Northwest Power and Conservation Council Energy Efficiency As A Resource Option 25 Years of PNW Experience E-Source Members Forum September 25, 2007 Tom

Northwest Power and ConservationCouncil

Energy Efficiency As A Energy Efficiency As A Resource OptionResource Option

25 Years of PNW Experience25 Years of PNW Experience

E-Source Members ForumSeptember 25, 2007

Tom EckmanTom EckmanNorthwest Power and Northwest Power and Conservation CouncilConservation Council

slide 2


What You’re About To HearWhat You’re About To Hear

What We’ve DoneWhat We’ve Done

– 25 years of using energy efficiency as a resource25 years of using energy efficiency as a resource

What’s Left to Do?What’s Left to Do?

– How to assess the remaining sources of How to assess the remaining sources of untapped potentialuntapped potential

Why It’s Worth DoingWhy It’s Worth Doing

– What it takes to make the What it takes to make the business casebusiness case for utility reliance on for utility reliance on

energy efficiency as a resourceenergy efficiency as a resource

slide 3


Northwest Speak (Definitions)Northwest Speak (Definitions)

Average Megawatt (aMW)Average Megawatt (aMW) = 8760 = 8760 MWHMWH

ConservationConservation = Any reduction in = Any reduction in electric power consumption as a result electric power consumption as a result of increases in the of increases in the efficiencyefficiency of energy of energy use, production or distribution. use, production or distribution.

CurtailmentCurtailment = Sitting in a dark, hot = Sitting in a dark, hot house, drinking warm beerhouse, drinking warm beer

slide 4


““PNW Power Act”PNW Power Act”

Federally Mandated “least cost Federally Mandated “least cost planning”planning”

Longest Running “Integrated Longest Running “Integrated Resource Plan” in the CountryResource Plan” in the Country

Planner’s Worst Nightmare: Our Planner’s Worst Nightmare: Our first plan can now be compared to first plan can now be compared to what really happened!what really happened!

slide 5


PNW Energy Efficiency PNW Energy Efficiency AchievementsAchievements1980 – 20051980 – 2005

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Avera

ge M

egaw

att

s

1980 1984 1988 1992 1996 2000 2004

BPA and Utility Programs Alliance Programs State Codes Federal Standards

Since 1980 Utility & BPA Since 1980 Utility & BPA Programs, Energy Codes & Programs, Energy Codes & Federal Efficiency Standards Have Federal Efficiency Standards Have Produced Produced OverOver 3100 aMW of 3100 aMW of Savings.Savings.How Has It Worked?How Has It Worked?

slide 6


Energy Efficiency Resources Met Half of Energy Efficiency Resources Met Half of

PNW 1980 – 2005 Load GrowthPNW 1980 – 2005 Load Growth

0%

25%

50%

75%

100%

125%

1980 1985 1990 1995 2000 2005

Cum

ula

tive S

har

e o

f G

row

th

slide 7


Since 1980 PNW Electric Use Per Since 1980 PNW Electric Use Per Capita Has Remain Unchanged*Capita Has Remain Unchanged*

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Year

Ele

ctri

city

Use

(kW

h/p

erso

n)

*Post 2000-2001 Energy Crisis Demand Destruction – Some Industries “went dark”

slide 8


Utilities Are Now Acquiring More Efficiency Resources Utilities Are Now Acquiring More Efficiency Resources Using A Smaller Share of Retail RevenuesUsing A Smaller Share of Retail Revenues

0%

1%

2%

3%

4%

5%

6%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Perc

ent

of

Tota

l R

egio

nal Ele

ctri

city

Revenues

slide 9


The Cost of Efficiency Has Fallen to Less The Cost of Efficiency Has Fallen to Less Than $15 Per MWHThan $15 Per MWH

0

5

10

15

20

25

30

35

40

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Real Le

veliz

ed C

ost

(2000$/M

WH

)

slide 10


Utility Acquired Energy Efficiency Has Been AUtility Acquired Energy Efficiency Has Been A

BARGAIN!BARGAIN!

