From Big Pivots (Allen Best):
Led by Berkeley, several dozen jurisdictions in California and other states have forbidden new natural gas connections to buildings. Colorado has embarked on a gentler, more complex but still firm approach to reducing emissions from buildings.
The state’s path is outlined in a 62-page decision issued by the Colorado Public Utilities Commission on Oct. 1. The decision explains why existing regulations governing Xcel Energy and the three other investor-owned utilities must be revised but also expanded. The utilities deliver natural gas to heat homes, warm water, and for cooking.
PUC commissioners and staff will be addressing “really big questions and really big challenges,” says Justin Brant, co-director of the Southwest Energy Efficiency Project’s utility program. He calls this effort “ground-breaking,” a description echoed by others.
Other states – particularly California, Massachusetts, and New York, but also Minnesota, Nevada, and Washington – have been having broad conversations about the future of natural gas utilities and decarbonization of buildings. And in Europe, some countries, particularly the Netherlands, have created a framework for decarbonizing gas networks across the country. But none have gotten very far yet. With the work now underway, Colorado ranks among the nation’s leaders, Brant and others say.
Utilities must reduce the carbon intensity of the fuels they provide 22% by 2030, which they can do by providing alternative fuels. Another strategy is to improve efficiency of buildings, so that they require less natural gas to warm.
Colorado’s journey to decarbonization of buildings began with a 2019 law that specified 50% economy-wide reductions in greenhouse gases by 2030. That same law targeted a 90% reduction by 2050.
(See also: State Sen. Chris Hansen, a key architect of Colorado’s decarbonization agenda, says this pace needs to be picked up. See: State senator says climate change demands Colorado elevate its decarbonization goals.)
Transportation and electrical generation are the top two sources of climate-warming pollution, according to the “Colorado Greenhouse Gas Reduction Roadmap.” But “fuel use in residential, commercial, and industrial buildings is not far behind,” added the document.
A pie chart in the document suggests that buildings, both commercial and residential, cause about 10% of the state’s emissions.
Decarbonization of electricity is already well underway. Coal combustion as a source of Colorado’s electricity dropped from 68% to 36% between 2010 and 2020, according to the U.S. Energy Information Administration. By 2030, utilities plan to close all but one coal-burning unit in Colorado. Xcel Energy wants to operate that final coal plant, Comanche 3, at only one-third of capacity.
Colorado also has 23 natural gas-fired plants that generate electricity, but they are expected to be used selectively as electric utilities expand their use of renewables to at least 75% and conceivably 100% in the coming decade.
Buildings, with their dependence on natural gas or, in rural areas, propane, pose arguably a far greater challenge. Unlike a handful of coal plants, there are perhaps a million buildings in Colorado. Nor is this as simple as trading in a car with an internal-combustion for one with an electric motor—not that that is particularly simple, at least not yet.
Technologies exist, among them air-source heat pumps, as an alternative to gas-burning furnaces ordinarily found in basements. The replacements will be costly, though.
Easier will be to cease installing natural gas pipelines, stoves, and hot-water heaters in new buildings. That has started to happen, but most of the 30,000 or more houses built each year are connected to natural gas pipelines. That compounds the problem, as depreciating the infrastructure can take decades.
“The issues are complex and they are new, as no one in the world has decarbonized a gas system, but that is what needs to happen one way or another,” says the Rocky Mountain Institute’s Mike Henchen, who specializes in building decarbonization.
“This is a big transition that nobody has done yet,” he says. The goal will be to create a transition that works for everyone. “We want the system to be decarbonized, but we don’t want to do it in a way that raises people’s bills. That might require some creative solutions that go beyond what we typically see.”
Colorado’s approach to decarbonizing buildings was defined by two laws adopted in June.
SB21-264, sometimes called the clean-heat law, requires the state’s four regulated gas utilities to submit clean heat plans that show how they will reduce emissions 22% by 2030 as compared to the 2015 baseline.
The law assigns responsibility to the PUC to oversee this process governing the private gas utilities with an Oct. 1 deadline for launching the rule-making process. Municipal utilities that provide gas will be governed by the state’s Air Quality Control Commission. The AQCC has until September 2022 to kick off its process. Yet another provision applies to the agency that regulates the oil and gas industry.
A second law, HB21-1238, orders regulated gas utilities to institute demand-side management programs to reduce need for natural gas, such as by improved insulation in homes or other efficiency measures. In evaluating such programs, the PUC must use metrics that favor work that, if more expensive in the short term, provides long-term savings.
[Two] other bills also address building energy use. SB21-246, the beneficial electrification law, directs the PUC to oversee energy saving targets by regulated electric utilities that use efficient electric equipment in place of less efficient systems that burn fossil fuels. HB21-1286 addresses energy performance of buildings 50,000 square feet and larger.
Three of the five laws order that the social costs of carbon and methane be used in evaluations of programs by utilities.
PUC commissioners and staff will have to work through many issues while consulting with environmental groups, consumer advocates, and the utilities themselves.
