- Email: [email protected]
Cost-Effective Water-Energy Nexus: A California Case Study
Eric Cutter is a Senior Consultant at Energy and Environmental Economics, where he leads E3’s practice enabling energy storage, electric vehicles, and responsive load to serve as valuable resources for the electric grid. Over the past few years, he has led development of EPRI’s Energy Storage Valuation Tool, which has been used to assess the costs and benefits of energy storage for the CPUC, CEC, numerous utilities, and storage companies. Prior to joining E3 in 2005, Mr. Cutter worked as an independent water and energy resources consultant at PG&E for 10 years. Ben Haley is a Consultant at Energy and Environmental Economics. He joined E3 in 2010 after completing his M.A. in International Environmental Policy from the Monterey Institute of International Studies with a concentration in energy policy. He was the lead analyst on the 2013 avoided cost update used to evaluate Net Energy Metering in California, which incorporated effective load carrying capacity methodologies for dynamic capacity valuation. Jim Williams is Chief Scientist at Energy and Environmental Economics, where he is currently working on low-carbon transformation pathways in both the U.S. and China. He is currently leading the multi-institution team developing a US-wide 2050 low carbon transformation model for the Deep Decarbonization Pathways Project, an international collaboration to inform the UN climate negotiations. Dr. Williams received his Ph.D. in Energy and Resources from UC Berkeley. C.K. Woo is a Partner at Energy and Environmental Economics and department head and professor at the Department of Economics of Hong Kong Baptist University. Dr. Woo specializes in public utility economics, applied microeconomics, and applied finance. He received a Ph.D. in Economics from the University of California at Davis.
Cost-Effective Water-Energy Nexus: A California Case Study Energy embedded in the provision of water has been the subject of numerous water-energy nexus studies that are nearly unanimous in recommending integrated evaluation of energy and water savings from demand-side management. Joint implementation of DSM, however, remains a rare exception. The authors link a forwardlooking marginal water supply approach and the wellestablished energy avoided cost framework to jointly value water and energy efficiency savings, and apply it to a case study set in the San Francisco Bay Area of California. Eric Cutter, Ben Haley, Jim Williams and C.K. Woo
I. Introduction The authors gratefully acknowledge the financial support and input from the Regulatory Assistance Project (RAP). RAP initiated and sponsored a Water-Energy Nexus project to develop three case studies illustrating how integrated water, energy and greenhouse gas cost-benefit analysis could alter resource investment decisions in China, India and California. In particular, the authors thank Ken Colburn and Riley Allen for sponsoring this work and providing valuable input and review. The authors are solely responsible for all opinions expressed in this article.
July 2014,
Vol. 27, Issue 6
The energy used in water supply has been one aspect of the water-energy nexus that has garnered increasing examination over the past decade. Energy utilities have long employed demand-side management (DSM) – including efficiency, conservation, load-shifting, demand response, and distributed generation – to
meet ever more ambitious load and greenhouse gas (GHG) emission reduction goals.1 Seeking to add more cost-effective strategies to their tool chest, many utilities and policymakers are increasingly interested in documenting the benefits of saving energy by saving water. significant amount of energy is used to supply clean water to end users
A
1040-6190/# 2014 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2014.06.009
61
throughout the different stages of water supply, conveyance, treatment, distribution, and wastewater treatment. The energy consumed in water provision is often referred to as the ‘‘upstream,’’ ‘‘indirect,’’ or ‘‘embedded’’ energy in water. A number of reports, calculators, and toolkits now document water and energy interdependencies, thereby improving coordinated planning and methods to calculate avoided costs and embedded energy values for water.2,3,4,5,6,7 To date, however, these efforts have been limited in several important regards. For the most part, they (1) make broad recommendations or highlight specific case studies without developing a general framework or calculating specific values or metrics; (2) require users to enter utility-specific information, which varies widely in quality and availability and is only rarely available for public use or review; and (3) do not identify strategies for overcoming strong political and institutional barriers to coordinated funding and planning. As a result, integrated design and implementation of water and energy efficiency programs remains a rare exception. Energy and water utilities continue to develop and implement their respective efficiency programs largely independently of one another, thus missing cost-effective program opportunities that 62
would be justified under the integrated approach. ncorporating water in the long-established costeffectiveness framework used by the electricity industry for DSM is a readily implementable approach that can be applied consistently across all energy and water utilities. The goal of this article is to set forth this integrated approach and provide a case study to illustrate its
I
Incorporating water in the long-established cost-effectiveness framework used by the electricity industry for DSM is a readily implementable approach. practicality. The empirical findings thus obtained serve to motivate increased coordination between energy and water utilities, and improve DSM program funding and incentive levels. DSM competes with a broad range of resource options for attention and funding. Showing that DSM is cost-effective relative to other resources is a crucial justification for continued investment. The costeffectiveness tests for DSM originated from the 1974 WarrenAlquist Act that established the California Energy Commission
1040-6190/# 2014 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2014.06.009
(CEC) and specified costeffectiveness as a leading resource planning principle. The 1983 California Standard Practice Manual of Cost-Benefit Analysis of Conservation and Load Management Programs (SPM) developed five costeffectiveness tests for evaluating energy efficiency programs. These approaches, with minor updates, continue to be the principal approaches used for evaluating energy efficiency programs across the United States.8 he primary costeffectiveness test used for DSM in most jurisdictions throughout the U.S. is the Total Resource Cost Test (TRC).9 The TRC compares the DSM’s implementation cost against the resource costs avoided by DSM’s energy savings. A TRC benefitcost ratio above 1.0 indicates that the total costs of supplying and delivering energy in the region will decrease with the implementation of DSM. The California Public Utilities Commission (CPUC) has adopted the Distributed Energy Resources (DER) avoided-cost model to calculate the value of seven components included in the avoided cost framework: (1) energy; (2) system capacity; (3) transmission and distribution (T&D) capacity; (4) GHG emissions; (5) ancillary services; (6) losses, and (7) avoided renewable portfolio standard (RPS) purchases.10,11 These avoided cost values, which vary
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The Electricity Journal
by time and location, are combined to quantify the benefits of DSM and determine which measures and programs are costeffective. A. Use of proxy resources. Using ‘‘proxy’’ resources to represent forward-looking shortand long-run marginal supplies simplifies the process of developing avoided costs for DSM programs. Rather than creating detailed cost estimates for each specific supply resource that would be procured in a resource plan, generic proxy resources are used instead. The premise of this approach is that the proxy resource can reasonably represent the region’s marginal resource; this is notwithstanding that utility operational decisions involve complex considerations of safety, reliability, and economics. A proxy resource approach is tractable and transparent, allowing the use of public data that can be developed and debated in public proceedings.
