Energy Efficiency - Electricity Market and Policy - Lawrence Berkeley ...

Energy Efficiency - Electricity Market and Policy - Lawrence Berkeley ...

Utility Customer-Funded EnergyEfficiency 101Presentation for South Dakota Public Utilities CommissionAugust 2013Steven R. SchillerSenior AdvisorElectricity Markets and Policy GroupLawrence Berkeley National LaboratoryThis work was supported by the National Electricity Delivery Division of the U.S. Department of Energy’s Office of ElectricityDelivery and Energy Reliability under Lawrence Berkeley National Laboratory Contract No. DE-AC02-05CH11231.

What is Energy Efficiency?

Efficiency versus ConservationEnergy Conservation:Doing with less of a service in order tosave energy– Using less energy and probably gettingless of a result– Example: Turning down the thermostat toget less heatingEnergy Efficiency:The use of less energy to provide thesame or an improved level of service– Using less energy to perform the samefunction– Example: A more efficient furnaceExample: Turning street lightsoff versus installing efficientstreetlight lamps and controlsLBNL presentation for SD PUC August 2013 4

Energy Efficiency System SavingsLBNL presentation for SD PUC August 2013 5

Energy Efficiency Project SavingsLBNL presentation for SD PUC August 2013 6

Documenting Energy Efficiency Savings1. Verify potential to generate savings2. Determine lifetime savingsExample: Lighting RetrofitPotential to save:Before: 60 Watts/fixtureAfter: 13 Watts/fixtureSavings:Determined based on operatinghours and lifetime of lampsExample: New CarPotential to save:Before: 10 MPGAfter: 50 MPGSavings:Determined based on how manymiles driven and for how manyyearsLBNL presentation for SD PUC August 2013 7

Why do Energy Efficiency?• Has already done a lot to reduce wasting of energy• Is relatively cheap—reduces investment requirements forsupply-side resources:» Lower generation, transmission, distribution capitol costs» Lower fuel and other operating costs» Reduced risk and exposure to market volatility• There are plenty of opportunities• Not a limited resource—new technologies and strategies• Can be quickly implemented• Can be targeted, modular, manageable• Diversifies resource portfolios/increases system reliabilityLBNL presentation for SD PUC August 2013 9

EE Reduces a Utility’s Cost to Serve• EE avoids the need for newgeneration additions whichreduces capitalexpenditures• EE reduces total sales andpeak demand whichreduces energy productioncostsCase 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032BAU P P M P M M P PMod. EE P P P & M M M P PP – Peaker M – Mid-Merit Red – Deferred Plant1. Power/Capital ExpenditureBudget Savings ($B, 20-Yr. PV)0.87Mod. EE1.23Agg. EELBNL presentation for SD PUC August 201310

Example of Rates, Bills, andParticipants – illustrative example from New EnglandUtility – presentation slide courtesy of Tim Woolf of SynapseExample – LowInvestmentEfficiency ScenarioExample – HighInvestmentEfficiency ScenarioRates Impacts Bill Impacts Participation(% of Total Rate) (% of Total Bill) (% of Customers)New Construction 0.4% -16.2% 0.5%HVAC 0.4% -4.7% 0.3%Retrofit 0.4% -10.5% 2.0%Lighting 0.4% -1.6% 23.5%Products 0.4% -2.5% 3.2%Non-Participants 0.4% 0.4% majorityRates Impacts Bill Impacts Participation(% of Total Rate) (% of Total Bill) (% of Customers)New Construction 1.6% -15.6% 1.9%HVAC 1.6% -4.1% 1.0%Retrofit 1.6% -9.9% 7.9%Lighting 1.6% -1.0% 94.0%Products 1.6% -1.8% 12.7%Non-Participants 1.6% 1.6% minorityLBNL presentation for SD PUC August 2013 11

