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.
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.