B. Deferral value. Utility capital investments are often long-lived and lumpy, thus justifying the present-worth method used by the DER avoided cost methodology.12 The presentworth method calculates a oneyear deferral value as the difference between the present value of the expansion plan and the present value of the same plan deferred by one year, adjusted for July 2014,
Vol. 27, Issue 6
inflation and technological progress.
II. Adding Water to the Energy Avoided Cost Framework Using proxy resource and present worth methods to represent DSM’s avoided costs has a long-established history in California’s cost-effectiveness
Rather than creating detailed cost estimates for each specific supply resource that would be procured in a resource plan, generic proxy resources are used instead. analysis. To date, however, studies and regulatory approaches to embedded energy in water have paradoxically employed a backward-looking measurement and evaluation approach that focuses primarily on existing supplies.13,14,15,16,17 hese efforts have shown that the large number, diversity, and local management of water agencies pose severe limits to the collection of historical data. Invariably, data are unavailable for a significant number of utilities, and gathering the data that are available is very expensive and time-consuming.
T
More importantly, the historical data gathered provides information about average and not marginal embedded energy. A forward-looking approach for embedded energy and avoided costs for water is even more crucial because many future supply options being considered are far more energy-intensive than existing resources. For example, stricter water-quality regulations and emerging contaminants are forcing agencies to develop more energy-intensive treatment options such as UV radiation, ozonation, and reverse osmosis. The differences between energy use by traditional and new treatment techniques can be significant. Relatively pure local surface or groundwater can be treated for under 200 kWh/acrefeet (AF), whereas seawater desalination can approach 6,000 kWh/AF.18,19,20 Advanced treatment with ozone disinfection uses approximately 130 kWh/AF, nearly 40 times more than chlorination, the traditional disinfection method.21
III. Case Study Results Our case study is an integrated and energy cost-effectiveness analysis for the Santa Clara Valley Water District (SCVWD) in the San Francisco Bay Area of Northern California. SCVWD is a wholesale water agency that serves 12 retail water agencies in Santa Clara County. SCVWD is the eighth-largest water district in
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63
Table 1: Summary of Efficiency Measures Evaluated. Savings Measure
Cost
End-Use Energy
$ 206 205
17
High efficiency toilet – low use
265
20
High efficiency toilet – high use Food steamer
265 1,250
Weather based irr. controller – small Weather based irr. controller – large
300 700
O
A. Proxy resources for water Water resources are commonly sized in millions of gallons per day (MGD) of delivery capacity. One MGD is equivalent to 1,121 AF per year. To calculate the
336 110
GPD
LED lighting Clothes washer (single family)
California, supplying 370,000 AF of water per year on average, roughly 60 percent of which is imported from outside the county. ur case study considers seven efficiency measures selected to represent both cold and hot water efficiency with a range of savings levels (Table 1). Measure costs and definitions are taken from a combination of the SCVWD Water Use Efficiency Strategic Plan and from PG&E energy efficiency costeffectiveness reporting documents filed at the CPUC.22,23 Water savings are shown in gallons per day (GPD). LED lighting is included as a representative energy efficiency measure adopted by numerous utility energy efficiency programs in California.
64
kWh
7,034
Measure Life
Water AF/Year
Years
SCVWD
0.02
12 10
0.5
0.02
20
0.6
60 223
0.07 0.25
20 15
1.4 0.6
72 629
0.08 0.71
10 10
0.5 3.6
embedded energy in water and the avoided cost of water, we define three alternative proxy resources for new water supply for SCVWD. he first proxy is imported groundwater, a short-term supply option with no new capital investment. In wet years with excess supply, SCVWD can receive imported water and recharge local groundwater aquifers, which can be used in subsequent dry years.24,25 The second proxy is a 20 MGD expansion of the Rinconada Water Treatment Plant at a cost of $184 million.26 The third and final proxy is a 20 MGD, $340 million Bay Bridge alternative for the Bay Area Regional Desalination Plant (BARDP).27 The estimated energy required to treat, store, and deliver water from the plant to SCVWD is 2,167 kWh/AF.28 This option is representative of seawater desalination, the potential water source for 15 of the 17 desalination plants proposed in California.29 The capital costs for the Bay Bridge alternative are similar in scale to
T
1040-6190/# 2014 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2014.06.009
PG&E TRC
B/C Ratio 1.8 0.9
5.4
the 50 MGD Carlsbad Desalination Plant that began construction in 2013 near San Diego with an estimated cost of $922 million.30 Table 2 shows the capital and variable operating costs for each of the proxy resources. Our imported groundwater and local treatment plant proxies assume the same embedded energy as the SCVWD Mix. As most of the energy consumed for wastewater treatment is not volume dependent, we assume only 12 percent of the embedded energy is avoided with water efficiency.31 For simplicity and ease of comparison, we assume each of these resources can be deferred on a one-time basis for three years with water efficiency measures. We apply the present-worth method to calculate the dollar per acre-foot costs avoided by reduced water consumption. We begin with 390 MGD of demand in 2015, growing at 4.0 MGD per year through 2030 and 2.0 MGD thereafter, thus approximating the growth projections from SCVWD’s Urban Water The Electricity Journal
Table 2: Water Utility Proxy Resource Cost Summarya Unit Costs Size
Capital Cost
Capital
Non-energy
Total Embedded
MGD
(2013)b $ Million
Costsc $/AF-Yr.
