California's energy efficiency path: Rebates, third party programs, market transformation
The following is a Viewpoint by Kristin Landry, a managing consultant at Navigant and a fellow in the San Francisco chapter of the Clean Energy Leadership Institute.
California has been a leader in utility energy efficiency (EE) programs for decades. Now, they're moving to an EE portfolio that will mainly be made up of third party programs, curated by the investor-owned utilities (IOUs). And on the side, they'll start piloting the next generation of programs: market transformation programs.
Market transformation programs move beyond rebating widgets and create systemic market changes. This can be achieved through any number of activities, some of which exist in traditional program designs: marketing, incentives, education and others. A market transformation approach helps to target these components and strengthen their ability to address existing barriers to adoption of a product or service.
Senate Bill 350 mandates that the California Public Utilities Commission (CPUC) authorize these efforts, so they're working with stakeholders to form a structured process for the IOUs to identify opportunities, select those to invest in, operationalize them and evaluate their success. They even brought in the Northwest Energy Efficiency Alliance (NEEA) — an organization that has been running successful market transformation programs for years — to share information and learnings with respect to their collaborative approach and what it takes to get these efforts off the ground.
NEEA employs a stage gate process to ensure buy-in as investment levels increase, and operates in an environment in which it is allowed to fail fast and apply learnings to pivot into better positions for growth opportunities. It should also be noted that NEEA's goals are not tied to energy savings, which are the primary objective of the current California IOU EE programs.
If you want to go quickly, go alone. If you want to go far, go together.
California has been focused on moving quickly — pushing the IOUs to do it all, and they've done well. Rebate programs are simple, brute force methods that are effective in the short term, but they are an expensive approach to achieving lasting, long-term energy savings. They are also not enough to procure the staggering amount of energy efficiency we need to meet global climate targets.
The ENERGYSTAR Retail Products Platform (ESRPP) is one example of a market transformation program that Pacific Gas & Electric (PG&E) has already piloted. This program aims to change the stocking patterns of national retailers, which reduces the reliance on customer purchasing decisions for achieving energy savings.
Imagine offering a child carrots or an apple, instead of carrots or a cookie, to get healthier results. On top of that, ESRPP encourages retailers to request more efficient products from manufacturers and to ready the market for more efficient appliance standards.
ESRPP's success relies on scale both as a key input and a key output: ESRPP is a national effort, with the United States Environmental Protection Agency coordinating nine program administrators across twelve states, who collectively serve 30% of the United States population. This reach allows them to influence the six retailers who represent 80% of the national appliance market, and because these retailers make stocking decisions at a regional or national level, widespread changes can result from influencing only a few decisionmakers.
Teamwork makes the dream work
The IOUs' scale will continue to be their leverage; their ability to partner will determine their impact.
The transition to a sustainable future involves everyone working together, leveraging their own strengths. It's the same reason most people don't represent themselves in court or do their own dental work — utilities need to work with those who know best as they attempt to tackle these new challenges.
The utilities already have most if not all of the tools they need.
The utilities work with each other all the time. They also work with other utilities — both energy and water utilities. They even work with more unexpected partners — technology companies, community organizations, and car manufacturers.
For example, PG&E conducted a pilot with BMW to test how electric vehicles might benefit the grid. A market transformation program could leverage this type of interaction to accelerate adoption of electric vehicles.
Working together also means having faith in each other; this goes for the regulator as well.
Market transformation initiatives are inherently riskier than the straightforward rebates of the past and present, but the upfront cost will have huge payoffs. The utilities need to be given the flexibility to take a few leaps of faith within a portfolio of market transformation programs and the time to prove them out and reap the rewards.
Market transformation programs are like startups — it's not fair to judge their success on revenues (or savings) at the very beginning — they take time to develop. Current cost-effectiveness tests used to greenlight most utility EE programs are based on immediate energy savings and are not suited to measuring the progress of market transformation programs from the start. As evidenced by NEEA's success, each program may need a new set of metrics that change with time as the program reaches various milestones.
New market transformation programs will need a vast array of partnerships. As energy utilities seek additional savings, they will need to look to partnerships harder to reach markets. The market transformation framework also opens up new tangential possibilities — the water-energy nexus, transportation and environmental justice all present opportunities for collaboration and energy savings.
Further out, market transformation programs pave the way for utilities to move beyond their central role of delivering energy and start orchestrating the shift toward a more sustainable energy future for other industries as well.