Monday Study – A Real Solution For Texas

Energy Efficiency And Demand Response: Tools To Address Texas’s Reliability Challenges

Steven Nadel, Christine Gerbode, and Jennifer Amann, October 2021 (American Council for an Energy Efficient Economy)

Executive Summary

Texas has recently experienced major electric reliability problems, as illustrated by large load shedding during Winter Storm Uri in February 2021. This event reflected the extraordinarily high demand for electric home heating (from inefficient homes and equipment) combined with the loss of 50% of the state’s generation fleet (due to freezing weather, fuel supply, and equipment failures). The Electric Reliability Council of Texas (ERCOT), the power system serving 90% of Texans, also faces summer supply challenges, as illustrated by calls for power conservation in June 2021. In that case, the shortage was driven by a large number of plants being out of service for unplanned repairs. ERCOT’s energy-only wholesale market design and evolving generation resource mix are widely viewed as complicating the task of maintaining reliability as the power supply mix changes.

Numerous solutions have been proposed to address these problems, including subsidized winterization of existing power plants and critical grid infrastructure, and construction of many new power plants. For instance, two proposals would invest $8 billion in a fleet of new gas-fired power plants—to be used only in emergency conditions but charged to all ERCOT electric customers. An alternate way to address these problems is to expand Texas’s currently limited energy efficiency (EE) and demand response (DR) programs, with a focus on programs that can substantially reduce summer and winter peak demand. This latter approach is the focus of this analysis, which explores the impact of a set of utilityadministered energy efficiency and demand response programs targeting the residential sector. 1

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We find that a set of seven residential energy efficiency and demand response retrofit measures, deployed aggressively under statewide direction over five years (2022 start-up, 2023–2027 deployment) could serve about 9 million Texas households and offset about 7,650 MW of summer peak load and 11,400 MW of winter peak load—approximately equaling the capability of the proposed new gas combined-cycle generators—at a 5-year total programmatic cost of about $4.9 billion. This would be 39% less costly than the $8 billion of capital investment proposed for new, rarely used gas plants, and fully avoid additional costs for generator fuel, maintenance, and transmission infrastructure. Once installed, these efficiency measures would continue delivering around-the-clock comfort, energy and energy bill savings, and peak load reduction for 10- to 20-year measure lives.

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Ongoing investment in EE and DR could continue growing these customer savings benefits over time, while giving ERCOT and the Commission time to stabilize the supply-side power market rules and infrastructure.

Specifically, this paper looks at seven residential retrofit measures selected for their proven capability to reduce summer or winter peak electricity demand. We also considered the impacts of a planned federal phaseout of incandescent lamps on energy demand in Texas. This paper estimates these measures’ potential to improve ERCOT’s system reliability by cutting summer or winter peak loads or delivering grid flexibility services:

• Program to replace electric furnaces with ENERGY STAR® heat pumps

• Attic insulation and sealing incentive program

• Smart thermostat incentive program

• Heat pump water heaters incentive program

• Central air conditioner demand response program with smart thermostat control

• Water heater demand response program

• Electric vehicle managed charging program

• Federal incandescent lamp phaseout (a federal measure that will have impacts in Texas)

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Overall, we found that aggressive deployment of the first 7 of these EE and DR measures over 5 years, reaching about 9 million Texas households (single-family and multifamily), could reduce winter peaks in Texas by about 11,400 MW and summer peaks by about 7,650 MW (from what they would otherwise be; see figure ES-1). This nearly matches the total generation capacity of ten new gas-fired combined-cycle power plants of 800 MW each (similar to recent proposals), without incurring additional costs for gas fuel or additional transmission and distribution capital investments to serve increased load. The summer demand reductions are about 10% of Texas’s all-time summer peak while the winter reductions are about 15% of what the peak would have been in February 2021 had power been provided to all customers without power shutoffs. The incandescent lamp phaseout adds 500 MW of summer peak reductions and 2,200 MW of winter peak reductions. Not including the incandescent lamp savings, the seven programs will reduce annual electricity consumption by about 6,600 million kWh of electricity, equivalent to the annual power draw of about 580,000 Texas homes (i.e., more homes than in Dallas).

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Results by program are summarized in table ES-1. The largest winter peak reductions come from replacing electric furnaces with heat pumps. The largest summer peak reductions are from central air conditioner demand response. The attic insulation and sealing program has the largest energy (kWh) savings while the smart thermostat program has the best benefitcost ratio. The attic insulation and sealing program will improve resident comfort and safety in extreme weather events in addition to energy and peak savings. This program accounts for about 60% of the total cost of the seven-program package but is foundational to make heating and cooling measures more effective.

The first seven proposed programs will cost about $700 million in the first full-scale year and about $1 billion per year for the next four years. We recommend that 2022 be used for program planning and launch, with 2023 being the first full year of expanded programs. For 2022 we recommend that present energy efficiency and demand response budgets be doubled from the $140 million budgeted in 2021 to about $280 million in 2022. This increased budget can be used to plan and begin implementing scaled-up programs and can also be used to assess and assist contractors who implement programs and install measures to scale up their operations, including in rural areas. New federal programs could make substantial contributions to these budgets as discussed in the body of the report.

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While these costs are substantial, new power plants will cost even more in terms of capital costs but will deliver capacity and energy more slowly, with additional costs for fuel and maintenance that must be paid each year. For the energy efficiency and demand response programs we modeled, annual operating costs to the utilities are included in the $1 billion/year budget. Over the life of these measures, the average cost of these energy savings is about 5.6 cents/kWh, nearly half the 10 cents/kWh avoided cost estimated by the Public Utility Commission of Texas (PUCT) and less than half the 12 cents/kWh average residential electric rate in Texas. And when extreme Arctic storms or summer heat waves strike, these measures will already be installed in homes, protecting Texans and posing no deliverability challenges.

Our analysis is a preliminary one, intended to offer ballpark estimates for what energy efficiency and demand response could accomplish quickly in Texas. Additional analysis will be needed. ACEEE is prepared to conduct a more detailed analysis looking more fully at programs costs, load shape impacts, rate impacts, and employment impacts (e.g., these investments will create many jobs).

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The bottom line is that the energy efficiency and load management programs examined will deliver large benefits to Texas consumers and utilities. Consumers will benefit from the following:

• Reduced peak demand in summer and winter will enhance grid reliability by better balancing power demand and supply and creating more grid flexibility tools with demand response. These measures will make Texas much less likely to reach the demand-supply imbalance that triggers power curtailments.

• Lower energy bills (due to reduced consumption and reduced need for utility capital expenditures) will be useful for all Texas households but particularly useful for low- and moderate-income Texas households who often face high energy bills as a percent of their income.

• Improved comfort, safety, and health because insulation and sealing will make homes more comfortable and better able to retain temperatures during power outages, among other non-energy benefits.

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Utilities will see reduced capital needs because lower demand will decrease needed transmission and distribution investments. ERCOT and Texas residents will benefit from a more reliable grid that is less vulnerable to increasing extreme weather events.

These measures focus on residential energy efficiency retrofit measures, since Texas’s large stock of old, inefficient homes is where much of the state’s energy waste is occurring. But since Texas’s population and economy are growing at robust rates, Texas can and should capture additional long-term energy savings and avoid locking in additional energy waste by adopting more rigorous energy efficiency standards for all new building construction.

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Texas is now at a crossroads. The state can continue on the same path that led to massive power curtailments in February 2021 and more limited ones in June 2021. Or Texas can diversify its energy portfolio by tapping the huge potential of inefficient homes, buildings, and appliances to create energy efficiency and demand response resources that save money and improve reliability for all Texans.

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