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

May

-96

Nov-9

6

May

-97

Nov-9

7

May

-98

Nov-9

8

May

-99

Nov-9

9

May

-00

Nov-0

0

May

-01

Nov-0

1

May

-02

Nov-0

2

May

-03

Nov-0

3

May

-04

Nov-0

4

May

-05

Nov-0

5

May

-06

Whole

sale

Ele

ctri

city

Pri

ce (

2000$/M

WH

)

Levelized Cost of Utility Efficiency AcquisitionsWholesale Market Price

slide 11


So What’s 3100 aMW?So What’s 3100 aMW?

It’s enough electricity to serve the It’s enough electricity to serve the entireentire state of Idaho and Western Montanastate of Idaho and Western Montana

It saved PNW consumers nearly It saved PNW consumers nearly $1.6 $1.6 billionbillion in 2005 in 2005

It lowered 2005 PNW carbon emissions It lowered 2005 PNW carbon emissions by an estimated by an estimated 13.5 million13.5 million tons. tons.

slide 12


IS THAT AS GOOD AS IT GETSIS THAT AS GOOD AS IT GETS?

What’s Left To Do?What’s Left To Do?

- OR -- OR -

slide 13


55thth Plan Relies on Conservation and Plan Relies on Conservation and

Renewable Resources to Meet Load GrowthRenewable Resources to Meet Load Growth**

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2004 2007 2010 2013 2016 2019 2022

Cum

ula

tive C

apaci

ty (

aM

W)*

Coal (ICG)CCGTurbineSCGTurbineDemand ResponseWindConservation

**Actual future conditions (gas prices, CO2 control, conservation accomplishments) will Actual future conditions (gas prices, CO2 control, conservation accomplishments) will change resource development schedule and amountschange resource development schedule and amounts


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slide 15


Search Results:Search Results:Cost-Effective Savings by SectorCost-Effective Savings by Sector

Industrial 350 aMW

12%

Irrigation 80 aMW

3%

Commercial 1105 aMW

39%

Residential 1340 aMW

46%

slide 16


Search Results:Search Results:Major Sources of Cost-Effective Efficiency PotentialMajor Sources of Cost-Effective Efficiency Potential

1.7 1.7

1.2

4.3

1.5

3

5.2

3.4

1.8

3.4

2.2

0

100

200

300

400

500

600

700

Res. C

FLs

I ndu

stria

l

New C

om. L

ight

ing

HP W

ater

Hea

ters

AC/DC C

onve

rter

s

New C

om. H

VAC

Res. C

loth

es W

asher

s

Exist

. Com

. HVAC

Exist

. Com

. Lig

htin

g

Exist

. Com

. Equ

ipm

ent

Exist

.Com

. Inf

rast

ruct

ure

Ach

ieveab

le P

ote

nti

al (M

Wa)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Avera

ge L

evelized

Cost

(Cen

ts/kW

h)

How Do We Know How Much is Left To Do?How Do We Know How Much is Left To Do?

slide 18


It’s It’s OnlyOnly a Six Step Process a Six Step Process

Step 1 - Estimate Step 1 - Estimate TechnicalTechnical Potential Potential on a on a per applicationper application basisbasis

Step 2Step 2 – – Estimate Estimate EconomicEconomic Potential Potential on a on a per applicationper application basisbasis

Step 3Step 3 - Estimate number of- Estimate number of applicable unitsapplicable units Step 4Step 4 – – EstimateEstimate Technical PotentialTechnical Potential for for all all applicable applicable

unitsunits Step 5 - EstimateStep 5 - Estimate Economic PotentialEconomic Potential for for all all applicable unitsapplicable units Step 6Step 6 – Estimate – Estimate Realizable PotentialRealizable Potential for for all realistically all realistically

achievableachievable units units

slide 19


Before You Start –Before You Start –Decide On A Cost-Effectiveness MetricDecide On A Cost-Effectiveness Metric

Participant Cost Test (PTC)Participant Cost Test (PTC)– Costs and benefits to the program participantCosts and benefits to the program participant

Total Resource Cost (TRC)Total Resource Cost (TRC)– All Quantifiable costs & benefits regardless of who All Quantifiable costs & benefits regardless of who

accrues them. Includes participant and others’ costsaccrues them. Includes participant and others’ costs Utility Cost Test (UTC)Utility Cost Test (UTC)

– Quantifiable costs & benefits that accrue only to the Quantifiable costs & benefits that accrue only to the utility system. Specifically excludes participant costsutility system. Specifically excludes participant costs

Rate Impact Measure (RIM)Rate Impact Measure (RIM)– Net change in electricity utility revenue requirements.Net change in electricity utility revenue requirements.

