated with the property and not with the property owner. If a property owner invests in energy efficiency in a building, the money can be borrowed from a municipal fund and, if the property owner then decides to sell the property before the loan is paid off, the property owner does not have to find the  money to repay the loan - instead the increased property taxes just move onto to the next owner.  The obligation for repayment continues with the new owner who will continue to benefit from those EE investments. This is very similar to how major municipal projects such as sewers, sidewalks or schools are funded;  property tax assessments remain associated with property rather than specific property owners.

Paying for investment through property taxes allows more affordable and longer term paybacks. It also removes the disconnect between long-term financing and the fact that the average length of ownership for a home is only five years.  Moreover, these property tax liabilities are primary lien assessments, meaning property taxes get paid before everyone else, including the bank holding the mortgage, in the case of a foreclosure. This primary lien position makes these very safe investments and, as a result, low interest rates are applied.

This was a great program and appeared to have great promise for funding EE investments but it was limited to $35,000 for residential projects and $60,000 for commercial buildings. Comprehensive energy-efficiency projects called Deep Energy Retrofits can cost significantly more than this. Regardless, it was a start. But then in 2010, the Federal Housing Finance Authority (FHFA) got their knickers in a knot.

FHFA oversees much of home mortgage market in the US and they became concerned that additional first lien assessments through the PACE assessments on homes would leave less collateral for mortgage lenders to recover in the case of foreclosures.  If we consider that the average outstanding mortgage amount in the US is of the order of $150,000, one can see that an additional $30,000 to $50,000 of primary  lien PACE assessments for EE investments seriously compromises the collateral available to a mortgage lender. This also occurred at a time when property prices were on the decline and many home mortgages were underwater which  further eroded the mortgage collateral position. As a result, FHFA called for a reconsideration of the PACE program for private homeowners - which essentially brought the rollout of the program to a grinding halt.

However, the FHFA does not have jurisdiction over the commercial property lending sector, so implementation of commercial PACE programs – known as C-PACE – is underway throughout the US. The HB 532 bill that goes to the NH House of Representatives for a vote on January 8, 2014 is looking to put New Hampshire’s C-PACE on a firm footing. The bill extends the original PACE bill and looks to accomplish the following:

• The program only deals with the financing of EE investment projects for commercial buildings, not residential buildings.

• The bill addresses lien position concerns by requiring agreements between building owner, municipality, the mortgage note holder and C-PACE lender.

• It allows financing sources to include municipal or clean energy related government bonds as well as financing from banks, financial institutions or even private investors.

• The $60,000 limit available for PACE programs has been removed . Now the building owner, lender and municipality can come to an agreement regarding the appropriate amount to finance.

• The length of time for financing has been increased from 20 to 30 years.

•  The original PACE legislation required the project to be cash positive even in the first year. In other words, the annual savings from the EE projects had to be greater than the increased annual municipal assessment from the funding of the EE investments. Because the length of time for financing this project has been lifted, the requirement is now that the project needs to be cash positive over the length of the C-PACE assessment.

The C-PACE program was rolled out in Connecticut this year and is a good model to follow. The program is administered by Connecticut’s  “Green Bank”, the Clean Energy Finance and Investment Authority (CEFIA).  Since the start of the Connecticut program,  almost $20 million has been invested in EE investments.  In documentation prepared by the CEFIA team, the advantages of the C-PACE program are listed as follows:

·         “Many owners lack capital to do energy improvements. C-PACE provides 100% upfront, long-term financing to property owners for qualified energy upgrades. That means no money down. Audits, construction costs and M&V can be wrapped into C-PACE financing.

·         “Owners often want to sell the building before an energy upgrade loan is repaid. The C-PACE tax obligation is attached to the property and transfers to the new owner. Payments do not accelerate in case of default.

