Julie Fitch - Investing in Energy Efficiency: Experience from California


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This seminar held on november 4 ‘09 in Bern, Switzerland, hosted international specialists in managing energy demand, mainly electric energy. Presentations concentrated on best cases in demand side management and regulation easing the way for DSM programs. The event was organised by noe21, a Geneva based NGO.

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Julie Fitch - Investing in Energy Efficiency: Experience from California

  1. 1. Investing in Energy Efficiency: Experience from California Julie A. Fitch Director, Energy Division California Public Utilities Commission Managing Energy Demand – Bern ’09 November 4, 2009
  2. 2. Presentation Overview <ul><li>Introduction to California experience </li></ul><ul><li>Regulatory / financial mechanisms for utilities </li></ul><ul><li>Recent energy efficiency results </li></ul><ul><li>Current energy efficiency activities </li></ul><ul><li>Climate change context </li></ul>
  3. 3. California: A long history of investing in clean power and energy efficiency Yesterday… … Today
  4. 4. While the nation’s appetite for electricity has steadily grown, California has become a model of efficiency. ∆ (2005) = 4,000kWh/yr = $400/capita kWh/person United States California Per Capita Electricity Sales (not including self-generation)
  5. 5. Energy Efficiency Strategies <ul><li>Flattening out the curve – yesterday </li></ul><ul><ul><li>Decouple sales from revenues– eliminate disincentive </li></ul></ul><ul><ul><li>Set and strengthen building and appliance standards </li></ul></ul><ul><ul><li>Invest in utility energy efficiency programs </li></ul></ul><ul><li>Bending the curve downward– tomorrow </li></ul><ul><ul><li>Strengthen incentives– “Decoupling Plus” </li></ul></ul><ul><ul><li>Set long term goals to achieve durable, broad-based reductions </li></ul></ul><ul><ul><li>Enhance strategic planning: work backwards from goals </li></ul></ul><ul><ul><li>Improve branding, messaging and marketing </li></ul></ul><ul><ul><li>Invest in workforce and research and development </li></ul></ul>
  6. 6. Presentation Overview <ul><li>Introduction to California experience </li></ul><ul><li>Regulatory / financial mechanisms for utilities </li></ul><ul><li>Recent energy efficiency results </li></ul><ul><li>Current energy efficiency activities </li></ul><ul><li>Climate change context </li></ul>
  7. 7. Decoupling: How it works <ul><li>Utility revenues are de-linked from energy sales </li></ul><ul><li>Utilities submit revenue requirements and estimated sales annually </li></ul><ul><li>Regulatory agency sets per-kWh rates by type of customer </li></ul><ul><li>If sales are lower, shortfall is covered in subsequent year </li></ul><ul><li>If sales are higher, excess revenues are credited to customers </li></ul>
  8. 8. Decoupling: Why it works <ul><li>Removes disincentive for utilities to encourage conservation, since revenues are not tied to amount of energy sold </li></ul><ul><li>Aligns utility shareholder and customer interests for more efficient resource decisions </li></ul><ul><li>Necessary, but not sufficient, to induce utility enthusiasm for energy efficiency </li></ul>
  9. 9. Decoupling “PLUS” Utility shareholder incentives <ul><li>Financial rewards for utilities for successful energy efficiency </li></ul><ul><li>“ Shared savings” with consumers </li></ul><ul><li>Concept is to make financial return comparable to investment in supply resources (generation, transmission, distribution) </li></ul><ul><li>First tried in 1990s; new mechanism adopted in California in 2007 </li></ul>
