Fast-Tracked Opt-Out Legislation Would Derail Indiana’s Successful Energy Efficiency Resource Standard
February 24, 2014 - 3:54 pm

By Martin Kushler, Senior Fellow

Proposed legislation in Indiana (SB 340) would devastate the state’s very promising energy efficiency programs, which were created under order of the Indiana Utility Regulatory Commission (IURC) in 2009. SB 340 would allow any customer of 1 MW demand or greater to immediately “opt out” of paying any rate charges to support energy efficiency programs. This would not only exclude industrial customers (which account for 47% of the load in Indiana), but many large commercial and institutional customers as well. Essentially, this bill would take over half the state’s load (and many of the most cost-effective energy efficiency opportunities) “off the table” for providing utility system energy efficiency resources in Indiana.

This attack comes as a surprise because the current programs are actually working quite well. Indiana recently achieved full-scale implementation of the statewide energy efficiency programs, and the initial results have been very positive. This recent progress helped the state move up six spots in the rankings of ACEEE’s 2013 State Energy Efficiency Scorecard to 27th. An independent evaluation conducted on the first full year of programs (2012) reported a benefit-cost ratio of 2.0 to 1 for the total portfolio of energy efficiency programs (meaning two dollars of reduced utility system costs were saved for every dollar spent on the programs). Furthermore, as is common in most states, the benefit-cost ratio for the commercial and industrial programs (3.19 to 1) was the highest of any sector, making it particularly counter-productive to remove industrial customers from the mix.

The industrial customer representatives promoting this bill have historically opposed requirements to pay for energy efficiency programs. However, the IURC listened to those arguments in 2009 and decided (as have most states) that energy efficiency is an important and valuable utility system resource that all customers should pay for, just like a power plant. The proposed bill would reject that decision and allow large commercial and industrial customers to simply avoid paying for any energy efficiency resource.

Supporters of energy efficiency are working to rally opposition to SB 340, but are hampered by the fact that this bill was dropped without advance warning and is being rushed through the legislature on a very fast track. Presumably this is to avoid allowing the bill’s negative impacts to reach the public’s attention, since opinion surveys have repeatedly shown strong public support for energy efficiency.

If this opt-out legislation moves forward, it would keep Indiana from harnessing what is clearly some of the cheapest, cleanest, and most reliable utility system resource available to the state. Future electricity costs will be higher for all Indiana ratepayers, because much more expensive electric generation resources will have to be procured instead. The Indiana legislature should act in the best interests of the state and not let the abundance of energy efficiency opportunities for large customers fall off the table.

Moving On Up: EERS Policies Now Implemented in 26 States
February 21, 2014 - 9:56 am

By Annie Gilleo, State Policy Manager

State-led energy efficiency efforts have made significant progress this year, particularly energy efficiency resource standards (EERS), or policies that require long-term energy savings. ACEEE has been tracking EERS policies for many years, and the past few have been a bit of a rollercoaster. Beginning in 2004, several states a year committed to EERS targets, and by late 2010 we counted twenty-six states with EERS policies in place. But, like any good roller coaster ride, the upward climb was followed by a downward drop.

In 2012, several states lost traction when it came to implementing their policies. In Maine, regulators significantly underfunded Efficiency Maine, rendering energy savings targets ineffective. In Connecticut, efficiency programs faced similar budget constraints, when only about half of the funding necessary to achieve the state’s all cost-effective efficiency mandate was approved.

We’re happy to say that this year energy efficiency is gaining ground again. Largely due to leaders who understand the real financial and environmental benefits of maximizing energy efficiency, we’ve seen the number of states with EERS policies in place creep upward again. In July, we were happy to announce that Maine was back on our list, having fully funded Efficiency Maine programs when legislators overrode the governor’s veto of a major energy bill. Now, we’re glad to add Connecticut back into our EERS count.

Governor Dannel Malloy has focused on energy as a priority for the state, introducing his Comprehensive Energy Strategy in early 2013. In July, the state legislature passed a bill modeled after Governor Malloy’s plan, which included a host of energy provisions, including requiring regulators to approve utility budgets for efficiency portfolios that include all cost-effective efficiency measures. With this clear order from the state’s leadership, all that was left was ticking boxes. In October, the Connecticut Department of Energy and Environmental Protection approved the statewide Conservation and Load Management Plan, with predicted savings of about 1.5% annually through 2015. And as we rang in the New Year, Connecticut’s Public Utilities Regulatory Authority approved the rate adjustments necessary to carry out these efficiency programs.

