ACEEE Blog

Efficiency in the Clean Power Plan: What are states doing? What should they be doing?
June 26, 2015 - 10:00 pm

By Mary Shoemaker, National Policy Research Assistant


We’re currently stuck in Clean Power Plan limbo. The EPA’s comment submission deadline is behind us, the final rule is ahead of us, and the temptation to act like school’s out for summer is real. While it’s still unclear exactly how states should credit all efficiency measures in their plans, it is clear that states will have an easier time reducing energy waste, diverting carbon pollution, and complying with the Clean Power Plan if they put their thinking caps on now. One way states can dramatically lower the cost of compliance is by including energy efficiency in their compliance plans. ACEEE’s State and Utility Pollution Reduction Calculator helps states understand just how cost effectively energy efficiency can lower emissions. For a couple examples, let’s highlight major energy efficiency opportunities in Illinois and Virginia.

Illinois

Illinois has engaged other Midwestern states through the Midcontinent States Environmental and Energy Regulators stakeholder group, exploring the implications and feasibility of regional Clean Power Plan compliance in non-binding discussions. Within the state’s boundaries, pending legislation could make using energy efficiency as a compliance mechanism easier.

Illinois should be commended for its proactive 2% annual energy savings target in 2015. However, a cap on spending has impeded the state’s realization of this target, and a recent proposal by Governor Rauner to re-route a portion of ratepayer dollars earmarked for low-income efficiency programs into the state’s general fund will make achieving those goals even more difficult.

If Illinois commits to achieving 2% electricity savings annually through 2030, it would divert 43 million tons of CO2 in 2030. Another opportunity for growth is in the state’s combined heat and power (CHP) programs, for which Illinois has strong market favorability. If the state installed 2,500 MW of CHP—half of its technical potential —it would reduce 12 million tons of CO2 in 2030. Together, the savings target and the CHP deployment, displayed in the chart below, would allow Illinois to achieve an incredible 85% of its Clean Power Plan target!

Virginia

Governor Terry McAuliffe has demonstrated leadership in Virginia by appointing a chief energy efficiency officer and appointing the Executive Committee on Energy Efficiency, which met for the first time on June 1st. Governor McAuliffe’s public support for the Clean Power Plan should be commended, but it is important for the state to quickly shift into gear to meet its target. Virginia could capture the momentum of the governor's efforts to reduce energy consumption in state buildings, and educate municipalities and counties about energy performance contracting. The state could designate a state agency to help implement energy service performance contracts (ESPCs), or offer financial incentives for agencies seeking to use ESPCs, avoiding over 2 million tons of CO2 in 2030.

The state could also adopt the latest IECC and ASHRAE building energy codes, regularly adopting new codes every three years through 2030, to reduce its CO 2 emissions in 2030 by almost 7 million tons. Virginia also has room for growth in its deployment of CHP technology.

Another huge opportunity in Virginia is an energy savings target. The state has a voluntary 10% savings goal by 2022, as written inlegislation, or by 2020, as accelerated by Governor McAuliffe. However, Virginia is behind on efforts to reach this goal. By achieving 1% electricity savings annually through 2030, Virginia could avoid over 10 million tons of CO2 in 2030. As the icing on the cake, if Virginia installed 1,000 MW of CHP, divided evenly between the commercial and industrial sectors, it could divert over half a million tons of CO2 in 2030. As seen in the table below, this suite of programs would get Virginia 99% of the way towards its Clean Power Plan target—an A+ approach if there ever was one.

How else can states prepare?

With EPA’s 2016 deadline for individual state plans, there is an imminent need for states to take early action towards evaluating efficiency opportunities and taking first steps towards Clean Power Plan compliance. Additional steps that states could take now include:

  • Identify existing energy efficiency programs that could be used to meet emission performance levels . This will help states understand how to play to their own strengths.
  • Begin forecasting the carbon pollution reduction potential of efficiency policies . ACEEE’s State and Utility Pollution Reduction (SUPR) calculator can do just that.

ACEEE’s Role

In order to help states understand how to incorporate efficiency into their compliance plans, ACEEE is working on a series of guidance documents for states as they put pen to paper. ACEEE recently released templates for states’ inclusion of building codesenergy efficiency financing programs, and combined heat and power in their plans. With such a flexible syllabus from EPA, states truly have the power to chart their own path to success. Let ACEEE know how we can help! Please contact Mary Shoemaker (mshoemaker@aceee.org) with inquiries.


Residential energy efficiency works. Don’t make a mountain out of the E2e molehill
June 26, 2015 - 2:01 am

By Martin Kushler, Senior Fellow


The Internet has been burning up these last two days with reactions to a new academic working paper (Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program) by researchers at the Energy Policy Institute at the University of Chicago (EPIC) and the University of California, Berkeley, associated with the E2e Project.