·         “Many owners feel energy improvements don’t yield an adequate return on investment. The C-PACE program requires projects to be cash flow-positive; financing is structured so that energy savings more than offset the additional property tax assessment. Deeper energy upgrades and savings are possible because the assessment is up to 20 years.

·         “Other owners are uncertain that energy savings will perform as advertised. C-PACE has employed a third party administrator to review all projects to verify that projected energy savings pay for the investment over the term of the assessment. C-PACE also tracks owners’ savings on an open-source data management platform.

·         “Owners need tenants to share in the costs of energy upgrades. As a benefit assessment repaid through the property tax bill, under typical leases C-PACE payments – as well as energy savings – can be passed along to tenants.

·         “Auditors and Contractors: The biggest barrier to converting leads to deals for energy upgrades is the lack of access to upfront financing. C-PACE solves this. By allowing a property owner to access 100% upfront financing for up to 20 years, deeper energy efficiency and clean energy improvements are now affordable.

·         “For Municipalities: C-PACE is an economic development tool for municipalities. Energy upgrades create a more competitive environment for retaining and attracting new businesses by lowering energy costs. Energy upgrades also create jobs and reduce greenhouse gases and other pollutants.

·         “For Lenders: C-PACE has created a very secure, clean energy product for lenders. The security comes from its position as a tax lien on a property. The tax lien, like all public benefit assessments, sits in a senior position. The repayment is also tied to property taxes, which are a very secure stream of payment.

·         “For Mortgage Holders: the structure of C-PACE allows participating buildings to pay for improvements to their property out of the savings the project creates. C-PACE approved projects are required to have a “Savings to Investment Ratio” greater than 1, meaning that projected lifetime savings from the energy measures must exceed the total investment over the full term of the C-PACE assessment. The building sees increased net operating income, an immediate return on investment, and becomes more attractive to current and potential tenants and future buyers.”

Once C-PACE is implemented, the challenge then becomes one of rolling the program out. The program in New Hampshire is voluntary and, unlike Connecticut, there will be no State money to kick off the program so some districts or municipalities might elect not to establish energy-efficiency districts due to lack of resources or expertise. Some municipalities might be concerned about loan defaults. In such cases, the C-PACE assessment would be treated just like a property tax default and the municipality would use the lien to seize the property. The C-PACE lender would then not receive any payments from the municipality until such time that the owner makes whole on the back payments or a new owner takes control of the property and starts paying the assessments.

Some districts might not want to issue energy efficiency bonds themselves to provide financing for EE improvements. However one of the most important aspects of the C-PACE program is that it permits outside investors to provide funds for these EE upgrades. Unlike Connecticut, the program in NH will be driven almost exclusively by private investment and interests. This presents both challenges and opportunities that will need to be worked through to get the program up and running after its legislative approval. However, if the NH bill passes, the opportunity is there, and, over time, I believe many districts will welcome the ability to involve private investments to improve the commercial building stock in their area.

Another question regularly asked about the C-PACE program is the lien position of the C-PACE assessment. In Connecticut  C-PACE liens are, by law, senior to those of the mortgage but they do require the consent of the mortgage lender for the placement of the lien. Their experience has been that lenders view EE investment projects financed through C-PACE to be beneficial because the energy savings increase the cash flow from the property which reduces the mortgage repayment risk and increases the value of the building.

If I were an investor in a C-PACE program I would be very pleased that I would be able to collect money for EE  projects via property tax assessments, but I would also want the following considerations taken into account:

• An energy audit should first be carried out to ensure the correct investments are being made. For example, it might not be the best investment to install a shiny new furnace in a poorly insulated building. A better investment might be better to insulate the building and then carry out the furnace upgrade.

• I would want the EE investment projects performed, or at least monitored, by approved installers. The stories are legion of EE upgrades not providing the benefits that building owners anticipated because of poor installation practices or unscrupulous contractors looking to cut corners.

• The energy savings should be cash positive over the life of the investment, i.e., the energy savings should be greater the increased property tax assessments. I would want this confirmed by post- installation monitoring and verification of the energy savings.

