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Energy Efficiency as a Resource: The Power of Getting More from Less

Alternative Energy

A successful transition to a 21st Century Electricity System requires careful consideration of a range of issues that will ultimately redefine the regulatory framework and utility business model while creating new opportunities for third-party providers and customers to contribute to the operation of the electricity system.

 In this third in a series published by Utility Dive, AEE explores traditional and “pay for performance” approaches to energy efficiency (EE). 

Energy efficiency (EE), broadly defined, means using less energy to provide the same, or often superior, energy services. EE is most commonly thought of as technologies that reduce energy use relative to traditional technologies, such as LED lighting and high efficiency appliances and heating and cooling equipment.

But today, EE also includes the use of sophisticated energy management systems, internet-connected thermostats, and data analytics. Many benefits come from EE technologies and practices, including cost savings for customers, consumer empowerment and engagement, improved facility operations and building energy system reliability, enhanced grid performance, reductions in electricity bills, and job creation.

EE is widely recognized as the lowest cost resource for meeting electricity needs. Strong EE polices and investments help keep electricity bills low for all by reducing the need for new and expensive generating assets, as well as new transmission and distribution infrastructure. In 2016, The U.S. building efficiency sector accounted for nearly $70 billion in revenue and there were about 2.2 million U.S. jobsassociated with energy efficiency.

The EE market has undergone significant changes in response to developments in technologies, markets, and public policies. This has largely been driven by the influx of connected devices, deployment of advanced metering functionality and the “internet of things,” which have increased the ability of utilities, third parties, and customers to remotely access data and act upon it. In addition, there continue to be advances in EE technologies and new innovative tools that leverage this new data-rich environment to provide personalized and actionable information about energy consumption.

Despite its many benefits, EE faces numerous barriers to achieving its full potential. To overcome these barriers, states implement policies such as energy efficiency resource standards (EERS), revenue decoupling, and stricter building codes and standards. Utility integrated resource plans (IRPs) that take into consideration demand-side technologies, as well as robust EE potential studies, are also important for achieving high levels of energy savings.

In addition, the increasing sophistication of EE products and services opens up the possibility of innovative solutions and approaches that value EE as a resource on par with traditional, supply-side options. Such market-driven EE, in its various forms, can serve as an important component of the electric grid of the future, and be a complement to more traditional EE policies.

A variety of delivery mechanisms exist for EE, tailored to the needs of different customer types. So-called mass-market customers (residential and small commercial) are typically best served directly by utility programs, whereas free-market mechanisms by industry and energy service companies (ESCOs), as well as utilities, serve larger commercial and industrial customers.

Utility-sponsored programs are typically funded by public purpose customer surcharges on electric bills. Because they must pass various benefit-cost tests, if these programs are not cost-effective, state utility commissions will not authorize them.

Lawrence Berkeley National Laboratory estimates the U.S. average “total cost of saved energy” for customer-funded utility EE programs at $46/MWh, based on an analysis of programs in 20 states over a five-year period. And because some of these costs are borne by participants, the average costs to the program administrator (usually the utility) are even less, at just over $20/MWh.

While utilities typically serve as the program administrators, program delivery is usually done by third parties, either acting on behalf of the utilities as contracted agents, or in delivering products and services directly to participating customers via the competitive marketplace. This combination has proved very effective at delivering value for all customers – participants and non-participants alike – while achieving state policy objectives.

Outside of traditional utility programs, various market constructs provide opportunities for cost-effective energy efficiency delivery, including Pay for Performance (P4P) and other industry-led innovations. This includes performance contracting offered by ESCOs, which primarily service municipalities, universities, schools, and hospitals – collectively termed the “MUSH” market.

For performance contracting, ESCOs evaluate and install a package of EE measures for their customers. Often, those installations have little or no up-front cost to the customer, as ESCOs recover their costs through the energy savings generated. In fact, if the project does not generate the savings forecasted, ESCOs pay the customer the difference.

In other P4P models, there are two primary ways in which energy efficiency savings are paid: standard-offer programs, which set a price for each unit of energy saved, and bidding programs, in which implementers or customers compete for contracts that specify an amount of energy savings to be achieved, and pay the price offered by bidders for savings as they occur.

