Guide for Conducting Energy Effi ciency Potential Studies
A RESOURCE OF THE NATIONAL ACTION PLAN FOR ENERGY EFFICIENCY
NOVEMBER 2007 About This Document
This Guide for Conducting Energy Effi ciency Potential Studies is provided to assist state offi cials, regulators, legislators, and others in the implementation of the recommendations of the National Action Plan for Energy Effi ciency (Action Plan) and the pursuit of its longer-term goals.
This Guide identifi es three main applications for energy effi ciency potential studies and provides examples of each, along with a de scription of how key decisions regarding scope and methodology are made to best achieve the studies’ objectives. It also provides an overview of the main analytical steps in conducting a potential study and introduces several related concepts.
The primary intended audience for this Guide is policy-makers, state offi cials, utility staff, and effi ciency advocates looking for guidance on the process of conducting potential studies. These individuals can also use the Guide to review the results of already- completed studies. Guide for Conducting Energy Effi ciency Potential Studies
A RESOURCE OF THE NATIONAL ACTION PLAN FOR ENERGY EFFICIENCY
NOVEMBER 2007 The Guide for Conducting Energy Effi ciency Potential Studies is a product of the National Action Plan for Energy Effi ciency Leadership Group and does not refl ect the views, policies, or otherwise of the federal government. The role of the U.S. Department of Energy and U.S. Environmental Protection Agency is limited to facilitation of the Action Plan.
This document was fi nal as of December 2007 and incorporates minor modifi cations to the original release.
If this document is referenced, it should be cited as:
National Action Plan for Energy Effi ciency (2007). Guide for Conducting Energy Effi ciency Potential Studies. Prepared by Philip Mosenthal and Jeffrey Loiter, Optimal Energy, Inc.
For More Information
Regarding the Guide for Conducting Energy Effi ciency Potential Studies, please contact:
Niko Dietsch U.S. Environmental Protection Agency Offi ce of Air and Radiation Climate Protection Partnerships Division Tel: (202) 343-9299 E-mail: [email protected]
Regarding the National Action Plan for Energy Effi ciency, please contact:
Stacy Angel Larry Mansueti U.S. Environmental Protection Agency U.S. Department of Energy Offi ce of Air and Radiation Offi ce of Electricity Delivery and Energy Reliability Climate Protection Partnerships Division Tel: (202) 586-2588 Tel: (202) 343-9606 E-mail: [email protected] E-mail: [email protected]
or visit www.epa.gov/eeactionplan Table of Contents
List of Figures ...... i
List of Tables ...... ii
List of Abbreviations and Acronyms...... iii
Acknowledgements ...... iv
Executive Summary ...... ES-1 Importance of Conducting Energy Effi ciency Potential Studies ...... ES-1
Chapter 1: Introduction ...... 1-1 1.1 Guide for Conducting Energy Effi ciency Potential Studies ...... 1-1 1.2 Notes...... 1-3
Chatper 2: Energy Efficiency Potential Studies as a Policy Tool ...... 2-1 2.1 What Is a Potential Study? ...... 2-1 2.2 Defi nition of Key Terms ...... 2-1 2.3 Potential Studies as Policy Tool ...... 2-2 2.4 Types of Effi ciency Potential ...... 2-3 2.5 Review of Results from Previous Potential Studies ...... 2-4 2.6 Notes...... 2-10
Chapter 3: General Concepts and Steps to Completing a Potential Study...... 3-1 3.1 Identify the Objective and the Audience...... 3-1 3.2 Select Potential Type(s) to Analyze ...... 3-1 3.3 Determine Appropriate Level of Detail and Assess Data Requirements ...... 3-2 3.4 Select and Defi ne the Methodology ...... 3-4 3.5 Present the Results ...... 3-8 3.6 Notes...... 3-8
Chapter 4: Applying the Concepts: Building a Case for Energy Effi ciency ...... 4-1 4.1 Key Questions...... 4-1 4.2 Objective and Audience ...... 4-1 4.3 Example Applications: SWEEP “Mother Lode” and Texas “Power to Save” ...... 4-1 4.4 Potential Type ...... 4-2 4.5 Level of Detail and Data Requirements ...... 4-3 4.6 Methodology ...... 4-4
National Action Plan for Energy Effi ciency Table of Contents (continued)
4.7 Presentation of Results ...... 4-7 4.8 Conclusion...... 4-8 4.9 Notes...... 4-10
Chapter 5: Applying the Concepts: Identifying Alternatives to Supply-Side Investments ...... 5-1 5.1 Key Questions...... 5-1 5.2 Objective and Audience ...... 5-1 5.3 Example Applications: VELCO “Southern Loop” and ACEEE “Texas” Potential Studies...... 5-1 5.4 Potential Type ...... 5-3 5.5 Level of Detail and Data Requirements ...... 5-3 5.6 Methodology ...... 5-4 5.7 Presentation of Results ...... 5-6 5.8 Conclusion...... 5-7 5.9 Notes...... 5-9
Chapter 6: Applying the Concepts: Detailed Planning and Program Design ...... 6-1 6.1 Key Questions...... 6-1 6.2 Objective and Audience ...... 6-1 6.3 Example Application: California Potential Study ...... 6-1 6.4 Potential Type ...... 6-2 6.5 Level of Detail and Data Requirements ...... 6-3 6.6 Methodology ...... 6-3 6.7 Presentation of Results ...... 6-4 6.8 Conclusion...... 6-5 6.9 Notes...... 6-5
Chapter 7: Conclusion...... 7-1
Appendix A: National Action Plan for Energy Efficiency Leadership Group ...... A-1
Appendix B: Glossary...... B-1
Appendix C: Detailed Methodology Discussion ...... C-1
Appendix D: Data Sources ...... D-1
Appendix E: Example Potential Studies ...... E-1
Appendix F: References ...... F-1
Guide for Conducting Energy Effi ciency Potential Studies List of Figures
Figure ES-1. Considerations for Conducting Potential Studies ...... ES-2
Figure 1-1. National Action Plan for Energy Effi ciency Recommendations and Options ...... 1-2
Figure 2-1. Considerations for Conducting Potential Studies ...... 2-2
Figure 4-1. Sample Penetration Curve for a Clothes Washer Program...... 4-5
Figure 4-2. Total Electricity Consumption in the Base and High Effi ciency Scenarios ...... 4-7
Figure 4-3. Energy Savings Potential in 2020 by Sector and State in the Southwest ...... 4-8
Figure 6-1. Savings Estimates for Select Measures ...... 6-4
Figure 7-1. Considerations for Conducting Potential Studies ...... 7-1
National Action Plan for Energy Effi ciency i List of Tables
Table ES-1. Key Issues for Selecting a Potential Study Application...... ES-3
Table 2-1. Sample of Gas Savings Potential Studies...... 2-5
Table 2-2. Sample of Electricity Savings Potential Studies ...... 2-6
Table 4-1. Summary of Example Potential Studies: Building a Case for Energy Effi ciency ...... 4-9
Table 5-1. Sample Table Comparing Transmission Alternatives in VELCO Territory ...... 5-7
Table 5-2. Summary of Example Potential Studies: Identifying Alternatives to Supply-Side Investment ...... 5-8
Table 6-1. Summary of Example Potential Study: Detailed Planning and Program Design ...... 6-5
ii Guide for Conducting Energy Effi ciency Potential Studies List of Abbreviations and Acronyms
A K Action Plan National Action Plan for Energy Efficiency kW kilowatt
AC air conditioning kWh kilowatt-hour
ACEEE American Council for an Energy Efficient Economy L Lawrence Berkeley National Laboratory ARC alternative resource configuration LBL ARI American Refrigeration Institute M C MCES Manufacturing Energy Consumption Survey thousand cubic feet CBECS Commercial Building Energy Consumption MCF Survey MW megawatt
CEE Consortium for Energy Efficiency MWh megawatt-hour
D N DEER Database for Energy Efficiency Resources NEMA National Electrical Manufacturers (California) Association DOE U.S. Department of Energy R DSM demand-side management RECS Residential Energy Consumption Survey
E RIM ratepayer impact measure EIA Energy Information Administration S EPA U.S. Environmental Protection Agency SCT societal cost test ERCOT Electric Reliability Council of Texas SWEEP Southwest Energy Efficiency Project G T GWh gigawatt-hour TRC total resource cost H V HVAC heating, ventilation, and air conditioning VELCO Vermont Electric Power Company, Inc. I IOU investor-owned utility
National Action Plan for Energy Effi ciency iii Acknowledgements
The Guide for Conducting Energy Effi ciency Potential Sedano of the Regulatory Assistance Project and Alison Studies is a key product of the Year Two Work Plan for Silverstein of Alison Silverstein Consulting provided their the National Action Plan for Energy Effi ciency. This work expertise during review and editing of the Guide. plan was developed based on feedback from Action The U.S. Department of Energy (DOE) and EPA facilitate Plan Leadership Group members and observers dur the National Action Plan for Energy Effi ciency, includ ing the fall of 2006. The work plan was further refi ned ing this Guide. Key staff include Larry Mansueti (DOE during the March 2007 Leadership Group meeting in Offi ce of Electricity Delivery and Energy Reliability), Dan Washington, D.C. A full list of Leadership Group mem Beckley (DOE Offi ce of Energy Effi ciency and Renew bers is provided in Appendix A. able Energy), and Kathleen Hogan, Niko Dietsch, Stacy Philip Mosenthal of Optimal Energy, Inc., served as Angel, and Katrina Pielli (EPA Climate Protection Part project manager and co-authored the Guide along with nership Division). Jeffrey Loiter, under contract to the U.S. Environmental Eastern Research Group, Inc., provided technical review, Protection Agency (EPA). In addition to direction and copyediting, graphics, and production services. comment by the Action Plan Leadership Group, Rich
iv Guide for Conducting Energy Effi ciency Potential Studies Executive Summary
This Guide provides information on standard approaches for parties looking to build the policy case for energy efficiency, evaluate efficiency as an alternative to supply-side resources, and formulate detailed program design plans by understanding the potential for cost-effective energy effi ciency. Policy-makers, state officials, utility staff, efficiency advocates, and others can use this information to quantify the magnitude of the energy efficiency resource. The Guide is provided to assist in the implementation of the National Action Plan for Energy Effi ciency’s fi ve key policy recommendations for creating a sustainable, aggressive national commitment to energy effi ciency.
Importance of Conducting Energy of options to consider under each Action Plan recom mendation). Conducting a potential study supports Efficiency Potential Studies this option and provides critical data for the design of policies and programs aimed at increasing investment in Improving energy effi ciency in our homes, businesses, energy effi ciency, including: schools, governments, and industries—which consume more than 70 percent of the natural gas and electricity • Setting attainable energy savings targets. used in the country—is one of the most constructive, • Quantifying the energy effi ciency resource for system cost-effective ways to address the challenges of high planning. energy prices, energy security and independence, air pollution, and global climate change. Despite these • Determining funding levels for delivering energy benefi ts and the success of energy effi ciency programs effi ciency programs. in some regions of the country, energy effi ciency • Designing programs to achieve the long-term potential. remains critically underutilized in the nation’s energy portfolio. It is time to take advantage of more than two • Reassessing energy effi ciency opportunities as condi decades of experience with successful energy effi ciency tions change. programs, broaden and expand these efforts, and cap ture the savings that energy effi ciency offers. Conduct Energy effi ciency potential studies are an effective tool ing a potential study provides key information to inform for building the policy case for energy effi ciency, evalu policies and approaches to advance energy effi ciency. ating effi ciency as an alternative to supply side resourc es, and formulating detailed program design plans. The National Action Plan for Energy Effi ciency was They are typically the fi rst step taken by entities inter released in July 2006 as a call to action to bring diverse ested in initiating or expanding a portfolio of effi ciency stakeholders together at the national, regional, state, programs, and serve as the analytic basis for efforts or utility level, as appropriate, and foster the discus to treat energy effi ciency as a high-priority resource sions, decision-making, and commitments necessary to equivalent with supply-side options. take investment in energy effi ciency to a new level. This Guide directly supports the Action Plan recommenda Potential studies conducted by utilities, state agencies, tion to “make a strong, long-term commitment to im advocacy groups, and other entities consistently fi nd plement cost-effective energy effi ciency as a resource.” that signifi cant gains in cost-effective energy savings A key option to consider under this recommendation is (e.g., MWh of electricity, MCF of natural gas) and establishing the potential for long-term, cost-effective capacity (e.g., MW, MCF/day) are currently possible in energy effi ciency savings (see page 1-2 for a full listing all sectors and regions of the country, and are likely to
National Action Plan for Energy Effi ciency ES-1 continue to be available at low cost in the future. These in energy effi ciency instead of traditional “steel in studies show that energy effi ciency can yield more than the ground” resources. 20 percent savings in total electricity demand nation 3. Potential studies that are written with the aim of wide by 2025. This is equivalent to reducing the forecast determining how much to spend on effi ciency, and growth in electric demand by 50 percent under some how that money can best be spent. These potential forecasts (Nadel et al., 2004; NEEP, 2005; SWEEP, 2002). studies are conducted in situations where the policy Energy effi ciency potential studies can be broadly char decision to invest in effi ciency has already been made acterized by how the results are applied in a policy and and there is no need to make a case for supporting program development context. In each case, the cost effi ciency. These studies focus more on the disaggre and time needed to complete a study is directly cor gated results (e.g., is there more opportunity in light related with the level of detail and accuracy of results. ing or HVAC?) than other types of potential studies. This Guide identifi es three main applications for energy Each of these potential study applications incorporates effi ciency potential studies: general concepts and steps (discussed in Chapter 3), 1. Potential studies that are written with the aim of which include potential-type analyzed (technical, eco building policy support and making the case for en nomic, or achievable), data collection approaches, level ergy effi ciency programs and funding. Usually these of aggregation, expected accuracy of results, and the types of studies are done at a high level of aggrega type of output produced. Chapters 4 through 6 describe tion, and focus on the macro-level societal benefi ts these concepts and steps, briefl y address their implica of doing effi ciency. tions for study cost and completion time, and provide recommendations for how each should be handled in 2. Potential studies that are written with the aim of the context of the three potential study applications evaluating effi ciency as an alternative to a specifi c (given a state or utility’s overall policy goals). supply-side project. These types of studies present highly accurate estimates of the energy effi ciency After reading this Guide, parties seeking to undertake a potential, as they need to provide certainty and fos potential study will better understand: (a) the questions ter confi dence in energy resource planners to invest to ask to ensure that the appropriate potential study
Figure ES-1. Considerations for Conducting Potential Studies
High Detailed Planning and Program Design (Single Program) (Program Portfolio)
Medium Identifying Alternatives to Supply-Side Investment Level of Detail
Building the Case for Low Energy Efficiency
Low Medium High
Cost and Length of Time to Complete
ES-2 Guide for Conducting Energy Effi ciency Potential Studies application is selected, (b) the basic approach and steps (c) the types of results and insights that can (and can- for conducting the study, including the key questions not) be expected, including how potential studies can and issues to raise with the analyst doing the work, and be used to advance the Action Plan recommendations.
Table ES-1. Key Issues for Selecting a Potential Study Application
Identifying Building a Case for Alternatives to Detailed Planning Energy Effi ciency Supply-Side and Program Design Investments Typical Cost* $20,000–$75,000 $75,000–$300,000 $75,000–$500,000 Estimated 1 to 4 months 4 and 12 months 4 and 12 months Time* Key Questions • Are we in the process • Will this study deter • Has the decision to invest in of deciding whether mine whether energy effi ciency already been made? to invest in effi ciency effi ciency can be used • Are data needed primarily to and if so, are we to defer or eliminate aid in decisions about which deciding how much plans to build new market sectors, targeted geo to invest? capacity or upgrade graphic areas, end uses, mea • Is the primary motiva transmission lines? sures, and programs should tion of this study to • Are energy effi ciency be tapped to realize effi ciency demonstrate the ben objectives best sup potential? efi ts of effi ciency and ported by “investment • Are study fi ndings intended build policy support? grade” analysis with primarily for energy effi ciency • Can we accept a fairly the aim of ensuring planners who will incorporate high level of aggrega the future reliability of the results into portfolio deci tion and thus uncer the power system? sions? tainty in our results? • Are energy effi ciency • What is the history of ef • Are the desired objectives best sup fi ciency programming in this outputs primarily ported by detailed area? What effect does this macro-level energy measure-level data? history have on the assump and capacity savings, Should certain mea tions we make about program and is there a role for sures (i.e., those that potential? provide summer peak related economic and • Should the study focus on one environmental data? reductions) be given priority? particular end use, customer segment, or set of measures? Are data available that can give reasonable disaggregated results?
* These ranges should be viewed as approximate. They are based on a sample of studies and are not intended to defi ne the absolute limit of these parameters.
National Action Plan for Energy Effi ciency ES-3
1: Introduction
Improving the energy effi ciency of homes, businesses, to help parties pursue the recommendations and meet schools, governments, and industries—which consume their commitments to energy effi ciency. Specifi cally, this more than 70 percent of the natural gas and electricity Guide directly supports the Action Plan recommendation used in the United States—is one of the most construc to “make a strong, long-term commitment to implement tive, cost-effective ways to address the challenges of cost-effective energy efficiency as a resource.” A key op high energy prices, energy security and independence, tion to consider under this recommendation is establishing air pollution, and global climate change. Mining this the potential for long-term, cost-effective energy effi ciency effi ciency could help us meet on the order of 50 percent savings. Further, this Guide was developed in conjunction or more of the expected growth in U.S. consumption with and complements other documents prepared as part of electricity and natural gas in the coming decades, of the Action Plan. yielding many billions of dollars in saved energy bills and Potential studies of a state or region inform the compari avoiding signifi cant emissions of greenhouse gases and son of energy efficiency with supply-side options, and other air pollutants.1 therefore serve as the analytic basis for implementing four Recognizing this large opportunity, more than 60 lead key options to consider under the Action Plan: ing organizations representing diverse stakeholders • Integrate energy effi ciency into utility, state, and from across the country joined together to develop the regional resource planning activities. National Action Plan for Energy Effi ciency. The Action Plan identifi es many of the key barriers contributing to • Establish funding requirements for delivering long- underinvestment in energy effi ciency; outlines fi ve key term, cost-effective energy effi ciency. policy recommendations for achieving all cost-effective energy effi ciency, focusing largely on state-level energy • Develop long-term energy saving goals as part of effi ciency policies and programs; and provides a number energy planning processes. of options to consider in pursing these recommenda • Establish and educate stakeholders on the business tions (Figure 1-1). As of November 2007, nearly 120 case for energy effi ciency. organizations have endorsed the Action Plan recom mendations and made public commitments to imple 1.1.1 How to Use This Guide ment them in their areas. Understanding the potential This Guide is provided as a resource for implement for cost-effective energy effi ciency is key to making the ing the recommendations of the Action Plan. It was Action Plan a reality. developed in conjunction with and complements other documents prepared as part of the Action Plan. One 1.1 Guide for Conducting Energy such document is the Guide to Resource Planning with Energy Effi ciency (National Action Plan for Energy Ef Efficiency Potential Studies fi ciency, 2007), which details how potential studies play a critical role in the utility resource planning process. The Leadership Group of the National Action Plan for Energy Efficiency (see Appendix A for a list of group The audience for the Guide includes policy-makers, members) identified the area of energy effi ciency poten state offi cials, utility staff, effi ciency advocates, and tial studies as one where additional guidance is needed other entities interested in conducting an energy
National Action Plan for Energy Effi ciency 1-1 Figure 1-1. National Action Plan for Energy Efficiency Recommendations and Options
Recognize energy efficiency as a high-priority Provide sufficient, timely, and stable program energy resource. funding to deliver energy effi ciency where Options to consider: cost-effective. • Establishing policies to establish energy effi ciency as a Options to consider: priority resource. • Deciding on and committing to a consistent way for • Integrating energy effi ciency into utility, state, and regional program administrators to recover energy effi ciency resource planning activities. costs in a timely manner. • Quantifying and establishing the value of energy effi ciency, • Establishing funding mechanisms for energy effi ciency considering energy savings, capacity savings, and environ from among the available options, such as revenue mental benefi ts, as appropriate. requirement or resource procurement funding, system benefi ts charges, rate-basing, shared-savings, and Make a strong, long-term commitment to imple incentive mechanisms. ment cost-effective energy efficiency as a resource. • Establishing funding for multi-year period. Options to consider: • Establishing appropriate cost-effectiveness tests for a Modify policies to align utility incentives with portfolio of programs to refl ect the long-term benefi ts of the delivery of cost-effective energy effi ciency energy effi ciency. and modify ratemaking practices to promote • Establishing the potential for long-term, cost-effective energy effi ciency investments. energy effi ciency savings by customer class through proven Options to consider: programs, innovative initiatives, and cutting-edge tech • Addressing the typical utility throughput incentive and nologies. removing other regulatory and management disincen • Establishing funding requirements for delivering long-term, tives to energy effi ciency. cost-effective energy effi ciency. • Providing utility incentives for the successful manage • Developing long-term energy saving goals as part of ment of energy effi ciency programs. energy planning processes. • Including the impact on adoption of energy effi ciency • Developing robust measurement and verifi cation procedures. as one of the goals of retail rate design, recognizing that it must be balanced with other objectives. • Designating which organization(s) is responsible for admin istering the energy effi ciency programs. • Eliminating rate designs that discourage energy ef fi ciency by not increasing costs as customers consume • Providing for frequent updates to energy resource plans to more electricity or natural gas. accommodate new information and technology. • Adopting rate designs that encourage energy effi ciency Broadly communicate the benefits of and opportu by considering the unique characteristics of each cus nities for energy effi ciency. tomer class and including partnering tariffs with other Options to consider: mechanisms that encourage energy effi ciency, such as benefi t-sharing programs and on-bill fi nancing. • Establishing and educating stakeholders on the business case for energy effi ciency at the state, utility, and other appropriate level, addressing relevant customer, utility, and societal perspectives. • Communicating the role of energy effi ciency in lowering customer energy bills and system costs and risks over time. • Communicating the role of building codes, appliance stan dards, and tax and other incentives.
