The Next Quantum Leap in Electric Efficiency—Game On
Ten years ago, the most aggressive electric efficiency efforts in the country were achieving first-year electric savings of about 1.0 percent of annual sales.
Today, at least five different states have—or plan to—double those levels of savings, achieving between 2.0 and 2.5 percent first-year savings annually. Since 2006, nationwide customer efficiency spending has nearly quadrupled, from $1.6 to $5.9 billion, and substantial additional savings have been realized through federal equipment efficiency standards, building codes, and other regulatory mechanisms.
By many measures, we have made solid progress on energy efficiency over the last decade. But there continues to be room for more of this low-cost, high-benefit resource.
“It looks like many states are getting the message,” says Rich Sedano, RAP principal and US program director. “Every state may want to take a fresh look at the possibilities for upping their game on energy efficiency—there continues to be considerable space to grow.”
We at RAP think that the efficiency bar could be raised substantially. In our recent paper, The Next Quantum Leap in Efficiency: 30 Percent Electric Savings in 10 Years, we examine whether it would be possible to meet 30 percent of electricity system needs in ten years with efficiency.*
Among other things, energy efficiency helps avoid more expensive investments in transmission and distribution infrastructure. For instance, just recently the New England Independent System Operator deferred planned transmission investments worth $400 million in Vermont and New Hampshire alone as a result of those states’ efficiency programs. Efficiency reduces business and homeowner exposure to fuel price volatility and other forms of risk, suppresses wholesale market prices, and helps reduce a utility’s costs of environmental compliance—a point that becomes even more important in the future, given the U.S. EPA’s Clean Power Plan and new ozone standards.
Though very aggressive—requiring half-again or even double the savings that even the leading states are achieving today—we conclude that the goal of 30 percent over ten years is achievable with commitment to promoting efficiency investment whenever it is cost-effective. Meeting the goal will also require innovative thinking and approaches, including:
- Increasing efficiency program funding to whatever level is necessary to capture all cost-effective efficiency;
- Eliminating utilities’ financial disincentives to support efficiency;
- Fixing the way energy savings goals are structured;
- Fully valuing all of the benefits of efficiency;
- Encouraging and rewarding market transformation efforts;
- Striking a better balance in the regulation of utility efficiency programs;
- Exploring new regulatory approaches to acquisition of efficiency resources; and
- Broadening, accelerating, and improving the effectiveness of efficiency codes and standards, including building disclosure and performance standards.
“As states come to appreciate that the cost of savings from ratepayer-funded efficiency programs are currently only one-half to one-third of the average cost of electricity from new power plants,” Sedano says, “and that efficiency builds communities and reduces waste and risk, they will start to give efficiency greater attention. Game on.”
*What Do We Mean by “30 Percent Savings in Ten Years?”
Savings targets can be defined in many ways, with significantly different economic and policy implications. The “30 percent savings in ten years” target considered in the study discussed above is defined as follows:
- Only savings in homes and businesses. We do not consider reductions in line losses, power plant heat rate improvements, or other changes on the utility’s side of the meter.
- Just efficiency. We do not consider impacts of customer-sited renewables that generate rather than reduce consumption of electricity.
- Affecting electricity consumption ten years from now. Our focus is on savings that will be in effect at the end of a ten-year period. For example, savings from measures installed in 2016, but that last for only a few years, would not count. Thus, our target is expressed in the form of a much longer-term objective than the “first-year savings” goals currently used in most states.
- Relative to a “Business as Usual” Baseline. We focus on incremental savings that would result from new policies or program interventions. We do not count, for example, savings from federal lighting efficiency standards that have already been promulgated. Nor do we count savings that are forecast to occur “naturally” as markets evolve. In the parlance of the efficiency industry, our focus is on “net savings.”