Utility Customer-Funded Energy Efficiency Presentation to Ohio Legislative Study Committee May Charles Goldman Division Director and Staff Scientist Electricity Markets and Policy Group Lawrence Berkeley National Laboratory This work was supported by the National Electricity Delivery Division of the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability under Lawrence Berkeley National Laboratory Contract No. DE-AC02-05CH11231.

Presentation of Topics What is energy efficiency (EE) and what are some of the barriers? What is the cost of saved energy for electricity efficiency programs? Why should EE be considered a utility resource (and customer service)? 2

Efficiency versus Conservation Energy Conservation: Doing with less of a service in order to save energy Using less energy and probably getting less of a result Example: Turning down the thermostat to get less heating Energy Efficiency: The use of less energy to provide the same or an improved level of service Using less energy to perform the same function Example: A more efficient furnace Example: Turning street lights off versus installing efficient streetlight lamps and controls 3

What are the Barriers to Energy Efficiency?

Barriers to Energy Efficiency Front-end investment requirements Principal agent problem (property owner/tenant) Lack of information and understanding of benefits (and risks) Transaction costs Lack of knowledgeable contractors and/or suppliers Uncertainty in documenting benefits 5

Barriers to Energy Efficiency Examples of issues in different markets Institutional/Public Sector Buildings  Large backlog of deferred capital investments  Lack of financial resources  Lack of people resources Commercial Businesses  Split incentive problem  Lack of interest even in long tenancy situations since energy costs represent small percentage of business costs Residential  Poor: not able to make investments  Middle class: lack financing  Well-off: energy costs represent a small portion of disposable income so not that interested  Split incentive problem  Tenants pay energy bills  No incentive for owner improvements Industrial  Short investment horizon (1-3 year paybacks sought)  Energy costs can represent small percentage of business costs 6

What is the Cost of Saved Energy for Electric Efficiency Programs?

Energy Efficiency Programs Programs are collections of similar projects that are intended for a specific market (a describable group of customers) Portfolios are multiple program initiatives in specific market sectors Savings Hierarchy for Most EE Programs Fundamental savings unit are measures—equipment or strategy Projects are coordinated activities to install one ore more measures at a facility 8

LBNL Cost of Saved Energy Project The cost of saved energy (CSE) has not been comprehensively documented or analyzed at the program level Approach  Collected & analyzed reported annual EE program data in 34 states Objectives  Enable policymakers and program administrators to compare and weigh resource options  Encourage more consistent reporting of EE program impacts and costs  Enable assessment of program approaches and performance across different markets, delivery mechanisms and designs Uses for Regulators  More informed choices among demand and supply resources  Better understanding of the costs of efficiency  Keener insight and input into DSM investments 9

Data Collection and Standardization LBNL DSM Program Database Program Administrator (PA) CSE: 100+ administrators in 34 states –5,900 program years for Total Resource CSE: 50 administrators in 19 states –2,100 program years for Types of Data Collected Net & gross savings Annual incremental & lifetime savings Budgets & expenditures –Administrative costs –Incentive costs –Education, marketing & outreach Participant costs Measure lifetimes for programs Number of program participants 10 Standardization Is Critical to Aggregating Data and Comparing Performance Standard terms and definitions for program data and metrics A national typology of programs 10

Energy Efficiency Programs Program Administrator Portfolio Residential Whole Home Programs Whole Home Retrofit, Home Performance Audits – standalone, onsite Direct Install Consumer Products Rebate Electronics Lighting Appliances Commercial Custom Whole Buildings RCx Small Commercial Prescriptive HVAC Lighting Perf. Contracts, Bidding Industrial & Agriculture Custom Industrial & Ag Process Data Centers Refrigerated Warehouses Prescriptive Motors Ag. Prescriptive (Pumps) Cross Cutting & Other Multi-Sector Codes & Standards Market Transformation Multi-Sector Equipment Rebate Cross Cutting EM&V Marketing & Education Low Income Examples of common program types (and support activities) 11

Cost of Saved Electricity: National Results –The U.S. average levelized CSE is slightly more than two cents per kilowatt-hour –Residential programs had the lowest savings weighted CSE ($0.018/kWh) followed by C&I programs ($0.021/kWh) 12 n = 1752 n = 1338n = 339n = 699

Cost of Saved Electricity: Commercial and Industrial Programs –C&I Custom (287) and Prescriptive (259) programs were the most common and had savings-weighted average CSE below $0.02/kWh 13

Cost of Saved Electricity: Residential Programs –Consumer Product Rebate and Prescriptive (HVAC, insulation) programs had a savings-weighted average CSE of $0.009/kWh and $0.016/kWh respectively 14

Cost of Saved Electricity:State Results 15 Values in this figure are based on the data in the LBNL DSM Program Impacts Database. CSE values are for program administrator costs and based on gross savings. Savings are levelized at a 6% real discount rate. The savings-weighted average CSE is calculated using all savings and expenditures at the level of analysis. The inter- quartile range and median CSE values are calculated for each program type.

