Evaluating Options - Full Process (Printable Version)
This section helps you refine the options outlined in your strategic energy plan.
Based on your recently completed draft strategic plan, you have identified a number of priority needs and energy supply options. Your next step on the path is to evaluate your tribe's energy options — deciding more narrowly what makes the most sense, how much it will cost, who needs to be involved, and how it will be implemented. At this stage, the analysis becomes more rigorous, the numbers more real, and the challenges better defined. In other words, the road ahead can be seen more clearly. Take your time with this step — the more thoroughly you analyze your tribe's options, the smoother the implementation stages will be.
To continue, select a step in the process for evaluating your tribe's options:
Energy fundamentals: What is energy, anyway?
Load assessment: Evaluating your tribe's thermal and electrical needs.
Energy efficiency technology options: Plugging the leaks.
Current energy supplies and suppliers: Drawing on existing energy supplies.
Renewable energy resource assessment: Evaluating indigenous resources.
Renewable technology options: Evaluating costs and benefits.
Organizational options: Ensuring the project's long-term viability.
Environmental assessment: Minimizing the impacts on nature.
Exporting electricity: The power grid as a market.
Economics: The business of energy.
Risk assessment: Look before you leap!
Options integration: Narrowing the field of possibilities.
Creating a time line: Setting milestones and developing a time line.
Energy comes in many forms. Energy is never created or destroyed, but it can change form and quality. We most commonly think of energy in the forms of electricity and heat. Electricity can be easily converted to heat, as in a hair dryer or oven. Electricity can also provide cooling, as in refrigeration or air conditioning. Conversely, heat can be converted to electricity through steam cycles, as in power plants, or gas turbines, or automotive engines. Creating the heat requires fuel, as in coal, oil, natural gas, wood, or sunlight.
Unlike the fossil fuel options of coal, oil, and gas (which are depleted as the fuel is converted to electricity and heat); renewable energy options take a naturally occurring resource such as sunlight, water (with the assistance of gravity), the movement of wind, the burning of biomass, or the heat of the earth in the form of geothermal energy to provide our electric and thermal needs on a sustainable basis.
As fossil resources continue to decline and the price continues to rise due to depletion, the world is increasingly looking toward the renewable energy options to provide our heat, run our appliances, and provide our transportation needs.
All energy planning starts with an assessment of present and future energy needs. These energy needs are essentially the loads, or energy services, that define the need for energy supply, and they can be grouped into residential, commercial, and industrial loads.
Residential loads can be further broken down into space heating and cooling (defined primarily by the home design, including orientation, method of construction, insulation, and occupancy comfort levels), and the appliance loads that include everything from lighting and cooking to the HVAC (heating, ventilating, and air conditioning) system.
Commercial loads (including everything from office buildings to restaurants, hospitals, hotels, and casinos) also can be divided into building envelope loads (defined by the building design and construction), and appliance loads (lighting, computers, cookers, laundry, slot machines, etc.). Unlike residential structures, where the building envelope is the primary determinant of energy needs, commercial buildings are usually dominated by their appliance load, also called plug loads. In general, as the size of the building grows, the plug loads become a larger and larger fraction of the building's energy needs. In large commercial buildings like skyscrapers, the building envelope defines less than 10% of the energy requirement, and the HVAC system's job is primarily to reject the heat generated by all the appliances and the people.
Industrial electric and thermal loads are nearly entirely defined by the industrial process with building envelope loads being, in many instances, insignificant. Cement factories, power plants, semiconductor fabrication lines, auto assembly lines, and food processing are all good examples.
In energy planning, it is critical to start with a good understanding of the energy loads that are driving the need for new supplies. This should start with the design of new residential, commercial, and industrial facilities, because once they are built, the energy requirements and bills will be determined for a very long time into the future. Energy-efficiency retrofits are often possible, but it is always cheaper in the long run to include building envelope and appliance efficiency measures during initial construction.
For existing facilities, it is important to get accurate records of monthly energy bills and assess the range of energy efficiency and conservation improvements that could be made to the building structure and appliance loads before committing to new energy supplies. When considering the total cost over the life of a project, it is nearly always cheaper to save energy than buy new energy. For more information, see the section on costs.
