USING TARGETED ENERGY EFFICIENCY PROGRAMS TO REDUCE PEAK ELECTRICAL DEMAND AND ADDRESS ELECTRIC SYSTEM RELIABILITY PROBLEMS

Steven Nadel, Fred Gordon, and Chris Neme

November 2000

Executive Summary

In the summers of 1998, 1999, and 2000, electric system reliability problems were regular front-page news. The reliability of the power system, however, should not be viewed as only a short-term, summertime issue. In much of the country, electricity use (particularly peak demand) is expected to grow rapidly, and power supplies will probably be strained for many years to come.

A range of solutions have been proposed to address electric system reliability problems and reduce the likelihood of power outages. These solutions include constructing new power plants, expanding the transmission and distribution system, implementing load control programs, improving energy efficiency, and investing in distributed generation resources (e.g., combined heat and power systems [CHP]). An approach limited to only supply-side solutions would create additional pollution as well as political opposition to siting these new facilities. Energy efficiency, on the other hand, offers a low-cost alternative that reduces the need for additional central station generation and distribution capacity while reducing pollutant emissions and saving consumers and businesses billions of dollars. In this report, we discuss how demand-side efficiency could make a substantial and cost-effective contribution to addressing power reliability problems.

With reliability problems occurring in the short term and likely to persist for awhile, utility companies (or other appropriate program administrators) should design and implement programs that will have a substantial impact on peak demand within the next 1–5 years. In order to achieve this objective, the programs must:

• Save energy at peak hours;
  
• Have enough impact on dominant loads that massive savings would result;
  
• Use technologies and practices that are already proven and in the market; and
  
• Build upon program designs that have been demonstrated to be successful.

Based on these criteria, three areas jump out as having the most potential: efficient heating, ventilating, and air conditioning (HVAC) equipment; proper installation, maintenance, and use of HVAC and other building systems; and commercial sector lighting.

In the following sections we recommend six programs that could cover these end-uses. The six programs are:

1. new and replacement residential cooling systems;
   
2. residential cooling systems tune-up and repair;
   
3. commercial and industrial HVAC equipment;
   
4. commercial building retrocommissioning and maintenance;
   
5. commercial and industrial lighting retrofit acceleration; and
   
6. commercial and industrial lighting design enhancement.

Next, we discuss information on these suggested programs, including data on estimated program costs and impacts. Overall we find that each of these programs would likely be cost-effective relative to other peak demand supply or peak demand reduction options, particularly when the value of both energy and peak demand savings are included in the analysis. Further details on each program, including suggestions for program planning, and savings and cost-effectiveness analysis, are provided in Appendix C.

Overall, the six recommended programs could reduce peak electrical demand in 2010 by about 64,000 megawatts (MW). These savings would negate about 40% of the growth in peak demand predicted over the next decade. About 45% of the savings would be due to the new residential air conditioner program. The commercial retrocommissioning program and the commercial lighting upgrade programs would each account for about 15% of the savings, while the other three programs would account for 11% (residential air conditioning repair), 8% (commercial lighting design), and 6% (commercial HVAC equipment).

In order to capture the peak demand savings possible from energy efficiency, we recommend the following actions.

• Policy-makers should consider efficiency programs as an essential complement to supply-side programs and load management in efforts to assure system reliability.
  
• Utility companies (or other appropriate program administrators) should begin developing and implementing major peak reduction programs as soon as possible so that programs would start by the end of 2000, and also should undertake sufficient installations so that they begin to have an impact on the 2001 summer peak.
  
• State utility commissions should encourage, or even require, utilities or other organizations under their jurisdiction to develop and implement energy efficiency programs targeted at reducing peak demand.
  
• The U.S. Department of Energy (DOE) should provide technical assistance to states, utilities, and other program sponsors to help them develop and implement energy efficiency and other programs targeting peak demand.
  
• States should adopt funding mechanisms for energy efficiency and other public benefit fund (PBF) programs. In addition, as part of federal restructuring legislation, the federal government should encourage states to set up and expand PBFs by establishing a national fund to match state PBF expenditures.
  
• Congress should also consider pending tax credits on high-efficiency residential air conditioners and energy-saving new commercial buildings as a complement to the programs listed here.