In these uncertain economic times, making smart investments in energy is of paramount importance. Our country faces a critical need for jobs, energy security, and cleaner ways to power our economy. Investing in energy efficiency has the potential to help address each of these challenges.
Utilities are at the center of the energy efficiency opportunity. They manage millions of customer relationships, hold data on energy use patterns across their service territories, and have the ability to assist utility commissions by displacing generation with sound energy efficiency policies.
Twenty-six states have recognized that energy efficiency is the cheapest way to meet new and existing demand, and have implemented some form of energy efficiency resource standard. Many utility regulators have established rules that require utilities, such as National Grid, to invest in cost-effective energy efficiency before investing in new power plants.
The rationale for this is clear. Cost-effective energy efficiency measures allow us to provide customers with one kilowatt-hour of energy savings for between three and five cents. In comparison, customers around the United States pay between 6.5 cents and 16.5 cents for their electricity, depending on where they live. As a result, investing in energy efficiency can typically produce three to four dollars of savings for each dollar invested. In 2012, our total savings through new energy efficiency investment in Massachusetts is expected to be over one million megawatt-hours—as much electricity as 92,000 typical homes would use in a year.
At the same time as it is saving us money and reducing emissions, energy efficiency is helping our economy. Energy efficiency projects yield positive returns for our customers, create local jobs for thousands of workers, and save millions of megawatt-hours of electricity. We managed to grow our economy in Massachusetts by nearly four percent per year from 1999 through 2009, even while the state’s electricity consumption grew less than one percent per year. Decreasing energy intensity in this way provides significant competitive advantage to Massachusetts and to our entire country.
National Grid welcomes this MJB&A report as a clear assessment of the status quo. It evaluates utility-sponsored energy efficiency programs and improves our ability to understand their reach, identify their strengths, and fix their weaknesses. We hope that this report will in fact be followed by others, and that the industry will in turn benefit by gaining access to industry-wide metrics that help us be smarter and more effective with our programs.
Edward White, Jr.
Vice President, Energy Products
Energy Efficiency: State of the Market
Policymakers, electric utilities, and other stakeholders broadly agree that energy efficiency is a proven, least-cost energy resource that should play a foundational role in the nation’s energy strategy. Energy efficiency lowers bills for customers, enhances grid reliability, offsets the need for new generation and transmission capacity, reduces air pollution and other supply-side environmental impacts, creates jobs, and expands markets for energy-efficient technologies and services.
New EPA rules regulating air emissions from fossil fuel power plants will require electric utilities to deploy a wide range of pollution-control technologies, new power plants with relatively low emissions, and demand-side measures to reduce air emissions from electricity production.
Investments in energy efficiency create construction and manufacturing jobs and redirect spending from energy—which creates very few jobs per dollar spent—to more employment-intensive industries. For example, one study found that California’s energy efficiency policies from 1972-2006 drove a net increase of 1.5 million full-time equivalent jobs, and saved households $56 billion on their energy bills.
In its widely-cited market survey, McKinsey & Company estimates that total 2008 efficiency market spending was on the order of $10 to $12 billion: $2.5 billion through utility programs, $3.5 billion through Energy Service Companies (ESCOs), and $4 to $6 billion on “insulation and devices.” This excludes expenditures of $8 to $10 billion on energy-saving equipment and services mandated by building codes.
Support for energy efficiency has expanded significantly in recent years. For instance, the American Recovery and Reinvestment Act of 2009 (Recovery Act) included the largest single investment in energy efficiency in U.S. history. Approximately $30 billion was allocated for energy efficiency programs, about $12 billion of which went directly to states. For some states, these funds constituted their first significant investments in energy efficiency and introduced consumers and policy-makers to the benefits of energy efficiency.
As states gain more experience with energy efficiency programs, multiyear funding plans have become more commonplace. Such plans are critical to ensure successful ongoing implementation of efficiency measures, as they provide certainty for consumers, utilities, and third-party contractors while allowing for better long-term planning and increased administrative efficiency. While states in the Northeast, California, and the Pacific Northwest have traditionally led the way, policy support for efficiency has grown fastest in Midwestern and Mid-Atlantic states over recent years.
According to the Consortium for Energy Efficiency’s (CEE) most recent survey, ratepayer-funded efficiency programs (including both utilities and third-party administrators) budgeted over $5.4 billion in demand-side management spending for 2010. This represents a 24 percent increase over reported 2009 budgets of nearly $4.4 billion.8 Figure 1 illustrates this rapid growth in DSM budgets, with energy efficiency leading the way.
Although budgets for ratepayer-funded electric energy efficiency programs have increased substantially in recent years, these expenditures comprise just a small fraction of total electric sector spending. In 2009 ratepayer-funded electric efficiency programs totaled $4.4 billion, but by comparison, consumers spent nearly $360 billion on electricity. In the same year, power producers brought over 23 gigawatts of new generating capacity online for an estimated cost of about $34.5 billion. This new generation is significantly more expensive than energy efficiency; many researchers and utilities have conducted detailed evaluations of energy efficiency costs relative to generation and consistently find that supply-side resources cost at least three times as much as energy efficiency on a kilowatt-hour basis. Figure 2 compares EIA’s projections of the cost of various types of new generation in 2016 with the average cost of energy efficiency.
“Ceres (pronounced “series”) is a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.”