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EE Reporting Tool Training California Municipal Utilities Association & Southern California Public Power Authority August 4, 2010 Eric Cutter Senior Consultant

EE Reporting Tool Training

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EE Reporting Tool Training. California Municipal Utilities Association & Southern California Public Power Authority August 4, 2010 Eric Cutter Senior Consultant. Cost-Effectiveness Framwork. 2. Origins of Cost-effectiveness: Traditional Supply Side Planning. - PowerPoint PPT Presentation

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Page 1: EE Reporting Tool  Training

EE Reporting Tool Training

California Municipal Utilities Association &

Southern California Public Power Authority

August 4, 2010Eric Cutter

Senior Consultant

Page 2: EE Reporting Tool  Training

Cost-EffectivenessFramwork

2

Page 3: EE Reporting Tool  Training

Origins of Cost-effectiveness: Traditional Supply Side Planning

Cost-effectiveness analysis is rooted in least cost utility supply planning; where objective is to…

• develop the least cost supply portfolio that• has acceptable level of cost risk,• meets established reliability criteria, and• complies with environmental regulations.

Traditional analysis yields a preferred supply plan

Integrated supply and demand planning (“IRP”) can also yield a preferred supply plan

No ‘benefits’ calculation is needed in this framework, just a complete characterization of all costs required to meet the object function

Page 4: EE Reporting Tool  Training

How do you test for a lower cost solution?

Why cost-effectiveness analysis?

Shortcomings of “full IRP” approach• Complex analysis on broad set of issues from fuel supply,

operability, supply technology• Significant time required (2+ years typically)• Lack of stakeholder transparency• Focus on ratepayer cost and risk, subject to minimum

standards on reliability, environment

Once you have your ‘preferred plan’

Page 5: EE Reporting Tool  Training

Cost-effectiveness Framework

Testing whether an alternative plan is lower cost is the basic building block of CE analysis

Evaluate the costs of EE program

Evaluate the change in costs of your preferred supply plan (“avoided costs”)

•These are the ‘benefits’ of implementing your program

Compute the difference (or ratio)

Net Benefits (difference)

Net Benefitsa (dollars)

= NPV ∑ benefitsa (dollars) -NPV ∑ costs a (dollars)

Benefit-Cost

Ratio

Benefit-Cost Ratioa

= NPV ∑ benefitsa (dollars)

NPV ∑ costs a (dollars)

More formally, net present value difference of benefits and costs…

Step 1

Step 2

Step 3

Page 6: EE Reporting Tool  Training

Calculating Avoided Costs

Page 7: EE Reporting Tool  Training

Range of avoided cost components that are considered in developing the benefits for EEEach state selects their own elements and methods for quantification

Electricity Energy Efficiency

Energy Savings Capacity Savings

Market purchases or fuel and O&M costs Capacity purchases or generator construction

System Losses System losses (Peak load)

Ancillary services related to energy Transmission facilities

Energy market price reductions Distribution facilities

Co-benefits of water, natural gas, fuel oil savings (if applicable)

Ancillary services related to capacity

Air emissions Capacity market price reductions

Hedging costs Land use

Avoided Cost Components

Page 8: EE Reporting Tool  Training

Methodology of Avoided Costs

Methodology depends on market structure

Lots of variation across states

Approaches to Value Energy and CapacityNear Term

(Market data is available)

Long Term

(No market data available)

Distribution electric or natural gas utility

Current forward market prices of energy and capacity

Long-term forecast of market prices of energy and capacity

Electric vertically-integrated utility

Current forward market prices of energy and capacity

or

Expected production cost of electricity and value of deferring generation projects

Long-term forecast of market prices of energy and capacity

or

Expected production cost of electricity and value of deferring generation projects

Page 9: EE Reporting Tool  Training

Components of Avoided Cost

Page 10: EE Reporting Tool  Training

Generation Marginal Cost Forecast

2009 2013 2021 2028 and beyond

Electric Forward data

Gas Futures data

Forecast of Long Run Market Price (Energy and Capacity)

Market Price(Energy & Capacity)