» AttemptsAttempts to measure rate impact on all utility customers especially to measure rate impact on all utility customers especially those that do not directly participate in the conservation programthose that do not directly participate in the conservation program

» Treats “lost revenues” (lower participant bills) as a costTreats “lost revenues” (lower participant bills) as a cost

slide 20


The Basic FormulaThe Basic Formula

Achievable PotentialAchievable Potential = = Number of Applicable Units X Number of Applicable Units X (Energy Use @ Frozen Efficiency - Energy Use @ Cost (Energy Use @ Frozen Efficiency - Energy Use @ Cost Effectiveness Limit) X Expected Market PenetrationEffectiveness Limit) X Expected Market Penetration

Where :Where :Frozen Efficiency UseFrozen Efficiency Use = = Current efficiency adjusted for stock Current efficiency adjusted for stock turnover and adopted changes in codes and standards.turnover and adopted changes in codes and standards.

Cost Effectiveness LimitCost Effectiveness Limit = = Cost of next similarly available Cost of next similarly available and reliable generating resource (represented by future and reliable generating resource (represented by future wholesale market prices) adjusted for T&D cost deferrals, wholesale market prices) adjusted for T&D cost deferrals, environmental costs & risks (fuel price, carbon control, etc.)environmental costs & risks (fuel price, carbon control, etc.)

slide 21


Implementing the Basic Formula Requires REAL DATA Implementing the Basic Formula Requires REAL DATA and Detailed Analytical Processes (=$$ & Staff)and Detailed Analytical Processes (=$$ & Staff)

(It Ain’t A Weekend Project)(It Ain’t A Weekend Project)

Measure Cost

Measure Savings and Load Shape

MeasureLifetime

• Program Data• Contractor Bids• Retail Price Surveys

• End Use Load Research• Engineering Models• Billing History Analysis• Independent Testing Labs

• Evaluations• Census Data• Manufacturers Data• Engineering Estimates

AuroraMarketModel

Provides 20-year Forecast of Hourly Wholesale Market Prices & CO2 Emission/kWh Under Average Water Conditions, Medium Gas Price Forecast for Medium Load Growth Scenario

Cost-Effectiveness ModelDetermines measure and program level “cost-effectiveness” using:• Measure costs, savings & load shape• Aurora Market prices•T&D savings (losses & deferred $)•10% Act Credit•Quantifiable non-energy costs & benefits•Council Financial Assumptions (e.g. Discount Rate, Administrative costs, etc.)

PortfolioPortfolioModelModel

Determines NPV of Portfolios with Determines NPV of Portfolios with Alternative Levels of Conservation Alternative Levels of Conservation vs. Other Resources Under Wide vs. Other Resources Under Wide Range for Future ConditionsRange for Future Conditions

Plan’s Conservation TargetPlan’s Conservation Target

$35,500

$36,000

$36,500

$37,000

$37,500

$23,500 $24,000 $24,500 $25,000

NPV System Risk (2004$Millions)

NP

V S

yst

em

Co

st

(20

04

$M

illio

ns)

slide 22


Each End Use Has a Different Each End Use Has a Different “Cost-Effectiveness” Limit“Cost-Effectiveness” Limit

0

2

4

6

8

10

12

JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN

Mo

nth

ly A

ve

rag

e M

ark

et

Pri

ce

(C

en

ts/k

Wh

)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Sh

are

of

An

nu

al S

av

ing

s

Wholesale Market Price Space Heating Savings Water Heating Savings

Weighted Average Value of Space Heating Savings = 3.1 cents/kWh

Weighted Average Value of Water Heating Savings = 3.7 cents/kWh

Steps 1 & 2Steps 1 & 2 Assessment of “Unit Level” Technical and Economic Potential Assessment of “Unit Level” Technical and Economic Potential

Example: Residential Space Heating for New Manufactured HomesExample: Residential Space Heating for New Manufactured Homes

0

20

40

60

80

100

120

FLOO

R R33

ATTI C

R25

VAULT R

25

ATTIC

R30

VAULT R

30

WIN

DOW

CL4

0

WIN

DOW

CL3

5

WALL

R21

ADV

ATTIC

R38

VAULT R

38

ATTI C

R49

FLOO

R R44

Real

Leveli

zed

Co

st

( M

ills

/kW

h)