P4P has the potential to grow as more granular data about customer energy use becomes available, allowing for more accurate measurement of actual savings, as opposed to the deemed savings approaches that have been used in the past. While more common with commercial and industrial customers, this approach has the potential to expand to smaller customers via the participation of third-party aggregators. For example, smart meter data can be used for energy savings calculations that form the basis for P4P procurements.

Utilities can also issue EE requests for offers (RFO) to the competitive market to solve an identified need. Pacific Gas & Electric in California is issuing RFOs for EE projects and other greenhouse gas-free energy resources to replace the generation from the Diablo Canyon nuclear power plant, which is set to retire in 2025. The first round of RFOs will be for EE only.

As the electricity sector continues to evolve, energy efficiency will play an increasingly important role in a modern electricity system. Policymakers and regulators have a range of established and emerging practices to ensure that markets for EE continue to grow and make the most out of innovative technologies and services.

Taking advantage of the latest technology and data analytics, in particular, opens up possibilities for new EE procurement models that can continue to drive cost-effective EE deployment, save money for customers, and improve the electric power system for all.

Energy Collective

12 Comments on "Energy Efficiency as a Resource: The Power of Getting More from Less"

  1. Kenz300 on Sat, 28th Oct 2017 10:37 am 

    Battery storage is a game changer making wind and solar base load power.
    Clean energy production with solar panels / tiles and battery storage.
    Clean energy consumption with electric vehicles. No emissions.
    A new solar roof, battery storage, an electric car charger and an electric vehicle.
    Solar panels are now being projected to have a much longer life than just a few years ago.
    Electric cars, electric trucks, electric lawn mowers, electric snow blowers, electric tools, no emissions.

  2. dave thompson on Sat, 28th Oct 2017 10:55 am 

    Using electricity for transportation at this stage has a long way to go. 87% of transportation is done with FF. Further, the issue of e-waste is never discussed in land of renewable energy. A transition to solar and wind with battery back up and all the devices that go along with it means every 10-20 years it all has to be replaced. What will we be leaving to the future generations? Take a look at it now.

  3. dave thompson on Sat, 28th Oct 2017 10:57 am 

    Using electricity for transportation at this stage has a long way to go.
    87% of transportation is done with FF.
    Further, the issue of e-waste is never discussed in the land of renewable energy. A transition to solar and wind with battery back up and all the devices that go along with it means every 10-20 years it all has to be replaced.
    What will we be leaving to the future generations? Take a look at it now.

  4. dave thompson on Sat, 28th Oct 2017 10:58 am 

    Using electricity for transportation at this stage has a long way to go.
    87% of transportation is done with FF.
    Further, the issue of e-waste is never discussed in the land of renewable energy.
    A transition to solar and wind with battery back up and all the devices that go along with it means every 10-20 years it all has to be replaced.
    What will we be leaving to the future generations? Take a look at it now.
    Just Google e waste pictures.

  5. Anonymouse1 on Sat, 28th Oct 2017 6:22 pm 

    It is worth remembering, energy efficiency, while a laudable goal in of itself, is, like, so many things in this age, not always what it appears.

    The driving motivation behind energy efficiency, is seldom, if ever, about reducing the total amount of energy in use. In fact, I am almost certain you would be hard pressed to find *any* official org promoting such a goal putting it in those terms. Rather, it is about using the energy freed up, to distribute to all the new ‘consumers’ constantly coming on-stream. The net result? Total energy consumed grows constantly, even with ‘efficiency’ initiatives. Total energy use only really seems to decrease during recessions\depressions, and those are usually transient conditions. Once the economy ‘recovers’, total energy use goes up again, along with the population. Looking at how the ‘system’ really works(currently), one would be forgiven if concluding the most effective way tool to reduce energy use is poverty, depressions, or a population crash. The way energy is provided and priced out, makes it far too cheap to obtain and easy to waste, and that is exactly what people do.

    Ken-Z-parrots blammering on about batteries is totally beside the point. He hasn’t a clue, and never will.

  6. Anonymouse1 on Sat, 28th Oct 2017 6:23 pm 

    Mmm, the site sure mangled that post, strange.

