Last week the California Public Utilities Commission (D. 21-05-031) took a leap toward reconciling energy efficiency investments with other distributed energy resources and the rest of the demand flexibility universe.
Program administrators will no longer be judged on their ability to meet savings goals cost-effectively but instead on the value the stack of grid and climate values their resource acquisition portfolio can deliver.
Since the inception of energy efficiency programs, energy savings have been the bedrock of traditional goal setting. This includes elaborate widget-based accounting systems, shareholder incentive payments, and the Energy Efficiency Resource Standards (EERS) common in many states. Folks attempt to translate savings into avoided grid investments, carbon impacts, emissions reductions, bill savings, and energy intensity metrics. Still, unless the actual impacts on an hourly basis are used - these translations may not be very close to reality.
In the age of demand flexibility, energy efficiency can no longer easily be separated from a wide range of behind-the-meter resources. Using simple average energy savings as a primary metric obscures more than it illuminates. As the commission assessment pointed out:
All parties seem to agree that the current focus on first-year energy savings only, in the form of kWh, kW, and therm savings, does not capture all of the policy goals and benefits of energy efficiency. We agree. The value of energy efficiency varies significantly based on the hour, season, GHG benefits, climate zone, and lifecycle savings of each measure. While these values are captured in the cost-effectiveness calculations, they do not come together to represent a single goal for the program administrators to optimize around.
With the widespread agreement that the current metric of “energy savings” wouldn't cut it, the Commission leaned on a proposal published last year by NRDC. This proposal was the subject of multiple Commission meetings, stakeholder wranglings, and staff consideration to sort the core issues.
The Commission adopted a new single metric - Total System Benefit (TSB) - an expression, in dollar terms, of the lifecycle energy, capacity, and GHG benefits, expressed on an annual basis.
Use of a single, lifecycle TSB metric, expressed annually, will tie the goals for the program administrators directly to the avoided cost value of energy efficiency savings, which should encourage achievement of savings that deliver high value. Another advantage of this single metric is that it is agnostic as to fuel, which facilitates fuel substitution as an option, without the need to convert savings from one fuel to the other.
The Commission's move to this new metric reforms and realigns the energy efficiency portfolio towards a more holistic view of the future. Meter-based accounting of the system benefits on an hourly basis will enable the integration of demand-side solutions. It is an essential step to move efficiency portfolios towards their true value as demand flexibility resources that the grid needs.
Optimizing efficiency resource portfolios around system benefit is not a crazy California concept - it's an adaptation ripe for any jurisdiction struggling to integrate electrification, gas, non-energy benefits or to amplify a shared understanding of grid value.
The intent of the TSB is to use the savings and load shape of an energy efficiency resource and apply the hourly values for energy, capacity, and GHG compliance costs from the ACC (avoided cost calculator - California's demand-side value stack) to understand the total net system benefits from the energy efficiency resource.
We applaud the Commission for making this move and the hard work that staff and stakeholders from all perspectives contributed to this proceeding. Establishing the "Total System Benefit" as the key metric for potential and goals provides the clarity we all need to focus on value delivered and optimize for the future.
For more information:
Utility Dive: California Is Changing Energy Efficiency to Look Beyond
See the final Commission Decision D. 12-05-031
Recurve's Full Comments on the Proposed Decision
Contact firstname.lastname@example.org to hear the back story and how it may work in your jurisdiction
In our next blog we'll cover how the segmentation of the portfolio was another major milestone in California.