Why efficient buildings are key to decarbonizing the power grid

It’s not hard to understand why energy-efficiency investments will make it easier to decarbonize homes, offices, stores and other buildings. What’s less obvious — but no less important — is the role more efficient and grid-responsive buildings can play in helping to ease the transition to a carbon-free grid.

A report released this week sheds more light on the crucial relationship between upfront investments to make buildings more energy-efficient and a drastically lower cost of switching to 100 percent clean electricity. The new report also includes some nitty-gritty data to help utilities and regulators integrate these findings into their real-world planning.

The report, from the Department of Energy’s Lawrence Berkeley National Laboratory and energy consulting firm Brattle Group, finds that a massive investment in commercial and residential building investments could cut annual power system costs involved with achieving nationwide carbon-free electricity by 2050 by as much as $107 billion per year. Compared to the business-as-usual scenario, that would shave more than one-third off the cost of decarbonizing the country’s power supply.

Those savings would require both significant investments in energy efficiency, as well as outfitting buildings with the technology required to shift electricity use based on the ups and downs of solar and wind power, a capability known as ​“demand flexibility.”

Even under a scenario of achieving an 80 percent carbon-free grid by 2050, the savings on grid-upgrade costs derived from building upgrades outweighed the costs. In both cases, the grid savings from energy efficiency (EE) and demand flexibility (DF) outweighed the cost of the building improvements. 

“If we can make progress on making buildings more flexible and efficient now, that’s going to pay off in the long run,” said Jared Langevin, a Berkeley Lab research scientist and lead author of the report.

Ryan Hledik, a principal with Brattle Group and report co-author, agreed that the findings ​“put a spotlight on the importance of energy efficiency and demand flexibility for decarbonization more broadly, not just when we think about decarbonizing buildings.” Those investments are ​“key to making the transition affordable.”

The link between more grid-friendly buildings and a cheaper clean grid is fairly straightforward. As buildings switch from fossil-fueled to electric heating and cooking — a must in order to cut their carbon emissions — they’ll need to become far more efficient in how they use that electricity to avoid overwhelming the grid with new demand for power.

Technology that can shift power use away from times when the grid is strained, like smart-thermostat-controlled air conditioners, electric water heaters, grid-responsive refrigerators, clothes dryers and dishwashers and other such tools of demand flexibility, is also vital to keeping grid costs down. Utilities and grid operators already ask customers to reduce power use when extreme weather is pushing the grid to the verge of blackouts, a practice known as ​“demand response.”

A more strategic deployment of these demand-management techniques would reduce the need for building power plants and grid infrastructure to meet rare moments of extremely high demand, which can make up as much as a quarter of total grid and power plant costs.

These aren’t new discoveries. Utilities and regulators are already investing in efficiency and demand flexibility as a cheaper ​“non-wires alternative” to new grid and generation investments, albeit at a much slower pace than studies indicate is necessary to tap their full potential. The Department of Energy has been pressing this link between buildings and the grid for years as part of its Grid-Interactive Efficient Buildings Initiative, which has helped fund pilot projects of these upgrades across the country.

Brattle’s previous work with DOE has shown the potential for grid-interactive and efficient buildings to deliver between $100 billion and $200 billion in power system savings by 2030. DOE has used data from Lawrence Berkeley National Laboratory (LBNL) and other national labs to inform its goal of tripling the energy efficiency and demand flexibility of the buildings sector by 2030 compared to 2020 levels.

What makes LBNL and Brattle’s latest national analysis different from many past studies, Langevin and Hledik said, is its reliance on far more detailed data, tied to real-world grid modeling processes and reflecting real-world trends in building efficiency and electrification. This could be relevant for utilities and regulators trying to capture the full value that building upgrades can bring to their grid investment plans.

“We’re trying to characterize the potential in a way that speaks the language of power-sector modelers and policy experts,” Langevin said. That’s something that’s been largely underrepresented in grid planning to date, but it ​“can help move the needle in terms of decision-making on the utility side.”

Data: The missing link to connecting buildings and the grid

Right now, utilities do consider building energy efficiency and demand flexibility as part of their grid investment plans, Hledik said. But they tend to use fairly simple methods to do it.

