Catalyst with Shayle Kann - What electric forklifts teach us about creative policy [partner content]

Episode Date: October 11, 2023

This is a partner podcast episode, brought to you by DNV. Wes Whited and Angie Ziech-Malek work for DNV designing efficiency, electrification, and decarbonization programs for utilities. And lately, they’ve been paying attention to electric forklifts. There are 1.5 million forklifts sold in the U.S. every year. And converting that vast fleet to run on lithium-ion batteries could be a cost-effective way to boost electrification – and add a helpful resource for demand management to the grid. Speeding up adoption means getting the utility involved in the education and promotion process. The forklift example is one of many creative approaches to program design that are emerging in the wake of the Inflation Reduction Act, which expanded incentives for a wide range of clean energy technologies. In this episode, Wes and Angie talk with Stephen Lacey about how technology progress, creative thinking, and the Inflation Reduction Act are all aligning in transformative ways. After you listen to the episode, make sure to read DNV’s Energy Transition Outlook North America.

This is a branded podcast from Latitude Studios. West Widet is a principal consultant at DMV. He helps utilities design efficiency, electrification, and decarbonization programs. And lately, he's had electric forklifts on his mind. Basically, an electrified forklift is able to leverage the advances of lithium ion technology that's been really brought about through the R&D to bring EVs to scale. I was working on behalf of a large electric utility,

and they were in a state where they had electrification. goals. This is one of the first states to be assigned electrification goal. And our task was to design a program that can have the largest impact with the quickest amount of speed. Forklifts are the perfect opportunity for speed and impact. There are 1.5 million forklists sold in the U.S. every year. And converting that vastly to run on lithium ion batteries could be a cost-effective way to boost electrification and add a helpful resource for demand management to the grid. And so I quickly started researching technologies, talking to different CEOs and national sales managers, and I started hearing nine times out of 10 today, I'm bringing up lithium-ion

fork trucks whenever I'm talking to my customers. But in five or six years, I think that that conversation is going to be reversed. But how do you accelerate a five- or six-year demand cycle into one or two years? Speeding up adoption means addressing traditional barriers and getting the utility involved in the education and promotion process. Customers are really oriented on first cost today, but I know that there's going to be lower total lifetime operating cost over the technology, where my customers are not aware of some of the advantages energy or non-energy related to this technology, which not only solves some fundamental kind of power-related problems, but it creates a better operating environment for the people that are actually

working in the warehousing and material handling space as well. It's a kind of a case study in policy creates programs which allow decarbonization to move forward in unique ways. That's Angie Zieg Malik, Wes's colleague. She's a senior consultant at DMV, who also works on designing and implementing utility programs. And she says, this forklift example illustrates the shift we're starting to see in states and utility territories around the country. Yeah, there are other states that have similar policy regimes that allow for this type of electrification. And then there's really interesting policies going on in other states encouraging electrification in less direct ways by changing cost-effectiveness regimes within demand-side management programs,

allowing things like the social cost of carbon to be included in the benefits of these types of programs and the non-energy benefits that Wes alluded to, allowing those to be captured as well and monetized and included as benefits. In this episode, produced in collaboration with DNV, we explore the evolving landscape for policy and program design in America. Wes and Angie talked with Stephen Lacey about how technology progress, creative thinking, and the Inflation Reduction Act are all aligning in transformative ways. What do you think this tells us about the way we should start to structure utility scale programs for electrification? To echo what Angie said, this is a case where the stars all align. The enabling policy was there at a time when there was a technology that had reached a performance plateau, while there was interest from the customers to begin to reap energy and non-energy benefits. From my perspective, today I'm at a conference, and one of the things I'm doing at this conference is work. working with large OEMs to determine what's in their R&D pipeline, to figure out what other

types of products that exist in our built environment today that have reached a performance plateau to begin to prep our policy makers to say, this is the type of technology that's coming. Let's go ahead and prepare that policy to limit that lag that I talked to you about there at the beginning of the call. Are there some other examples of technologies like this that you think are primed and ready for support? I think the IRA is going to unleash a large customer demand for heat pump water heaters. I think that is probably our next technology that begins to scale across the country.

I would agree. I think folks have talked about heat pumps, heat pump water heaters, heat pump space heating for quite some time. There's been a lot of excitement within, you know, Westen I's niche of clean energy program designers and utility program implementers. But I think that with something like the Inflation Reduction Act, that's a policy that could bring these types of technologies into broader awareness outside of just clean energy circles. Where do you see the biggest impact of federal dollars

through the IRA on these kinds of technologies? Can you be more specific about where you see money moving into states, utility programs to support specific technologies when we look at electrification specifically? Yeah, the IRA is pretty prescriptive. You know, I'm thinking of the two home rebate programs. There's the whole home efficiency program which allows a homeowner to address their whole home. You know, they might do a project that involves more insulation and air sealing and upgrades the HVAC. And then there's the home electrification program, which is pretty prescriptive and, you know, dollar, or, you know, covers a certain percentage of the project cost for heat pumps and heat pump water heaters and electric dryers with the intention of fuel switching end uses, you know, within the home.

And that has a pretty exciting opportunity for average folks throughout the country, no matter where they live, you know, this is a national opportunity. You know, states have to apply for this funding, yes, but putting these dollars in, in homeowners' pockets and getting these projects out to, a broader audience has the potential to spur some real market transformation. And that's really exciting and could lead to the next generation of heat pumps or the next generation of end uses to be electrified. And, you know, the hope is in parallel to that. The very generous tax credits, of course, with on the generation side, you know, as you electrify, cleaning up the generation side, so you've got a real pathway to decarbonization. What are the sources of funding that you're following most closely.