Let me be blunt and to the point. The “results” of this very narrowly focused and arguably conceptually flawed study are being blown out of proportion, with many news article headlines taking this one example as representative of all residential energy efficiency programs. Unfortunately, this flawed conclusion has been promoted by the Energy Policy Institute themselves in their press release and accompanying policy brief.

For those not yet familiar with this story, the authors conducted a study of one particular low-income program (the federal Weatherization Assistance Program, or WAP), as implemented in portions of one state (Michigan), and somehow ended up with the sweeping headline “Study Finds Costs of Residential Energy Efficiency Investments are Double the Benefits.”

Some of the popular press is already picking up on this theme, and the concern is that a misunderstanding (or misuse) of this study will lead to low-income families having less access to important programs that drive down their utility bills. Or worse yet, as a broad-brush attack on all types of energy efficiency programs.

Evaluation wonks will be able to point to several minor to moderate problems with the study’s assumptions and calculations. But in the interest of time, let me focus on two fundamental flaws in the study and how the results are being “spun.”

Knocking down a straw man

First, the authors create a “straw man” implication that somehow the WAP is expected to be cost effective by simply comparing the direct energy savings to the total project costs to serve the home. In reality, no knowledgeable expert in this field expects the WAP (or any typical low-income program operated by utility companies) to be cost-effective solely on the basis of direct energy savings. States commonly exempt low-income programs from the usual cost-effectiveness tests. This is in part due to the very poor condition of the housing stock, and the major costs involved in upgrading the housing. It is also in recognition of the special needs of that target population, and that they have no discretionary income to devote to energy improvements, leaving the program to pay the entire costs.

As a result, these programs are typically judged by including the associated “non-energy benefits” in addition to the direct energy savings. These multiple benefits include things like the effects on comfort, health, safety (e.g., WAP typically installs smoke detectors, CO detectors, fixes wiring problems, fixes gas leaks, etc.), increased value of the improved housing stock, reduced utility-bill payment arrearages and non-payment collection costs (which saves money for all ratepayers), improved ability to remain in the dwelling and not have to be relocated, etc.

Studies exist in the industry that quantify these types of variables, and when taken in aggregate, the non-energy benefits’ value can nearly equal, or even exceed, the direct energy savings value. DOE’s last meta-evaluation of the Weatherization Assistance Program found direct energy savings averaging $3,917 and non-energy benefits valued at $3,466, or nearly as much as the direct energy savings benefits). Viewed in that comprehensive manner, programs like WAP are cost effective from that broader societal perspective—as a public policy, they make sense.

The study released Tuesday simply ignores those other multiple benefits, and does not quantify them in the analysis. This methodological flaw pre-ordains the conclusion.

The straw man problem is compounded when the report suggests that WAP fails as a “means to fight climate change.” While the program does produce some CO 2 reduction benefits, these are just a bit of frosting on the benefits cake. No one would suggest WAP should be considered as entirely, or even primarily, a mechanism to fight climate change. Yet the study disingenuously reports that the cost of WAP as a carbon reduction strategy is $329 per ton, by loading all the costs of the program onto the CO2 benefit as though there were no other benefits, and that the program was only being done to reduce CO2—a ridiculous premise.

Dangerous overgeneralization

The second (and unforgivable) fundamental flaw is that the study generalizes from an extremely limited sample. From one sample in one state, EPIC makes the leap to claiming that seemingly all “residential energy efficiency investments are double the benefit.”

In contrast, several national studies have examined the costs of residential energy efficiency programs across dozens of states and have found them to be highly cost effective; however, low-income programs have higher costs on a per-kWh basis. For example, in a recent study, Lawrence Berkeley National Laboratory (LBNL) finds that the cost of low income programs average 14 cents per kWh, compared to all residential programs at 3.3 cents per kWh. ACEEE’s most recent review of energy efficiency program costs similarly found that average cost per saved kWh from residential and low-income programs combined across 9 states was 3.7 cents/kWh. This is less than half the cost of electricity from a new power plant, and obviously very cost effective. And without including any monetized value for CO2 reductions, the CO2 reductions are essentially a "free" extra benefit.

In short, this study cherry-picked the worst possible program for comparing total costs to just direct energy savings, then set up a straw man to knock down, then tried to suggest, from an extremely limited sample of one program type, that all “residential energy efficiency investments” are suspect.