One major issue will be that of stranded assets. If we’re going to abandon some of the existing natural gas pipelines and other infrastructure, who pays? Do natural gas customers pay for that infrastructure that is no longer needed but which hasn’t been fully depreciated? Or do the electricity customers pay for this transition through their rates?
This transition challenges the existing business model of gas utilities. Installation of pipelines to new housing developments and other buildings typically assume a payback of up to 50 years, explains RMI’s Henchen. Existing customers, through their rates, subsidize this extension of natural gas lines to new customers.
A closely related question is why do we add natural gas infrastructure, including the pipelines that underlie most residential streets, if we’re going to start abandoning them?
Colorado gas utilities during the last decade has added an average of 20,500 residential, 7,000 commercial, and 350 industrial customers of natural gas per year, according to the U.S. Energy Information Administration. It now has 1.8 million residential gas customers.
Hydrogen will also be part of the discussion. Can green hydrogen, made from water and renewable energy, displace natural gas? Can it be blended with natural gas? Or can hydrogen made from natural gas and the carbon sequestered underground be used? A study, “Opportunities for Low-Carbon Hydrogen in Colorado: A Roadmap,” by the consulting firm E3 recommends developing a pilot project.
Costs will invariably be an issue. The clean heat bill, SB21-264, caps the increase on customer bills caused by this transition at 2.5%.
Among those already carefully monitoring the proceedings is the Office of the Utility Consumer Advocate. The state agency has the statutory responsibility to represent residential, small-business, and agriculture consumers in proceedings before the PUC.
“It’s huge,” Cindy Schonhaut, the director of the agency, says of this building decarbonization effort now underway. The challenge, she says, will be “how can we decarbonize our natural gas system in a way that is cost-effective and that minimizes imposing costs on consumers?”
Consumers will pay for this transition, says Schonhaut. “It’s a question of how much.”
Schonhaut also points to a dramatic shift in the business model of gas utilities. The utilities currently must deliver natural gas to new customers in their service territories. This conflicts with the goal of decarbonization.
Too, she sees a safety issue that differentiates this natural gas transition from electric resource planning. “For example, abandoning a pipeline isn’t a matter of simply turning off the valves, because gas will remain in the pipe,” she explains. If a contractor using a backhoe broke a pipe, there could be mayhem. Decommissioning pipelines will involve many questions.
Looming over this decarbonization are rising prices of natural gas. In September, prices surged above $5 per million Btu, about double the price of six months ago, and the highest September price since 2008, Inside Climate News reported.
Not least in the months and years ahead will be the question of what happens to the natural gas utilities themselves as they decarbonize. The journey will perhaps be most difficult for Atmos Energy and Colorado Natural Gas, the two investor-owned utilities in Colorado who do nothing but sell gas. Two others, Xcel Energy and Black Hills Energy, sell both gas and electricity, if not always in the same places.
“They have invested millions of dollars in the ground in Colorado, as has happened across the country,” explains SWEEP’s Brant. “If we are to meet the state’s roadmap decarbonization goals, there will be a need to change the business model of natural gas. Underlying a lot of these decisions will be how do you do that in an equitable manner?”
Both the gas utilities and the PUC commissioners have been preparing for this process even before the laws were adopted in 2021.
In September 2020, Black Hills Energy issued a 109-page analysis conducted by the Gas Technology Institute titled “Assessment of Natural Gas and Electric Decarbonization in State of Colorado Decarbonization Sector.”
That analysis argued for a core focus on energy efficiency, with a special emphasis on creating tight building envelopes, to help reduce energy use. But the analysis warned of rising overall energy costs by electrifying and warned of the intense energy use of space heating.
“There is no evidence wind or solar resources can address prospective seasonal energy-intensive space heating electricity peaks during Colorado winters,” the Black Hills study concluded.
Xcel Energy in November 2020 also issued a report, “Transitioning Natural Gas for a Low-Carbon Future.” That 27-page paper urged a go-slower approach, one devoid of mandates, because of the need for technological breakthroughs plus the need for time to create the electrical infrastructure needed to replace natural gas on a broad scale.
The paper was one for all eight states in which Xcel operates. In Colorado, it lost that argument about mandates. But perhaps it scored points in the pacing.
The PUC commissioners have also been prepping themselves. Beginning in November 2020, they heard from experts in such diverse topics as leak detection, coal-mine methane, and hydrogen pipeline gas in an effort to better get their minds wrapped around the challenge of methane, the primary constituent of natural gas.
Commissioners have been told that baseline information that will be needed for evaluating progress remains scarce. Even basic definitions have yet to be worked out.
Environmental groups are eager to begin wrestling with the challenge.
“As daunting as these issues appear, it’s really important to take them on now,” says RMI’s Henchen. “There are steps that make sense to get us started, like cutting back on spending on expanding the gas system, targeting funding to help the most vulnerable customers shift to cleaner and more stable alternatives than gas, and piloting new approaches to ‘non-pipe solutions’ instead of replacing old pipes with new pipes.”