  10. 10. Risk/Reward Incentive Mechanism basic concepts <ul><li>Cost of utility energy efficiency programs is subtracted from the value of energy saved each year </li></ul><ul><li>If utilities reach a certain percentage of their savings goals, they are awarded a graduated percentage of these “net benefits” (currently set between 9 and 12%), up to a maximum cap, as additional revenues </li></ul><ul><li>If utilities fail to reach required goals, they face potential for penalties </li></ul>
  11. 11. Presentation Overview <ul><li>Introduction to California experience </li></ul><ul><li>Regulatory / financial mechanisms for utilities </li></ul><ul><li>Recent energy efficiency results </li></ul><ul><li>Current energy efficiency activities </li></ul><ul><li>Climate change context </li></ul>
  12. 12. Energy Efficiency Costs, Energy Savings and Benefits: 2006-08 <ul><li>Costs </li></ul><ul><li>Ratepayer Cost: $1.8B </li></ul><ul><li>Customer Cost: $ .9B </li></ul><ul><li>Benefits </li></ul><ul><li>Energy Savings: $5.4B </li></ul>The Bottom Line: Net Social Benefit = $5.4B - $2.7B = $2.7B Return on Investment = 100% Total Cost: $2.7B Total Benefits: $5.4B
  13. 13. 2006-2008 Savings <ul><li>Equivalent to three 500 MW power plants (one each year) </li></ul><ul><li>3 Million metric tons of CO2 equivalent </li></ul>
  14. 14. Presentation Overview <ul><li>Introduction to California experience </li></ul><ul><li>Regulatory / financial mechanisms for utilities </li></ul><ul><li>Recent energy efficiency results </li></ul><ul><li>Current energy efficiency activities </li></ul><ul><li>Climate change context </li></ul>
  15. 15. The California Long Term Energy Efficiency Strategic Plan http://www.CaliforniaEnergyEfficiency.com
  16. 16. 2010-2012 Utility Program Goals <ul><li>Savings Impacts Anticipated: </li></ul><ul><ul><li>6,965 GWH </li></ul></ul><ul><ul><li>1,537 MW </li></ul></ul><ul><ul><li>150.3 MMTherms </li></ul></ul><ul><ul><li>3.07 million tons of CO 2 e emissions avoided </li></ul></ul><ul><li>Equivalent of 3 large power plants </li></ul><ul><li>Authorizes $3.1 billion in cost-effective energy efficiency programs </li></ul>
  17. 17. 2010-12 Portfolio Highlights <ul><li>12 Statewide Programs </li></ul><ul><li>Cal SPREE (Statewide Program for Residential Energy Efficiency) – existing homes </li></ul><ul><li>Commercial: Benchmarking </li></ul><ul><li>Industrial: Continuous Energy Improvement </li></ul><ul><li>Zero Net Energy New Construction </li></ul><ul><li>Heating, ventilation, & air conditioning: Focus on compliance </li></ul><ul><li>Statewide Marketing, Education & Outreach </li></ul><ul><li>Six other Statewide programs: Agriculture; Building Codes & Appliance Standards; Emerging Technologies; Lighting Market Transformation; Integrated Demand Side Management; Workforce Training </li></ul><ul><li>Plus Other Localized Programs: government partnerships; individual utility and 3 rd party programs, and pilot projects </li></ul>
  18. 18. Zero Net Energy Buildings <ul><li>Advanced Home Partnership - $63.2 million </li></ul><ul><ul><li>Aims toward Strategic Plan 2011 milestone: 50% of new homes exceed existing building standards by 20%; 10% exceed by 40% </li></ul></ul><ul><ul><ul><li>15% above 2008 building code </li></ul></ul></ul><ul><ul><ul><li>Calculated incentive structure up to 50% incremental cost </li></ul></ul></ul><ul><ul><li>Emphasizes “green” marketing- leverage existing consumer awareness </li></ul></ul><ul><li>Zero Net Energy Pilots </li></ul><ul><ul><li>$43.16 million utility programs </li></ul></ul><ul><ul><li>$60 million for innovative local government programs focused on Advanced Building (“Reach”) Codes and GHG Action Plans </li></ul></ul><ul><li>Commercial buildings </li></ul><ul><ul><li>100,000 building statewide benchmarking target (2010-2012) </li></ul></ul><ul><ul><li>“ Path to Zero” Commercial Buildings Collaborative </li></ul></ul>