Cherry-picking

I should note one additional factor that really exacerbates the “cherry-picked” issue, and which I’ve not seen mentioned in any other discussion. This study looked at the WAP during the “stimulus package” years. As someone who was directly involved with one of the biggest “Better Buildings” pilots in the nation during that time period, I can tell you that the WAP was extremely stressed at the time, with tremendous pressure to push money out to the field. Job creation was at least as big a goal as energy savings, and they were functioning with a lot of new and inexperienced employees in order to handle the huge increase in funding and the deadlines to get it spent. I was there, on the ground, in Michigan at the time, and I know for a fact that the stimulus package demands on the system drove up the average cost per home in the program, in an effort to “get the money spent.” This would naturally tend to diminish the apparent cost effectiveness in terms of energy savings per dollar spent. This “stimulus package” distortion of the WAP during the years of the study further discredits any leap to generalize results to the “normal” program, much less to other examples of “residential energy efficiency investments.”

The real motive behind the study

Given the affiliation of the authors with E2e, one suspects that an important motive at play here is to make the case for the neo-classical economists’ preferred climate policy: so-called “market-based” approaches such as a carbon tax. Indeed, they explicitly argue for that as an alternate policy approach in both their press release and the accompanying policy brief. ACEEE supports the concept of a carbon tax. But it should be seen as a complement to, not a replacement for, traditional energy efficiency programs.

Viewed in the proper context, this new report could be seen as an interesting study to add to the large volume of energy efficiency program evaluations conducted over the years. The study does identify some problems with this particular program, but they can be easily addressed. For example, the energy audits conducted do not appear to have been calibrated with actual energy usage for each home, and thus baseline energy use and the amount of energy saved were overestimated. A study in New York found that such calibration, among other steps, improved the accuracy of energy savings estimates from 60% to 90%.

However, if taken out of context and generalized way beyond any justification, this new E2e working paper could be misused to attack critically important energy efficiency policies and programs. The data on the cost-effectiveness of residential energy efficiency programs are robust and extensively documented. Hopefully, well-informed policymakers and reporters will prevent any misuse of the study.

Postscript

It should be noted that one of the co-authors of the study, in an interview with the Washington Post, properly acknowledged that the study results should not be generalized. Meredith Fowlie, an associate professor of economics at the University of California, Berkeley, was quoted by the Post as saying: “This is one study in one state looking at one subpopulation and one type of measure,” she says. “I would not feel comfortable generalizing from our study in Michigan.”


Why everyone benefits from energy efficiency programs
June 24, 2015 - 2:54 am

By Brendon Baatz, Sr. Research Analyst, Utilities, State, and Local Policy Program


Opponents of energy efficiency often make the claim that the only people who benefit from utility energy efficiency programs are program participants. Any energy efficiency improvements those participants are making, they argue, are simply being subsidized by non-participants. Our study finds that is not true; all utility system customers benefit from energy efficiency investment. In our new report, Everyone Benefits: Practices and Recommendations for Utility-System Benefits of Energy Efficiency , we explore the wide range of advantages energy efficiency programs provide to the utility system as a whole and to all customers in that system.

Reducing costs for utilities benefits all customers

Our review of utility system benefits revealed a wide range of substantial benefits beyond those typically included, such as avoided cost of producing energy and building power plants. Utilities are also able to save money by not building new power lines, substations, and transformers. These avoided costs are substantial and real benefits of energy efficiency. Energy efficiency can also reduce a utility’s cost of complying with major state and federal environmental rules, lower wholesale energy costs by reducing demand, and reduce major risks faced by utilities for costly projects like buying natural gas or building power plants.

Why do we want to reduce all these costs for a utility? Reducing utility costs in these areas is important because they will reduce electric rates for all customers. Utilities are allowed to charge customers only for real costs they incur. If they reduce those costs, they will have to charge customers less money for service.

Most states aren’t including all the benefits in their analysis

In our review of utility system benefits, we found that most states and utilities aren’t including all of the benefits when deciding which programs to offer. Many states lack a coherent policy governing which utility system benefits should be included in cost effectiveness testing and how to calculate those benefits (a problem we also see in participant and societal benefits). This leads to many utilities and jurisdictions omitting relevant benefits in cost effectiveness screening, thereby leaving cost-effective energy efficiency—and significant cost savings—on the table. Such omissions lead to inefficient resource allocation and higher costs for everyone.

Moving forward

In our report we offer specific recommendations on how program administrators should calculate benefits, including properly measuring the value of energy savings at different times of the day and year, accounting for differences in short- and long-term costs, and choosing a discount rate that reflects reduced utility risk for energy efficiency. We also recommend including all of the relevant benefits in program screening. These are real benefits that reduce utility costs for everyone in the system.