Overall I think the C-PACE legislation is the trick* that could do a great deal to promote privately funded investments in EE projects in commercial buildings in New Hampshire. I encourage you to support it. At least that way you will be able to avoid the crazy, wild-eyed, bushy-bearded energy efficiency zealot from cornering you at the next party you attend. Follow this link if you would like to learn more about the NH C-PACE legislation.

Until next time, remember to turn off the lights when you leave the room.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

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Disclosure: I am biased on this issue as I am a Member of the Board of The Jordan Institute which is a NH non-profit focused on reducing energy use in commercial buildings. The Jordan Institute is actively monitoring the C-PACE legislation in NH. I am also President of RBG (Resilient Buildings Group), the for-profit subsidiary of The Jordan Institute. RBG works in the area of energy efficiency upgrades to buildings in New England and might benefit financially from the implementation of the C-PACE program in NH.

(*Pace is the Trick - A track by Interpol which is another one of my post-punk indie groups, this time out of NYC. The Strokes are my clear favorite from this place and time but Interpol is a close second. They had a number of critically acclaimed albums during the last decade and are reportedly back in the studio. Pace is the Trick is from their third album released in 2007. As you will hear Interpol and The Strokes were clearly drinking from the same influence pool.)

Post 11 – Keeping up with the Joneses – How are We Doing Compared to Our New England Neighbors?

Over the past months, I have lasered in on the energy profile of New Hampshire but have provided relatively little comparative data to give you a sense of how we are doing relative to our New England neighbors. So this week we are going to look over the fence and see if we are keeping up with the Joneses.  

Let's start off by looking at energy intensity. If you recall from my last post, there are two measures of energy intensity: there is the amount of energy that goes into producing one dollar of GDP and then there is energy use per person. These energy intensity measures are presented in the table below for the six New England states. Averages for New England and the US are provided for comparison.
 

 

The first thing to note is that Connecticut is the most energy efficient state as they use substantially less energy than the rest of the New England states to produce a dollar of GDP. In fact, they are at an impressive 48% of the US average consumption. New Hampshire sits squarely in the middle of the pack, with energy intensities close to the New England average. Maine has the poorest energy intensity figure for New England. Their energy requirement per dollar of GDP is even above that of the US average. Part of this is due to that fact that Maine has more energy intensity industries, particularly the paper and pulp mills. Maine uses 34% of its energy consumption for industrial usage, the highest of any of the New England states. Here in New Hampshire we only use 14% of our energy consumption for industrial purposes.

 

When we look at the energy use per capita, we note that the New England states use less energy per person than the US average. However we also note, a little unexpectedly, that little Rhode Island has the lowest use per person, which suggests a complicated relationship between economic output, personal and industrial energy usage for the New England states. (It also leaves me with a mental image of all those Rhode Islanders huddled into those big, fancy Newport, RI mansions in the winter months collectively reducing their per capita usage.)

 

Because of its energy intensive industries, Maine tops the list in per capita usage for the New England states and New Hampshire again finds itself in the middle of the pack. By both measures of energy intensity, the New England states are at about 72% of the US average.

Let's turn now to the overall energy supply portfolio and compare the New England states. Energy supply is equal to the overall gross energy inputs into the states and excludes the effect of any energy exports. This is the most straightforward basis of comparison and also allows contrast with national numbers. The two doughnut charts below show how the New England states compare to the US as a whole.

 

 

A few key differences are notable. The New England states are more heavily dependent on oil and natural gas than the rest of the US, but a substantially smaller portion of our energy supply comes from coal – only 5% of our energy consumption comes from coal vs. 21% for the US. This suggests we are more vulnerable to oil price and natural gas prices increases. On the other hand, we have more energy from non-fossil fuel sources, nuclear and renewables, 22% vs. 17% for the US.

 

The collection of charts below shows the same set of energy source allocations for the individual New England states.

