Efficiency Beyond the Low Fruit


Continuous improvement requires changing practices and cultural norms.

Fortnightly Magazine - October 2012

Pending legislation, maturing energy-efficiency programs and lower avoided costs are severely limiting program administrators’ ability to acquire cost-effective efficiency resources to meet their portfolio goals. It’s time to look in new places for economic, long-term savings. Activity-based options in the industrial sector that revolve around continuous energy improvement would be a good starting point.

Where Have All the Savings Gone?

The Energy Independence and Security Act (EISA), signed into law on Dec. 19, 2007, is by many accounts the most sweeping energy-efficiency legislation ever enacted in the United States. Perhaps one of EISA’s most far-reaching provisions is the standard for efficient light bulbs under Subtitle B—Lighting Energy Efficiency, Section 321. The provision directs the Department of Energy to set performance standards for general service light bulbs with 25 to 30 percent savings compared to traditional incandescent bulbs, beginning in 2012. Once fully implemented, the act will essentially eliminate conventional 40-watt, 60-watt, 75-watt, and 100-watt screw-base incandescent light bulbs by 2020. The act sets equally dramatic energy-efficiency standards for weatherization and energy-using equipment and appliances.

According to a recent report by the American Council for an Energy Efficient Economy (ACEEE), EISA is expected to reduce energy consumption by 7 percent and greenhouse gas emissions by 9 percent from the forecast for 2030, and to save American consumers and businesses more than $400 billion through 2030.

EISA’s passage was therefore exciting news to everyone interested in energy efficiency and its contribution to reducing greenhouse gas emissions. But the reaction among some ratepayer-funded energy-efficiency program administrators was somewhat less enthusiastic. For years, program administrators have relied on low-cost, easy-to-deploy measures in a few end-uses where deep inefficiencies created a vast reservoir of conservation potential. EISA’s high efficiency standards, once implemented, would severely constrain this potential.

Currently, energy efficiency performance standards (EERS) are in effect in 26 states. In 21 of these states, annual savings targets are set at 1 percent or more of retail sales between 2009 and 2020, and several include non-performance penalties. In states such as Vermont, New York, Maryland, Massachusetts, and Rhode Island, the targets are set at 2.5 percent or higher. Progress toward meeting energy efficiency goals so far has been encouraging. As a recent study by ACEEE reports, 13 of the 20 states with EERS in place for two or more years reached or surpassed their targets in 2010. Nine of these states achieved savings of 1.2 percent or higher in 2010.

But, as the authors of the ACEEE study reckon, the hard work is yet to come. Acquiring savings at the current rate will become more difficult as the early adopter markets for energy-efficient equipment are saturated, and low-cost savings are exhausted. With much of the existing savings potential in line to be captured, the EISA legislation will further aggravate the situation by raising the bar higher. To make matters worse, many states are putting higher energy-efficiency standards into their building codes, which, coupled with national initiatives like ENERGY STAR homes, would further erode the conservation potential in the new construction market.

Additional challenges have arisen from the downward trend in avoided electricity and natural gas costs, caused partly by a drop in aggregate demand for energy and partly by lower natural gas supply costs made possible by recent discovery of conventional gas reserves and new extraction techniques that have opened up vast supplies of shale gas. As avoided energy costs go down, the cost-effectiveness threshold will rise, causing many marginally cost-effective measures to fail economic tests, further reducing the conservation potential. Together, these developments likely will severely constrain program administrators’ ability to meet their saving targets. Even for administrators who regularly out-performed expectations, merely meeting their targets might prove to be an achievement.

CFL: The Giving Tree

For most of the past 30 years, studies of energy-efficiency potential have shown little decline in the amount of conservation expected to be achievable in the long-run, making the reservoir of conservation appear almost endless. This shouldn’t come as a surprise, given the extreme inefficiencies in several end-uses such as lighting and water heating, and the prevalence of poorly built housing and business facilities.

No single energy-efficiency measure has been more heavily used in ratepayer-funded programs than the compact fluorescent light bulb (CFL). In 2011, savings from CFLs accounted for more than 20 percent of the 3,287 GWh of savings reported for the entire portfolio of programs administered by California’s investor-owned utilities. In the residential sector, 686 of the 910 GWh (75 percent) of total savings reported for the same year by California’s investor-owned utilities came from lighting measures, mainly CFLs. The savings were even higher five years earlier, in 2006, when they accounted for almost 85 percent of the residential savings and 35 percent of the whole portfolio.

