Over the last decade, utility budgets for demand-side management programs have grown significantly while power prices remained stable and gas prices were low – an indication that utilities see the avoided cost of energy use as a valuable proposition, according to analysis from the Consortium for Energy Efficiency.
The analysis also shows demand-side management budgets in the United States and Canada combined last year to reach almost $10 billion, representing sustained growth across the last decade. But actual expenditures in the two prior years remained flat, though there are many reasons potentially behind the slowdown.
“Factors other than retail energy prices are almost certainly helping drive DSM investment,” CEE said in its report.
The report shows U.S. and Canadian gas and electric program budgets were just shy of $9.9 billion last year, about a 50% increase since 2009. And actual expenditures in 2013 reached $8 billion – roughly the same level as in 2012.
If the price tag seems high, CEE notes that the programs are working. Demand management programs saved an estimated 25,177 GWh of electricity and 473 million therms of gas in 2013, the group said, equivalent to about 20 million metric tons of avoided CO2 emissions.
So what happened to keep expenditures flat from 2012 to 2013? According to CEE, the budgets "appear to reflect tapering expenditures as program cycles come to a close or as programs reach maturity within a cycle, meaning upfront costs have been met and maintenance costs are relatively small.”
But that doesn't mean budgets will remain stagnant, or decline because the work has been done. The theory that energy efficiency's easiest accomplishments have been picked doesn't sit well with Ralph Cavanagh, co-director of the energy program at the Natural Resources Defense Council.
“The low-hanging fruit grows back,” Cavanagh said. Utility efficiency expenditures must be viewed “in the context of capital budgets. It's not a subsidy; it's not unrelated to its core business. The mission from the beginning was to get [utilities] to think about energy efficiency as a resource investment.”
Boom and bust cycles
According to Cavanagh, the apparent slowdown in the growth of efficiency spending likely indicates a more mature market rather than utilities or states pulling back from investments. Plagued by boom-bust cycles through the 80s and 90s, Cavanagh said “the rate of growth has slowed, but it has allowed for the sustained growth of energy efficiency infrastructure.”
Cavanagh said that in 2007, the United States investment in energy efficiency for the whole of the utility sector was $2.7 billion. Now, it stands at $7 billion.
“People have gotten confident that the boom and bust cycles are behind us, and leadership of the utility sector has really embraced energy efficiency as a core part of their business," he said.
While the classic utility model tied revenues to Kwh sales, Cavanagh said that kept the industry working in fits and starts. “You had to overcome that problem, and get utilities to be comfortable with the proposition that energy efficiency was a part of what was keeping the lights on.”
Keeping the lights on, ultimately, is the driving force behind efficiency and demand management spending. How utilities achieve that end impacts their bottom line, but power prices have remained relatively stable in recent years, and natural gas prices have touched lows not seen in a decade.
Lawrence Berkeley National Laboratory has estimated the cost of electric efficiency programs funded by ratepayers at 4.6 cents/KWh, from 2009 to 2013, according to data released in April. The American Council for an Energy-Efficient Economy last year pegged the number at less that that, about 3 cents/KWh. Either way, according to CEE's report, the value is driving investment as levelized system costs of conventional supply-side resources are more expensive than efficiency.
Conventional coal costs about 9.6 cents/KWh to produce; nuclear is about 8.6 cents/KWh with subsidies, and even combined cycle gas plants are still costing 6.6 cents/KWh. CEE said the average price of retail electricity in the United States has been stuck near 10 cents/KWh since 2009, though residential prices have been moving towards about 12.5 cents/KWh.
“Regardless of energy prices, supportive policies and significantly lower implementation costs clearly bolster DSM program activity. These forces, coupled with new national policies such as standards for existing stationary sources of emissions … will likely result in continued expansion of the DSM industry for years to come.”
In a sense, the work is never done. A changing grid just means new spots for efficiency, says Cavanagh. Take the rise of electronic devices which are always on -- the little power draws, from cell phones to dryers to refrigerators. They draw $19 billion in power annually, according to NRDC's own analysis.
"It's a pretty astonishing energy savings opportunity," Cavanagh said. With your average household burning about 1,300 KWh of unnecessary electricity, or roughly the equivalent of three refigerators, "we're poised on the verge of a whole new set of energy efficiency opportunities.”
Despite the focus on residential demand management, however, the largest opportunities likely lie elsewhere. In fact CEE's research shows that commercial and industrial efficiency programs received the largest share of electric program funding in the United States in 2013, making up 41% of demand side management expenses compared to 28% residential.
"Residential has been getting the most attention," Cavanagh said, simply because that's where regulators and utilities naturally go -- to their base of consumers -- when they begin urging consevation. But "it's clear the largest savings opportunities are still in the commercial and industrial sectors," he said.