Resource Balance Year

Long run forecast of market prices

Trend to All-in Cost of New CCGTOr other suitable proxy powerplant

Use Market and/orMarket Forecast

Page 11: EE Reporting Tool  Training

Model Structure

Page 12: EE Reporting Tool  Training

Model Structure

Page 13: EE Reporting Tool  Training

Key Issues

Page 14: EE Reporting Tool  Training

Defining Incremental Costs

Page 15: EE Reporting Tool  Training

Incremental Costs

Page 16: EE Reporting Tool  Training

Measure Costs

Utility incentives OFFSET measure costs (that otherwise would be paid by participant). The two incentive types are:• Rebate: cash transfer from utility to participant• Direct Install: Utility pays contractor to perform installation

• Both are (since 2008) treated the same in cost tests

Utility costs that are IN ADDITION to measure cost are:• Entered as Variable Overhead.

Page 17: EE Reporting Tool  Training

Net To Gross (NTG) Ratio

Net to gross ratio may derate the program impacts and significantly affects the results of the TRC, SCT, PAC, and RIM testsDifficult to estimate the NTG with confidenceKey factors addressed through the net-to-gross ratio are: Free Riders Installation Rate Persistence/Failure Rebound Effect Take Back Effect Spillover

Page 18: EE Reporting Tool  Training

Free Rider Costs

In 2007: how to address free-rider “costs”?

IOU Position• Exclude both rebate and direct install costs that benefit free-

riders (treat all incentive costs as transfers, whether to free-rider or not)

• Incentive costs, whether to participant or free-rider, are a transfer within the region and should be excluded from TRC

DRA, TURN, NRDC Position • Include both rebate and direct install costs that benefit free-

riders as a TRC Cost.• Incentives paid to free-riders are a “cost” bourn by non-

participants and reflect actual utility expenditures.• TRC is sum of participant cost (PCT) and non-participant cost

(RIM)

Page 19: EE Reporting Tool  Training

Free Rider Costs

CPUC sided with DRA, TURN and NRDC• Both rebate and direct install costs paid to free riders are

ADDED as a cost in TRC. • In other words, only the rebate and direct install costs that

benefit non-free-rider customers are treated as a transfer payment and excluded from the TRC cost.

Page 20: EE Reporting Tool  Training

Energy Efficiency PortfolioTRC = 2.0

ResidentialAppliance Program

TRC = 1.8

NewConstruction

ProgramTRC = 1.2

CommercialLightingProgram

TRC = 3.4

Mea

sure

s

TRC>1 TRC<1Legend:

Low-IncomeProgram

TRC = 0.8Pro

gram

sP

ortfo

lioEnergy Efficiency Portfolio

TRC = 2.0

ResidentialAppliance Program

TRC = 1.8

NewConstruction

ProgramTRC = 1.2

CommercialLightingProgram

TRC = 3.4

Mea

sure

s

TRC>1 TRC<1Legend:

Low-IncomeProgram

TRC = 0.8Pro

gram

sP

ortfo

lio

Application at portfolio level allows for inclusion of individual programs or measures that do not past cost test

Low Income, emerging technologies, market transformation

Point of Measurement

Page 21: EE Reporting Tool  Training

Discount Rates are a key input

Tests and Perspective

Discount Rate Used

Illustrative Value

Present Value of $1/yr for 20 years

Today’s value of the $1 received in Year 20

Participant Cost Test (PCT))

Participant’s discount rate

10% $8.51 $0.15

Ratepayer Impact Measure (RIM)

Utility WACC 8.5% $9.46 $0.20

Utility Cost Test (UCT/PAC)

Utility WACC 8.5% $9.46 $0.20

Total Resources Cost Test (TRC)

Utility WACC 8.5% $9.46 $0.20

Societal Cost Test Social discount rate

5% $12.46 $0.38

Page 22: EE Reporting Tool  Training

Value of Carbon Adder

Simple Calculation of Value

At $30/tonne CO2, natural gas combined cycle costs increase about $0.012/kWh and coal $0.027/kWh

Incremental Avoided Cost of Conventional Generation ($/kWh)Marginal Emissions Source and Rate (Tonnes/MWh)