Variable Costs $/AF
Energy (Indoor)d kWh/AF
Imported groundwater Rinconada Treatment Plant
20 20
n/a [19_TD$IF]184f
Bay Bridge Desalination Plant
20
340h
Proxy Resource
659
48e 140g
1,475 1,475
1,215
343i
3,159
a
Santa Clara Valley Water District, 2011. From Watts to Water; Bay Area Regional Desalination Project, 2011. Bay Area Regional Desalination Project Institutional Task Technical Memorandum #2. Analysis of Feasible Scenarios. b Capital costs escalated from 2010 to 2013 with a 2 percent escalation rate. c Capital costs annualized with a 5 percent discount rate over 30-year life. d ‘‘Indoor’’ includes energy used by the customer to heat and process water and to gather and treat wastewater, whereas ‘‘outdoor’’ embedded energy does not. e $60/AF treatment costs taken from BARDP Technical Memorandum, Table A-1, assume 20 percent of variable costs are electricity. f Santa Clara Valley Water District, 2013, May. Santa Clara Valley Water District Fiscal Year 2014–18 Capital Improvement Plan. Rinconada Water Treatment Plant. g Calculated from BARDP Pilot Report, Appendix I, Alternative No. 1, Table on p. I-2. h BARDP Technical Memorandum, Table 4, p. 15. i Bay Bridge/Contra Costa variable cost ratio of 1.26 calculated from BARDP Technical Memorandum, Table 4, p. 15.
Management Plan.32 We assume new resources are needed in 2019 for SCVWD and all demand not met with new supplies from our proxy resources are supplied at a marginal cost of $424/AF (excluding energy costs) from the SCVWD Water Use Efficiency Strategic Plan.33
implemented in 2019, and an additional 4 MGD is implemented each year for the following two years. We assume the portfolio average useful life of efficiency
[(Figure_1)TD$IG]
measures is 15 years. (The useful lives for all the efficiency measures listed in Table 1 range from 10–20 years).34 By 2034, the measures installed at the
B. Water avoided costs We illustrate the impact of deferring capital investment by first considering the most expensive resource, the Bay Bridge Desalination Plant. When completed in 2019, the plant will raise the available capacity to 420 MGD. For the first several years, there is excess capacity and new supplies are not needed again until 2022 (Figure 1). In our deferral case, we add water efficiency in the years 2019–2021 sufficient to defer the need for new resources until 2022 (Figure 2). Efficiency of 12 MGD is July 2014,
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Figure 1: Bay Bridge Desalination Plant Base Case Procurement Plan
[(Figure_2)TD$IG]
Figure 2: Bay Bridge Desalination Plant Deferral Case Procurement Plan
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Table 3: Summary of Water Avoided Costs per AF of Conservation. Variable Costs Proxy Resource
Non-energy
Energy
Non-Energy Avoided Cost
Total Avoided Cost
Levelized Cost
$/AF
$/AF
$/AF
$/AF
$/AF
Capital Deferral Years Imported groundwater
n/a
Rinconada Treatment Plant Bay Bridge Desalination Plant
3 3
a b c
133 245
397
232
397
629
442a
394 479
232 323
527 724
759 1,047
1,093b 2,349c
Santa Clara Valley Water District, ‘‘From Watts to Water,’’ May 2011. Santa Clara Valley Water District, ‘‘2012 Water Supply and Infrastructure Master Plan,’’ Oct. 2012. BARDP, ‘‘Project Institutional Task Technical Memorandum #2,’’ 2011.
beginning of 2019 reach the end of life. A salvage value for the remaining useful life of the plant after 2035 is included in the deferral case. or the Bay Bridge Desalination Plant proxy resource, the net present value (NPV) savings are $48 and $94 million in fixed and non-energy variable costs. Dividing this value by the savings delivered over the 15-year life of the efficiency portfolio levelized avoided cost of $724/AF (Table 3). Including energy costs at the retail rate paid by the water utility to PG&E for electricity ($0.13/kWh in 2015 escalated at 2 percent per year) increases the total avoided costs from the water utility’s perspective to $1,074/AF. The avoided cost values for the Rinconada Treatment plant and imported groundwater (no capital deferral) are calculated using the same approach (Table 3). The variable costs are shown for nonenergy (e.g. chemicals), and energy costs (at the water utility’s retail rate for electricity)
F
66
$/AF
separately.35 The total avoided cost without and with retail energy costs are shown in the next two columns. The final column shows published levelized costs for each of the three resources.
IV. Results We summarize TRC results from four perspectives: (1) The avoided cost framework as is currently implemented by the energy utility with end use energy (EU) and no consideration of water. (2) The framework expands to consider both end-use and embedded energy in water (EW).
(3) The framework reflects a water utility perspective to include embedded energy in water (EW) and water avoided costs (W). (4) The framework reflects a regional perspective with all three avoided costs. rom the energy utility perspective, small water measures are not cost-effective for any of the proxy water resources, and high-use toilets are just barely cost-effective only with the Bay Bridge desalination proxy (Table 4 and Figure 3). Moving from the short-run proxy resource of imported groundwater to the far more capital- and energyintensive desalination plant does not significantly increase the TRC
F
[(Figure_3)TD$IG]
Figure 3: TRC Results for Imported Groundwater and Bay Bridge Desalination Proxy Resources. Note logarithmic scale for cost-test ratio on x-axis
1040-6190/# 2014 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2014.06.009
The Electricity Journal
Table 4: TRC Resultsa Imported Groundwater
Local Treatment Plant EU
EU
Measure
EU
&
EW
EW
&W
LED lighting
1.9
1.9
Clothes washer
1.0
1.1
Bay Bridge Desal
0.5
EU
&
EW
All
EU
EW
&W
1.9
1.9
1.9
1.5
1.0
1.1
0.6
&
EW
All
EU
EW
&W
1.9
1.9
1.9
1.6
1.0
1.2
All 1.9
0.9
1.9
Toilet – low use
0.2
0.9
0.9
0.2
1.1
1.1
0.3
1.6
1.6
WBIC – small
0.4
1.4
1.4
0.4
1.8
1.8
0.5
2.5
2.5
Food steamer
8.2
1.6
9.4
8.2
2.0
9.8
8.4
2.8
10.5
Toilet – high use
7.8
0.7
2.7
2.7
7.8
0.7
3.4
3.4
7.8
1.0
4.7
4.7
WBIC – large
1.3
5.3
5.3
1.3
6.6
6.6
1.9
9.2
9.2
EU, End-use energy; EW, Embedded energy in water; W, Water avoided cost; All, All three. Cost-test ratios above 1.0 are shaded. a Note that the LED TRC results are slightly higher than those reported by PG&E (2.0 vs. 1.9) because we have not included ‘‘free-rider costs,’’ a provision that is currently unique to California.