Source: National Action Plan for Energy Effi ciency, 2006.
1-2 Guide for Conducting Energy Effi ciency Potential Studies effi ciency potential study for the purpose of initiating or Note that this guide is not intended to give the general expanding a portfolio of effi ciency programs. It will also reader enough information to conduct a potential study be useful for regulators, legislators, and other decision- on their own. Rather, we hope that after reviewing this makers tasked with overseeing utilities and assessing document, the reader will be able to participate in ef the merits of a particular energy effi ciency approach forts to plan for, contract for, contribute to, and review or outcome. The Guide provides answers to—or the the results of potential studies. Where potential studies information needed to develop answers to—the follow are conducted, the reader should be able to effectively ing questions: collaborate with the entity doing the work. To this end, specifi c “questions for the analyst” are provided at the • What is a potential study? beginning of Chapters 4 through 6. • What objectives are met by a potential study? 1.1.2 Structure of the Guide • Do I need to conduct or commission a potential study This document presents much of its information in the for my jurisdiction? context of several example studies. To avoid repetition, different aspects of conducting a potential study are • What are the key steps in conducting a potential emphasized in Chapters 4 through 6. Appendix C repeats study? much of this information in a more linear fashion that • What are the likely costs of different types of poten does not rely on the examples in the main text, while Ap tial studies, and what are the pros and cons of each? pendix D contains a list of common data sources used for potential studies and a short description of each. Appen • Based on stated objectives, what type of potential dix E provides short descriptions of 17 recent potential study should I conduct or commission? What should studies, with Web links where available. its boundaries and analytical parameters be? 1.1.3 Development of the Guide The Guide is “policy-neutral” such that it can be ap plied to energy effi ciency programs irrespective of their The Guide is a key product of the Year Two Work Plan policy objectives and constraints. The Guide lays out a for the National Action Plan for Energy Effi ciency. This basic potential study structure and methodology while work plan was developed based on feedback from Ac fl agging issues that need to be addressed in specifi c tion Plan Leadership Group members and observers dur circumstances. Chapters 2 and 3 present key topics ing the fall of 2006. The work plan was further refi ned and approaches applicable to all potential studies. They during the March 2007 Leadership Group meeting in defi ne the types of potential that are typically analyzed Washington, D.C. A full list of Leadership Group mem and the expected range of results from each. They also bers is provided in Appendix A. summarize the most important steps in performing a Philip Mosenthal of Optimal Energy, Inc., served as potential study. The Guide also identifi es three contexts project manager and co-authored the Guide along with for application of potential studies. Chapters 4 through Jeffrey Loiter, under contract to the U.S. Environmental 6 identify specifi c approaches and provide guidance for Protection Agency. each step in relation to these three study applications. Case studies are used to illustrate best practices, with pros and cons of different methods presented so that 1.2 Notes users can make the best decision for their circumstanc es. Chapter 7 summarizes the discussion and identifi es 1. See the National Action Plan for Energy Effi ciency (2006), avail able at
National Action Plan for Energy Effi ciency 1-3
Energy Effi ciency Potential 2: Studies as a Policy Tool
This chapter of the Guide explains why conducting potential studies is a critical best practice for estab lishing energy efficiency as a first-priority resource, and describes how such studies can serve as the quantitative basis for actions aimed at achieving the Action Plan’s recommendations.
2.1 What Is a Potential Study? includes using less energy at any time, including at times of peak demand through demand response and Simply put, a potential study is a quantitative analysis peak shaving efforts. of the amount of energy savings that either exists, is • Measure: any action taken to increase effi ciency, cost-effective, or could be realized through the imple whether through changes in equipment, control mentation of energy effi ciency programs and policies. strategies, or behavior. Examples are higher-effi ciency The Action Plan notes that “potential studies illuminate central air conditioners, occupancy sensor control the nature of the energy effi ciency resource, and can be of lighting, and retro-commissioning. In some cases, used by legislators and regulators to inform effi ciency bundles of technologies or practices may be modeled 1 policy and programs.” The boundaries of a potential as single measures. For example, an ENERGY STAR™ study can be as small as a neighborhood experiencing home package may be treated as a single measure. transmission or distribution constraints, or as large as an entire region of the country. The study may consider all • Program: a mechanism for encouraging energy sectors of the economy or focus on a particular industry effi ciency. May be funded by a variety of sources and or type of energy-user. It may focus solely on electricity, pursued by a wide range of approaches. Typically natural gas, or another fuel or provide a comprehensive includes multiple measures.2 look at all energy consumption. As with any analysis • End-use: a category of equipment or service that used to support public policy, the scope of the study consumes energy (e.g., lighting, refrigeration, heat depends on the question being answered. ing, process heat).
• Cost-effectiveness: a measure of the relevant eco 2.2 Definition of Key Terms nomic effects resulting from the implementation of an energy effi ciency measure. If the benefi ts outweigh the As in any field of study, energy efficiency practitioners use cost, the measure is said to be cost-effective. a vocabulary of terms with generally accepted meanings to convey their ideas, methods, and results. The following list • Lost-opportunity: refers to an effi ciency measure defines some of the key terms used in this guide. or effi ciency program that seeks to encourage the selection of higher-effi ciency equipment or building • Energy effi ciency: using less energy to provide the practices than would typically be chosen at the time same or an improved level of service to the energy of a purchase or design decision. consumer in an economically effi cient way. Some times “conservation” is used as a synonym, but that • Retrofi t: refers to an effi ciency measure or effi term is usually taken to mean using less of a resource ciency program that seeks to encourage the replace even if this results in a lower service level (e.g., set ment of functional equipment before the end of its ting a thermostat lower or reducing lighting levels). operating life with higher-effi ciency units (also called The Action Plan recognizes that energy effi ciency “early retirement”) or the installation of additional
National Action Plan for Energy Effi ciency 2-1 controls, equipment, or materials in existing facilities the analysis. This section describes three applications for for purposes of reducing energy consumption (e.g., which a potential study can inform policy decisions: increased insulation, lighting occupancy controls, • Building a case for investment in energy effi ciency. economizer ventilation systems). • Identifying alternatives for supply-side investments.
2.3 Potential Studies as Policy Tool • Detailed effi ciency program design and planning.
Potential studies can serve multiple objectives in support These were chosen because the studies that result from of efforts to advance a long-term commitment to cost- these objectives cover a range of approaches, levels of effective energy effi ciency. Their results provide critical detail, and costs. They also represent the majority of input for the design of policies and programs aimed at studies conducted. For each, we touch on some of the increasing the penetration of effi ciency, including: concepts discussed in greater detail later on, such as the level of detail of the potential study and whether site • Setting attainable energy savings targets. specifi c data are gathered to support the potential anal ysis. In general, the greater the detail and data needs • Quantifying the energy effi ciency resource for system for a study, the greater the specifi city of the results and planning. the greater the cost and time to complete a study. The • Determining a funding level for delivering energy fi gure below depicts this relationship graphically, placing effi ciency programs. the three potential study scenarios in context with one another. • Designing programs to achieve the long-term potential. 2.3.1 Building a Case for Effi ciency Investment • Reassessing energy effi ciency opportunities as condi tions change. Potential studies are most frequently used either to make the initial case for energy effi ciency programs and The type of report and analysis methodology will vary effi ciency portfolio investments or to support continued depending on the ultimate goal or objective, so it is (and possibly increased) funding of existing programs. important to have a clear idea of the objectives of the In this situation, a study seeks to answer the two-part study and type of information needed before beginning question of whether to invest in effi ciency and if so,
Figure 2-1. Considerations for Conducting Potential Studies
High Detailed Planning and Program Design (Single Program) (Program Portfolio)
Medium Identifying Alternatives to Supply-Side Investment Level of Detail
Building the Case for Low Energy Efficiency
Low Medium High
Cost and Length of Time to Complete
2-2 Guide for Conducting Energy Effi ciency Potential Studies how much to invest.3 To support this objective, deci accomplished from a specifi c program design, rather sion-makers need to understand the overall magnitude than on generally aggressive effi ciency investments. of the effi ciency resource and the associated costs and benefi ts. The analysis in this case focuses on providing 2.3.3 Detailed Planning and Program Design a reasonable estimate of effi ciency potential at a high In some cases, policy-makers have decided to invest in level4 of aggregation. Results from these studies are effi ciency and need guidance on which market sectors, typically used to establish the magnitude of effi ciency targeted geographic areas, end uses, measures, and opportunities and to support high-level decisions on programs should be tapped to realize the effi ciency funding levels for effi ciency portfolios. While the level potential in their regions of interest. For example, when of funding allocated to effi ciency programs is ultimately dealing with equity issues, a policy-maker may wish to a political decision, a potential study can help all stake fully understand the level of cost-effective effi ciency holders to clearly see the possibilities. investment that can be achieved in the low-income sec tor. It may also be desirable to establish specifi c savings, In many cases, needlessly detailed and expensive studies spending, or net benefi ts goals for one or more market are performed where simpler analyses would suffi ce. For segments (e.g., new construction). For this purpose, example, if available program funding (whether proposed detailed potential studies are needed to describe the ef or currently available) will only support a modest level of fi ciency potential by specifi c characteristics or to analyze effi ciency investment, a high-level study conducted for a various program options for the purpose of understand relatively modest budget will typically provide the neces ing additional opportunities for effi ciency. Very detailed sary information to support policy decisions (see Section studies may be warranted to determine the magnitude 3.4). In cases where jurisdictions are beginning to pur and economics of specifi c measures, market segments, sue a high percentage of effi ciency opportunities, more or detailed program designs. A greater level of segmen detailed studies may be necessary to refi ne estimates of tation generally requires a more detailed and expensive cost-effective spending levels as well as to provide infor study. The effort required for a greater level of detail mation on the remaining effi ciency opportunities. may be offset by limiting the analysis to one or a few 2.3.2 Identifying Alternatives to Supply-Side program concepts or market sectors, rather than ad Investments dressing all effi ciency opportunities. Energy effi ciency is increasingly being considered as an alternative to supply-side investment in generation or 2.4 Types of Effi ciency Potential transmission resources, especially in the context of reli ability constraints. In cases where parties wish to under Energy effi ciency practitioners often distinguish be stand the relative magnitude of the effi ciency potential tween four different types of effi ciency potential and whether it can defer alternative investments, a analysis: technical, economic, achievable, and pro potential study can answer the question: Can effi ciency gram. Still, there are often important defi nitional issues displace needed investments in supply-side or transmis between studies, and terms are used in different ways sion resources? Investment decisions, especially those re by different people. Therefore, it is important when garding investments to meet future reliability, may require reviewing studies to fully understand the defi nition and a more detailed potential study than under the previous scope that applies to any given estimate. Below are scenario. These studies typically focus on a specifi c set typical defi nitions of these terms. The fi rst two types of of conditions (e.g., geographic area, customer loads) to studies—technical and economic—provide a theoretical facilitate comparison with alternative solutions. Ideally, upper bound of existing effi ciency resources. Even the the methodology is based on detailed, site-specifi c data best-designed portfolio of programs, with unlimited to support investment-grade analysis. Such a potential funding, will not capture 100 percent of the technical study is designed to produce estimates of what can be or economic potential. The latter two types—achievable
National Action Plan for Energy Effi ciency 2-3 and program—tend to be more useful in that they from a given set of programs and funding. Program estimate what can actually be achieved, when it can be potential studies can consider scenarios ranging from captured, and how much it will cost to do so. a single program to a full portfolio of programs. A typi cal potential study may report a range of results based • Technical potential is the theoretical maximum on different program funding levels. amount of energy use that could be displaced by effi ciency, disregarding all non-engineering constraints such Variations exist on the above definitions. For example, as cost-effectiveness and the willingness of end-users to most studies consider achievable potential as a subset adopt the efficiency measures. It is often estimated as a of economic potential, but some studies consider it as a “snapshot” in time assuming immediate implementa subset of technical potential. The rationale for this is that tion of all technologically feasible energy saving mea as avoided costs and measure costs change over time, sures, with additional efficiency opportunities assumed non-cost-effective measures may become economical. as they arise from activities such as new construction. Maximum technically achievable would be a more infor mative term for such a view. This is especially true when • Economic potential refers to the subset of the tech considering efficiency resources as an alternative to defer nical potential that is economically cost-effective as or replace substantial new supply-side investment. In this compared to conventional supply-side energy resourc case, what is economical may not be known until the es. Both technical and economic potential are theoreti magnitude of efficiency is established and components or cal numbers that assume immediate implementation new supply-side investments can be analyzed to determine of effi ciency measures, with no regard for the gradual the potential cost and benefits of deferral. Finally, we note “ramping up” process of real-life programs. In addi that in reality, potential exists along a continuum rather tion, they ignore market barriers to ensuring actual than in discrete steps. While the terms defi ned above implementation of effi ciency. Finally, they only consider facilitate discussion and comparison of different studies, the costs of effi ciency measures themselves, ignoring it is important to understand the scope of the particular any programmatic costs (e.g., marketing, analysis, ad definition of potential in use for any given study. ministration) that would be necessary to capture them. • Achievable potential is the amount of energy use 2.5 Review of Results from that effi ciency can realistically be expected to displace assuming the most aggressive program scenario Previous Potential Studies possible (e.g., providing end-users with payments for the entire incremental cost of more effi ciency There have been numerous potential studies released in equipment). This is often referred to as maximum the past decade covering regions throughout the United achievable potential. Achievable potential takes into States and Canada. The tables below summarize the account real-world barriers to convincing end-users technical, economic, and achievable potential found in to adopt effi ciency measures, the non-measure costs 21 studies, 19 of which are from the United States.6 It of delivering programs (for administration, marketing, is important to note that the studies vary in their scope, tracking systems, monitoring and evaluation, etc.), objectives, methodology, time horizon, and defi nitions. and the capability of programs and administrators to This is especially true in regard to achievable potential. ramp up program activity over time.5 Some studies defi ne this as the maximum potential that could be captured assuming infi nite budget (i.e., • Program potential refers to the effi ciency potential 100 percent of incremental effi ciency costs covered by possible given specifi c program funding levels and incentives, as well as aggressive marketing and other designs. Often, program potential studies are referred supporting initiatives). Other studies defi ne achievable to as “achievable” in contrast to “maximum achiev potential as that which could reasonably be captured able.” In effect, they estimate the achievable potential through likely policies or specifi c funding constraints.
2-4 Guide for Conducting Energy Effi ciency Potential Studies Regardless of defi nition, the results reported in the rather than the different regions considered. For example, tables as “achievable” are those for the most aggressive the number of measures analyzed can vary widely from program evaluated in that study. study to study, from less than 20 to over 1,000. Some studies may eliminate new construction, early retirement, Despite the differences, it is informative to compare the or other important markets. In addition, many studies range of results found in these studies. To provide some will use simplifi ed methods for economic screening or for context for these values, reaching the maximum achiev factors such as equipment stock adjustments that can able potential (i.e., approaching the total economic bias results. While the potential in each region is infl u potential) of between 20 and 30 percent would require enced by the climate and mix of customers (e.g., promi effi ciency spending in excess of 5 percent of utility rev nent industrial sectors), the overall percentage of savings enue. Historically, this has been beyond levels pursued potential does not vary dramatically. For many effi ciency by even the most aggressive jurisdictions and has not technologies, the percentage energy savings is only mini been accomplished except in a few limited instances. mally dependent on operating conditions. For example, Tables 2-1 and 2-2 present detailed results for higher effi ciency cooling equipment may save, say, 15 specifi c studies for both electric and natural gas percent of cooling energy used by commercial buildings, potential, respectively.7 Recognize that the wide di regardless of climate. In warmer climates, where more vergence of results tends to have more to do with the energy is used for cooling, the total energy savings in scope, comprehensiveness of the studies, and timeframe MWh will be higher than in cooler climates.