Takes Time for Financial Benefits from EE toReach Ratepayers (and Utility Shareholders)Costs are incurred firstyearbut effects ofprograms are felt overthe entire lifetime of themeasures (~4-20years)Annual All-In Retail Rate(Cents/kWh, Nominal)26242220181614121086420-2DSM Programs OfferedBAU Agg. EE ChangeTiming and scale ofbenefits will depend onutility-specificconditions (e.g., coststructure, historic testyear, regulatorystructure and rate casetiming, underlying costgrowth)Annual Ratepayer Bills($B, Nominal)181614121086420-2DSM Programs OfferedBill Savings (right axis)BAUAgg. EE1,8001,6001,4001,2001,0008006004002000-200Annual Bill Savings ($M, Nominal)LBNL presentation for SD PUC August 201312

Two Comments on Financial Impacts• Impact on Non-Participants:• Rates, at least in short to medium term, probably go up• Program participation rates are a key aspect of this customerequity issue – bigger programs and more inclusive programdesigns result in more participants – fewer non-participants• Impact on Utilities: Since EE defers the need to buildmore power plants, fewer capital dollars are spentand with lower sales:• Utility revenues between rate cases can be lower thananticipated• Potentially reducing utility profits and shareholder returns• Quantifying the participant, non-participant and utilityimpacts requires South Dakota specific analysesLBNL presentation for SD PUC August 2013 13

Non-Energy Benefits of Energy Efficiency• Virtually all energy efficiency programs have objectivesassociated with reducing energy use and costs• However, there is a wide range of other non-energybenefits (NEB) that come from energy efficiencyactivities—these can negative or positive• NEBs can be categorized as those accruing to:− Utilities (energy providers)− Society as a whole− Individual participants• For consumers, these NEBs may actually drive theirinterest in efficiency investmentsLBNL presentation for SD PUC August 2013 14

Non-Energy Benefits: Utility & SocietalValueHedge valueReduced commodity pricesresulting from reduced demandEasing electricity/gasdistribution/transmissioncapacity constraints andenhancement of reliabilityAvoided transmission anddistribution capital andoperating costsEnvironmental benefitsCustomer bill collection andservice-related savingsCan provide access to energysavings opportunities for allmarketsEconomic developmentImpactReduction of consumer exposure to volatility in electricity/gas commodity costsReduction in aggregate demand puts downward pressure on wholesale market electric andgas commodity prices(localized) Reduced line losses, voltage support (reliability), and power qualityimprovementsReduces the likelihood of gas curtailments, and may eliminate or delays the need for localcapital intensive system upgrades(localized) Particularly valuable in areas with high energy use, high demand growth, and/orconstrained distribution systemsProduction and consumption of electricity/gas has environmental impacts.Avoiding shut-off notices, shutoffs/reconnects, and carrying costs on arrearagesVirtually all consumers can participate in energy efficiency programsEE programs can support greater net job growth than electricity/ gas supply and deliveryLBNL presentation for SD PUC August 2013 15

Non-Energy Benefits: Jobs• Direct. Jobs are in firms that are actually receivingthe efficiency program dollars and doing the energyefficiency work• Indirect. Jobs in firms supplying goods and servicesto energy efficiency firms• Induced. Those created by the demand generated bywage and business income from energy efficiencyinvestments and by energy bill savings.LBNL presentation for SD PUC August 2013 16

Non-Energy Benefits: Participant Benefits• Indoor air quality improvements, improved comfort (e.g., quality of light,less noise, fewer drafts, better building temperature control), higherproductivity and lower rates of absenteeism through better-performingenergy using systems (e.g., ventilation, building shell, lighting)• Reduced equipment operations and maintenance (O&M) costs because ofmore efficient, robust systems (although more complex systems couldrequire more maintenance)• Water and wastewater savings• Positive personal perceptions (e.g., “green,” environmentalconsciousness) and for commercial businesses and public entities,improved public perceptions and the ability to market products and tenantleases• Avoided capital cost for equipment or building component replacementswhose capital costs can be paid from savingsLBNL presentation for SD PUC August 2013 17

What are the Barriers to EnergyEfficiency?