We’re also keeping a close eye on states that don’t yet have an EERS in place, and we expect to see our list continue to grow. The Oklahoma Corporation Commission proposed long-term targets for electricity savings in November. Stakeholders in New Jersey recently submitted a petition calling for an EERS for both electricity and natural gas. Arkansas and New York are on track to extend their EERS targets to a next phase.

We now have clear signs of progress from EERS policies in the form of big energy savings. In the 2013 State Scorecard, we found that every state that reported electricity savings of more than 1% had an EERS policy in place.

More than half of states now have strong forward-looking plans for saving energy through investments in efficiency. We are tracking progress toward meeting EERS targets in each of these 26 states in a report due out this spring (an update of a 2011 report you can find here).

If these 26 states continue to meet savings targets, we could see cumulative savings upwards of 5% of total U.S. Energy consumption.

If more states jump on board, the sky’s the limit.

New Lessons on Driving Demand for Energy Efficiency Financing
February 20, 2014 - 11:27 am

By Casey Bell, Senior Economist and Manager, Finance Policy

Recent months have seen some exciting developments in energy efficiency finance. Investment funds, capitalized at about $200 million, are set to break into the potentially extensive market for energy efficiency projects in the buildings sector. While capital flowing into the market is important, the critical next step is to drive demand for energy efficiency improvements and connect this demand with available capital.

In October, we reported on initial lessons learned from the Small Lender Energy Efficiency Convening (SLEEC), organized by ACEEE and Energi. We have now released a more detailed report that profiles successful, integrated efficiency lending programs, highlights perspectives on increasing lender participation, and explores substantive barriers to growing the market to its full potential.

We note that a lack of customers actively seeking financing for energy efficiency improvements is the number one barrier to participation in the market for small to mid-size lenders. At the convening, participating lenders also identified uncertainty around best practice methods for validating and underwriting energy savings as substantive key barriers. And while we are witnessing a growing number of innovative products, and lenders willing to lend for energy efficiency, we still need to make more progress developing the customer base.

Developing that base will require a better understanding of how to serve those customers better. The report contains recommendations from the small lender network that focus on opportunities to better understand customer demand for energy efficiency. One example is exploring randomized controlled trials, an approach leveraged by nonprofits such as Innovations for Poverty Action to evaluate the effectiveness of poverty alleviation interventions. Similar approaches could be used to explore the effectiveness of energy efficiency loan programs and product components.

We also found that several programs such as the Energy Savers Program were able to serve customers in the multifamily market, considered by some to be hard to reach, by adopting an integrated approach. This approach provides a seamless transaction process for customers, where every activity from energy audit to financing, incentives, and project execution is simplified and consistent.

Armed with the technical assistance and policy and research support outlined in the report, small to mid-size lenders could serve an important role in facilitating investment in energy efficiency at the local, state, and regional levels. Given their strong relationships with customers, these lenders, both mission-driven and non-mission driven, could potentially leverage local knowledge to connect their customers with energy efficiency contractors. These lenders can also connect customers with members of the community who have undertaken similar projects in the past.

So it is no coincidence that we chose “Building Momentum and Driving Demand” as the theme of this year’s ACEEE Energy Efficiency Finance Forum. The forum, designed for investors, financiers, utilities, and policymakers, is scheduled for May 11-13 at the Capital Hilton in Washington, D.C. One program highlight will be a keynote address by Suzanne Shelton, President and CEO of the Shelton Group, who will provide insights from customer segmentation studies on demand for energy efficiency improvements. For more information about the Energy Efficiency Finance Forum, please visit our website. Registration is now open!

Finally, if you are a lender who is interested in engaging with like-minded institutions as a part of SLEEC, please reach out to Casey Bell at

New Legislation Would Direct Long-Overdue Study of Motor System Use in U.S.
February 19, 2014 - 10:56 am

By R. Neal Elliott, Associate Director for Research

Did you know that motors use about half of the electricity in the U.S.? From large industrial machines, to commercial equipment, to home appliances, to even our computers and smart phones, motors are everywhere. Unfortunately we don’t have many details on how the energy use is distributed among the motors’ loads because it has been over 15 years since U.S. Department of Energy [no-glossary](DOE)[/no-glossary] commissioned the last national motor study, and the U.S. Census bureau discontinued collecting data about motor imports and sales over a decade ago due to budget cuts.

