What Does the Future Hold for Utility Electricity Efficiency Programs?

Energy efficiency programs are the hidden powerhouse behind many
current trends in the electric utility industry. 

Electricity demand has been largely flat in the U.S. for the
past 10 years, in no small part due to electricity efficiency
programs funded by utility customers in nearly all states.
Appliance and equipment energy efficiency standards are also having
a big impact, along with tighter building codes, tax credits and
finance programs.

These programs, in turn, have had a ripple effect on investment
across the sector, with impacts on the future of generation,
transmission and distribution system decisions. In recent years,
there has been a wave of power plant retirements, as generators are
squeezed between low natural-gas prices, declining costs of wind
and solar, environmental and other regulatory costs, and nearly
flat demand due to energy efficiency gains.

To provide insight on the
future impacts of electricity efficiency programs
funded by
utility customers, Lawrence Berkeley National Laboratory did a
bottom-up assessment of likely futures for spending and savings in
all U.S. states.

The new study includes three scenarios — low, medium and high
cases — for 2030, with projections of spending and savings for
interim years. We combined a thorough review of the literature with
over 50 interviews of program administrators, state regulators and
efficiency experts.

Regional variation and low generation costs

Electricity efficiency programs have been funded by utility
customers for decades. They totaled about $5.8 billion in 2016, and
are saving 0.75 percent of U.S. electricity demand each year.
Earlier research from Berkeley Lab showed that these programs
delivered savings at a cost to utility program administrators of
2.5
cents per kilowatt-hour
, on average, between 2009 and
2015.

Looking forward, in all three of our study scenarios we expect
current funding levels to continue through 2030, even in the low
case. In the high case, budgets could double by 2030 ($11.1
billion). Our medium scenario projects funding of $8.6 billion in
2030, an increase of more than 45 percent.

Electricity Efficiency Program Spending by Region in
2016 vs. 2030 Scenarios

Apart from our projections of dollars spent and electricity
saved, there are some important dynamics and trends to watch out
for.

First, regional trends are a notable variable in the future of
electricity efficiency programs. The South has the biggest
potential for energy efficiency gains both in terms of spending and
savings, since most states in that region haven’t had big
programs in the past. Will they step up efforts to capture it?

The Northeast, California and the Pacific Northwest, meanwhile,
have long been leaders on efficiency, with the highest funding
levels and biggest savings. But after so many years, to what extent
are cost-effective savings tapped out? Has most of the low-hanging
fruit been picked, or will we reap new crops of low-cost efficiency
technologies and services?

Second, low generation costs will be important. For many years,
a portfolio of electricity efficiency programs was nearly always
cheaper than supply-side resources. But low natural-gas prices,
more efficient gas turbines and declining prices for wind and solar
are challenging the economic case for some energy efficiency
programs in parts of the U.S. More renewable resources could also
mean that a new priority for energy efficiency program designs is
to help integrate wind and solar.

Annual Incremental Program Savings by Region in 2016 vs.
2030 Scenarios

Indeed, energy efficiency program managers are already paying
more attention to time-varying
value and locational value
, controllable loads,
grid-interactive efficient buildings
 and
bundling demand-side options
such as energy efficiency, demand
response, distributed generation and storage, and electric vehicles
in order to provide grid services.

These trends are likely to become even more important going
forward, creating a need for more sophisticated data collection and
analysis and new opportunities for distributed energy resources.
(Listen to the recent
Energy Gang podcast
on how energy efficiency is evolving into a
real-time grid resource.)

A changing environment

The impacts of efficiency programs are also influenced by
complementary strategies such as appliance and equipment efficiency
standards and building energy codes. Congress authorized the U.S.
Department of Energy to update appliance, equipment and lighting
standards for many products in the Energy Independence and Security
Act of 2007, which are now starting to kick in. State and local
governments continue to refresh and update building codes, to keep
up with new technologies and prices.

As these new and updated standards take effect, some voluntary
efficiency program strategies may become less effective. For
instance, the most cost-effective efficiency programs now deal with
lighting, delivering 45 percent of all residential program savings
between 2009 and 2015. But as recently enacted federal standards
for lighting take effect and as the lighting market continues to
transform — such as the amazing
cost drops and increased penetration
of LEDs — efficiency
programs for lighting will have to evolve.

Many utility efficiency programs have aimed at creating a
permanent market transformation for targeted technologies. Now some
of those markets have indeed been transformed. The success of
residential lighting programs suggests that program administrators
will have to look for additional technical opportunities for saving
electricity.

Structural changes to the U.S. economy are likely to drive down
energy demand in general. The Energy Information Administration
estimates that U.S. energy intensity has decreased from 12,000 to
6,000 Btu per dollar of economic activity from 1980 to 2015, and
will be 4,000 Btu per dollar in 2040. The agency forecasts
electricity growth to be 0.59 percent per year through 2030, half
the rate of growth since 1990.

On the other hand, electrification trends could drive up demand
for power, such as electric vehicles heat pumps, and industrial
applications. An Electrification
Futures Study
from the National Renewable Energy Laboratory
found that demand growth could rise to 1.2 percent per year through
2050 in a “medium” scenario, largely from increased electricity
demand from the transportation sector. Increased electrification
could also provide new opportunities for the adoption of
high-efficiency technologies and may require policymakers to
rethink some of their guidelines and screening criteria for energy
efficiency technologies and programs.

The estimates of projected spending and savings in our study
suggest a wide range of potential trajectories for electricity
efficiency going forward. In addition to the inherent uncertainty
of predicting the future, many drivers will be out of the control
of program administrators and state regulators, such as broader
market conditions and interactions with other energy policies.

But the factors that they do control will require an ongoing
assessment of program designs, budgets and other regulatory
decisions. Times are certainly changing in the electric power
sector, and energy efficiency thinking will have to change to keep
pace.

***

Chuck Goldman and Lisa Schwartz are members of the Electricity
Markets and Policy Group at Lawrence Berkeley National
Laboratory.

Source: FS – GreenTech Media
What Does the Future Hold for Utility Electricity Efficiency Programs?