Table 2-1. Sample of Natural Gas Savings Potential Studies Area(s) Covered Author(s) Year Completed Type of Savings Total Gas Years to Potential Reduction as a Achieve % of Sales Estimated Savings Potential California ACEEE 2003 Technical 35% 20
Economic 21%
Max. Achievable 9% Georgia ICF 2000 Technical 10% 5
Economic 11%
Max. Achievable 1.8–5.5% Iowa ORNL 2001 Max. Achievable 3.7% 15 Midwest ACEEE 2003 Max. Achievable 9.30% 20 Midwest Quantec 2005 Technical 46.6% 20
Max. Achievable 25.2% New York OEI/VEIC/ACEEE 2002 Economic 28% 5
Max. Achievable 1.5% Utah GDS/Quantum 2004 Technical 38% 10
Max. Achievable 20%
National Action Plan for Energy Effi ciency 2-5 2-6 Table 2-2. Sample of Electricity Savings Potential Studies Area(s) Author(s) Year Type of Estimated Consumption Savings as Estimated Years to Comments Covered Completed Savings % of Sales Summer Peak Achieve Potential Demand Estimated Savings as Savings % of Total Potential Res. Comm. Indus. Total Capacity New Énergie NB 2004 Technical 32% 32% 13% 24% N.A. 17 Includes fuel Brunswick Power Economic 7% 14% 12% 10% switching; Economic 3% 6% 1% 3% excludes street lights British BC Hydro 2002 Economic 17% 17% 27% N.A. N.A. 9 Columbia Max. 4% 4% 11% Achievable California Xenergy 2002 Technical 21% 17% 13% 19% 25% 10 Integrated Economic 15% 13% 12% 14% 16% measures not Max. 10% 13% 11% 10% 10% addressed; Achievable 8% 7% 4% 6% 6% agriculture Budget included in in Guide forConducting EnergyEffi ciency PotentialStudies Constrained dustrial sector Manitoba Manitoba 2002 Economic 19% 19% 5% N.A. N.A. 9 Apartment Hydro Max. 4% 6% 1% buildings Achievable included in commercial Midwest ACEEE 2003 Max. N.A. N.A. N.A. 11% N.A. 20 Achievable New Mexico Itron 2006 Max. N.A. N.A. N.A. 8% 8.90% 10 Achievable Connecticut GDS 2003 Technical 24% 25% 20% 24% 24% 10 Also includes Associates/ Max. 13% 14% 13% 13% 13% results for Quantum- Achievable Southwest CT Consulting region National Action PlanforEnergyEffi ciency Table 2-2. Sample of Electricity Savings Potential Studies (continued) Area(s) Author(s) Year Type of Estimated Consumption Savings as Estimated Years to Comments Covered Completed Savings % of Sales Summer Peak Achieve Potential Demand Estimated Savings as Savings % of Total Potential Res. Comm. Indus. Total Capacity Georgia ICF 2005 Technical N.A. N.A. N.A. 29% 33% 5 Economic 20% 18% Max. 2.3%–8.7% 1.8%–5.5% Achievable Illinois ACEEE 1998 Achievable N.A. N.A. N.A. 43% N.A. 20 Iowa ORNL 2001 Max. 5.3% 5.1% 6% 5.4% N.A. 15 Achievable Massachusetts RLW 2001 Economic 31% 21% N.A. 24% N.A. 5 Excludes non- Analytics/ Budget 5% 5% utility impacts SFMC Constrained and low income New York OEI/VEIC/ 2002 Technical 37% 41% 22% 37% N.A. 10 A lso 5- and ACEEE Economic 26% 38% 16% 30% 20-year scenarios Ontario ICF 2005 Technical N.A. N.A. N.A. 26% 33% 20 Economic 21% 21% Oregon Technical 2003 Ecotope/ 28% 32% 35% 31% N.A. 10 Residential ACEEE/Tellus includes manufactured housing Puget Sound Puget 2003 Max. 17% 7% 0% 12% 33% 20 Region Sound Technically 7% 6% 0% 6% 11% Energy Achievable Max. Economically 2-7 Achievable 2-8 Table 2-2. Sample of Electricity Savings Potential Studies (continued) Area(s) Author(s) Year Type of Estimated Consumption Savings as Estimated Years to Comments Covered Completed Savings % of Sales Summer Peak Achieve Potential Demand Estimated Savings as Savings % of Total Potential Res. Comm. Indus. Total Capacity Quebec OEI/VEIC 2004 Max. 8% 19% 1% 7% N.A. 8 Residential Technically 2% 6% 1% 3% sales include Achievable farms; no Max. farm savings Economically estimated Achievable Texas OEI 2007 Max. N.A. N.A. N.A. 20% 22% 15 Achievable Utah Tellus 2001 Max. N.A. N.A. N.A. 9% N.A. 6 Institue Achievable Vermont OEI/VEIC 2002 Max. 30% 32% 31% 37% 10 Includes fuel
Guide forConducting EnergyEffi ciency PotentialStudies Technically switching; Achievable also 5-year scenario VELCO OEI/VEIC 2002 Max. 18% 17% 23% 23% 10 Excludes Achievable measures with little peak demand, that require regional coordination, and emerging technologies; includes fuel switching; also 5-year scenario National Action PlanforEnergyEffi ciency Table 2-2. Sample of Electricity Savings Potential Studies (continued) Area(s) Author(s) Year Type of Estimated Consumption Savings as Estimated Years to Comments Covered Completed Savings % of Sales Summer Peak Achieve Potential Demand Estimated Savings as Savings % of Total Potential Res. Comm. Indus. Total Capacity AZ,CO,NV,NM, SWEEP/ 2002 Max. 14% 20% 19% 18% N.A. 8 Also 18-year UT,WY ACEEE/ Achievable scenario Tellus
NY, NJ, PA ACEEE 1997 Max. 35% 35% 41% N.A. N.A. 14 Residential Achievable savings are for all fuels, not just electricity 2-9 will sometimes refer to achievable potential while estimating the 2.6 Notes savings from a less aggressive strategy (e.g., programs that are limited to funding a fraction of the cost of effi ciency measures). 1. National Action Plan for Energy Effi ciency (2006), pp. 6-15. These funding- or program-constrained scenarios may more closely represent program potential as defi ned here. 2. Projects, one or more measures at a single facility or site, are also aggregated into programs. Considerations at the measure level 6. In some cases, achievable potential is for a limited funding or are most applicable to potential studies. program scenario and more closely refl ects what this document refers to as “program potential.” 3. These questions may arise from a variety of policy, economic, or energy supply needs. For example, one might wish to under 7. Potential studies, like many quantitative policy analyses, have a stand the potential role of energy effi ciency in meeting emis “useful life” determined in part by changes in the markets, tech sions reduction targets or energy portfolio standards such as the nologies, and demographic entities being analyzed. For example, Regional Greenhouse Gas Initiative. future changes in appliance standards not captured in a potential study may dramatically alter the savings available from an appli 4. Note that the term “high-level” is used as in “a high-level view.” ance program. On the other hand, the effi ciency of the best units It implies a lesser level of detail, not greater. continues to improve with new technologies, creating additional effi ciency opportunities between the new, higher effi ciency level 5. Maximum achievable potential generally refers to assuming the and the new, higher baseline. most aggressive, fully funded programs possible. However, studies
2-10 Guide for Conducting Energy Effi ciency Potential Studies General Concepts and Steps to Completing 3: a Potential Study
This chapter of the Guide describes general concepts relevant to completing a potential study and breaks the process down into five broad steps: (1) identify the objective and the audience, (2) select the poten tial type(s) to analyze, (3) determine the appropriate level of detail, (4) select and define the methodol ogy, and (5) present the results. The specifics of these five steps need to be explored with or communi cated to the entity performing the study. The general information provided in this chapter informs this process, and is supplemented with “questions for the analyst” listed at the beginning of Chapters 4, 5, and 6. The concepts introduced here are expanded upon in these subsequent chapters. 3.1 Identify the Objective and the 3.2 Select Potential Type(s) to Audience Analyze
There are a number of different objectives for undertak Estimates of technical and economic potential are ing a potential study, each with important implications independent of the efforts necessary to actually capture for the necessary rigor and cost of the study. Clearly that potential. As described above, technical potential identifying the objective and the desired results is the is the maximum amount of energy use that could be necessary fi rst step in planning a study. Where there displaced by effi ciency, assuming immediate implemen are multiple and perhaps competing objectives, there tation of all technically feasible energy-saving measures. should be an attempt to reach consensus as to which This includes, for example, the replacement of every objective is most important. This will facilitate decisions incandescent bulb with a compact fl uorescent lamp regarding any analytical trade-offs that become neces or high-effi ciency fi xture, regardless of cost. Consider sary as a result of limitations in data, resources, or time ations of initiative strategies, performance, willingness available to undertake the study. of end-users to adopt technologies, or budget do not affect this potential estimate. Economic potential can The audience for a potential study can inform the then be determined by factoring in the measure cost. analytical methods and data used to produce the fi nal report. Typically, the audience is closely related to the Because of the disconnect between implementation objective, and may be implicitly or explicitly defi ned issues and estimates of technical and economic poten once the objectives are determined. Regardless, specifi c tial, these potential estimates do little more than set attention should be paid to the needs of the audi the context for estimates of achievable and program ence. Since potential studies often look 10 or 20 years potential, or for actual program results. Technical poten into the future, questions arise as to the reliability and tial in particular has little bearing on decision-making, trustworthiness of the data and results. For this reason, as failure to meet standard cost-effectiveness tests (i.e., audiences should be consulted to determine what data economic potential) generally excludes opportunities sources they trust, what issues need addressing, and from inclusion in actual implemented effi ciency pro what level of detail they require. In some cases, a formal grams. Economic potential estimates do not include advisory board of stakeholders or a collaborative may be initiative budgets, do not provide likely timelines of formed to guide or manage the study. energy effi ciency acquisition, and do not represent quantities of effi ciency that can actually be acquired. As a result, technical and economic potential studies are of
National Action Plan for Energy Effi ciency 3-1 limited value for planning purposes. While they set the potential studies can be completed for under $50,000 theoretical upper bound for effi ciency, they cannot be in total costs, while more detailed potential studies can readily captured. cost anywhere from $200,000 to $1 million depending upon the geographic area in question, the degree to In most cases, policy-makers should consider foregoing which results are segmented, and the level of detail and technical potential analyses altogether. In practice, most data collection required.1 Ultimately, the level of detail technical and economic potential studies generate very should be driven by the study objectives. High-level similar estimates. Because analysts generally pre-screen studies can drive “yes/no” policy decisions and/or rough possible effi ciency technologies and practices based budget allocations, while more detailed potential stud on an understanding of which measures are likely to ies give shape to or refi ne existing effi ciency efforts. be cost-effective, most measures that are technically feasible but very unlikely to pass a cost-effectiveness The level of detail of a potential study might also be screening will not be included in the analysis in the in driven by data availability. As discussed below, a wide terest of conserving time and effort for other aspects of range of data are needed to support a potential study. the analysis. This results in the technical potential being While information is generally available to disaggregate virtually the same as the economic potential. electricity or natural gas sales into residential, commer cial, and industrial sectors, the data needed to further It may be more diffi cult to determine where along the disaggregate sales into building types or end-uses are continuum of potential studies to focus efforts for a par more diffi cult to obtain.2 Information on current stan ticular objective. Chapters 4 through 6 discuss this issue dard (“baseline”) practices and penetrations of effi with respect to the examples presented and the objective ciency measures may also be scarce. Decision-makers of the study. The type of potential analyzed should be may wish to pursue a high-level study in the absence of chosen to best support the objectives of the work. fully disaggregated sales data, as a more detailed study would imply a false level of precision.
3.3 Determine Appropriate Level When data are not available to support a detailed and of Detail and Assess Data Re disaggregated study, primary research may be con quirements ducted. This will typically take the form of onsite data collection from a sampling of different building types, along with modeling. This type of effort can signifi This section describes two related activities in planning a cantly refi ne baseline assumptions and accuracy, but at potential study: selecting a level of detail and gathering substantial cost. These types of detailed studies tend to the data necessary to support the study. These activities cost in the $500,000 to $1 million range. are discussed separately here, but in reality the analyst will likely consider them simultaneously, with each infl u If the costs or time required for primary research are encing the other. Some iteration may also be required; if prohibitive, studies typically rely on secondary research the analyst does not fi nd appropriate data sources, she data.3 In this case, detailed studies from neighboring may need to modify the level of detail for the study. For regions or similar market segments may be used as a more information on data sources, see Appendix D. proxy for the actual region or segment being analyzed. With appropriate adjustments and careful selection of 3.3.1 Level of Detail comparison areas, this can provide a fairly high level of Energy effi ciency potential studies can be conducted accuracy. However, one must ensure that they fully un at a range of detail levels. There are, of course, cost derstand the data being used, how they were collected, implications for this—many high-level energy effi ciency and whether they introduce bias into the analysis.
3-2 Guide For Conducting Energy Effi ciency Potential Studies 3.3.2 Common Data Sources old and should be used with caution, as the effi ciency The quality and availability of data is often the limiting and characteristics of some major energy-consuming factor of a potential study and drives the methods used. equipment has changed dramatically over time. Data issues can drive the cost of the potential study as Some household data are available at much fi ner resolu well as limit its possible scope. Detailed potential studies tion than in RECS from the U.S. Bureau of the Census must include data in the following areas: (
National Action Plan for Energy Effi ciency 3-3 forecasts for their service territories. The analyst should • Baseline studies that characterize the types and ef consider all of the potential data sources and develop fi ciency of equipment in existing and new buildings. a supportable forecast. For past years, energy sales can • Energy use forecasts, often separately estimating often be disaggregated into building type based on existing and new construction energy use and sepa historical data from the utilities or states’ public utility rated by major consuming sector. commissions. • End-use disaggregation data—this may be from sta For current year data, forecasts of economic growth are tistical models, metering, or simulation models. often used. These forecasts can also help derive impor tant information about the relative importance of end • Program evaluations that identify measure savings use sales in future years. It may be, for example, that and document penetration rates and baseline prac over the 10-year study period, computers and televi tices. sions use more and more energy, while at the same time more and more people replace their old refrigera If resources are available, primary data can be collected tors with newer, more effi cient models. It is important through phone and onsite surveys of samples of facili that these shifts in the relative importance of end-use ties and market actors in the region being analyzed. sales be captured in the energy forecast. Economic This can provide the most specifi c and accurate data, forecasts are available from several public and private but obviously requires higher commitments of time and sources. budget.
Some publicly available data exist on measure savings Finally, any effort to “transfer” data from one geo and costs. For example, the DEER database (
In general, the above national public data sources 3.4 Select and Defi ne the should be considered sources of last resort: they provide Methodology data averaged over large regions, sometimes are not very current, and it is often diffi cult to ascertain suf In general, a potential analysis involves the following steps: fi cient background information to fully understand the underlying methods used to determine what biases may • Identify the baseline energy consumption forecast, in exist. For many studies, utility, state, or other local data cluding a specifi c understanding of what it does and may be available that is specifi c to the geographic area does not include in terms of future changes to codes being studied and will provide greater detail and accu and standards, natural effi ciency adoption, planned racy. In some cases, studies from reasonable comparison effi ciency programs, etc. areas may exist. As with energy profi les, utilities may be • Disaggregate the baseline forecast into customer and a good source of this information. Examples of locally other segments (e.g., end uses) appropriate for the developed data that may exist include: analysis. • Appliance saturation studies.
3-4 Guide For Conducting Energy Effi ciency Potential Studies • Characterize effi ciency measures: It is critical to understand what the baseline forecast represents. For example, many jurisdictions have some – Identify energy, demand, and other savings (e.g., existing effi ciency programming. The analyst should operations and maintenance) of each measure, determine if the forecasts include continuation of the including changes over time.5 existing program, ignore it altogether, or something – Identify costs associated with each measure, in between. Furthermore, the forecast might include including changes over time, such as prices com assumptions about “natural effi ciency” (the proportion ing down because of greater volume sold and of all equipment purchases that will fl ow to effi cient technology improvements. products in the absence of any programmatic incen tives) or changes in building codes or other energy use • Screen measures for economic effects, cost-effective standards (e.g., national ENERGY STAR requirements). In ness, and other resource effects. some cases, the analyst may choose to add the pro jected energy savings from such programs back into the • Develop program designs, in terms of bundled mea forecast in order to have an appropriate baseline from sures targeting particular customer groups and/or which to develop the economic or maximum achiev end-uses. able potential. The total potential estimate can then • Estimate measure penetrations for baseline and effi be divided into the “existing” potential and the “ad cient scenarios for each program year using program ditional” potential that would be available from new or design information, available studies, past program expanded effi ciency programming. results, understanding of the specifi c markets, etc. Baseline disaggregation will be determined in part on • Calculate total savings for all effi ciency measures. the data available, as described in Section 3.3. When disaggregated data specifi c to the area of the analysis • Present the results. are not available, data from other areas may be used The following sections provide additional detail on each as a proxy. The uncertainty in using energy end-use step and examples of how these steps were handled in patterns from a neighboring state is likely to be of several example potential studies. Appendix C presents similar magnitude to other sources of uncertainty in the a more detailed discussion of these steps and some of analysis. This is particularly true for residential effi ciency the key analytical issues that arise with each. measures, whereas industrial energy use varies widely from industry to industry. Transferring industrial energy 3.4.1 Forecast and Disaggregate the Baseline data from state to state should be done with caution. Broadly speaking, the objective of a potential study is 3.4.2 Characterize Effi ciency Measures to estimate future energy savings opportunities result ing from the presence of some program or policy to Measure characterization is the determination of param promote effi ciency. That is, the potential estimate is eters for individual or bundles of technologies, services, relative to some scenario that represents “business as or design practices that defi ne the costs, savings, and usual.” Therefore, the fi rst step in any potential study is lifetimes for different measures. Measure characteriza to predict the future in the absence of intervention to tion will typically rely on research about existing tech promote additional effi ciency investments. This “base nologies available in the market and their performance, line scenario” forecast provides the context for the com as well as engineering calculations and cost estimation. parison of the “effi cient scenario.” The baseline can be Typical steps include: characterized in terms of annual kWh consumed, peak • Identifying an effi ciency measure, including defi ning demand of the system (whatever its boundaries) in MW, the baseline effi ciency or practice as well as that of tons of pollutants emitted, or other metrics. In practice, the effi cient scenario. the fi rst two metrics are most typically used.
National Action Plan for Energy Effi ciency 3-5 • Calculating the annual energy savings (measured in measures should pass the “cost-effectiveness screen” of kilowatt-hours [kWh]) and peak demand impact coin having positive net benefi ts (i.e., benefi ts greater than cident with the utility system (measured in kilowatts costs), based on whatever economic tests are applied. [kW]). This is generally specifi c to individual customer A primary consideration in cost-effectiveness analysis is types, refl ecting differences in operating hours, load choosing the cost and benefi t components that are in shapes, existing effi ciency levels, etc. cluded within the boundary of the comparison, whether • Determining the pattern of savings over time. This at the measure or program level. A particular boundary is dependent on the energy-use load shape of the defi nition is referred to as a “test.” The test used de measure. Because energy reductions are more valu pends upon the perspective of the decision-makers and able at some times than others (e.g., electric system where their concern lies: overall societal impact, utility peaks typically occur during business hours on a hot system impact, or customer-level impact. The standard summer day, driving up energy prices and therefore range of economic tests (CPUC, 2001) includes: the economic benefi t of energy savings at that time), • Total resource cost (TRC) test. One of the most some method of accounting for this variability should common tests, the TRC assesses the impacts of be included in the analysis. At a minimum, the analysis a portfolio of energy effi ciency initiatives on the should account for seasonal on- and off-peak periods. economy at large. It does not concern itself with • Determining other costs and benefi ts of the measure, distributional equity between different segments of such as differences in operation and maintenance society. The test compares the present value of costs costs between effi cient and baseline measures and of effi ciency for all members of society (including any non-energy costs and benefi ts such as water sav costs to participants and program administrators) ings, waste reduction, or productivity improvements. compared to the present value of benefi ts, includ ing avoided energy supply and demand costs.6 The • Determining the measure cost. For “lost opportunity” assessment of participant costs extends beyond the measures such as in new construction and planned energy source in question to increases or decreases in replacement of failing equipment, this will typically operations and maintenance costs and costs for other be the incremental cost of effi cient equipment as resources (e.g., water), as well as non-resource cost compared to baseline equipment. For discretionary impacts. Results are typically expressed as either net early retirement measures that replace functioning benefi ts or a benefi t-to-cost ratio. equipment or other retrofi t measures such as building shell improvements, costs will typically represent the • Societal cost test (SCT). This test is a variation of total labor and equipment costs of new systems. the TRC test that includes monetized effects of exter nalities (e.g., emissions impacts) benefi ts.7 It may also 3.4.3 Screen Measures and Programs for Cost- use a “social” discount rate that is lower than that Effectiveness used in the TRC. Note that the lower the discount Once all of the data are available to determine the rate selected, the more cost-effective effi ciency will energy savings and costs associated with a forecast set appear.8 of effi ciency investments, the analyst can determine • Participant cost test. This test focuses on either the overall effects of effi ciency investments or policies. “typical” or aggregate participating customer(s), Economic effects are of particular interest to decision- comparing quantifi able benefi ts and costs. Benefi ts makers. The process of assessing the economic effects include reductions in utility bills, incentive payments, of effi ciency investments is typically referred to as “cost and tax credits. Costs include ratepayer-funded effectiveness screening.” This refers to the comparison spending on energy effi ciency technologies and of the benefi ts of the investment to its cost. Effi ciency changes in other fuel or resource costs.