This situation could change if bipartisan legislation introduced by Senators Pryor and Enzi is enacted. The Motor Systems Market Awareness Act of 2014 (S. 2002), introduced February 6th, would direct DOE to conduct a motor and motor-driven systems market assessment to better understand how motors are used. The bill would also require DOE to investigate the opportunities for, and barriers to, improving motor system efficiency (particularly through the use of advanced motors), and to conduct a public awareness program to advance technology choices and market practices that would reduce waste in motor-driven systems throughout the economy.

The senators have shown leadership on this important energy efficiency opportunity. Last fall DOE issued a draft rule for larger, poly-phase motors that represents among the largest appliance and equipment standards proposed in the past three decades. As ACEEE’s research has found, opportunities for efficiency advances in conventional induction motors are limited, as those technologies are mature. However, the opportunities for improvements in motor systems improved by technology that continuously matches motor speed to load requirements are huge, with estimates exceeding 25% savings.

A key to realizing this opportunity is the application of advanced motors that include technologies such as permanent magnetic, switched reluctance, and written pole motors, and other technologies that make use of advanced power semiconductors to allow motor speed to vary over a wide range while maintaining motor efficiency. These motor technologies are already used in applications ranging from high-efficiency washing machines and home HVAC equipment to electric cars and large industrial machines, and the resulting energy savings have lived up to their promise.

These technologies, however, require that the equipment intended for the motors be specially designed to take advantages of their unique features—a cost that many firms are concerned they can’t pass on to the purchaser. Moreover, both the permanent magnetics and the power semiconductor chips that enable these advanced motors depend on rare earth elements, which are currently in short supply due to the concentration of production in China. This situation is changing, but remains risky due to the possibility of supply interruption. The Pryor-Enzi bill will assess this risk as part of DOE’s study, helping the U.S. develop a strategic plan to ensure stable and affordable supplies of these critical resources.

The U.S. is poised to create a more energy efficient future through the application of advanced motor technologies. The senators’ bill would supply the critical information needed by government and industry to create a strategic plan and realize the energy and economic benefits that come from applying advanced technology to motor systems.

New Tracker Shows How Appliance Standards Are Driving Down Pollution While Saving the Nation Billions
February 12, 2014 - 6:31 pm

By Andrew deLaski, Executive Director, Appliance Standards Awareness Project (ASAP)

In his State of the Union address last month, President Obama said we need to “act with more urgency” on climate change and also pledged to make this “a year of action.” Fortunately, when it comes to new appliance, equipment, and lighting efficiency standards, the administration has already made very good progress. With two new standards completed since his speech and another 10 expected this year, the administration is gaining new momentum for meeting the president’s ambitious goal to reduce carbon dioxide (CO2) emissions by 3 billion metric tons through new efficiency standards completed during his two terms. Of course, the efficiency gains that underlie such enormous CO2 reductions also drive huge energy and consumer dollar savings.

Today, we are launching new ‘trackers’ on the ASAP website to keep tabs on progress. As the CO 2 tracker shows, thanks to standards completed to date, the administration is already more than half way to its goal. The Department of Energy (DOE) completed new standards for virtually every major household appliance within the past few years as well as for many commercial products. A significant share of the total savings to date also comes from standards enacted by Congress as part of the Energy Independence and Security Act (EISA) of 2007 (including light bulb standards), signed into law by President Bush and codified into regulations by DOE in 2009.

By cost-effectively improving products’ energy efficiency, new standards also reduce energy waste and save consumers and businesses money on their utility bills. So, we will also be keeping track of the energy savings that underlie the emissions reductions and the net present value savings that consumers and businesses gain from the new standards. Standards completed to date will save 3.8 trillion kilowatt hours and 1.1 trillion cubic feet of natural gas by 2030. To put those savings in perspective, the electricity savings about equal total U.S. electricity use in 2012 and the gas savings would heat 4 out of every 10 natural gas heated U.S. homes for a year. For consumer pocketbooks, the total net savings now stand at $370 billion. We will update these numbers with each new standard completed.