Often, they’ll rely on historical data to determine what they can expect out of buildings in the future, including ​“a few different energy-efficiency measures that look similar in terms of their cost and savings profile.”

That’s a reasonable way to avoid unrealistic assumptions about the impact of efficiency investments, he noted. But it also limits planners’ ability to consider the impact of different combinations of new technology and expanding policy and economic drivers that are likely to make the buildings of the future perform very differently than the buildings of the past.

Beyond the modeling challenges, utilities and regulators are also leery of relying on their customers to invest in efficiency and load-shifting at a scale that would obviate the need for more traditional investments in new power plants and more power lines, he said.

“Most utilities and system operators still traditionally prefer resources where they can press a button” and order a power plant to start running, he said. ​“We still have some risk aversion to work on for that mindset to change” when it comes to building efficiency and demand flexibility being considered dependable, he said.

That’s why LBNL’s data set is so important, Langevin said — it can help shift that mindset. The new report uses some of the most detailed building-energy data now available, breaking down the impact of an array of different energy efficiency and demand flexibility measures across a multitude of residential and commercial building types. The report’s models can also be updated with new data on an annual basis, which means that grid planners using it can keep up with changes in the building mix over time. 

That includes ​“what we call sector-level load shapes,” he said — measures of the aggregate, incremental impacts of hundreds of different efficiency, electrification or flexibility measures at a grid-region level and also down to the hour. That level of granularity is crucial when modeling a high-renewables grid, which can fluctuate widely depending on geography and time of day. Despite the importance of this specificity, most utility planners ​“haven’t seen this level of…granularity represented in a planning study at a national scope.”

As a result, the new data could give utilities and their state regulators, as well as the regional transmission organizations and independent system operators that manage transmission and generation planning across wide swaths of the country, ​“a good starting point to understand the opportunities” for building efficiency and demand flexibility to play a greater role in their grid plans, he said.

But how can utilities, regulators and grid planners trust that all of those building-efficiency and demand-flexibility investments will actually show up at the scale needed to allow them to forgo costlier but more familiar investments in generation and grid capacity? ​“The other thing that’s novel about this work,” Langevin said of the new report, ​“is the degree of realism we tried to reflect in the bottom-up modeling” of those building investments.

That bottom-up modeling includes the impact of local, state and federal energy efficiency and building-electrification policies, including the billions of dollars of tax credits and incentives flowing from the Inflation Reduction Act. It also reflects how modern building codes and standards, and the increasing availability of more cost-effective and grid-responsive electric heating and cooling systems, will encourage wider adoption over time.

“There’s a lot of action already around decarbonizing the building sector” in the U.S., he said. But most utility and grid planning is still implicitly forecasting the historical or current levels of building efficiency deployment into the future. ​“It’s not going to be able to characterize that we’ll see a higher level of efficiency deployment, not just through expanded utility efficiency programs, but also through these other deployment levers.”

Early action is needed to make the most of what buildings can do for the grid

Utilities and policymakers have little time to waste if they hope to capture the full cost-cutting value of more efficient and grid-interactive buildings. If they lack confidence that buildings are really getting more efficient and better at demand flexibility, they’ll simply have to build the additional generation and grid capacity needed to meet the peak loads they expect over the years to come. And doing so requires them to spend money that more efficient and flexible buildings could help them save.

And in the long run, the cost of making a 100 percent carbon-free grid happen without more efficient and demand-flexible buildings could become prohibitive, Hledik said. Brattle’s modeling shows that ​“you get to this point in 2035 where you say, ​‘OK, the fossil generation is gone, everything we’re building is carbon-free’ — and we need the round-the-clock flexibility” to ensure that power can be supplied in all conditions.

As many large-scale models of high-renewables grids have indicated, Brattle’s model shows that eliminating the final 20 percent of grid carbon emissions is ​“when the cost of serving all that new load becomes really expensive.”

That’s why upgrading buildings is so important, Hledik pointed out. Grid constraints are already preventing new clean energy projects from being built and connected. Even when power grid expansion projects can overcome permitting challenges and public opposition, they can take more than a decade to move from inception to completion.

Faced with those barriers to expanding the system that supplies clean energy, ​“electrification and energy efficiency become a way to keep up with that demand growth,” he said. ​“Regulators are going to want to see it done in the most affordable and cost-effective way possible.”