Energy Efficiency Training Week 2013 Course 3: Energy Efficiency Policies and Measures Energy efficiency policies for utilities 10 April 2013

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Energy Efficiency Training Week 2013 Course 3: Energy Efficiency Policies and Measures Energy efficiency policies for utilities 10 April 2013 Grayson Heffner

Agenda The Big Picture Why should utilities help deliver energy efficiency? Group survey: utility involvement in energy efficiency Policies for energy provider delivered energy efficiency Stock-taking of energy-provider delivered energy efficiency programmes Group break-out exercise

Primary energy demand is increasing Will increase by more than half over 25 years, unless new policies are adopted (Source: WEO 2011)

Emerging economies are driving this demand growth

The power sector is at centre stage in any climate change strategy

Energy utilities as energy efficiency providers

Utilities as energy efficiency agencies Advantages: Ability to mobilize funding Strong technical and administrative capacity A familiar brand name Existing service and delivery network Existing commercial relationship with energy consumers Responsibility to satisfy energy demand Disadvantages: Conflict of interest Incentive to sell, not conserve, energy Oversight (regulation) is needed Market structure & regulatory frameworks will determine the role that utilities can play

Market and institutional barriers 70% 65% 60% 50% 46% 46% 46% 40% 38% 30% 20% 27% 23% 23% 23% 19% 19% 10% 0% End-user awareness, low energy prices, financing, and implementation capacity are the most common barriers cited

IEA Survey Results: What Role do Utilities Play in Implementing EE? 100% 90% 80% 70% 60% 6% 3% 11% 10% 3% 11% 20% 17% Worldwide 7% 4% 13% 18% 7% 2% 17% 16% 50% 40% 23% 24% 23% 25% 30% 20% 10% 0% 20% 11% 11% 23% 20% 13% 9% 4% 4% 2% 16% 7% IEA EBRD Latin America Non-IEA Asia, MENA and Africa Setting public policy Voluntary delivery of energy efficiency services Feedback on energy use Funding energy efficiency programs Mandatory delivery of energy services Provision of information No role Other

Energy efficiency obligation policies Country Obligated Entities Eligible Sectors Belgium France Italy Electricity distributors Energy retailers including transport Networked energy distributors Residential and non-intensive industry All except large industry All including transport Great Britain Energy retailers Residential only Denmark Networked energy distributors All except transport Australia NSW Electricity retailers All except trade-exposed industries Australia - Victoria Networked energy retailers Residential, commercial added in 2012 South Networked energy retailers Residential only Australia US Networked energy All distributors/retailers Canada Networked energy All distributors/retailers Brazil Electricity distributors All, with targets for vulnerable groups

Energy efficiency spending by obligated energy providers Region Energy Revenues (USD Billions) 2011 EE Spending (USD Millions) Spending metric (%) North America 1 400 7,800 1.9 EU 27 2 650 2,500 0.4 Australia 25 90 0.35 Brazil 50 25 0.5 China 410 N/A N/A o North American spending expected to double by 2015 o EU spending will ramp up if energy efficiency obligations are adopted o Australian state spending is scheduled to ramp up through 2015 o China spending levels as yet unknown o 2011 global EE spend by energy providers was $10.6 billion 1 Electricity only 2 Gas and electricity Sources: Lees 2012; Crossley & Swanson 2011; Faruqui 2011; Heffner 2012

Average per capita residential electricity consumption (kwh/year) Proven results from utility delivery of energy efficiency Per capita residential electricity consumption is 31% lower in the half of the U.S. states that have a history of utility energy efficiency schemes. 6000 5000 4000 3000 2000 1000 States without efficiency programs States with efficiency programs 0 1950 1960 1970 1980 1990 2000 2010 Cost-benefit ratios for utility energy efficiency schemes have been between 2 and 5.5, showing they are a much cheaper option than adding new supply.

Group survey - energy utilities and energy efficiency in your country 1. Do energy utilities in your country promote or deliver energy efficiency? 2. What do utilities provide? a. Information and advice b. Funding c. Energy efficiency improvements 3. What prevents utilities from doing energy efficiency? a. No capability b. Don t want to reduce their sales c. Not in their remit d. Customers don t trust utilities

Policies for energy-provider delivered energy efficiency

The IEA s energy efficiency policy recommendations for energy utilities Provide equal opportunity for energy efficiency and energy supply to satisfy demand growth Set energy savings targets for energy providers to meet; Require cost-reflective pricing and other information that customers need to manage their energy use; and Reinvest a portion of revenues from energy sales in spending on energy efficiency

Regulatory mechanisms for energy provider-delivered energy efficiency Energy efficiency obligations; Integrated resource planning; Energy efficiency funding through utility revenues; Creating markets to mobilize energy efficiency; Opening resource procurements to energy efficiency; Performance incentives for energy providers; Energy tariff design; Establishing independent energy efficiency providers; Decoupling throughput from profitability Source: Regulatory Assistance Project (RAP)