While some are harder to determine, our review of state practices found that most benefits have been quantified by at least one state. Other states could learn from these studies how to include estimates of those benefits. It’s no accident that the states with the most coherent policy for determining benefits are more often those capturing the most cost effective energy efficiency.

We hope states are able to use the report as a guide to capture all utility system benefits of energy efficiency. Our report finds that a great opportunity exists to improve the inclusion of these benefits. Doing so would increase the level of cost effective energy efficiency and reduce rates for all utility customers.


Did EIA underestimate the role of energy efficiency in the Clean Power Plan?
June 22, 2015 - 8:15 pm

By Steven Nadel , Executive Director


In May, the Energy Information Administration (EIA) released an analysis looking at the impacts of EPA’s proposed Clean Power Plan (CPP). The overall EIA analysis finds that the goals in the CPP can be met, with energy efficiency, renewable energy and switching from coal to gas generation all playing a significant role, but with switching to natural gas playing the dominant role. The changes will increase electricity prices 3-7% in the 2020-2025 period relative to a reference case, but by 2030, electricity prices in the CPP and reference cases will be similar in most regions. However, due to the influence of energy efficiency in reducing consumption, energy bills will increase by less than energy prices. By 2030, energy bills are about 1% higher and by 2040 energy bills will be slightly lower under the CPP than in the reference case.

In order to incorporate energy efficiency into its analysis, EIA had to collect some new data and refine its models. Prior to now it was very difficult for EIA to incorporate many energy efficiency policies into its analyses. We commend EIA for undertaking the effort to better include energy efficiency in their modeling. In our view, though, this remains a work in progress, and we trust that EIA will continue to refine its models.

Did EIA count all efficiency opportunities available?

In its analysis, EIA found that increased energy efficiency will reduce US electricity use for buildings by 2.6% in 2030 (1.8% decline in total US consumption), due mostly to utility rebate programs. EIA did not include expanded industrial efficiency into its CPP analysis. EIA also did not incorporate such policies as increased building codes and or expansion of combined heat and power (CHP) beyond the base case assumptions into its CPP analysis. A recent ACEEE report found that if states fully incorporate several energy efficiency policies into their CPP plans (e.g., energy saving targets for utilities, building codes and CHP), energy efficiency could reduce electricity consumption by about 25% relative to 2012 electricity sales, or about 22% relative to projected 2030 sales. That’s more than ten times what EIA found.

Why the big difference?

There appear to be two major factors accounting for the difference between the EIA and ACEEE analyses. First, EIA only considers a subset of available energy efficiency actions. It just considers utility programs affecting buildings, and only looks at some specific efficiency measures incorporated into its models, such as more efficient lighting, water heating, refrigeration and heating and cooling systems. Increasingly, energy efficiency programs are looking beyond simple equipment upgrades, but these efforts are not captured in the EIA models (see ACEEE’s 2013 report on next generation programs). Furthermore, EIA looked only at technologies widely available today and did not consider the evolution of new technologies in the future.

Second, EIA did not count existing utility energy efficiency program efforts to the extent they are already incorporated into their reference case forecast. The reference case forecast incorporates historical trends, which, in their CPP report, EIA estimates to be savings of 0.5% of utility sales each year. Over EIA’s ten-year analysis period, this means about 5% savings that EIA has in their 2030 baseline and not in their CPP case. Thus the difference between the EIA and ACEEE analyses is more like a factor of three: ACEEE’s 22% savings vs. EIA’s approximately 7% savings (1.8% plus 5%).

Bottom line

It’s good that EIA is working to better incorporate energy efficiency, but there’s substantially more efficiency available to states for their CPP compliance plans than is included in EIA’s initial analysis.


The Phase 2 truck fuel efficiency proposal is heading in the right direction, but has a few miles to go
June 20, 2015 - 1:25 am

By Siddiq Khan, Senior Researcher


The fuel efficiency and greenhouse gas emissions standards proposed today by the Environmental Protection Agency and the Department of Transportation would mean major gains in fuel efficiency for heavy-duty vehicles by 2027. The standards would deliver savings at the pump to truck owners and operators while reducing freight costs for businesses and for American families. The heavy-duty program is also a key element of the president’s climate action plan.

Yet the proposal falls short of what this program could and should achieve. ACEEE and others called for a 40% average fuel consumption reduction by 2025, relative to 2010 levels. Our first take is that the proposed standards would deliver a 36% reduction. The engine standards, in particular, appear to be weak, achieving only about 4% fuel savings, when they should be achieving over 10%. The purpose of having a separate engine standard is to set a high bar with a long lead-time, giving manufacturers the certainty to invest in major new technologies, like waste heat recovery. A 4% reduction in a decade just won’t do the job.

