Part 2: What’s causing energy efficiency to underperform?

by Aaron Goldfeder, EnergySavvy

(Click here to read Part 1)

In my last article, I talked about how energy efficiency isn’t reaching its potential as a true resource. If we want energy efficiency to reach its potential, we’ll need to evolve away from data silos and align the experience of key stakeholders in the demand-side management (DSM) industry. Three key areas of particular focus are the methods of energy efficiency data management, quantification and the user experience between utilities and trade-allies.

Leaving the Carter Era Behind — Data Management and Consumer Experience 

The Carter-era pioneers of energy efficiency established a relatively simple formula for utility energy efficiency portfolios. Establish energy-saving measures (insulation, system change outs, etc.) and then agree on some deemed savings level for each measure or an accepted modeling approach. Then, based on cost-effectiveness tests, establish rebates. Rebates offer the twin benefit of encouraging adoption of energy efficiency measures and providing a form of proof of influence upon adoption. The entire flywheel of planning, evaluation, regulation and cost-effectiveness can be traced back to this simple model.

Rebates aren’t evil. But rebates beget paper forms. Which beget filing cabinets. Which beget rebate processors, consultants, manual efforts and an industry that’s good at dealing with rebates.

The rebate as the sole currency of the energy efficiency transaction made sense in the 20th century, but it has led to an unfortunate data and experience silo that no longer makes sense in the smart grid, digital era. The implications are broad.

First, all of that energy efficiency data often is locked up in one opaque silo: the project data, cost data, deemed or modeled savings, customer information and installation data. This data often is locked up in filing cabinets or PDFs, or it’s manually typed into some customer relationship management (CRM) system, which is pragmatically not useful to the rest of the organization. That silo often gets even harder to deal with if the utility has outsourced its energy efficiency efforts. While more mature energy efficiency efforts tend to in-source or take hybrid approaches, a surprising number of utilities still outsource the responsibility of implementing their portfolios.

Real cost opacity is often another artifact of this approach. Here, the true costs of energy efficiency that materialize through administration, outreach, measurement and so on aren’t reflected in the rebate amounts, which become a proxy for cost.

But the real losers in the 20th-century approach are consumers, whether they’re residential or business customers. Take e-commerce. We demand modern experiences when we shop online; energy efficiency should be no different. To say nothing of dealing with PDFs, paper forms or clunky tools, think of the end-to-end experience. The silo approach prevents the kind of “now that you’ve air sealed and are achieving savings, insulation might make sense — click here” kind of experience that many of us expect. Adding financing should at least be as simple as what car dealers have figured out, but this type of customer-friendly offering only appears in modern programs that have removed the data and experience silos between implementation and finance.

And how are business or residential consumers supposed to figure out how much energy they are saving anyway? Which brings me to the next point.

20th-Century Quantification isn’t Reliable

The 20th-century approach to energy efficiency quantification is to collect a year’s worth of rebates or more, stack them up and then hand them off to evaluation. Typically, six to 18 months later, a report shows up to indicate savings, realization rates and cost. These reports are often hundreds of pages and contain more Greek letters than my graduate-level math books.

This method of energy efficiency quantification would be like a business that doesn’t manage accounting with regular bookkeeping and financial reports and, instead, sends its auditors stacks of receipts and bills to create their only financial statements. No scalable business could survive this way, and neither should the nearly $10 billion DSM industry.

Locking up energy efficiency quantification into esoteric paper reports years after the fact creates another murky silo that leaves regulators, utilities and other stakeholders in an often un-empowered and frustrated position. And when evaluation surprises cause regulatory friction or lag, real financial, investor and consumer interests hang in the balance.

As an example, one utility launched an air-sealing program using deemed savings. During evaluation, those savings were found to be 90 percent too high; but the utility was still using the original savings calculations for two to three years after, which meant that the total write-down, once the numbers were corrected, was material.

In another case, a utility took a 37 percent realization rate haircut because of inaccurate energy modeling. Although the models were suspect, the analytical tools to observe actual savings weren’t in place. When the measurement and verification (M&V) cycle came along, shareholders received lower bonus payments and customers were unhappy because they had invested in projects with unrealistic energy savings.

On the financing side, we’ve been hearing for years that energy efficiency finance is finally on the rise, and although substantial progress is underway (hello, on-bill repayment), lenders and the real estate industry are still clamoring for bankable and robust data to calculate risk and value on energy efficiency upgrades.

On the resource planning side, faced with the unpredictability and opacity of energy efficiency, the impact of energy efficiency is often just rounded to zero.

An EE program manager at a large investor-owned utility (IOU) asked his resource planners if they factor in efficiency.

The answer?  “No, because we don’t know where on the grid efficiency will reduce demand, and we don’t know how reliable it is.”

For consumers, despite all the investments in smart grid, dashboards, reports, thermostats and so on, there’s still almost no visible and easy connection between the energy savings investments they’ve made and their actual savings — another by-product of the twin silos of implementation and evaluation.

Trade Allies

The unsung heroes of energy efficiency — the kind that makes buildings more efficient — are the trade allies, whether they’re residential contractors or commercial energy service companies. Often, trade allies are the face of utility and state energy efficiency programs.

Many of these businesses face tight margins and cash flows. But too often, they contend with the silos and 20th-century approaches described. Faced with expensive overhead, there’s often an incentive to simply cut a discount for customers and work around the utility program. A recent Greentech Media article highlights the broader implications and touches on how California’s energy efficiency program might be improved by focusing on lower transaction costs for contractors, reducing administrative overhead, and a focusing on tangible observed savings.

This issue isn’t limited to California. A contractor in the Southwest, for example, has to spend three to four hours sitting in front of the computer to do multiple data uploads in clunky Excel templates just for test-in data on a project. And another East Coast contractor was saddled with outdated software that took hours to start up before data entry even could begin.

Although streamlining and silo busting can help trade allies interact in a more business-friendly way with programs, it can cut the other way, too, in measuring trade ally performance. A statewide energy efficiency program had a single contractor who was responsible for more than three-quarters of all the air-sealing jobs in the state but was underperforming. Twentieth-century evaluation and planning practices meant this wasn’t addressed until the third year of program execution — far too late to take meaningful action.

Driving to 21st-Century Energy Efficiency

We’ve seen how the evolution of the DSM and energy efficiency industry in the 20th-century approach has led to data silos and user experience hurdles that prevent real scale. The question is, “How do we get to energy efficiency as a resource that is reliable, bankable and deployable and is delivered in a modern way that aligns with consumer and trade ally expectations?”

I wish I could say the answer could be found in just better software. Unfortunately, adding a better tracker or CRM often just automates existing methods and is akin to faster horses, as opposed to the advent of the automobile. Going digital is a good step, but broader change is needed at the strategic level.

Fortunately, innovative DSM organizations are establishing the way to a 21st-century approach and providing insights into realistic, low-risk pathways that offer a better deal to investors, regulators, consumers and the industry.

In my next article, we’ll survey some of these methods and how these innovative organizations are working horizontally across planning, implementation and evaluation to unlock the future of energy efficiency as a resource.

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