Is the "duck curve" eroding the value of energy efficiency?

In recent years, utilities in the southwestern U.S. and California have experienced significant increases in the penetration of renewable resources – particularly solar PV. This has had a major effect on the operation and pricing of electricity in the wholesale markets in these regions. For example, the frequency of negative prices in the California ISO energy markets has increased in recent years, particularly during midday hours with low to moderate load (e.g. in April). This dynamic suggests a reduced energy savings value for efficiency measures during certain times of day. In response to these negative pricing events, several southwestern utilities have proposed major overhauls – including significant reductions – to their energy efficiency portfolios. Utility proposals have also included "reverse demand response" and other load building activities under the umbrella of demand-side management. Meanwhile, there is still a need to meet overall peak demand and evening ramps, which suggests continued value for efficiency measures.

In this paper we explore the impacts of recent changes and future projections of wholesale market prices on the value of energy efficiency. More specifically, we conduct a timebased analysis of wholesale market prices in conjunction with time-specific savings from efficiency measures to better understand how the energy value of efficiency is evolving as renewables reduce the marginal cost of generation. We find that while some measures are likely to become less cost-effective, there is still significant value in a diversified efficiency portfolio. As the resource mix evolves, it will be necessary to tailor energy efficiency portfolios accordingly. However, we do not find compelling evidence for major overhauls in efficiency portfolios based on current or near-future levels of renewable energy over the next decade.

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Update on Utility Energy Efficiency Programs in the Southwest

Funding for electric utility demand-side management (DSM) programs in Arizona, Colorado, Nevada, New Mexico, Utah and Wyoming (the states covered by SWEEP) is expected to reach $171 million in 2008, up from just $29 million in 2002. Five major utilities in the region reduced electricity use by 748 GWh per year and cut peak demand by 195 MW from DSM programs implemented in 2007, nearly three times the level of energy savings achieved by these utilities in 2004-2005. This paper reports on the growth in funding, level of energy savings being achieved, and key elements of electric utility-sponsored DSM programs in the southwest region. It describes the policies stimulating expansion of DSM programs including financial incentives for utility shareholders. The paper also discusses innovative DSM programs underway in the region and the influence of climate change policies on utility DSM programs.

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Performance-Based Models to Address Utility Challenges

New pressures in the electricity sector have led some analysts to reexamine the traditional utility business model and the regulatory compact that supports it. Performance-based regulation is one possible alternative to traditional regulation that starts with the outcomes that matter to customers, utilities, and other industry participants. This article describes examples of performance-oriented regulation and draws regulatory design principles from them.

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Accounting for Big Energy Efficiency in RTO Plans and Forecasts: Keeping the Lights on While Avoiding Major Supply Investments

States in several regions are investing in “Big EE”defined as energy efficiency
programs with annual energy savings of around 2% or more of retail salesto meet significant
portions of customer energy needs. Energy efficiency is the largest future energy resource in
several states, and its share of the total resource mix is growing quickly. Regional Transmission Organizations (RTOs) in these regions are examining their planning practices to consider and account for the impacts of Big EE, now that energy efficiency is no longer background noise in their forecasts. It is crucial to neither under-count nor over-count the impacts of Big EE: on the one hand, under-counting will lead to billions of dollars of unneeded supply and transmission investments, thereby eliminating a portion of the economic value of the EE programs; on the other hand, over-counting the impacts will result in reductions in system reliability. Since the stakes are high, several RTOs are paying closer attention, although questions remain about the accuracy and effectiveness of the revised RTO planning methods. In this paper we review the changing planning and forecasting practices of RTOs in two regions that have substantial EE programs by analyzing how RTOs: (1) treat EE in their forecasts, (2) forecast EE impacts in future years beyond the time period covered by available EE plans, (3) distinguish energy vs. peak demand impacts, and (4) address the performance uncertainties and risks of future EE, including any discounting practices. We conclude with a summary of best practices to date among RTOs. 

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Maintaining High Levels of Energy Savings from Utility Energy Efficiency Programs: Strategies from the Southwest

 This paper discusses the main strategies that electric utilities in the Southwest are employing or proposing in order to meet increasing energy savings  goals and standards, in spite of reduced savings potential (to utilities) because of recent federal efficiency standards and stronger building energy codes. These strategies include: 1) promoting behavior change in all sectors; 2) integrating demand response and energy efficiency efforts; 3) building the market for LED lamps; 4) implementing conservation voltage reduction in the distribution grid; 5) adding financing components to energy efficiency programs; 6) striving for deeper energy savings,higher program participation and continuous  improvement; and 7) supporting building energy code adoption and implementation. In addition,the paper provides an estimate of the energy savings potential of these seven strategies for a representative utility in the region. We estimate that the seven strategies in combination could yield 5.3 percent energy savings by 2020 as a result of programs and measures implemented during 2015-2020.

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Are Recent Forays into Electricity Market Restructuring a Threat to Energy Efficiency?

Recently several states have launched investigations into possible implementation or expansion of electricity market restructuring1or retail competition. Competitive pressures and further increases in distributed generation may increase the push for retail electric competition.Will these explorations into retail competition present a threat to high levels of investment inutility sector energy efficiency programs? While the stated goals of retail competition and energy efficiency appear to be aligned — both seek to lower customer energy bills — we examine whether or not this apparent alignment of objectives holds true in reality. We review the performance and delivery of energy efficiency in states with retail competition versus those without retail competition. We analyze energy efficiency performance in states with and without energy savings requirements or targets, and with different administration models (e.g.administration by electric distribution companies versus non-utility administrators). The impact sof different forms, degrees, or specific provisions of retail competition are also reviewed. We also review the evolution of energy efficiency policies over time in several states with retail competition. Based on our findings, we provide energy efficiency policy recommendations for states with or considering electric retail competition.

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No Longer Background Noise: Resource Planning When Energy Efficiency Really Matters

Energy efficiency has commonly been treated as “background noise” during the resource planning process, particularly when annual energy savings were less than one percent of retail sales.More recently,the advent of energy efficiency resource standards and high, long-term savings goals has positioned energy efficiency to become a significant energy resource. As efficiency becomes a major resource in electric utility portfolios its impacts must be thoroughly understood. From a practical perspective, energy efficiency impacts must be accurately quantified and aligned with energy forecasts so that resource planners can count on efficiency to meet customer needs adequately. For decision-makers evaluating growing demand side management budgets, the impacts and value of energy efficiency investments must be clear.Additionally,achieving annual energy savings in excess of two percent of retail sales and addressing key energy, economic,and environmental policy objectives will require comprehensive programs and new engagement strategies that rely upon a multi-year planning approach.The resource planning process can offer a transparent, integrated framework to help achieve these multi-faceted objectives.We examine the treatment of electric end-use energy efficiency in resource plans recently issued or under-development in three regions with ambitious electric energy savings targets.Based upon our review,we identify and discuss issues, challenges, and approaches used,and highlight relevant examples. We conclude by offering recommendations on best practices for resource planning in an era of high energy efficiency goals.

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