The proposal looks stronger in other areas, as in the standards for heavy-duty pickups and vans, though still a bit shy of achievable levels. It also fills some big gaps in the existing standards. Trailers will be brought into the program in 2018, which will reduce fuel consumption by up to 8%. Transmission efficiency and powertrain integration will be credited under the new program, another significant step forward.

We’ll be supporting timely finalization of the rule while seeking to shore up the weaker elements of the proposal during the comment period. Previously adopted heavy-duty fuel efficiency standards have already helped US companies to advance their leadership globally in truck and engine efficiency technologies, and a strong rule for the second phase of the program will help them consolidate that advantage.


States don't need to gamble with EPA rulemaking. Energy efficiency can achieve two-thirds or more of Clean Power Plan targets
June 19, 2015 - 2:27 am

By Sara Hayes, Sr. Manager and Researcher, Air and Climate Policy


A number of state leaders have gone all in, suing the EPA for a rule it hasn't even finalized yet. We've seen a first draft of EPA's proposed Clean Power Plan, but the final rule could change dramatically. One thing that EPA won't change, though, is the language in the Clean Air Act that requires this rulemaking. That language came from Congress, and luckily for states, it provides a great deal of discretion to them to determine how to meet EPA's final performance standards.

This is a jackpot for states. It means that their first and best options remain on the table, regardless of how the final rule gets shuffled. We used a new ACEEE tool to determine that two-thirds of EPA's proposed emission reductions for the nation can be met with the adoption of just three common efficiency policies. The graph below compares the reduction in nationwide emission rates that would be required by the draft rule in 2030 (39%) with the national emission rate reduction that could be achieved through a few select efficiency policies (27%).

States have a lot of experience with these three policies, but there are many more options they can draw from. The goals that EPA sets for states vary widely and some states will have significantly more to do than others. Regardless of EPA’s goals, energy efficiency will be the best play for most states to reduce greenhouse gas emissions from the power sector at the lowest possible cost. Reducing energy waste and improving technologies so that we use less to accomplish more will position states so that other investments they make will be even more affordable. For example, some states may decide to reduce emissions by building new, cleaner generation. While this can be an attractive option, it can also be expensive. Deploying energy efficiency options first reduces the amount of new generation that is needed, thereby reducing the costs of building new facilities.

EPA staffers are under the gun to get a final rule published in time for summer, but ultimately the stakes are highest for states. Luckily, huge amounts of untapped energy efficiency potential means states have an ace in the hole that will help them to provide clean, reliable and affordable energy.


2025 CAFE standards under the microscope
June 18, 2015 - 9:11 pm

By Therese Langer, Transportation Program Director


A report released today by the National Research Council (NRC) provides important input to the upcoming “midterm evaluation” of fuel economy and greenhouse gas emissions standards now in place. The 600-page report, Cost, Effectiveness and Deployment of Fuel Economy Technologies for Light-Duty Vehicles reviews the work done by the National Highway Traffic Safety Administration and the US Environmental Protection Agency (EPA) leading to the 2012 adoption of standards raising fuel economy to a nominal 54.5 miles per gallon on average in 2025. I served on the committee that wrote the report, which found the agencies’ analysis to be “thorough and of high caliber on the whole.” Some notable points beyond what’s in the report summary:

NRC estimates of technology effectiveness and cost are comparable to the agencies’ for most technologies.

The report provides estimates of effectiveness and cost of the technologies considered by the agencies in developing the standards. After some culling and aggregation to facilitate display, I show in the figure below how the committee’s estimates of technology cost-effectiveness compare to the agencies’. For each technology listed on the left, the length of a bar represents the ratio of committee estimates to agency estimates of cost per percent fuel consumption reduction. Committee members did not always agree amongst themselves on the best estimate, so the report provides two cost and/or two effectiveness values for many technologies. In the figure, the upper bars (blue) reflect the committee’s higher effectiveness and lower cost values, and the lower bars (red) reflect the committee’s lower effectiveness and higher cost values. The large number of bars with lengths close to 1 indicates substantial agreement with the agencies in most technology categories—though not all—with differences of under 20% for the most part.

NRC and Agency Cost-Effectiveness Comparable for Most Technologies
Ratio of NRC Cost per Percent Fuel Savings to Agency Estimate - Midsize Car with I4 Engine

Source: Data from NRC Report, Tables S.1, S.2, S.1a, S.2c

Mass reduction and transmissions stand out as areas of significant difference between the NRC and agency estimates. For transmissions, the committee found lower potential fuel savings than the agencies did in moving from 6-speed to 8-or-more-speed and shift optimization. Hence transmissions will be a key area to revisit during the midterm evaluation, and indeed EPA’s technical work for the review includes extensive benchmarking of vehicles with advanced transmissions and exploring what can be achieved through better shift logic.

