HOW TO GET THE MOST ENERGY EFFICIENCY BANG FOR THE UTILITY BUCK

Meeting Aggressive New State Goals for Utility-Sector Energy Efficiency: Examining Key Factors Associated with High Savings
Martin Kushler, Dan York and Patti Witte, March 2009 (American Council for an Energy-Efficient Economy)

SUMMARY
Meeting Aggressive New State Goals for Utility-Sector Energy Efficiency: Examining Key Factors Associated with High Savings could be the most wonkish report to date from the invaluable American Council for an Energy-Efficient Economy (ACEEE). Yet it offers invaluable insight into which states are getting the most out of the money they invest in Energy Efficency and why.

The smartest, fastest way to fight climate change is to use the many available opportunities to become more energy efficient. Many states have turned this insight into policy mandates.

Momentum is gathering behind mandates at the state level for better efficiency. It is driven by a variety of “the usual suspects:” (1) Dramatic volatility in fuel prices, (2) Unprecedentedly big increases in new power plant construction costs. (3) Diminishing energy reserve supplies to the grid and growing concerns about peak demand outages. (4) Impeded access, due to the economic downturn, to financing for the building of big power-generation projects. (5) Growing awareness of global climate change and the inevitable price on emissions that will drive power costs higher.

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There is real, substantive action at the state level. When ACEEE studied efficiency in 2004, the best states were getting 0.8% yearly improvements. Now: (1) New Minnesota legislation requires yearly energy efficiency savings to be 1.5% of a utility’s yearly energy sales. (2) New legislation in Illinois and Ohio require 2% yearly increases in energy efficiency for the coming decade. (3) New York and Maryland are developing policies requiring 2% yearly increases by 2015. (4) Vermont will require a bigger than 2% yearly improvement in efficiency from its utilities. (5) Other states are looking at requirements for 1%-to-2% yearly efficiency increases.

The study had 2 purposes: (1) Identify the states with the best utility-sector energy efficiency programs and the factors in their high performance. (2) Identify factors that most INCREASE efficiency performance by (a) studying states with high performance and (b) consulting with industry experts.

The report identifies the 14 “top states” in terms of electric utility-sector energy efficiency performance: California, Massachusetts, Connecticut, Vermont, Wisconsin, New York, Oregon, Minnesota, New Jersey, Washington, Texas, Iowa, Rhode Island, and Nevada. It then studies the factors that make them the most efficient.

Data came from 2006 & 2007. Performance benchmarks: (1) Energy efficiency spending as a percent of revenues, (2) energy efficiency spending per capita, and (3) energy efficiency savings as a percent of sales. Sector and end-use data was also considered.

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Noteworthy findings:

SPENDING on energy efficiency was relatively balanced between residential (44%) and non-residential sectors (56%) but more SAVINGS came from the non-residential sector (63%).

Lighting end-use accounted for nearly two-thirds of all savings in the states where data was available.

In the residential sector, lighting accounted for 63%-to-92% of savings.

The project reviewed utility-sector energy efficiency policies (administrative approach; type of cost recovery mechanism; whether there is a decoupling mechanism and/or shareholder incentive mechanism; whether there is an Energy Efficiency Resource Standard (EERS) requirement). Results and patterns: Table 7.

The project obtained rankings from its panel of experts on 16 key regulatory, economic and policy factors enabling a state to achieve large utility-sector energy efficiency program savings. The experts ranked the factors in terms of present and future importance

The report interviewed key representatives in the 14 states and obtained opinions on key factors contributing to strong energy efficiency accomplishments.

The report gives “summary profiles” of several of the 14 states (Appendix C).

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COMMENTARY
Although the details are more meaningful to utility wonks than consumers, the conclusions mean everything to anybody who accepts the proposition of global climate change because the lowest-hanging fruit on the New Energy tree is Energy Efficiency.

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Conclusions:
(1) Some states are getting significant utility-sector energy efficiency savings and increases over what they got earlier in this decade.
(2) Only Vermont is now getting energy efficiency savings at the 1.5%-to-2% yearly increases being called for.
(3) Key factors in getting utility-sector energy efficiency savings: (a) High levels of funding for energy efficiency programs and (b) strong legislative and regulatory requirements and support for energy efficiency.
(4) Key factors identified by experts: (a) Incentives for utilities (including both shareholder incentives and decoupling); (b) the commitment of top utility management; (c) high quality energy efficiency programs; (d) a price on emissions.

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(5) Other issues affecting utility-sector energy efficiency savings but not regarded by the panel of experts as pivotal: (a) Who administers the energy efficiency programs (utilities, state government or independent 3rd parties); (b) whether a state is “restructured”; (c) demographics; (d) climate.
(6) To date, savings have come from the lighting area and savings in other end-use and program areas must be increased.
(7) Recent big jumps in utility fuel costs and power plant construction costs make energy efficiency savings in non-lighting areas more cost-effective than they used to be. More spending on incentives to customers to boost efficiency in non-lighting areas will therefore be more economically rewarding.
(8) New initiatives and concrete actions from the leading states are described in Appendix C.

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QUOTES
ACEEE: “In just the last few years, energy efficiency has evolved from being largely a token gesture or a 'public benefits' set-aside, to being a top-priority utility system resource.”