Opinionated: The Energy Efficiency Conundrum

9 May 2017

By Todd Edmister

In its well-intentioned efforts to address climate change in SB 350, the California Legislature mandated that state investor-owned utilities “double” energy savings cost-effectively by 2030. The fly in the ointment here is that SB 350’s new “doubling” requirement rests atop long-established legislation already requiring private utilities to obtain “all available energy efficiency and demand reduction resources that are cost effective . . .”  This collision of old with new is now roiling the waters at the California Public Utilities Commission.

Thanks to pre-SB 350 statutes, and the body of implementing regulations and programs that have grown up around them, pretty much any cheap – and much not-so-cheap – energy savings have been captured by utility efficiency programs.

And so the obvious but hard-to-answer question is this: If IOUs are already undertaking “all available” cost-effective energy efficiency and demand response, where is the cost-effective “doubling” supposed to come from?  Something’s got to give.

The easiest way to square the circle is to change the metrics for determining cost effectiveness in order to fund and count savings from lower-quality projects that historically would not have passed muster. But, this is a dubious approach. Whatever the shortcomings of the current cost effectiveness and savings measurement regimes (and there are real shortcomings, no doubt), simply backing into metrics that make it easier for such projects to qualify for funding benefits no one in the long run.

There is a better alternative to just widening the goalposts.  We saw in the solar power takeoff that finance is king.  Finance also is the key to energy efficiency taking off, particularly in retrofits of existing buildings, as promoted variously by AB 758 and AB 802.  Bring finance into the picture, and watch energy efficiency fly.

But this raises yet another obvious, but awkward, question. Energy efficiency has been around for decades without attracting the levels of financing and investment needed for the market transformation that efficiency advocates envision. What’s different now?

The key change has been the emergence of technology that allows for measuring, and thus metering, savings. Metering enables treatment of savings as a commodity, which in turn enables a cash flow from a savings stream, which in turn enables project finance approaches to energy efficiency projects. New “EE meters” are subsumed within the broader ambit of “Measurement and Verification 2.0”.  M&V 2.0, and new efficiency meter technology in particular, looks to be the key to moving forward. The basic idea, as outlined in recent work by Jessica Granderson at Lawrence Berkeley National Laboratory, is that automated software will generate a “baseline” energy use, against which actual use will be compared. The difference between the two is the measured savings.

 Efficiency25Source: Lawrence Berkeley National Laboratory

While this sounds simple in theory, in practice promoting such an approach poses collective action and regulatory risk problems of the first order. First, the collective action problem: would-be providers of metered energy efficiency services need counterparties to justify investment in efficiency meter technology. Second, the regulatory risk problem:  utilities who could be the counterparties needed to solve the collective action problem, are reluctant to jump in with both feet because of regulatory risks. While everyone dances around these problems, lenders, to the extent they are paying attention at all, remain largely on the sidelines of what could be an energy efficiency revolution.

The Commission is uniquely postured to break up the measurement and verification logjam. It should start by fast-tracking approval of utility participation in programs built around automated meter based tools.

Where California goes on evaluation, measurement and verification, many other states follow. Getting state government behind programs based on energy efficiency meters, and thereby reducing regulatory risk, is a key component in bringing next-generation pay-for-performance programs along. The Commission has already taken steps in this direction with the “High Opportunity Programs and Projects” pilot.

To accelerate matters, my law firm, Morrison & Foerster, is working pro bono with the non-profit Future Grid Coalition to reframe Pacific Gas & Electric’s proposed Diablo energy efficiency procurement as the world’s largest metered pay-for-performance program. As part of its request for Commission authorization to close the Diablo Canyon Nuclear Power plant, PG&E has sought authority to procure 2,000 GWh of energy efficiency. This is a huge potential procurement, equivalent to roughly half of PG&E’s current energy efficiency goals for non-low-income energy efficiency programs. The Future Grid Coalition proposal offers an extraordinary opportunity to advance next-generation efficiency programs by directing money towards pay-for-performance programs and setting the needed standards for energy efficiency meter technology.

Ideally, metered energy efficiency will be able to compete with or complement other distributed energy resources in all source approaches to procurement. Unfortunately, as we have seen in Southern California Edison’s request for offers, very little energy efficiency gets picked up in all-source procurements. Investor-owned utilities are essentially forced into “siloed”, energy efficiency-only procurement by the combination of SB350’s “doubling” requirement and the code’s “all cost effective” requirement.

Putting metering technologies in place offers energy efficiency, ostensibly the least-cost resource out there, a seat at the same table with other distributed energy resources. The Diablo proceeding offers a great opportunity to pull the requisite technology and associated new program approaches forward, if only the Commission is willing to do so.

Todd Edmister is of Counsel with Morrison & Foerster, and was a CPUC  Administrative Law Judge.




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