  19. 19. Other Portfolio Highlights <ul><li>Advanced Lighting Programs (53% of total lighting budget) </li></ul><ul><ul><li>$89 million (LEDs, specialty/super CFLs, halogens); $78 M - CFLs </li></ul></ul><ul><ul><li>2020 Strategic Lighting Plan Work Group </li></ul></ul><ul><li>Codes and Standards Programs </li></ul><ul><ul><li>New Compliance Enhancement Program </li></ul></ul><ul><ul><ul><li>training/support to building officials; </li></ul></ul></ul><ul><ul><ul><li>streamlining permitting and compliance requirements; </li></ul></ul></ul><ul><ul><ul><li>enhanced certification processes; Focus on HVAC </li></ul></ul></ul><ul><ul><li>Reach Codes; coordination at state level and with voluntary codes </li></ul></ul><ul><li>Heating, Ventilation and Air Conditioning </li></ul><ul><ul><li>Compliance focus: certification and training, CA specifications, quality installation and maintenance </li></ul></ul><ul><li>Industrial – certification/pilots on energy management </li></ul>
  20. 20. Marketing/Brand that engages  moves customers to take action <ul><li>New or Revised Clean Energy Brand (2010) </li></ul><ul><li>Interactive EE Web Portal </li></ul><ul><ul><li>exchange expert resources & engage average citizens </li></ul></ul><ul><ul><li>Will utilize social networking techniques </li></ul></ul><ul><li>Variety of in-language marketing and outreach programs </li></ul><ul><li>Universal Integrated Audit/Survey Tool </li></ul><ul><li>Behavioral Programs </li></ul>
  21. 21. Financing Funds - Growing <ul><li>Additional financing of US$8 - $25 billion needed </li></ul><ul><ul><li>for efficient hardware alone 2010 -2020 </li></ul></ul><ul><li>Statewide Utility On-bill financing (OBF): </li></ul><ul><ul><li>For commercial and institutional customers </li></ul></ul><ul><ul><li>Initial $41.5 million in new funds for OBF loan pool </li></ul></ul><ul><ul><li>Common loan caps and terms </li></ul></ul><ul><li>Utility program coordination with municipal property-based financing </li></ul><ul><ul><li>linked to national economic stimulus funds/retrofit programs </li></ul></ul><ul><li>CPUC/State Treasurer’s office collaboration on state facilities </li></ul>
  22. 22. Economic Impact of Energy Efficiency Programs 2010-2012 <ul><li>15,000 – 18,000 new “green collar” jobs in 2010-2012 over 2006-08 </li></ul><ul><ul><li>6,000 – 10,000 jobs in Residential Retrofit alone </li></ul></ul><ul><li>$122 million budgeted for workforce education </li></ul>*Job benefits calculated based on Council of Economic Advisers’ May 2009 publication of “ Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009”
  23. 23. McKinsey and Co’s Compelling Case for Energy Efficiency as U.S. Climate Action <ul><li>U. S. National Potential : </li></ul><ul><ul><li>23% reduction in end use energy consumption </li></ul></ul><ul><ul><li>Reduce 1.1 gigatons GHG (15% of US 2005 emissions) </li></ul></ul><ul><ul><li>$1.2 trillion in gross energy bill savings (Net Present Value) </li></ul></ul><ul><ul><li>$540-630 billion net savings (NPV) after EE investment & program costs* </li></ul></ul><ul><li>Strategies Needed : </li></ul><ul><ul><li>Comprehensive, innovative scale approaches to “unlock” EE in 100 million buildings, with billions of devices </li></ul></ul><ul><li>Biggest challenges : </li></ul><ul><ul><li>up-front funds, fragmented stage, stakeholder alignment, low “mind-share” </li></ul></ul><ul><li>* (@ 10-30% of investment) </li></ul>
  24. 24. Presentation Overview <ul><li>Introduction to California experience </li></ul><ul><li>Regulatory / financial mechanisms for utilities </li></ul><ul><li>Recent energy efficiency results </li></ul><ul><li>Current energy efficiency activities </li></ul><ul><li>Climate change context </li></ul>