The committee found several other efficiency technologies that may help manufacturers improve fuel economy but that were not included in the agencies’ analysis, and hence do not appear in the figure above.

Mass reduction cost projection is difficult.

Reducing vehicle mass is widely viewed as a key strategy to improve fuel economy, and one to which manufacturers are already devoting substantial effort. The committee found that “the uncertainty surrounding the cost of mass reduction is particularly large.” At levels of mass reduction of 10% or below, the agencies’ cost estimate falls between the higher and lower NRC estimates. The lower estimate reflects the view that modest reductions in mass can be achieved at no cost. But for high levels of mass reduction, the committee projected costs much higher than the agencies’. The committee nonetheless predicted that manufacturers will reduce mass by 20% or more in large vehicles, motivated both by the need to improve fuel economy and by other benefits of reducing mass, such as the ability to increase towing and load capacities without any modifications to the power train. So, even if these higher costs were realized, part of the cost would have to be chalked up to meeting market demand for attributes other than fuel economy.

A midsize car meets the 2025 fuel economy target with a conventional power train.

The committee didn’t estimate the overall cost to comply with the standards; that would have required finding technology packages to reach the appropriate fuel economy target for every vehicle model sold and applying fleet averaging, off-cycle credits, advanced technology credits, and other flexibilities the program puts at manufacturers’ disposal. However, the report does show an illustrative technology pathway to meet the 2025 fuel economy target starting with a 2008 midsize car with an I4 engine and a footprint (area defined by the tires’ contact points with the ground) of 46.6 square feet. The vehicle met its 2025 target without transitioning to an electrified powertrain.

The cost of the technologies to reach the target was $1,181, using the committee’s lower cost and higher effectiveness estimates, and $1,658 using its higher cost and lower effectiveness estimates. (This is direct cost, i.e., without retail markup.) By comparison, using the agencies’ technology effectiveness and cost numbers, it would cost $1,060 to reach the fuel economy target—not significantly different from the committee’s lower cost scenario. Even the committee’s higher cost estimate is much closer to the agency number than fuel economy skeptics’ estimates have been in the past. 

And most importantly, these estimates do not reflect the full range of efficiency technologies under development.

Technology innovation can further reduce the cost of meeting 2025 targets.

The committee identified several technologies that were not included in the compliance scenario the agencies developed in setting the standards; for example, high compression ratio engines, electrically assisted superchargers, dedicated exhaust gas recirculation, and ethanol boosted direct injection engines. And it’s a safe bet that other technologies not considered either by the agencies or by the committee will enter the market over the next decade. As the report states, “these unanticipated innovations may permit the industry to meet emission standards at lower than predicted cost.”

Thus far, fuel efficiency technologies in current vehicles are outperforming projections.

Comparing some high-selling 2014 vehicles to their 2008 counterparts, the committee found that the agencies’ estimates of the effectiveness of fuel efficiency technologies were realized, and in some cases exceeded. For example, the package of technologies applied to a Honda Accord achieved a 24% greater reduction in fuel consumption from 2008 to 2014 than the agencies projected would result from that package.

All in all, the NRC report provides strong evidence of the soundness of the CAFE standards out to 2025. The report highlights a few areas that will especially benefit from additional agency scrutiny in the midterm review. It also points to emerging technology opportunities that could reduce the cost of compliance with the 2025 standards, or alternatively allow vehicles to go beyond those standards to reach even higher fuel economy levels.


Making all the benefits of multifamily retrofits count
June 16, 2015 - 11:32 pm

By Rachel Cluett, Senior Research Analyst


Energy efficiency retrofits for multifamily buildings offer a host of benefits beyond energy savings to building owners and tenants. The problem is that efficiency programs that spur investment in this kind of work are not always assessed fairly. In our new report, Multiple Benefits of Multifamily Energy Efficiency for Cost-Effectiveness Screening, we describe the wide range of benefits resulting from multifamily efficiency retrofits and provide solutions for how to establish their value and include them in regulatory testing, for fairer assessment of multifamily efficiency programs by regulators.

Energy efficient buildings have benefits beyond energy savings

Key to a multifamily building owner’s bottom line is keeping vacancy and turnover rates low. Many savvy building owners realize that energy efficiency retrofits to their buildings can lead to a host of other benefits beyond energy savings that help their bottom line. When tenants are more comfortable and have lower, more manageable utility bills, they don't move as often. Apartments that stay warm and cozy in the winter, instead of cold and drafty, are easier to rent out and have lower vacancy rates. Heating and cooling systems that function properly and don’t break down as often result in lower maintenance costs and fewer tenant complaints. In short, when building owners are deciding to do an energy efficiency retrofit project, they are making a number of considerations about how the work impacts the satisfaction of tenants, and thus how the work impacts their business.