By combining the residential, commercial, and industrial loads throughout the tribe's lands; and assessing the need for growth in these loads (population growth and new housing, as well as commercial or new industrial growth), the tribe will be in a good position to balance the opportunities for improved energy efficiency and conservation with the opportunities for new energy supply.
Energy Efficiency Technology Options
In developing a comprehensive tribal energy plan, the first place to start is ways to reduce existing and future loads through focused attention on energy efficiency and energy conservation techniques and technologies. Whether considering a residential, commercial, or industrial facility, there are nearly always ways to cost-effectively reduce annual energy use and the associated costs of purchasing energy from the suppliers. The cost of energy continues to rise, and thanks to a number of significant technological advances since most facilities were originally constructed, reducing energy use can often be quick and relatively inexpensive. Many energy efficiency measures can pay for themselves in only a few years, saving large amounts of money during the remaining useful life of the facility.
The terms energy efficiency and energy conservation are essentially synonymous. However, the recent historical (1970s and 1980s) use of the term conservation is often equated to "freezing in the dark" or doing without. Therefore, this Guide will primarily use the term energy efficiency.
You will find a wealth of information on modern energy efficiency practices and links to many useful Web sites in the Energy Efficiency Technology Basics section of this Guide. Most of this information is related to energy efficiency in buildings (both residential and commercial) as those are the major loads in most tribes. There are also significant energy efficiency opportunities in many industrial facilities. For more information on those opportunities, see the U.S. Department of Energy's Industrial Technologies Program Web site.
Current Energy Supplies and Suppliers
In addition to understanding tribal loads and how they aggregate to the energy bills paid by tribal members and the tribe as a nation, the other set of baseline information that needs to be developed and understood is the cost of those energy supplies and the characteristics (legal and organizational) of the tribe's present energy suppliers.
All tribes have some access to electricity, although all tribal members may not have electric power lines that reach their homes. For the moment, we will discuss only "grid-connected" electric systems, which for this discussion include diesel power stations providing electricity to isolated native communities such as those in Alaska. The use of "stand-alone" systems for remote, isolated loads is a separate topic.
Many tribes, particularly those near urban areas, also have access to natural gas supplies. Bottled gas (propane) supply is also an option in many areas out of reach from the natural gas pipeline system. With only a few exceptions — those tribes located over natural gas reserves — natural gas, like electricity, is purchased from an outside organization.
Obtaining a comprehensive understanding of tribal energy supplies (both electricity and natural gas), the cost of those supplies (both on a monthly basis, and on a per-unit basis), and the characteristics of the organizations providing the energy supplies is critical to establishing the baseline for either energy efficiency improvements or new tribal generation.
To gain this understanding, tribes need to:
Find out who your suppliers are (many tribes have more than one electric supplier).
Obtain monthly billing records for all the load centers (individual residential or commercial facilities) that are being considered in the strategic energy planning process.
Obtain and understand the tariff structure (how the energy is metered and billed). Particularly on the electric side, tariff structures can be quite complex. For instance, large commercial and industrial facilities are often charged separately for their energy use in kilowatt hours (kWh) and peak power demand in kilowatts (kW). Large facilities may also have time-of-day or seasonal variations built into their metering and billing.
This information is fundamental to determining the economics of individual energy efficiency or power production decisions.
Renewable Energy Resource Assessment
The cost effectiveness of renewable energy options depend primarily on 1) the cost of the conventional energy solution, 2) the cost of the renewable energy conversion technology itself, and 3) the quality of the renewable energy resource. Assessing the quality of energy resources is termed "resource assessment." For detailed information on resource assessment, see Assessing Energy Resources.
Tribes that are serious about achieving energy security and independence should investigate all their possible renewable options. Renewable resources are highly localized and vary a great deal throughout the United States. With only a little work, it is probably possible to narrow the field down to two or three options, or maybe just one, allowing your tribe to undertake detailed investigations. The better you understand your resources, the better and more bankable the resulting projects.
