Achievable Potential from Energy Efficiency and Demand Response Programs in the U.S.: 2010-2030

Omar Siddiqui | Apr 08, 2009

Share/Save  
This article is excerpted from EPRI's "Assessment of Achievable Potential from Energy Efficiency and Demand Response Programs in the U.S. (2010-2030)." Part I discusses electricity consumption, peak demand, and defining achievable potential.

Electricity consumption in the U.S. residential, commercial, and industrial sectors has grown at an average rate of 1.7 percent per year from 1996 to 2006. The U.S. Energy Information Administration (EIA) in its 2008 Annual Energy Outlook Reference Case forecast (AEO 2008) projects that electrical consumption in the residential, commercial and industrial sectors will grow at an annual rate of 1.07 percent from 2008 to 2030, with consumption increasing by 26 percent, from 4,696 terawatt-hours (TWh) in that period. AEO 2008 is predicated on a relatively flat electricity price forecast in real dollars through 2030. The forecast accounts for the impacts of currently legislated building codes and appliance standards (including those in the Energy Independence and Security Act of 2007) as well as market-driven trends towards efficiency. It also assumes continued contributions of utility- and government-sponsored energy efficiency programs established prior to 2008. 1

Going forward, EPRI estimates that energy efficiency programs have the potential to realistically reduce this growth rate by 22 percent to 0.83 percent per year from 2008 to 2030. Under conditions ideally conducive to energy efficiency programs, this growth rate can be reduced by up to 36 percent to 0.68 percent per year. In 2030, this represents an achievable reduction in electrical consumption of between 236 billion and 382 billion kilowatt-hours (kWh) from the AEO 2008 forecast. This corresponds to a realistic achievable potential of 5 percent to a maximum achievable potential of 8 percent in 2030. 2

Peak demand

Summer peak demand in the U.S., aggregated from non-coincident regional peaks, is estimated as 801 GW in 2008, and is expected to increase to 1,117 GW by 2030, an increase of 39 percent. Summer peak demand is expected to grow at a faster annual rate than electricity use due primarily to the expected growth in the share of air conditioned homes and buildings.

EPRI estimates that the combination of demand response and energy efficiency programs has the potential to reduce non-coincident summer peak demand by 157 GW to 218 GW. This represents a range of achievable potential reduction in summer peak demand in 2030 of 14 percent to 20 percent. This can also be expressed as a reduction in the forecast growth rate in peak demand of 46 percent to 65 percent through 2030. Half the peak demand savings result from energy efficiency actions and the other half from activities specifically designed to reduce peak demand, referred to as demand response.

Peak demand in the U.S. has grown at an average rate of 2.1 percent per year from 1996 through 2006, and is projected by the EIA to grow at an annual rate of 1.5 percent from 2008 through 2030. The combination of energy efficiency and demand response programs has the potential to realistically reduce this growth rate to 0.83 percent per year. Under conditions ideally conducive to energy efficiency and demand response programs, this growth rate can be reduced to as low as 0.53 percent per year.

Comparing estimates with recent program results

Our analysis of energy efficiency potential is based on the turnover of currently installed energy-consuming devices (as well new construction) to efficiency technologies commercially available today, and since most devices have a useful life of less than 15 years, it is instructive to examine the results for the year 2020, by which time the existing stock of most energy-consuming devices has turned over. Over the 12-year period of 2008 to 2020, the achievable potential of energy efficiency programs identified in this study equates to an annual incremental reduction in electricity consumption of 0.40 percent to 0.85 percent per year.

How do these estimates compare with recent program results for the nation? A recent study released by the ACEEE has determined that energy efficiency programs operated in 2006 reduced electricity consumption in the U.S. by an average of 0.24 percent in 2006. This finding underscores that, for the nation as a whole, current energy efficiency program efforts will need to expand by 40 percent to capture the moderate case (i.e., realistic achievable potential) for savings identified in this study. By the same token, according to the ACEEE study, in 2006 eighteen states attained annual electricity savings from programs within the range of national achievable potential (i.e., above 0.40 percent). Of these 18 states, in fact, three states - Rhode Island, Vermont and Connecticut - implemented programs in 2006 that reduced energy consumption that year by more than 1 percent.

Defining "potential"

In this study, EPRI has applied the condition that new technology does not replace existing equipment instantaneously or prematurely, but rather is "phased-in" over time as existing equipment reaches the end of its useful life. The following three categories of potential analyzed in this study all conform to this condition, and may be termed "phase-in" potentials.

  • Technical Potential represents the savings due to energy efficiency and demand response programs that would result if all homes and businesses adopted the most efficient, commercially available technologies and measures, regardless of cost. Technical Potential provides the broadest and largest definition of savings since it quantifies the savings that would result if all current equipment, processes, and practices in all sectors of the market were replaced at the end of their useful lives by the most efficient available options. Technical Potential does not take into account the cost-effectiveness of the measures.
  • Economic Potential represents the savings due to programs that would result if all homes and business adopted the most efficient, commercially available, cost-effective measures. It is a subset of the Technical Potential and is quantified only over those measures that pass a widely recognized economic cost-effectiveness screen. The cost-effectiveness screen applied in this study is a variation of the Participant Test, which compares the incremental cost to a consumer of an efficient technology relative to its baseline option, and the bill savings expected from that technology over its useful life. Only those technologies for which the net present value of benefits exceeds its incremental cost to consumers pass the test.
  • Achievable Potential refines Economic Potential by taking into account various barriers to customer adoption.

