FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
Frontiers of Efficiency
What conservation potential assessments tell us about ‘achievable’ efficiency.
approach used, technical potential assessment tends to be complex. It requires compiling and carefully examining a large number of technologies, their costs, potential impacts and how they interact with energy systems and each other. This requires an enormous amount of data and sophisticated computations.
Economic potential is—at least conceptually—much easier to estimate. At the basic level, it requires calculating a benefit-to-cost ratio for each measure with a technical potential, and screening the list of measures for cost-effectiveness. The TRC or its variants are the most widely used criteria with a decision rule: if the conserved energy cost is less than the cost of energy it displaces, the measure is prudent. The cumulative potential for measures meeting the criterion is considered economic. In most studies supporting utility planning initiatives, hourly analysis is conducted to capture the full system-wide capacity and energy benefits for individual measures. This step makes assessment significantly more complex.
Estimating achievable potential is more difficult simply because it involves making assumptions about notoriously illusive consumer behaviors and decision-making. Achievable potential emphasizes consumer motivations to adopt conservation measures or barriers preventing them from doing so. These questions not only involve the actual economic return, but individual consumer perceptions of the cost and potential benefits of conservation.
Methods of estimating achievable potential either rely on experience or are derived from behavioral models of technology diffusion—models that predict whether a conservation measure is adopted according to simple assumptions about the consumer’s “payback acceptance.” However, evidence from existing literature suggests neither approach is entirely satisfactory. In several studies, achievable potential has been expressed as a range of values, derived from variants of a conventional technology diffusion model simulating consumers decisions to invest in energy efficiency according to expected returns and how they are influenced by available incentives.
Experience-based approaches either rely on other CPA results, or else look to the achievements of past conservation efforts (made locally or in other geographic areas). Either approach can be problematic. The past might not effectively predict the future because consumers participating in early conservation program stages might be driven by different motivations compared to later participants—known as the “early-adopter” phenomenon. We can never know with certainty whether a market has been saturated, and benchmarking against other programs requires making inferences across geographical areas, such as utility service territories. This can be problematic because utilities may have unique service areas, and their experiences may not be transferable.
How Much Can We Conserve?
Since 2000, a swelling number of CPAs for electricity and natural gas have been produced in the United States, appearing in a wave that seems to crest every five years or so. They differ in their orientation, geographic scope, time horizon, and method. Largely, they are either policy-oriented attempts by non-governmental organizations (NGOs) or advocacy groups to advance policy on energy efficiency policy, or planning-oriented studies by utilities that support activities related to resource planning and program design. The geographic scope of these studies may be limited to a single utility service area, or may cover an entire state, region, or country, depending, it would seem,