Also, with the exception of geothermal energy, all renewable energy resources have significant time dependencies: the sun is available only part of the day, wind often has strong daily and seasonal characteristics, and hydropower and biomass resources are also seasonal. Because of this, renewables are unlikely to be the entire answer to a tribe's energy needs, but they can be a significant, cost-effective part of your energy mix.
Renewable Technology Options
After identifying and quantifying you renewable energy resources of interest, it's time to investigate the renewable energy conversion options, or technologies, at your disposal. Each of the renewable resources has multiple technology options, which are often tailored to the specific end-use need. For example:
Solar energy can be converted to electricity or heat, and that heat can range from low-temperature heat to high-temperature heat for commercial and industrial processes.
Biomass can be burned directly — or gasified and then burned — to produce heat, which can then be converted into electricity. Biomass can also be converted to liquid fuels, such as ethanol or biodiesel, or into gaseous fuels.
Geothermal energy can be used for power production or to provide heat for a wide variety of purposes.
Modern wind and hydropower systems convert kinetic (of the wind or water) energy directly to electricity, but shaft power is still an option if desired.
See the Energy Technology Basics section of this Guide for more information.
While this Guide has an entire section on organizational development, it is important to understand and begin to strategize early on about the institutional changes that may be necessary to develop and implement an effective tribal energy program.
After conducting the load assessment, establishing the current energy supply status, and evaluating resource and technology options, it is critical to think about implementation and the organizational and institutional structures that will be necessary to raise financing, oversee project implementation, and carry out longer-term operations and maintenance functions. Effective implementation of any energy project — whether it involves conventional sources, renewables, or energy efficiency — requires a long-term commitment to a business-like philosophy. This may require establishing one or more business units within the tribe to separate the energy project commitment from tribal politics. While it is probably possible to carry out much of the preliminary project definition within existing tribal economic development or environmental teams, the effective, stable implementation of energy projects requires dedicated staff focused on the long-term success of the project.
There are a number of organizational options, including establishing a tribal utility authority, supporting small tribal businesses, creating an energy services company, expanding the scope of existing water and sanitation departments, creating joint ventures with existing U.S. businesses, or forming cooperatives with other tribes in the region. There is no "right" way to do this, and every tribe will need to do what seems best given their individual situation. It is very important, however, that some organizational unit be charged with the responsibility for carrying out the project from start to finish, with sufficiently skilled human capacity to assure the long-term viability of the project.
Some interesting and helpful case studies are also available to help guide the way.
The wide range of energy project opportunities brings with it a variety of environmental issues. Most energy technologies have technology-specific environmental attributes, some positive and some negative. As a class, renewable energy projects have fewer environmental issues than conventional energy technologies, but in a few areas (for example, wind farms and avian migratory patterns) renewables have special issues that must be addressed. In addition to air and water issues, energy projects must be respectful of cultural, spiritual, and historic issues that may be involved in project siting. Of all the options, energy efficiency technologies are often the most environmentally benign, as well as being the most cost effective.
Due to the large difference in emissions between conventional fossil technologies and renewable energy options, "emissions trading" programs are starting to emerge that can provide a quantitative, financial benefit for electric generation technologies that do not pollute the air. Increasingly, "green tags" (tradable renewable energy certificates) are being sold on the open market that can provide significant additional income to a project, over and above the value of the electricity being sold.
Further details on technology-specific environmental issues, emissions trading, and historic and sacred sites can be found under Environmental Considerations.
Exporting Electricity - The Power Grid as a Market
As described in more detail under Electrical Grid Basics, the U.S. electric supply system achieves much of its economy and reliability through the highly interconnected nature of the power grid. With this system, large amounts of power can be moved long distances between major generation facilities and major cities or industrial load centers. With the advent of smaller distributed generation technologies, the grid becomes not only a means of supplying electricity to customers, but also a means for users to sell electricity back to the utility.
