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A Business Case: Energy Efficiency in the New Environment

Investments in energy efficiency can be a growing revenue source. Strong programs, in conjunction with effective monitoring and verification, are the keys to success.

Fortnightly Magazine - December 2006

companies have corporate sustainability programs and goals, or environmental stewardship objectives, as part of their long-term corporate strategies. These programs seek to reduce the companies’ impacts on the environment through a variety of efficiency, conservation, recycling, and other “green” activities. A key part of these programs is increased energy efficiency and the consequent reduction of greenhouse-gas emissions directly through company operations and indirectly through anticipated participation in carbon trading programs. Thus, while in the past energy efficiency efforts focused on operating cost reductions, and in some cases, public relations for shareholders, today, these sustainability strategies are aiming at real dollar impacts on the corporate bottom line.

In states like California, large customers already are part of those either required to, or allowed to, play in the emerging carbon markets along with the power industry, whereas in other states (like New England ISO states) they will be added after the market develops. Either way, smart utilities will develop strategies not only to participate in these markets directly, but to help their major end-use customers reduce their own environmental footprints and to put them in a position to gain as these new markets unfold. While some continue to be concerned about losing revenues from reduced consumption of electricity, perhaps they should be more concerned about losing customers by not getting on the band wagon.

Realizing Gains

If a strong business case exists for energy efficiency, how can utilities be assured of cost recovery, if not realization of new revenue streams? The old utility adage, “If you can’t meter it, you can’t sell it,” applies to energy efficiency as well. Measurement of energy efficiency through monitoring and evaluation programs will be required for:

1) Securing cost recovery for public-benefits fund programs, or protecting program funds that are still operated by utilities;

2) Quantifying the energy efficiency resources as the basis for trading in the emerging carbon and other GHG emissions trading markets;

3) Documenting energy efficiency and demand reduction resources for participation in the emerging forward capacity markets; and

4) Retaining major customer end-use loads from those companies seeking to reduce their environmental footprint.

For the past two decades, monitoring and evaluation of energy efficiency programs has been dominated by the use of the “California tests” for assessing program costs and benefits. This made sense when the “value” of the energy savings and load impacts was calculated from the perspective of a utility deciding whether or when to invest in a new power plant. The value of DSM was estimated based on the “avoided cost” of not having to make the investment in new capacity. Energy savings were estimated, most often using engineering estimates of energy consumption of appliances and equipment applied to assumptions of the types of equipment being replaced, and these savings were given a value based on their contribution to avoiding that next combined-cycle plant or other peaking unit. 5

In today’s context, the value of a unit of energy efficiency could be counted four ways:

Public-benefits fund monitoring and verification schemes for energy efficiency program impacts have been established in some