 

On examination of these charts we learn the following:

• New Hampshire has the lowest dependence on oil and, except for Vermont, the lowest dependence on natural gas. Much of this is driven by the large amounts of nuclear power we generate.
• Massachusetts is highly dependent on fossil fuels, particularly oil and natural gas.
• Vermont has very little natural gas but a lot of nuclear power, no coal-burning plants, a decent amount of renewable energy and, of the New England states, the highest percentage of imported electricity. Seeing Vermont's high dependence on nuclear, all from the Vermont Yankee Nuclear Power Plant, makes one wonder what Vermont would do for power requirements if they closed down the plant.
• Maine burns almost no coal but a good amount of oil and natural gas. However the large component of renewable energy in the ME energy portfolio took me by surprise and left me scrambling to do more research. According to the Energy Information Agency, Maine generates a lot of electricity from hydroelectric operation and burns an enormous amount of wood for electricity generation and heating purposes. They also have a larger number of wind projects than the other New England states.
• Rhode Island is highly fossil-fuel dependent, with 96% of its energy requirement coming from oil and natural gas. There is no coal burning in RI and only a small amount of renewable energy.
• Connecticut is similar to New Hampshire, with a good amount of nuclear power but the state is still heavily fossil-fuel dependent and has relatively little renewable energy.

So what are our main takeaways from all this information?

1. Compared to the Joneses, i.e., our New England neighbors and the rest of the US, we, here in NH, have room for improvement. We are at 70% of the US average which is good, and we are neither the best nor worst of the New England states. Connecticut and Rhode Island set the standards for energy intensity.
2. Clearly New England, and especially our neighbors, is not coal country. There is no coal burning in Rhode Island and Vermont and very little in Maine. Coal usage is low in New Hampshire, Massachusetts, and Connecticut and, driven by cheap natural gas and more stringent environmental regulations, there will be further reductions over time.
3. Overall, in terms of renewable energy, New Hampshire does well, with 11% of the energy supply from renewable sources. Only Vermont and Maine do better. However, we are all still highly dependent on fossil fuels for our energy needs.

Each state has its own particular challenges. Vermont is struggling with decisions regarding an aging nuclear power plant, Rhode Island with its 96% dependence on oil and natural gas, and the rest of us with the fate of coal-fired power plants. Ultimately, I believe a portfolio approach to energy is best. We need more renewables, we need more nuclear, we need more natural gas and, in the meantime, coal has a place and needs to be part of our portfolio. Prudent energy planning requires that we reduce energy risk by not becoming too dependent on any one or two energy sources. We want to avoid the situation that the Rhode Island, with its over-dependence on oil and natural gas, finds itself in. Any substantial increases in the costs of these fossil fuels will have disastrous impacts on the already strained economy in Rhode Island.

 

I am fond of telling my students, in the MBA in Energy and Sustainability program at Franklin Pierce University, that when it comes to energy, there is no free lunch. Every time we turn on a light, drive to work or take a hot shower we create an impact on society, the environment and the future of our planet. Good energy decisions require data, analysis, planning, impact assessment and, ultimately, the implementation of difficult decisions that will impact someone. We owe it to future generations to make these difficult decisions now and to reduce our energy consumption. It really is time to stop kicking the empty oil can down the road or into our neighbor's yard. Most of us, I believe, understand that we need to do something concrete rather than fighting every energy project that comes our way. The challenge is figuring out what we need to do. What do you think we should be doing?

 

Until next time, remember to turn off those lights when you leave the room.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

2/17/13

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Where Have All the BTUs Gone?