A number of states have "net metering" laws that essentially (and often literally) turn the meter backwards if on-site generation exceeds the on-site load. The advantage of this arrangement is that the generation displaces retail kilowatt-hours, which are always more valuable than wholesale kilowatt-hours. A current listing of states with net metering laws can be found in the Net Metering Policies section of DOE's Green Power Network Web site, and on the Database of State Incentives for Renewable Energy (DSIRE) Web site. (DSIRE is more complicated to use, but is kept more up-to-date, and often provides links to the relevant state Web sites and documents.) While the limit for on-site generation varies by state, current power caps typically run from about 10 kilowatts on the residential side to about 100 kilowatts for commercial facilities.
For large wind farms or other "merchant" power facilities designed to sell power primarily into the national electric grid, power purchase rates will be lower and must be negotiated with the purchasing utility or regional system operator, on a case-by-case basis. The Public Utility Regulatory Policies Act of 1978, and more recently the Federal Energy Regulatory Commission's Order 888, require utilities to purchase power supplied by independent power producers (IPPs). The price (or rate) that utilities are willing to pay for this generation is a matter of negotiation with the local utility. At present, there are no national standards regarding price, as utility distribution and retail activities are generally regulated on a state basis. The price paid for IPP power will depend on both the purchasing utility's perception of the IPP power reliability, as well as their short-run marginal avoided cost for cutting back on power generation from other sources.
The economics of energy efficiency and renewable energy projects vary widely depending on a host of factors ranging from technology maturity to the cost of financing. The renewable resource, distance to the grid, regional wholesale power costs, utility interconnection rules, and maintenance requirements all affect the project economics. Some general information on renewable energy costs is provided under Costs.
Understanding technology performance, which is directly related to renewable resource availability, is the first major step in understanding renewable energy project economics. Due to the time-varying nature of most renewable resources (geothermal excepted) some sort of computer simulation is often used to determine the hourly generation, which when added up results in monthly or yearly generation totals. If the electricity is more valuable during certain times of the day, or certain months of the year, these variations can significantly affect the project economics and must be taken into account. Below are links to several sites that provide free copies of computer simulation software that makes the job of system performance estimation fairly straight forward and tractable.
You will find the following computer models useful in your economic analyses. All perform some form of hourly simulation using local resource information.
The RETScreen® International family of models developed by Natural Resources Canada provide technology-specific simulations and include cash flow analysis.
Energy-10™ is a building simulation model for simple buildings up to 10,000 square feet (about 1,000 square meters).
HOMER (Hybrid Optimization Model for Electric Renewables)
HOMER is a computer model that simplifies the task of evaluating design options for both off-grid and grid-connected power systems for remote, stand-alone, and distributed generation (DG) applications. HOMER's optimization and sensitivity analysis algorithms allow you to evaluate the economic and technical feasibility of a large number of technology options and to account for variation in technology costs and energy resource availability. HOMER models both conventional and renewable energy technologies:
Hybrid 2 was designed to study a wide variety of hybrid power systems. The hybrid systems may include three types of electrical loads, multiple wind turbines of different types, photovoltaic systems, multiple diesel generators, battery storage systems, and four types of power conversion devices. Systems can be modeled on the electrical power buses for alternating current (AC), direct current (DC), or both buses. A variety of control strategies and options may be investigated with the models, which incorporate diesel dispatch strategies as well as interactions between diesel generator sets and the batteries. An economic analysis tool is also included that calculates the economic worth of the project using many economic and performance parameters.
The Hybrid2 code employs a user-friendly graphical user interface (GUI) and a glossary of terms commonly associated with hybrid power systems. Hybrid2 is also packaged with a library of equipment to assist the user in designing hybrid power systems. Each piece of equipment is commercially available and uses the manufacturers' specifications. In addition, the library includes sample power systems and projects that the user can use as a template. Two levels of output are provided: a summary, and a detailed time-step-by-time-step description of power flows. A graphical results interface (GRI) allows for easy and in-depth review of the detailed simulation results.
