Energy Efficiency: Principles and Strategies

1. Energy Efficiency:Principles and Strategies Jeff Schlegel, NEDRI Consultant NEDRI Energy Efficiency Working Group January 15, 2003

2. Summary/Context • Energy efficiency is an essential element of demand response – it is longer-term demand response • Energy efficiency has provided significant and valuable load reductions (many times more than recent PRL and emergency programs) • Energy efficiency is more attractive and available to many customers • Market, regulatory, and institutional reforms are needed to increase the region’s reliance on energy efficiency as a resource • Regional coordination will help with many energy efficiency strategies

3. Outline • Definition of energy efficiency • Energy efficiency compared to load management • Market and institutional barriers • Past experience and remaining efficiency potential • Energy efficiency principles • Energy efficiency strategies • Continue SBC funding and ratepayer support • Appliance and equipment standards • Building energy codes • Enhanced regional coordination • Complementary and integrated approaches • Comparable or equal treatment for energy efficiency in regional resource decisions (system expansion and planning, persistent uneconomic congestion, resource adequacy) • A couple of additional strategies are being developed • Comparable treatment for energy efficiency in distribution system expansion planning • Congestion management within a zone

4. Definition of Energy Efficiency • Energy efficiency reduces the energy used by specific end-use devices and systems, typically without affecting the level of service and without loss of amenity. • Benefits including energy savings and peak load reductions are achieved by substituting technically more advanced equipment, processes, or operational strategies to produce the same or an improved level of end-use service with less electricity. • Throughout the presentation, “energy efficiency” means “cost-effective energy efficiency.”

5. Energy Efficiency Compared to Load Management (4 hr curtailment)

6. Energy Efficiency with Load Management

7. Benefits of Energy Efficiency • Reduces load, peak demand, & energy use • Reduces market prices for all consumers • Often less costly and more cost-effective • Distributed (no need for T & D) • Diverse • Less subject to market and fuel price volatility • Less subject to security risks and interruptions • Provides significant environmental benefits • Provides benefits to consumers and businesses • Attractive and available to many customers • Creates jobs and improves the economy

8. Market and Institutional Barriers • Significant market barriers for consumers and market participants include (see page 7 in the paper): • Lack of information or search costs, hassle and transaction costs, performance uncertainties, market response uncertainties, asymmetric information and opportunism, product or service unavailability, bounded rationality, organizational practices or customs, split incentives, inseparability of product features, irreversibility, the failure of market prices to reflect the time-differentiated nature of demand and energy use, and the failure of market prices to reflect the full cost of energy to society • Most market barriers will remain, even with market reforms • At best, a long transition period to fully private markets • Significant institutional barriers as well, including developing market rules focused on supply resources or on shorter-term demand response

9. Energy Efficiency Experience • New England has been investing in energy efficiency for more than a decade • Since 1990, energy efficiency has provided New England with: • Net benefits of about $3 billion dollars (avoided energy costs) • Over 1,200 MW of peak load reductions • In MA alone, cumulative summer peak load savings of 650 MW (through 2000) – MA peak load would be 7.2% higher without energy efficiency • Recent spending of $250 million per year • Energy efficiency resources are achieved at costs from $.02 to $.05 per lifetime kWh saved • Significant environmental benefits

10. MA Programs Impact on Market Prices On June 7, 1999, 115 MW in energy efficiency load reductions avoided about $6.7 million in additional costs

11. Remaining Potential for Energy Efficiency • National studies: 15 to 18% reductions by 2010, about 30% by 2020 • MA DOER study: significant cost-effective potential remaining (16% to 25% savings) • VT DPS study: large achievable potential • Many current energy efficiency budgets are committed by mid year, indicating a large reservoir of customer demand for energy efficiency opportunities • See spreadsheet table for additional studies

