Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Beyond Green Hype
Getting realistic about energy efficiency.
custom tailoring energy efficiency solutions for every site isn’t scalable and often results in analysis paralysis and little action. Therefore, a compromise approach should be taken whereby sites are segmented into clusters and efficiency solutions are developed for each grouping (see Figure 3) . This approach can be defined by four steps: 1) Segment sites into clusters based on easy-to-identify building characteristics—building square footage, age, and geography; 2) Within each cluster, identify energy expenses per square foot to break the segment into performance quartiles; 3) Identify drivers of cost-differential between top and bottom quartile sites to surface actions that can be taken to improve performance; and 4) Implement actions across cluster, with particular attention to bottom-quartile sites.
Lesson #4: Investor-owned utilities (IOUs) must understand their customers. They aren’t all the same. Reaching unsaturated segments is critical to achieving deeper and more sustainable energy efficiency savings. However, doing so requires a thorough understanding of customer needs, preferences, behaviors, and barriers within segments to ensure that products are designed and marketed to achieve maximum adoption. Without customer insight, program performance will vary significantly by segment and deep and sustainable savings will be difficult to attain.
Lesson #5: Be smart about rebates. Utilities historically have relied on rebates as one of the primary incentives to encourage adoption of efficiency technologies, and rebates are becoming even more prevalent. However, increasing rebates aggressively can have negative impacts. First, it leads to unnecessary lost margins in early years, which might not be compensated by regulatory incentives, or it might be subject to recovery lag. Second, it results in early market saturation, making it difficult to achieve future goals. To ensure utilities achieve their goals consistently over a sustained period, it’s essential to set rebates at the optimal level by aligning rebates to customer’s buying characteristics. For example, rather than adopting a one-size-fits-all approach, the rebate level for sustaining families could be higher than for accumulated wealth to overcome cost barriers. But again, regulatory reluctance to, in effect, price discriminate could prohibit rebate customization.
Lesson #6: Municipal governments and other policy makers must build coalitions of their most important stakeholders, and work together to develop the market. Key stakeholders necessary to drive efficiency savings in cities, such as utilities, NGOs, foundations, and community groups, will have different objectives that are unlikely to be aligned. Some might even have hidden agendas. The key to moving forward is to avoid fighting the conflicting agendas, and instead to understand unique objectives and build an efficiency coalition based on the commonality that runs across them.
For example, an IOU’s core objective is to maximize shareholder value while meeting regulatory obligations ( e.g., energy savings targets). A private market representative’s goal is likely to minimize regulation and accelerate job creation. And NGOs might want to support low-income housing or improve the lives of disadvantaged citizens. While each agenda is different, common threads can be tied across them. Once this common purpose is defined and agreed upon, stakeholders must be organized into a coalition operating toward concrete, specific tasks that tie into each stakeholder’s