National Action Plan for Energy Efficiency

www.epa.gov/ eeactionplan

The Role of Energy Efficiency in Utility Energy Planning

Snuller PricePartnerEnergy and Environmental Economics, Inc.

Key Challenges/Steps in Integrating EE into Resource Plan

• Determining the value of EE– Energy procurement (estimating and valuing savings)– Capacity benefits (estimating and valuing savings, factors

in achieving benefits)– Incorporating non-energy benefits (such as reductions in

GHG emissions)

• Setting targets and allocating budgets– Quantity of EE to implement– Estimating program effectiveness– Institutional difficulty in reallocating budget– Cost expenditure timing vs. benefits– Ensuring program costs are recaptured

• Measuring impacts and adjusting resource plans

Efficiency Benefits Shown to Exceed Costs

Primary driver for EE in planning is the low cost of energy savings.–Utility cost of EE = $0.01/kWh to $0.03/kWh–Utility program costs and customer costs = $0.03/kWh to $0.05/kWh–Benefits for electric EE = $0.06/kWh to $0.08/kWh

Levelized Costs and Benefits from Four Regions

Overall Organization of the Guide

Potential Studies(Section 1)

Portfolio Development and Reporting(Section 2 to 7)

Procurement, Measurement, and Verfication

(Section 8 and 9)

Development ofAvoided Costs

Development ofEE Measures

Determining Cost-Effectiveness

Development ofEE Programs and

Portfolios

Estimating EEImpacts for

Resource Panning

Procurement ofEE Services

Section 2 Section 3

Section 4

Section 5

Section 6

Section 8

Potential Studies

Section 1

Best Practices

Evaluation,Measurement and

Verification

Section 9

Section 10

Reporting EEImpacts for

Resource Planning

Section 7

Best Practices(Section 10)

Definitions of Energy Efficiency Potential

Program design, budget, staffing and time constraints

Market and adoption barriers

Not cost effective

Not technically feasible

Program Potential

Program design, budget, staffing and time constraints

Market and adoption barriers

Not cost effective

Not technically feasible

Program Potential

Market and adoption barriers

Not cost effective

Not technically feasible Market Potential

Not cost effective

Not technically feasible

Economic Potential

Not technically feasible

Technical Potential

Typical Components of Avoided Costs

Avoided Component• Electricity Energy (with losses)• Electricity Capacity (with losses)• Natural Gas Commodity (with losses)• Natural Gas Capacity (with storage, and compression)

Other Components• Ancillary Services• Transmission and Distribution Capacity• Air Emissions (including greenhouse gas emissions)• Hedge of Fossil Fuel Prices• Price Effect of Demand Reduction• Savings in water, fuel oil, or other value streams

Standard Practice Manual Cost Tests

• Utility Cost Test (Program Administrator Cost)– Change in Revenue Requirement

• Ratepayer Impact Measure– Impact on rates and non-participants

• Total Resource Cost– Total monetized community costs

• Societal Cost Test– Total monetized and non-monetized costs

• Participant Cost Test– Participant finanical picture

Allocating Budgets

• Common barrier to EE is developing a budget to fund programs.

• Action Plan Recommendation:– Provide sufficient, timely, and stable program funding to

deliver EE where cost-effective.

• Two common approaches for funding EE: – Resource planning processes

• If EE is a resource, the EE funding will be allocated through planning process based on cost-effectiveness, portfolio risk, energy and capacity benefits, etc.

• Cost recovery mechanism should be included to ensure recover EE spending.

– Public goods-funded charges• Collected in rates.• Separates the EE budget from the planning process.

Tracking Energy Efficiency Resources in Load Forecasts

plan start date plan end date

Load

For

ecas

t

plan-period EE program impacts

status-quo EE program impacts

other EE impacts (e.g., codes, standards)

load met w ith supply-side resources(not to scale)

unadjusted loadforecast:

total resourcerequirements

netresourcesfor load

resource plan analysis period

Note: Energy Efficiency in Western Utility Resource Plans: Impacts on Regional Resource Assessment and Support for WGA Policies can be downloaded at http:eetd.lbl.gov/ea/EMS/rplan-pubs.html

Potential Roles of Third-Party Contractors in Providing Energy Efficiency Services and Savings

ProgramDelivery &

Implementation

ProgramAdministration& Management

MarketAssessment &

ProgramEvaluation

ProgramDevelopment

ProcurementofEE Savings

ProcurementofEE Services

Competitivesolicitation

Partnershiparrangement

DSM bidding

Standard Performance Contract

Broad-based solicitation(covers all market segments)

Targeted solicitation for new program concepts

Competitive solicitation

Evaluation, Measurement and Verification (EM&V)

• Evaluation, measurement, and verification (EM&V) is the process of determining and documenting the results, benefits, and lessons learned from an energy-efficiency program.

• A rough rule of thumb is to spend 2-5% of the energy efficiency budget on EM&V activities. The specific funding level is a function of the scope and purpose of EM&V and the scale of the efficiency program. It also depends on whether EM&V is conducted at the level of the individual utility or statewide.

Resources and Next Steps

• National Action Plan for Energy Efficiency: The Report – Covers key barriers and policy options for EE in resource planning, utility

revenue requirements, rate design and program implementation.– Chapter 3: Energy Resource Planning Processes.

• Guidebook on Energy Resource Planning and Procurement Processes: Integrating Energy Efficiency (Forthcoming – Spring 07)– A ‘How-to-Guide’ that walks through important methodology and data

input assumptions for incorporating EE in the resource planning process. – Will list important sources of data that are commonly used to develop the

necessary data and information.

• Clean Energy-Environment Guide to Action

– A resource document for state air, energy and utility officials and other stakeholders that details 16 policies and strategies that are delivering economic and environmental results for states

– Chapter 6.1: Portfolio Management Strategies.– www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm

For More Information

Katrina PielliPielli.Katrina@epa.gov(202) 343-9610

Larry Mansueti Lawrence.Mansueti@hq.doe.gov(202) 586-2588

www.epa.gov/eeactionplan

Speaker’s contact information

Snuller Pricesnuller@ethree.com(415)391-5100