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indicated in Figure A.2, avoided capacity costs start at approximately $7 per MWh in
2012, and increase to approximately $22 per MWh in 2031, with a levelized cost of
about $14 per MWh.
The costs in the first few years are based on the FCA floor prices. The costs then
gradually increase as the supply of capacity becomes tighter. Finally, the costs increase
to the capacity costs associated with a peaking unit in the years 2024 - 2026 when new
capacity is needed on the system.
(Note that we made some minor modifications to the avoided capacity costs shown in
Figure A.2 for the years 2016 through 2019. We removed the floor prices in the FCM for
these years because they are now outdated and removing them provides a clearer,
more generally applicable indication of likely changes in capacity market prices over
time. Specifically, we increased the 2015 avoided capacity cost by five percent each
year for 2016 through 2019, instead of using the projected avoided costs for those years.
This modification was not applied in the illustrative examples throughout the report; it
was only applied to simplify this chart.)
Avoided Transmission and Distribution Costs
Local transmission and distribution (T&D) infrastructure costs are avoided by efficiency
programs due to a reduction in the timing and/or size of new T&D projects that have to
be built, resulting from the reduction in electric energy that has to be delivered (Synapse
2011, p.1-4). The basic method in most avoided-T&D estimates is to divide actual or
expected investment by actual or expected load growth.
Not all types of future T&D investments will be deferrable or avoidable as a result of
reduced load growth from energy efficiency. A significant portion of T&D investments
might be needed regardless of load growth as a result of deterioration of T&D
equipment, on-going maintenance and upgrades, or other factors.
Each utility in New England uses utility-specific estimates of avoided T&D, although a
consistent method is utilized by each utility. In New England, avoided transmission
estimates range from $1.25 per kW-year (or $0.26 per MWh) to $20.30 per kW-year (or
$4.21 per MWh). Avoided distribution estimates range from $29.74 per kW-year (or
$6.17 per MWh) to $109.25 per kW-year (or $22.68 per MWh) (Synapse 2011, p.6-70).
The methods used by each utility to forecast avoided T&D costs are based on the
relationship between historic T&D costs and historic loads. The future T&D costs in New
England, especially transmission costs, are expected to be significantly higher than
those in recent years. Therefore, it is quite likely that the forecast of avoided T&D costs
listed above turn out to be significantly lower than the actual avoided T&D costs.
Price Suppression Effects
In regions of the country with organized wholesale energy and capacity markets, energy
efficiency programs can reduce demand, which then can lead to reduced wholesale
energy and capacity prices. Because wholesale energy and capacity markets provide a
single clearing price to all wholesale customers purchasing power in the relevant time
period, the reductions in wholesale energy and capacity clearing prices are experienced
by all customers of those markets. Thus, even a small reduction in a market clearing
price can result in significant cost reductions across the entire market. This effect is
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