Total vs. Program Administrator Cost of Saved Energy Savings-weighted average Total CSE ($0.046/kWh) was nearly twice the PA CSE ($0.023/kWh) Residential programs had the lowest savings-weighted total CSE ($0.033/kWh) followed by C&I programs ($0.055/kWh) Values in this figure are based on the data in the LBNL DSM Program Impacts Database. CSE values are for program administrator costs are based on gross savings. Savings are levelized at a 6% real discount rate. The savings-weighted average CSE is calculated using all savings and expenditures at the level of analysis. The inter-quartile range and median CSE values are calculated for each program type. Source: LBNL DSM Program Database 16

Why should Energy Efficiency be considered a utility resource (and customer service)?

Why do Energy Efficiency? Has already done a lot to reduce wasting of energy Is relatively cheap—reduces investment requirements for supply-side resources There are plenty of opportunities Is not a limited resource—there are new technologies and strategies Can be implemented quickly and can be targeted (e.g. geographic area) Diversifies utility resource portfolios 18

EE Reduces a Utility’s Cost to Serve EE avoids the need for new generation additions which reduces capital expenditures EE reduces total sales and peak demand which reduces energy production costs 19

Non-Energy Benefits: Participant Benefits Indoor air quality improvements, improved comfort (e.g., quality of light, less noise, fewer drafts, better building temperature control) Higher productivity and lower rates of absenteeism through better- performing systems (e.g., ventilation, building shell, lighting) Reduced equipment O&M costs because of more efficient systems (although more complex systems could require more maintenance) Water and wastewater savings For commercial businesses and public entities, improved public perceptions and the ability to market products and tenant leases Avoided capital cost for equipment or building component replacements whose capital costs can be paid from savings 20

Non-Energy Benefits: Utility & Societal ValueImpact Hedge value Reduction of consumer exposure to volatility in electricity/gas commodity costs Reduced commodity prices resulting from reduced demand Reduction in aggregate demand puts downward pressure on wholesale market electric and gas commodity prices Easing electricity distribution/transmission capacity constraints (localized) Reduced line losses, voltage support (reliability), and power quality improvements May defer or eliminate the need for local distribution system upgrades Avoided transmission and distribution capital and operating costs (localized) Particularly valuable in areas with high energy use, high demand growth, and/or constrained distribution systems Environmental benefits Mitigate environmental impacts of electricity generation Customer bill collection and service- related savings Avoiding shut-off notices, shutoffs/reconnects, and carrying costs on arrearages Can provide access to energy savings opportunities for all markets Virtually all consumers can participate in energy efficiency programs Economic development EE programs can support greater net job growth than electricity/ gas supply and delivery 21

Non-Energy Benefits: Jobs Direct. Jobs in firms that receive efficiency program dollars and implement EE projects Indirect. Jobs in firms supplying goods and services to energy efficiency firms Induced. Those created by the demand generated by wage and business income from energy efficiency investments and by energy bill savings. 22

Key Policy Drivers for Energy Efficiency Key Policy Drivers for Energy Efficiency Spending and Savings Applicable to Electric Efficiency Programs Applicable to Natural Gas Efficiency Programs Energy Efficiency Resource Standard (EERS) AZ, CA, CO, HI, IL, IN, MD, MI, MN, MO, NM, NY, OH, PA, TX CA, CO, MI, MN, NY, IL Energy efficiency eligibility under state RPS HI, MI, NC, OH, NV Statutory requirement that utilities acquire all cost-effective energy efficiency CA, CT, MA, RI, VT, WA Systems benefit charges CA, CT, DC, MA, ME, MT, NH, NJ, NY, OH, OR, RI, VT, WI CA, DC, ME, MT, NJ, NY, RI,WI Integrated resource planning 34 States (primarily in the West and Southeast) and TVA 17 States (primarily in the West and Northeast) Demand Side Management plan or energy efficiency budget 28 States21 States (primarily in the Northeast and Midwest) 23

Thank You Charles Goldman Staff Scientist Electricity Markets and Policy Group Lawrence Berkeley National Laboratory