Five Challenges to Fully-Fledged Energy Efficiency

Ryan Pollin for Zondits, September 7, 2015. Image credit: HebiFot

Dian Grueneich of Stanford University has laid out the steps for transforming energy efficiency as we know it, to energy efficiency as we need it. Her five challenges, some old and some new, combine all of our failures, shortcomings, and complaints with the scientific demands of carbon reduction on a quickly warming planet. Every possible scenario in which we humans save the day and the climate, every single one, depends on an energy efficiency industry that performs at a higher echelon than how we perform today. Here's what stands in the way:

  • Dramatically increasing the magnitude of energy efficiency savings
  • Diversify the sources of energy efficiency savings
  • Ensuring the persistence and reliability of energy efficiency savings
  • Integrating energy efficiency goals within a carbon reduction framework
  • Valuing energy efficiency as a key tool in building the grid of the future

The Next Level of Energy Efficiency: The Five Challenges Ahead

Dian Grueneich. Under a Creative Commons license.

To attain the 'next level of energy efficiency,' five key challenges must be overcome: increasing the magnitude of savings; diversifying energy efficiency resources; measuring and ensuring the persistence of energy efficiency savings; integrating energy efficiency savings with a carbon reduction framework; and understanding and valuing energy efficiency as part of an evolving grid.

I. Introduction

The urgency of addressing climate change and the changing electric grid require a 'next level of energy efficiency' to mobilize energy savings that go beyond historical practice and integrate with a grid characterized by high levels of intermittent resources and variable load. To reach this next level, we must first understand the challenges ahead, which is the subject of this article.1 This article focuses on California, but the challenges discussed apply elsewhere as well. Energy efficiency has a major role to play in the 21st century grid, but unless the challenges ahead for the next level of efficiency are acknowledged and addressed, we will waste valuable time and money in the struggle to address climate change.

Since the 1970s, energy efficiency has saved Californians nearly $90 billion on their energy bills and reduced California’s electricity demand by more than 15,500 megawatts (MW).2 From 2003 through 2013, the state’s overall investment in non-transportation efficiency (including the more than $1 billion annual investment in customer-funded energy efficiency programs plus savings from building codes and appliance and equipment standards) cut carbon dioxide (CO2) emissions by nearly 30 million metric tons, equivalent to the emissions of nearly 6 million cars.3 While this achievement is impressive, much more is needed. California seeks to reduce its greenhouse gas (GHG) emissions to 80 percent below 1990 levels by 2050 and energy efficiency is envisioned to play a substantial role.4 And, as part of California’s developing 2030 climate commitment plan,5 Gov. Jerry Brown has set a goal over the next 15 years to 'double the efficiency of existing buildings and make heating fuels cleaner.'6

II. The Challenges Ahead

This article discusses five specific challenges:

  • The magnitude of energy efficiency savings must increase dramatically;
  • The sources of energy efficiency savings must diversify;
  • Measuring and ensuring the persistence of energy efficiency savings must become commonplace;
  • Energy efficiency outcomes must be integrated with a carbon reduction framework, and
  • Energy efficiency must be understood and valued as part of an evolving grid, with utility-scale renewables, distributed energy resources (DERs), and significant load variability.7

These five challenges collectively present two additional hurdles. First, overcoming these challenges requires not only technological innovation and enhanced market strategies, but also significant changes in energy efficiency policy framework and agency governance. Changes by agencies themselves—in terms of the way that they interact with each other and stakeholders, how they define and track efficiency results, the policy rules they adopt, and how they use market forces to harness energy efficiency—are critical. While this is not the subject of this article, our research at Stanford University is also focusing on new tools and institutional changes.

This impact could raise the ceiling on energy efficiency cost-effectiveness and potentially open new investment opportunities.

Second, energy efficiency traditionally has played a cost-mitigation role by both providing direct customer savings through reduced energy bills and lowering overall utility system costs. This paradigm will be pulled in different directions, however, as we begin to ask more from energy efficiency. On the one hand, obtaining higher levels of energy efficiency from 'higher-hanging' and more diverse sources could require significant increases in utility customer funding and decrease the apparent value of energy efficiency in its traditional role as a cost-mitigation strategy. On the other hand, deep emission reduction goals of the sort California identifies for 2050 under its landmark climate change law (AB32)8 envision deployment of low-carbon electricity generation technologies that could—unlike most energy efficiency investments today—measurably increase costs per delivered unit of energy. This impact could raise the ceiling on energy efficiency cost-effectiveness and potentially open new investment opportunities. But it would also saddle energy efficiency with the responsibility to mitigate these new costs,9 which might otherwise make the expense of deep decarbonization politically challenging. Moreover, the timing of energy efficiency deployment is important, so that excess and more costly marginal generation—even if renewable or carbon free—is not built. The interaction among policies—energy, climate, reliability, etc.—must be anticipated and full value given to the contributions of energy efficiency, in relation to the comparative costs of both supply side resources and other GHG mitigation strategies. Potential conflicts must be acknowledged and policymakers need to establish a consistent framework for energy efficiency’s role across the state’s efforts.10

