Policy analysts are right to demand a reform of the total resource cost test. The evidence that it understates the benefits of energy efficiency, the main claim against it, is convincing.
Frontiers of Efficiency
What conservation potential assessments tell us about ‘achievable’ efficiency.
Studies of energy conservation potential—known as energy efficiency potential assessments, or simply CPAs (conservation potential assessments)—can help identify and quantify gains that might come from energy conservation, namely: how much energy efficiency may be available, in which particular market segments, and when and at what cost. Such studies are essential to integrated resource planning. They serve as a cornerstone to designing effective, energy-efficiency programs. Increasingly, they are used to justify efficiency in energy policy, and serve as a basis for setting energy efficiency performance standards (EEPS). Their importance is hard to exaggerate—though not impossible—depending on how they are conducted and how their results are used.
The roots of the CPA method can be traced to the 1978 National Energy Conservation Policy Act (NECPA). The Act, primarily a response to the energy crisis following OPEC’s 1973 oil embargo, addressed domestic concerns about energy reliability and prices, along with international concerns about economic and national security. The Act considered conservation—in the sense of using less non-renewable natural resources and increasing end-use efficiency—as one of several approaches for addressing both sets of concerns.
An important development emerging from the Act was the need for research determining how far conservation could go in addressing these concerns over the long run. Much of this research took place at national laboratories, through studies focusing on understanding and measuring energy consumption at the end-use level, and identifying loss sources and how they might be mitigated. Recognizing—and defining—conservation as a resource with a “potential” that could be expressed in terms of a conventional supply curve, was perhaps the main conceptual breakthrough arising from the research.
This new view of conservation—plus a method for measuring its potential—were formalized in pioneering works by Allan Meier and others in the early 1980s (Meier 1982, 1983). 1 What followed was a comprehensive CPA for the first regional power plan, published in 1983 by the Northwest Power and Conservation Council. However, it wasn’t until the introduction of integrated resource planning (IRP) as a new ratemaking standard (in the Energy Policy Act of 1992) that estimating conservation supply curves became a widespread practice.
Classes of Conservation Potential
Primarily, a CPA quantifies gaps between the current energy consumption and technically feasible lower levels. The analysis generally begins by identifying all end uses potentially offering large energy savings, plus the measures necessary to achieve those savings. This analysis yields a “technical” potential: the expected technically feasible conservation levels that might be realized over time, under specific engineering assumptions about performance and applicability of various conservation measures. From a planning point of view, technical potential can be characterized as the conservation opportunities that are available immediately through retrofits in existing structures, or else emerging over time, either via new construction or when current equipment stocks are gradually replaced.
Technical potential is expressed using a conservation “supply curve.” This curve ranks various energy-efficiency