Energy Efficiency All Grown Up

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by Mark Gabriel, R.W. Beck Inc.

It might be that after 30 years, energy efficiency (EE) has hit its prime with a galactic alignment of the planets of capacity needs, utility interest, consumer consciousness, technical potential, legislative incentives and economic conditions.

The days of force-fed demand-side management (DSM) measures–sometimes successful and sometimes not–have given way to the realization that in a world difficult to build new thermal generation, renewables are burgeoning albeit at a higher cost, transmission is coming but not soon enough and new nuclear is still several significant hurdles away, EE might be the critical component in a successful electricity enterprise.

The increased importance of EE aligns with the five destinies, or megatrends, facing the industry:

  • The destiny of carbon/capacity conflict in which the industry is searching to better manage the societal impact of electric generation and the need for more capacity,
  • The destiny of intelligent infrastructure where additional efficiencies can be squeezed by greening the grid and its component parts,
  • The destiny of customer engagement through which efficiency’s most powerful tool of demand response (DR) and consumer action are realized,
  • The destiny of business-model evolution, which finally monetizes the value of the demand side, and
  • The destiny of demographics in which generations place a renewed value on societal benefits.

EE’s role is at the core of each destiny, and utilities are ensuring they successfully incorporate the benefits for customers, shareholders and society.

The realization that EE will be required to meet future capacity needs is growing in importance for utility planners as they look at integrated-resource plans that will not be met by new generation, at least in the foreseeable future. EE’s value is enhanced by the coming of carbon legislation.

Many utilities are using intelligent infrastructure (aka the smart grid) to unlock the real value of efficiency–that is, the reduction of demand at critical times to reduce the impact on peak. Advanced metering infrastructure (AMI) lies at the core of the smart grid and empowers consumers and utilities in driving efficiencies to new levels. From full-scale deployments such as the City of Tallahassee, Bryan Texas Utilities, Vectren and AEP Texas to ComEd’s broad-scale pilot, the vision of a smarter system allowing technologically sophisticated and intelligent active devices elevates EE’s importance in the marketplace.

The build out of intelligent infrastructure allows active DR, not just the emergency switch during system strain, to efficiently manage the energy enterprise. EE in this controlled, intelligent environment might be the ideal balance for an increasing reliance on renewables with the benefits (and vagaries) they bring. Southern California Edison relies on the efficiencies brought on through DR for a growing portion of its load. The utility has been aggressive in engaging DR aggregators and assuring EE customer participation.

Farther north, Pacific Gas and Electric Co. (PG&E) is focusing on advanced DR programs and improving the EE of electronics with outreach to retailers and manufacturers. Following the explosion of home electronics this past decade, educating consumers and incenting the purchases of more efficient models is at the core of the PG&E program.

Broadened distribution-side efficiencies hold significant promise as several Northwest Utilities found in the Distribution Efficiency Initiative (DEI). It provided an in-depth analysis of conservation voltage reduction and other distribution efficiency improvements. The DEI study found that about 1 percent energy savings could be achieved by operating the distribution voltage in the lower half of the American National Standards Institute (ANSI) standards. Performing distribution system improvements, however, could increase energy savings to an average of 2 percent, based on the annual energy delivered by the feeder.

At the heart of the EE movement are consumers focused on electricity as a controllable expense. Engaging customers in the electricity marketplace has been the vision of many in the efficiency business for three decades as U.S. households have purchased more efficient appliances albeit ones in greater numbers and larger sizes.

The Prius-fed frenzy to reduce energy consumption and lower carbon affects consumers’ willingness to participate in programs nationwide. Customers want to control their own environmental destinies and seek programs to make it so. As with system-capacity issues, consumers opting for individualized renewables (i.e. solar panels, solar water heating, etc.) recognize the need to reduce loads and consumption at the source. A challenge for utilities has long been the balance between supporting EE while providing adequate returns and sufficient supply. Utilities nationwide are moving to a new business model through decoupling, which, as far as proponents are concerned, places an equal weight on supply- and demand-side resources. In New York City, for example, ConEd has decoupled its revenues from the volumetric model, opting instead for a regulatory arrangement that assures recovery of costs plus a per-customer profit.

Duke Energy has taken the business model change one step further in its Indiana filing, which seeks to institutionalize its Save-A-Watt concept, allowing a return on par with asset-based investments. Duke will use financial incentives to encourage customers to purchase upgrades that make their homes and businesses more energy efficient.

According to its 2007-2008 sustainability report, Duke expects to add some 60,000 new customers through the Carolinas and Midwest per year, necessitating more than 6,000 MW of new capacity by 2012.

Duke argues, however, that attractive savings might be found by pursuing EE–the -fifth fuel in addition to nuclear, coal, natural gas and renewables. The cost of Duke’s EE program would be added as a rider to customers’ utility bills. That doesn’t sound attractive until Duke notes that customers will save 10 percent against the alternative cost of building and operating new power plants that might not be needed.

Another argument in favor of the Save-a-Watt program, according to Duke, is that fewer power plants mean fewer carbon emissions. Today’s business model for utilities is based on the return they receive from investments in their asset-based investments and charging customers for the electricity they receive through power plant operations and power lines. Duke hopes that successful implementation of the program will save up to 1 percent of ongoing retail electricity sales by 2015 across a five-state region.

Last is the coming together of generations to understand the critical driver of EE. Social consciousness is higher than before as both ends of the age spectrum–from boomers to junior high school students–work toward a more efficient future.

The efficiency movement is further stimulated by HR 1, the American Recovery and Reinvestment Act signed into law Feb. 17, which provides $16.8 billion for EE and renewables administered via the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE). A portion of the funds is distributed across three programs that relate to energy efficiency:

  • $3.2 billion under the Energy Efficiency Community Block Grant program,
  • $5 billion for weatherization, and
  • $3.1 billion for additional state energy grants.

Among other things, governors must notify in writing U.S. Energy Secretary Steven Chu that they intend for their state regulatory commissions to institute proceedings to consider decoupling utility rates from revenues or otherwise allow utilities to achieve earnings on their EE investments.

The planets have aligned for EE, at last.

Author

Mark Gabriel is a senior vice president, executive consultant and principal at R.W. Beck Inc. He is also the author of -Visions for a Sustainable Energy Future and led the nationwide stakeholder effort known as the Electricity Sector Framework for the Future on behalf of the Electric Power Research Institute (EPRI).

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