CFLs also play a large role in the portfolios of utilities new to energy efficiency. In states such as Pennsylvania, Illinois and Ohio, where EERS have been instituted recently, up to 40 percent of all savings reported by the major investor-owned utilities was from CFLs. Once savings from other measures such as water-saving devices and weatherization are added in, contributions from simple, low-cost measures easily exceed 50 percent of the savings achieved in most of these portfolios.

Evidence is growing that even in the absence of the effects of EISA legislation, the role of CFLs in efficiency portfolios has been changing. A 2003 study of energy-efficiency potential in California estimated nearly 6,400 MWh of cumulative economic potential for residential lighting by 2016. In a 2006 study, the available potential was reduced to 1,150 MWh, which was further adjusted down in a 2011 study—although modifications to technical assumptions played a large role in lowering the estimate.Similar results were found in the Pacific Northwest, where estimates of long-term conservation potential for residential lighting dropped by nearly half, from 535 to 285 MW on average, in the five-year interval between the Fifth and the Sixth Northwest Conservation and Electric Power Plans.

The trend is in no small part due to the market effects of rate-payer programs. The programs have led to a major transformation of the market for energy-efficient products by stimulating demand, and encouraging technological innovations that have improved the quality and lowered the cost of the equipment. While one might quibble over how much of this market transformation is attributable to ratepayer-funded programs, the provisions of EISA for general service light bulbs most likely will eliminate the need for further intervention, denying program administrators access to these longstanding staples of programmatic savings.

Paths to Energy Efficiency

From a public policy point of view, energy efficiency might be achieved in four ways: 1) persuading people to purchase more-efficient equipment by providing financial incentives that make the equipment more affordable; 2) supplying information and educating people so they use energy more wisely; 3) forcing people to use less energy by legislating minimum efficiency standards for equipment and buildings; or 4) pricing energy products to encourage more conservation. Historically, energy-efficiency policy in America has looked to these approaches in the form of incentive-based programs, behavior-based programs, building energy codes, and equipment efficiency standards. Pricing options have been tried, though not effectively, and other mechanisms, such as taxation and mandatory marginal cost pricing, haven’t been tried, perhaps for being politically unpopular.

Ratepayer-funded energy-efficiency programs have largely relied on financial incentives. Using a variety of schemes, program structures, and delivery mechanisms, program administrators have offered financial incentives up to the full incremental cost of energy-efficiency measures to encourage consumers to participate in their programs. And they’ve focused largely on low-cost or easy-to-reach segments of the market, such as lighting, appliances, and weatherization. To fill potential performance gaps, program administrators are now seeking new opportunities and exploring program options to realize them.

One idea, modeled after the traditional weatherization programs, simply extends conventional programs by packaging a larger number of measures and services into more-comprehensive bundles that are then applied to the whole dwelling unit or business facility. This approach increases the savings potential from individual sites by allowing into the bundle some measures that might not have been cost-effective on their own, and lowers program administration costs through economies of scale.

Another idea is a holistic approach that integrates the various conventional demand-side management services, hence “integrated demand-side management” (IDSM). The logic of IDSM is that energy and capacity savings can be achieved at a lower cost by combining the traditional energy efficiency, demand response, and information and education measures and marketing them jointly—or at least in a closely coordinated way—to the same customers in the form of an integrated solution. The focus of IDSM has been largely on integrating demand-response products into energy-efficiency programs, but several combination utilities are experimenting with integrating their electricity and natural gas efficiency programs at least at some level. IDSM is essentially an attempt to coordinate everything from program design to administration, marketing, budgeting, and evaluation. But these are difficult goals to achieve; overcoming a tradition of fragmented planning for energy and capacity-oriented programs within utilities won’t be easy.

Focusing on Behavior

An emerging approach is the so-called behavior-based or activity-based programs that aim to change the way consumers use and maintain energy systems and equipment. Behavior-based interventions exploit the fact that people’s energy choices are influenced by social and psychological norms at least as much as economic factors, such as the price of energy, equipment cost, and income. They’re about using only as much energy as needed to maintain a certain level of service, without sacrificing comfort or productivity. They aren’t so much about forgoing consumption as they are about avoiding waste. By having detailed, timely information on energy use and knowing what to do with it, the theory goes, consumers would take the necessary measures to improve efficiency. In other words, to quote the wisdom attributed to John Kenneth Galbraith, “things that are measured tend to improve.”