3-6 Guide For Conducting Energy Effi ciency Potential Studies • Ratepayer impact measure (RIM) test. This test 3.4.4 Develop Program Designs and Estimate evaluates the impacts on customer rates. It does so Measure Penetrations by evaluating changes in utility revenues and oper This step is highly specifi c to the analysis being per ating costs, comparing savings (or increases) from formed. Measure penetrations are dependent in part on avoided supply costs, changes in revenues, and the potential type (i.e., achievable vs. program). Chapters incurred administration costs. There are many ways to 4 through 6 describe the program designs assumed in express the results, including lifecycle revenue im each of the example studies and some of the important pact, annual or fi rst-year revenue impact, benefi t-cost factors to consider when selecting penetration values. ratio, and net benefi ts. 3.4.5 Calculate Total Savings • Program administrator cost test. This test evalu While the forecast and measure characterization data ates the impacts of the effi ciency initiatives on the provide many of the inputs to a potential estimate, an administrator or energy system (sometimes referred analytical approach to combine all these data and take to as the utility cost test or energy systems test). It account of the many moving parts is necessary. In gen compares administrator costs (e.g., incentives paid, eral, there are two main approaches to calculating the staff labor, marketing, printing, data tracking and potential of an effi ciency measure or set of measures: reporting) to accrued benefi ts, including avoided top-down and bottom-up. energy and demand supply costs, and also revenues for any forward capacity market auctions. It does not A bottom-up approach fi rst starts with the savings and assess issues of utility revenue not directly related to costs associated with replacing one piece of equip the value in a secondary market from effi ciency cred ment with its effi cient counterpart, and then multiplies its (see RIM test, above). these values by the number of measures expected to be installed throughout the life of the program. The key The test selected for a potential study should ensure factor in the energy savings calculation is the number of that results are comparable to the criteria being used to kilowatt-hours saved annually from the installation of a evaluate other options, either for electric supply or pub more effi cient unit such as a dishwasher, air conditioner, lic funds. The most common test in most jurisdictions is or boiler. Often, a bottom-up approach is preferred for the TRC, as it provides an understanding of the overall residential analysis because of better data availability effect on society. Because it includes all of the benefi ts and greater homogeneity of the building and equip of effi ciency investment, regardless of benefi ciary, it ment stock to which measures are applied. The residen typically generates the greatest net benefi t estimates, tial sector portions of the potential studies presented in which supports a strong commitment to energy effi Chapter 5 are examples of bottom-up analyses. ciency. On the other hand, the TRC does not capture all of the distributional effects of effi ciency investments on A top-down approach begins with a disaggregated en all parties (e.g., utilities, non-participants, and program ergy sales forecast over the time period under study and administrators). More than one test may be necessary then determines what percentage of these sales a given to understand all of the potential effects from multiple effi ciency measure will save. For more detailed studies, perspectives. Nevertheless, if effi ciency investments gen the sales data are broken down by end use and building erate a positive net benefi t to society (as demonstrated type before the savings percent is applied. The key fac by the TRC), policy-makers should be able to devise tor is then expressed as, for example, the percentage of ways of addressing distributional concerns. The ex all energy used for interior lighting in an offi ce building amples in Chapters 4 through 6 describe the conditions that would be saved by switching to high performance under which different tests may be most appropriate. lighting fi xtures. The potential studies presented in Chapter 4 are examples of top-down analyses.
National Action Plan for Energy Effi ciency 3-7 3.5 Present the Results • Look for opportunities to partner with other organi zations. Organizations interested in the topic and the The results generated from potential studies are a func results of the study can alert their own constituents tion of both the type of potential study (e.g., economic, and their own network of organizations and partners. achievable) and the level of detail and aggregation. One of the key objectives of a potential study is to provide 3.6 Notes an estimate of the energy and demand impacts of energy effi ciency. For an economic potential study, the 1. This and all references to the range of potential study costs result is essentially a single set of numbers representing should be viewed as approximate. They are based on a sample of the amount of cost-effective energy effi ciency avail studies and are not intended to defi ne the absolute limit of the cost range. able over an analyzed time horizon. For an achievable potential study, the result is not just the amount of 2. In the context of a potential study, the term “disaggregate” means to divide a total value (e.g., annual kWh consumed by the energy effi ciency potential, but also the time horizon customers of a particular utility) into component parts such as over which planners can expect effi ciency savings to be customer building type (e.g., single-family house, offi ce building, generated by the programs. In both of these cases, the warehouse, retail), energy end-use (e.g., lighting, appliances, water heating), or other characteristic. presentation should also include the economic effects of the effi ciency investments. 3. Primary research refers to collection of new data directly for the area being analyzed (e.g., the energy use in buildings within the The presentation will be driven in part by the type of study study area). Secondary research generally refers to the adop conducted and in part by the audience for the study and tion and use of data already collected from outside the specifi c customers or region being analyzed, and applying it—often with their needs. Study authors or those who commission a appropriate adjustments—to the specifi c analysis area. study should also address where and when results will 4. These surveys can be found on EIA’s Web site at < http://www.eia. be presented. If the objective of the study is to infl uence doe.gov/emeu/recs (or /mecs or /cbecs)>. change, then an influential presentation is needed. A detailed discussion of strategic marketing and media ap 5. The energy savings from a measure are not necessarily constant over time. For example, consider the replacement of an operat proaches is beyond the scope of this document, but the ing piece of equipment before the end of its life with a more following list highlights some strategies that have proven effi cient unit (a so-called “retrofi t” measure). If the replacement effective for supporting potential studies in the past: unit is equal in effi ciency to that required by code or standard practice, then the savings should only count until the end of the • For studies that are likely to be widely distributed, original equipment’s life. At that time, the old unit would have been replaced by a unit with the same effi ciency as the retrofi t energy-related information should be translated into measure. There is no increase in effi ciency after the end of the terms that the lay reader can understand. For exam original equipment’s life. This effect is called the retrofi t baseline ple, stating that a program will save enough energy adjustment and is important to consider so as to not overstate the savings from retrofi t measures. to power 16,000 homes has broader appeal that say ing it will save 100 gigawatt-hours of electricity. 6. Refer to the Guide to Resource Planning with Energy Effi ciency (National Action Plan for Energy Effi ciency, 2007) for additional • Develop an executive summary that presents the key discussion of avoided costs.
fi ndings of the study in clear, user-friendly language. 7. If emissions have a market value (as with the current program for sulfur dioxide allowances), then these should be included • Use figures and tables to convey numerical information. as a cost or benefi t in any test. “Externalities” refers to impacts that are external to existing markets. They have societal costs or • Support the publication of the report with a press benefi ts that are not captured in any market. The emissions costs release. Notify any reporters with whom you have or benefi ts captured in an SCT, but not a TRC, might include emissions without market value or with additional value over and relationships or who report on relevant issues (e.g., above any market prices. climate change, consumer affairs, electricity and energy markets). 8. Selecting a lower discount rate will result in energy effi ciency measures appearing to be more cost-effective because the pres-
3-8 Guide For Conducting Energy Effi ciency Potential Studies ent value of the benefi ts (i.e., future energy savings) is greater under this condition, while the present value of the costs will remain largely unchanged. Analysts should use a discount rate that is consistent with that chosen for other policy studies in the same jurisdiction. From a policy perspective, it is preferable to demonstrate the cost-effectiveness of energy effi ciency through careful and thorough accounting of its costs and benefi ts rather than through inconsistently low discount rates or other poten tially controversial analytical assumptions.
National Action Plan for Energy Effi ciency 3-9
Applying the Concepts: Building a Case for 4: Energy Effi ciency
This chapter discusses potential studies that are written with the aim of building policy support for energy efficiency programs and funding. Usually these types of studies are done at a high level of aggre gation, and focus on the macro-level opportunities for savings and societal benefits of doing effi ciency. They typically cost in the range of $20,000 to $75,000 and take anywhere from 1 to 4 months to com plete, depending on factors such as data availability.1
4.1 Key Questions of whether to continue existing programs, (3) changes in funding level for existing programs, (4) establishing The following questions will help entities ensure that a funding levels for programs where none currently exist, potential study to build a case for energy effi ciency is or (5) efforts to understand the potential for effi ciency the appropriate application: to contribute to emissions or portfolio standards. These studies have a wide-ranging audience that is likely to • Are we in the process of deciding whether to invest include state and local governments, public utility com in effi ciency and, if so, are we deciding how much missions, regional interest groups, utilities, ratepayers, to invest? and advocacy groups.
• Is the primary motivation of this study to demonstrate the benefi ts of effi ciency and build policy support? 4.3 Example Applications: • Can we accept a fairly high level of aggregation and SWEEP “Mother Lode” and Texas thus uncertainty in our results? “Power to Save” • Are the desired outputs primarily macro-level energy and capacity savings, and is there a role for related To illustrate potential studies aimed at building the case economic and environmental data? for energy effi ciency, this chapter presents two recently completed and related examples. These two case stud ies are used to represent high-level studies that can 4.2 Objective and Audience provide important information to decision-makers at a relatively low cost. Potential studies are most frequently associated with a desire to support energy effi ciency investments. Wheth • The New Mother Lode: The Potential for More Ef er put forward by utilities, state or local governments, fi cient Electricity Use in the Southwest (SWEEP, 2002) or advocacy groups, the potential study provides quanti examines the potential for and benefi ts from increas tative evidence that energy effi ciency will generate eco ing the effi ciency of electricity use in the southwest nomic and/or environmental benefi ts for the public and states of Arizona, Colorado, Nevada, New Mexico, for both public and private institutions. Potential studies Utah, and Wyoming. Using energy modeling at a with this objective may present a macro-level look at moderate level of detail and with limited data collec effi ciency potential in support of: (1) discussions over tion, it provides an estimate of the maximum achiev whether or not to implement effi ciency programs and able electric effi ciency potential. initiatives where none currently exist, (2) consideration
National Action Plan for Energy Effi ciency 4-1 Questions for the Analyst After deciding that the objective for a potential study is to build a case for energy effi ciency, the project man ager should ask the analyst the following questions to help guide the contracting process. Raising these issues early can ensure that key assumptions and data inputs are incorporated into the analysis, and that the fi nal “deliverable” meets the project manager’s requirements for cost, scope, and rigor.
• Who is the target audience for the study? • What specifi c results are necessary? Does the audience require only overall percent savings and costs, or more disaggregated results that identify savings by sector, building type, market, or technology? • What data are available? • Are other studies available that can be relied on for key information and data? • Does the contracting fi rm have access to proprietary data? • What local utility data are available? • What is the most compelling way to present results to the target audience? • Should the analyst focus on the economic benefi ts to society? What about energy reliability and/or environ mental benefi ts? • How should naturally occurring effi ciency be accounted for? • Are the costs and benefi ts of effi ciency carefully accounted for and presented in cost-effectiveness tests? Are discount rates and other assumptions clearly stated and reasonable? • What demand-side resources should the analyst include? Effi ciency only? Demand response? Combined heat and power? Fuel switching? Onsite distributed generation? Renewables?
• Power to Save: An Alternative Path to Meet Electric likely address market barriers that are incorporated into Needs in Texas (Optimal Energy, 2007), commissioned achievable potential estimates. Therefore, a techni by national nonprofi t groups with an interest in cal potential estimate is not particularly useful in this energy effi ciency and climate change, estimates the context. Indeed, neither of the two example studies potential for effi ciency and other demand-side strate reviewed here present the technical potential for the gies to offset Texas’ growing electricity needs. It relied areas under study. upon the results of other studies in similar or nearby The SWEEP study began with a list of technically feasi regions to develop an achievable potential estimate at ble measures but only aggregated the savings potential a high level. While Texas currently has some effi ciency of a package of these measures up to the cost-effec programming, many stakeholders felt that the level tiveness threshold; it does not give an estimate of total of spending on effi ciency should be increased. This technical potential. The “maximum cost-effective sav report assessed the potential for greater effi ciency ings potential” (i.e., economic potential) served as the savings with commensurately higher spending. basis for developing a “high-effi ciency” scenario which represented “aggressive but potentially achievable 4.4 Potential Type implementation of cost-effective measures” (SWEEP, 2002, p. 2-7). Using the defi nitions presented in Sec To make a case for energy effi ciency, one must con tion 2.4, this is a version of achievable potential, likely sider the economic impacts of energy effi ciency, and approaching maximum achievable. Only this potential is
4-2 Guide For Conducting Energy Effi ciency Potential Studies fully analyzed and applied to the forecast energy needs • Market decisions. Potential studies often differenti of the region to develop a savings estimate in both ate the savings potential by the type of investment energy (kWh) and dollar terms. The economic potential decision to be made, particularly between retrofi t is presented simply as a percentage of energy savings measures and incremental improvements at the time for a variety of building types. In this way, the study of planned investment in equipment and systems provides some indication of the possible upper limit of (“lost opportunity”). savings (the economic potential) while focusing atten • Market segments. At the least detailed level, a tion on results that are more relevant to policy-making. potential study might estimate savings relative to The Texas study began with a review of existing studies, total energy consumption. More typical is an estimate particularly those that included Texas, nearby regions, differentiated by structural sector (e.g., residential, or regions with similar climate zones. It adopted eco commercial, industrial). More detailed studies esti nomic savings potential percentages by customer sector, mate effi ciency potential by smaller market segments, and major building types based on these studies, and for example dividing residential potential into single- then applied penetration rates considering the market family, multifamily, and mobile home sub-segments. barriers and likely programs. This generated a set of • End-uses. Many mid-level potential studies will estimates that can be supported as realistic assuming an evaluate energy effi ciency opportunities by assigning appropriately structured regulatory and political climate. an effi ciency potential to a type of customer, such Because the purpose of the Texas study was to estab as an offi ce building or a school. The potential is lish the ability of energy effi ciency to meet future load then estimated against the total number of offi ces or growth and reliability constraints, a high-level approach schools affected. More detailed studies can determine was suffi cient. savings by specifi c end-uses within each of these segments, such as offi ce cooling. Such an approach 4.5 Level of Detail and allows for a more detailed analysis of baseline tech Data Requirements nology penetrations and can better support program design activities.2
For any potential study, regardless of application, there • Measures. At the most detailed level, individual are many parameters and dimensions for which the measure potential broken out by facility or customer analyst must determine the level of detail to include. type can be considered. This approach provides the Ultimately, the level of aggregation depends upon the greatest level of information to support program de needs and objectives of the study, the available data sign. In reality, most studies begin with measure-level and budgetary resources, and the uniqueness of a given detail even if the ultimate results and purpose is to region. With respect to the latter factor, greater detail present higher-level aggregated results. may be necessary if there are specifi c market segments that strongly dominate loads (e.g., mobile homes, To build the case for energy effi ciency, the example chemical plants). The following summary of the differ studies in this section rely on a moderate level of detail ent levels of aggregation and categorization schemes to generate potential estimates. They aim to engender generally proceeds from lesser to greater levels of detail. confi dence in the results without striving for a level of precision unsupported by the underlying data. For • Programs. Effi ciency programming can be consid example, both the Texas study and the SWEEP study in ered at a high level or programs targeted at particular cluded only four commercial building types (offi ce, retail, opportunities (e.g., residential new construction, school, and food service/sales) and two residential build small business retrofi ts) or energy end-uses (e.g., ing types (single- and multifamily). While there are clearly lighting, HVAC). many buildings that do not fall into these categories (say,
National Action Plan for Energy Effi ciency 4-3 hospitals and warehouses), the six selected building types cost-effectiveness tests that incorporate a broad view of likely represent a sizable majority of square footage and costs and benefi ts to demonstrate the value of effi energy use in the area under study. Furthermore, because ciency investments. These choices are described in more other parameters were included at a lower level of detail detail below. (e.g., only two locations for the climate data were used in the energy modeling to represent all six states), the 4.6.1 A Simple Approach to Building the Case purpose of the study, data available, resources needed for Efficiency: Top-Down Potential Estimates for increased detail, and improvement in accuracy must When seeking support for effi ciency investments (or be weighed when selecting an approach. support for continued or increased effi ciency funding), a simple top-down approach is often suffi cient to support An additional factor to consider when determining the the political process that will ultimately result in effi level of detail necessary in a potential study is the avail ciency program implementation; both of the examples ability and/or cost of data. As good end-use energy data presented here rely on a top-down approach to gener are not available for all locales, data availability may be the ate a potential estimate. limiting factor in an analysis. A potential study conducted to build the case for energy efficiency may not require a A top-down potential estimate begins with a disaggre high level of detail and therefore not warrant the expendi gated energy sales forecast over the time period under ture of resources on a primary data collection effort. study and then determines what percentage of these sales a given effi ciency measure will save. Often, the sales data are broken down by end-use and building 4.6 Methodology type before the savings percent is applied. In the case of the SWEEP study, the savings estimates were applied As a reminder, completing a potential analysis involves to sales disaggregated by building type, but not by end the following steps: use. For example, the study authors determined that the • Identify and disaggregate the baseline economic savings potential from a package of effi ciency 3 energy forecast. measures for new offi ce buildings is 54 percent. In this case, it was not necessary to determine the savings • Characterize effi ciency measures. potential with greater detail, say, for offi ce building lighting or residential HVAC. Addressing the different • Screen measures for cost-effectiveness. distribution of a few key building types in the six states • Develop program designs and measure penetrations. covered by the study increased the specifi city and (pre sumably) the accuracy of the estimate without incurring • Calculate total savings for all effi ciency measures and substantial additional cost. In short, the level of detail present the results. selected for analysis matched the application.
