investing in energy efficiency: experience from california julie a. fitch director, energy division...
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Investing in Energy Efficiency:Experience from California
Julie A. Fitch
Director, Energy Division
California Public Utilities Commission
Managing Energy Demand – Bern ’09November 4, 2009
2
Presentation Overview
Introduction to California experience
• Regulatory / financial mechanisms for utilities
• Recent energy efficiency results
• Current energy efficiency activities
• Climate change context
3
California: A long history of investing in clean power and energy efficiency
Yesterday…
… Today
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/
pers
on
United States
California
Per Capita Electricity Sales (not including self-generation)
5
Energy Efficiency Strategies• Flattening out the curve – yesterday
– Decouple sales from revenues– eliminate disincentive– Set and strengthen building and appliance standards– Invest in utility energy efficiency programs
• Bending the curve downward– tomorrow– Strengthen incentives– “Decoupling Plus”– Set long term goals to achieve durable, broad-based
reductions– Enhance strategic planning: work backwards from goals– Improve branding, messaging and marketing– Invest in workforce and research and development
6
Presentation Overview
• Introduction to California experience Regulatory / financial mechanisms for
utilities
• Recent energy efficiency results
• Current energy efficiency activities
• Climate change context
7
Decoupling: How it works• Utility revenues are de-linked from energy sales• Utilities submit revenue requirements and
estimated sales annually• Regulatory agency sets per-kWh rates by type
of customer• If sales are lower, shortfall is covered in
subsequent year• If sales are higher, excess revenues are credited
to customers
8
Decoupling: Why it works
• Removes disincentive for utilities to encourage conservation, since revenues are not tied to amount of energy sold
• Aligns utility shareholder and customer interests for more efficient resource decisions
• Necessary, but not sufficient, to induce utility enthusiasm for energy efficiency
9
Decoupling “PLUS”Utility shareholder incentives
• Financial rewards for utilities for successful energy efficiency
• “Shared savings” with consumers• Concept is to make financial return comparable
to investment in supply resources (generation, transmission, distribution)
• First tried in 1990s; new mechanism adopted in California in 2007
10
Risk/Reward Incentive Mechanism basic concepts
• Cost of utility energy efficiency programs is subtracted from the value of energy saved each year
• 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
• If utilities fail to reach required goals, they face potential for penalties
11
Presentation Overview
• Introduction to California experience
• Regulatory / financial mechanisms for utilities
Recent energy efficiency results
• Current energy efficiency activities
• Climate change context
12
Energy Efficiency Costs, Energy Savings and Benefits: 2006-08
Costs
Ratepayer Cost: $1.8B
Customer Cost: $ .9B
Benefits
Energy Savings: $5.4B
Total Cost: $2.7B Total Benefits: $5.4B
The Bottom Line:
Net Social Benefit = $5.4B - $2.7B = $2.7B
Return on Investment = 100%
13
2006-2008 Savings
•Equivalent to three 500 MW power plants (one each year)•3 Million metric tons of CO2 equivalent
14
Presentation Overview
• Introduction to California experience
• Regulatory / financial mechanisms for utilities
• Recent energy efficiency results Current energy efficiency activities
• Climate change context
The California Long Term Energy Efficiency Strategic Plan
http://www.CaliforniaEnergyEfficiency.com
16
2010-2012 Utility Program Goals
• Savings Impacts Anticipated: – 6,965 GWH – 1,537 MW – 150.3 MMTherms– 3.07 million tons of CO2e emissions avoided
• Equivalent of 3 large power plants• Authorizes $3.1 billion in cost-effective
energy efficiency programs
17
2010-12 Portfolio Highlights12 Statewide Programs• Cal SPREE (Statewide Program for Residential Energy
Efficiency) – existing homes• Commercial: Benchmarking• Industrial: Continuous Energy Improvement• Zero Net Energy New Construction• Heating, ventilation, & air conditioning: Focus on
compliance• Statewide Marketing, Education & Outreach• Six other Statewide programs: Agriculture; Building Codes &
Appliance Standards; Emerging Technologies; Lighting Market Transformation; Integrated Demand Side Management; Workforce Training
• Plus Other Localized Programs: government partnerships; individual utility and 3rd party programs, and pilot projects
18
Zero Net Energy Buildings• Advanced Home Partnership - $63.2 million
– Aims toward Strategic Plan 2011 milestone: 50% of new homes exceed existing building standards by 20%; 10% exceed by 40%• 15% above 2008 building code• Calculated incentive structure up to 50% incremental cost
– Emphasizes “green” marketing- leverage existing consumer awareness
• Zero Net Energy Pilots – $43.16 million utility programs – $60 million for innovative local government programs focused on
Advanced Building (“Reach”) Codes and GHG Action Plans
• Commercial buildings – 100,000 building statewide benchmarking target (2010-2012)– “Path to Zero” Commercial Buildings Collaborative
19
Other Portfolio Highlights • Advanced Lighting Programs (53% of total lighting budget)
– $89 million (LEDs, specialty/super CFLs, halogens); $78 M - CFLs– 2020 Strategic Lighting Plan Work Group
• Codes and Standards Programs– New Compliance Enhancement Program