Zone 1 Zone 2Zone 3

Cost-Effectiveness Limit for Residential Space Heating

slide 24


Steps 3 - Estimate of the Number of Applicable UnitsSteps 3 - Estimate of the Number of Applicable Units

Example: New Manufactured HousingExample: New Manufactured Housing

Number of New Electrically Heated Units Sited in PNW by Number of New Electrically Heated Units Sited in PNW by 20252025 = 186,000 (Forecast model estimate)= 186,000 (Forecast model estimate)

Location Location (Based on 2001 sales data)(Based on 2001 sales data)– Heating Zone 1 = 64 %Heating Zone 1 = 64 %– Heating Zone 2 = 27 %Heating Zone 2 = 27 %– Heating Zone 3 = 9 %Heating Zone 3 = 9 %

Frozen Efficiency UseFrozen Efficiency Use @ 2000 “Current Practice” = 9385 @ 2000 “Current Practice” = 9385 kWh/year (Characteristics based on survey data from kWh/year (Characteristics based on survey data from manufacturers & use based on simulation model calibrated to end manufacturers & use based on simulation model calibrated to end use metering)use metering)

Technically AchievableTechnically Achievable unit savings = 3450 kWh/year unit savings = 3450 kWh/year Economically Achievable (i.e.,Cost-Effective)Economically Achievable (i.e.,Cost-Effective) unit unit savings = savings =

3100 kWh/year3100 kWh/year

slide 25


Steps 4-6 Steps 4-6 Derive the Technical, Economical Derive the Technical, Economical

and Realistically Achievable and Realistically Achievable PotentialPotential

TechnicallyTechnically Achievable Potential Achievable Potential = = 3450 kWh/year X 1.07625 line loss 3450 kWh/year X 1.07625 line loss adjustmentadjustment

X 186,000 units => 80 MWX 186,000 units => 80 MW

EconomicallyEconomically Achievable Potential Achievable Potential = =3100 kWh/yr X 1.07625 line loss adjustment3100 kWh/yr X 1.07625 line loss adjustment

X 186,000 units => 70 MWX 186,000 units => 70 MW

RealisticallyRealistically Achievable Potential Achievable Potential = =70 MW X 85 % => 60 MW70 MW X 85 % => 60 MW

Who Made Up “That Number”?

slide 26


Illustrative New Manufactured Illustrative New Manufactured Housing Space Heating Resource Housing Space Heating Resource

Potential in 2025Potential in 2025

0

20

40

60

80

100

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110

Real Levelized Cost (2000$/MWh)

Reso

urc

e P

ote

nti

al (a

MW

)

Technical Potential

Economic Potential

Realizable Potential

slide 27


Realizable PotentialRealizable Potential - The amount of conservation you - The amount of conservation you acquire acquire will bewill be constrained by “budgets and infrastructure” – constrained by “budgets and infrastructure” –

NOT by cost-effectivenessNOT by cost-effectiveness

0%

10%

20%30%

40%

50%

60%

70%80%

90%

100%

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

Cum

ula

tive

Mark

et

Penetr

ati

on

Const

rain

ts

Non Lost Opportunity Resources Lost Opportunity Total

slide 28


Retrofit Resources and Lost-Opportunity Retrofit Resources and Lost-Opportunity Resources Will Be Deployed At A Different PaceResources Will Be Deployed At A Different Pace

0

20

40

60

80

100

120

140

2005 2010 2015 2020

Year

Reso

urc

e D

eplo

ym

en

t (a

MW

)

PNW Portfolio Planning – PNW Portfolio Planning – Scenario Analysis on SteroidsScenario Analysis on Steroids

0%

2%

4%

6%

8%

10%

12%

14%

16%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Annual Load Growth

Pro

bab

ilit

y (

%)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0% 1% 2% 3% 4% 5%

Real Natural Gas Escalation Rate% )

Pro

bab

ilit

y (

%)

0%

5%

10%

15%

20%

25%

30%

3.27% 3.80% 3.85% 3.93% 2.50%

Nominal Annual Electricity Price Escalation Rate

Pro

bab

ilit

y (

%)