The RETScreen Renewable Energy Project Analysis Software has been developed to help decision makers and planners evaluate renewable energy projects in the initial planning stage. The RETScreen International software is useful for both decision support and capacity-building purposes. In terms of decision support, the software provides a common platform for evaluating project proposals while significantly reducing the costs, time, and errors associated with preparing preliminary feasibility studies. Regarding its capacity-building benefits, the software — together with the on-line product, cost and weather databases, and on-line user manual — serves as an educational tool. RETScreen International includes performance simulation models for wind power, photovoltaic systems, small hydropower, active solar air and water heating, passive solar heating, biomass heating, and geothermal heat pumps.
Energy-10™, an award-winning PC-based design tool, helps architects and building designers quickly identify the most cost-effective, energy-saving measures for small commercial and residential buildings. Energy-10™ can identify the best combination of energy-efficient strategies, including daylighting, passive solar heating, and high-efficiency mechanical systems. Using Energy-10™ at a project's start takes less than an hour and can result in energy savings of 40%-70%, with little or no increase in construction cost.
The array of various renewable energy, conventional energy, and energy efficiency options bring with them a wide range of both real and perceived risks. It is useful to categorize these risks as follows:
Technical risks — including errors in resource assessment or changes in resources over time, technology performance and maturity (or lack thereof), future maintenance requirements, and competing technology advancements that may make a technology obsolete.
Institutional risks — including changes in federal or tribal policies and challenges to the formation of legal entities (such as a tribal utility, energy service company, or business).
Environmental risks — including air, water, and land pollution; destruction of spiritual sites or native plants; harm to protected species, such as avian impacts; and contributions to climate change.
Financial risks — including potential cash flow difficulties and changes in the price of electricity.
These risks are often interrelated. For example, an overly optimistic resource assessment could result in a financial disappointment, or a change in federal policy could increase water pollution and result in increased fish kills.
Effectively evaluating risk mitigates unpleasant surprises, but different technical options bring with them different risks. Wind power development mitigates air pollution, but may impact endangered species if located in important flyways. Coal bed methane development may pollute rivers if the extracted water is not re-injected into the coal seam. And the list goes on.
The primary message at this stage of the strategic planning process is simply to recognize that different options carry widely differing risks. For a project to move forward smoothly and provide the expected financial results, it is important to evaluate and be aware of the potential risks, and mitigate them early.
At this point in the process, tribal loads have been assessed, efficiency improvements articulated, renewable resource and technology options evaluated, organizational and environmental challenges addressed, conventional energy supplies identified, the power market quantified, and the economics and risks brought into focus. What combination of solutions makes the most technical, institutional, financial, and environmental sense?
There is often not a single answer, hence the phrase "combination of solutions." The figure below illustrates the elements that need to be integrated.
Tribal institutional issues are at the center of this diagram. While there are interrelationships between all four of these elements, the institutional decisions will be the glue that ties the project together and moves the project forward. While the institutional arrangement will certainly be influenced by the technical, financial, and environmental aspects of the project, these other elements must support the tribal institutional decision, and that resulting tribal entity must balance the competing interests of the technical, environmental, and financial realities. Various institutional options are explored in more depth under Organizational Development. But at this early stage in strategic planning, the key institution is likely to be the tribal council, or the energy champion who is charged by the council to review the options and to bring forth recommendations.
There is no magic formula for collapsing the universe of energy options into a coherent combination of solutions. There are usually tradeoffs between technical, financial, and environmental objectives. It is the challenge and responsibility of the energy champion, backed by the tribal council, to make wise decisions that meet the needs and desires of the tribe.
Creating a Time Line
Unlike the challenges of options integration, preparing a strategic energy plan is relatively straightforward: Simply write down a description of where you want to go, and how you want to get there. If you have been thorough up to this point, this vision should be apparent, but there will be many details to figure out.
It is not the objective of the plan to figure out all the details. It is the objective of the plan to list as many of the details as possible — of things that must be further investigated and quantified — and to begin to identify these within a textual or graphic time line, where it becomes possible to visualize the flow of the project from start to completion. As the plan unfolds, it will be possible to determine "critical path" items, identify long-lead-time items, sequence project decisions, and provide a management tool that can be used to help track progress.