This section addresses some of these steps with respect To generate an estimate of the achievable savings to building the case for energy effi ciency and their potential, the economic savings potential was adjusted treatment in the SWEEP and Texas studies. Subsequent using penetration factors to account for the existence sections will address other steps with respect to addi of market barriers to effi ciency investment and the time tional examples. needed to design and implement programs to over In general terms, both of the examples presented in come these barriers. Continuing with the SWEEP study, this section are high-level estimates that relied upon the authors assumed that in the fi rst year of implemen a simple top-down methodology to estimate electric tation, 50 percent of the effi ciency potential could be 4 effi ciency potential. As pieces intended to support realized, increasing to 100 percent by the seventh year. energy effi ciency at a broad political level, they relied on A set of penetration factors over time such as this is
4-4 Guide For Conducting Energy Effi ciency Potential Studies often referred to as a penetration curve. Sources for ings estimate. The penetrations are a function of the penetration factors and curves include other evaluations program designs and will drive program funding levels. of successful effi ciency programs, a full understanding Analysts typically assume greater penetration levels of the markets addressed and the program or policy for comprehensive programs with widespread market strategies that would be used to intervene in these ing efforts and high incentives than for less-aggressive markets, extrapolation from observed penetration of programs that provide only a small portion of the added effi ciency measures to date, and assumptions regarding cost of effi cient equipment or that rely solely on infor mandatory effi ciency standards and natural turn-over in mation and education efforts. The Texas study relied on equipment stock. the economic savings potential factors from the SWEEP study but assumed a lower level of penetration and The set of assumptions regarding the penetration of thus a lower (relative) achievable potential. In this case, effi ciency savings is a key factor in the ultimate sav the objective was not to present a maximum or highly
Forecasting Measure Predictions
Developing effi ciency measure penetrations under various program scenarios is not an exact science. It relies on a detailed understanding of the market for a given technology, the barriers faced by a given customer type, and likely future effi ciency policies and standards. In addition, many programs are design to transform the market for a particular appliance or equipment type, with the goal of infl uencing state or national codes or standards. To properly estimate savings impacts and cost-effectiveness, accurate modeling of current and likely future penetra tions for each individual combination of technology, market, and customer type under both the business-as-usu al scenario and the “with program” intervention is necessary. Below is an example of the penetration curve for a clothes washer program that specifi cally affected the start date of federal standards. It shows the percentage of new clothes washers sold in each year that meet a federal effi ciency standard (i.e., ENERGY STAR). The graph demonstrates how explicitly modeling both baseline and “with program” penetrations is important to determin ing the net effect of effi ciency programming. Figure 4-1. Sample Penetration Curve for a Clothes Washer Program
100% 2007: federal minimum efficiency standard in effect 90% Sponsor states with initiative National average 80% Sponsor states without initiative 70% 2003: national clothes washers campaign kicks off 60% 2004: more stringent ENERGY STAR spec takes effect 50% 1998: 6 manufacturers, 2002:18 manufacturers, 15 qualified products 99 qualified products 40% 2001: Whirlpool enters market 30% Meet Federal Standards (%) Meet Federal 1998: regional initiative begins
Market Share of Clothes Washers That That Washers Share of Clothes Market 20%
10%
0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
National Action Plan for Energy Effi ciency 4-5 aggressive effi ciency effort. Any potential study, regard the costs of delivering an effi ciency program made up less of objective, should clearly state the assumptions of one or more (presumably) cost-effective measures underlying the selection of penetration rates. In the to the comparison. Program delivery costs can include Texas case, lower penetration rates were selected based utility or other administrator staff and operating costs, on the limited existing effi ciency programming and a program-wide marketing costs, training costs and other desire to acknowledge the real diffi culties in developing, costs not attributable to a specifi c measure. In addition, funding, and implementing effi ciency programming to it accounts for free ridership where participants in the the maximum achievable level. program may have implemented the effi ciency measure anyway, and spillover or market effects where energy 4.6.2 Building the Case for Everyone: Total users not participating in the program may still benefi t Resource Cost-Effectiveness from it and adopt effi ciency measures. Investment in energy effi ciency generates a variety of The most common test used in many jurisdictions is the benefi ts and costs. Benefi ts include the avoided cost of TRC because it provides an understanding of the overall generating electricity or supplying a fuel in the amount effect on society. This is certainly true when building a saved by the investment; reduced need for transmission case for energy effi ciency, where the objective is to pro and distribution capacity; avoided water costs; avoided vide support for effi ciency programming on the grounds pollutant emissions,5 whether from electric generation that it will provide economic benefi ts to society overall. or fuel end-use; savings in maintenance costs; and other Despite this, the SWEEP study diverged slightly from the non-resource benefi ts. The costs of the investment typical tests, adopting something similar to a participant include the actual cost of the equipment and potential test for the measure-level analysis. All measures with increases in other costs, such as the need for additional overall lifecycle costs less than retail electric rates were heating energy that results when more effi cient light considered to be economic. This differs from a true TRC ing generates less waste heat. If the investment occurs test because retail electric rates refl ect an average cost as the result of an energy effi ciency program, the costs of service (including amortized capital costs), rather of administering the program might also be included. than the costs avoided by saving 1 kWh on the margin. This sub-section discusses ways in which the costs and benefi ts of effi ciency investments can be compared with Measure-level cost-effectiveness screening was not con one another. It also discusses the application of one of ducted for the Texas study, which was done at a higher these comparisons in the context of building the case level of aggregation. The overall effi ciency savings for for energy effi ciency. each of the three sectors were screened using the TRC. As with the SWEEP study, externality impacts in the In most potential studies, there are actually two levels of form of pollutant reductions were not monetized, but cost-effectiveness screening. A measure-level screening were reported in physical quantities. fi rst considers the costs and benefi ts of each effi ciency measure to determine if that measure is cost-effective While they were not performed for the two examples and therefore warrants inclusion in an effi ciency pro presented here, other economic tests may be desired to gram. For example, a measure to support the purchase better understand issues such as the impact on a utility’s of high-effi ciency clothes washers would compare the economics and possible rate impacts. These issues are value of energy savings (both electric and fossil fuel, if often important to public discourse over the desirability used for water heating) from the new appliance with of effi ciency programming. Other economic tests are the cost difference between the higher-effi ciency the often best used in conjunction with, rather than as a 6 standard units. If the value of the savings outweighs substitute for, a broader test such as the TRC and SCT, the additional costs, the measure would be included in where they can identify some of the potential distri a bundle of measures making up an effi ciency pro butional effects of public policy alongside the overall gram or initiative. The program-level screening adds societal impacts.
4-6 Guide For Conducting Energy Effi ciency Potential Studies 4.7 Presentation of Results years following installation, energy effi ciency savings are cumulative. That is, the total savings in any particular The results that can be generated from potential studies year of the program are the sum of the annual savings are a function of both the type of potential study (e.g., generated by all of the installations in all of the previous 7 economic, achievable) and the level of detail and aggre years. The fi gure below, taken from the SWEEP study, gation. Furthermore, there are a range of outputs that demonstrates the accumulation of savings as a program are relevant to decision-makers and other stakeholders. progresses. The difference between the “base” case These include the potential energy savings and peak (blue line) and “high-effi ciency” case (pink line) rep demand reductions, the cost of capturing this potential, resents the cumulative annual savings, which increase the economic benefi ts from avoided energy purchases, each year the program continues. other resource benefi ts such as reduced water usage, It is important to distinguish between incremental sav and non-resource benefi ts such as emissions reductions. ings and cumulative savings when reporting the future For studies that aim to support effi ciency programming effects of a program. The cumulative energy or demand and that therefore must reach a wide audience, simple savings each year is more relevant to comparisons with presentations of energy and economic savings should load forecasts and for power planning purposes, while be the primary means of communication the results of the incremental savings are more closely correlated with the analysis. All presentations of energy savings should program spending in any given year, as the full cost clearly distinguish between energy savings (measured in of the measure is usually borne at the time of installa kWh) and peak demand savings (measured in kW). tion. Looking at the example studies referenced above, There are some challenges to generating these data. Be SWEEP uses both fi gures and tables to convey the cause effi ciency technologies create savings for multiple cumulative energy savings potential.
Figure 4-2. Total Electricity Consumption in the Base and High Effi ciency Scenarios
320,000
300,000
280,000
33% 260,000
240,000
220,000 18% Electricity Consumption (GWh)
200,000
180,000 2000 2005 2010 2015 2020
Year Base High Efficiency
Source: SWEEP, 2002.
National Action Plan for Energy Effi ciency 4-7 Figure 4-3. Energy Savings Potential in 2020 by Sector and State in the Southwest
Region AZ CO NV NM UT WY
Commercial Sector Baseline Consumption GWh 134,780 50,667 36,903 16,625 11,261 15,645 3,680 Savings Potential GWh 50,291 18,862 13,655 6,087 4,356 5,866 1,465 Savings Potential % 37.3 37.2 37.0 36.6 38.7 37.5 39.8 Residential Sector Baseline Consumption GWh 93,557 38,602 19,902 14,085 7,488 10,474 3,007 Savings Potential GWh 24,593 11,546 4,408 3,067 2,319 2,506 748 Savings Potential % 26.3 29.9 22.1 21.8 31.0 23.9 24.9 Industrial Sector Baseline Consumption GWh 74,043 18,522 14,875 14,812 6,122 10,766 8,947 Savings Potential GWh 24,150 6,180 4,290 5,000 2,220 3,130 3,340 Savings Potential % 32.6 33.3 28.8 33.8 36.3 29.1 37.3 All Sectors Baseline Consumption GWh 302,381 107,790 71,680 45,521 24,871 36,885 15,633 Savings Potential GWh 99,039 36,584 22,351 14,154 8,896 11,500 5,552 Savings Potential % 32.8 33.9 31.2 31.1 35.8 31.2 35.5 Source: SWEEP, 2002.
In addition to providing this information at the aggre terms such as benefi t-cost ratio, most lay readers are gate level, more detailed presentations may be pos not. Often, the net benefi t (total benefi ts minus total sible. For example, the SWEEP study includes potential costs) is the simplest and most accessible result: “This estimates for each of the six states analyzed by sector program will save $X million dollars over 5 years.” (see example table on the next page); the Texas study estimated the savings potential by sector (i.e., residen tial, commercial, industrial). 4.8 Conclusion
The economic effects of effi ciency investment can be The table on the next page summarizes the key at diffi cult to convey in a manner readily understood by tributes of the two example studies presented in this the broad audience typical for a high-level potential chapter. A similar table appears in the each of the next study. While policy-makers are usually familiar with two sections.
4-8 Guide For Conducting Energy Effi ciency Potential Studies Table 4-1. Summary of Example Potential Studies: Building a Case for Energy Effi ciency
SWEEP “Mother Lode” “Power to Save” Scope Electric potential in six Southwest Electric potential in Texas states
Potential Type Maximum achievable Maximum achievable
Objective Build a case for energy effi ciency Build a case for increased fund programs ing in effi ciency as an alternative to investment in new traditional power supply Audience Political policy groups Texas legislature and action groups
Data Sources Primary (modeling), Cen EIA, ERCOT (system operator), sus, and EIA SWEEP “Mother Lode”
Analytical Methodology Bottom-up and top-down: model Top-down, using savings percent ing used to estimate percent sav ages from SWEEP study applied to ings from a set of effi ciency mea Texas load forecast sures for several building types; savings applied to total electrical use by building type
Program Design/Penetra Assumed aggressive pursuit of Assumed moderate pursuit of ef tions effi ciency opportunities and high fi ciency opportunities and percent percentages of retrofi t and new ages of retrofi t and new construc construction opportunities over tion opportunities over 10 years 10 years Cost-Effectiveness Tests Modifi ed participant Modifi ed participant (based on SWEEP savings estimates)
Results Effi ciency could: Effi ciency could: • Reduce demand growth from • Shrink demand by 0.5% per 2.6% to 0.7% year • Eliminate the need to build 34 • Cause a 20% reduction in 500 MW plants energy use • Save consumers $28 billion net • Generate $38 billion in • Increase regional employment net benefi ts by 0.45% per year • Prevent 52 million tons of car bon dioxide emissions per year
National Action Plan for Energy Effi ciency 4-9 4. The study notes that “a high level of implementation is possible 4.9 Notes in new buildings through the adoption and enforcement of build ing energy codes” (SWEEP, 2002, p. 2-7). 1. These ranges should be viewed as approximate. They are based on a sample of studies and are not intended to defi ne the abso 5. Monetized pollution values are generally considered a benefi t un lute limit of these parameters. der the societal cost test, but not included under a total resource cost test. 2. For example, single-family detached homes may have higher levels of central air conditioning than duplexes or multifamily 6. Note that there may also be other costs and savings. High dwellings. effi ciency washers also save energy for drying, since they extract more water from the clothes. On the other hand, they may have 3. The building-specifi c savings estimates in the SWEEP study were shorter lifetimes or require additional maintenance, which should developed by using a building energy model to aggregate the be counted on the cost side of the comparison. savings from specifi c effi ciency measures. While this is a type of “bottom-up” approach, it is different from the approach applied 7. Savings continue for the life of the measure, which for most in more detailed potential studies (described in later sections) effi ciency measures is greater than 7 years. Compact fl uorescent where the actual energy savings over the entire area of study are lamps are an important exception: they have a relatively short life calculated on a measure-by-measure basis. (between 3 and 6 years, depending on where they are installed) and can be responsible for a substantial portion of overall pro gram savings, depending on the program design.
4-10 Guide For Conducting Energy Effi ciency Potential Studies Applying the Concepts: Identifying Alternatives to 5: Supply-Side Investments
This chapter discusses potential studies that are written with the aim of evaluating efficiency as an alternative to a specific supply-side project. It is critical that these applications present highly accurate estimates of the energy efficiency potential, as they need to provide certainty and foster confi dence in supply-side resource planners to invest in energy efficiency instead of supply resources. The study ap plications described in this chapter typically cost anywhere between $75,000 and $300,000 and can take between 4 and 12 months to complete. Studies that involve primary data collection efforts are more expensive and take longer to complete compared to studies where building and measure characteristics in the region are known in advance.1 5.1 Key Questions looking to increasing investment in energy effi ciency to provide relief. In many jurisdictions, utilities are now The following questions will help entities ensure that a required to also consider demand-side resources as potential study that identifi es alternatives to supply-side alternatives to these construction projects. To support investments is the appropriate application: this type of planning effort, the characteristics of the effi ciency potential (effect on peak demand, timing of • Will this study determine whether energy effi ciency savings, economic effects) must be known with more can be used to defer or eliminate plans to build new certainty than is typically required for a potential study capacity or upgrade transmission lines? that simply builds the case for effi ciency as a policy outcome. This type of study is also likely to have an • Are energy effi ciency objectives best supported by informed audience that is more familiar with effi ciency “investment grade” analysis with the aim of ensuring and power system concepts. the future reliability of the power system? • Are energy effi ciency objectives best supported by 5.3 Example Applications: VELCO detailed measure-level data? Should certain measures (e.g., those that provide summer peak reductions) be “Southern Loop” and ACEEE given priority? “Texas” Potential Studies
5.2 Objective and Audience This section discusses some of the issues to consider when planning a potential study to identify alternatives While all potential studies are at some level designed to supply-side investments, using two recent example to make the case for energy effi ciency, some support a studies. These studies were chosen as representative of more specifi c objective. Effi ciency is now considered as moderately detailed studies aimed at providing a robust an alternative to supply-side investments as utilities and potential estimate using a combination of primary and others gain experience with it and other demand-side secondary data. The studies are: resources. In the past, utilities or states facing genera • Potential for Energy Effi ciency, Demand Response, tion or transmission shortfalls in the face of growing and Onsite Renewable Energy to Meet Texas’s Grow electric consumption and peak loads would consider ing Electricity Needs (ACEEE, 2007) was prepared building new generation or transmission facilities to by the American Council for an Energy Effi cient maintain reliability and suffi cient power supply without
National Action Plan for Energy Effi ciency 5-1 Questions for the Analyst After deciding that the objective for a potential study • What data are available? is to identify alternatives to supply-side investments, – What other studies can be relied on for project managers should ask the analyst the following information? questions to help guide the contracting process. Rais ing these issues early can ensure that key assumptions – Does the analyst have access to proprietary and data inputs are incorporated into the analysis, data? and that the fi nal deliverable meets the project man ager’s requirements for cost, scope, and rigor. – What local utility data are available?
• What is the current reliability need? Should a high- • What kind of risk analysis should be performed? level scoping study be performed fi rst to identify – Should a range of scenarios be analyzed or a whether effi ciency is likely to defer or replace supply resources? sensitivity analysis conducted? • What does the load forecast include and rely on? – Should economic scenarios that include the costs associated with air emissions such as – Does it assume any effi ciency capture already? carbon dioxide be analyzed? – What is the uncertainty associated with it? • What kind of integration with supply resources • What demand-side resources should the ana should be performed? lyst include? Effi ciency only? Demand response? – Will the analyst need hourly data to perform Combined heat and power? Fuel switching? Onsite production cost simulations? distributed generation? Renewables? • What specifi c results are necessary? – Do the data support such analysis?
– Does the target audience need only overall • Are the costs and benefi ts of effi ciency carefully annual and peak demand savings? accounted for and presented in cost-effectiveness tests? Are discount rates and other assumptions – Does the analyst need to separately evaluate clearly stated and reasonable? specifi c geographic regions to address trans • How should results be presented to be most com mission and distribution constraints? pelling to the target audience? Should the analyst focus on the economic benefi ts to society? Reliability benefi ts? Environmental benefi ts? Risk mitigation benefi ts?
Economy (ACEEE) in 2007. Its title accurately describes the Vermont Electric Power Company, Inc. (VELCO) the objective of the analysis. This study was prepared in relation to efforts to build a new transmission in response to announced plans to construct several line serving a small geographic region in Southern large coal-fi red power plants to meet future peak Vermont.2 This area faces transmission capacity loads in Texas. This chapter focuses on the effi ciency constraints during the winter peak. As a result, the potential estimate contained in the report. transmission and distribution utilities proposed to upgrade the transmission line. This study was com • Assessment of Energy Effi ciency and Customer-Sited missioned because Vermont statutes and regulation Generation Investments in the Southern Loop (Opti require the utilities to consider non-transmission mal Energy, forthcoming) was prepared on behalf of alternatives to the project, including effi ciency.
