Evaluating Costs of Energy Efficiency Programs

Transcription

1 Evaluating Costs of Energy Efficiency Programs South-Central Partnership for Energy Efficiency as a Resource Phil Mihlmester, ICF International August 4, 2014

2 Outline Introduction to ICF Energy efficiency (EE) as a resource Market trends Methods of valuing EE programs Cost of EE programs nationwide 2

3 EE AS A RESOURCE Introduction to ICF Global consulting and professional services firm with 45 years of experience founded in 1969 Publicly traded (NASDAQ: ICFI). Approximately $1B in annual revenue Over 4,500 staff, including: 200 person in-house PR agency, 700 IT professionals, 400-seat call center and incentive processing group Currently implementing more than 125 energy efficiency programs for 42 utilities in 28 states, including eight large portfolios Lead contractor for EPA s ENERGY STAR program since inception Contractor for DOE Better Buildings and Commercial Building Alliance programs Lead contractor for EPRI s beneficial electrification program Numerous awards from EPA, ACEEE, AMA, Platts, and others 3

4 EE AS A RESOURCE ICF Energy Efficiency Services Federal, State, and local policy and engineering analysis (codes & standards, technologies, etc.) State regulatory support and testimony (EE potential studies, goals, program plans, distribution system impacts, IRP/certificates of need, cost recovery and shareholder incentives) EE program RFP development and management EE program delivery Program design Marketing Field services Energy engineering Rebate processing Trade ally account management IT, tracking, and workflow management Call center Customer engagement Customer propensity and program analytics EE program operations consulting and benchmarking 4

5 EE AS A RESOURCE Benefits of Energy Efficiency Programs Cost savings to utility and ratepayers Environmental and health benefits, including greenhouse gas reductions Long-term reliability Reduced cost of compliance with federal air quality requirements, including new EPA Clean Power Plan Lowest cost energy resource in some scenarios compared to expanding supply Job creation and economic development 5

6 EE AS A RESOURCE EE Remains a Competitive Resource Low Income Weatherization Commercial Energy Management Energy Efficiency* Wind Biomass NGCC Pulverized Coal Nuclear Coal IGCC Solar PV * Energy Efficiency estimates from ICF potential study for Entergy, 2012, other data from Lazard,

7 EE AS A RESOURCE Energy Efficiency Resource Standards 7

8 EE AS A RESOURCE LRAM or Decoupling Prevalent Source: ACEEE 2012 State Energy Efficiency Scorecard 8

9 MARKET TRENDS National Expenditures Forecasted to Increase Total Spending on EE Programs $B (nominal) Source: LBNL 2013 Gas Electric C&I Comprises ~37%-42% of the total DSM market Source: Consortium for Energy Efficiency (CEE) received responses from 361 utility and nonutility program administrators operating efficiency programs in 49 states, the District of Columbia, and seven Canadian provinces. 9

10 MARKET TRENDS Factors Affecting Landscape of Energy Efficiency Codes and standards Low natural gas prices Low- or no load growth New or different funding sources Regulatory policy framework Recent and Upcoming Changes in Federal Product Standards Incandescent General Service Fluorescent Vending Machines Commercial Refrigerators Commercial Boilers Ranges/Ovens Commercial Central Air Conditioners (AC)/Heat Pumps Dishwashers Commercial Washers Pool Heaters Direct Heating Equipment Fluorescent Lamp Ballasts Room AC Refrigerators & Freezers Clothes Washers Clothes Dryers Residential Central AC/Heat Pumps Small Motors Water Heaters Source: Northwest Power and Conservation Council,