I have been away for a few weeks at conferences and have chatted to all sorts of different experts about energy issues. However, during my time away I have been nagged by an important open question. In my last post, I stated that I don't consider the 25% renewables by 2025 goal to be an achievable one, and I presented data that showed that whatever progress we have made over the past few years has been as a result of energy usage reductions rather than increased amounts of renewable energy. Regardless of my viewpoint on the achievability of the goal, these energy savings are great as I believe we can accomplish more through energy savings than we can from new renewable energy sources. Nevertheless it is critical to understand what we are doing to save energy so we can do more of the same. So to paraphrase the words of the old Pete Seeger song "Where Have all the Flowers Gone," I want to know "Where Have All the BTU's Gone?" 

In-state energy use in NH has decreased by 9% since 2005 - see my last post. Some possible reasons include: 

 

• The Great Recession of 2008/2009 resulted in lower economic output and therefore less energy consumption.
• Increased fuel costs have caused us to moderate our energy-consuming habits.
• Through various State, Federal and privately funded energy savings programs, we are becoming more energy efficient, and we are able to accomplish more with less energy input.
• We have a smaller population and therefore fewer of us in NH are using energy.

Let's dispense with the last point first. From 2000 to 2010, the NH population grew from 1.24 million to 1.32 million – a 6% increase. So not only are we using less energy – we are using less energy while the State population is growing. Because census data are only collected on a per decade basis, it is useful to look at energy usage on a similar basis, so let's take a look at energy consumption since 2000, shown in the chart below.

The blue bars show that in the first half of the decade (except for the post 9-11 economic downturn in 2001), there was a continuation of our decades' long run up of energy consumption. In fact, from 1990 to 2000 our energy consumption increased 16%. We reached a peak of in-state consumption of 331 trillion BTU in 2004. Since then energy consumption has turned around and had dropped off 11% by 2010. I have overlaid data for the NH Gross Domestic Product (GDP) as the red line, and, except for the post 9-11 slow down in 2001 and a dip for the 2008/2009 Great Recession, the decade saw a 14% increase in GDP. So our decrease in energy consumption preceded the Great Recession by a number of years. There is no doubt the recession did encourage further energy savings as we, like Jimmy Carter, turned down the thermostats, took to wearing more sweaters and sat closer to the fire.

Dividing energy consumption by GDP dollars yields a number called GDP energy intensity, which is a measure of the amount of energy, in BTUs, it takes to produce a dollar of GDP output. In the table below you can see our energy intensity for some key years and how it has changed since 1990.

Our decrease in energy intensity is clear and this mirrors a long-term decrease for the whole US. In fact, in NH our energy intensity is typically 30% lower than the USA average. Generally speaking, our energy intensity has decreased and we are able to produce more GDP output with smaller energy outlays. This comes from an increasing awareness of the energy components of our industrial output as well as our move away from energy-intensive industries such as mining, steelmaking and general heavy manufacturing.

Another energy intensity measure that is often calculated is energy use per person. These numbers for NH and the USA are shown below.

 

Here we see an increase in per capita consumption to 2004 and then a 12.5% drop off from 2004 to 2010. Again our per capita consumption is, on average, about 30% lower than that of the US total. In fact, on a state basis, NH is way down the list in per capita energy use – we are at position 44. Rhode Island and New York, which have the lowest use of energy per person, have per capita values 15% lower than ours. On the other hand, states like Alaska and Wyoming have usages three times greater than ours.

So our energy usage has declined and is lower than the US average, but it still begs the question – "Why?". To get a better view of the decrease, I have looked at the four main components of our in-state energy consumption, viz., transportation, commercial, residential and industrial use and how they have changed since 2004. I have plotted the data for 2004 and 2010 for each of the sectors in the chart below.

 

 

 

In 2004 our energy usage was 331 trillion BTU and in 2010 it was 296 trillion BTU – a 35 trillion BTU decrease. This is an 11% decrease in our in-state energy consumption. Transportation usage only decreased by 2%, commercial use declined by 12%, residential usage decreased 10%, and industrial usage dropped by 27%.