Meeting the 3 billion metric ton goal will not be easy (the reduction commitment is about equal to a year’s output from 850 coal-fired power plants). It’s very unlikely that Congress will pass another law like EISA in the near future and many of the biggest energy-using residential products already have updated standards. But work is underway at DOE. We have estimated that additional standards already under development could save about 700 million of the remaining 1.2 billion tons needed to meet the goal. To close the final 500 million ton gap, DOE will need to consider new product categories as well as updates to some existing standards with good savings potential.

Some of the biggest savers on tap for 2014 include electric motors, which account for about half the electricity used by industry; household furnace fans, which can use as much energy as a refrigerator and dishwasher combined to circulate heated and cooled air through a home’s ductwork; and walk-in coolers and freezers. Most of the remaining standards expected in 2014 will cover commercial equipment and lighting. Successfully completing new residential furnace standards, at long last, would also help meet the goal.

Regular readers of this blog and users of the ASAP website will remember that just a year ago we launched a different kind of tracker---one which tallied the lost savings due to missed deadlines for new standards. What difference a year makes! By reining in energy waste with new standards, the Obama administration has made progress in reducing CO2 emissions while saving money for consumers and businesses at the same time. In the State of the Union Address, President Obama said we need to take action on the climate so we can leave our children a “safer, more stable world.” Meeting his objective for new standards is one very concrete action that can help move us down that path.

DOE’s New Power Supply Standards Are a Big Win for Consumers and the Environment
February 03, 2014 - 4:19 pm

By Andrew deLaski, Executive Director, Appliance Standards Awareness Project (ASAP)

Thanks to a new national standard announced today by the U.S. Department of Energy [no-glossary](DOE)[/no-glossary], power adapters--the sometimes bulky and annoying boxes on the power cords of your electronic gadgets--will waste a lot less energy. Just as importantly, DOE deferred new national standards for battery chargers, allowing strong existing standards in California and Oregon to remain in place.

External Power Supplies

Laptop computers, tablets, cell phones, cordless phones, digital picture frames, modems, routers, computer speakers, printers and countless others devices need power adapters, also known as external power supplies (EPSs), to convert household electric current (120 volts in the U.S.) to the lower voltages at which those devices are designed to operate. Unbeknownst to many, these adapters unobtrusively consume significantly more energy than necessary to do their job.

The new power supply standard, which will take effect in two years, is an update to a standard first adopted by California, and enacted nationally as part of the Energy Independence and Security Act of 2007 (EISA). The original standard eliminated the least-efficient types of power supplies for most products, doing away with many of the brick-like units which were often warm to the touch (that heat was energy waste) and which annoyed many of us by blocking neighboring power outlets with their bulk. The result was less wasteful and less annoying products.

The latest DOE standards strengthen the efficiency requirements for previously covered units, and extend the standards to include several other EPS types. They will also cut adapter energy use by 30 to 85% depending on the device. Based on ASAP’s analysis of DOE’s published data, the savings will add up to about 30 kilowatt-hours (kWh) a year for a typical household once all adapters in the home comply.

While the savings per household may seem modest, they add up quickly on a national level. DOE estimates current annual shipments of about 345 million EPS units (and growing), and the new standards will affect 75-80% of those sales. According to DOE, over thirty years of sales, the new standards will save 93 billion kWh and reduce power plant CO2 emissions by 47 million metric tons, an amount about equal to the annual emissions of 10 million cars. Net consumer savings will amount to about $3.8 billion.

Most likely, savings will be even larger since DOE estimates only 5 – 10 power supplies per home. Other research suggests that the number of power supplies per home could be more than twice as high.

California Battery Chargers Standards

In today’s notice, DOE said that it has deferred setting standards for battery chargers at this time. DOE’s original proposed standards, published in 2012, would have been weaker than California standards. The California standards took effect one year ago, and Oregon subsequently copied the California standards. By deferring federal action, DOE has allowed the stronger state standards to stay in place. Since national standards generally preempt state standards, ASAP and our coalition of efficiency supporters had argued that a de facto national standard weaker than the state levels would have taken the U.S. backwards on energy efficiency. We still think DOE should move forward with national battery charger standards, but any national level must be at least as strong as the state standards it will replace.