Energy Efficiency Obligations Utilities are required to deliver energy efficiency Examples: UK s Carbon Emissions Reduction Target (CERT) French and Italian White Certificates programs Advantages: Flexibility in how obligations are met Delivers low-cost efficiency improvements Linkage to secondary markets for trading Disadvantages Verification can be expensive Oversight of utility delivery is needed

UK utility obligations

Italian WhC Programme Results 6,7 million toe saved against a target of 6,5 million toe (2005-2009):, 3.500.000 3.000.000 2.500.000 National target Certified energy savings toe 2.000.000 1.500.000 1.000.000 500.000 0 2005 2006 2007 2008 2009 80% of savings delivered by energy service providers 75% electricity savings; 20% natural gas savings; 5% other fuels savings 85% of savings delivered via projects with simplified M&V methodologies 59% electricity uses in the residential sector; 21% thermal uses in the residential sector, 11% industrial uses (increasing); 6% public lighting, 3% non-industrial CHP and district heating (but likely to increase) significant trading, with an increasing share on the spot market (> 60%) Source: AEEG

Portfolio Requirements Utilities must procure a specified resource mix or loading order Examples: California s energy efficiency preference Ontario s power development plan Advantages: Familiar to utility managers Evaluation is built in Stepping stone to integrated planning Disadvantages May not be least-cost solution

DSM program requirements Utilities required to offer specified programmes or services Examples: PG&E and SCE utility DSM programmes Advantages Encourages utility-government dialogue Can be responsive to market needs Disadvantages May not be least-cost solution Utilities may lack capacity

Decoupling utility profits from sales Utilities are protected from revenue erosion due to energy efficiency improvements Done by breaking the link between revenues and volumetric sales Example: California s Electricity Revenue Adjustment Mechanism (ERAM) Advantages Removes the # 1 disincentive for utilities doing efficiency Disadvantages Complicated to develop and administer Rates will go up

Group discussion regulatory mechanisms for energy utilities Would any of these regulatory mechanisms work in your country? What is the capacity of the regulator to develop and implement such mechanisms?

Energy provider-delivered energy efficiency case studies

Types of energy providers

What drives energy providers to deliver energy efficiency?

Non-regulatory drivers Market mechanisms and financial incentives Portuguese PPEC scheme ISO-New England Forward Capacity Market Hong Kong Scheme of Control ROE incentives Shareholder incentive schemes in many US states Business retention and development Kalmar Energi s oil-to-district-heat conversions RWE s 150 Million Euro EE Programme Endesa s Energy Management Platform

Non-regulatory drivers (2) Voluntary agreements, community relations, and sustainability policies Austrian Heizen mit Öl Förderinitiative Finnish Action Plan for Energy Services Airtricity Community Fund Demand management and system operations Mumbai Efficient Lighting Programme Eskom s National Efficient Lighting Project EGAT s Demand Side Management Programme

Types of energy saving activities

Types of energy saving activities Advice and assistance DONG Energy s Climate Partnership BPA s Scientific Irrigation Scheduling Information, education and promotion BC Hydro s Team Power Smart Residential Behaviour GDF Suez s Energy Efficiency Platform Florida s GetGasFL.com web site Financial incentives CenterPoint Energy s Custom Process Rebate Efficientia/CEMIG industrial energy efficiency Italian ESCOs

Types of energy saving activities (2) Direct installation National Grid s Small Business Energy Efficiency Northeast Utilities/United Illuminating s Home Energy Solutions Comprehensive implementation Energy Upgrade California (EUC) Innowatio s energy services for health facilities Equipment replacement Energias de Portugal ECO EDP Iberdrola s Integrated Energy Management Program

Types of energy saving activities (3) On-bill financing Manitoba Hydro s Residential Loan Program Origin Energy s Energy Savings Guarantee Sempra s non-residential on-bill financing program Technology development Studio Bartucci industrial process improvements Vattenfall One Tonne Life project TOTAL s transportation EE pilots Bulk procurement and distribution Enel s Energy Efficiency Partnership Program New York State s Block Bidding Program UK Community Energy Savings Program

Conclusions Regulatory compliance is not the only driver of energy provider-delivered energy savings activities Advice and assistance is the most common energy saving activity, complemented with other activities Energy providers are skilled at bundling advice and incentives to create accessible energy savings opportunities The line between ESCOs and energy providers is becoming blurred, with ESCO subsidiaries of energy providers emerging to meet obligations on providers More work and data collection is needed to understand delivered costs of energy provider savings activities

Guidelines for setting utility energy efficiency policies Consider carefully the right role for energy utilities Utilities are often best at delivering energy efficiency with resource value Establish a regulatory framework that mobilizes utilities Distributors/retailers are often best positioned to deliver efficiency programmes Maintain strong regulatory oversight BUT avoid unnecessary complexity and procedures Consider System Public Benefit or Wires Charges as a way to fund energy efficiency

Group Discussion energy utilities and energy efficiency What do you think might drive energy utilities to deliver energy efficiency in your country? What type of energy savings activities would utilities in your country likely provide? How would utilities compare to others who are now delivering energy efficiency? What is the likelihood of governments or regulators requiring energy utilities to get involved in delivering energy efficiency?