Energy efficiency is recognized as a low-cost, reliable resource, yet investments in efficiency programs lag far behind the level needed to capture all cost-effective efficiency resources. Energy efficiency is often undervalued, in large part because many of the benefits it generates can be difficult to analyze and quantify. The Regulatory Assistance Project (RAP) aims to help policymakers recognize and quantify all of the benefits of efficiency programs, with the goal of justifying greater investment in efficiency resources.

In Recognizing the Full Value of Energy Efficiency, Jim Lazar and Ken Colburn identify three categories of efficiency benefits—utility system, participant, and societal benefits—and provide guidance for properly quantifying each type. Drawing on a “layer cake” analogy, the authors build each layer of benefits to create a cake that is taller and more valuable than many recognize.

“When it only accounted for energy benefits, New Zealand’s Heat Smart weatherization program generated benefits roughly equivalent to the cost of the program—probably not enough to justify funding the program,” said Mr. Lazar. “But, when they started to build their layer cake, they discovered that the program created significant health benefits, including a 43% reduction in hospital admissions for respiratory ailments. When those were included in the analysis, the benefits increased to almost ten times the costs.”

State utility commissions can support increased efficiency investments by conducting a full valuation of energy efficiency benefits, which includes measurement of benefits and costs, with detailed economic evaluation of the complete effects. In many cases, only electric utility-related benefits are considered when evaluating energy efficiency measures. Other benefits, including resource benefits like water, sewer, and natural gas savings, have been regarded as “externalities” – external to power system considerations – and typically are not evaluated, despite clear evidence of the magnitude of these benefits to society. In addition, non-energy benefits, including maintenance cost savings, worker productivity, and health benefits are often ignored.  However, the non-electricity benefits of efficiency measures are often equal to or greater than the energy benefits. As a result, excluding them from regulatory consideration enhances the potential for suboptimal economic, social, and environmental outcomes.

“Many regulators exclude not only the future costs of complying with pending emission regulations, but also the damage costs in health and other impacts of not complying,” said Mr. Colburn.  “All costs are relevant to a decision to move ahead, and all benefits are also relevant.”

By examining the full spectrum of energy efficiency benefits, energy regulators can also determine areas that have benefits outside of energy, and where it may be appropriate for a joint consideration of those benefits with air, water, health, low-income assistance, and economic development agencies. If water, sewer, natural gas, and solid waste utilities can be added as partners, additional funding for energy efficiency may be obtained.

“Where cost-effectiveness depends on non-electricity benefits, such as the water savings associated with an efficient clothes washer, the utility commission can seek additional funding partners,” recommends Mr. Lazar.

Join RAP for a webinar on Wednesday, October 9th from 1:00 to 2:00 p.m. EDT to learn more. Mr. Lazar and Mr. Colburn will share case studies demonstrating how different states quantify the significant categories of efficiency savings.