The pie chart below shows which sectors contributed the most to the 35 trillion BTUs savings. Most of the decrease came from the industrial sector which contributed 40% of the savings, next was the commercial sector which provided 33% of the savings, followed by residences with 20% and a small portion by reduced transportation usage. I note that another blogger on NH issues, Brian Gottlob at Trendlines, has done a similar analysis. (In fact, I subscribe to the Trendlines Blog and I always find his data-based take on NH economic issues interesting. I encourage you to do the same.)
 

So where does the impressive decrease in industrial energy consumption come from? Contrary to what many folks think, this is not due to erosion of our manufacturing base. In fact, NH's manufacturing base has held up well over the past decade. On average, we get 15% of our state GDP from manufacturing, compared to 12% for a US average and based on some recent data we are even seeing an increase. What is different is that our manufacturing is changing – it is no longer the heavy manufacturing of years gone by, and, based on discussions with manufacturers, I know that energy is now a top-five expense in most manufacturing companies. Companies have invested in many projects to reduce energy costs and, as a result, manufacturing is now more energy efficient than ever before.

 

To get a better sense of the industrial energy usage in the state, I have extracted the energy used in industrial activities as well as the industrial GDP component to calculate the industrial energy intensity. This data are shown in the table below and I have included the data for the US as a whole as well. 

The key point to note is that industrial energy intensity has decreased over the past decade for both NH and the US, however there was an impressive decrease in NH industrial intensity from 2004 to 2010. This was an almost 50% significant decline in the State's industrial intensity since 2004. I don't have a ready explanation for this decrease but it is surprising and warrants further review and continued tracking.

As usual, I have flooded you with data, charts and information and there is a lot more I could ply you with. At this time I have to leave you with only a partial understanding of why we have been able to reduce energy usage in New Hampshire. There is more to this picture and I too need to better understand why we have been able to decrease energy usage in New Hampshire since 2004 even though economic output, measured by GDP, has increased. I plan to do some more research and I will share my findings with you over the course of the next few months. Nevertheless, this is what we know so far:

• Our energy intensity on a per capita and a per GDP dollar basis has decreased steadily and our numbers are amongst the lowest in the USA.
• Most of our energy savings have come from reductions in industry energy usage and from commercial applications.
• The industrial energy intensity has been reduced by almost 50% since 2004.

What do you know and what can you contribute to this discussion? Feel free to leave a comment or send me an email.

Until next time, remember to turn off those lights when you leave the room.

Mike Mooiman
Franklin Pierce University
mooimanm@franklinpierce.edu
3/5/2013

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The 25 by ’25 Renewable Energy Initiative for New Hampshire – Can We Do It? - Part 1

With a new governor in place, I have been giving some thought to the initiative enacted by Governor Lynch in 2007 that New Hampshire should aim to get 25% of its energy from renewable resources by 2025 – the so-called 25 x '25 initiative. With my recent posts on renewable sources and their contribution to the NH energy supply, I was wondering how we are doing and if we are making progress towards the 25 x '25 goal. Until a few years ago, the New Hampshire Office of Energy and Planning, OEP, had been calculating and recording our progress, but they have not updated their information in a while. The last available numbers were for 2008 so in the next few posts I will be presenting updates of the OEP numbers and will be taking a closer look at the feasibility of the 25 x '25 goal and what it will take to achieve it.  

The goal is 25% renewable energy by 2025 but we need to start off by asking the question: "25% of what?" According to the OEP, the "what" is net energy usage. Net energy use refers to the energy we use in-state and excludes that associated with any energy exports. In our case, we export 51% of our produced electricity, so we need to subtract the energy used to produce this exported electricity from the gross, or overall, energy usage by NH to generate the net energy number.

All my blog posts and previous calculations, to this point, have referred to overall energy use by New Hampshire, so for net energy usage we need to reduce the 409 trillion BTU overall usage by the 113 trillion BTU used to produce exported electricity, leaving us with a new number: 296 trillion BTU. This is our net energy usage for New Hampshire for 2010 and will be the basis for the calculations and discussion for the next few blogs.