But information and feedback are only parts of the story. Utilities have been providing customers with information about their consumption since the early 1980s, in the forms of free energy audits and home energy reports with energy-saving tips. What sets apart this new breed of behavior-based programs is that feedback can now be offered in nearly real-time, owing to advanced metering and communication technologies. Another difference is that these programs now can achieve better results by going beyond providing information, and systematically showing consumers how to act on the information, providing data about the effect of their action, and, critically, rewarding them when their actions produce positive results.

Although the ideas about behavior change are important in their own right, they can be particularly effective when they complement available technology-based programs, by motivating participation among consumers. This is another reason that behavior-based initiatives, once merely a nice sideline in energy-efficiency program design, are beginning to assume a central role in energy-efficiency planning and policy making. Many program administrators are now deploying behavior-based programs, especially where advanced metering infrastructures are being rolled out. More intriguing still is how these ideas are being extended to the commercial and industrial sector, through activity-based program initiatives that show these customers how to factor energy management into their normal operations.

Opportunities in Waste

Of the nearly 100 quads (quadrillion Btu) of energy America consumes each year, fully one-third goes into manufacturing. Remarkably, the largest producers of energy are also the largest consumers of energy: the petroleum and coal production subsectors account for nearly one-third of the entire energy input into industrial production. The chemicals subsector is the second-largest user of energy, accounting for another quarter of the sector’s energy consumption. The next three highest shares of industrial energy use are claimed by pulp and paper (13 percent), primary metals (8 percent) and food processing (7 percent).

Energy systems such as compressed air, pumping, and fans—referred to collectively as motor systems—as well as process heating systems, steam systems, and cogeneration are integral to the manufacturing process and can be found to varying degrees in virtually all industries; they form, in effect, the backbone of the industrial production process. These systems account for more than 85 percent of the energy used in the industrial sector.

As an excellent study sponsored by DOE in 2004 explains, not all of the energy delivered to these processes is converted into usable work. Nearly one-third of the energy input into these processes is wasted. The bulk of energy losses occur in process heating, which is composed of steam and cooling systems. In motor systems, which represent 13 percent of total energy end-use in manufacturing and mining, only 45 percent of the energy input is delivered to processes; the remaining 55 percent is lost to inefficiencies in motor-driven equipment, motor windings, and distribution systems. For steam systems, losses are only marginally lower, with 45 percent of the input energy lost before the steam reaches point of use.

Overall, about 32 percent of the energy input to plants is lost inside the plant boundary, prior to use in the intended process. These losses are significantly larger for electricity, once power system inefficiencies in generation—as much as 75 percent for older steam-based systems and up to 40 percent or more for state-of-the-art gas turbines—and transmission and distribution losses of 7 percent or more are taken into account. Factoring in off-site losses, a staggering 80 percent total energy input into manufacturing goes to waste; in other words, only one of every five units of energy entering a power plant is transformed into useful work in manufacturing production.

The diverse and widespread use of energy systems across the industrial sector, with their inherent inefficiencies, creates vast opportunities for energy-efficiency improvements with potentially significant savings potential. Equipment manufacturers have steadily improved the performance of individual system components, particularly motors, to the extent that a rather small improvement potential of between 2 and 5 percent remains today. The rest of these losses, roughly 50 percent of the total energy supplied to motor systems, occur during the conversion of motor energy to useful work. To be sure, some of these losses are inherent in the energy conversion process, but the bulk of these are avoidable inefficiencies.

Where there’s waste, there’s opportunity to improve efficiency. Good ideas abound on how to fix the problem. A report sponsored by DOE, for example, offers 20 measures with a total potential energy savings of more than 5,000 trillion Btu, which amounts to one quarter of all energy used by the industrial sector. Nearly 30 percent (1,400 trillion Btu) of these savings can be achievable through system integration and best practices, consisting mostly of common-sense, activity-based measures to improve operations.

