Guest Juice: Energy Efficiency as a Distributed Resource

15 Mar 2017

Editor’s Note: This is a second in a series of articles on how California counts on energy efficiency to help meet state greenhouse gas reduction and clean energy goals while serving as a meaningful distributed energy resource alongside of rooftop solar, energy storage, and demand response.[1]

By Cynthia Mitchell

As California’s “first loading order resource,” energy efficiency is to help with much needed utility rate relief. And, as California moves away from fossil fuels to reduce greenhouse gas emissions through a more decentralized system of significant variable renewable resources, energy efficiency also is needed to help meet ramping and peak capacity requirements caused by California’s infamous “Duck Curve.”

The opportunities (imperative) for using efficiency to ameliorate the duck curve are there[2] – how to make them happen is the “billions of dollars” question.

(The duck’s neck reflects a run-up in late afternoon of commercial building loads from internal heat gains [increased space cooling, lighting, data centers, other office and retail functions] and early evening residents returning home from school and work [turning on/up air conditioners, lights, starting cooking, watching television, etc.]. Californians and others have recognized for some time that energy efficiency solutions targeted at reducing electrical demand on a whole building/home basis can ease the need for and provide dramatic ramping and peak capacity.)

The market for energy efficiency meter-based savings tools is fledgling. California needs to accelerate CPUC-approved commercial specification of automated, open-source, meter-based savings tools (developed by CPUC-retained experts) for the commercial building sector, where non-routine adjustments to savings baselines are needed.

CPUC President Mike Picker, at a recent conference on California’s Distributed Energy Future, said the today’s challenge is greenhouse gas reduction:[3] “As we have seen from the Germans and China, you can increase the amount of renewables and still have to build backup [gas-fired] generation, thus contributing to more GHG emissions.”

He added that increasing amounts of variable resources lead to a grid becoming “highly variable,” causing over-generation, peak shifts, and annual shifts in generation. “The most important part of this [electric system transformation] is at the distribution level where you can prioritize ‘negawatts versus megawatts’ – demand resources become part of the exchange, and customers become part of the exchange, as generation technologies.”

Picker’s recent remarks speak to the critical intersection of energy efficiency at both the aggregate system and distribution level.

Despite CPUC proceedings on distributed energy resources and distribution resource  plans, and all source solicitations,[4] energy efficiency as a distributed energy resource is not being developed at anywhere near the scale and pace of rooftop solar and energy storage.

There are various reasons why this is so. Perhaps the largest is that energy efficiency programs number in the hundreds. Each program, in turn, is made up of thousands of discrete and dispersed efficiency measures. The savings from nearly all of these measures are not metered.

As a result, energy savings measurements are unmetered estimates.

Moreover, savings from individual measures do not always equate to absolute reductions in energy usage, whether at an individual customer’s meter or aggregated system-wide.[5] From the perspective of the California Independent System Operator, the contribution of energy efficiency to grid reliability is unclear, given the difficulties in accurately monitoring and measuring efficiency on a location-specific basis.

Assorted legislation – notably AB 758, SB530, and AB 802 – seeks to promote energy efficiency at larger scales. But to realize that vision will require transaction solutions designed to match core utility attributes.

Energy efficiency needs to “walk and talk” like other energy resources—historically generation, now increasingly rooftop solar, energy storage, electric vehicles, and demand response. These resources create investor-grade revenue streams of net income based on a product (output) that is measured at the meter.

What you can meter, you can charge and collect revenue.

With meter-based savings measurements, efficiency becomes an energy resource, analogous to generation. Efficiency as energy can be applied at individual sites, or at a project portfolio level, and it correlates well to circuit and substation loads, is persistent, and is measurable at the meter.

As an energy source, efficiency can be invested in over long periods of time (perhaps decades) as a new resource asset type, with flexible load management and reliability measurements.

California utilities could invest in efficiency, alone or bundled with other distributed resources. Transaction structures can be designed to bill the building at the energy usage up to (or less than) the dynamic baseline. The difference between the dynamic baseline and metered bill is used to recoup efficiency investment costs, with possible additional bill saving benefits shared with building owners and tenants. This holds the potential to turn efficiency savings into energy yield: EE = Energy, not just operationally, but transactionaly in markets for both energy and capital.

In short, California needs new transaction structures that move beyond consumers’ limited investment horizons to more intelligent bundled efficiency; in turn, that will lead to lower utility costs and lower cost of utility capital formation.

If California fails to take advantage of abundant bundled efficiency resources it will be left with a grid that is too expensive. This could result in customers seeking bypass options, whether through self-supply or microgrids.

California’s grid needs to be “smart” and an essential ingredient is taking advantage of the lowest cost options to provide reliable service.

It begins with the automated meter-based tools – what some of us are calling “EE meters.”

Cynthia Mitchell

[1] See distributed energy resources definition per AB 327 (Perea, Chapter 611, Statutes of 2013).

[2] The Lawrence Berkeley National Laboratory’s Final Report on Phase 2 Results, 2015 California Demand Response Potential Study Charting California’s Demand Response Future, (November 14, 2016)  replaces a traditional monolithic concept of demand response with a more nuanced alternative: shape, shift, shed, and shimmy – four flavors of demand response, each with a unique character complementing the needs of the grid. Energy efficiency generally goes hand in hand in these advanced forms of demand response.

LBNL found that the market and technology development for ‘Shift’ DR “…is a resource with an energy-based, cumulative value, rather than a power-based capacity value, placing it in a separate category from conventional Shed DR….the value of Shift resources come from multi-hour changes and accumulate through the years. As more renewable electricity that would otherwise be curtailed is captured, the value increases.” p.. 5-26.

Also, a 2016 Energy Institute at Haas School of Business UC Berkeley paper—“Do Energy Efficiency Investments Deliver at the Right Time?”—found that: “As more solar generation comes online, there is growing concern about meeting the steep evening ramp. Our estimates suggest that air conditioning investments deliver more savings than expected during these evening hours, and thus could become more valuable as renewables penetration increases.”

“These savings are highly correlated with the value of electricity… [e.g.] summer afternoons are crunch time in California electricity markets.” And, Colleague Jim Lazar’s work “Teaching the Duck to Fly” includes a package of strategies including but not limited to energy efficiency, demand response, peak-oriented renewables, and rate design, to produce a gradual change in the load shape, that if aggressively deployed, can dramatically reshape the electricity load from a “duck in water with its weight in the water floating easily, to a duck in flight that  stretches out its profile to create lower wind resistance in flight.” Notably, the first strategy is to target energy efficiency to the hours when load ramps up sharply.


[3] Green Tech Media Squared GTM2, California’s Distributed Energy Future Conference, Fireside Chat: The State of the California Energy Transformation, March 9, 2017,


[4] Distributed Resource Plans: R.14-08-013; Integrated Distributed Energy Resources: R14-10-003;

SCE and SDG&E All Source Solicitations have resulted in very little energy efficiency.


[5] Ibid 2.

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