5-2 Guide For Conducting Energy Effi ciency Potential Studies These two studies differ in their approach to assessing The ACEEE study presents both an economic potential alternatives to supply-side investment. The ACEEE study estimate and a “policy potential” estimate, the lat was prompted by public concern regarding traditional ter corresponding in defi nition to program potential supply-side investments to meet growing energy de as used in this report. The economic potential was mand. In contrast to the VELCO case, there was no spe determined using a detailed bottom-up analysis (de cifi c proceeding or pending decision regarding a specifi c scribed in more detail below). The VELCO study pres investment. In addition, the study included potential ents a program potential that represents a substantial estimates for other demand-side strategies such as com portion of the achievable potential. bined heat and power and customer-sited renewables, Ideally, the potential estimate for a study assessing which are not covered by this report. Therefore, the the alternatives to supply-side investment is supported treatment of the effi ciency potential was not as detailed by program design information developed from the as in the VELCO study, where effi ciency was considered experience of other jurisdictions. The program poten side-by-side with other alternatives, including combined tial in the ACEEE study is based on an expansion of heat and power, distributed generation, and transmis legislatively mandated effi ciency programs to levels less sion system upgrades. These were analyzed through than or equal to those already occurring in other states. an integrated transmission resource planning process, Because the location of effi ciency savings is critical to to support an ultimate decision by the Vermont Public specifi c upgrade components, the analysis was seg Service Commission on the appropriate solution. mented into small geographic areas and relied heavily on onsite data collection from some of the biggest end 5.4 Potential Type users to refi ne estimates. Also, to increase the level of certainty that impacts can be captured reliably and in a To provide a realistic and credible alternative to supply- timely fashion, penetration rates were developed that side investments, a potential study should put forth an refl ect a high level of confi dence, as opposed to typical estimate of the effi ciency potential that is achievable best estimates for maximum achievable levels in which with current best-practice programming. The analysis confi dence may be lower. must generate high confi dence that the estimated potential is feasible and practicable to acquire in the required timeframe if effi ciency is to be truly comparable 5.5 Level of Detail and to wires-based infrastructure investment. The timing Data Requirements of savings is particularly relevant in assessing reliability impacts and the feasibility of supply upgrade deferral. Generally speaking, a higher level of rigor is necessary Therefore, funds are best spent assessing achievable and when assessing effi ciency as an alternative to supply- program potential, rather than economic potential, since side investments, which requires a greater level of these convey what can actually be accomplished and detail than in the previously described scenario outlined the economics associated with capturing effi ciency. Note in Chapter 4. That discussion notes that the level of that an achievable potential estimate (which represents detail required in the analysis and the available data are the maximum portion of the economic potential that can closely linked, and both of these infl uence the overall be acquired given market barriers) may raise questions cost of performing the study. about the uncertainty of the estimate and the confi dence Both of the two studies considered here evaluated with which the effi ciency resource can be relied upon to effi ciency potential at the level of individual effi ciency generate the necessary savings. This also generates addi measures. For the commercial and industrial part of the tional demands on the methodology as discussed below. VELCO study, this meant that the energy use by each
National Action Plan for Energy Effi ciency 5-3 major end-use (e.g., lighting, space heating, water heat Field Verification of Baseline Conditions ing) for each building type (e.g., offi ce, retail, grocery) needed to be known. While this information is often For the VELCO potential study, site visits were diffi cult to locate, in this case building-type data were conducted to determine both the distribution of provided by the utility. Site-specifi c information is usually end-use technologies already in place (e.g., age and type of fl uorescent lighting fi xtures) and the preferable in this scenario, as it increases the confi dence available opportunities for effi ciency investments in the end result. This end-use data was collected for ma (e.g., percentage of lighting fi xtures that are screw- jor end users. To further improve the accuracy of the data based). Because this potential study was conducted used in the analysis, the project included onsite surveys to support an analysis of transmission alternatives, for a sample of individual non-residential customers (see the site visits played an important role in strength sidebar). This greater level of accuracy for disaggregated ening the confi dence in the results. inputs at the building type and end use level becomes especially critical when evaluating the potential for small because one of the studies addresses a very specifi c system geographic areas. While a statewide or regional study need, additional measures of cost-effectiveness are appro can rely to a large extent on averages, for very small priate to facilitate comparisons with the alternatives. areas a few building types or customers may comprise a disproportionate share of the opportunities or load. For 5.6.1 A Detailed Look at Supply-Side Alterna example, in the VELCO areas studied, a few ski resorts tives: Bottom-Up Potential Estimates account for a large portion of the winter peak, and fully Section 3.4.5 introduced the concept of bottom-up and understanding their opportunities and expansion plans top-down analyses of effi ciency potential and Section was critical to the ultimate outcome of the study. 4.6.1 described the application of a simple top-down Another difference between a potential study designed analysis to produce high-level effi ciency potential esti to make the case for effi ciency and one aimed at assess mates. A bottom-up approach provides greater detail ing the alternatives to supply-side investments is the po and is particularly well-suited to analysis of the resi tential benefi t of tailoring the analysis more closely to the dential sector for two reasons. First, good data on the specifi c situation. In the case of the VELCO analysis, the number of households and their characteristics are gen additional effort necessary to develop a set of effi ciency erally available (often from the U.S. Census). Second, measures specifi cally selected to address the winter peak the effi ciency opportunities in the residential sector are was justifi ed by the value of a more precise estimate. This far more homogeneous than in the commercial sector. is an example of pursuing additional detail in areas of the For example, each residence typically has one heating analysis where it will provide the greatest value. Because system, one refrigerator, one dishwasher, etc. of the relatively high saturation of electric space heat and A bottom-up calculation of the effi ciency potential for water heating, additional effort was spent characterizing an individual measure takes the following form: fuel switching measures. A further example of this is the emphasis on estimating the peak demand impacts of effi Measure Savings = Per Unit Savings ciency measures in the VELCO study, explained in greater × # of Households or Customers detail in the next section. × Applicability Factor × Feasibility Factor × Turnover Factor 5.6 Methodology × Net Penetration Rate
In contrast to the studies presented in Chapter 4, the where: ACEEE and VELCO potential estimates rely at least in part • Applicability factor is the number of units per on a more detailed “bottom-up” methodology. Also, customer eligible for a certain measure. Depending
5-4 Guide For Conducting Energy Effi ciency Potential Studies on the measure, it may range from less than one for the natural measure adoption (people who would (say, the fraction of households with a dishwasher) buy the effi cient technology in the absence of any to greater than one (say, the number of incandescent program intervention). For market transformation light bulbs per household) programs, penetration rates will typically be mod eled for a time period exceeding the duration of the • Feasibility factor is the fraction of the units that can program to account for post-program market effects technically be replaced with an efficient alternative from attributed to the program. See Section 4.6.1 for more an engineering point of view. This factor accounts for detail on modeling penetration rates. the fact that certain pieces of equipment cannot pos sibly be replaced by more efficient units, due to such Both the VELCO and ACEEE studies included bottom-up factors as temperature, location, infrastructure, etc. analyses: the residential (and partially the commercial and industrial) sectors in the VELCO study,3 and the • Turnover factor is the portion of existing units that estimate of economic potential in ACEEE report. In the will be naturally replaced each year due to failure, re VELCO study, the authors used the formula above to modeling, or renovation. It is usually calculated as one estimate achievable effi ciency potential for a range of divided by the equipment average service life, under measures. When using a bottom-up approach, it is im the assumption that if equipment lasts for 10 years, portant to check the results against the disaggregated one- tenth of the units in existence will be replaced load forecast to ensure that credible results are ob each year. For measures where saturation is changing tained. For example, if one has an overly high estimate signifi cantly over time (for example, central air condi of the number of households with electric heat, relying tioning in moderate northern climates, or plasma TVs) only on a bottom-up approach could result in estimated the use of the reciprocal of measure life may not be potential that exceeds the total existing heating con appropriate. In this case, efforts to collect actual an sumption for all customers. For the VELCO study, this nual sales data should be made. This factor is not used was addressed by calibrating the end-use disaggrega in the retrofi t market, where ineffi cient equipment is tion data to overall forecast data. replaced before its natural life is over. Nor is it used for new construction analyses, where all new equipment is In the ACEEE analysis, the bottom-up approach was used eligible for effi ciency upgrade at the time of purchase. only for the economic potential. As in the VELCO study, a simple formula was used to estimate the total savings • Net penetration rate is the difference between potential from each measure based on per-measure sav the anticipated adoption rate of the effi ciency ings, the size of the eligible population, and the percent measures after intervention and the “business as turnover. Recall that an economic potential estimate for usual” adoption rate absent effi ciency intervention. retrofi t opportunities typically refl ects a snapshot at one In the case of technical or economic potential, the point in time, rather than the distribution of savings over theoretical effi ciency-case penetration is generally time that one would estimate from an actual program. 100 percent. For achievable and program potential analyses, it is the percentage of eligible measures 5.6.2 Ability to Displace Supply-Side Invest that can reasonably be expected to occur assuming ments: Assessing Demand Impacts gradual, real-world adoption of the effi cient technol Electricity usage is characterized by two factors: the ogy. The penetration rates should account for the total amount of energy consumed over a period of time fact that not everyone will automatically replace their and the intensity of this consumption. The fi rst, usually ineffi cient technology as soon as a program starts, referred to as “energy,” is measured in kilowatt-hours and that programs usually ramp up over time, as (or alternatively, megawatt- or gigawatt-hours).4 Energy market acceptance of the effi cient technology in is the basis for energy transactions; one consumes creases. The baseline penetration rate should account kWh and pays a per-kWh charge. The intensity of the
National Action Plan for Energy Effi ciency 5-5 electric usage is termed “peak load,” or “demand.” It effects of pursuing effi ciency. In some cases, such as is measured in kilowatts, megawatts, or gigawatts. A when conducting a potential study to assess alternatives good analogy is that demand refers to the size of a pipe to supply-side investments, additional cost-effectiveness and energy to the amount of water fl owing through the tests provide important context for decision-makers. In pipe. The amount of generation or transmission capac the VELCO case, the utility responsible for the potential ity in a network is primarily driven by the peak load. new transmission line needed to understand the rela Therefore, a potential estimate that addresses the ability tive costs and benefi ts of the different supply-side and of effi ciency to displace a supply-side investment must demand-side alternatives. The effect of these choices on address the ability of effi ciency to reduce the peak load. its ratepayers was also an important concern. The utility This must include consideration of the timing of the therefore implemented the utility cost test and RIM test. system peak load, both daily and seasonally. Because it excludes the benefi ts that accrue to the end- use customers (primarily from energy savings), the RIM Most potential estimates are initially based on the test usually results in lower cost-effectiveness than the calculation of energy savings for two reasons. First, the TRC or SCT. In addition, investment in effi ciency may monetary savings from an effi ciency measure are most result in higher utility rates (i.e., price per kWh or therm) directly related to the amount of energy saved, and for the average customer, even though average total second, energy is easier to measure than demand, as energy bills (i.e., total dollar spending on energy) will timing and diversity between individual loads is not as go down.5 critical. There are a variety of methods for estimating the peak demand reduction from an effi ciency measure, described in more detail in Appendix C. 5.7 Presentation of Results
The VELCO study assessed the ability of effi ciency to ad A potential study that identifi es alternatives to supply- dress a transmission shortage during winter peak loads. side investments still generates the same set of outputs Therefore, the demand reduction calculation considered as do potential studies for other objectives. On the savings from measures that reduce load during the win other hand, a different results presentation may be ter peak. For example, air conditioning measures do not more informative or useful for the decision-makers. contribute to winter peak savings, although they might If multiple cost-effectiveness tests are conducted, a contribute substantial energy savings over the course of clear explanation of their differences and a side-by the year. The demand reduction calculation in the VELCO side comparison of the results will highlight the trade study used hourly load-shape information for a variety of offs between, for example, the societal and ratepayer end-uses and building types, based on simulation mod perspectives. Additional comparisons may be drawn eling of large numbers of prototypical buildings. These between the effi ciency case and the supply-side alter load-shapes were analyzed to determine the percentage native if data on the latter are available. Although they of all energy consumed during the periods of interest, have not yet been made public, preliminary strategies from which coincidence and diversity factors were devel for conveying the results of the VELCO study have oped. Other approaches include direct metering studies, focused on comparing the costs of the transmission or impact evaluations of past effi ciency program efforts. alternative to various alternative resource confi gurations 5.6.3 Supply-Side Alternatives for the Utility: (ARCs) that include differing combinations of effi ciency Additional Cost-Effectiveness Tests and distributed generation. The example table below indicates the types of data of primary interest to the Regardless of a potential study’s objective, the TRC intended audience. and SCT provide important indicators of the economic
5-6 Guide For Conducting Energy Effi ciency Potential Studies Table 5-1. Sample Table Comparing Transmission Alternatives in VELCO Territory
ARC1 ARC3 Transmission (100% Effi ciency ARC2 (Generation) (50% Effi ciency Plus DR) + Generation)
NPV Societal Costs $x million $x million $x million $x million
Firm MW, 2016 xxx xxx xxx xxx
Capital Required $xxx,xxx $xxx,xxx $xxx,xxx $xxx,xxx 2008-2016 (000’s)
Illustrative Retail Rate, 2016 (cents/ xx xx xx xx kWh)
Table is presented for illustrative purposes only without results. Actual study data are not yet available.
In this case, a comparison of the energy impacts was an hour-by-hour simulation of the energy system over secondary, as the effi ciency case was designed to provide an entire year, but an hourly distribution of effi ciency comparable peak energy “supply” as the supply-side measure savings is rarely available. One approach is to alternative. Note the importance of economic outputs of use the same load-shape information that facilitates the study, and the need to ensure comparability with the peak demand reduction calculations to determine the outputs from other modeling or planning efforts such as annual hourly distribution, which ensures consistency those focused on the costs and benefi ts of investment in between the peak load calculation and the hourly out new generation, as modeled in the ARC2 scenario. puts. If this is done, care must be taken to ensure that hourly loadshapes for each end-use and building type An additional consideration when assessing alterna are calibrated to overall system hourly loads. tives to supply-side investments is the need to interface with the utility planning process. Often, utilities conduct modeling to evaluate the effects of different invest 5.8 Conclusion ments on the energy system. These models may require more detail than typically generated by a potential The following table summarizes the key attributes of study. In particular, utility modeling is usually based on the two example studies presented in this chapter.
National Action Plan for Energy Effi ciency 5-7 Table 5-2. Summary of Example Potential Studies: Identifying Alternatives to Supply-Side Investment VELCO “Southern Loop” ACEEE Texas Scope Electric potential in small geo Electric potential in Texas graphic area
Potential Type Achievable program potential in Economic and program targeted geographic area
Objective Determine whether the construc Determine the potential for ef tion of a transmission line could fi ciency as an alternative to new be deferred or replaced with coal plants aggressive effi ciency
Audience The VELCO decision-makers Legislature and action groups
Data Sources Primary (site audits), Census, and Census, EIA, ERCOT, commercial state forecasts economic data
Analytical Methodology Bottom-up for residential, Bottom-up for economic potential, top-down for commercial top-down for program potential and industrial
Program Design/Penetra Assumed aggressive pursuit of Develops savings factors for the tions effi ciency opportunities and high proposed policies from a variety percentages of retrofi t and new of sources construction opportunities over 10 years, plus staggered implementa tion of retrofi ts measures in two sub-regions Cost-Effectiveness Tests SCT Modifi ed participant for economic, N/A for program
Results Effi ciency could: Effi ciency could: • Provide yearly savings of more • Meet 107% of growth in sum than 30 MW and 150 GWh on mer peak demand the Southern Loop • Reduce energy consumption by • Yield nearly $70 million in net 22% in 15 years utility benefi ts
5-8 Guide For Conducting Energy Effi ciency Potential Studies top-down portion was implemented with greater detail and 5.9 Notes customer-specifi c information than the analyses described in Chapter 4. The more detailed approach includes a calculation of 1. These ranges should be viewed as approximate. They are based savings potential for each measure, using a formula similar to on a sample of studies and are not intended to defi ne the abso that used in the residential bottom-up analysis. The main differ lute limit of these parameters. ence is the use of a factor for percentage of energy saved in place of a per-unit energy savings quantity. 2. The cited report is part of testimony to be fi led with the Vermont Public Service Board in relation to the Southern Loop project. It 4. In non-electric effi ciency potential studies, the units of energy had not yet been fi led at the time of this Guide’s publication. might be gallons of oil, therms of natural gas, or pounds of steam. Preliminary information regarding the consideration of effi ciency as an alternative to transmission investments can be found in 5. This rate versus bill distinction is an important part of the policy Southern Loop Utility Search Conference Background Report, pro considerations for effi ciency programming, as it raises issues of duced for CVPS and VELCO and available at
National Action Plan for Energy Effi ciency 5-9
Applying the Concepts: Detailed Planning and 6: Program Design
This chapter discusses potential studies in situations where the policy decision to invest in efficiency has al ready be made. For this study application, it is assumed that there is no need to build a case for supporting efficiency, as the decision to invest in energy efficiency has already been made. Instead, these studies focus on how much to spend on efficiency and how that money can best be spent. The types of studies described in this chapter tend to focus more on the disaggregated results (e.g., is there more opportunity in lighting or HVAC?) than other types of potential studies. The cost is typically $75,000–$500,000, with the associated time-to-completion between 4 and 12 months. The large ranges with this application are mostly due to variations in study design. This application can be used to evaluate both small programs and large portfo lios of programs, with the latter being more expensive and time-consuming.1
6.1 Key Questions whether for general policy reasons or to address spe cifi c energy system needs. This chapter presents a third The following questions will help entities ensure that scenario, one where the decision to invest in effi ciency a detailed planning and program potential study is the has been made and the questions are how the invest appropriate application: ment should be made and to what extent. A potential study with this objective might provide guidance on the • Has the decision to invest in effi ciency already been best ways to structure effi ciency programs, the relative made? costs and benefi ts of different approaches to acquiring a given effi ciency resource, or the effi ciency potential given • Are data needed primarily to aid in decisions about a particular program structure and budget. It also might which market sectors, targeted geographic areas, focus on specifi c sets of measures or customer types that end uses, measures, and programs should be tapped are applicable to a specifi c program, rather than consid to realize effi ciency potential? ering all possible technologies and markets. For example, • Are study fi ndings intended primarily for energy ef a study might specifi cally look at commercial lighting op fi ciency planners who will incorporate the results into portunities. These studies likely have a narrower audience portfolio decisions? than those discussed previously, with utilities, effi ciency program administrators, and public utility commissions • What is the history of effi ciency programming in this the most interested parties. area? What effect does this history have on the as sumptions we make about program potential? 6.3 Example Application: • Should the study focus on one particular end use, cus tomer segment, or set of measures? Are data available California Potential Study that can give reasonable disaggregated results? California is one of the nation’s most energy-effi cient states, having kept per capita energy use fl at for over 6.2 Objective and Audience two decades (Goldstein, 2007). Sustained energy effi ciency efforts have been a key contributor to this ac Previous chapters presented potential studies as tools complishment, yet the state continues to seek additional used when attempting to answer the question of wheth effi ciency opportunities. Several years ago, the four large er or not effi ciency programming should be pursued, investor-owned utilities (IOUs) in California commissioned
National Action Plan for Energy Effi ciency 6-1 Questions for the Analyst
• After deciding that the objective of a potential • Should the analysis be tied to specifi c program study is to inform the planning and program design designs? What level of detail on program budgets process, the project manager should ask the analyst is required? the following questions to help guide the contract • What is the basis for estimated market penetra ing process. Raising these issues early can ensure tions of effi ciency? that key assumptions and data inputs are incorpo rated into the analysis, and that the fi nal “deliver – How are baseline assumptions developed? able” meets the project manager’s requirements for – Are they consistent with the underlying cost, scope, and rigor. forecast? • What is the main purpose of the study? To which specifi c program areas or markets is it targeted? • Should the analyst focus on maximum achievable potential for different markets, or focus on the • How will the study be used, and by what audi achievable levels given specifi c program designs ence? What level of disaggregation of results is and funding levels? What are the most important important to ensure its usefulness? pieces of information needed? – What data are available? • Are the costs and benefi ts of effi ciency carefully accounted for and presented in cost-effectiveness – Does the contracting fi rm have access to pro tests? Are discount rates and other assumptions prietary data? clearly stated and reasonable? – What local utility data are available? • What specifi c results are necessary?
– Are available data of suffi cient detail and qual – How can results be presented to be most com ity to provide disaggregated results? pelling to the target audience?