  7. makati1 on Sat, 28th Oct 2017 6:59 pm 

    dave, the techies here never think about replacement costs or timeline. All they see are promises of a techie heaven. lol

  8. Boat on Sat, 28th Oct 2017 9:21 pm 

    amous, aka, another non google fool.

    In 2016, total energy use per person (“per capita consumption”) in the United States was 302 million British thermal units (Btu)[1,2]. 31% of this was from industrial use, 29% from transportation, 21% from residential use, and 19% from commercial use[1]. Per-person energy use in the United States decreased by 9.6% from 2006 to 2016[3].

    You try to tie efficiency with sex. Like a stupid would. Per capita, energy use in the states is down. Almost 10 percent in 10 years.

  9. Anonymouse1 on Sat, 28th Oct 2017 10:02 pm 

    Did you forget to your retard medicine today boatietard?

    Of course you did. You should look for them in your pile of coloring books and crayons.

  10. Davy on Sun, 29th Oct 2017 5:55 am 

    There are limits to energy efficiency. There are diminishing returns that kick in at a point. Complexity makes the system more brittle and at risk. I am not saying we should not do some of this. I am saying we need to be sober and specific where we use energy efficiency efforts. At the same time we need to be making efforts at demand management with strategies of increasing reliance and sustainability. Some of this involves renewables but a lot of it involves education. Pure unadulterated techno optimistic efforts are just malinvestment long term because they assume ever increasing affluence which is a farce.

    We need people to know energy is going to become much more expensive in relative terms and absolute terms. This is because of limits and diminishing returns no matter how far off they are and they are closer daily. Currently low interest rates and artificial liquidity have allowed bubbles. These bubbles have artificially generated an oil glut and a renewable energy price decline. These efforts were driven by cheap money and over capacity caused by central bank distorting economics. If we wade through the sewer of unreality that is today’s global economy we can see the future does not look good on the fossil fuel front or the alternative energy front.

    An economic contraction will cause an already harmed fossil fuel industry to contract even more. Don’t let the glut fool you. New discoveries are very poor. New projects are not being invested in a healthy aggregate way. All that investment needed to keep the infrastructure healthy is not great. On the renewable energy front we have price hype. Renewable energy costs for equipment and applications into the grid are not realistic per the hype if rates and capital liquidity were normalized. Governments are subsidizing these industries heavily and that can’t last especially if there is a down turn in the economic situation. Economies always cycle and they long are cycle is delayed the worse they are. Maybe this down turn will come 5 years from now. In that case much needed building out of renewables will occur but don’t think for a moment a renewable revolution leading to an over 50% transition is guaranteed. A 100% renewable transition is likely not even possible per physics and human nature.

    We have a global economy at or near a phase change. This is being held together by dubious central bank policy and frothy markets. This is not some kind of health club with yoga and wheat grass drinks. This is a pub in a low rent district with alcoholics wasting away talking fast cars and loose women. I am all for as much renewable penetration as possible. I am all for specific and targeted energy efficiency policy. I am all for careful reduction of fossil fuels were we can. But I am mostly for rational and honest self-reflection of a very poor situation we are in.

    One must remember that it takes a healthy economy to do all this and we are marginally healthy now as in we are robbing Peter to pay Paul in wealth transfer and a gutting of the social and ecosystem fabric. Even my pet peeve demand management takes money because it takes policy and education. The altered behavior has an opportunity cost. Nothing is free in this world of catch 22 predicaments. We will have to pay the piper any which way we go. Altered behavior has a costs direct and indirect. There are consequences and unintended consequences. I am all for energy efficiency, demand management, efforts at renewable energy but let’s not forget we have huge problems so let’s keep it realistic. Let remember diminishing returns is in effect with technology and economics. Let’s remember we have huge problems that really are predicaments we are in denial of.

  11. Sissyfuss on Sun, 29th Oct 2017 9:09 am 

    Future generations will be much more penurious with their energy use. It goes hand in hand with collapse.

  12. Anonymouse1 on Sun, 29th Oct 2017 5:49 pm 

    Whenever I google ‘retard’, all I get is links and posts with your name them, boatietard.

    Google, working as intended.

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