Barriers to Energy EfficiencyEfficiency’s Version of the Tragedy of the CommonsEfficiency is a great costeffectivemechanism forsociety to save energy andother NEBs, but…there isa paradox ….It is not necessarily thechoice that individualenergy users makebecause of various marketbarriersLBNL presentation for SD PUC August 2013 19

Barriers to Energy Efficiency• Front-end investment requirements• Principal agent problem (property owner/tenant)• Lack of information and understanding of benefits (and risks)• Transaction costs• Lack of knowledgeable contractors, suppliers, etc.• Uncertainty in documenting benefitsLBNL presentation for SD PUC August 2013 20

Barriers to Energy EfficiencyExamples of issues in different marketsInstitutional/Public SectorBuildings− Large backlog of deferred capitalinvestments− Lack of financial resources− Lack of people resourcesCommercial Businesses− Split incentive problem− Lack of interest even in long tenancysituations since energy costs representsmall percentage of business costsResidential− Poor: not able to make investments− Middle class: lack financing− Well-off: energy costs represent a smallportion of disposable income so not thatinterested− Split incentive problem• Tenants pay energy bills• No incentive for owner improvementsIndustrial− Short investment horizon (1-3 yearpaybacks sought)− Energy costs can represent smallpercentage of business costsLBNL presentation for SD PUC August 201321

What are the Types of EnergyEfficiency Programs?

Energy Efficiency ProgramsSavings Hierarchy for Most EE Programs• Fundamental savings unit aremeasures—equipment or strategy• Projects are coordinated activities toinstall one ore more measures at a facility• Programs are collections ofsimilar projects that are intendedfor a specific market (adescribable group of customers)• Portfolios are multiple programinitiatives in specific marketsectorsLBNL presentation for SD PUC August 2013 23

Energy Efficiency ProgramsPublic Mechanisms and Regulatory Approaches—Voluntary and Mandatory• Voluntary Programs− Down-market: customer rebates− Mid-market and up-market: contractor and manufacturerincentives− Education, technical assistance and training programs• Mandatory Programs− Building codes− Appliance standards− Energy efficiency resource standardsLBNL presentation for SD PUC August 2013 24

New Construction and Retrofits• New Construction – more efficient than what wouldhave been built• Retrofits - two kinds of measures:– Replace on burnout = replace equipment whenexisting equipment fails– Early replacement = replace equipment before theend of the useful life of existing equipmentLBNL presentation for SD PUC August 2013 25

Energy Efficiency ProgramsExamples of common program types (and support activities)Program Administrator PortfolioResidentialCommercialIndustrial &AgricultureCross Cutting &OtherLow IncomeWhole HomeProgramsConsumerProducts RebateCustomPrescriptiveCustomPrescriptiveMulti-SectorCross CuttingLow IncomeWhole HomeRetrofit, HomePerformanceElectronicsWhole BuildingsHVACIndustrial & AgProcessMotorsCodes &StandardsEM&VAudits –standalone,onsiteLightingRCxLightingData CentersAg. Prescriptive(Pumps)MarketTransformationMarketing &EducationDirect InstallAppliancesSmall CommercialPerf. Contracts,BiddingRefrigeratedWarehousesMulti-SectorEquipmentRebateLBNL presentation for SD PUC August 2013 26

What are the Metrics for Success?LBNL presentation for SD PUC 27 August 2013

Metrics for EE ProgramsTypical Metrics and GoalsEnergy Benefits• Total savings for a project,program, or portfolio• Total savings for a State• Energy use indices—e.g.,energy consumption per capitaor per gross state product• Annual and lifetimeCost Effectiveness• Net Economic Benefits• Costs per unit of savedenergy—administrator costsConsumer Benefits• Bill reductions/increases• Rate reductions/increasesOther Benefits• Stability of energy markets,national security, etc.• Avoided T&D or generationinvestments• Creation of private sectormarket of energy efficiencyservices and products—jobcreationLBNL presentation for SD PUC August 2013 28

