Utility-centered Approach to Energy Efficiency: Duke Energy s Save-a-watt Model Jared Lawrence Vice President, Customer Strategy and Innovation
Duke Energy at a Glance Regulated utility operations in 5 states: North Carolina, South Carolina, Indiana, Ohio and Kentucky 50,000 square miles of service area 27,000 MW of regulated generating capacity 4.0 million retail electric customers 500,000 retail gas customers Commercial businesses: Commercial Power Duke Energy International
Agenda In 2007, Duke Energy unveiled its proposed Save-awatt model, which was an innovative approach to eliminating the traditional barriers to utility investment in energy efficiency However, the regulatory approval and implementation path led to a final design that differed from the original vision in a few important ways Topics: Original and modified Save-a-watt frameworks Benefits and challenges of the model that was adopted Energy efficiency as a central piece of retail customer strategy
Save-a-watt is not: The brand name for our portfolio of energy efficiency programs Used in all of our states Save-a-watt is: Clarification The name given to Duke Energy s cost recovery and incentive mechanism for energy efficiency and demand response programs in three states (OH, NC, SC) 4
The Birth of Save-a-watt "Energy efficiency is the 'fifth fuel' -after coal, gas, renewables, and nuclear. Today, it is the lowestcost alternative and is emissions-free. It should be our first choice in meeting our growing demand for electricity, as well as in solving the climate challenge. Saving energy should be as much a part of a utility s mission as generating and delivering electricity. I believe our Save-a-watt approach can attract the necessary capital and ingenuity to place us on a path toward a more sustainable and secure energy future. -Jim Rogers, Chairman and CEO of Duke Energy, 2007
The Birth of Save-a-watt Objectives: Cost-effectively meet growing demand for electricity Reduce emissions Attract capital Pursue all cost-effective energy efficiency How we get there: by truly putting energy efficiency on a level playing field with supplyside options, and focusing on the value we are creating for customers. Make EE part of the utility s standard offer
Original Save-a-watt Proposal Utility compensated for delivered savings Illustration PROGRAMS Revenues = 90% of avoided costs (capacity and energy) Collected through utility bill rider Utility bears risk of program cost and execution Avoided Capacity Cost = $25 Avoided Energy Cost = $75 Total Avoided Cost = $100 Net savings to customers = $10 Utility Revenue = $90 Less Program Costs (variable) Utility Profit (variable)
Reaction This (Save-a-watt model) is a simple, brilliant idea. It has the ability to fundamentally change what we do in the United States. Former President Bill Clinton The Alliance to Save Energy applauds Duke Energy s innovative approach to deploying energy efficiency as the first and most valuable resource for meeting its customers growing demand for energy Duke s commitment to unlimited investment in energy efficiency marks a paradigm shift away from conventional thinking that growing populations and growing demand by definition require new generation. Alliance to Save Energy President Kateri Callahan
Reaction An $18 light bulb?????
Reaction An $18 light bulb????? -or- $20 of savings for $18
Reaction An $18 light bulb????? -or- $20 of savings for $18 Traditional cost-based paradigm Versus versus New value-based paradigm
Modified Save-a-watt Revenues = roughly 50% of avoided costs Revenue capped at 15% return on program costs (best case) Utility bears risk of program cost and execution Illustration PROGRAMS Total Avoided Cost = $100 Utility Revenue before cap = roughly $50 Net savings to customers = $50 Less Program Costs Utility Profit
Modified Save-a-watt Revenues = roughly 50% of avoided costs Revenue capped at 15% return on program costs (best case) Utility bears risk of program cost and execution Illustration PROGRAMS Total Avoided Cost = $100 Utility Revenue before cap = roughly $50 Net savings to customers = $50 Less Program Costs Utility Profit before cap 15% of Prog. Costs Utility Profit = lesser of
Modified Save-a-watt Utility Earnings Potential 15% 0% 1.0 2.0 2.3 Ratio of avoided cost benefits to portfolio program costs (UCT)
Modified Save-a-watt Utility Earnings Potential 15% 25% 20% 15% EE Target versus Total Retail Load Obligation Ohio Indiana 10% 0% 1.0 2.0 2.3 5% Ratio of avoided cost benefits to portfolio program costs (UCT) 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Aggressive EE mandates will require successful deployment of new products, services, and customer engagement strategies that have not yet been validated in the marketplace.
Utility-centered Approach to Energy Efficiency Utility view Expectation of utility commissions Emissions reduction Best positioned to help customers manage their usage in a rising cost environment Increases customer satisfaction Increases customer interest in other offers that help lower system costs and enhance reliability Earn positive returns Customer view Customers value: Predictability Savings Customized solutions View utility as reliable source for information about energy usage and savings opportunities Utilities are optimally positioned to deliver cost-effective EE programs
Utility-centered Approach to Energy Efficiency Customer experience is key to EE program success Awareness Information Advice Incentive Action Benefit
Utility-centered Approach to Energy Efficiency Home Energy Comparison Report Home Energy Awareness House Call Information Online Services Advice Incentive Action Benefit
Utility-centered Approach to Energy Efficiency Awareness Information Power Manager PowerShare Demand response programs for residential and industrial customers CFL Campaign Advice Incentive Smart $aver Custom and Prescriptive Financial incentives to install high efficiency equipment. (Lighting, HVAC, Motors, Pumps, Appliance, and more) Retrofits and Weatherization Action Benefit Dynamic Pricing Pilots
Utility-centered Approach to Energy Efficiency Awareness Information Advice Incentive Where we re going: Same approach, but with improvements: Increased customization Seamless, technology-enabled integration Improved visibility and tangibility of benefits Action Benefit