2020 Looks Like the Breakout Year for Building Decarbonization in California

Policymakers are coalescing around electrification as the solution for squeezing carbon out of buildings. Is the market ready?

California has just 25 years to achieve its economywide carbon-neutrality target. Buildings account for about a quarter of California’s greenhouse gas emissions, so concerted efforts will be needed to squeeze carbon out of the sector, especially existing buildings.

State policymakers are increasingly coalescing around a solution: electrification. As a recent California Energy Commission (CEC) report put it: “There is a growing consensus that building electrification is the most viable and predictable path to zero-emission buildings.”

Recent events underscore this sentiment. California regulators just overhauled a legacy policy that acted as a brake on building electrification. New incentives for electric appliances could be available by the end of this year. Meanwhile, local governments across California are moving to adopt bans on new natural-gas hookups, grabbing the attention of the state’s powerful oil and gas industry.

Combine all these elements, and it looks like California policymakers have primed the market for builders, installers and manufacturers to step up and deliver solutions for zero-emission buildings. Or, as Building Decarbonization Coalition Director Panama Bartholomy put it to Greentech Media: “2020 looks like it will be the year we all remember as the beginning of the end of gas.”

Goodbye to the three-prong test

On August 1, regulators removed one of the primary policy barriers to building decarbonization when the California Public Utilities Commission voted to revisethe so-called “three-prong test.” This outdated policy had prevented the state’s investor-owned utilities (IOUs) from offering incentives to customers who wanted to replace natural-gas-fired appliances with more efficient electric models.

Electric heat pumps, to cite one example, can consume five times less energy than conventional electric and gas heating versions, according to the California Energy Commission.

The three-prong test dates to the early 1990s, before lawmakers had established California’s renewable portfolio standard and other measures to decarbonize the state’s power grid. At the time, natural gas was viewed as the cleaner fuel for appliances.

The three “prongs” of the test stipulated that the IOUs could not promote fuel substitution unless the swap was better from an energy savings, cost and environmental performance perspective. The rules were also intended to prevent the electric utility Southern California Edison and single-fuel Southern California Gas Company from poaching each other’s customers in their overlapping service territories.

The recent and unanimous CPUC vote to tweak the three-prong test makes it easier to demonstrate the cost-effectiveness of electric appliances in fuel-substitution applications. And it established carbon emissions as the metric for determining the environmental impact.

Wave of natural-gas bans

The move also makes the state’s billions of ratepayer-funded energy efficiency dollars available for rebates for electric space and water heating equipment.

According to CPUC spokesperson Terrie Prosper, consumers should expect to see rebates from the state’s IOUs for electric appliances like heat pumps, induction cooktops and clothes dryers by the middle of next year.

“Since most of these fuel substitution measures are going to be new, the [IOUs] need to submit documentation to the CPUC identifying energy and greenhouse gas savings they expect to receive from replacing a particular natural gas appliance with a particular electric appliance,” she wrote in an email.

“Given this, at the earliest, the IOUs may be ready to roll out some incentives for residential fuel substitution measures by mid- to late 2020,” she added.

The vote to revise the three-prong test was followed by the release of a proposed decision by the CPUC to set aside $4 million under the Self-Generation Incentive Program for load-shifting electric heat pump water heaters, effective April 1, 2020.

About the same time next year, programs authorized by SB 1477, legislation which directs $50 million annually over four years to advance low-carbon heating technologies in new construction and existing buildings, are expected to take effect.

The flurry of activity by the state has been matched by California cities asserting their own authority to advance zero-emission buildings.

Last month, the Berkeley City Council adopted a first-in-the-nation ordinancebanning natural-gas hookups in new low-rise multifamily buildings beginning January 1, 2020. The San Luis Obispo City Council is expected to vote on a similar measure in September, and dozens more California cities and counties are likely to follow.

The prospect of a wave of local government natural-gas bans clearly worries California’s oil and gas lobby.

“Wow. Can you imagine if every local municipality takes up this issue? It’s death by a thousand cuts,” Western States Petroleum Association President Catherine Reheis-Boyd told a gas industry forum in Los Angeles earlier this month. “California has picked a winner, and it’s not oil and gas.”

Electrification incentives could be offered this year

While California’s IOUs likely won’t offer electrification incentives until the second half of 2020, existing programs could do so by the end of 2019.

In an interview, Nick Dirr, director of programs at the Association for Energy Affordability (AEA), said energy-efficiency program implementers could incorporate electrification incentives as soon as they receive approval from the CPUC this fall.

CPUC staff has 90 days from the day commissioners voted to revise the three-prong test, August 1, to issue guidance to program administrators on how to include electric appliances in incentive programs.

“Once they do that, we already have an existing program where almost literally the next day we could incorporate those offerings,” said Dirr.

AEA runs multifamily building energy-efficiency programs for BayREN, a ratepayer-funded collaboration of the nine San Francisco Bay Area counties.

AEA’s BayREN work focuses on whole-building retrofits. Under the program rules, energy retrofit packages must include at least three measures that together shave energy consumption by at least 10 percent to 15 percent. Once the threshold is reached, property owners are eligible for a $750 rebate per dwelling unit.

As soon as the CPUC determines whether individual electric appliances adhere to the new fuel-substitution rules, AEA plans to add heat pumps to its eligible measures list.

Market ramps up for 2020

With so many electrification initiatives or incentive programs expected to launch in 2020, energy industry veterans are increasingly confident California will once again be a market-mover.

“We are a giant incubator for new industries. The modern wind industry was born in California. The modern solar industry, born in California. The first energy-efficiency standards and codes, born here in California. The electric vehicle industry, born here in California,” CEC chair David Hochschild said at an Electric Power Research Institute electrification symposium last month in Berkeley.

“What we do now on electrification in the building sector and the transportation sector can be incredibly impactful,” he added.

The Building Decarbonization Coalition’s Bartholomy said his membership, which includes equipment manufacturers, is ramping up for 2020.

Heat-pump manufacturers expect a significant increase in adoption, said David Lis, director of technology and market solutions at Northeast Energy Efficiency Partnerships. “Based on my experience in the Northeast,” Lis wrote in an email, “increased adoption of heat pumps has brought investment from manufacturers in the form of stepped-up installer training, marketing, engagement with efficiency programs, and engagement with community efforts.”

To be sure, more new and expanded programs will be necessary for California to hit its 2045 carbon-neutrality target. The Golden State needs a California Solar Initiative-style program for electric heat pump water heaters, said CEC’s Hochschild.

“We should have a robust, long-term incentive program. We got to 1 million solar roofs because we had a 10-year, $3 billion program,” he said at the Electric Power Research Institute’s Berkeley electrification symposium.

AEA’s Dirr said his team is working with building owners to have projects ready to go as soon as electrification measures are approved by the CPUC under the new three-prong test.

“We’re working with properties every day where we are going out and identifying opportunities,” he said.

“We’re telling them, ‘Sit tight. You can get some bids. Think about construction feasibility. And as soon as the dust settles here in the next few months, we’ll be able to provide you with rebates to do that work.’”


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