With the net in-state energy usage in hand and using the renewable energy numbers from previous blogs, we should be ready to calculate the percentage of renewable energy. Ah, if only it were so straightforward. Instead, we now face an intriguing dilemma: this revolves around how we look at that exported energy (electricity exports plus the energy waste associated with its production). The electricity produced in NH comes from renewable and non-renewable sources and even though the electrons involved in electricity flow from these sources are indistinguishable, we can view our produced electricity as a blend of green electrons (those from renewable energy) and brown electrons (those from fossil fuels and nuclear). So, when we export electricity are we exporting just brown electrons or a blend of green and brown electrons? As I have noted the electrons are indistinguishable, so we are, in essence, just playing an accounting game but this is an important game with important consequences. If we take the position that exported electricity is indeed a blend of green and brown electrons then we need a commensurate reduction in the amount of renewable energy we can claim for in-state use. Specifically: we export 51% of electricity production, so we need to reduce the renewable fraction that goes into electricity production by 51%. This significantly reduces the amount of renewable energy we can claim. On the other hand, if we take the position that we use all the green electrons in-state, then we can claim all that renewable energy that goes into electricity production.

Which is the correct answer? Well, the OEP sidesteps the issue of the correct answer by calculating the percent of renewable energy data for both scenarios. In my calculations, I adopted that same convention by performing calculations for both scenarios as well. The results of my calculations for 2010 are shown in the following table. I have used headings and formats similar to the OEP results to make for direct comparison. However, it should be noted that my methodology is a little different from that of the OEP as I have used the NH data and energy accounting approach from the Energy Information Agency, EIA, exclusively and I do not include imported electricity in accounting for renewables - even though it might be from hydroelectric operations in Canada.

At first glance, the results are not encouraging. Even if we lay claim to all the green electrons for in-state use, Option 1, we are at 14.7% renewable energy with 13 years to go. The situation is even worse if we calculate on the basis that we are exporting a blend of green and brown electrons, Option 2. In this case, we are only at 9.1% renewable energy. However, this still begs the question – which is the correct number? Well, it depends on who is playing the game and making the rules. Nevertheless, my vote is for the higher number, the one comes from grabbing all of the green electrons for ourselves. The basis of my choice that the calculation is simpler to perform, and this is an extraordinarily complex scientific reason - it is a larger number - which makes the 25% easier to achieve!

Feeling somewhat gloomy about where we presently stand, I wanted to see if we were, in fact, making progress since the 2007 start of the 25 x '25 initiative. If we were - and it was rapid progress – it would certainly be encouraging. I therefore went back a few years to calculate the percent renewable data for both options which I have presented in the chart below. I have included the earlier OEP numbers (shown as red X's) in the chart below and even though, as noted earlier, my methodology is somewhat different from that of the OEP, the agreement between the two data sets is good.

Since the start of the initiative in 2007, we have, using Option 1, gone from about 12% to almost 15% renewable energy which is commendable progress over the past 3 years. (With Option 2, we have only gone from 7.5 to 9.1% which is not as commendable and therefore, for the "complex" scientific reasons noted above, we will ignore it going forward.) At this rate – about a 1% increase per year – reaching 25% by 2025 looks achievable, which is rather encouraging. However, while we are basking in the warm glow of our collective achievement, let's take a closer look at the two sets of data that generated this chart. Specifically, let's examine net energy usage and renewable energy production in NH separately, which I have done in the bar chart below.

A closer review of this data reveals that most of the change in the renewable energy fraction has occurred as a result of the reduction in the in-state energy consumption over the past few years. We have gone from 325 trillion BTU in 2005 to 295  trillion BTU in 2010 – an impressive 9% decrease in 5 years (an annual compounded decrease of 1.9%) but, and this is rather crucial, an examination of the renewable data shows that there has been little change in the amount of renewable energy we produce in-state. As a result, we need to conclude that our progress toward the 25% renewable energy goal to date has been on the back of energy savings - and not from increased renewable energy.