E-Source, an energy-industry consultancy in Boulder, Colo., lists about 20 quick fixes to avoid energy waste in manufacturing on its website. Remarkably, two-thirds of these measures are as simple as merely turning off or turning down energy-using equipment. The other one-third of measures involves performing regular maintenance and even simply cleaning equipment more regularly, which not only helps save energy, but protects assets. Even the more complex measures generally involve applying existing knowledge of best practices, commercially available technologies, and well-tested engineering principles to optimize systems, improve processes, and recover waste heat.

Avoiding Waste, Continually

The simplicity of such activity-oriented measures can be misleading. Unlike their technology-based counterparts, such as upgrading equipment, activity-based measures involve transforming deep-seated behaviors, if not the culture of the organization—changes that are hard to institute and even harder to maintain without a deliberate and methodical approach.

The most common programmatic framework for implementing activity-based energy efficiency in the industrial sector is the so-called continuous energy improvement (CEI), borrowing from the concept of continuous process improvement (CPI) that grew out of the Japanese kaizen movement. Translated as “improvement,” kaizen refers to the Japanese philosophy of continuous improvement, and the accompanying measures to achieve that improvement. In this context, CEI is simply a process of discovering and eliminating energy waste in small, continuous steps. CEI is accomplished when awareness is elevated about the role of energy in the production process, energy’s costs, the value in avoiding these costs, and ways to avoid the costs.

What is unique about the notion of CEI is that, like CPI, it involves everyone in the organization, from hourly workers to executives. CEI can reach parts of an industrial firm’s organization that ordinary capital measures rarely do. Because it provides a way for companies to quickly realize cost savings, improve productivity, and yield operational benefits, CEI also can provide the reinforcement needed for management to proceed with the organizational changes required to fully integrate energy efficiency into daily operational practices. CEI, above all, concerns bringing about the necessary cultural transformation so that energy efficiency becomes “business as usual.”

The importance of this management-driven, top-down, bottom-up approach has been echoed in several industrial-sector studies. For example, a report issued by the Conference Board, a non-profit research and development institute serving the United States manufacturing industry, recognized CEI as a “critical component of developing an energy strategy and maintaining alignment throughout the organization.” Data from the ENERGY STAR initiative report recognized that the rewards can be enormous for strategies aimed at changing such cultural practices, amounting to annual savings of up to 10 percent of energy operating costs. This study further recognized potential for widespread improvements, benefiting not only individual companies, but entire sectors, the broader economy, and the environment as well.

The advantages of this approach are echoed in recommendations made in a recent report by the National Association of Manufacturers (NAM). The report links the current suboptimal energy management practices to the absence of energy-cost tracking and monitoring procedures and “outmoded” accounting practices, which focus on short-term capital outlays and returns rather than long-term life-cycle costs and benefits.

The benefits of corporate-wide energy management policies tend to go beyond mere energy-cost savings and extend to quantifiable ancillary production benefits as well. There are also the less tangible, somewhat harder-to-quantify benefits to consider. American companies increasingly are adopting business postures sensitive to the concerns of broader stakeholder groups beyond investors and regulators. Thus, companies are paying more attention to practices focused on sustainability, corporate citizenship, corporate social responsibility, and the environment. Energy efficiency-focused practices go far in demonstrating a company’s commitment to minimizing its adverse impacts on environmental quality.

Old Habits Die Hard

Such changes can’t happen too soon. Decisions about investing in energy efficiency are shaped largely by the decision maker’s perception of value from energy-efficient practices and the transaction costs of achieving it. If decision makers believe that energy efficiency doesn’t contribute to profitability and is expensive to achieve, they’ll be reluctant to make it a priority. In turn, this leads to a lack of interest and willingness to invest in energy efficiency and build the necessary skills to sustain it. These self-reinforcing perceptions form a corporate culture that isn’t so much averse to energy efficiency as inherently uninterested in it.

In 2010, CoreNet Global surveyed 83 large, multinational companies in the United States. The respondents were rated according to their performance on 10 common energy management practices. Only 20 percent of the companies surveyed reported having adopted seven or more of the 10 practices. An additional 40 percent claimed to have implemented between three and six practices. Interestingly, the survey found the responses to be spread fairly evenly over the 10 criteria, suggesting no clear preferences among possible energy-management best practices.

