Is California thinking broadly enough about building decarbonization?
By: 2019 San Francisco SF Fellow Leah Louis-Prescott
California knows that decarbonizing buildings is critical to achieving its ambitious climate goals. Buildings produce a quarter of the state’s emissions, meaning this sector must decarbonize if California is going to reduce greenhouse gases 40% below 1990 levels by 2030. Regulatory and industry action suggest that electrifying traditional fossil fuel end-uses, such as space and water heaters and stovetops, in new construction will be a primary strategy for cutting building emissions. But is California too narrowly focused on the low-hanging fruit in newly built homes?
Yes; while Senate Bill 1477 was passed last year to support residential building decarbonization, little attention is being paid to the commercial sector. Similarly, everyone seems focused on changing building codes and standards to require all-electric new homes. That’s great, but how does California plan to electrify existing buildings? The CEC estimates building stock will grow 1–2% per year through 2030; meanwhile, 65% of the state’s existing building stock will still be standing in 2045. If California is serious about its climate goals, it needs to focus on statewide strategies to electrify buildings with the greatest greenhouse gas reduction potential: new commercial and existing residential and commercial buildings.
Residential new construction is not enough
Despite the small market opportunity, new homes are easy electrification targets compared to other buildings. Residential electric devices are more widely available and economically competitive with gas devices compared to commercial devices. And it’s much easier to impose electrification policies on new construction than it is to incentivize tenants to replace devices in existing buildings.
But instead of working to overcome these challenges, California seems keenly focused on electrifying new homes. Berkeley just became the first city in the U.S. to ban natural gas in new homes. E3 recently evaluated the economics, emissions and grid impacts of residential building electrification, but did not address commercial buildings. In 2018, the California Public Utilities Commission (CPUC) launched a proceeding (R. 19–01–011) to decarbonize buildings by funding two programs, BUILD and TECH that both focus largely on electrifying homes.
Electrifying new homes is a great step, but it’s only the first step, and it’s undeserving of the resounding applause that it seems to be receiving from Californians.
First of all, new construction makes up only a fraction of the building sector. Of the 65% of the state’s current buildings that will still be standing in 2045, 70% of that 65% were built before California’s heralded building code goes into effect. Clearly, the bulk of the market opportunity is in existing buildings.
And then there’s the entire commercial sector to consider. Commercial buildings account for over half of building energy use in California, presenting a clear opportunity for emissions reduction. Politically, new commercial buildings should be just as easy to electrify as new homes through building codes revisions, yet the spotlight appears frozen on the residential sector.
Electrifying Opportunities
Beyond the obvious benefit of reducing natural gas use, electrified buildings present important grid management opportunities. As California transitions to 100% clean electricity, existing challenges associated with high solar penetration will worsen, deepening the belly of the duck. But electrified buildings can be used as a resource to mitigate these impacts.
Some commercial buildings, such as schools and offices, consume most energy during peak solar hours. These buildings can utilize excess solar generation to reduce negative pricing from overproduction midday if electrified. Because homes use the most energy in the evening, this benefit is unique to commercial buildings.
Further, electrified building devices can be used to relieve the ramping needs of fossil generators. When the sun rises and sets, fossil generators need to ramp down and up quickly to meet demand, and ramping produces more emissions than steady-state operation. Buildings can help solve this problem if the electric devices are grid-interactive, or flexible. A flexible space or water heat pump can provide demand response services by load shedding or load shifting to accommodate grid needs.
The state’s upcoming time-of-use rates are designed to encourage customers to consume more energy during solar peak hours, so these flexible devices will likely lower customer bills while also mitigating the duck curve.
While demand response benefits could come from residential or commercial buildings, commercial customers have a greater incentive to reduce energy use and achieve bill savings, as well as the internal capacity and knowledge on how to adapt to these changes. Unlike residential customers, commercial users pay high demand charges, which are based on the building’s highest monthly demand. SDG&E commercial customers face some of the highest demand charges in the country, which can sometimes be over half a customer’s total monthly bill. Load shifting on a time-of-use rate could offer valuable savings to commercial customers, as well as significant grid benefits through duck curve relief.
Commercial electrification may also improve grid utilization due to the increase in winter demand from electric space heaters. E3 found that residential building electrification increased winter electricity demand across all studied climate zones in California. Greater demand in the winter means generators that would otherwise sit idle are being utilized. This could reduce operating costs and trickle down into lower rates, though these potential impacts will need to be studied more closely and on a local level.
Time for action
Clearly, commercial and existing buildings present a significant market opportunity that California would be remiss to ignore on its journey toward carbon neutrality, and the state does not have time to waste. Though it was a win when the CPUC finally agreed to revise the three-prong test, which has restricted utilities’ from providing rebates for electric devices and stifled electrification in existing buildings for years, it may be too little too late. Both UC Berkeley and E3 assert California must begin electrifying existing buildings by 2020 to avoid forced replacements. That seems nearly impossible considering it may be 2020 before we even achieve rebates for voluntary replacements. Knowing the retrofit and commercial sectors will take more effort to electrify, the state needs to take action fast.
To tap into the commercial market, there need to be technology advancements, updated regulatory rules, and favorable economics for electric devices. In the near-term, this will likely require building codes and standards for commercial new construction and clear rebates and incentives or some sort of carbon pricing mechanism for the retrofit market. SB 1477 offers funding for market development of low-emissions technologies for residential technologies, so why not expand the scope or develop a similar program to target the commercial sector?
To tap into the existing residential market, there needs to be improved customer and contractor education and awareness, which can be done through programs, workshops, and trainings, if there are resources dedicated to it. This market will also require rebates and incentives, but the economics may still be a barrier for homes that require a panel or service upgrade to convert from gas to electric. “Retrofit ready” equipment is a strong solution that California is exploring. More resources ought to be invested in the development of “retrofit ready” technologies that enable an easy and cost-effective transition to electric equipment.
California is off to a decent start in its effort to electrify buildings, but if it wants to cut greenhouse gas emissions by 40% in the next decade, stakeholders need to figure out how to electrify commercial and existing buildings, rather than just going after the low-hanging fruit.
And once California begins electrifying these buildings, we can look forward to tackling even heavier hitting questions like how to electrify industrial processes and how to achieve a 100% clean grid to ensure electric devices are achieving carbon neutrality.