Natural Gas CCGT Natural Gas CT Coal with Steam Turbine0.4 0.63 0.91

10.00$ 0.004$ 0.006$ 0.009$ 20.00$ 0.008$ 0.013$ 0.018$ 30.00$ 0.012$ 0.019$ 0.027$ 50.00$ 0.020$ 0.032$ 0.046$

100.00$ 0.040$ 0.063$ 0.091$ 150.00$ 0.060$ 0.095$ 0.137$ 200.00$ 0.080$ 0.126$ 0.182$ C

O2

Cos

t $/to

nne

Page 23: EE Reporting Tool  Training

Accounting for Non Energy Benefits

Customer perspective Increased comfort, quality of life Improved air quality Greater convenience, quality of product

Utility perspective Reduced shut-off notices Reduced bill complaints

Societal Perspective Increased community health Improved aesthetics. Reduces reliance on imported energy sources

NOT Included in CPUC/E3 Avoided Costs

Page 24: EE Reporting Tool  Training

Example Measures

Page 25: EE Reporting Tool  Training

Refrigerator Replacement

Look up measure in KEMA Report• Incremental costs provide the cost of installing a more

efficient unit than the code minimum, whereas full costs represent the installed cost of an Energy Star refrigerator. The measure cost assumes an average refrigerator size of 26 cubic foot unit.

• Does not include disposal

Page 26: EE Reporting Tool  Training

Refrigerator Replacement

Page 27: EE Reporting Tool  Training

Refrigerator Replacement

Page 28: EE Reporting Tool  Training

NPV and Levelized Costs

Page 29: EE Reporting Tool  Training

NPV

Page 30: EE Reporting Tool  Training

Levelized Payment

Page 31: EE Reporting Tool  Training

Levelized Payment

Page 32: EE Reporting Tool  Training

Cost-effectiveness Tests

Page 33: EE Reporting Tool  Training

TRC Test Implications

TRC Test measures overall cost-effectiveness• Pop Quiz

• Does the size of the incentives change the TRC?• Do the customer bill savings change the TRC?• Do direct install costs change the TRC?

Distribution Tests (RIM, PCT, UCT)• If the TRC is positive, what can we say about the distribution of

costs and benefits?• Need ‘distributional tests’

• PCT (cost-effectiveness for participants)• UCT / PAC (cost-effectiveness from a utility perspective)• RIM (economics for non-participants)

Page 34: EE Reporting Tool  Training

Definition of Cost Tests

Cost Test Acronym Key Question Answered Summary Approach

Participant

Cost Test

PCT Will the participants benefit over the measure life?

Comparison of costs and benefits of the customer installing the measure

Utility/Program Administrator

Cost Test

UCT/PAC Will utility bills increase? Comparison of program administrator costs to supply side resource costs

Ratepayer Impact Measure

RIM Will utility rates increase? Comparison of administrator costs and utility bill reductions to supply side resource costs

Total Resource

Cost

TRC Will the total costs of energy in the utility service territory decrease?

Comparison of program administrator and customer costs to utility resource savings

Societal Cost Test SCT Is the utility, state, or nation better off as a whole?

Comparison of society’s costs of energy efficiency to resource savings and non-cash costs and benefits

Page 35: EE Reporting Tool  Training

Summary of Costs and Benefits

Component PCT PAC RIM TRC SCT

Energy and capacity related avoided costs. - Benefit Benefit Benefit Benefit

Additional resource savings - - - Benefit Benefit

Non-monetized benefits - - - Benefit

Incremental equipment and install costs Cost - - Cost Cost

Program overhead costs - Cost Cost Cost Cost

Incentive payments Benefit Cost Cost - -

Bill Savings Benefit Cost - -

• High level summary of costs and benefits included in each cost test

• Each state adjusts these definitions depending on circumstances

• Details can significantly affect the type of energy efficiency implemented

Page 36: EE Reporting Tool  Training

Example Cost Test Results

Benefit / Cost ratio results from three programsEnergy efficiency is widely cost-effectiveRIM test results are often less than one

