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Do the Math: Calculating and Articulating the Value of Energy Efficiency Programs

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Do the Math: Calculating and Articulating the Value of Energy Efficiency Programs

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    1. Do the Math: Calculating and Articulating the Value of Energy Efficiency Programs Net Workshop February 6, 2007 Katherine Johnson, Market Development Group

    3. Determining Market Potential Utilities estimate the number of customers interested in adopting a specific end-use technology Analysis is based on gathering information from primary and secondary sources Important first step in order to determine program benchmarks and success factors

    4. Determining Residential Market Potential

    5. Market Potential Assumptions

    6. Market Potential Exercise

    7. Identifying critical inputs to Program Success What are the costs? What are the benefits Importance of capturing program results at program design

    8. Ways Utilities Calculate Program Value Cost Effectiveness Tests Total Resource Cost Test Utility Cost Test Participant Cost Test Ratepayer Impact Test Assess Market Potential Program Impact Analysis Financial Analysis Determining Other Benefits like reductions in Carbon Emissions

    9. Defining Costs and Benefits The utility benefits are the supply costs avoided (such as generation, transmission and distribution, energy and operations and maintenance) due to demand and energy savings achieved. Participant costs are the costs incurred by customers due to participation in the program (such as equipment installation costs). Utility costs include the program’s rebates, administrative costs, marketing costs and measurement and verification costs. The discount rate is a pre-determined figure, usually relatively low such as 5.5%. Costs and Benefits will vary by utility and technology selected.

    10. Cost-Effectiveness Tests Participant Cost Test (PTC) Costs and benefits to the program participant Total Resource Cost (TRC) All Quantifiable costs & benefits regardless of who accrues them. Includes participant and others’ costs Utility Cost Test (UTC) Quantifiable costs & benefits that accrue only to the utility system. Specifically excludes participant costs Rate Impact Measure (RIM) Net change in electricity utility revenue requirements. Is a measure of “equity”, not “cost-effectiveness” Attempts to measure rate impact on all utility customers especially those that do not directly participate in the conservation program Treats “lost revenues” (lower participant bills) as a cost

    11. Summary of Economic Cost Tests NPV- Lifetime Analysis Total Resource Cost Test (TRC)= Avoided supply costs / (Participant Costs + Utility Cost) Utility Cost Test (UC) = (Avoided supply costs) / (Utility Costs + Rebate) Rate Payer Impact Measure (RIM) Test= (Avoided supply costs) / (Utility costs + Rebate + Revenue loss) The Participant Test= (NPV of Benefits to Participants)/ (NPV of the Participant Costs) The ratio of benefits to costs >= 1

    12. Each Conservation Measure Has a Different “Cost-Effectiveness” Limit Based on When The Savings Occur

    13. “Cost-Effectiveness” of Conservation Varies by Perspective Energy Star Clothes Washer with Electric Water Heating and Electric Dryer Present Value Capital Cost = $44/MWh Value to System = $53/MWh (B/C = 1.17) Value to “Power System” = $66/MWh (B/C = 1.47)

    14. Where to Find Utility Costs?

    15. Example of Avoided Costs

    16. Where To Find Participant Costs? External Sources Literature Review Published reports Interviews with Equipment Experts Analysis of Current Market Situation Internal Sources Previous reports from the engineering/marketing departments Market research Program records Consultants

    17. Program Impact Analysis Program Impact Analysis often part of a larger evaluation study: Provides an objective comparison of program results against benchmarks Can be used to track progress over time Determines net savings attributable to program activities Identifies areas for program improvement Net Savings are calculated after accounting for Free Ridership Free Drivership

    18. Determining Program Impacts Free ridership rate is how many participants would have purchased energy efficient equipment without the program Free drivership rate is how many participants will install the rebated energy efficient equipment, outside the utility’s service territory These impacts are best measured through customer survey questions conducted as part of an overall program evaluation

    19. Examples of Utility Cost Analysis Light Bulb Calculator GHP “Calculator” Carbon Emissions Calculator

    20. Residential Lighting Example Quantifying the Benefits of Replacing 5 standard lights with 5 CFL equivalents

    21. Light Bulb Calculator Assumptions Energy Assumptions: National Averages from Literature Review Cost Assumptions: From Literature Review and interviews with vendors and current rates Financial Assumptions: From previous DMEA studies

    22. Use of Light Bulb Calculator To determine the Net Effects of the Light Bulbs Sold in the utility service territory to quantify savings of: kW KWh

    23. Lifetime Customer Savings !

    24. First Year Savings for Utility From Installing 5 CFLs

    25. Example of Quantifying the Market for Geothermal Heat Pumps

    26. Engineering Assumptions

    27. Calculated Annual Energy Use

    28. Participant Costs and Benefits- Geothermal Example

    29. Interactive Example

    30. Comparing Marketing Tests vs. Economic Tests Sometimes consumer demand “trumps” economic analyses Growing interest in minimizing environmental impacts/carbon emissions. Some customers are demanding more energy efficient choices and options, and they are willing to pay any “premium” associated with the green benefits. Examples include: Hybrid cars Purchasing clean energy/renewable energy Recycled paper/products

    31. Example of the Carbon Emissions Calculator To determine the carbon benefits of various energy efficiency programs

    32. Calculating Carbon Emissions The Greenhouse Gas Equivalencies Calculator is designed to translate greenhouse gas (GHG) reductions from (e.g., metric tons of carbon dioxide equivalent) into terms that are easier to understand (e.g., equivalent number of cars not driven for one year). The Internet link will be the easiest way to demonstrate these calculationsThe Internet link will be the easiest way to demonstrate these calculations

    33. Carbon Emissions Example

    34. Questions?

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