Some well-designed ratepayer-funded programs and government policies might be helping to revive interest among North American companies. One of the first of such efforts was the launch in 2002 of the Power Smart Partner (PSP) program by BC Hydro in Canada. The program was designed to improve energy-management practices among large industrial customers by co-funding an energy manager. The program has a simple basic premise: assign a person to develop and be responsible for energy budgets, keep track of energy consumption, and work to lower it. To facilitate the energy manager’s work, the program also provided free technical assessment, assistance with monitoring, targeting and reporting, on-site auditing of electric motors, and development of a management plan for motor repairs and improvements. To encourage broad involvement with energy management, the program provided materials for company-wide education and training. Since 2008, PSP has had more than 100 participants in British Columbia.

The pioneering work of BC Hydro was followed in 2005 with the launch of the Industrial Efficiency Alliance, an initiative to explore opportunities for transforming energy-management practices in the industrial sector, by the Northwest Energy Efficiency Alliance (NEEA). This initiative was unique in at least three important respects. First, it was based on a holistic strategy that targeted both the supply side and the demand side of the energy-efficiency market by forging alliances with industrial firms; establishing close working relationships and joint marketing initiatives with key market players, such as vendors and consultants; and coordinating closely with regional utilities, professional organizations, government agencies, and non-governmental organizations (NGOs) engaged in energy efficiency. Second, the initiative attempted to integrate common, cross-cutting technologies into the energy management practices of different sectors, beginning with pulp and paper and food processing, through training, information, demonstrations, and the introduction of new products and services. Finally, it involved a whole-system approach, rather than a component-based approach to energy management.

Owing in no small part to NEEA’s research and development work, CEI was later included in the Sixth Northwest Conservation and Electric Power Plan as a qualifying energy-efficiency measure and was adopted by several regional utilities and program administrators, including the Bonneville Power Administration, the Energy Trust of Oregon, and Puget Sound Energy.

Today, utilities in several states, including California, Colorado, Iowa, Minnesota, New York, and Pennsylvania, are experimenting with innovative CEI-type pilot programs that offer training and education at both the corporate management and technical levels, funding for technical assessment, funding for an on-site energy manager, and, in some cases, financial incentives for savings. This initiative is still in operation today with a focus on the food processing sector.

More intriguing still are the experimental pilots in California being implemented by the state’s major investor-owned utilities in various market segments and through different contractors. This is a remarkably rare occasion of deliberate design and closely coordinated execution. Once the results of these pilot programs become available, they undoubtedly will provide further proof of the CEI concept and will lead to its more widespread adoption. What happens in California likely will be closely followed by program administrators and energy-efficiency policy makers in other parts of the country.

Government Being Helpful

Concerted efforts to boost energy efficiency in industry have been underway at the federal level for some time. The goals have been to bring to American manufacturing tools, technologies, and methods that enhance their global competitiveness. Through its Best Practices Program, the DOE since the early 1990s has offered a wide range of educational material, technical training, and analytic tools to help industrial facilities become more energy efficient. In 2002, the U.S. Environmental Protection Agency began a voluntary program—Climate Leaders—that works with companies to develop long-term, comprehensive climate-change strategies. And in 2003, the EPA began offering information on energy management guidelines and benchmarking as part of its ENERGY STAR for Industry program. The program also includes energy performance indicators for select sectors, which companies can use to benchmark their performance, gaining recognition if they’re in the upper quartile.

More recently, in 2011, DOE launched the Better Plants Program as a component of the Advanced Manufacturing Initiative, organized by DOE’s Office of Energy Efficiency and Renewable Energy (EERE). The program is a national partnership drive to reduce industrial energy intensity by 25 percent in 10 years, while decreasing carbon emissions and enhancing the country’s competitiveness. By taking the pledge, companies become Better Plants Program “partners” and, with guidance from DOE, set baseline energy intensity for their operations and develop plans to reduce it.

The benefits of participating in the Better Plants Program include the opportunity for industrial firms to publicize their participation both internally and externally. Participants also obtain access to a technical account manager, receive help in establishing and analyzing key energy use data and metrics to gauge their energy performance, receive support in identifying emerging, suitable energy-efficient technologies, and qualify for in-plant training on how to “identify, prioritize, implement, and replicate energy saving projects.”

