Best Practices in Energy Efficiency Program Screening - Synapse ...

In general, the fundamental assumption of behavior in competitive energy markets is
that generators will bid their marginal cost of producing electric energy into the energy
market. Their marginal cost is based on the unit’s opportunity cost of fuel, variable
operating and maintenance costs, and opportunity cost of tradable permits for air
emissions (Synapse 2011, p.2-21).
In New England, natural gas fired units are the dominant marginal source of generation,
i.e., they set the market price in most hours of most years (Synapse 2011, p.1-10).
Annual gas use for electric generation in New England has been forecasted to grow by
an average of 0.6% between 2011 and 2025, and by an average of 1.3% thereafter
(Synapse 2011, p.3-2). Therefore, when combined with additional assumptions about
the New England market and natural gas prices, the AESC study projects that avoided
energy costs will increase over time.
The annual avoided energy costs developed by the AESC Study, as well as a single 20year
levelized avoided cost, are summarized in Figure A.1 (see Synapse 2011, App.
B). As presented in Figure A.1, avoided energy costs start at approximately $54 per
MWh in 2012, and increase to approximately $100 per MWh by 2031, with a levelized
cost of $78 per MWh. The avoided energy costs are weighted by the four energy
costing periods: summer on-peak, summer off-peak, winter on-peak, and summer offpeak
(Synapse 2011, p.2-1).
Figure A.1. Avoided Energy Costs
Avoided Capacity Costs
Similar to energy costs, capacity costs are avoided by efficiency programs due to a
reduction in the annual quantity of electric capacity that utilities and competitive suppliers
are obligated to acquire to ensure an adequate quantity of generation during hours of
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