results for any of the measures. Even with energy-intensive desalination, including embedded energy alone yields only a modest increase in TRC ratios. rom the water utility perspective, all measures except the clothes washer are costeffective, or nearly so, for all three proxy resources. The regional combined TRC with all benefits included finds most, but not all measures cost effective with the groundwater proxy resource. With the desalination plant, however, nearly all water saving measures are more cost-effective than LED lighting. Taking the regional combined perspective has a significant impact on cost-effectiveness. Even so, embedded energy and avoided water costs based on a short-term marginal supply such as increased groundwater may still be insufficient to justify that small water saving measures are costeffective. A forward looking, proxy resource that includes a
F
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deferral value for capital investment, however, can lead to ratios of 2.0 that match or exceed portfolio average TRCs for many utilities.
cost-effectiveness. Including embedded energy alone is insufficient to achieve costeffectiveness for most measures studied.&
V. Conclusions
Endnotes:
Our California case study demonstrates what an integrated approach to water-energy efficiency evaluation can mean for the CPUC’s comprehensive costeffectiveness framework. Our main conclusions are as follows. First, our case study finds that cost-effective opportunities for efficiency and GHG reductions are likely being overlooked without an integrated waterenergy cost-effectiveness framework. Second, a forwardlooking, marginal avoided cost of water results in more efficiency measures being cost-effective than an average cost approach. Finally, including water avoided costs has a much bigger impact on
1. Williams, J., et al., 2012. The technology path to deep greenhouse gas emissions cuts by 2050: the pivotal role of electricity. Science 335 (6064) 53–59. 2. Cooley, H., Donnelly, K., 2013. Water-Energy Synergies: Coordinating Efficiency Programs in California. Pacific Institute. http:// www.pacinst.org/publication/waterenergy-synergies. 3. Western Resource Advocates, 2013. Conservation Synergy: The Case for Integrating Water and Energy Efficiency Programs. 4. Young, R., 2013, October. Saving Water and Energy Together: Helping Utilities Build Better Programs, E13H. 5. Christian-Smith, J., Cooley, H., 2013. Pricing Practices in the Electricity Sector to Promote Conservation and Efficiency: Lessons for the Water Sector, pp. 1–26.
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6. See R. Young, E. Mackres, 2013, January. Tackling the Nexus: Exemplary Programs That Save Both Energy and Water, American Council for an Energy-Efficient Economy, E131. http://www.aceee.org/sites/ default/files/publications/ researchreports/e131.pdf. 7. See Alliance for Water Efficiency Water Conservation Tracking Tool, http://www.allianceforwater efficiency.org/Tracking-Tool.aspx, CUWCC Direct Utility Avoided Costs/Environmental Benefits Model, http://www.cuwcc.org/resourcecenter/technical-resources/bmptools/direct-utility-ac-eb-models. aspx, and Pacific Institute CE2 Model, http://www.pacinst.org/ publication/573/.
Water-Related Energy Use in California, CDC-500-2006-118.
24. Santa Clara Valley Water District, 2011, May. From Watts to Water.
15. GEI Consultants/Navigant Consulting, 2010. Embedded Energy in Water Studies – Study 1.
25. Santa Clara Valley Water District, 2012, October. 2012 Water Supply and Infrastructure Master Plan.
16. GEI Consultants/Navigant Consulting, 2010. Embedded Energy in Water Studies – Study 2.
26. Santa Clara Valley Water District, 2013, May. Santa Clara Valley Water District Fiscal Year 2014–18 Capital Improvement Plan. Rinconada Water Treatment Plant, increasing plant capacity from 80 to 100 MGD.
17. Aquacraft, 2011, April. Embedded Energy in Water Study 3: End-use Water Demand Profiles. California Public Utilities Commission, CALMAC Study ID CPU0052.
8. The California SPM was first developed in February 1983. It was later revised and updated in 1987–88 and 2001 and a Correction Memo was issued in 2007. The 2001 California SPM and 2007 Correction Memo can be found at: http://www. cpuc. ca.gov/PUC/energy/electric/ Energy+Efficiency/EM+and+V/.
28. Kennedy/Jenks Consultants. Bay Area Regional Desalination Project Greenhouse Gas Analysis. Table c-3. 29. Pacific Institute, 2012, July. Proposed Seawater Desalination Plants in California. http://www. pacinst.org/reports/desalination_ 2013/maps.htm/proposed_desal_ plants.htm (accessed 20.01.14).
9. Lazar, Colburn. Recognizing the Full Value of Energy Efficiency. 10. See R. 07-01-014 and D. 09-08-026. For a detailed description of the DER Avoided Cost Methodology see Energy and Environmental Economics, California Net Energy Metering Ratepayer Impacts Evaluation, 2013, Appendix C. 11. See Distributed Energy Resources Avoided Cost Model produced by Energy and Environmental Economics for the CPUC at http:// www.cpuc.ca. gov/PUC/energy/ Solar/nem_cost_ effectiveness_ evaluation.htm. 12. Orans, R., 1989. Area-Specific Marginal Costing for Electric Utilities: Case Study Of Transmission And Distribution Costs, Ph.D. Thesis. Stanford University. 13. Klein et al., California’s Water – Energy Relationship. 14. Navigant Consulting, 2006, December. Refining Estimates of
68
27. Bay Area Regional Desalination Project, 2011, September. Bay Area Regional Desalination Project Institutional Task Technical Memorandum #2. Analysis of Feasible Scenarios, p. 6-20. $160 million escalated from 2010 to 2013 at 2 percent per year.
18. An acre-foot is the amount of water to cover 1 acre to a depth of 1 foot, or 325,851 gallons. 19. Cooley, H., Heberger, M., 2013, May. Key Issues for Seawater Desalination in California. Energy and Greenhouse Gas Emissions. 20. See supra note 16. 21. Table 9-1 in SBW Consulting, Inc., 2006. Municipal Water Treatment Plant Energy Baseline Study. Prepared for the Pacific Gas and Electric Company. http://www.pge.com/ includes/docs/pdfs/biz/rebates/ water_treatment/watertreatment baselinestudyreport.pdf. 22. Santa Clara Valley Water District, 2008, September. Water Use Efficiency Strategic Plan: Phase 1. Appendix B. 23. Pacific Gas and Electric Company, 2012, July. Exhibit PGE-03: Appendix A.3_E3 Calculator Files.