The problem with cost-effectiveness screening today

The problem is we aren’t doing a very good job when it comes to accounting for these benefits and including them in cost effectiveness screening. Despite growing recognition by those undertaking retrofit work in their buildings, and those designing and running multifamily programs, the multiple benefits that result from energy efficiency retrofits are not consistently accounted for in cost-effectiveness screening. Multifamily program administrators screen programs to determine whether the benefits of utility investments for energy efficiency improvements outweigh the costs. Most tests used by regulators to evaluate whole-building retrofits do not include the value of benefits beyond the cost of energy saved, even though the most widely used tests, like the Total Resource Cost test (TRC), are designed to include them. The result is that administrators balance all the costs of a program against only some of the benefits, and so they fail to capture the full value of energy efficiency improvements.

Incorporating the value of multiple benefits into cost effectiveness screening for these programs is important for scaling up programs that target savings in the multifamily sector, because the results of the tests are often used to compare efficiency programs to one another within a utility’s program portfolio. If the building owner’s project costs are not balanced by all the benefits, these programs don’t always stand up against other efficiency program investments.

Finding a solution

Our new report offers guidance on how program administrators can value the multiple benefits of energy efficiency, and incorporate them into cost-effectiveness screening. Drawing from a growing body of research that focuses on multifamily buildings, the report provides examples of the range of benefits and their values. In many cases, benefits experienced by building owners are already accounted for as part of their standard accounting practices, including maintenance and repair costs, and costs of other utilities (particularly water and delivered fuels). For benefits that are difficult to quantify and value, or that take extensive amounts of time and effort to assess, there are options to include rough estimates or adders to indicate a value in relation to the cost of energy saved, and validate with pre- and post-retrofit data collected when the program is administered. Benefits should not be omitted from cost-effectiveness testing because of a lack of precise data. Now it is time to balance the costs of energy efficiency improvements with all the benefits that result, so that projects and measures that represent cost-effective energy savings are not left on the table.


How to make the utility of the future an energy-efficient one: New ACEEE report series charts the course for aligning utility business models and energy efficiency
June 10, 2015 - 12:07 am

By Maggie Molina, Utilities, State, and Local Policy Director


Utilities have traditionally earned profits by simply selling more energy and building more power plants and infrastructure, which put their financial motivations squarely at odds with the goal of greater energy efficiency. Luckily, that business model has started to change, which is good news for the nation’s economy, environment, and for consumers who want more options for saving energy in their homes and businesses. With the proper regulatory tools in place, utilities’ financial motivations can be aligned with energy efficiency outcomes. As regulators, utilities, and other stakeholders begin to consider utility business models for the 21st century, they can look to recent state experience for insight into how to effectively incorporate energy efficiency as a utility system resource.

ACEEE has been researching this issue for years, and today we are releasing a series of three new reports on a range of topics related to utility business models and energy efficiency. We examined practices state by state across the United States, interviewed stakeholders for case studies of several state examples, and documented lessons learned. Here is a snapshot of our key findings:

First in the series is a paper that Marty Kushler and I wrote, titled Policies Matter: Creating a Foundation for an Energy-Efficient Utility of the Future. The paper does two things. First, it describes the comprehensive foundation of tools necessary for energy efficiency to thrive as a resource for a utility of the future. Second, it analyzes actual energy savings performance compared to the set of policies in place. In our 2011 report series on the same topics, we described the “three-legged stool” necessary to align utility business models and energy efficiency with three types of tools: program direct-cost recovery, decoupling or related mechanisms that allow recovery of lost contributions to fixed costs, and earnings opportunities for efficiency investments through performance incentives.

Our new analysis shows that while these three regulatory tools play a crucial role in elevating the interest in efficiency within utility companies, these alone have not been as successful at saving energy as states’ specific, long-term energy efficiency targets. For example, we have found that only states with an energy efficiency resource standard (EERS) have achieved annual savings of at least 1% of electricity sales. Our new analysis quantitatively shows that a comprehensive strategy—getting the business model right and setting specific efficiency targets—is most closely associated with achieving high savings. Such a strategy is essential to sustaining long-term utility interest in capturing cost-effective energy efficiency resources.