Like Angie, we're on the same team, so we're both watching the IRA dollars, but I'm really putting my focus much more on the industrial side of the IRA. And we need three, four, five test demonstration sites. One of the areas that my team has really been focused on is industrial heat pumps for high-processed temperature heating. They will have the effect of once we have these large-scale heat pumps out into the build environment, it can begin to de-rest the entire industry. which will begin to help develop these best processes,

to have others begin to decarbonize some of these harder to abate sectors. So let's talk about how the dollars are going to get deployed. Let's talk about utilities, going back to this forklift's example from the beginning, how crucial are utilities in deploying these dollars and structuring programs when we think about effectively using IRA dollars? Utilities are a huge player in these programs, mostly as a stakeholder, You know, they're not the primary issuer of these funds or these rebates or tax credits, but they have a huge role what the DOE calls maximizing the impact of these rebate dollars.

You know, the DOE recognizes, the federal government recognizes that these rebate dollars are not sufficient in themselves to, you know, cover the whole cost of an upgrade. And some households need that full cost cover. the rebates themselves are not sufficient to electrify all of the households in any given state. So the utility programs have a huge role in amplifying the impact of the Inflation Reduction Act. In a couple of ways, you know, first and foremost by layering on incentives on top of the federal rebates to, you know, really buy down the cost of those upgrades, especially for households that need it the most. And then, you know, the utility also plays a role in data sharing and evaluation and analyzing, you know, energy used, pre-and-post projects.

So the utility is a huge stakeholder here and has a role in different aspects. Wes, are utilities primed to build programs off of the back of this funding effectively? I think they are. And one of the reasons I feel that way is everyone is touched by the. utility. So the utility really has a unique relationship that no other real private entity is able to have. They touch every residential, commercial, and industrial customer in their service territory. So they are known as an energy authority. So if a utility really wants to begin to promote a specific program or a specific technology, they are uniquely positioned to do so as that authority in the

way that really no other private firm is able to do. So going to the state level, what are the states to watch when it comes to programs to programs to support electrification, and that could spawn programs like the Forklift electrification example we gave earlier. Yeah, I'm really excited about states that are changing their frameworks around traditional utility demand side management programs. You've seen some states that are moving from a strict energy savings framework where, you know, you incentivize a light bulb and you count the energy savings associated with that in KWH, and you tally them all up and you meet a goal.

Some states are moving towards greenhouse gas impacts and having goals in terms of greenhouse gas emissions, which is obviously a stronger tie to decarbonization, especially if you can measure time and location-based greenhouse gas impacts. Maryland might be moving in that direction. California has a system where they'll be considering what they call total system benefits rather than just energy savings benefits. So states like that that really are addressing the framework itself allows for programs to flourish within that framework that reduce greenhouse gas emissions.

Wes, what states or state frameworks are you keeping an eye on? I'm really interested in our more southern and our more rural states. And the reason why I am is that these are states that have never really affected. effectively invested in demand side management. They've always been attracted to electrification through low growth. And when we talk about electrification, at least from the technology perspective, it is also inherently energy efficient. Moving a customer away from a propane or a natural gas furnace onto an airstore seat pump is efficiency by default. So this is a chance to get some who have maybe never had the chance to benefit from these programs. It's going to give everyone the chance

to kind of begin the benefit from these programs. What are the areas that you're focused on on a macro scale at DNV. And where do you think we're seeing the most progress and where do you think we are lagging? Angie? Yes, I think that we are lagging in transportation electrification, but we are also seeing quite a bit of progress. We're seeing states and utilities incentivize charging infrastructure.

So we expect quite a bit of build out of, public, private charging infrastructure, which I think is a big barrier in the transportation electrification transition. So that's an area where we're lagging and where we've got some catch-up to do. For my perspective, the energy transition is going to be very expensive and no amount of public policy is going to be able to fund everything. So we need to continue to build out these private public partnerships to leverage private capital into the energy transition. I can give you a specific example. DMV believes to have a net zero global economy by 2050,

that we're going to need hydrogen to be 15% of the final fuel demand. So even right now, we think, technologically speaking, the most we're going to be able to get to is at 5%. So we are 3x behind where we need to be today. But I don't want to discourage anybody because we're starting in the industry from zero. So going from zero to 5% in and of itself is a massive amount of undertaking, but even working as fast as we can, it's still too slow to meet the

Paris Climate Accord commitments. I'm incredibly heartened that, you know, something like the Inflation Reduction Act has come into being at all. It was incredibly inspirational, and I think it's a win-win-win, you know, regardless of political environment. It's an opportunity to build coalitions around clean energy investments. I think once folks start to realize cleaner air and good jobs that will build a political constituency around these types of investments, which will then continue to feed on itself and provide a better environment for further investments. At the very least, we'll at least have a lot of electric forklifts.

Yes. and hopefully electrified farm equipment and electrified construction equipment and electrified ports and electrified air taxis and all of the things. Angie Zeke Malick is a senior consultant for policy and program development at DMV and Westwide it is a principal consultant

for program design at DMV. DMV provides advice and assurance to customers across the spectrum of the energy transition from generation to end use. Inefficiency, solar, storage, wind, grid planning, hydrogen, carbon capture, and more. In case you'd like to dive deeper into insights by a global network of experts like Wes and Angie, DMV is excited to offer the North American edition of its 2023 Energy Transition Report.

To download the report, visit the link in the show notes.