1040-6190/# 2014 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2014.06.009
30. Resnick-Ault, J., 2013, February 8. Private Equity Purifies Pacific to Boost California Water. Bloomberg Sustainability. 31. Electric Power Research Institute, 2002. U.S. water consumption for power production—the next half century. Water Sustain. 3. EPRI, p. 0. 32. Santa Clara Valley Water District, 2011. 2010 Urban Water Management Plan. 33. SCVWD, 2011. Water Use Efficiency Strategic Plan, 2008, marginal cost of water savings of $530/AF escalated at 2 percent per year, p. xv. 34. SCVWD, 2011. From Watts to Water. 35. The TRC values energy savings at the utility avoided costs, not the energy utility’s retail rate. We show the cost with the retail rate of electricity here for comparison with levelized cost estimates that are published from the perspective of a water utility paying retail rates for electricity.
The Electricity Journal
Cost-Effective Water-Energy Nexus: A California Case Study Energy embedded in the provision of water has been the subject of numerous water-energy nexus studies that are nearly unanimous in recommending integrated evaluation of energy and water savings from demand-side management. Joint implementation of DSM, however, remains a rare exception. The authors link a forwardlooking marginal water supply approach and the wellestablished energy avoided cost framework to jointly value water and energy efficiency savings, and apply it to a case study set in the San Francisco Bay Area of California. Eric Cutter, Ben Haley, Jim Williams and C.K. Woo
I. Introduction The authors gratefully acknowledge the financial support and input from the Regulatory Assistance Project (RAP). RAP initiated and sponsored a Water-Energy Nexus project to develop three case studies illustrating how integrated water, energy and greenhouse gas cost-benefit analysis could alter resource investment decisions in China, India and California. In particular, the authors thank Ken Colburn and Riley Allen for sponsoring this work and providing valuable input and review. The authors are solely responsible for all opinions expressed in this article.
July 2014,
Vol. 27, Issue 6
The energy used in water supply has been one aspect of the water-energy nexus that has garnered increasing examination over the past decade. Energy utilities have long employed demand-side management (DSM) – including efficiency, conservation, load-shifting, demand response, and distributed generation – to
meet ever more ambitious load and greenhouse gas (GHG) emission reduction goals.1 Seeking to add more cost-effective strategies to their tool chest, many utilities and policymakers are increasingly interested in documenting the benefits of saving energy by saving water. significant amount of energy is used to supply clean water to end users
A
1040-6190/# 2014 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2014.06.009
61
throughout the different stages of water supply, conveyance, treatment, distribution, and wastewater treatment. The energy consumed in water provision is often referred to as the ‘‘upstream,’’ ‘‘indirect,’’ or ‘‘embedded’’ energy in water. A number of reports, calculators, and toolkits now document water and energy interdependencies, thereby improving coordinated planning and methods to calculate avoided costs and embedded energy values for water.2,3,4,5,6,7 To date, however, these efforts have been limited in several important regards. For the most part, they (1) make broad recommendations or highlight specific case studies without developing a general framework or calculating specific values or metrics; (2) require users to enter utility-specific information, which varies widely in quality and availability and is only rarely available for public use or review; and (3) do not identify strategies for overcoming strong political and institutional barriers to coordinated funding and planning. As a result, integrated design and implementation of water and energy efficiency programs remains a rare exception. Energy and water utilities continue to develop and implement their respective efficiency programs largely independently of one another, thus missing cost-effective program opportunities that 62
would be justified under the integrated approach. ncorporating water in the long-established costeffectiveness framework used by the electricity industry for DSM is a readily implementable approach that can be applied consistently across all energy and water utilities. The goal of this article is to set forth this integrated approach and provide a case study to illustrate its
I
Incorporating water in the long-established cost-effectiveness framework used by the electricity industry for DSM is a readily implementable approach. practicality. The empirical findings thus obtained serve to motivate increased coordination between energy and water utilities, and improve DSM program funding and incentive levels. DSM competes with a broad range of resource options for attention and funding. Showing that DSM is cost-effective relative to other resources is a crucial justification for continued investment. The costeffectiveness tests for DSM originated from the 1974 WarrenAlquist Act that established the California Energy Commission
1040-6190/# 2014 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2014.06.009
(CEC) and specified costeffectiveness as a leading resource planning principle. The 1983 California Standard Practice Manual of Cost-Benefit Analysis of Conservation and Load Management Programs (SPM) developed five costeffectiveness tests for evaluating energy efficiency programs. These approaches, with minor updates, continue to be the principal approaches used for evaluating energy efficiency programs across the United States.8 he primary costeffectiveness test used for DSM in most jurisdictions throughout the U.S. is the Total Resource Cost Test (TRC).9 The TRC compares the DSM’s implementation cost against the resource costs avoided by DSM’s energy savings. A TRC benefitcost ratio above 1.0 indicates that the total costs of supplying and delivering energy in the region will decrease with the implementation of DSM. The California Public Utilities Commission (CPUC) has adopted the Distributed Energy Resources (DER) avoided-cost model to calculate the value of seven components included in the avoided cost framework: (1) energy; (2) system capacity; (3) transmission and distribution (T&D) capacity; (4) GHG emissions; (5) ancillary services; (6) losses, and (7) avoided renewable portfolio standard (RPS) purchases.10,11 These avoided cost values, which vary
T
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by time and location, are combined to quantify the benefits of DSM and determine which measures and programs are costeffective. A. Use of proxy resources. Using ‘‘proxy’’ resources to represent forward-looking shortand long-run marginal supplies simplifies the process of developing avoided costs for DSM programs. Rather than creating detailed cost estimates for each specific supply resource that would be procured in a resource plan, generic proxy resources are used instead. The premise of this approach is that the proxy resource can reasonably represent the region’s marginal resource; this is notwithstanding that utility operational decisions involve complex considerations of safety, reliability, and economics. A proxy resource approach is tractable and transparent, allowing the use of public data that can be developed and debated in public proceedings.
B. Deferral value. Utility capital investments are often long-lived and lumpy, thus justifying the present-worth method used by the DER avoided cost methodology.12 The presentworth method calculates a oneyear deferral value as the difference between the present value of the expansion plan and the present value of the same plan deferred by one year, adjusted for July 2014,
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inflation and technological progress.