A. The magnitude of energy efficiency savings must increase dramatically

As noted above, California seeks to reduce its GHG emissions to 80 percent below 1990 levels by 2050.11 Figure 1 is drawn from an illustrative economy-wide analysis done by Energy and Environmental Economics, Inc. (E3) of pathways for achieving this goal, with potential contributions from each major strategy represented by a different colored wedge.

Figure 1: Illustrative GHG Reductions Needed by California for 2050 (Note: See, Williams, J., et al., 2012. The technology path to deep greenhouse gas emissions cuts by 2050: the pivotal role of electricity. Science (January).)
Figure 1: Illustrative GHG Reductions Needed by California for 2050 (Note: See, Williams, J., et al., 2012. The technology path to deep greenhouse gas emissions cuts by 2050: the pivotal role of electricity. Science (January).)

The light blue wedge depicts the GHG emissions reductions coming from energy efficiency efforts (including transportation).12 The analysis concluded that California needs to pursue concurrently all major strategies illustrated in the figure to meet its 2050 GHG emission reduction goal.13 Energy efficiency savings are particularly important because they lower energy costs to customers and system-wide. Without energy efficiency, the overall cost of meeting carbon goals increases significantly.

More recent modeling done by E3 on California’s GHG emissions focuses on what the state could do in the next 15 years to stay on track toward 2050 GHG emissions goals. The analysis suggests that California should target a 26–38 percent reduction in emissions by 2030, relative to the 1990 GHG level.14 Figure 2 illustrates the reduction in energy use per capita from scenarios that reach the 2050 goal. In this particular model the decreased intensity is achieved through baseline reductions in the demand for some energy services, more efficient delivery of those services, and fuel switching—primarily electrification of transportation and heating loads. These significant energy (and cost) savings make the model’s supply-side low-carbon grid technologies more affordable at the consumer level. In fact, as the entire energy system decarbonizes over time, the role of energy efficiency shifts from emissions-savings to a cost-savings strategy.

Figure 2: Energy Use Per Capita (2015–2050) (Note: Energy and Environmental Economics (E3). 2015, April 6. California PATHWAYS: GHG Scenario Results. E3 PATHWAYS. httpsethree.com/doc ments/E3_PATHWAYS_ HG_Scenarios_Updated April2015.pdf.)
Figure 2: Energy Use Per Capita (2015–2050) (Note: Energy and Environmental Economics (E3). 2015, April 6. California PATHWAYS: GHG Scenario Results. E3 PATHWAYS.

Lawrence Berkeley National Laboratory (LBNL) has also released new work, modeling policy and technology scenarios in California focused on GHG emissions reductions in 2020 and 2030.15 Using CALGAPS, a model simulating GHG and criteria pollutant emissions in California from 2010 to 2050, four scenarios are presented: (1) Committed policies, (2) Uncommitted policies, (3) Potential policy and technology futures, and (4) Counterfactual (which omits all GHG policies). Forty-nine individual policies were assessed, such as Title 24 building codes and goals included in the California Public Utilities Commission’s (CPUC) 2008 Energy Efficiency Strategic Plan.16 This modeling demonstrates the critical importance of California’s current energy efficiency efforts but also reveals that additional policies leading to greater emission reductions will be needed in the longer-term.

B. The sources of energy efficiency savings must diversify

A second challenge is that the sources of efficiency savings must diversify, and focus on eliminating the waste of energy, whether caused by equipment, operation, or behavior. Figure 3 shows electricity being consumed in California’s residential and non-residential buildings.

Figure 3. California
Figure 3. California’s Building Electricity Consumption (Note: CPUC. California EE Strategic Plan – Research and Technology Action Plan 2012–2015. p. 4-2. Source: Residential Appliance Saturation Survey 2009 and California Commercial End Use Survey 2006.)

Figure 4 presents electricity savings reported by the California investor-owned utilities (IOUs) for their 2010–2012 residential and commercial efficiency programs.17

Figure 4. Current Efficiency Measure Savings are Not Well Diversified (Note: California Energy Efficiency Statistics: Data Portal. httpeestats.cpuc.ca.gov/Views/EEDataPortal.aspx. This figure is derived from IOU evaluated numbers; the numbers are presented based on gross EE savings from the IOUs
Figure 4. Current Efficiency Measure Savings are Not Well Diversified (Note: California Energy Efficiency Statistics: Data Portal. This figure is derived from IOU evaluated numbers; the numbers are presented based on gross EE savings from the IOUs' commercial and residential programs (accessed 17.06.15).)

