Make Utility Efficiency Programs ‘as Attractive’ as Renewables

June 7, 2013 By Leon Walker

OSU logoUtilities aren’t rewarded for adopting energy efficiency programs, and reforms are needed to make energy efficiency as attractive as renewables, according to an article in Environmental Law.

The article, written by Inara Scott, an assistant professor at Oregon State University, examines key differences between energy efficiency projects and renewable resources and outlines ways to increase the amount of energy utilities save each year through efficiency programs. The article is based on this study.

According to Scott, the current system actually discourages utilities from building programs to increase efficiency. Scott’s study makes four key recommendations: redesigning rate structures, setting hard targets, streamlining cost-effective tests and addressing market barriers.

  • Cost-recovery systems for many investor-owned utilities in the United States are based on an old rate structure model – the more energy that is produced, the higher return for shareholders. Basically, we shouldn’t be penalizing utilities for selling less energy, Scott said. Instead, she said, states can use ratemaking mechanisms to decouple the link between utility sales and revenues and establish performance incentives for the adoption of efficiency programs. Decoupling mechanisms may add complexity to utility rate structures, but they are “essential to eliminating environmentally nonsensical” ratemaking models that reward utilities for higher sales and penalize them for efficiency, Scott said.
  • Setting hard targets is doable, she said. The state of Oregon has set a goal for 25 percent of its energy to be consumed through renewables by 2025. Scott said other states also could set aspirational goals for energy efficiency. If states are committed to reducing the strain on the electric grid, diversifying utility resource portfolios, reducing dependence on foreign markets, and reducing carbon emissions through the adoption of renewable resources, Scott says that they should be just as willing to do so through the adoption of energy efficiency as they are through the purchase of renewable resources.
  • Streamlining cost-effectiveness tests will be difficult, Scott said, because a simple, accurate way to measure energy efficiency does not exist. She says that the difficulty is that you’re trying to measure energy you didn’t use. In other words trying to measure something that doesn’t exist. Many of the tests that do exist are so complicated that they may discourage utilities from adopting energy efficiency. Issues with cost-effectiveness testing will be difficult to fully remedy, Scott said, but these steps —conducting assessments at a programmatic level, streamlining the precision of tests, and considering the development of national standards — will move the bar forward.
  • Market barriers, Scott said, can be addressed through incentives. Some states, including Colorado and Michigan, have increased the size of incentives for consumers to take on energy efficiency programs (including, in some cases, reimbursing consumers 100 percent of their investment) and finding ways to make incentives more attractive to customers through advertising and education.

Next-generation energy-efficiency technologies and programs can help utilities save 27 percent of forecasted electricity use and 19 percent of forecasted natural gas use by 2030, according to a report by the American Council for an Energy-Efficient Economy released in January.

Frontiers of Energy Efficiency: Next Generation Programs Reach for High Energy Savings says these new technologies combined with innovative program designs can help meet the aggressive saving targets being set by many states.

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