The state battery charger standards are far-reaching since so many products now contain a rechargeable battery, including many of those covered by the power supply standard. Based on an analysis of the California database of qualified products, nearly 9,000 qualified products are now available for sale in California, covering about 800 types of battery operated products. Many manufacturers have said they will only make one product line for the U.S. and California, so we expect that the California standards are setting the national minimum, especially since Oregon has adopted the same standards and other states may do the same.

Progress on President Obama’s Climate Goal

As I wrote last week when DOE completed new standards for metal halide light fixtures, DOE is making good progress on meeting the President’s goal of 3 billion metric tons of CO2 savings from new standards by 2030. DOE estimates that the power supply standard will save about 24 million metric tons of CO2 by 2030. Later this month, DOE will complete commercial refrigeration standards and new standards for motors and furnace fans are due out later this year.

DOE’s new power adapter standards combined with the California standards for battery chargers bring us another important step closer to eliminating energy waste in our homes and offices. Combined with a series of other standards completed within the past few years and under development at DOE, these new standards are helping to curb growth in U.S. energy use. That’s good news for consumers and the environment.

For more information on the new standards check out Pierre Delforge’ post on NRDC’s blog, Switchboard.

A Voluntary Performance Label for Industrial Equipment Is Bringing Together Manufacturers and Efficiency Experts
January 31, 2014 - 10:30 am

By Ethan Rogers , Senior Manager, Industry

Most of us involved in energy efficiency have realized at one time or another that there are greater opportunities to save energy through system optimization than through improvements to the efficiency of an individual device. A good way to visualize this is to picture a well-designed pump driven by a high-efficiency motor pumping water through a mostly closed valve that not only wastes most of the electricity going into the motor, it causes backpressure on the pump that will cause it to wear out quicker.

Solving such abuses of energy design usually requires a custom solution. Errors, however, can be minimized or even eliminated with proper system design and equipment selection. To that end, ACEEE has joined several industrial motor-driven equipment manufacturers, their trade associations, including National Electrical Manufacturers Association (motors and drives), Hydraulic Institute (pumps), Air Movement and Control Association (fans), and Compressed Air and Gas Institute (compressors), and efficiency program administrators to develop new voluntary performance labels that will communicate the comparative efficiency of an “extended product” comprised of a driven component (e.g., fan, pump, or compressor), a motor, and associated controls.

This product label would reflect the relative efficiency of the equipment as it is installed into a motor system application, allowing users to select a more efficient product for a given application. We are working to ensure that these extended-product labels can be used by the energy efficiency programs across the country to incentivize customer purchases of products that will result in greater system efficiency in their targeted applications.

Each label would be owned by the trade associations for these equipment manufacturers. The association and their members would develop the testing and labeling specifications for these extended products. All of us intend that this label would complement the minimum efficiency performance standards that are under development by the Department of Energy rulemaking process.

Success for the organizations involved in this initiative would be the creation of a set of comparative indices that consumers and efficiency program administrators could use to evaluate and identify the energy performance of various industrial motor-driven products, and of new program models which utility sector efficiency programs would use to develop new energy efficiency resource acquisition programs that impact the millions of connected horsepower sold every year in the US.

If all goes according to plan, the details of both the labels and the model programs will be unveiled in early 2015. Until then, we will keep you updated on the initiative’s progress on our website and at events throughout the year. For example, we will present at the Industrial Energy Technology Conference in New Orleans, Louisiana on May 20th-23rd, 2014, providing a description of the initiative and updating our progress. Hope to see you there!

New Street Light Fixtures Standards are a Good Step Forward, But Could Have Saved More
January 30, 2014 - 3:12 pm

By Andrew deLaski, Executive Director, Appliance Standards Awareness Project (ASAP)

New national standards for metal halide light fixtures announced by the Department of Energy (DOE) today take another important step toward curbing energy waste and will save businesses and towns money on their utility bills. The new standards also mark progress toward meeting President Obama’s ambitious goal of saving 3 billion metric tons of CO2 from new appliance standards, as laid out in the Climate Action Plan. But stronger standards could have saved even more.

