Energy efficiency: Delivering Consistent Results for Households in Michigan and Beyond

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A new academic working paper has been characterized in press accounts as broadly casting doubt on the cost-effectiveness of all residential energy efficiency programs. But extrapolating the results from one low-income program in Michigan to counter years of experience proving otherwise in the Midwest and elsewhere could lead to seriously flawed conclusions about the benefits of smarter energy use. As I'll detail below, existing utility efficiency programs offered by utilities in Michigan for residential customers are saving between 2 and 7 dollars for every dollar spent on the programs and have been performing well for years.

The paper released by a consortium of academic institutions looked at the results of the U.S. Department of Energy Weatherization Assistance Program on single-family, low-income Michigan homes and concluded the costs of the program significantly outweighed the financial value of the energy saved.

While the data underlying the paper's conclusions may well lead to valuable insights that can help government, non-profit and utility program managers design better programs, it shouldn't be used, as the accompanying press release suggests, to undermine the vast body of research demonstrating the potential for cost-effective residential energy efficiency programs to deliver enormous value to customers (including in Michigan and elsewhere in the Midwest).

One of the papers authors agrees, saying: "It's important to note that these results may not apply to all energy efficiency programs across the nation, says study co-author Meredith Fowlie<>, an associate professor of economics at the University of California, Berkeley. "This is one study in one state looking at one subpopulation and one type of measure," she says. "I would not feel comfortable generalizing from our study in Michigan."

Scores of studies, extensive research, and years of experience show: Energy efficiency remains the most cost-effective utility resource, and the cleanest.

As my colleagues have pointed out, making broad conclusions about energy efficiency programs from the experience with this one would be a mistake. For example,

  • Programs like the federal weatherization program these researchers examined generally have goals that reach far beyond just maximizing energy savings per dollar spent. The program they analyzed allocated $1,000 per household on non-energy investments (such as asbestos removal or mold abatement), often necessary to make the home safe and to eliminate health threats in them. These are worthy expenditures, but weatherization programs have broader goals than utility efficiency programs, such as improving the health and well-being of low income residents, especially those most vulnerable, such as children and the elderly. Utility efficiency programs focus only on energy upgrades.
  • The analysis compared the full cost of the installed equipment to the value of the savings over the lifetime of the equipment. However, utility energy efficiency programs generally do not pay for the full value of a new appliance. Rather, they pay down the incremental cost - the difference between a standard model and a more efficient one. This is a particular feature of weatherization programs, and critical, as those living on low incomes typically can't contribute to the cost of weatherizing their homes. And it also demonstrates why low-income efficiency programs should not be compared to other efficiency programs.
  • The study noted and measured a very high cost of marketing energy efficiency programs to low-income residents. This is a well-documented market barrier that innovative community-based programs such as the Chicago-based Energy Savers Program have begun to break down. Where traditional marketing of incentives often fails to engage building owners and tenants, if information about a program comes from trusted allies in the community, and is offered at the time of refinancing, the cost to acquire that customer as a participant in the program can be dramatically reduced.

Proven cost-effective energy efficiency programs abound in Michigan and the Midwest

More to the point, there are fantastic examples of very cost-effective residential energy efficiency programs offered to Michigan residents from the utilities right now - as there are in many Midwest states. Both Detroit Edison and Consumers Energy are required to use energy efficiency programs to lower customer costs and deliver benefits, including lower carbon emissions. Both companies have offered a broad suite of programs, including ENERGY STAR® appliances, home energy reports, audits, and discounts for efficient products. Both have also painstakingly documented the results of their programs, and using multiple ways of measuring costs and benefits, they have saved between $2 and $7 for every dollar spent on the programs.

In 2013 (the last year for which I have data), Detroit Edison (DTE) reported that its residential programs had a benefit to cost ratio of $6.90 saved for every dollar spent when comparing the utility's cost for delivering energy savings versus what it would cost to generate and deliver the same amount of energy from a power plant. The ratio of benefits to costs was 4.1 to 1 when both the utility and customer costs of participating in the program were compared with the total costs avoided by the program savings. Either way, energy efficiency was the clear winner from a cost-effectiveness perspective for residential customers.

Also in 2013, Consumers Energy delivered cost-effective savings to its residential customers in Michigan. On average, its 12 residential programs had a benefit to cost ratio of $2.60 saved for every dollar spent when comparing the utility's cost to deliver the energy savings, versus the utility's cost to meet customer demand with a power plant. The benefit to cost ratio was 1.97 when comparing the programs total benefits to the total costs (customer and utility) to achieve the savings. Nearly identical results were reported for 2014. Again, these programs are saving substantially more than they cost -- regardless of which test is applied.

These results are not unique to Michigan. A look at the cost-curve below for the programs offered by ComEd, the utility serving northern Illinois including Chicago, demonstrates that the costs of the programs, represented by the blue line in the chart, are far exceeded by the benefits, represented as the avoided costs that would be incurred to provide equivalent electric service without the energy-saving programs.

One of the paper's main conclusion, that the estimated results of a program can differ substantially from the actual measured results, could lead to improved engineering estimates and models, and using metered consumption data to determine the results of energy efficiency programs. I would not argue with making these improvements in how we estimate and measure results.

But to assume that the results of the one federal program resemble the cost-effectiveness results of other residential energy efficiency programs would be an enormous mistake and it's a mistake that could be easily made based on the press materials accompanying the paper.