Similar programs aiming to encourage target-setting agreements have been in place in several European countries since the early 1990s. The best examples of these include Denmark’s energy efficiency agreements, the Netherlands’ long-term agreements, and the United Kingdom’s climate change agreements. Like the Better Plants Program, these initiatives all involve industrial firms working with the government to establish energy-efficiency improvement targets. In the European model, industrial firms who meet their targets become eligible for financial incentives in various forms, including tax relief, discounts on existing climate tax levies (the UK), and subsidies for the cost of energy-efficiency investments (Denmark). In some cases, these programs report reductions of as much as 20 percent in energy use among participating firms over time.

For the past decade, Europeans have moved steadily toward instituting industrial energy-efficiency standards, based on a “plan-do-check-act” approach. In America, on the other hand, the government has actively encouraged and supported energy management practices, but not the use of standards. This is changing with the DOE’s Superior Energy Performance (SEP) program. Launched in 2012, SEP provides a formal and transparent framework for defining and quantifying improvements in energy performance and energy management practices through application of the ISO 50001 Energy Management standard, which provides a formal structure and a roadmap for achieving CEI while maintaining competitiveness.

By encouraging and facilitating compliance with ISO 50001 Energy Management standard, SEP has the potential to help industries achieve substantial improvements in energy efficiency over time and contribute to climate change mitigation. To realize this potential, ongoing training is needed, as is a reward system that includes financial incentives. These are the program gaps that ratepayer-funded initiatives are best suited to fill.

Measurement Can Be Tricky

Energy-efficiency programs intervene in some manner in the energy-consumption process to reduce energy demand. Measuring the actual reduction they cause is complicated because, while demand can be directly measured in kilowatts, its absence, so-called “negawatts,” generally can’t. This is why savings from energy efficiency must be measured indirectly, by comparing the observed consumption to what it would have been in the absence of the energy-efficiency program; in other words, by confirming a “counterfactual”—a thorny problem.

Measuring the effects of CEI programs is somewhat more complicated for at least three important reasons. First, while the causal relationship between a conventional energy-efficiency measure and energy savings is somewhat simple and direct, energy savings from CEI depend on a number of intermediate outcomes—mainly, altering attitudes, perceptions, behaviors, and practices. Thus, the logical cause-and-effect relationships in CEI tend to be indirect and complex. Second, unlike conventional energy-efficiency measures, which tend to have an immediate impact on consumption, the effects of CEI tend to be gradual and ongoing because the savings occur as plant managers make evolutionary improvements in operations. Observation and measurement of short-term effects alone are likely to lead to erroneous conclusions about CEI’s potential savings. Finally, the energy-saving impacts of CEI tend to be small, relative to an industrial plant’s total consumption, making it hard to separate the effects of CEI from normal fluctuations in energy use, particularly in manufacturing, where changes in production can cause major swings in energy consumption.

These problems are by no means intractable. Methods based on regression techniques, similar to those used to estimate the savings from conventional energy-efficiency measures such as weatherization programs, have been successfully tested in a large number of facilities participating in CEI programs in the Northwest. These methods generally involve comparing an industrial facility’s consumption before and after implementing CEI measures, while effectively controlling for the potential effects of other factors that drive energy use. To work well, these techniques need accurate time-series data with high frequency. But this shouldn’t be a problem in a program like CEI, where continuous tracking of performance metrics is integral to the program.

The early results are promising; they show that, properly designed and executed with adequate data, these methods can yield reasonably accurate estimates of the effects of CEI. Savings from energy management in food processing and other industrial facilities in the Pacific Northwest have been successfully estimated. Based on these initial findings, savings seem more likely to be detected when consumption and production are available at a high frequency, with a sufficient number of observations in the baseline period. A successful application of these methods is also predicated on careful tracking of other activities, such as implementation of capital improvements and modifications to the production process.

The difficulties with measuring and verifying CEI results, and questions about the persistence of energy savings, have raised doubts about the reliability of CEI. Some policy analysts are duly skeptical. Surely, if CEI is to enter the mainstream of ratepayer-funded energy efficiency, it needs to be quantifiable and demonstrably persistent. But the lessons learned from CEI evaluations, limited as they are, have shown that CEI impacts are demonstrably measurable. A more widespread application of these methods to new programs as they’re launched will help further refine and formalize the CEI strategy.