First the good news. Metal halide light fixtures are most commonly used for street and other outdoor lighting, and in high-ceilinged commercial buildings like big-box stores, warehouses and gyms. According to DOE, products meeting the new standards sold over thirty years will save light fixture buyers more than $1.1 billion dollars and reduce electricity use by 46 to 58 billion kWh. That’s enough power to meet the total needs of 4 to 5 million typical US households for one year.

For the climate, the standards will save 6.3 to 6.8 million metric tons of CO2 by 2030, making a relatively small, but still important, contribution to meeting the administration’s overall goal. Combined with several other standards under development at DOE and due out later this year for electric motors,commercial refrigeration, furnace fans and other products, these standards add up to big savings. As DOE pointed out today, other standards already adopted will deliver 1.8 billion metric tons of CO2 savings by 2030 and net consumers more than $400 billion. That’s huge progress.

So what’s not to like? Unfortunately, the final metal halide light fixture standards pull back a bit from those DOE originally proposed last summer. As my colleague Joanna Mauer wrote in a blog post at the time, DOE originally proposed two levels for the new metal halide fixture standards. Most fixtures would have to meet efficiency levels attained by improved magnetic ballasts, the most common technology used today. But one very common class, the 150 watt light fixtures often used in big box stores and other high-ceilinged commercial buildings, would have had to reach even higher levels attainable only by cutting-edge electronic ballasts. DOE’s analysis shows that electronic ballast standards are cost effective for the 150 watt light fixture class. We would have liked to see DOE stick to their proposed rule. Doing so would have saved another 8 to11 billion kWh over thirty years and more than another million metric tons of CO2 by 2030.

Admittedly, compared to the overall goal, a million metric tons is a very modest amount. But, adopting electronic ballast standards for those classes where the technology is cost-effective today would have helped pave the way for broader use of electronic ballasts in the future and helped accelerate market adoption of the latest high efficiency technologies, including LEDs, which are likely to drive even bigger savings for commercial and street lighting.

The pace of new standards development at DOE demonstrates that Secretary Ernest Moniz and his team are working hard to meet the President’s very ambitious overall goal for new efficiency standards. Meeting that goal will require DOE to be equally ambitious in each of the individual standards under development. Although today’s standard is a good step in the right direction, let’s hope that ambition shines through more strongly in the standards due out in the weeks and months ahead.

For more on this issue, check out Meg Waltner’s post the on NRDC’s blog Switchboard.

Proving Energy Efficiency Creates Jobs: Seeking A New Standard Method
January 22, 2014 - 12:48 pm

By Casey Bell, Senior Economist and Manager, Finance Policy

Proponents of energy efficiency believe that it not only saves energy and money, it creates jobs. The stronger the evidence that energy efficiency programs and polices create economic opportunity and jobs, the greater the likelihood that federal, state, and local governments will support them. Managers of existing programs use a variety of methods to monitor and evaluate their job creation impacts in order to justify and extend the investment. The problem is that we do not know the best way to verify how many jobs have been created by a particular energy efficiency policy or program. There is no one, sound, generally accepted method for verifying energy efficiency jobs creation.

The underlying economic argument for energy efficiency job creation, through both the initial investment in energy- efficient measures and through resources shifted to labor intensive sectors of the economy made possible by energy savings, is compelling. However, the lack of a standardized, generally-accepted method of verification is problematic today, with the various approaches to job creation studies creating confusion among policymakers. When we can verify and prove that job creation has occurred, we empower policymakers to continue to make funding and policy decision.

ACEEE, with the support of the Vermont Energy Investment Corporation, DC Sustainable Energy Utility, and Efficiency Vermont, is launching a project with the goal of addressing this issue. We will review existing practices for energy efficiency jobs accounting and verification by surveying and interviewing program managers across the United States. The approaches we review will include both input-output modeling of job creation impacts and various data collection efforts to provide “head counts” that verify job creation. Using the results, we will evaluate the relative effectiveness of energy efficiency jobs accounting methods based on (1) their ability to establish concrete proof of job creation, (2) their effectiveness in capturing the full range of job creation impacts including direct, indirect, and induced jobs, and (3) their ease of use and replicability. Finally, building on a foundation of best practices, we will suggest an exemplary methodology for verifying and reporting energy efficiency job creation impacts.