12. NEDRI Principles • Devise an effective long-term strategy for demand responsiveness, including shorter-term load reductions and longer-term energy efficiency investments in the restructured market • Envision a regional economy and environment enhanced by a more productive and less wasteful electricity system -- one that is more reliable and more vigorous due to broad-based competition among both supply-side and customer-located resources • Market reforms are needed that will call forth economic demand responses -- both short-term load reductions and longer-term shifts in consumption patterns

13. 1. Energy Efficiency Principles • Cost-effective energy efficiency resources make electricity markets more competitive and more efficient, significantly improve the reliability of the electric system, diversify the resource portfolio, and reduce the costs and environmental impacts of electric service • Energy efficiency is a valuable strategy to have in the demand response toolbox, in addition to shorter-term demand response strategies • Therefore, adopt market, regulatory, and institutional reforms that increase the region’s reliance on energy efficiency as a resource

14. 1. Energy Efficiency Principles (con’t) • Offer and pursue a full continuum of market opportunities and programs so that all options are considered and all customers have opportunities • Consider demand-side options on an equal or comparable footing whenever supply and wires options are considered • Account for and consider the multiple benefits of energy efficiency in an integrated manner when assessing the value and effectiveness of various resource options

15. 2. SBC Funding and Ratepayer Support • Support SBC funding and other ratepayer support (including PAYS) in each state at levels equal to or greater than current funding for energy efficiency to maximize the benefits for demand reduction • Set SBC funding and ratepayer support at levels sufficient to capture all cost-effective energy efficiency not being captured in the market • Implement ratepayer funded programs in a manner that leverages market opportunities and other resources

16. 3. Appliance and Equipment Standards • Reduce peak demand in 2020 by about 2,163 MW, equivalent to 25 percent of projected load growth Source: NEEP, 2002

17. 3. Standards Recommendations • State legislatures should establish state minimum energy efficiency standards • Adopt state standards for ten products listed (2003 legislation proposed in MA, ME, NH; expected in CT and RI; 820 MW by 2020) • Coordinate efforts regionally to research, adopt, and enforce efficiency standards • Participate in federal efficiency standards rulemakings

18. 4. Building Energy Codes • Reduce peak demand by 1,115 MW by 2020 (source: NEEP, 2002) • Continuously update building energy code requirements to reflect advances in design and construction practices, and equipment choices that affect building energy use • Effectively implement current building energy codes by: • Providing ongoing training and technical support for inspectors and builders • Linking ratepayer-funded energy efficiency programs with building energy code training and development

19. 5. Enhanced Regional Coordination • Regionally plan for and assess the potential for demand-side resources • Regionally coordinate the development and implementation of demand-side programs and policies (e.g., regional appliance and equipment standards, products with regional markets or avenues of commerce, regional market transformation, etc.) • Conduct regional research to identify new opportunities for as well as evaluate the impact of demand-side resource impacts • Establish a regional coordinating council (part of RSAC or other) for demand-side resources • Improves the effectiveness of many other strategies

20. 6. Complementary and Integrated Options • Pursue demand response strategies that recognize the multiple attributes of demand response technologies and integrate the marketing of shorter-term demand response and energy efficiency programs into complementary program offerings that reach all customers • Target peak savings • Make full use of demand response technologies • Promote effective and efficient facility O&M • Implement comprehensive, coherent marketing • Consider adverse financial impacts on distribution companies

21. 7. Comparable or Equal Treatment in Regional Wholesale Issues • Energy efficiency solutions should be considered at the regional level, and given a comparable or equal opportunity to contribute in: • System expansion and planning • Regional actions to resolve persistent uneconomic congestion • Resource adequacy (provide capacity payments or credits to verified demand reductions from energy efficiency)

22. Conclusions • Cost-effective energy efficiency resources make electricity markets more competitive and more efficient, significantly improve the reliability of the electric system, diversify the resource portfolio, and reduce the costs and environmental impacts of electric service. • Energy efficiency is a cost-effective longer-term resource that is attractive and available to many customers, and provides real, meaningful benefits to customers (as well as to the system). • The states and region should adopt market, regulatory, and institutional reforms to increase the region’s reliance on energy efficiency as a resource.