Climbing the Conservation Tree

Savings targets adopted in many jurisdictions are aggressive. To comply, program administrators have been keenly focused on low-cost measures—the low-hanging fruit—giving less thought to deeper-reaching efficiency improvements. This is an unfortunate development, most likely an unintended consequence of the regulatory policies and strict cost-effectiveness criteria prescribed in many jurisdictions. As policy makers work to solve the energy problems facing the country, it would be unwise to neglect the potential that might be found by climbing a few branches higher up the fruit tree.

The conventional technology-based energy-efficiency programs almost always have the following basic characteristics: they’re simple, they’re cheap, they require little development work, they take little time to deploy, and the savings are immediate. CEI initiatives, in contrast, are complex; they might be expensive to deploy, particularly in early stages; they require careful design based on innovative ideas; they’re difficult to deploy, requiring buy-in and commitment from many layers of the organization; they have a long lead time; and their savings are gradual.

An additional—possibly bigger—obstacle facing program administrators is regulatory uncertainty. The difficulty is that many regulators seem to lack the inclination—or perhaps the power—to take decisive action. While regulators have shown a genuine interest in conservation, most are more concerned about rate effects and prudence to accommodate the legitimate concerns of certain ratepayer groups. Thus, despite its widely recognized importance and potential, most regulators have only notionally subscribed to CEI.

Some signs indicate this might be changing. In 2011, the California Public Utility Commission approved methods for measuring savings from behavior-based programs, allowing utilities to take credit for these savings toward their performance targets. Similarly, the Northwest Regional Technical Forum adopted standard measurement and verification protocols for determining savings from behavior-based programs. The next step will be to build on these experiences to create national, uniform methods for measuring and verifying CEI savings.

As a program, CEI is new and its potential and limits are somewhat obscure. But it holds real promise. What is needed is for everyone—program administrators, regulators, and interveners—to keep an open mind. Program administrators must continue to experiment with alternative program structures and delivery mechanisms. And regulators must allow program administrators flexibility and encourage them to experiment with different approaches.

A comprehensive framework also is needed for coordinating the national and ratepayer-funded initiatives. Such a framework should include energy-efficiency standards, policies, training, tools, and well-conceived financial incentives that have the net effect of making system optimization for energy efficiency as much a part of typical industrial operating practices as waste reduction and inventory management.

A sharper focus on CEI will be a hopeful sign, not only for program administrators, but for energy efficiency in general—and for those who believe that stemming energy waste is a step toward raising industrial competitiveness, making better use of energy resources, and improving the environment.



1. Sciortino, Michael, et al., Energy Efficiency Resource Standards, A Progress Report on State Experience, ACEEE, Report Number U112, June 2011.

2. California Statewide Residential Sector Energy Efficiency Potential Study, p.6-6, Pacific Gas & Electric, prepared by KEMA-XENERGY, 2003.

3. California Energy Efficiency Potential Study Volume 1, p.4-8, Pacific Gas & Electric, prepared by Itron, RLW Analytics, KEMA, and Architectural Energy Corp., 2006.

4. Analysis to Update Energy Efficiency Potential, Goals, and Targets for 2013 and Beyond, Track 1, Statewide Investor Owned Utility Energy Efficiency Potential, prepared by Navigant Consulting for the California Public Utilities Commission, May 2012.

5. For a discussion of approaches and barriers to coordinating energy efficiency and demand response see National Action Plan for Energy Efficiency (2010), Coordination of Energy Efficiency and Demand Response, prepared by Charles Goldman (Lawrence Berkeley National Laboratory), Michael Reid (E Source), Roger Levy, and Alison Silverstein, available at: http://www.epa.gov/eeactionplan.

6. For an overview of behavior-based programs, see U.S. Environmental Protection Agency, State and Local Energy Efficiency Action Network Customer Information and Behavior Working Group, Overview of Residential Energy Feedback and Behavior based Energy Efficiency, prepared by Energy and Environment Economics, E3, February 2011.

7. For a review of the literature on the effects of technology-based feedback see Parker, Danny, et al., How Much Energy Are We Using? Potential of Residential Energy Demand Feedback Devices, proceedings, ACEEE Summer Study on Energy Efficiency in Buildings, 2006.