– Is there a need to do primary onsite data col – What level of disaggregation should be pre lection? If so, what are the most important sented? markets and technologies to collect data for? – Should sensitivity analyses be conducted to • What are the trade-offs between statistical preci provide a range of results given different sion and level-of-effort in the primary data collec assumptions? tion process? • What demand-side resources should the analyst include? Effi ciency only? Demand response? Com bined heat and power? Fuel switching? Onsite distributed generation? Renewables? a series of studies to assess energy effi ciency potential 6.4 Potential Type in the wake of the energy crisis in 2000 and 2001. This chapter describes one study from this series that ad The California study was conducted because “policy dressed energy effi ciency (both electric and natural gas) makers are most interested in knowing the amount in the residential sector (KEMA-XENERGY, 2003a). of savings or resource reduction that could occur in
6-2 Guide For Conducting Energy Effi ciency Potential Studies response to a particular set of programs or policies” (p. For example, the California study is limited to existing 1-6). Although the study presents a sequence of analy residential construction; new homes are not included. ses to estimate the technical, economic, and maximum The analysis includes a relatively limited set of measures achievable potentials, the end product is a set of pro that were commercially available at the time and most gram potential estimates that provide a range of results likely to be included in potential new programs under based on variation in program funding and energy price consideration, rather than a comprehensive list of exist forecasts. This is the key difference between the pro ing and emerging technologies. gram potential and the maximum achievable potential The long history of effi ciency programs in California gen estimates in this case. By modeling the interaction be erated a comparatively rich data set from which the study tween program spending, energy costs, and the adop authors drew information to inform their analysis. In tion of effi ciency measures, the study is able to assess particular, the California Energy Commission has a long program potential for a number of scenarios. history of conducting research and evaluation of energy consumption and effi ciency programs. While this will not 6.5 Level of Detail and Data necessarily be the case in other jurisdictions, one is more Requirements likely to conduct this type of potential study where effi ciency programming already exists. In areas with relatively little experience, proven program designs may be imple Studies that are intended primarily for program design mented without the need to conduct detailed potential purposes may be similar to studies done to build the estimates. Where more detailed data are necessary but case for effi ciency or to analyze effi ciency as an alter not available, primary research may be indicated. native to supply-side investment. There are two key differences when supporting detailed program plan ning. First, the level of accuracy of disaggregated results 6.6 Methodology is much more important. Second, the level of effort put into program budgeting and measure penetration Previous chapters describe both top-down and bottom- rates is higher and must explicitly recognize the specifi c up methodologies and address the variety of cost-effec detailed program designs contemplated. The latter is tiveness tests applied to potential estimates. This section discussed more fully below. addresses issues of program budget estimates and their role in cost-effectiveness screening. In addition, the con Planners may contemplate programs that target very nection between program spending and assumptions of specifi c markets (e.g., an “effi cient schools” program penetrations warrants additional focus. or an air conditioner program). Obviously, this means that, for example, estimates of schools’ potential need Though energy effi ciency almost always provides posi to be reasonably accurate. When building a case for tive net benefi ts to both society and program admin effi ciency, if the distribution of opportunities between, istrators, it costs money to make it happen. The costs say, schools and offi ces is somewhat inaccurate it may of effi ciency programs can be divided into measure not matter, so long as overall results refl ect the en costs related directly to effi ciency measures and non- tire area studied. Similarly, if only air conditioners are measure costs that are necessary and important to promoted, having precision on the actual distribution effi ciency programs but do not directly lead to measure of different size air conditioners and annual sales of AC adoptions. Accounting for measure costs depends on units is obviously more critical. As a result, while some the perspective taken in the cost-effectiveness tests. If program planning potential studies are limited in scope, a societal or total resource cost test is used, the mea they generally require more detailed data and better sure costs include the incremental cost of effi ciency disaggregation. measures and any installation costs, regardless of who
National Action Plan for Energy Effi ciency 6-3 pays them. When using a utility or ratepayer test, the For higher level studies, one may apply typical pen measure costs are limited to the program measure etration rates across broad categories of measures, or costs, and do not include participant contributions. estimate program costs across all markets that gener Non-measure costs consist of spending on administra ally refl ect typical categories of programs. However, for tive, staffi ng, marketing, data tracking, monitoring, and estimating the actual program potential for a given pro evaluation activities. gram, specifi c penetrations by measure and customer type should be estimated based on the actual program For a high-level study, non-measure cost estimates are strategies. Similarly, specifi c program budgets should often determined by applying cost adders to the mod be built up based on estimates of costs for each major eled measure or fi nancial incentive costs, based on budget item. typical ratios of program non-measure costs (for things such as administration, etc.) to measure costs or incen tives. For a more detailed study that supports program 6.7 Presentation of Results planning and design, more detailed budgets should be derived. There are a range of budget categories to con Again, the results from a potential study that contrib sider, including staffi ng, outside engineering assistance, utes to program planning and design are no different annual evaluation costs, etc. than the results of other potential studies. If supported by a greater level of detail in the inputs, the study can The California study estimates administrative costs for provide decision-makers with more detailed results, a range of effi ciency scenarios. While specifi c details even to the level of building type, end-use, or individual are not given, the administrative cost estimate is con effi ciency measures. In support of summary results ta structed using a formula that includes both a fi xed bles, appendices to the California study provide detailed component and a component that varies with the tables listing the savings estimates for each effi ciency program savings estimate. This is likely to be a better measure under each program scenario, one of which representation than a simple cost adder. Other example is shown in part below. These data can facilitate dis studies discussed earlier in this Guide, including the cussion regarding program design by indicating which VELCO study, relied on non-measure cost estimates built measures are likely to generate the largest savings. up from individual line items for staffi ng, contractors, marketing, and other components. Figure 6-1. Savings Estimates for Select Measures
Utility and Segment CEC SF=Sing Fam maFtluM=FMtsaceroF maFtluM=FMtsaceroF latoT GWh Potentials
PG&E-CZ01 SF pre-7 Air Conditioning 35.0 49.9% 19.3% 7.1% 2.4% 1.6% 1.1% 0.1%
PG&E-CZ01 SF pre-79 Clothes Drying 107.6 2.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PG&E-CZ01 SF pre-79 Clothes Washing 25.0 40.2% 40.2% 12.7% 9.8% 7.2% 4.9% 0.4% PG&E-CZ01 SF pre-79 Dishwashing 37.6 8.4% 8.4% 2.8% 2.1% 1.6% 1.2% 0.1% PG&E-CZ01 SF pre-79 Freezer 40.8 7.7% 7.7% 2.0% 0.2% 0.1% 0.0% 0.0% PG&E-CZ01 SF pre-79 Lighting 324.1 32.5% 30.4% 23.1% 21.1% 12.8% 6.3% 1.1% PG&E-CZ01 SF pre-79 Other 192.5 PG&E-CZ01 SF pre-79 Pool Pump 31.3 43.5% 43.5% 14.2% 8.4% 6.3% 4.4% 0.5% PG&E-CZ01 SF pre-79 Refrigerator 167.3 43.5% 34.8% 27.5% 7.0% 5.2% 3.9% 1.5% PG&E-CZ01 SF pre-79 Space Heating 165.6 30.4% 18.1% 12.9% 9.2% 6.5% 4.3% 1.1% PG&E-CZ01 SF pre-79 Water Heating 30.7 56.3% 14.1% 4.7% 3.8% 3.5% 3.1% 4.6% PG&E-CZ01 SF post-78 Air Conditioning 56.3 62.8% 30.0% 7.9% 3.1% 2.1% 1.3% 0.2% PG&E-CZ01 SF post-78 Clothes Drying 111.3 2.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PG&E-CZ01 SF post-78 Clothes Washing 25.9 40.2% 40.2% 12.7% 9.8% 7.2% 4.9% 0.4% PG&E-CZ01 SF post-78 Dishwashing 38.9 8.4% 8.4% 2.8% 2.1% 1.6% 1.2% 0.1% PG&E-CZ01 SF post-78 Freezer 42.2 7.7% 7.7% 2.0% 0.2% 0.1% 0.0% 0.0% PG&E-CZ01 SF post-78 Lighting 311.8 34.9% 32.7% 24.9% 22.6% 13.7% 6.7% 1.2%
Source: KEMA-Xenergy, 2003b.
6-4 Guide For Conducting Energy Effi ciency Potential Studies 6.8 Conclusion 6.9 Notes
The following table summarizes the key attributes of 1. These ranges should be viewed as approximate. They are based on a sample of studies and are not intended to defi ne the abso the example study presented in this chapter. lute limit of these parameters.
Table 6-1. Summary of Example Potential Study: Detailed Planning and Program Design KEMA California Scope Electric and natural gas potential in residential sector existing buildings
Potential Type Technical, economic, maximum achievable, and program
Objective Develop a comprehensive effi ciency plan
Audience City Public Service (a utility serving the San Antonio area)
Data Sources California Energy Commission, other state-specifi c reports
Analytical Methodology Bottom-up for all potential types
Program Design/Penetrations Detailed “adoption model” to estimate penetrations based on incentives and energy costs
Cost-Effectiveness Tests TRC
Results Effi ciency could: • Achieve 15,643 MW (36%) and 19,710 GWh (28%) in technical potential • Achieve 3,564 MW (23%) and 15,084 GWh (21%) in economic potential • Achieve 1,773 MW (11%) and 9,826 GWh (14%) with maximum achievable funding levels • Achieve 907 MW (6%) and 6,327 GWh (9%) with a 100% budget increase • Achieve 611 MW (4%) and 4,149 GWh (6%) with a 50% budget increase • Achieve 385 MW (2%) and 2,413 GWh (3%) with unchanged budget
National Action Plan for Energy Effi ciency 6-5
7: Conclusion
The objective of this Guide is to provide decision-makers primary data collection when the study objectives with suffi cient information to understand the process of warrant the additional expense and complexity. conducting a potential study and the important inputs • Select the appropriate potential type(s) to analyze. and methodological considerations involved. The Guide For most applications, an achievable or program po presents this information in the form of several com tential is likely to provide the most useful information pleted potential studies that cover a range of scenarios, for decision-makers and stakeholders. objectives, and applications. The fi gure below, repeated from Chapter 2, summarizes the relationship between • Select the appropriate cost-effectiveness tests to cost, level of detail, and the scenarios. While there are apply to effi ciency investment. Presenting results certain to be some exceptions, the general trend is a use from multiple tests, while adding complexity to the ful heuristic for decision-makers commissioning a study. analysis, provides important information on the dis tribution of the costs and benefi ts of effi ciency invest This Guide identifi es a number of important consider ments among consumers, utilities, and public entities. ations in conducting a potential study. These are: For additional detail on the methodology of potential • Because data availability is often the limiting factor studies, please refer to Appendix C, Detailed Methodol for an analysis, structure the methodology and level ogy Discussion. of detail based on the best available data. Consider
Figure 7-1. Considerations for Conducting Potential Studies
High Detailed Planning and Program Design (Single Program) (Program Portfolio)
Medium Identifying Alternatives to Supply-Side Investment Level of Detail
Building the Case for Low Energy Efficiency
Low Medium High
Cost and Length of Time to Complete
National Action Plan for Energy Effi ciency 7-1
National Action Plan Appendix for Energy Effi ciency A: Leadership Group
Co-Chairs Cheryl Buley Anne George Bruce Johnson Commissioner Commissioner Director, Energy Marsha Smith New York State Public Connecticut Department Management Commissioner, Idaho Public Service Commission of Public Utility Control Keyspan Utilities Commission President, National Asso Jeff Burks Dian Grueneich Mary Kenkel ciation of Regulatory Utility Director of Environmental Commissioner Consultant, Alliance One Commissioners Sustainability California Public Utilities Duke Energy PNM Resources Commission James E. Rogers Ruth Kiselewich Chairman, President, and Kateri Callahan Blair Hamilton Director, Conservation C.E.O. President Policy Director Programs Duke Energy Alliance to Save Energy Vermont Energy Invest Baltimore Gas and Electric ment Corporation Jorge Carrasco Rick Leuthauser Leadership Group Superintendent Leonard Haynes Manager of Energy Seattle City Light Executive Vice President, Effi ciency Barry Abramson Supply Technologies, MidAmerican Energy Senior Vice President Lonnie Carter Renewables, and Demand Company Servidyne Systems, LLC President and C.E.O. Side Planning Santee Cooper Harris McDowell Tracy Babbidge Southern Company Senator Director, Air Planning Gary Connett Mary Healey Delaware General Assembly Connecticut Department of Manager of Resource Plan Consumer Counsel for the Environmental Protection ning and Member Services State of Connecticut Mark McGahey Great River Energy Manager Angela S. Beehler Connecticut Consumer Tristate Generation Director of Energy Counsel Larry Downes and Transmission Regulation Chairman and C.E.O. Joe Hoagland Association, Inc. Wal-Mart Stores, Inc. New Jersey Natural Gas Vice President, Energy (New Jersey Resources Ed Melendreras Jeff Bladen Effi ciency and Demand Corporation) Vice President, Sales and General Manager, Market Response Marketing Strategy Tennessee Valley Authority Roger Duncan Entergy Corporation PJM Interconnection Deputy General Manager, Sandy Hochstetter Distributed Energy Services Janine Migden-Ostrander Sheila Boeckman Vice President, Strategic Austin Energy Consumers’ Counsel Manager of Business Op Affairs Arkansas Electric Offi ce of the Ohio erations and Development Angelo Esposito Cooperative Corporation Consumers’ Counsel Waverly Light and Power Senior Vice President, Ener gy Services and Technology Michael Moehn Bruce Braine Helen Howes New York Power Authority Vice President, Corporate Vice President, Strategic Vice President, Environ ment, Health and Safety Planning Policy Analysis Jeanne Fox Exelon Ameren Services American Electric Power President New Jersey Board of Public Utilities
National Action Plan for Energy Effi ciency Appendix A-1 Fred Moore Jan Schori Mike Weedall Jeff Genzer Director Manufacturing & General Manager Vice President, Energy General Counsel Technology, Energy Sacramento Municipal Effi ciency National Association of The Dow Chemical Utility District Bonneville Power State Energy Offi cials Company Administration Ted Schultz Donald Gilligan Richard Morgan Vice President, Zac Yanez President Commissioner Energy Effi ciency Program Manager National Association of District of Columbia Public Duke Energy Puget Sound Energy Service Companies Service Commission Larry Shirley Henry Yoshimura Chuck Gray Brock Nicholson Division Director Manager, Demand Executive Director Deputy Director North Carolina Energy Response National Association of Division of Air Quality Offi ce ISO New England Inc. Regulatory Utility Commis North Carolina Air Offi ce sioners Tim Stout Dan Zaweski Pat Oshie Vice President, Energy Assistant Vice President Steve Hauser Commissioner Effi ciency of Energy Effi ciency and President Washington Utilities and National Grid Distributed Generation GridWise Alliance Transportation Commission Long Island Power Authority Deb Sundin William Hederman Douglas Petitt Director, Business Product Observers Member, IEEE-USA Energy Vice President, Marketing Policy Committee Government Affairs Xcel Energy Keith Bissell Institute of Electrical and Vectren Corporation Electronics Engineers Paul Suskie Attorney Bill Prindle Chairman Gas Technology Institute Marc Hoffman Deputy Director Arkansas Public Service Rex Boynton Executive Director American Council for an Commission President Consortium for Energy Energy-Effi cient Economy Effi ciency Dub Taylor North American Technician Phyllis Reha Director Excellence John Holt Commissioner Texas State Energy Conser James W. (Jay) Brew Senior Manager of Minnesota Public Utilities vation Offi ce Counsel Generation and Fuel Commission Steel Manufacturers National Rural Electric Paul von Paumgartten Cooperative Association Roland Risser Director, Energy and Envi Association Director, Customer Energy ronmental Affairs Roger Cooper Eric Hsieh Effi ciency Johnson Controls Executive Vice President, Manager of Government Pacifi c Gas and Electric Relations Brenna Walraven Policy and Planning American Gas Association National Electrical Manu Gene Rodrigues Executive Director, Nation facturers Association Director, Energy Effi ciency al Property Management Dan Delurey Southern California Edison USAA Realty Company Executive Director Lisa Jacobson Executive Director Art Rosenfeld Devra Wang Demand Response Coordi nating Committee Business Council for Commissioner Director, California Energy Sustainable Energy California Energy Program Reid Detchon Commission Natural Resources Defense Executive Director Kate Marks Council Energy Future Coalition Energy Program Manager Gina Rye National Conference of Energy Manager J. Mack Wathen Roger Fragua State Legislatures Food Lion Vice President, Regulatory Deputy Director Affairs Council of Energy Pepco Holdings, Inc. Resource Tribes
Appendix A-2 Guide For Conducting Energy Effi ciency Potential Studies Joseph Mattingly Michelle New Andrew Spahn Facilitators Vice President, Secretary Director, Grants and Executive Director and General Counsel Research National Council on U.S. Department of Energy Gas Appliance Manufac National Association of Electricity Policy turers Association State Energy Offi cials U.S. Environmental Rick Tempchin Protection Agency Kenneth Mentzer Ellen Petrill Director, Retail Distribution President and C.E.O. Director, Public/Private Policy North American Insulation Partnerships Edison Electric Institute Manufacturers Association Electric Power Research Institute Mark Wolfe Diane Munns Executive Director Executive Director, Retail Alan Richardson Energy Programs Energy President and C.E.O. Consortium Edison Electric Institute American Public Power Association
National Action Plan for Energy Effi ciency Appendix A-3
Appendix B: Glossary
Achievable potential: The amount of energy use that Net penetration rate: The difference between the an effi ciency can realistically be expected to displace as ticipated adoption rate of the effi ciency measures after suming the most aggressive program scenario possible intervention and the “business as usual” adoption rate (e.g., providing end-users with payments for the entire absent effi ciency intervention. incremental cost of more effi ciency equipment). This is Participant cost test: A cost-effectiveness test that often referred to as maximum achievable potential. focuses on either “typical” or aggregate participating Applicability factor: The number of units per custom customer(s), comparing quantifi able benefi ts and costs. er eligible for a certain measure. Portfolio: Either (a) a collection of similar programs ad Cost-effectiveness: A measure of the relevant eco dressing the same market, technology, or mechanisms or nomic effects resulting from the implementation of an (b) the set of all programs conducted by one organization. energy effi ciency measure. If the benefi ts outweigh the Potential study: A quantitative analysis of the amount cost, the measure is said to be cost-effective. of energy savings that either exists, is cost-effective, or Economic potential: Refers to the subset of the could potentially be realized through the implementa technical potential that is economically cost-effective as tion of energy effi cient programs and policies. compared to conventional supply-side energy resources. Program: A group of projects with similar characteris End-use: A category of equipment or service that tics and installed in similar applications. consumes energy (e.g., lighting, refrigeration, heating, Program administrator cost test: A cost-effectiveness process heat). test that evaluates the impacts of the effi ciency initia Energy effi ciency: The use of less energy to provide tives on the administrator or energy system (sometimes the same or an improved level of service to the energy referred to as the utility cost test or energy systems test). consumer in an economically effi cient way. Program potential: Refers to the effi ciency potential Feasibility factor: The fraction of the units that can possible given specifi c program funding levels and de technically be replaced with an effi cient alternative from signs. Often, program potential studies are referred to an engineering point of view. as “achievable” in contrast to “maximum achievable.”
Lost-opportunity: Refers to an effi ciency measure or Project: An activity or course of action involving one or effi ciency program that seeks to encourage the selec more energy efficiency measures, at a single facility or site. tion of higher-effi ciency equipment or building practices Ratepayer impact measure (RIM) test: A cost-effective than would typically be chosen at the time of a pur ness test that evaluates the impacts on customer rates. chase or design decision. Retrofi t: Refers to an efficiency measure or effi ciency Measure: Installation of equipment, subsystems, or program that seeks to encourage the replacement of systems, or modifi cation of equipment, subsystems, sys functional equipment before the end of its operating life tems, or operations on the customer side of the meter, with higher efficiency units (also called “early-retirement”) in order to improve energy effi ciency. or the installation of additional controls, equipment, or
National Action Plan for Energy Effi ciency Appendix B-1 materials in existing facilities for purposes of reducing disregarding all non-engineering constraints such as energy consumption (e.g., increased insulation, lighting cost-effectiveness and the willingness of end-users to occupancy controls, economizer ventilation systems). adopt the effi ciency measures.
Spillover: Reductions in energy consumption and/or Total resource cost (TRC) test: A cost-effectiveness demand caused by the presence of the energy effi ciency test that assesses the impacts of a portfolio of energy program, beyond the program-related gross savings of effi ciency initiatives on the economy at large. The test the participants. There can be participant and/or non compares the present value of costs of effi ciency for participant spillover. all members of society (including costs to participants and program administrators) compared to the present Societal cost test (SCT): A cost-effectiveness test that value of benefi ts, including avoided energy supply and is a variation of the total resource cost test that includes demand costs. monetized effects of externalities (e.g., emissions im pacts) benefi ts. Turnover factor: The portion of existing units that will be naturally replaced each year due to failure, remodel Technical potential: The theoretical maximum amount ing, or renovation. of energy use that could be displaced by effi ciency,
Appendix B-2 Guide For Conducting Energy Effi ciency Potential Studies Appendix Detailed Methodology C: Discussion
This appendix provides a summary of a typical analytical framework for conducting a potential study as well as additional discussion of the individual components. This is not intended to provide suffi cient detail to direct readers to conduct their own studies, but rather to inform them of the types of issues that arise during a study so that they may participate meaningfully in discussions of methodology, data sources, etc. It should also be noted that this is an example of a typical analytical approach. Numerous variations on this method can and do exist, and will generally be developed in consideration of data, budget, and time available.
C.1 Forecasts and Disaggregation demand and consumption typically grow over time because there are both new consumers (represented by Broadly speaking, the objective of a potential study is new households, commercial buildings, and industrial to estimate future energy savings opportunities result facilities) and growth in existing consumers’ consump ing from the presence of some program or policy to tion. Understanding the relative contribution of these promote effi ciency. That is, the potential estimate is two factors to the baseline forecast provides important relative to some scenario that represents business as input to assumptions made later in the analysis, par usual. Therefore, the fi rst step in any potential study is ticularly in determining the number of opportunities for to predict the future in the absence of intervention to different types of effi ciency investment. promote additional effi ciency investments. This baseline Care should also be taken to ensure that, if forecasts for scenario forecast provides the context for the com different sectors are derived from different sources, they parison of the effi cient scenario. The baseline can be are harmonized to the extent possible. For example, characterized in terms of annual kWh consumed, peak the underlying economic or demographic assump demand of the system (whatever its boundaries) in MW, tions behind a forecast of residential energy growth tons of pollutants emitted, or other metric. In practice, should match those used to determine industrial energy the fi rst two metrics are most typically used. consumption. Another potential pitfall concerns differ It is critical to understand what the baseline forecast ent treatment of some industries or building types by 1 represents. For example, many jurisdictions have some different data sources. A detailed discussion of this effi ciency programming already. Do the forecasts issue is beyond the scope of this paper; suffi ce it to say include expansion of the existing program, ignore it that the user should try to understand the underlying altogether, or somewhere in between? Furthermore, assumptions and limitations in their input data, as with does the forecast include assumptions about “natural any analytical effort. effi ciency” (the proportion of all equipment purchases Disaggregating the baseline forecast typically presents that will fl ow to effi cient products in the absence of any challenges. Good state- or utility-level energy use data programmatic incentives) or changes in building codes are typically not readily available. Utilities may have data or other energy use standards (e.g., national ENERGY sets that provide some information on their customer STAR requirements)? population such as building size or industry classifi ca The effect of economic growth and new construction tion, but many do not. Refer to Section 3.3.2 for a more on the forecast should also be understood. Electricity detailed discussion of some of the primary data sources on energy consumption in the United States.