II. Adding Water to the Energy Avoided Cost Framework Using proxy resource and present worth methods to represent DSM’s avoided costs has a long-established history in California’s cost-effectiveness
Rather than creating detailed cost estimates for each specific supply resource that would be procured in a resource plan, generic proxy resources are used instead. analysis. To date, however, studies and regulatory approaches to embedded energy in water have paradoxically employed a backward-looking measurement and evaluation approach that focuses primarily on existing supplies.13,14,15,16,17 hese efforts have shown that the large number, diversity, and local management of water agencies pose severe limits to the collection of historical data. Invariably, data are unavailable for a significant number of utilities, and gathering the data that are available is very expensive and time-consuming.
T
More importantly, the historical data gathered provides information about average and not marginal embedded energy. A forward-looking approach for embedded energy and avoided costs for water is even more crucial because many future supply options being considered are far more energy-intensive than existing resources. For example, stricter water-quality regulations and emerging contaminants are forcing agencies to develop more energy-intensive treatment options such as UV radiation, ozonation, and reverse osmosis. The differences between energy use by traditional and new treatment techniques can be significant. Relatively pure local surface or groundwater can be treated for under 200 kWh/acrefeet (AF), whereas seawater desalination can approach 6,000 kWh/AF.18,19,20 Advanced treatment with ozone disinfection uses approximately 130 kWh/AF, nearly 40 times more than chlorination, the traditional disinfection method.21
III. Case Study Results Our case study is an integrated and energy cost-effectiveness analysis for the Santa Clara Valley Water District (SCVWD) in the San Francisco Bay Area of Northern California. SCVWD is a wholesale water agency that serves 12 retail water agencies in Santa Clara County. SCVWD is the eighth-largest water district in
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Table 1: Summary of Efficiency Measures Evaluated. Savings Measure
Cost
End-Use Energy
$ 206 205
17
High efficiency toilet – low use
265
20
High efficiency toilet – high use Food steamer
265 1,250
Weather based irr. controller – small Weather based irr. controller – large
300 700
O
A. Proxy resources for water Water resources are commonly sized in millions of gallons per day (MGD) of delivery capacity. One MGD is equivalent to 1,121 AF per year. To calculate the
336 110
GPD
LED lighting Clothes washer (single family)
California, supplying 370,000 AF of water per year on average, roughly 60 percent of which is imported from outside the county. ur case study considers seven efficiency measures selected to represent both cold and hot water efficiency with a range of savings levels (Table 1). Measure costs and definitions are taken from a combination of the SCVWD Water Use Efficiency Strategic Plan and from PG&E energy efficiency costeffectiveness reporting documents filed at the CPUC.22,23 Water savings are shown in gallons per day (GPD). LED lighting is included as a representative energy efficiency measure adopted by numerous utility energy efficiency programs in California.
64
kWh
7,034
Measure Life
Water AF/Year
Years
SCVWD
0.02
12 10
0.5
0.02
20
0.6
60 223
0.07 0.25
20 15
1.4 0.6
72 629
0.08 0.71
10 10
0.5 3.6
embedded energy in water and the avoided cost of water, we define three alternative proxy resources for new water supply for SCVWD. he first proxy is imported groundwater, a short-term supply option with no new capital investment. In wet years with excess supply, SCVWD can receive imported water and recharge local groundwater aquifers, which can be used in subsequent dry years.24,25 The second proxy is a 20 MGD expansion of the Rinconada Water Treatment Plant at a cost of $184 million.26 The third and final proxy is a 20 MGD, $340 million Bay Bridge alternative for the Bay Area Regional Desalination Plant (BARDP).27 The estimated energy required to treat, store, and deliver water from the plant to SCVWD is 2,167 kWh/AF.28 This option is representative of seawater desalination, the potential water source for 15 of the 17 desalination plants proposed in California.29 The capital costs for the Bay Bridge alternative are similar in scale to
T
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PG&E TRC
B/C Ratio 1.8 0.9
5.4
the 50 MGD Carlsbad Desalination Plant that began construction in 2013 near San Diego with an estimated cost of $922 million.30 Table 2 shows the capital and variable operating costs for each of the proxy resources. Our imported groundwater and local treatment plant proxies assume the same embedded energy as the SCVWD Mix. As most of the energy consumed for wastewater treatment is not volume dependent, we assume only 12 percent of the embedded energy is avoided with water efficiency.31 For simplicity and ease of comparison, we assume each of these resources can be deferred on a one-time basis for three years with water efficiency measures. We apply the present-worth method to calculate the dollar per acre-foot costs avoided by reduced water consumption. We begin with 390 MGD of demand in 2015, growing at 4.0 MGD per year through 2030 and 2.0 MGD thereafter, thus approximating the growth projections from SCVWD’s Urban Water The Electricity Journal
Table 2: Water Utility Proxy Resource Cost Summarya Unit Costs Size
Capital Cost
Capital
Non-energy
Total Embedded
MGD
(2013)b $ Million
Costsc $/AF-Yr.
Variable Costs $/AF
Energy (Indoor)d kWh/AF
Imported groundwater Rinconada Treatment Plant
20 20
n/a [19_TD$IF]184f
Bay Bridge Desalination Plant
20
340h
Proxy Resource
659
48e 140g
1,475 1,475
1,215
343i
3,159
a
Santa Clara Valley Water District, 2011. From Watts to Water; Bay Area Regional Desalination Project, 2011. Bay Area Regional Desalination Project Institutional Task Technical Memorandum #2. Analysis of Feasible Scenarios. b Capital costs escalated from 2010 to 2013 with a 2 percent escalation rate. c Capital costs annualized with a 5 percent discount rate over 30-year life. d ‘‘Indoor’’ includes energy used by the customer to heat and process water and to gather and treat wastewater, whereas ‘‘outdoor’’ embedded energy does not. e $60/AF treatment costs taken from BARDP Technical Memorandum, Table A-1, assume 20 percent of variable costs are electricity. f Santa Clara Valley Water District, 2013, May. Santa Clara Valley Water District Fiscal Year 2014–18 Capital Improvement Plan. Rinconada Water Treatment Plant. g Calculated from BARDP Pilot Report, Appendix I, Alternative No. 1, Table on p. I-2. h BARDP Technical Memorandum, Table 4, p. 15. i Bay Bridge/Contra Costa variable cost ratio of 1.26 calculated from BARDP Technical Memorandum, Table 4, p. 15.