Why Evaluate?• Document impacts. Document the energysavings of projects and programs in order todetermine how well they have met their goals;e.g., has there been a good use of the investedmoney and time? Provide PROOF of theeffectiveness of energy management.• Resource Planning. To support energyresource planning by understanding thehistorical and future resource contributions ofenergy efficiency as compared to other energyresources. Provide data to support efficiency asa reliable resource.• Understand why the effects occurred.Identify ways to improve current and futureprojects and programs as well as select futureprojects. “You can’t manage what you don’tmeasure” and “Things that are measured tendto improve.”LBNL presentation for SD PUC August 2013 31

Metrics for EE ProgramsGetting to Metrics: Evaluation TypesEvaluation Type Description Example UsesImpact EvaluationProcess EvaluationMarket EffectsEvaluationQuantifies direct and indirect changes associatedwith the subject program(s)Indicates how the procedures associated withprogram design and implementation are performingfrom both the administrator’s and the participants’perspectivesAnalyzes how the overall supply chain and marketfor energy efficiency products have been affected bythe program.Determines the amount of energy anddemand savedIdentifies how program designs andprocesses can be improvedCharacterizes changes that haveoccurred in efficiency markets andwhether they are attributable to andsustainable with or without the programCost-EffectivenessEvaluationQuantifies the costs of program implementation andcompares them with program benefitsDetermines whether an energyefficiency program is a cost-effectiveinvestment compared with otherprograms and energy supply resourcesLBNL presentation for SD PUC August 2013 32

What is the Size of the UtilityCustomer-Funded EE Market?

The Customer-Funded EE MarketSize of Utility Customer-Funded EE Market—Context• Policies supporting customer-funded EE programs have proliferatedover the past 5-10 years, leading to substantial growth in programactivity• LBNL conducted an analysis in 2009 to project spending andsavings from customer-funded EE programs to 2020• In 2012 that study was updated to extend that earlier analysis to2025 with “low”, “medium” and “high” case scenariosLBNL presentation for SD PUC August 2013 34

The Customer-Funded EE MarketCurrent EE spending at an all-time high, butconcentrated in a handful of states2010 Customer-Funded EE Program Spending ($M)Rank State Electric Gas Total1 CA 938 201 1,1392 NY 482 39 5213 NJ 191 126 3174 MA 245 72 3175 WA 218 29 2476 FL 165 11 1767 OR 135 23 1588 MN 107 36 1449 CT 108 12 11910 MI 75 41 116All Other States 1,284 247 1,531U.S. Total 3,948 838 4,786• Total Electric and gas EEprogram spending more thandoubled over latter half ofdecade (from $2B in 2006 to$4.8B in 2010)• Roughly 80%/20% split betweenelectric and gas programspending• Two thirds of total U.S. spendingconcentrated in 10 statesSource: CEE (2012), excludes load managementLBNL presentation for SD PUC August 2013 35

The Customer-Funded EE MarketKey policy drivers for EE program spending and savings projectionsKey Policy Drivers for Energy EfficiencySpending and SavingsEnergy Efficiency ResourceStandard (EERS)Energy efficiency eligibilityunder state RPSApplicable to Electric EfficiencyProgramsAZ, CA, CO, HI, IL, IN, MD, MI, MN,MO, NM, NY, OH, PA, TXHI, MI, NC, OH, NVApplicable to Natural GasEfficiency ProgramsCA, CO, MI, MN, NY, ILStatutory requirement thatutilities acquire all costeffectiveenergy efficiencySystems benefit chargesIntegrated resource planningDemand Side Managementplan or energy efficiencybudgetCA, CT, MA, RI, VT, WACA, CT, DC, MA, ME, MT, NH, NJ,NY, OH, OR, RI, VT, WI34 States (primarily in the West andSoutheast) and TVACA, CT, MA, RI, VT, WACA, DC, ME, MT, NJ, NY, RI,WI17 States (primarily in the Westand Northeast)28 States 21 States (primarily in theNortheast and Midwest)LBNL presentation for SD PUC August 2013 36

