Energy efficiency (EE) burst onto the scene in the 70's and has been an important part of our energy mix ever since. In fact, according to the Alliance to Save Energy, without the numerous EE-related improvements made since 1973, the U.S. would require about 50% more energy to deliver our current gross domestic product (GDP).
With states and utilities increasingly focused on decarbonization efforts, the role of energy efficiency is coming into focus. States are even recognizing it as perhaps the lowest-cost tool for reducing greenhouse gas (GHG) emissions.
There are two flavors of EE that utilities are employing to eliminate carbon from the grid. Focused on the customer experience, these include:
- Structural Energy Efficiency (SEE) – A utility representative or approved contractor comes to your home and performs an energy audit. They recommend replacing your refrigerator, central heating and AC unit and reinsulating your house. The money to make these changes comes out of your pocket, usually with a small monetary incentive provided by the local utility or EE administrator. Savings are generated over long periods of time - up to 30 years based on the changes made.
- Behavioral Energy Efficiency (BEE) – You receive a digital or paper Home Energy Report (HER). It includes personalized insights on your energy consumption, how you compare to similar homes and simple steps that can be taken to reduce usage and save money. Although the energy savings per participant are lower than SEE programs, HER programs can operate at scale and apply to all customer segments – at no cost to the customer.
Recently, regulatory bodies in some states have emphasized the use of SEE programs over BEE programs. While both deliver important benefits in our mission to decarbonize the grid, is this the right move? Certainly increasing investment in SEE is a good thing but it can't come at the expense of BEE programs if we are serious about addressing climate change according to a new report from Analysis Group.
A Comparison of Structural and Behavioral Programs
The Analysis Group recently set out to study how investments in energy efficiency are changing (or should change) as states and utilities set aggressive decarbonization targets. It evaluated current EE program designs and policies of behavioral and structural programs. Specifically, it assessed these two types of programs across several states with an emphasis on the timing and scale of resulting GHG emissions reductions.
The in-depth analysis found that efforts to shift spending to SEE programs will ultimately lead to suboptimal climate-related outcomes. Why? Quite simply, energy saved today affords more climate value than energy saved in the future. Much like receiving $1,000 today is worth more than $1,000 ten years from now, reducing GHG emissions today - and thus immediately reaping those benefits – is more valuable than avoiding those same emissions ten years from now. The reason, of course, is because those savings compound year-over-year, not unlike what happens with the interest one accrues from a financial investment.
These truths are bolstered by the fact that electricity generation is shifting to less carbon-intensive fuels, meaning reductions today avoid more GHG emissions in the future. For instance, coal made up 27% of our generation mix in the United States in 2018 but it's estimated to be only 11% in 10 years (2030) according to an analysis by Moody's Investors Service. So, a kWh reduced today saves more emissions than a kWh reduced 10 years from now. Therefore, the climate value of EE programs depends not only on how much EE measures reduce GHGs, but also on when those reductions occur. And the sooner the better!
Knowledge is Power – A Deep Dive Into the Report’s Findings
The research culminated in seven important findings, all of which are detailed in the full report. Here are three to get you started:
- BEE delivers climate benefits at a fraction of the cost of SEE programs. An analysis of a BEE program delivered by a large utility in the Eastern U.S., found that it avoided CO2 emissions at about one quarter the cost of SEE programs. While the analysis primarily looks out through 2050 – the most common target for decarbonization goals – it's even more cost compelling when examined from the perspective of 2030. This is important because the scientific community has found that significant emissions reductions must be achieved by 2030 if we are to reverse the impacts of climate change. When calculated at this accelerated timeframe, this sample BEE program above delivers reductions in CO2 emissions and avoided damages from climate change at about one fifth the cost of SEE programs.
- BEE programs deliver results much faster… up to five times faster than SEE programs. Reviewing the same utility, it's clear how much more quickly BEE achieves avoided damages and reduces GHG emissions. In this case, the BEE program delivers an equivalent level of cumulative lifetime avoided climate change damages as the SEE program. However, it does so in three to four years as opposed to the more than 20 years SEE programs take. Again, this is critically important because of the time value of capturing savings today, rather than in the future.
- BEE programs are more inclusive. They are actually one of the few utility supported measures that benefit a broad reach of residential customers, delivering personalized insights and energy saving opportunities to nearly everyone.
To be clear, these findings do not point to choosing BEE programs over SEE programs, or vice versa. Instead, they suggest value in continuing both programs, and increasing investment in BEE where possible. In fact, there is evidence suggesting BEE programs can be used to promote and increase participation in SEE programs. So now what?
Insights to Action
With 2030 viewed as a tipping point in our ability to avoid the worst effects of climate change, we can't underestimate the findings in this report. We must act with urgency in reducing GHG emissions. The more we do today, the better off we will be in the future. BEE programs are critical to this effort. So, following are some top-line recommendations to capitalize on the immediate savings delivered through BEE.
- Regulators and utilities need to work together to integrate GHG-focused metrics for evaluating the design, budgeting and performance of utility EE programs. This one is pretty simple. We must move beyond simply measuring avoided kilowatt hours. It's time to consider what those savings equate to in the amount, and timing, of carbon eliminated.
- Value the timing of avoided GHG emissions by maintaining annual energy savings targets. Emphasizing lifetime savings targets leads to designing energy efficiency portfolios that fail to maximize near term GHG reductions. Let's not undercut the role of BEE programs in addressing climate change.
- Design performance incentives that simultaneously maximize cost effective savings and GHG benefits. Performance incentives are an important policy mechanism that align utility action toward a particular outcome. Regulators should ensure that performance incentives do not undermine a utility's ability to achieve GHG emissions reductions in the near term.
- Leverage BEE to drive SEE. The two programs should be viewed as complementary. Designing innovative BEE and SEE programs that intentionally reinforce one another will lead to retrofitting the residential built environment at a faster pace than if the programs are largely uncoordinated. BEE programs can be tailored to not only generate savings and reduce emissions, but also to accelerate participation in SEE programs.
Our fight to address climate change requires us to challenge our assumptions and double down on the areas that provide us the most meaningful returns. Pursuing all cost-effective energy efficiency – structural and behavioral programs – need to be prioritized in energy policy. Energy policy and regulation should not create an either/or investment choice; rather they should encourage investment in both.
Early and continuous reductions in GHG emissions are vital to avoid the perilous impacts of climate change. As detailed in the report from Analysis Group, BEE programs are proven to drive reductions in GHG emissions more quickly, more easily, and more cost effectively than other EE measures. Therefore we must not abandon BEE as an integral part of the arsenal we are employing to turn the tide on climate change.
Read the full report from the Analysis Group here.