Management Plan.32 We assume new resources are needed in 2019 for SCVWD and all demand not met with new supplies from our proxy resources are supplied at a marginal cost of $424/AF (excluding energy costs) from the SCVWD Water Use Efficiency Strategic Plan.33
implemented in 2019, and an additional 4 MGD is implemented each year for the following two years. We assume the portfolio average useful life of efficiency
[(Figure_1)TD$IG]
measures is 15 years. (The useful lives for all the efficiency measures listed in Table 1 range from 10–20 years).34 By 2034, the measures installed at the
B. Water avoided costs We illustrate the impact of deferring capital investment by first considering the most expensive resource, the Bay Bridge Desalination Plant. When completed in 2019, the plant will raise the available capacity to 420 MGD. For the first several years, there is excess capacity and new supplies are not needed again until 2022 (Figure 1). In our deferral case, we add water efficiency in the years 2019–2021 sufficient to defer the need for new resources until 2022 (Figure 2). Efficiency of 12 MGD is July 2014,
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Figure 1: Bay Bridge Desalination Plant Base Case Procurement Plan
[(Figure_2)TD$IG]
Figure 2: Bay Bridge Desalination Plant Deferral Case Procurement Plan
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Table 3: Summary of Water Avoided Costs per AF of Conservation. Variable Costs Proxy Resource
Non-energy
Energy
Non-Energy Avoided Cost
Total Avoided Cost
Levelized Cost
$/AF
$/AF
$/AF
$/AF
$/AF
Capital Deferral Years Imported groundwater
n/a
Rinconada Treatment Plant Bay Bridge Desalination Plant
3 3
a b c
133 245
397
232
397
629
442a
394 479
232 323
527 724
759 1,047
1,093b 2,349c
Santa Clara Valley Water District, ‘‘From Watts to Water,’’ May 2011. Santa Clara Valley Water District, ‘‘2012 Water Supply and Infrastructure Master Plan,’’ Oct. 2012. BARDP, ‘‘Project Institutional Task Technical Memorandum #2,’’ 2011.
beginning of 2019 reach the end of life. A salvage value for the remaining useful life of the plant after 2035 is included in the deferral case. or the Bay Bridge Desalination Plant proxy resource, the net present value (NPV) savings are $48 and $94 million in fixed and non-energy variable costs. Dividing this value by the savings delivered over the 15-year life of the efficiency portfolio levelized avoided cost of $724/AF (Table 3). Including energy costs at the retail rate paid by the water utility to PG&E for electricity ($0.13/kWh in 2015 escalated at 2 percent per year) increases the total avoided costs from the water utility’s perspective to $1,074/AF. The avoided cost values for the Rinconada Treatment plant and imported groundwater (no capital deferral) are calculated using the same approach (Table 3). The variable costs are shown for nonenergy (e.g. chemicals), and energy costs (at the water utility’s retail rate for electricity)
F
66
$/AF
separately.35 The total avoided cost without and with retail energy costs are shown in the next two columns. The final column shows published levelized costs for each of the three resources.
IV. Results We summarize TRC results from four perspectives: (1) The avoided cost framework as is currently implemented by the energy utility with end use energy (EU) and no consideration of water. (2) The framework expands to consider both end-use and embedded energy in water (EW).
(3) The framework reflects a water utility perspective to include embedded energy in water (EW) and water avoided costs (W). (4) The framework reflects a regional perspective with all three avoided costs. rom the energy utility perspective, small water measures are not cost-effective for any of the proxy water resources, and high-use toilets are just barely cost-effective only with the Bay Bridge desalination proxy (Table 4 and Figure 3). Moving from the short-run proxy resource of imported groundwater to the far more capital- and energyintensive desalination plant does not significantly increase the TRC
F
[(Figure_3)TD$IG]
Figure 3: TRC Results for Imported Groundwater and Bay Bridge Desalination Proxy Resources. Note logarithmic scale for cost-test ratio on x-axis
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Table 4: TRC Resultsa Imported Groundwater
Local Treatment Plant EU
EU
Measure
EU
&
EW
EW
&W
LED lighting
1.9
1.9
Clothes washer
1.0
1.1
Bay Bridge Desal
0.5
EU
&
EW
All
EU
EW
&W
1.9
1.9
1.9
1.5
1.0
1.1
0.6
&
EW
All
EU
EW
&W
1.9
1.9
1.9
1.6
1.0
1.2
All 1.9
0.9
1.9
Toilet – low use
0.2
0.9
0.9
0.2
1.1
1.1
0.3
1.6
1.6
WBIC – small
0.4
1.4
1.4
0.4
1.8
1.8
0.5
2.5
2.5
Food steamer
8.2
1.6
9.4
8.2
2.0
9.8
8.4
2.8
10.5
Toilet – high use
7.8
0.7
2.7
2.7
7.8
0.7
3.4
3.4
7.8
1.0
4.7
4.7
WBIC – large
1.3
5.3
5.3
1.3
6.6
6.6
1.9
9.2
9.2
EU, End-use energy; EW, Embedded energy in water; W, Water avoided cost; All, All three. Cost-test ratios above 1.0 are shaded. a Note that the LED TRC results are slightly higher than those reported by PG&E (2.0 vs. 1.9) because we have not included ‘‘free-rider costs,’’ a provision that is currently unique to California.
results for any of the measures. Even with energy-intensive desalination, including embedded energy alone yields only a modest increase in TRC ratios. rom the water utility perspective, all measures except the clothes washer are costeffective, or nearly so, for all three proxy resources. The regional combined TRC with all benefits included finds most, but not all measures cost effective with the groundwater proxy resource. With the desalination plant, however, nearly all water saving measures are more cost-effective than LED lighting. Taking the regional combined perspective has a significant impact on cost-effectiveness. Even so, embedded energy and avoided water costs based on a short-term marginal supply such as increased groundwater may still be insufficient to justify that small water saving measures are costeffective. A forward looking, proxy resource that includes a
F
July 2014,
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deferral value for capital investment, however, can lead to ratios of 2.0 that match or exceed portfolio average TRCs for many utilities.
