Customers benefit more when energy efficiency programs focus on savings over the long haul. That is the conclusion of a new report from the American Council for an Energy-Efficient Economy (ACEEE), which found that by shifting to a longer-term focus, utility-sector energy efficiency programs could provide even more enduring energy gains. That means more money in customers’ pockets, lower pollution, and greater health and comfort.
The study is being released at a critical time, with federal energy efficiency standards under sharp attack by the Trump administration. Increasingly, states have stepped in to set their own standards, which by nature produce long-lived savings because the inefficient models of appliance and equipment can no longer be made, leaving only highly efficient versions for purchase as replacements. Other states are also bolstering their efficiency programs to cut energy waste. But we need to save even more energy to lower costs for customers and combat the urgent threat of climate change. This report helps us figure out how to do just that.
Short-Term Gains Don’t Always Advance Long-Term Goals
Put simply, many of the smarter energy measures being implemented across the country tend to focus on the shorter-term savings (like compact fluorescent lighting). What is needed, instead, is to focus on improving wall insulation, window upgrades, and highly efficient heating and cooling systems that provide ongoing savings for decades instead of for only a few years, or less, like heating filter replacements. This chart shows how long some efficiency measures are expected to provide savings.
Focusing on measures with shorter-lived savings makes it more expensive to deliver efficiency benefits to customers as it requires customers to have energy efficiency implementers come multiple times to their building over a few years to keep installing new measures, something customers are not often interested in doing. It also lowers the confidence of utility or state agency energy planners to rely on efficiency instead of a typical power plant’s energy as a way to meet customers’ needs since they will assume the efficiency savings won’t be there for very long.
What planners want instead are long-term energy savings so they can be confident there will be enough power in 10+ years. If they aren’t reasonably certain, they’ll build more power plants just in case, which are more expensive and polluting than energy efficiency, which produces no emissions.
States Leading the Way
Of the 27 states that establish specific targets for energy efficiency, 25 focus only on measuring savings in the first year they are installed (even if the measure will provide savings for many years to come) for resource planning purposes. This sends a signal to the utility to focus on quicker installations rather than longer-term measures that are often more expensive and harder to implement. States tend to do this because setting targets on how much was installed in each year is easier to measure and explain than adding up multiple measures over multiple years.
Yet a small but growing number of states are bucking the traditional way of doing things. They are developing energy efficiency portfolios that deliver longer-term savings and are promoting policies that recognize efficiency’s value for resource planning and climate policy over time.
One such policy is to set cumulative targets over many years that take into account when measures go off line (like when light bulbs are expected to burn out). This requires utilities to find ways to make up those lost savings, ensuring a constant level of energy savings over the long run.
Another policy is to set targets that count the full life of a measure. If targets are set based on the length of how long measures last, it means programs that install windows become more valuable than those that replace heater filters, for example. According to the ACEEE report, preliminary results suggest these policies work.
Illinois structures electricity-saving goals by considering savings still occurring from measures installed in 2012 plus new additional measures since then and includes incentives to pursue more complex programs that replace expiring savings. California recently returned to tracking both first-year and lifecycle savings by adding up all the years they estimate each measure will last, while the Canadian province of Ontario includes the lifetime value of measures installed in the first year as part of its projected savings goals to encourage longer-lived gas measures, like gas heating systems. Other states on the forefront of change highlighted in the report include Michigan, which continually works to find a way to reward its utilities for successful long-lived programs and Oregon, which has an extensive technical forum to ensure robust and reliable measure lifetime estimates.
Time for a Policy and Design Upgrade
While adopting long-term and comprehensive energy efficiency measures results in lower customer bills and utility system costs, ensures enduring benefits like health and comfort for customers, and helps mitigate climate change, carrying out such programs is actually quite complex.
It is not always clear if the length of a measure is up-to-date, making it difficult for designers to know whether they’ll be able to claim longer-term savings. Including those long-lived measures without matching policies can actually be detrimental to the cost-benefit ratio required to approve programs—plus more comprehensive efforts are more intensive (and expensive) for customers. This can lead to fewer customers wanting to participate in an ideal program than for a simple intervention that provides them quick and easy lighting or heating filter replacements.
To address these issues, policymakers have many options:
- Start by estimating energy efficiency potential (e.g., measures and programs) through the lens of long-term savings.
- Set energy-saving goals at the level of those longer-term savings and provide incentives for successful achievement to ensure program designers are motivated to integrate strategies to meet those targets.
- Make sure the cost-benefit calculations value longer-term savings (e.g., by lowering the discount rate).
- Identify if there is a need to update the method to determine what is assumed to be the length that a measure will last and update measures that may be outdated.
- Require tracking and reporting by utilities of lifecycle savings in addition to savings that occur only in the first year of the program.
- Allow for longer planning horizons so efficiency program designs are not limited to short-term program cycles.
- Learn from exemplary programs to enhance program design to capture more and longer savings.
Long-term solutions not only reap lasting energy rewards, but other benefits as well—like home durability, improved safety, increased property value, lower utility bill arrearages, lower vacancy rates, better indoor air quality, and reductions in power plant emissions because not as much electricity needs to be generated. Without policies that consider lifetime energy savings, customers, the grid, and society are shortchanging true energy efficiency that delivers multiple values over the long-term.