Test So. Cal. Edison Residential Program

AVISTA Regular

Income

Puget Sound Energy Com/Ind Retrofit

PCT 7.14 3.47 1.72

PAC 9.91 4.18 4.19

RIM 0.63 0.85 1.15

TRC 4.21 2.26 1.90

SCT 4.21 2.26 1.90

Page 37: EE Reporting Tool  Training

Participant Cost Test

Measures economic attractiveness of measure to customer

Non-economic factors can have significant influence on customer adoption

Page 38: EE Reporting Tool  Training

Participant Cost Test

Page 39: EE Reporting Tool  Training

Program Administrator Cost Test

Measures cost to utility on a comparable basis with supply-side resourcesPositive PAC means average bills will eventually be lower as compared to supply-side alternative Usually the least restrictive cost test• Includes cost of incentive to utility but not the cost of the

measure to the customer

Page 40: EE Reporting Tool  Training

Program Administrator Cost Test

Page 41: EE Reporting Tool  Training

Ratepayer Impact Measure

Almost always negative

Participant bills go down, but average rates go up

Most restrictive test

Page 42: EE Reporting Tool  Training

Ratepayer Impact Measure

Page 43: EE Reporting Tool  Training

Total Resource Cost Test

Measures Cost to Region as a wholeIntra-regional transfers not included

• Incentives, ratesMost common threshold testPCT and PAC can be positive even when TRC is negative

Page 44: EE Reporting Tool  Training

Total Resource Cost Test

Page 45: EE Reporting Tool  Training

Societal Cost Test

Page 46: EE Reporting Tool  Training

What is the Goal?

Achieve maximum potential savings • All efficiency with PAC > 1.0• Or TRC > 1.0 at portfolio level

Achieve maximum savings with given budget or meet savings target at minimum cost to utility and its ratepayers • Individual measures with highest TRC and/or PAC

Protect competitiveness of utility rates or minimize impacts to non-participants• RIM > 1.0 (rare)

Page 47: EE Reporting Tool  Training

Resources

Page 48: EE Reporting Tool  Training

Resources

National Action Plan for Energy Efficiency• http://www.epa.gov/cleanenergy/energy-programs/napee/

index.html

PG&E Workpapers• http://www.pge.com/includes/docs/archives/about/rates/

rebateprogrameval/aljruling/2008/4q08_workpapers_revised.zip

California Energy Efficiency Website• http://www.californiaenergyefficiency.com/calenergy_old/

2006_08_programs.html

CPUC Energy Division Contracts• http://www.energydataweb.com/cpuc/home.aspx

Page 49: EE Reporting Tool  Training

Measure Impacts

Page 50: EE Reporting Tool  Training

Demand Savings

Estimated or Connected Demand Savings• Replace 100 w incandescent bulb with 20 W CFL• 80 w connected demand savings

Average or Non-Coincident Demand Savings• Refrigerator or AC units cycle on and off• Demand reduction averaged over period of time

Coincident Peak Demand Savings• Coincidence diversity factor• Ratio of coincident peak demand/non-coincident peak

demand

Page 51: EE Reporting Tool  Training

Energy Savings

Demand savings * hours of use

Estimate hours of use over course of a year

Varies by• Building type• Building age• Climate zone• Occupancy

Percentage impact not always the same for energy and demand

Page 52: EE Reporting Tool  Training

Estimating Impacts

Connected Load

Frequency of use

Adjustment Factor

Coincidence or Diversity Factor

Page 53: EE Reporting Tool  Training

CFL Example

Replace 60 W bulb with 14 W bulb2.34 hours/day 7 days a week90% In Service Rate.081 coincident diversity factor

kWh/hoursWatt,)RateServiceIn()year/days()day/hours()unit/Watts(

yearunitkWh

0001

Savings Energy

)ShareLoadHourPeak()RateServiceIn()unit/Watts(unitWatts

Savings Demand

kWh.kWh/hoursWatt,

).()year/days()day/hours.()Watts(435

00019036534246

Savings Energy

Watts.).().()Watts( 35308109046 Savings Demand

Page 54: EE Reporting Tool  Training

Water Heater

Replace 63% AFUE with 90% AFUE

Heating load 276 Btu/sq meter

) Householdper 2M()2Mper Load Heating()(AFUE) Efficiencyon UtilizatiFuel Annual (Savings Gas3

yearunit

M

180( kBtu/ 36()/kBtu 762(%)72(3M 372Savings Gas household)per gas) natural 2323

MMMMyearunit