The vast majority of reported IOU customer bill-funded electricity savings for 2010–2012 are from indoor lighting measures. Lighting also continues to dominate public power energy efficiency programs, accounting for almost half of the total gross energy savings achieved (46.4 percent) for FY 2013–2014.18 While lighting has traditionally provided the most cost-effective savings (which offsets the more costly programs or non-resource programs, thus ensuring an overall cost-effective portfolio for utility-customer funded programs), building codes and mandates are decreasing the 'low-hanging' availability of low-cost lighting retrofits for these voluntary efficiency programs.

Lighting savings, especially through the use of LEDs, should continue to be pursued, since significant lighting savings potential remains. However, Figure 3 shows that non-lighting end uses in buildings account for approximately 78 percent in the residential sector and 71 percent in the non-residential sector. The scope of California’s efficiency savings goals requires delivery of savings well beyond lighting alone. Plug loads and miscellaneous loads are the largest areas of consumption for the residential and non-residential sectors, respectively.19 The Natural Resources Defense Council (NRDC) reports that plug-in equipment accounts for just 12 percent of efficiency program electric savings in California today, despite its two-thirds share of the state’s residential electric consumption.20 Likewise, the state’s appliance efficiency standards are not keeping pace with the rapid growth in plug-in equipment usage.

Deeper savings also require approaches focused on capturing whole building and systems-wide savings, which involves spanning multiple end uses and looking at all savings potential in buildings. Diversification in the sources of efficiency savings includes increasing building operation efficiencies, particularly related to the usage of miscellaneous loads and equipment, and focusing on all savings in existing building, not just from an 'above code' baseline. Existing programs are not seriously pursuing these areas, hampered by cost-effectiveness and other rules that do not allow all savings to be counted and do not value all services provided.21