0

20

40

60

80

100

120

98

467

705

842

1,06

9

1,19

1

1,28

3

1,33

5

1,35

3

1,37

3

1,65

0

Resource Potential

Levelize

d C

ost

0%2%4%6%8%

10%12%14%16%18%20%

Carbon Tax Implementation Date

Pro

bab

ilty

(%

)

0

5000

10000

15000

20000

25000

1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975

Hydrosytem Year

Cap

acit

y (

MW

)

0%2%4%6%8%

10%12%14%16%18%20%

Pro

bab

ilit

y

$0 $6 $12 $18 $24 $30 $36

Carbon Tax

Portfolio Portfolio Analysis Analysis ModelModel

Portfolio Model Calculates Risk and Portfolio Model Calculates Risk and Expected Cost Associated With Each Expected Cost Associated With Each

Plan Across 750 “Futures”Plan Across 750 “Futures”

Like

lihood

(Pro

bab

ility

) Average Net Present Value System Cost

10000 12500 15000 17500 20000 22500 25000 27500 30000 32500

Net Present Value of Power System Cost (millions)

Risk = average ofcosts> 90% threshold

slide 31


Plans Along the Efficient Frontier Permit Plans Along the Efficient Frontier Permit Trade-Offs of Costs Against RiskTrade-Offs of Costs Against Risk

$35,500

$36,000

$36,500

$37,000

$37,500

$23,600 $23,800 $24,000 $24,200 $24,400 $24,600NPV System Cost (Millions)

NPV

Syst

em

Ris

k (

Mill

ion

s)

Least Risk

Least Cost

slide 32


All Plans Along the “Efficient Frontier” All Plans Along the “Efficient Frontier” Acquire Virtually the Same Amount of Acquire Virtually the Same Amount of

Energy EfficiencyEnergy Efficiency

2,250

2,350

2,450

2,550

2,650

2,750

0 20 40 60 80 100 120

Efficient Frontier Portfolio

Effi

cien

cy R

eso

urc

e A

ddit

ion

s (a

MW

)

Least Cost Portfolios

Least Risk Portfolios

Portfolio Analysis On Portfolio Analysis On OneOne Slide Slide

0

2

4

6

8

10

12

245 514 1598 2202 2560 3444 4934 6735 8945

Cumulative Resource Potential (Average Megawatts)

Real Le

veliz

ed C

ost

(C

ents

/kW

h -

2000$)

Energy Efficiency

Renewable

Coal

Gas

Co-generation

Resource potential for generic coal, gas & wind resources shown for typical unit size. Additional potential is available at comparable costs.

slide 34


SummarySummary Energy Efficiency Reduces NPV System Cost and Energy Efficiency Reduces NPV System Cost and

Risk Risk – Efficiency Resources Efficiency Resources AreAre A Cheap (avg. 2.4 cents/kWh) A Cheap (avg. 2.4 cents/kWh)

Hedge Against Market Price Spikes Hedge Against Market Price Spikes – They’re They’re NotNot Subject to Fuel Price Risk Subject to Fuel Price Risk– They’re They’re NotNot Subject to Carbon Control Risk Subject to Carbon Control Risk– They They Can BeCan Be Significant Enough In Size to delay “build Significant Enough In Size to delay “build

decisions” on more expensive and higher risk generationdecisions” on more expensive and higher risk generation

It takes REAL MONEY and ANALYSIS to properly It takes REAL MONEY and ANALYSIS to properly size and acquire efficiency resourcessize and acquire efficiency resources– We invested about $14 per capita in 2005 acquiring We invested about $14 per capita in 2005 acquiring

efficiency, VT and CA and several other states are spending efficiency, VT and CA and several other states are spending moremore

In a region with In a region with historically the historically the lowest electric rates, lowest electric rates, we’ve relied on we’ve relied on efficiency to meet efficiency to meet half our load growth half our load growth for 2 ½ decadesfor 2 ½ decades

And, we still find that And, we still find that efficiency can meet efficiency can meet half our load growth half our load growth over the next two over the next two decadesdecades

IF WE CAN DO IT, YOU CANIF WE CAN DO IT, YOU CAN

slide 36


Any Questions?Any Questions?

Documents

Northwest Power and Conservation Council Energy Efficiency As A Resource Option 25 Years of PNW Experience E-Source Members Forum September 25, 2007 Tom