cost-effectiveness. Including embedded energy alone is insufficient to achieve costeffectiveness for most measures studied.&
V. Conclusions
Endnotes:
Our California case study demonstrates what an integrated approach to water-energy efficiency evaluation can mean for the CPUC’s comprehensive costeffectiveness framework. Our main conclusions are as follows. First, our case study finds that cost-effective opportunities for efficiency and GHG reductions are likely being overlooked without an integrated waterenergy cost-effectiveness framework. Second, a forwardlooking, marginal avoided cost of water results in more efficiency measures being cost-effective than an average cost approach. Finally, including water avoided costs has a much bigger impact on
1. Williams, J., et al., 2012. The technology path to deep greenhouse gas emissions cuts by 2050: the pivotal role of electricity. Science 335 (6064) 53–59. 2. Cooley, H., Donnelly, K., 2013. Water-Energy Synergies: Coordinating Efficiency Programs in California. Pacific Institute. http:// www.pacinst.org/publication/waterenergy-synergies. 3. Western Resource Advocates, 2013. Conservation Synergy: The Case for Integrating Water and Energy Efficiency Programs. 4. Young, R., 2013, October. Saving Water and Energy Together: Helping Utilities Build Better Programs, E13H. 5. Christian-Smith, J., Cooley, H., 2013. Pricing Practices in the Electricity Sector to Promote Conservation and Efficiency: Lessons for the Water Sector, pp. 1–26.
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6. See R. Young, E. Mackres, 2013, January. Tackling the Nexus: Exemplary Programs That Save Both Energy and Water, American Council for an Energy-Efficient Economy, E131. http://www.aceee.org/sites/ default/files/publications/ researchreports/e131.pdf. 7. See Alliance for Water Efficiency Water Conservation Tracking Tool, http://www.allianceforwater efficiency.org/Tracking-Tool.aspx, CUWCC Direct Utility Avoided Costs/Environmental Benefits Model, http://www.cuwcc.org/resourcecenter/technical-resources/bmptools/direct-utility-ac-eb-models. aspx, and Pacific Institute CE2 Model, http://www.pacinst.org/ publication/573/.
Water-Related Energy Use in California, CDC-500-2006-118.
24. Santa Clara Valley Water District, 2011, May. From Watts to Water.
15. GEI Consultants/Navigant Consulting, 2010. Embedded Energy in Water Studies – Study 1.
25. Santa Clara Valley Water District, 2012, October. 2012 Water Supply and Infrastructure Master Plan.
16. GEI Consultants/Navigant Consulting, 2010. Embedded Energy in Water Studies – Study 2.
26. Santa Clara Valley Water District, 2013, May. Santa Clara Valley Water District Fiscal Year 2014–18 Capital Improvement Plan. Rinconada Water Treatment Plant, increasing plant capacity from 80 to 100 MGD.
17. Aquacraft, 2011, April. Embedded Energy in Water Study 3: End-use Water Demand Profiles. California Public Utilities Commission, CALMAC Study ID CPU0052.
8. The California SPM was first developed in February 1983. It was later revised and updated in 1987–88 and 2001 and a Correction Memo was issued in 2007. The 2001 California SPM and 2007 Correction Memo can be found at: http://www. cpuc. ca.gov/PUC/energy/electric/ Energy+Efficiency/EM+and+V/.
28. Kennedy/Jenks Consultants. Bay Area Regional Desalination Project Greenhouse Gas Analysis. Table c-3. 29. Pacific Institute, 2012, July. Proposed Seawater Desalination Plants in California. http://www. pacinst.org/reports/desalination_ 2013/maps.htm/proposed_desal_ plants.htm (accessed 20.01.14).
9. Lazar, Colburn. Recognizing the Full Value of Energy Efficiency. 10. See R. 07-01-014 and D. 09-08-026. For a detailed description of the DER Avoided Cost Methodology see Energy and Environmental Economics, California Net Energy Metering Ratepayer Impacts Evaluation, 2013, Appendix C. 11. See Distributed Energy Resources Avoided Cost Model produced by Energy and Environmental Economics for the CPUC at http:// www.cpuc.ca. gov/PUC/energy/ Solar/nem_cost_ effectiveness_ evaluation.htm. 12. Orans, R., 1989. Area-Specific Marginal Costing for Electric Utilities: Case Study Of Transmission And Distribution Costs, Ph.D. Thesis. Stanford University. 13. Klein et al., California’s Water – Energy Relationship. 14. Navigant Consulting, 2006, December. Refining Estimates of
68
27. Bay Area Regional Desalination Project, 2011, September. Bay Area Regional Desalination Project Institutional Task Technical Memorandum #2. Analysis of Feasible Scenarios, p. 6-20. $160 million escalated from 2010 to 2013 at 2 percent per year.
18. An acre-foot is the amount of water to cover 1 acre to a depth of 1 foot, or 325,851 gallons. 19. Cooley, H., Heberger, M., 2013, May. Key Issues for Seawater Desalination in California. Energy and Greenhouse Gas Emissions. 20. See supra note 16. 21. Table 9-1 in SBW Consulting, Inc., 2006. Municipal Water Treatment Plant Energy Baseline Study. Prepared for the Pacific Gas and Electric Company. http://www.pge.com/ includes/docs/pdfs/biz/rebates/ water_treatment/watertreatment baselinestudyreport.pdf. 22. Santa Clara Valley Water District, 2008, September. Water Use Efficiency Strategic Plan: Phase 1. Appendix B. 23. Pacific Gas and Electric Company, 2012, July. Exhibit PGE-03: Appendix A.3_E3 Calculator Files.
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30. Resnick-Ault, J., 2013, February 8. Private Equity Purifies Pacific to Boost California Water. Bloomberg Sustainability. 31. Electric Power Research Institute, 2002. U.S. water consumption for power production—the next half century. Water Sustain. 3. EPRI, p. 0. 32. Santa Clara Valley Water District, 2011. 2010 Urban Water Management Plan. 33. SCVWD, 2011. Water Use Efficiency Strategic Plan, 2008, marginal cost of water savings of $530/AF escalated at 2 percent per year, p. xv. 34. SCVWD, 2011. From Watts to Water. 35. The TRC values energy savings at the utility avoided costs, not the energy utility’s retail rate. We show the cost with the retail rate of electricity here for comparison with levelized cost estimates that are published from the perspective of a water utility paying retail rates for electricity.
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