11 MARKET TRENDS EPA Clean Power Plan [Clean Air Act section 111(d)] EPA s proposed Clean Power Plan creates state-level CO 2 reductions equivalent to 30% nationwide by 2030 (from 2005 levels) Texas s 2030 target under proposed plan is 791 lbs/mwh Texas 2012 fossil rate (baseline): 1,420 lbs/mwh, representing a 44% decrease States have flexibility to use various measures to enforce emissions reductions and submit plans for EPA s approval Under Clean Air Act, EPA must identify best system of emission reduction (BSER), made up of four building blocks (state plans do not have to stick to these four, but EPA s state-by-state reduction targets were calculated with these in mind): Heat rate improvement to reduce emission rates of coal generating facilities Fuel switching from coal to natural gas Increased generation from renewables and preserved nuclear generation Growth in end-use EE to displace emitting generation Utilities with generation sources in multiple states may have to meet different reduction targets Opportunity for utilities to operate new and expanded EE programs 11

12 MARKET TRENDS EE Program Design and Development: Meeting Design Challenges Addressing large customer opt-out Impact of new codes and standards Setting appropriate incentive levels versus marketing or technical support Desires of intervener and advocacy groups Mitigating short term rate impacts Balancing program cost and features Managing risk Earning shareholder incentives Planning for third-party evaluation Leveraging programs for customer satisfaction and engagement Use of third-parties versus in-house delivery 12

13 MARKET TRENDS EE Program kwh Savings by Customer Segment Small Business 3% Utility 0% Agriculture 0% Schools 1% Residential 36% Commercial & Industrial 43% Public 2% Other 0% Nonprofit 0% Multifamily 1% Low Income 2% General - All Sectors 12% Annual kwh savings of 1,412 individual programs from 57 administrators in 25 states as % of total savings 13

14 MARKET TRENDS Gas Prices Low in the Near Term, but Increase as the Market Grows $10 $9 $8 $7 $6 $5 Cold Winter Pops 2014 Gas Price Annual Average Henry Hub Price (2012$/MMBtu) Demand Surge & LNG Exports Ramp Up Coal and Nuclear Retirements Spur Additional Growth $4 Stable Prices Market Growth and $3 Perfect Storm Supply Growth in Supply $2 Leads to Lockstep Rationalization Unsustainably $1 Low Gas Prices $ Historical ICF Projected 2014 ICF International. All rights reserved. 14

15 MARKET TRENDS Coal Retirements Will Raise Avoided Costs Retirements of Coal-Fired Generators Source: EIA AEO

16 MARKET TRENDS Standards Squeeze Utility EE Savings Opportunity Energy Use of New Units Relative to 1980 Old Standards Dishwashers Clothes Washers Freezers Refrigerators Room A/C New Standards Source: Northwest Power and Conservation Council,

17 MARKET TRENDS Building Codes Cut New Construction Savings Source: ACEEE

18 VALUATION Five Cost-Benefit Tests of EE Programs Participant cost test: the measure of the quantifiable benefits and costs to the customer due to participation in a program Ratepayer impact measure test: the measure of what happens to customer bills or rates due to changes in utility revenues and operating costs caused by the program Total resource cost test: the measure of the net costs of a demand-side management program as a resource option based on the total costs of the program, including both participants and utility s costs and including ALL quantifiable economic benefits, not just utility system benefits. Program administrator cost test: the measure of the net costs of a demand-side management program as a resource option based on the costs incurred by the program administrator (including incentive costs) and excluding any net costs incurred by the participant, compared to the avoided energy and capacity costs achieved by the utility system. Societal cost test: variant of the total resource cost test, in which benefits to the participant are included such as avoided capital and operating costs of equipment and appliances, increased productivity, and other externalities like environmental and national security benefits; a societal discount rate is also used Source: California Governor s Office of Planning and Research. Standard Practice Manual: Economic Analysis of Demand-Side Programs and Projects. July