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  1. Once the challenges facing the next level of efficiency are understood, the second step is identifying new tools and opportunities to address those challenges. The third step is developing and implementing a policy and market framework to support this next level of efficiency.
  2. Source for $75 billion total savings: California Energy Commission (CEC). 2013. 2013 Integrated Energy Policy Report, p. 28.www.energy.ca.gov/2013publications/CEC-100-2013-001/CEC-100-2013-001-CMF.pdf(accessed 06.06.15). The CEC reports codes and standards benefits as a total, not accounting for the cost of the programs. Source for $12 billion net savings: See Appendix 1: 'Net Benefits Sources' (benefits are net of the cost to run the programs). Source for 15,500 MW: CEC, 2013. California Energy Demand 2014–2024 Final Forecast, vol. 1. p.77; Figure 38, p. 78. www.energy.ca.gov/2013publications/CEC-200-2013-004/CEC-200-2013-004-V1-CMF.pdf(accessed 06.06.15).
  3.  Source for savings: CPUC evaluation reports (http://eestats.cpuc.ca.gov/Views/EEDataPortal.aspx), IOU 2013 annual reports (http://eestats.cpuc.ca.gov/Views/EEDataPortal.aspx), POU annual reports (http://www.ncpa.com/policy/reports/energy-efficiency/), Overall C&S savings for 2003–2013 are from CEC, 2013. California Energy Demand Forecast 2014–2024. 'Table A-8: Electricity Efficiency/Conservation Consumption Savings' (www.energy.ca.gov/2013_energypolicy/documents/demand-forecast/mid_case/). In order to avoid double counting of C&S savings, the C&S savings attributed to the utilities were subtracted. Source for CO2: Energy and Environmental Economics (E3). Developing a Greenhouse Gas Tool for Buildings in California, p. 11 (mean of marginal emission intensities for electricity = 0.51 metric ton CO2/MWh); p. 39 (on-site natural gas emission intensity = 117 lbs CO2/MMBtu), ethree.com/GHG/GHG%20Tool%20for%20Buildings%20in%20CA%20v2%20April09.pdf (accessed 06.06.15). 117 lbs CO2/MMBtu converts to 0.00531 metric ton CO2/therm using 1 therm = 0.1 MMBtu. Source: U.S. Energy Information Administration, 'Frequently Asked Questions: What Are Ccf, Mcf, Btu, and Therms?' www.eia.gov/tools/faqs/faq.cfm?id=45&t=8 (accessed 06.06.15); 1 lb = 0.0004536 metric ton. Source for cars equivalent: Calculation assumes 214,691 passenger vehicles driven for 1 year per million metric tons of carbon dioxide equivalent. Note that passenger vehicles include passenger cars, class 1 light trucks, and class 2 light trucks. CARB, Emissions Factors Database (EMFAC), run for 2014, www.arb.ca.gov/emfac/ (accessed 06.06.15). 2009–2013 cumulative electricity savings were 16,804 GWh.
  4. Executive Order (E.O.) S-3-05: http://gov.ca.gov/news.php?id=1861; E.O. B-16-2012: http://www.gov.ca.gov/news.php?id=17472.
  5. Gov. Brown’s new E.O. B-30-15: http://gov.ca.gov/news.php?id=18938.
  6. Gov. Brown’s inaugural address: http://www.gov.ca.gov/news.php?id=18828. NRDC reports that residential and commercial buildings currently use 69 percent of all electricity in California, equivalent to the output of 70 large (500 MW) power plants. NRDC. Plug-In Equipment Efficiency: A Key Strategy to Help Achieve California’s Carbon Reduction and Clean Energy Goals. http://switchboard.nrdc.org/blogs/pdelforge/Plug-in%20Eff%20IB-15-02-D_14.pdf. Increasing the savings in existing buildings is thus a major focus of California’s GHG emission reduction strategy.
  7. This discussion focuses on energy efficiency. However, demand response plays a critical role in the changing grid and going forward, greater integration of demand-side management (DSM) resources is needed for both planning and implementation.
  8. Assembly Bill (AB) 32: http://www.leginfo.ca.gov/pub/05-06/bill/asm/ab_0001-0050/ab_32_bill_20060927_chaptered.pdf.
  9. McKinsey published its first global GHG abatement curve in February 2007 and created a comprehensive update with version 2 in January 2009. In August 2010 McKinsey released its findings of the impact of the financial crisis on carbon economics, called version 2.1. See: http://www.mckinsey.com/client_service/sustainability/latest_thinking/greenhouse_gas_abatement_cost_curves.
  10. Grueneich, D., Carl, J., 2014 April. California’s Electricity Policy Future: Beyond 2020. Shultz-Stephenson Task Force on Energy Policy, Stanford University.
  11. Executive Order (E.O.) S-3-05: http://gov.ca.gov/news.php?id=1861; E.O. B-16-2012: http://www.gov.ca.gov/news.php?id=17472., supra.
  12. In Figure 1, energy efficiency accounts for 33 percent of the emissions reductions projected in 2030 (223 MMT CO2e) and 28 percent of reductions (102 MMT CO2e) in 2050. This figure is illustrative and numbers depend on the order assigned to emission reductions.
  13. See, Williams, J., et al., 2012. The technology path to deep greenhouse gas emissions cuts by 2050: the pivotal role of electricity. Science (January).
  14. Energy and Environmental Economics (E3). 2015, April, 6. California PATHWAYS: GHG Scenario Results. E3 PATHWAYS. https://ethree.com/documents/E3_PATHWAYS_GHG_Scenarios_Updated_April2015.pdf.
  15.  Greenblatt, J., 2014. Modeling California policy impacts on greenhouse gas emissions. Energy Policy (December). http://www.sciencedirect.com/science/article/pii/S0301421514006892.
  16. CPUC, 2008, September. California’s Long Term Energy Efficiency Strategic Plan. http://www.cpuc.ca.gov/NR/rdonlyres/D4321448-208C-48F9-9F62-1BBB14A8D717/0/EEStrategicPlan.pdf.
  17. California does not publish information on achieved or forecasted savings in the end-use categories shown in Figure 4 across utility programs, codes and standards, and private market effects. Figure 4 provides publicly available information on end-use measure savings from California IOU-customer funded programs.
  18. California Municipal Utilities Association. Energy Efficiency in California’s Public Power Sector A 2015 Status Report, p. 27. http://cmua.org/wpcmua/wp-content/uploads/2015/03/2015-FINAL-SB-1037-Report.pdf.
  19. 2010–2012 gross savings by end use from plug loads and appliances, California Energy Efficiency Statistics: Data Portal. http://eestats.cpuc.ca.gov/Views/EEDataPortal.aspx.
  20. NRDC estimates that plug-in equipment is responsible for approximately two-thirds of California’s residential electricity consumption. NRDC. Plug-In Equipment Efficiency: A Key Strategy to Help Achieve California’s Carbon Reduction and Clean Energy Goals. http://switchboard.nrdc.org/blogs/pdelforge/Plug-in%20Eff%20IB-15-02-D_14.pdf.
  21. Research at Stanford is exploring the disconnect between the current policy framework and the challenges of the next level of efficiency.