8. The Annual Energy Review 2010, U.S. Department of Energy, Energy Information Administration (EIA), October 2011. The manufacturing total is based on the preliminary results of EIA’s 2010 Manufacturing Energy Consumption Survey (MECS).

9. Industry shares are based on the 2006 MECS and might have changed since.

10. Energetics and E3M, Energy Use, Loss and Opportunities Analysis: U.S. Manufacturing and Mining, prepared for the U.S. Department of Energy, Energy Efficiency and Renewable Energy, Industrial Technologies Program, December 2004.

11. http://www.eia.gov/tools/faqs/faq.cfm?id=105&t=3

12. Technology Roadmap—Energy Loss Reduction and Recovery in Industrial Energy Systems, Prepared by Energetics for the U.S. DOE, Office of Energy Efficiency and Renewable Energy, Industrial Technologies Program, November 2004.

13. Available at: http://www.esource.com/BEA1/CEA/CEA-16.

14. The Japanese kaizen movement is largely credited to two American statisticians, Edwards Deming and Joseph Juran, who pioneered the systematic application of quality assurance measures in manufacturing.

15. Policies for Promoting Industrial Energy Efficiency in Developing Countries and Transition Economies, prepared by Aimee McKane, et al., Lawrence Berkeley National Laboratory, for the United Nations Industrial Development Organization, Vienna, May 2007.

16. Charles Bennett and Meredith Armstrong Whiting, Roadmap for Strategic Energy Planning and Management, the Conference Board, R-1365-05-RR, 2005.

17. The Manufacturing Institute, National Association of Manufacturers, Efficiency and Innovation in U.S. Manufacturing Energy Use, 2005.

18. Lung, R.B., et al., Industrial Motor System Optimization Projects in the U.S.: An Impact Study, Proceedings, Summer Study on Energy Efficiency in Industry, American Council for an Energy-Efficient Economy (ACEEE) Washington, D.C., 2003.

19. National Association of Manufacturers, op. cit.

20. CoreNet Global, Corporate Energy Management, sponsored by Johnson Controls’ Institute for Building Efficiency, Atlanta, Ga., 2010.

21. For a description of the program see Evaluation of NEEA’s Industrial Initiative, Market Progress Evaluation Report No. 6, prepared by The Cadmus Group, May 2011.

22. For more information on this initiative see: http://neea.org/initiatives/industrial/food-processors

23. Lukito, Mugimin, et. al., Sustainable Energy Management Through Continuous Energy Improvement, Proceedings, ACEEE Summer Study on Buildings, Monterey, Calif., August 2010.

24. http://www1.eere.energy.gov/manufacturing/pdfs/betterplants_guide.pdf

25. This concept is being extended into commercial sector under EERE’s Better Buildings Challenge initiative. See http://www4.eere.energy.gov/challenge/home and http://www1.eere.energy.gov/manufacturing/tech_deployment/energy_assessment.html.

26. For a survey of such programs see Lynn Price, Voluntary Agreements for Energy Efficiency or Greenhouse Gas Emissions Reduction in Industry: An Assessment of Programs Around the World, Proceedings of the ACEEE Summer Study on Energy Efficiency in Industry, Washington, D.C., 2005.

27. For a discussion see Price, Lynn, et al., Tax and Fiscal Policies for Promotion of Industrial Energy Efficiency: A Survey of International Experience, Lawrence Berkeley National Laboratory, 2005 (LBNL-58128).

28. Larsen, Anders, et al. Energy Management in Danish Industry-Practice and Policy Implications, Proceedings, the First European Conference on Energy Management, Milan, Italy, November 2005.

29. Energy Management Systems—Requirements with Guidance for Use - International Standard ISO 50001, International Organization for Standardization, March 2010.

30. http://www.iso.org/iso/iso_50001_energy.pdf

31. McKane, Aimee, et al., Setting the Standard for Industrial Energy Efficiency, EEMODS, 2007.

32 This observation also applies to market transformation programs. See Sebold, Frederick D., et al. A Framework for Planning and Assessing Publicly Funded Energy Efficiency, PG&E-SW040, March 2001.

33. See Evaluation of NEEA’s Industrial Initiative, Market Progress Evaluation Report No. 6, Prepared by The Cadmus Group, January 2011.