National Action Plan for Energy Effi ciency Appendix C-1 In some cases, utilities or states have undertaken end- not, aggregated data for seasonal on- and off-peak use surveys, particularly in the residential sector. Such periods may suffi ce, along with “coincidence fac information is highly valuable for potential studies. Even tors,” which estimate the portion of customer peak if the survey is several years old, there may be suffi cient demand savings that will be coincident with the time information to adjust for changes in technology, econ of the utility system peak. Often development of this omy, and demographics since the data were collected. data requires building simulation modeling or reliance For studies that require a robust, detailed understanding on secondary research. of energy use by building type or end-use, fi eld visits • Determination of differences in operation and main and/or site surveys—which can add substantial cost to tenance costs of effi cient versus baseline measures. the overall effort—may be needed to acquire the neces For example, if effi cient equipment lasts longer than sary information. baseline equipment, savings in avoided replacement parts may occur. C.2 Measure Characterization • Determination of non-energy costs and benefi ts, such as savings in water, waste reduction, improvements Measure characterization is the determination of param in productivity, etc., related to adoption of effi cient eters for individual or bundles of technologies, services, systems. or design practices that defi ne the costs, savings, and lifetimes for different measures. Measure characteriza • Determination of the measure cost. For “lost op tion will typically rely on research about existing tech portunity” measures such as in new construction nologies available in the market and their performance, and planned replacement of failing equipment, this as well as engineering calculations and cost estimation. will typically be the incremental cost of effi cient Typical steps include: equipment as compared to baseline equipment. For discretionary early retirement measures that replace • Determination of an effi ciency measure, including functioning equipment or other retrofi t measures defi ning the baseline effi ciency or practice as well as such as building shell improvements, costs will typi that of the effi cient scenario. cally represent the total labor and equipment costs of • Calculation of the annual energy savings and peak new systems. demand impact coincident with the utility system. • Determination of the average service life of the ef This generally will be specifi c to individual customer fi cient alternative. types, refl ecting differences in operating hours, load shapes, existing effi ciency levels, etc. • Determination of shifts in savings and capital invest ments over time. For example, initial savings from • Determination of the pattern of savings over time. equipment retrofi t measures represent the difference This is dependent on the energy-use load shape of in effi ciency between the effi cient equipment and the the measure. Because energy reductions are more old, ineffi cient existing equipment at a facility. How valuable at some times than others (e.g., during busi ever, this old equipment would naturally be replaced ness hours on a hot summer day versus during the at some point in the absence of an effi ciency initiative night in the winter for electric systems), modeling the with new equipment at the standard effi ciency avail hourly occurrence of savings is important to estimat able at that time. As a result, the long-term savings ing the benefi ts from effi ciency. Ideally, hourly data by from early retirement measures are often much less building type and measure will be used. If potential than the initial savings. Similarly, the retrofi t defers study results are integrated with power production the need for new capital investment to replace the models, hourly data will typically be necessary. If old equipment at the normal replacement time. The
Appendix C-2 Guide For Conducting Energy Effi ciency Potential Studies present value of this permanent shift in capital expen The resulting formula is: ditures must be taken into account to properly assess Measure Savings = Per Unit Savings the cost-effectiveness of these measures. × # of Households or Customers × Applicability Factor C.3 Applying Data Parameters × Feasibility Factor × Turnover Factor While the disaggregated forecast and measure-level × Net Penetration Rate data provide many of the inputs to a potential estimate (along with specifi c penetration rates, described above), an analytical approach to combine all these data and C.4 Industrial Effi ciency Potential take account of the many moving parts is necessary. In Developing a potential analysis for industrial energy con general, there are two main approaches to calculating sumers can be more complicated than for the residential the potential of an effi ciency measure: top-down and and commercial sectors due to the relative heterogene bottom-up. ity of energy consumption patterns and end-uses across A bottom-up approach fi rst starts with the savings and different industries. Industrial effi ciency potential esti costs associated with replacing one piece of equipment mates can be developed using either a top-down or a with its effi cient counterpart, and then multiplies these bottom-up approach, depending on data availability, the numbers by the number of measures expected to be variability in facility type included in the study, and other installed throughout the life of the program. Often, a factors. bottom-up approach is preferred for residential analysis Whereas industry-level data on energy consumption because of the greater amount of data available and ho may be diffi cult to come by, it is often relatively easy to mogeneity of the buildings. While this approach does not gather economic data at the industry level within an rely as directly on a disaggregation of the energy use fore area of interest. Therefore, a useful approach starts with cast, when using a bottom-up approach it is important to these data and develops industry-specifi c energy use calibrate results to the disaggregated data to ensure that estimates using average energy intensities for each in credible results are obtained. For example, if one has an dustry. Expressed in kWh per dollar value of output, sales overly high estimate of the number of households with volume, or other economic measure, these factors are electric heat, relying only on a bottom-up approach could available from the Energy Information Administration’s result in estimated potential that exceeds the total exist Manufacturing Energy Consumption Survey (see Section ing heating consumption of all customers. A bottom-up 3.3.2). Depending on the level of rigor required, these approach requires the same basic factors as a top-down factors may be verifi ed and/or adjusted by surveying a approach, with a couple of key differences: sample of local industries to determine if local conditions • The applicability factor is not expressed as the per result in substantially different energy intensities from centage of eligible kWh sales, but rather as the the published averages. Given that most regions have a number of customers eligible for a certain measure. small number of industries responsible for a large frac Depending on the measure, it may range from less tion of industrial energy use, this type of survey need not than one (say, the fraction of customers with a be exhaustive to provide a valuable increase in accuracy. dishwasher) to greater than one (say, the number of Once industry-level energy use forecasts are in hand, a incandescent light bulbs per customer). top-down approach using published factors for the po • The savings factor is not needed, since a bottom-up tential energy savings available in different industries— approach already starts with the energy and demand applied to industry-sector-specifi c economic forecasts—is saved by a given measure. a relatively straightforward way to assess the potential
National Action Plan for Energy Effi ciency Appendix C-3 available in the area of interest. An example of this ap • Identifying and adjusting for mutually exclusive proach is found in a study of energy effi ciency potential effi ciency opportunities. in New York State (NYSERDA, 2003). The potential sav • Estimating the interactions among different effi ciency ings in each industry from this study may be transferred measures. to other states or regions and applied to the distribution of industrial energy use there. This was recently done in Without explicitly adjusting for the above three items, a high-level potential study for Texas (Optimal Energy, signifi cant errors can occur in analysis that result in dou 2007). ble counting or other large overestimation of potential. The fi rst issue recognizes that as one assumes adoption A bottom-up approach requires more detailed data of aggressive effi ciency, the baseline stock of equipment regarding the average saturation of key energy-using becomes different so that future years’ effi ciency oppor equipment in industrial facilities, such as motors, me tunities are diminished. For example, in the extreme case chanical equipment, refrigeration, etc. Assuming suf of a technical or economic potential study, all retrofi t fi cient data are available or are captured through onsite opportunities are assumed to be captured immediately. visits, this approach would proceed in the same fashion Under this scenario, in the short term no remaining op as described above. For a targeted study, resources can portunities to improve effi ciency at the time of natural be focused on accurately characterizing one or a small replacement exist because they have all been captured number of industries in the area of interest through site through retrofi t. In the case of achievable potential, visits or surveys. When applying this approach to indus keeping track of the changes to existing equipment over trial facilities, it is important to note the heterogeneity in time becomes more critical, as some percentage of op the energy savings of various effi ciency measures across portunities may be captured through retrofi t programs industries. For example, whereas the average energy while others will be targeted at the time of natural savings in residential applications are relatively consis replacement. tent (say, for a more effi cient refrigerator), industrial equipment operates under widely variable conditions in The second issue is important because many technolo different facilities. A motor may be in use 250 hours per gies analyzed may be mutually exclusive. For example, year or 7,500. Any industrial potential estimate must an offi ce can replace an existing tank-type water heater acknowledge this variability, include mechanisms to ad with either: 1) a high effi ciency tank-type water heater; dress it, and clearly state the assumptions that result. 2) a separate storage tank with water heated through a heat exchanger off a central boiler; and 3) a point-of-use C.5 Understanding Interactions heater. However, all three would not simultaneously be installed. Therefore, while each technology’s individual Between Effi ciency Opportunities effi ciency potential is initially calculated, the aggregate effi ciency potential must parse out how much adoption While Section 3.4 provides a general overview of typi will occur from each technology in consideration of the cal analytical methods for quantifying overall effi ciency others to avoid double counting. potential, care must be taken to recognize the dynamic nature of real-world effi ciency adoption and interactions Finally, the cumulative effi ciency potential will necessar among different effi ciency resources. Three major factors ily be less than the sum of the individual potential for must be explicitly addressed in any analysis: each measure. This is the result of interactions between systems. For example, adoption of effi cient windows or • Acknowledging and accounting for the changing insulation will lower the cooling and heating loads in building and equipment stock over time and its effect building. As a result, once these are installed the ef on future effi ciency opportunities. fi ciency potential from an effi cient air conditioner or
Appendix C-4 Guide For Conducting Energy Effi ciency Potential Studies boiler will be lower, as will its cost-effectiveness. There 50 percent of incremental costs for new construction), fore, once individual measure potential is estimated, an there are a range of budget categories to consider. Pro iterative process must be undergone to properly refl ect gram budgets should be built up by line item, based on interactions to determine ultimate total potential for a expected needs of things like staffi ng, outside engineer given market segment, customer class, or total sector. ing assistance, annual evaluation costs, etc. Some typical budget line items that should be considered include, but C.6 Program Budgets are not limited to: • Administrative management: The portion of upper- Though energy effi ciency almost always provides positive level management costs that will be assigned to any net benefi ts to both society and program administrators, individual or portfolio of initiatives. it costs money to make it happen. The budgets associ • Program management: This labor cost is incurred by ated with energy effi ciency are important components of overseeing implementation of any initiative, whether all of the economic tests. The degree of detail that goes using in-house or outsourced staff. into determining budgets for an achievable or program potential study is driven by the level of detail desired and • Project management: Represents labor spent in the study’s uses. working directly with customers or supporting con tractors, architects, or engineers; managing effi ciency For a high-level study, program budget estimates are of projects; and providing coordination services and in ten determined by applying cost adders to the modeled house documentation. measure or fi nancial incentive costs, based on typical ratios of program non-measure costs (for things such • Business development: Labor costs associated with as administration, marketing, data tracking, monitor face-to-face sales efforts in bringing participants and ing and evaluation, etc.) to measure costs or incentives. partners into the initiatives. Ideally, when using adders, distinct adders should be applied to different programs, and adders should vary • Planning: Costs of establishing initiative strategies over time. For example, a market transformation pro and ongoing program design and analysis. gram that focuses on upstream efforts at manufacturers • Technical assistance: Providing customers with anal and distributors may have proportionally much higher ysis of individual effi ciency opportunities, including non-measure costs than an industrial retrofi t program opportunity identifi cation and quantifi cation of ben that focuses on distinct, site-specifi c opportunities. Simi efi ts, costs, and performance issues. May be provided larly, some programs may have very high adders in early by a combination of in-house and outsourced staff. years for training and marketing, with signifi cant drops over time as participation increases and start-up costs go • Administrative: Costs for day-to-day administration away. As with any economic analysis, all dollars should plus allocated costs for offi ce management, account be consistent between budgets, avoided costs, measure ing, payroll, fulfi llment (e.g., cutting incentive checks). costs, and other inputs in terms of whether they are real • Subcontractors: Could range from outsourced labor or nominal, and the years dollars they are expressed in. for any of the above, to subcontractors representing For a more detailed study, especially where the potential the entire workforce for a particular initiative. study may or will be used as a starting point for initia • Measurement and verifi cation: Costs to verify tive planning, more detailed budgets should be derived. claimed energy effi ciency savings. Typically includes in While incentive costs will be driven by estimates of house quality assurance/control activities as well as pre- installed measure costs and the incentive design (e.g., and post-installation inspections of customer sites.
National Action Plan for Energy Effi ciency Appendix C-5 • Tracking: The development, maintenance, and use referred to as “cost-effectiveness screening.” This refers of a data tracking system for customer interaction, to the comparison of the benefi ts of the investment claimed energy savings (both by customer and in to its cost. Effi ciency measures should pass the “cost aggregate), associated costs, and management and effectiveness screen” of having positive net benefi ts (i.e., regulatory reporting. benefi ts greater than costs), based on whatever eco nomic tests are applied. • Marketing and advertising: Ranges from radio and/ or television advertisements, to developing articles to Screening is conducted using one or more of the tests be published in local newspapers or trade journals, to described in Section 3.4.3. To calculate the economic ben the development and maintenance of a Web site and efi ts from individual measures, benefi ts in individual years program materials. Often includes labor to directly are calculated, added together, and discounted to provide market to various entities. a present value. Accurate estimates ensure that energy savings are not counted beyond the predicted lifetime of • Technical assistance/design assistance/com a measure and adjust savings when the baseline changes missioning/retro-commissioning incentives: or “shifts” (as discussed above). The major component of Project-based incentives separate from direct measure economic benefi ts generally result from the direct energy incentives to support market-based design and techni and demand savings, and are calculated by multiplying cal service costs. the savings in each year by that year’s avoided costs for • Evaluation: The costs of performing third-party energy and demand (if applicable). Additional benefi ts evaluations of programs. This may include process, can include non-energy economic benefi ts such as reduc market, and impact evaluations. tions in maintenance or replacements costs as well as water and other resource savings. Effi ciency measures • Performance incentives and lost revenue: Some provide savings across multiple years, while costs are typi jurisdictions provide performance incentives to pro cally assumed to be borne in the installation year, so all gram administrators to encourage exemplary perfor benefi ts and costs should be expressed in terms of their mance. Others provide compensation to utilities for present-value in a common year. In the case of economic revenue losses from effi ciency programs. Where these potential estimates, measures that do not pass the cost- costs are a required part of implementing programs, effectiveness screen will be eliminated from the analysis they should be included in budgets, depending on the results. These economic results are then used in the ap economic tests being performed. In economic tests plication of the range of economic tests. from a societal perspective, performance incentives and lost revenue are not resource costs in that they Numerous models exist to perform these economic are simply transfer payments—typically from ratepay screens. Some analysts have their own proprietary ers to shareholders or some other entity. databases or spreadsheets, while others rely on com mercially available software. Each platform has strengths and weaknesses, typically as a result of its development C.7 Cost-Effectiveness Screening to support a particular project or projects. A detailed re view of these models is beyond the scope of this Guide. Once all of the data are available to determine the Nevertheless, just as with other aspects of the analysis, energy savings and costs associated with a forecast set the policy-maker should understand the key limitations of effi ciency investments, the analyst can determine the of any model used as part of a potential study and any overall effects of effi ciency investments or policies. As potential biases introduced as a result (e.g., whether described in Section 3.4, economic effects are of particu the model tends to overestimate or underestimate the lar interest to decision-makers. The process of assessing potential, or the cost of achieving that potential). the economic effects of effi ciency investments is typically
Appendix C-6 Guide For Conducting Energy Effi ciency Potential Studies C.8 Notes
1. For example, municipal wastewater treatment plants are sometimes categorized as an industrial load and sometimes as commercial.
National Action Plan for Energy Effi ciency Appendix C-7
Appendix D: Data Sources
This appendix lists some common data sources used for potential studies, and a short description of each.
Title Description URL Address
Database for Sponsored by the California Energy Commission and the
National Action Plan for Energy Effi ciency Appendix D-1 Title Description URL Address
Utility Information Often, the utilities in the region of interest can provide valu Food Service Technology able information on the size of the electric load, load fore Center:
Appendix D-2 Guide For Conducting Energy Effi ciency Potential Studies Appendix Example E: Potential Studies
This appendix provides a list of past potential studies, with brief descriptions.
Title/Description Purpose URL Address
Midwest Examining the Potential This study was conducted
National Action Plan for Energy Effi ciency Appendix E-1 Title/Description Purpose URL Address
Northeast NEEP Initiative Review: This is a qualitative assess
Appendix E-2 Guide For Conducting Energy Effi ciency Potential Studies Title/Description Purpose URL Address
Southwest A Balanced Energy Plan This report fi rst makes a
California Statewide Conducted for policymak
National Action Plan for Energy Effi ciency Appendix E-3 Title/Description Purpose URL Address
Connecticut Independent Assessment This study gives an esti
Appendix E-4 Guide For Conducting Energy Effi ciency Potential Studies Title/Description Purpose URL Address
Massachusetts The Remaining Electric En This study focuses on pro
National Action Plan for Energy Effi ciency Appendix E-5 Title/Description Purpose URL Address
Oregon Energy Efficiency and Con The stated goal of this pro
Appendix E-6 Guide For Conducting Energy Effi ciency Potential Studies Title/Description Purpose URL Address
Vermont Assessment of Energy Effi Prepared in relation to
National Action Plan for Energy Effi ciency Appendix E-7
Appendix F: References
American Council for an Energy-Effi cient Economy National Action Plan for Energy Effi ciency (2007). Guide [ACEEE] (2007). Potential for Energy Effi ciency, to Resource Planning with Energy Effi ciency. Pre Demand Response, and Onsite Renewable Energy pared by Snuller Price, Energy and Environmental to Meet Texas’s Growing Electricity Needs. Report Economics, Inc. No. E073. New York State Energy Research and Development California Public Utilities Commission [CPUC] (2001). Authority [NYSERDA] (2003). Energy Effi ciency and California Standard Practice Manual: Economic Renewable Energy Resource Development Potential Analysis of Demand-Side Programs and Projects. in New York State—Final Report, Volume One: Summary Report. Goldstein, D.B. (2007). Saving Energy, Growing Jobs. Berkeley: Bay Tree Publishing. Northeast Energy Effi ciency Partnerships [NEEP] (2005). Economically Achievable Energy Effi ciency Potential KEMA-XENERGY, Inc. (2003a). California Statewide in New England. Optimal Energy. Residential Sector Energy Effi ciency Potential Study. Study ID #SW063, Vol. 1. Optimal Energy, Inc. (2007). Power to Save: An Alterna tive Path to Meet Electric Needs in Texas. Report KEMA-XENERGY, Inc. (2003b). California Statewide commissioned by the Natural Resources Defense Residential Sector Energy Effi ciency Potential Study. Council and Ceres. Study ID #SW063, Vol. 2. Optimal Energy, Inc. (forthcoming). Assessment of Nadel, S., A. Shipley, and R.N. Elliott (2004). The Techni Energy Effi ciency and Customer-Sited Generation cal, Economic and Achievable Potential for Energy Investments in the Southern Loop. Prepared for Effi ciency in the U.S.—A Meta-Analysis of Recent Vermont Electric Power Company. Studies. Washington, DC: American Council for an Energy-Effi cient Economy [ACEEE]. Southwest Energy Effi ciency Project [SWEEP] (2002). The New Mother Lode: The Potential for More National Action Plan for Energy Effi ciency (2006). The Na Effi cient Electricity Use in the Southwest. Report tional Action Plan for Energy Effi ciency.
National Action Plan for Energy Effi ciency Appendix F-1
Funding and printing for this report was provided by the U.S. Department of Energy and U.S. Environmental Protection Agency in their capacity as co-sponsors for the National Action Plan for Energy Effi ciency.
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