Achieving Beneficial Electrification in Commercial Buildings

Sasha Wedekind's picture
Research Analyst , Guidehouse Insights

Sasha Wedekind is a research analyst contributing to Guidehouse Insights's Building Innovations program. Guidehouse Insights is a market research and advisory team that provides in-depth analysis...

  • Member since 2019
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  • Dec 9, 2019

Among strategies to reduce greenhouse gas (GHG) emissions, electrification is ramping up around the world. In the current context, this means a full or partial switch from using fossil fuels to using clean electricity. For commercial buildings, the trend is driven primarily by policies set at city levels aimed at achieving carbon free or carbon neutral targets.

Multiple pathways exist to decarbonize buildings, including renewable gas. However, given the questions around the costs, availability, and scalability of biogas and hydrogen, any scenario toward a decarbonized built environment involves a degree of electrification. Electrification can also be fraught with potential negative consequences such as impacts on the grid and rising costs for consumers. The concept of beneficial electrification has thus been gaining traction to target electrification in a way that cuts costs, reduces environmental impacts, and enables grid flexibility.

Technology and Policy Enable Beneficial Electrification

Growth in adoption of solar PV, energy storage, heat pumps, variable refrigerant flow systems, and other technologies enables commercial buildings to reduce their carbon footprint and improve resilience through electrification. Advanced analytics and software allow customers to connect to demand response programs or supply excess energy to the grid. These new technologies are creating a new ecosystem, known as the Energy Cloud, where beneficial electrification can take place and deliver benefits by reducing carbon emissions and improving grid flexibility.

Increased renewable electricity production is also opening a pathway to reducing buildings’ GHG footprint through electrification. Renewable electricity is becoming cheaper and more abundant around the world. In the US, 141 cities have committed to 100% clean renewable energy. Worldwide, more than 100 cities already get at least 70% of their electricity from renewable sources. Navigant Research, a Guidehouse company, recently noted in its Market Data: Solar PV Country Forecasts report that an estimated 1,955 GW of solar PV is expected to be installed globally between 2019 and 2028. International Energy Agency’s Stated Policies Scenario estimates low carbon sources to provide more than half of total electricity generation by 2040.

Policies specifically aimed at electrification are a key driver of market growth. Multiple cities around the world have committed to phasing out the use of natural gas in some building segments. Vancouver, British Columbia, for example, implemented strict energy efficiency and GHG emissions standards in new construction, restricting natural gas use in 2017. Amsterdam has plans to phase out natural gas by 2050. In the US, Berkeley, Menlo Park, San Jose, and other California cities have issued measures limiting natural gas infrastructure. Another 50 cities and counties across California are considering policies to support all-electric new construction. Most recently, Brookline, Massachusetts is considering a similar policy.

Strategies for Implementation

As more cities consider building electrification, three strategies are key to successful implementation: incentivizing developers and building owners to focus on energy efficiency, district-based planning, and collaboration with utilities, grid operators, and technology vendors.

Building developers and building owners are inclined to install the cheapest equipment possible that meets minimal energy efficiency requirements, since they rarely benefit from reductions in the energy bill. But simple replacement of combustion-based technologies with baseline electric alternatives as part of electrification would be a wasted opportunity in energy efficiency improvements. Any new construction or retrofit project should take a whole-building approach to maximize opportunities associated with electrification. Additional investments in highest efficiency HVAC and envelope technologies will be needed to keep customer costs down and help mitigate the effect of additional electrification on the grid.

Financing for additional efficiency improvements has always been a challenge in energy efficiency markets, with regulations being a key driver of investment. Navigant Research currently expects the highly energy efficient electric HVAC, associated controls, building envelope, and installation and commissioning markets to grow at a compound annual growth rate of 4.8% from 2019 to 2028, reaching $269 billion in 2028. City implementation plans must create frameworks to reduce the split incentive building developers and owners face and incent highest efficiency standards to spur market growth.

Building Decarbonization Technologies Revenue by Region, World Markets:

(Source: Navigant Research)

Community and district-based planning also can be key. For electrification to reap maximum benefits without outsized effects on natural gas and electricity distribution infrastructure, electrification can be pursued by districts. District-based projects can capitalize on the economies of scale in electrification and reduce the effects on natural gas infrastructure. Strategies such as district heating and cooling driven by heat recovery processes from industry, transportation, and waste can meet heating and cooling needs of healthcare and educational campuses, as well as small city districts.

Finally, city-utility collaboration and cooperation among gas and electric utilities, grid operators, and technology vendors are needed to maximize benefits while minimizing unintended consequences of electrification on consumers and market players. All stakeholders need to be involved in the modeling and planning that is required to assess different electrification scenarios and impact on utility grid management and grid infrastructure investments. Peak load impacts will be specific to each climate context and should be modeled with different assumptions around energy storage integration, demand response participation, energy efficiency, and natural gas and renewable gas use.

Matt Chester's picture
Matt Chester on Dec 9, 2019

Community and district-based planning also can be key. For electrification to reap maximum benefits without outsized effects on natural gas and electricity distribution infrastructure, electrification can be pursued by districts

Definitely agree with this in principle, but there's also the concern that we need to do as much as possible now and time's running out. How do you balance the need to get quick and impactful wins now vs. the long-term planning in this way?

Mike Cassity's picture
Mike Cassity on Dec 11, 2019

Sasha thanks for this post. The size of the opportunity for using the growth in renewables, storage, variable flow systems, new technologies and analysis is staggering. CAGR of 4.8% through 2028 is definitely something that should get our attention.

Sasha Wedekind's picture
Thank Sasha for the Post!
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