New Studies Uphold the Value of Energy-Efficiency Programs

Two questions are often raised about energy-efficiency programs, particularly those supported by the public-benefits charges on utility bills and by government incentives to which all of us contribute as rate- and taxpayers: Do such programs really deliver the expected reductions in energy use, and even if they do, might they nonetheless be futile because their savings are likely to be cancelled out by the so-called rebound effect?

A July 2012 policy session held during CSG/ERC’s Annual Meeting in Atlantic City addressed the first question, and an August 2012 report from the nonprofit organization American Council for an Energy-Efficient Economy (ACEEE) tackles the second. Both demonstrate the availability of genuine savings from well-conceived and properly managed efficiency efforts. In addition, the ACEEE analysis concludes claims that a rebound effect undoes efficiency’s savings have greatly exaggerated the phenomenon because of erroneous assumptions or inadequate data.

The July 21 ERC workshop, entitled Capturing Energy Efficiency: Approaches with Validated Results, gave representatives of state agencies, utilities, regional transmission organizations and policy-oriented nonprofits the opportunity to present data that show the effectiveness of well-conceived efficiency programs and building codes, based on the careful measurement and verification of their impacts.

The Massachusetts Department of Energy Resources described the Commonwealth’s approach to accurate tracking of energy-efficiency efforts through statewide assessment of individual programs, using consistent methods that are planned and executed collaboratively with the Massachusetts Energy Efficiency Advisory Council and its consultants. Their most recent figures show substantial increases in energy savings from 2009, when efficiency represented 0.92 percent of electricity sales, to 2011, when that figure reached 1.74 percent of sales. The department’s estimate of 2.32 percent savings for 2012 represents the highest efficiency achievement in the nation, according to National Grid, which is an active partner in the state’s efficiency undertakings.

A spokesperson from National Grid also noted two important components for maximizing efficiency gains: having flexibility to adjust programs following mid-year evaluations, and offering shareholder incentives in the form of bonuses proportionate to utilities’ successes in reaching or exceeding their assigned savings. Company officials believe that increased outreach and tailoring of programs to particular customer groups is currently more important than promoting new technologies as a way of improving outcomes, the spokesperson said.

Energy-efficiency data from New England states have now reached a level of reliability that allows the operator of the region’s bulk electricity system to include anticipated program gains in its ten-year analyses of grid needs. In consultation with New York’s Independent System Operator (ISO), ISO New England has developed a forecasting methodology that allows projections of future efficiency savings to help determine whether new infrastructure will be required.

One of the first results of the new forecasting approach indicates that efficiency gains will delay, and possibly eliminate, the need for a $260-million transmission project that had been planned for Vermont and New Hampshire on the basis of previous studies.

In The Rebound Effect: Large or Small?, ACEEE author Steven Nadel assesses the value of efficiency programs from a different angle by reviewing studies that cast doubt on these efforts in connection to the so-called rebound effect. The studies define the phenomenon in terms of the likelihood that energy savings will be largely eroded by customers’ tendencies to increase consumption because of the extra cash they have as a result of lower electricity or gas bills. For example, a car owner might drive more after purchasing an energy-efficient vehicle that requires less frequent fill-ups, or a sports fan might buy a long-desired big-screen TV with money from electricity savings.

Similar patterns have been postulated to occur in the commercial and industrial sectors. Manufacturers, for example, may expand their output or reduce the cost of their products with the savings that efficiency makes possible, driving overall higher energy use by virtue of increased production or buyer demand.

The ACEEE report reviews over 100 studies on the phenomenon to assess what is and isn’t known about it. Two types of rebound are discussed – direct rebound, exemplified by the consumer who puts more mileage on an efficient car or raises the setting on a home thermostat, and indirect rebound, illustrated by the factory owner whose lower prices increase demand or the sports fan who buys a big-screen TV.

After examining research about vehicle mileage, space heating and cooling, residential lighting and home appliances, Nadel, who is the executive director of ACEEE, concludes that direct effects are at best modest, in the range of 10 percent. Indirect effects, which are less well studied, may be about 11 percent, according to what he says is methodologically the best study to date.

No claims of ‘backfire’ – 100 percent rebound –stand up to scrutiny, and many studies of indirect rebound effects in particular rest on problematic assumptions, writes Nadel.

Doubts can readily be cast on conclusions that claim large effects – above 20 percent or so when combining direct and indirect rebound — by comparing their results with real-world figures, he says.

To make the point, he discusses the experience of Vermont, where electricity use peaked in 2005 and declined by about five percent as of 2010, and natural gas use peaked in 2000, declining 11 percent through 2010. No leakage can be demonstrated from individuals or businesses shifting their energy consumption to other sources during that time, and the Gross State Product (GSP) simultaneously rose 12 percent, while overall energy use declined nine percent, says Nadel.

“Though there could have been some rebound in Vermont, backfire is not happening,” he writes.

If research ultimately concludes that the total of direct and indirect rebound is about 20 percent, as Nadel believes it is, that still creates savings of 80 percent. And, he argues, the leakage itself leads to greater consumer amenities and a larger economy, both of which benefit society.

Further confirmation of the advantages of energy efficiency has just come from the regional system operator for the Mid-Atlantic States, PJM. A committee analyzing PJM’s long-term system needs recently determined that two proposed transmission projects — the Potomac-Appalachian Transmission Highline and the Mid-Atlantic Power Pathway – no longer are needed because of reduced electricity usage and an increase in demand response.

Demand-response programs supplement energy efficiency with another means to electricity savings, in this case through work with large consumers – factories, university campuses, and hospitals — to reduce ratepayer demand during peak load periods. Without such reductions, system operators would need to call on additional generators to supply power to the grid, and the resulting load level could overload certain areas of the grid.

So-called “peaking” plants also tend to be costlier than regular baseload generation, because they need to be maintained and kept on standby, though they are rarely used. Such plants tend to be older, less-efficient generators that emit more air pollutants than newer plants outfitted with the latest pollution-control technologies, so avoiding their use may also lead to environmental gains. And when the programs also lower overall energy demand, they enable utilities to defer investments in expensive new power plants and avoid associated rate increases for consumers.

Like ISO New England’s new forecast that shows efficiency makes a $260 million project unnecessary, the PJM committee recommendation will, if passed by the full board, save money for ratepayers, who otherwise would see increased distribution charges to pay for new infrastructure. Both examples add to the store of real-world data that argues for the value of programs to increase efficiency and reduce demand at critical times.

  — By Eleanor Saunders

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