Going forward, can we continue to rely on further energy savings to get us to 25% and how realistic is this? It also requires us to ask the question – where are these energy savings coming from – are they the result of a general economic slowdown in the state accelerated by the Great Recession, high energy prices, a shrinking population, the success of energy savings programs, or some other reason? This is certainly worth closer examination and I would be interested in your opinion. For the moment, and for an energy savings geek such as myself, regardless of the reason these energy reductions are positive and are certainly propelling us towards our goal. But we should stop here and ask ourselves - are they sustainable? In my next post, I will look at how net energy usage is allocated in the state and what we need to do in terms of more energy savings and/or renewable energy increases to achieve the 25 x '25 goal. It might be more difficult than we think.

 Until next time, remember to turn off those lights when you leave the room.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

2/10/2013

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Renewable Energy in New Hampshire – Part 1

In this week's post, I am going back to some of the early analysis I did so that we can take a closer look at renewable energy in New Hampshire. As shown in the figure below, about one-tenth of our energy supply comes from renewable energy sources. Transportation - largely ethanol in gasoline -  accounts for 12% of the renewable energy supply, heating for residential and commercial buildings uses 9%, industrial operations, 4%, and three quarters goes directly to the generation of electricity. In fact, renewables make up 15% of the energy that goes into electricity generation in the state.

 
At this stage, you might be asking yourself "What is in the renewables box?" so let us take a closer look at this. If we pop open the renewable energy box, we find the pie chart below.

 
By taking a look at the various slices of the renewable pie, we see that energy from burning wood and waste makes up just over half of the renewable energy produced in the state.

I was a little surprised at the large slice of wood and waste, and my first thought was that a lot of this energy comes from the incineration of municipal solid waste (MSW). As it turns out, I could not have been more wrong: MSW incineration is only about 2% of the renewable energy category. The bulk of the wood and waste slice is from the burning of wood and other biomass to generate electricity. It turns out that there are seven wood-burning power plants in the State and two more under construction. These wood burning plants are responsible for three quarters of the wood and waste slice (or 4% of the overall energy consumption in NH). My estimation is that 8% of the total energy input into electricity production is from wood. This is a lot larger than I anticipated and clearly fodder for a future post.
 
The remaining quarter of the wood and waste slice is from the burning of wood and wood pellets in homes and businesses. I, for one, am impressed that the Energy Information Administration, EIA, that put together all this valuable information is able to collect reliable information on firewood and wood pellet sales. A lot of these sales are to individual homeowners, only some of which are sold at retail. A good portion must be from individuals buying and selling truckloads of firewood to one another and, in many cases, even from trees on one's own property. This figure must be extraordinarily difficult to measure or estimate.

Turning back to the pie chart above, we can see that hydropower makes up about one-third of the renewables pie which goes directly into the electricity supply for the state. Corn-based ethanol, which is now part of the gasoline in our automobiles, represents 12% of our renewable energy use. How renewable this food-based energy source actually is, is debatable, but I will take another opportunity in the future to grind that particular axe. Wind is a relatively small component, only about 2% of renewable energy and driven largely by the Iberdrola wind farm in Lempster. With new wind projects underway, this portion will increase in the future. Solar thermal and photovoltaic are a minute fraction and, at this time, geothermal does not even feature in the EIA numbers. However, there are a good number of geothermal applications in the State but these tend to be small-scale residential or commercial-based installations and are thus difficult to track. It could be interesting to review this sometime in the future.

The pie chart shows where we were in 2010 regarding our renewable energy portfolio in New Hampshire. For our state it is largely a lot of wood and hydropower. Next week, in Part 2, I will be taking a look at historical trends in renewable energy and will look at where we might be going and if we should be spending so much time, effort and tax dollars supporting renewables.

 
Until next time, remember to turn off those lights when you leave the room.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

2/3/2013

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