• training/support to building officials; • streamlining permitting and compliance requirements; • enhanced certification processes; Focus on HVAC
– Reach Codes; coordination at state level and with voluntary codes
• Heating, Ventilation and Air Conditioning– Compliance focus: certification and training, CA specifications, quality
installation and maintenance
• Industrial – certification/pilots on energy management
20
Marketing/Brand that engages moves customers to take action
• New or Revised Clean Energy Brand (2010)• Interactive EE Web Portal
– exchange expert resources & engage average citizens– Will utilize social networking techniques
• Variety of in-language marketing and outreach programs
• Universal Integrated Audit/Survey Tool• Behavioral Programs
21
Financing Funds - Growing• Additional financing of US$8 - $25 billion needed
– for efficient hardware alone 2010 -2020
• Statewide Utility On-bill financing (OBF): – For commercial and institutional customers– Initial $41.5 million in new funds for OBF loan pool – Common loan caps and terms
• Utility program coordination with municipal property-based financing– linked to national economic stimulus funds/retrofit programs
• CPUC/State Treasurer’s office collaboration on state facilities
22
Economic Impact of Energy Efficiency Programs 2010-2012
• 15,000 – 18,000 new “green collar” jobs in 2010-2012 over 2006-08– 6,000 – 10,000 jobs in Residential Retrofit alone
• $122 million budgeted for workforce education
*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
McKinsey and Co’s Compelling Case for Energy Efficiency as U.S. Climate Action
• U. S. National Potential:– 23% reduction in end use energy consumption– Reduce 1.1 gigatons GHG (15% of US 2005 emissions) – $1.2 trillion in gross energy bill savings (Net Present Value)– $540-630 billion net savings (NPV) after EE investment &
program costs*
• Strategies Needed: – Comprehensive, innovative scale approaches to “unlock” EE in
100 million buildings, with billions of devices• Biggest challenges:
– up-front funds, fragmented stage, stakeholder alignment, low “mind-share”
* (@ 10-30% of investment)
24
Presentation Overview
• Introduction to California experience
• Regulatory / financial mechanisms for utilities
• Recent energy efficiency results
• Current energy efficiency activities Climate change context
25
California Global Warming Solutions Act of 2006 (AB 32)
• 2010: emissions at 2000 levels
• 2020: emissions at 1990 levels
• 2050: emissions 80% below 1990 levels*
- Covers all major emitters, to be defined by California Air Resources Board (ARB).
- Covers all major greenhouse gases (GHGs).*Set in Executive Order S-3-05, June 2005.
26
California’s Greenhouse Gas Emissions (480 MMTCO2E)
Source: CEC 20%6%
40%
6%3%
12%
13%Elec. Gen. (Imports)
CommercialResidential
Transportation
AgricultureIndustrial
Elec. Gen. (In State)
CARB 2007
27
Electricity-Related Emissions: Imports
Source: CEC (for electricity sales); CARB (for emissions inventory)
2004 Electricity Sales (MWh)
In-State Generat-
ion77%
Imports23%
Emissions (MMT CO2e)
In-State Generat-
ion44%
Imports56%
28
California’s Climate Policy Road Map
• Required by AB32• Adopted by California Air Resources
Board (CARB) Dec. 2008• Targets 174 MMtCO2e reduction
from BAU• Multi-agency effort led by CARB• CPUC provided formal
recommendation of strategies for the electricity and gas industries
• Lays out comprehensive regulatory program
• Combines mandates with market based measures
29
A Role for GHG Trading…
Reduce Demand
ChooseCleaner Supplies
StimulateTechnologicalInnovation
GHGTrading
30
… And for Mandatory Measures
Reduce Demand•Energy efficiency•Advanced metering/demand response•Water conservation
Choose Cleaner Supplies•Loading Order•Renewable Portfolio Std.•CA Solar Initiative•Emissions Performance Std.
Promote Technological Innovation•RD&D investments•Standards
31Cap and Trade
33% Renewable Portfolio Standard
Solar PVOther
Mandates
Energy Efficiency
Transportation Mandates
26.4M
Electricity/Gas Mandates:49.7 MMTCO2E
Total Reductions from 2020 BAU: 169 MMTCO2E
2.1M
21.2M
Source: CARB Proposed Scoping Plan
Nearly 40% of reductions from mandates are from electric sector programs
32
Efficiency andDemand Response
Renewable Energy
Clean and EfficientFossil-fired Energy
California’s Loading OrderStaged priorities for procurement
of new resources
Mostly command and control mandates
33
Aggressive EE/GHG Goals
California Air Resources Board Scoping Plan Target (Nov, 2008): – 32,000 GWh and 800 MMTherms/year by 2020
– 19.5 MMT CO2E in 2020
CPUC 2020 interim energy efficiency goals (July, 2008): – 16,000 GWh and 620 MMTherms/year– Equal to nine or ten power plants avoided
34
Climate/EE Policy Issues Ahead for California and the U.S.
• Demand-side management (DSM) strategies not part of Cap and Trade; no mechanism to sell GHG benefits from DSM– Cap and trade places limits on sources of GHGs; demand-side
strategies not directly integrated into cap and trade.– GHG emission price will make more DSM “cost-effective”– “Offsets” typically allowed outside the capped jurisdiction only
• Local Governments can influence building and transportation, but how to pay for actions?
• Allowance auctions may provide EE funds to expand programs &/or creative allowance “retirement”
• EE Institutional challenge: Need broad vision, strong and clear leadership, over sustained period – to overcome ”friction” of diffuse markets and action venues
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