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.
a potential study. Researchers will, at the very least, decide data sources to use, how to prioritize information, and choose among alternative assumptions. There is, however, no evidence in these studies that data might have been manipulated to favor any particular interest.
Higher rates of achievable potential in policy-oriented studies may derive from fundamental differences in approach and the critical technical, market, and economic assumptions made. For example, many policy-oriented studies include in their analyses effects of codes and standards as policy instruments for achieving conservation. Studies also vary in terms of mixes of measures analyzed. Policy-oriented studies generally rely on national and regional sources for market data, while most planning-oriented studies include substantially more specific, local data forming the basis for estimating potentials—one reason they tend to be more expensive.
From an economic point of view, policy-oriented studies typically use lower societal discount rates to derive estimates of the conserved energy costs, while planning-oriented studies use significantly higher-weighted average capital costs for the sponsoring utilities. Policy-oriented studies also place greater emphasis on indirect, non-energy benefits (the so-called “co-benefits”), such as local income and employment effects, environmental benefits, and consumer energy bill savings.
Extreme values distort data distribution and adversely affect the reliability of results. The wide range of estimates for achievable potential includes several such values. These values occur at both ends of the distribution values for achievable potential. Extraordinary claims require extraordinary evidence, yet these extreme values tend to derive from studies that neither explain the methodology particularly well, nor make a credible case for the reliability of data used.
Comparing results across these studies would have been much easier if all three classes of potential were analyzed and reported consistently. Policy-oriented studies, however, rarely report technical and economic potential. As a rule, they go directly to achievable potential, and, in many cases, do so without providing convincing details on methods as to how they were derived. This opacity of the methodology makes direct comparisons difficult. Policy-oriented studies are similar in purpose, but glaring differences emerge among them in methodology, scope, and analytic rigor.
The Guide for Conducting Energy Efficiency Potential Studies, a component of the National Action Plan for Energy Efficiency, 7 recommends that policy makers forego estimation of technical and economic potential, and focus instead only on achievable potential. Presumably, that’s because “technical and economic potential studies are of limited value for planning purposes.” This prescription is surprising. While rough estimates of achievable potential might be sufficient for setting performance standards (at least in the short run), detailed analyses of technical and economic potential supply curves are essential to utility IRP processes. But this might be beside the point, since it isn’t clear how one derives achievable potential without first carefully examining what is technically feasible and economically justified.
There is also the observation in the Guide that in most studies, conservation measures are screened for failing cost effectiveness, thus technical potential ends up being “virtually the same as the economic potential.” The accumulation of data undermines this observation. The evidence from the studies reviewed for this article