The next two reports take a deeper look at two legs of the stool. The second paper, Beyond Carrots for Utilities: A National Review of Performance Incentives for Energy Efficiency updates our analysis from 2011 on utility shareholder performance incentives for energy efficiency. In 2011, we identified and examined 18 states with this type of policy in place. This time our research team, led by Seth Nowak, found that 25 states have energy efficiency performance incentives for utilities or statewide program implementers, and two more states have the policy framework but have not yet implemented incentives. While the type and structure of the incentives varies significantly from state to state, in general, we identified a few noteworthy trends. We found that incentives are increasingly awarded based on specific energy savings-based targets. They’re also becoming more comprehensive, often requiring utilities to meet performance goals for multiple types of metrics to earn an incentive.

We also found that today incentives are more likely to be based on longer-term performance criteria. Overall, we found that performance incentives are working well to elevate the interest within utilities to invest in energy efficiency and to encourage utilities to meet or exceed their energy savings targets. Check out the twelve case studies included in the report for more background, policy details, and performance results on state experience with performance incentives.

Third, Annie Gilleo led the research for the second report coming out today, Valuing Efficiency: A Review of Lost Revenue Adjustment Mechanisms. LRAM is a rate adjustment mechanism that allows a utility to recover revenues that are reduced specifically as a result of energy efficiency programs. Though LRAM is meant to address the utility’s throughput incentive, i.e., the traditional link between more sales and profits, it does not completely remove that link. That’s because LRAM is typically not symmetrical, in that while a utility can recover lost revenues from efficiency programs, regulators do not typically make downward rate adjustments if the utility sells more energy than predicted. Full revenue decoupling does a better job of removing that link. LRAM also differs from decoupling in that it requires a utility to specifically estimate energy savings over a given time period.

In recent years, many states adopted the LRAM approach. Our research identified 17 states that have LRAMs in place for at least one major utility. While the number of states with this policy has increased in recent years, we also found that several states that had LRAM policies in the past have moved toward decoupling. This is not surprising, given that we found that states face numerous challenges and complexities with implementing LRAM. In particular, states with LRAM often struggle with the increased focus on evaluation, measurement, and verification of savings. Timing is also a critical issue because LRAM intertwines issues commonly dealt with in rate cases and efficiency proceedings, making it important to line up timing of these two processes. More frequent rate cases are also necessary to prevent lost revenue from stacking up over time. More importantly, an LRAM doesn’t fully address the throughput incentive. Utilities may be willing to do efficiency, but they still have an incentive to sell more energy. Because so many states struggle with these issues, we find that LRAM can be an acceptable temporary solution on the way to decoupling, but for several reasons is a less than optimal approach. Where possible, we recommend true symmetrical decoupling.

Energy efficiency has an important and large potential role to play in the utility of the future, but that outcome is highly dependent on a mix of policies that align utility business models with energy efficiency. As states look to the future, we hope they build on lessons already learned to create a comprehensive policy approach that gets the business model right for efficiency and sets specific, long-term efficiency targets. Check out our new report series for more information, and stay tuned for an ACEEE webinar on these reports coming in July!


CHP can help states meet their Clean Power Plan targets, and here’s how
June 02, 2015 - 1:02 am

By Meegan Kelly, Research Analyst, Industry Program


Emissions reductions from combined heat and power (CHP) can help states comply with their obligations under EPA’s proposed Clean Power Plan. ACEEE has released a step-by-step guide to help states do just that. ACEEE’s new CHP template is intended to help states understand how to document and claim emissions reductions that result from CHP measures in their state plans. This topic and other issues related to the role of CHP in the Clean Power Plan will be discussed at the Industrial Energy Technology Conference in New Orleans tomorrow.

As an underutilized resource with the potential for increased deployment in every state of the nation, CHP can be a component in a state’s plan for cost-effectively reducing emissions from the US power sector. ACEEE has estimated that CHP can conservatively contribute more than 68 million megawatt hours (MWh) of electricity savings nationwide in the year 2030, which would reduce greenhouse gas emissions by approximately 46 million metric tons.

What’s more, obtaining credit for CHP in a state compliance plan is an additional benefit from something that is already a good economic development investment. CHP facilities help local businesses and manufacturers save money and boost their productivity and provide local communities with increased reliability and safety during electric grid outages. States should consider CHP as a tool for attracting businesses and building more resilient communities, with the added benefit of offering cost-effective emissions reductions that can help with Clean Power Plan compliance.

This CHP template is the third in a series of templates available on our 111(d) webpage to help states incorporate energy efficiency strategies into their plans for compliance. The series also includes templates focused on building energy codes and energy efficiency financing programs. To get an idea of just how much CHP could help your state toward achieving its Clean Power Plan emissions reduction target, and at what cost, check out ACEEE’s State and Utility Pollution Reduction (SUPR) Calculator.