  25. 25. California Global Warming Solutions Act of 2006 (AB 32) <ul><li>2010: emissions at 2000 </li></ul><ul><li> levels </li></ul><ul><li>2020: emissions at 1990 </li></ul><ul><li> levels </li></ul><ul><li>2050: emissions 80% below 1990 levels* </li></ul><ul><li>Covers all major emitters, to be defined by California Air Resources Board (ARB). </li></ul><ul><li>Covers all major greenhouse gases (GHGs). </li></ul><ul><li>*Set in Executive Order S-3-05, June 2005. </li></ul>
  26. 26. California’s Greenhouse Gas Emissions (480 MMTCO 2 E) Source: CEC Elec. Gen. (Imports) Commercial Residential Transportation Agriculture Industrial Elec. Gen. (In State) CARB 2007
  27. 27. Electricity-Related Emissions: Imports Source: CEC (for electricity sales); CARB (for emissions inventory)
  28. 28. California’s Climate Policy Road Map <ul><li>Required by AB32 </li></ul><ul><li>Adopted by California Air Resources Board (CARB) Dec. 2008 </li></ul><ul><li>Targets 174 MMtCO 2 e reduction from BAU </li></ul><ul><li>Multi-agency effort led by CARB </li></ul><ul><li>CPUC provided formal recommendation of strategies for the electricity and gas industries </li></ul><ul><li>Lays out comprehensive regulatory program </li></ul><ul><li>Combines mandates with market based measures </li></ul>
  29. 29. A Role for GHG Trading… Reduce Demand Choose Cleaner Supplies Stimulate Technological Innovation GHG Trading
  30. 30. … And for Mandatory Measures <ul><li>Reduce Demand </li></ul><ul><li>Energy efficiency </li></ul><ul><li>Advanced metering/demand response </li></ul><ul><li>Water conservation </li></ul><ul><li>Choose Cleaner Supplies </li></ul><ul><li>Loading Order </li></ul><ul><li>Renewable Portfolio Std. </li></ul><ul><li>CA Solar Initiative </li></ul><ul><li>Emissions Performance Std. </li></ul><ul><li>Promote Technological Innovation </li></ul><ul><li>RD&D investments </li></ul><ul><li>Standards </li></ul>
  31. 31. Nearly 40% of reductions from mandates are from electric sector programs 26.4M Electricity/Gas Mandates: 49.7 MMTCO 2 E Total Reductions from 2020 BAU: 169 MMTCO 2 E 2.1M 21.2M Source: CARB Proposed Scoping Plan
  32. 32. California’s Loading Order <ul><li>Staged priorities for procurement </li></ul><ul><li> of new resources </li></ul>Mostly command and control mandates Efficiency and Demand Response Renewable Energy Clean and Efficient Fossil-fired Energy
  33. 33. Aggressive EE/GHG Goals <ul><li>California Air Resources Board Scoping Plan Target (Nov, 2008): </li></ul><ul><ul><li>32,000 GWh and 800 MMTherms/year by 2020 </li></ul></ul><ul><ul><li>19.5 MMT CO 2 E in 2020 </li></ul></ul><ul><li>CPUC 2020 interim energy efficiency goals (July, 2008): </li></ul><ul><ul><li>16,000 GWh and 620 MMTherms/year </li></ul></ul><ul><ul><li>Equal to nine or ten power plants avoided </li></ul></ul>
  34. 34. Climate/EE Policy Issues Ahead for California and the U.S. <ul><li>Demand-side management (DSM) strategies not part of Cap and Trade; no mechanism to sell GHG benefits from DSM </li></ul><ul><ul><li>Cap and trade places limits on sources of GHGs; demand-side strategies not directly integrated into cap and trade. </li></ul></ul><ul><ul><li>GHG emission price will make more DSM “cost-effective” </li></ul></ul><ul><ul><li>“ Offsets” typically allowed outside the capped jurisdiction only </li></ul></ul><ul><li>Local Governments can influence building and transportation, but how to pay for actions? </li></ul><ul><li>Allowance auctions may provide EE funds to expand programs &/or creative allowance “retirement” </li></ul><ul><li>EE Institutional challenge : Need broad vision, strong and clear leadership, over sustained period – to overcome ”friction” of diffuse markets and action venues </li></ul>
  35. 35. Thank You Julie A. Fitch [email_address] www.cpuc.ca.gov