19 VALUATION Five Cost-Benefit Tests of EE Programs Test Acronym Key Question Answered Summary Approach Participant cost test PCT Will the participants benefit over the measure life? Ratepayer impact measure Total resource cost test Program administrator cost test (utility test) Comparison of costs and benefits of the customer installing the measure RIM Will utility rates increase? Comparison of administrator costs and utility bill reductions to supplyside resource costs TRC PACT Will the net costs of energy in the utility service territory decrease? Will the utility revenue requirement increase? Societal cost test SCT Is the utility, state, or nation better off as a whole? Comparison of program administrator and customer costs, less quantifiable non-energy benefits, to utility resource savings Comparison of program administrator costs to supply-side resource costs Comparison of society s costs of energy efficiency to resource savings and non-cash costs and benefits Source: California Governor s Office of Planning and Research. Standard Practice Manual: Economic Analysis of Demand-Side Programs and Projects. July

20 VALUATION Nationwide Cost/kWh of EE Programs The American Council for an Energy-Efficiency Economy (ACEEE) uses the levelized utility cost of saved energy (CSE), which is similar to the PAC test Does not include participant costs Does not measure or consider non-energy benefits ACEEE defines utility EE costs as: Direct program costs to administrators, including incentives to customers, direct installation, program design and administration, marketing, education, and evaluation Shareholder incentives or performance fees 20

21 VALUATION Average Levelized CSE Cost/kWh of EE Programs, $0.06 $0.05 $0.04 $0.03 median $0.02 $0.01 $0.00 Source: Molina, Maggie. The Best Value for America s Energy Dollar: A National Review of the Cost of Utility Energy Efficiency Programs. American Council for an Energy Efficient Economy. March pp

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23 APPENDIX Participant Test Reductions to utility bills should be calculated using the actual retail rates that would have been charged for the energy service provided Costs to customer are all out of pocket, including cost of materials and installation, maintenance/operation costs, removal costs, and value of time spent Results can be expressed through net present value per average participant, net present value for the total program, benefit-cost ratio, or discounted payback Participant test can help program administrators decide on an appropriate incentive level to induce a certain amount of participation 23

24 APPENDIX RIM Test Benefits calculated in RIM are savings from avoided supply costs, including reduction in transmission, distribution, generation, and capacity costs Costs calculated are the utility s program costs plus other entities costs for creating or administering the program if applicable, incentives, decreased revenues for periods of decreased load, and increased supply costs for periods of increased load Expressed as: lifecycle revenue impact $ per kwh, kw, therm, or customer, annual revenue impact $ per kwh, kw, therm, or customer, benefit-cost ratio, or net present value 24

25 APPENDIX RIM Test RIM is the only test that reflects the revenue shift resulting from DSM programs along with other program costs and benefits Useful when comparing EE programs with varying funding levels or comparing electric and natural gas impacts However, RIM depends on uncertain cost streams: long-term projections of marginal costs and long-term projections of rates 25

26 APPENDIX TRC Test The Societal Test is a variant on the TRC which includes externalities such as environmental benefits, increased/decreased national security and a different societal discount rate while excluding tax credits as a benefit Calculated benefits include avoided supply costs, reduction in transmission, distribution, generation, and capacity costs valued at marginal cost for periods of reduced load, plus quantifiable non-energy benefits such as water, sewer, labor, and other fuels. Calculated costs include program costs paid by the utility and participants plus increased supply costs for periods of increased load Expressed as a net present value, benefit-cost ratio, or levelized cost TRC has a broader scope than other tests: includes total costs and total benefits, and can be used to compare demand- and supply-side options 26

27 APPENDIX PAC Test Calculated benefits include avoided supply costs of energy and demand, reduction in transmission, distribution, generation, and capacity valued at marginal costs for periods of reduced load Calculated costs include administrator s program costs, incentives paid to customers, and increased supply costs for periods of increased load Does not include the portion of installed measure cost paid by consumers or by third parties Expressed as a net present value, benefit-cost ratio, or levelized cost Like TRC, PAC treats revenue shifts as transfer payments however, unlike TRC, PAC does not include direct customer costs TRC and PAC cannot be used to evaluate load building programs 27