We anticipate releasing our results in late 2014. In the meantime, we are looking to the energy efficiency community to support this effort, and are seeking to connect with program managers who have an interest in sharing relevant information and testing our approaches. Programs interested in this effort should feel free to email me.

Net Savings For Non-Evaluators: Some Concepts Rather Than Statistics
January 15, 2014 - 10:04 am

By Martin Kushler, Senior Fellow

 How much energy savings resulted from a given energy efficiency program? This is the fundamental question that program evaluators have faced since the days of the very first energy efficiency programs in the 1970’s.

What makes this task more difficult than it sounds at first is that the results, or gross savings, observed among program participants must be compared to something that cannot actually be observed or measured: what would have happened if the program had never occurred. If gross savings alone are used, there can be misleading results due to the inability to consider the effects of “free-riders” (customers who participate in an efficiency program but would have taken energy-saving actions even if there were no program) and “spillover” (customers who do not directly participate in a program but are indirectly induced by a program to take action).

The term of art for this elusive variable is “net savings,” and evaluators have developed a plethora of techniques and methodologies for estimating it. While estimating net savings has always been a challenge, in recent years it has become more challenging for three key reasons. First, programs have become increasingly complex, including efforts to influence entire markets (and not just specific program participants). Second, there are many entities besides utilities in the marketplace providing energy efficiency information and incentives. Third, evaluators have developed increasingly complex methodologies to attempt to estimate net savings.

At the same time, with the spread of regulatory policies for things like utilities earning shareholder incentives for energy efficiency program performance, and “lost revenue recovery” in some states, the dollar “stakes” attached to the estimate of program savings have never been higher.

For all of those reasons, the subject of “net savings” has become a very hot topic in the industry. In order to help policymakers, regulators, utilities, and other interested parties better understand the factors and choices involved, ACEEE conducted a national review of state approaches to the net savings issue. ACEEE surveyed all 50 states and the District of Columbia, reviewed a large amount of recent industry literature, and conducted interviews with national energy efficiency program evaluation experts. The findings are summarized in our new report, Examining the Net Savings Issue: A National Survey of State Policies and Practices in the Evaluation of Ratepayer-Funded Energy Efficiency Programs .

Briefly stated, the results of this study demonstrate that there is a great deal of diversity in how states are approaching this issue. At one end, nearly a quarter of states simply report gross savings. Another large segment, likely a majority, nominally report “net” savings, but with a fairly simplistic approach (often just using “deemed” net-to-gross [NTG] ratios). Finally, a smaller number of states (many profiled in this report) are pursuing more sophisticated measurement of net savings, including spillover and in some cases, broader market effects.

Some of our key take-aways from the study include:

  • There is no single optimal method for estimating net savings, and “triangulation” of multiple methods is recommended, where feasible;
  • Common practice in the states regarding net savings estimation is improving. One noteworthy example is the increasing recognition that it is inappropriate to only apply downward adjustments to gross savings to account for “free-riders” without also considering the potential upward adjustments from “spillover”;
  • There are important trade-offs to be considered between the time and monetary resources that must be devoted to evaluation vs. the level of sophistication of net savings analysis that can be conducted;
  • Whatever method a state chooses for estimating net (or gross) savings, reports should be transparent in describing the methodologies and assumptions used, so reviewers can understand what was done and how the results might compare to results from other states;

Finally, one additional note about this subject should be emphasized. Although opponents sometimes point to discrepancies among states in their use of evaluation methodologies as a reason to discredit the concept of energy efficiency as a utility resource, such assertions are without merit. Nothing about the diversity of approaches used for estimating net savings in any way diminishes the over-arching conclusion that energy efficiency is the least-expensive utility resource option available. Energy efficiency has been shown to be robustly cost-effective across jurisdictions using very different methodological approaches to quantifying net savings (as documented in a 2009 ACEEE report and will be documented once again, in a soon-to-be-released ACEEE update that reviews results from 20 different states). Debate over particular net savings methodologies is to a large extent an “inside baseball” issue for utilities and regulators who must arrive at specific numbers for reporting, rather than something that should call into question the overall policy of supporting utility sector energy efficiency programs.

The net savings issue is one where methodologies and state approaches continue to evolve. We hope that the assessment of current status across the nation provided in our new report will contribute to the discussion.