The Customer-Funded EE MarketTotal U.S. Electric Program Spending Increases across multiple scenariosScenarioProjected SpendingProjected SpendingAverage Annual Spending Growth($B, nominal)(% of Revenues)2015 2020 2025 2015 2020 2025 2010-2015 2015-2020 2020-2025Low 4.8 5.2 5.5 1.2% 1.2% 1.1% 4% 2% 1%Medium 6.5 7.4 8.1 1.7% 1.8% 1.7% 11% 3% 2%High 8.3 10.8 12.2 2.2% 2.6% 2.7% 16% 5% 3%Projected Electric Energy Efficiency Program Spending• Across all three scenarios, electric EE program spending grows in nominal dollars to 2010($3.9 billion)• Electric program spending as a percentage of electric utility revenues grows in themedium and high cases, but remains flat at 2010 level (1.1% of revenues) in the low case• In 2010, total incremental annual savings from electric EE programs was 18.4 TWh or0.5% of U.S. retail electric sales (ACEEE)• Projected annual incremental savings rise to 28.8 TWh in 2025 in medium case, about a55% increase from 2010LBNL presentation for SD PUC August 2013 37

The Customer-Funded EE MarketElectric EE spending growth driven by Midwest & South• Populous Midwest states withaggressive EERS are rampingup (IL, IN, MI, OH)• Spending growth in South drivenby several larger states withmodest EERS policies and/ornascent IRP/DSM planningprocesses (FL, TX, NC, MD, KY)• In Northeast and West, whichhistorically have dominated theEE program landscape,spending also increases in themedium case, but more slowlythan the other two regionsProjected Electric EE Program Spending byCensus Region (2025)LBNL presentation for SD PUC August 2013 38

The Customer-Funded EE MarketElectric savings could offset a large portion of projectedload growth• Projected annual incremental savingsrise to 0.76% by 2025 in medium case• EIA’s 2012 reference case projectsthat U.S. electric retail sales will growby 0.58% annually through 2025• Projected EE savings in the mediumcase would largely offset forecastedelectric load growthProjected Incremental Annual Electric EESavings from Customer-Funded Programs(Percent of Retail Sales)LBNL presentation for SD PUC August 2013 39

What are Major EfficiencyPolicy/Regulatory Issues in the US?

EE Policy/Regulatory IssuesBroad policy and market context issues:• A persistent economic downturn may impact the ability of EEadministrators to meet savings targets as well as the politicalfeasibility of increasing ratepayer funding for EE programs• Low natural gas prices reduce the avoided energy forecast and theheadroom for cost-effective EE, as well as participant interest• The effect of new Federal appliance and lighting efficiency standardson the remaining market potential for voluntary EE programs• EE programs can be part of the compliance solution for retiring coalfiredunits—how much reliance on EE vs. supply-side options?LBNL presentation for SD PUC August 2013 41

EE Policy/Regulatory IssuesEE Program funding and regulatory oversight issues:• Funding levels and short-term rate impacts associated with large-scaleenergy efficiency implementation• Innovative program designs to reach deeper and broader savings inorder to achieve goals significantly beyond current achievement –increase customer participation• Sustainable EE business models to motivate utilities to participate in apositive manner - utilities’ earnings capabilities not hindered bycustomer efficiency with opportunities to receive additional earnings forexcellent performance• Efficiency is treated and analyzed as an actual resource• Near-term, shortage of trained personnel in the energy efficiencyservices sectorLBNL presentation for SD PUC August 2013 42

EE Policy/Regulatory IssuesEE Program focus and design issues:• Who pays vs. program spending (equity objectives)• Maximize cost-effectiveness vs. opportunities for all customers toparticipate• Targeted to under-served markets & utility customers• Program administration costs vs. other costs (e.g., incentives)• Types of programs• Retrofit vs. “lost opportunity”• Information/education vs. “subsidies” (incentives)• Natural gas and electricity efficiency interactions• Role of utility versus private sector service and product providers• Balance activities with near and long-term impactsLBNL presentation for SD PUC August 2013 43

Natural Gas and Electricity Efficiency –Partners or Adversaries?Good:Bad?:• Packaging electricity and naturalgas efficiency measures can bebeneficial for consumers –residential, commercial andindustrial• With low natural costs (and thedifficulty of showing costeffectivenessof natural gasmeasures), evaluating costeffectivenessat theElectricity/natural gas portfoliolevel can help justify natural gasmeasures• Competition and potential for fuelswitching between natural gas andelectric only utilities can createunintended consequencesOpportunity:Coordinated, joint delivery ofservices can:– Reduce usage for both electricityand gas– Is more cost-effective withreduced transaction costsLBNL presentation for SD PUC August 2013 44

Role of Program Administrator andOther Market ParticipantsCreating vibrant energy efficiency services industry involves regulatordefining roles of administrator and implementers• Distribution utilities are in unique position to influence efficiencyactivities− Substantial customer reach—field representatives− Customer perception as trusted advisor: objective− Access to customer bills—financing, credit-worthiness− Information on customer energy usage patterns• Private sector energy efficiency services industry may be inhibited ifutilities provide one-stop source of information, financing, technicaladvice, program delivery & implementation− As relationships between efficiency service providers and customersstrengthen, customer/utility bond shifts to a market driven by private sector− Regulators can critically review utility role as primary programimplementersLBNL presentation for SD PUC August 2013 45

Example Utility/Private Sector Roles:Commercial Sector Lighting RetrofitsProject InitiationDistrib. Utility RepsEnd-UserLighting DesignElectrical Design &Equipment SpecificationComponentManfacturingFixture Design &ManufacturingEquipment DistributionEquipment Procurement& InstallationEnd-UseEnergy ServicesMarketers (ElectricalContractor/ESCO)EquipRepsElectricalEngineerArchitectBallast Manufacturers Other Mfgs Lamp ManufacturersUtilityFixture ManufacturersElectrical Equipment Distributors/ESCOsElectrical Contractors/Property Managers/ESCOsEnd-Users/Property ManagersUtilityLBNL presentation for SD PUC August 2013 46

Program focus: near-term savings vs.long-term market impacts• Resource acquisition. The primaryobjective of this program category is todirectly achieve energy and/or demandsavings, and possibly avoid emissions,through specific actions.• Market transformation (MT). The primaryobjective of this program category is tochange the way in which energyefficiency markets operate (e.g., howmanufacturers, distributors, retailers,consumers, and others sell and buyenergy- related products and services),which tends to result in more indirectenergy and demand savings.• Multiple objectives. Programs can includesome or all of the above-listed objectives.MARKETPENETRATIONYEARSLBNL presentation for SD PUC August 2013 47

Final Notes - key elements for programdesign and the efficiency market• These programs are strategic efforts tointervene in a market−−−−−−Begin with the market in mindFocus on market barriers andopportunitiesListen to consumer and trade alliesUse utility channels and brandsKeep participation simpleHave a program theory—“why will thisprogram work?”• Leverage private sector expertise andfunding• Start with demonstrated programmodels—build for future infrastructure• Ensure efficiency investments deliverresults—impact, process and marketevaluation−−−−Goals:Beneficial changes in the structureor function of the market or thebehavior of market participants,Increase in the adoption of energyefficient products, services, and/orpracticesMaximize participation ofconsumersLasting or sustained change - thetargeted market changes lastbeyond the programLBNL presentation for SD PUC August 2013 48

Thank YouSteven SchillerSenior AdvisorElectricity Markets and Policy GroupLawrence Berkeley National Laboratory1.510.655.8668srschiller@lbl.govLBNL presentation for SD PUC August 2013 49

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