-Maximum Achievable Potential (MAP) takes into account market, societal, and attitudinal barriers that limit customer participation in utility- or government-administered voluntary programs. These barriers reflect, among other phenomena, customers' resistance to doing more than the absolute minimum required or a dislike of a given efficiency option. MAP presumes no impediments to the effective implementation and delivery of programs, such as perfect information, and essentially extrapolates the impacts of the best run, most effective programs nationally.

-Realistic Achievable Potential (RAP) discounts MAP by taking into account impediments to program implementation, including financial, political, and regulatory barriers that are likely to limit the amount of savings that might be achieved through energy efficiency and demand response programs. RAP considers recent utility experience and reported savings, and as such represents a forecast of likely customer response to programs.

Part II will discuss the potential for electricity savings from utility programs, what is realistically achievable, and the cost of achievable potential.

Footnotes:

1. The savings impact of energy efficiency programs "embedded" in the AEO 2008 Reference Case is estimated in Chapter 2 of EPRI Report 1016987. Removing this estimate of embedded savings from the AEO 2008 Reference Case results in an adjusted baseline forecast that is higher.

2. The values for realistic- and maximum-achievable potentials in 2030 measured with respect to the adjusted baseline forecast described in Footnote 1 are 398 and 544 billion kWh, respectively, or 8 percent to 11 percent. These values represent the total savings impact of energy efficiency programs in 2030 inclusive of savings embedded in the AEO 2008 Reference Case.

Related Topics

Comments

It is very confusing to make "percentage change" statements such as are throughout this article without distinguishing what proportion of estimated consumption changes are due to population growth and projected economic growth issues such as changes in household size. Also, what rate of penetration has EPRI allowed for consumption by PHEV's by 2030?

First posted on the GMH Blog on April 13th, 2009.

Dear Mr. Siddiqui,

Please take a look at the EWPC article Forget Demand Side management (DSM); Think Demand Side Innovation (DSI) and the EWPC post Balanced Market Regulation Reform for the New Order to respond my questions.

I checked the article looking for the word innovation and did not find it. I also looked into the Executive Summary of “EPRI's "Assessment of Achievable Potential from Energy Efficiency and Demand Response Programs in the U.S. (2010-2030." and did not find it either. Based on that simple check, I presume that the assessment restricted itself to EE and DR as a DSM utility oriented potential.

Was a business as usual approach without innovations considered over the 20 year period?

Do you expect that an alternative assessment that breaks important barriers to consider DSI, under a market reform that enables innovations, and under the emerging order, would achieve a much larger potential?

I think we're likely to find little or no change in the consumption trajectory without significant growth in the real price of electricity. Efficiency gains are likely to be consumed by the "efficiency paradox" as consumers spend the same amount of money for more utility. Moreover, while the useful and economic lives of electricity-consuming capital stock may be in the range of 12-15 years, devices are seldom replaced until they simply fail to work, which may take another few years. Finally, without sizable subsidies, businesses in particular typically do not replace energy-consuming devices unless the simple payback period is less than about 24 months. At current electricity prices, that's rarely the case.

The notion that we can somehow effectuate significant reductions in energy use and peak demand without substantial increases in the price of electricity is contrary to classical economic theory. No amount of wishful thinking by regulators and utilities is going t0 change that basic fact.

I think that it would be very useful for everyone to stop using the term "payback", and use a more valid measurement of value to the end user, which is cash flow. The term “payback” suggests that you must wait 1, 2, or 3, years to get your money back before you reap the benefits. In fact, the projects - almost all of which are, as a practical matter, financed – can be cash flowed to achieve a neutral, or even positive cash flow. This means that the project can make you money the day the project is completed.

Incentives for energy efficiency can either be in the form or carrot or stick. Currently, there are lots of carrots out there that make projects very attractive, which include:
• The Economic Stimulus Act of 2008, now extended into 2009, relating to Sec. 179 MACRS (Not for HVAC equipment). The economic stimulus package extended two tax incentives for business investment through the end of this year. Companies can write off 50 percent of the cost of new equipment immediately instead of following the usual depreciation schedules. Small businesses can expense up to $250,000 of new equipment purchases this year.
• Energy Policy Act tax benefits were extended
• Energy savings
• Maintenance savings
• Labor savings
• Future replacement savings
• CO2 credits

Not to mention all the “Obama money” on its way to public institutions. All of this should have a significant effect on the impact of energy efficiency – at least in the near term. However…..as an industry, we need to get away from the term “payback”, and focus on cash flow – the primary metric of the performance contracting industry – but can be applied to small projects as well . We cash flow everything....Even a 4 or 5 year payback project can start generating revenue almost immediately, especially if you can utilize the Sec. 179 1st year MACRS. A 1-year payback is a “no-brainer” for cash flow although it is still subject to what I call Vytau’s 2nd Law….For every project that is a no-brainer, you often find a decision-maker with no brains.

"I think that it would be very useful for everyone to stop using the term "payback", and use a more valid measurement of value to the end user, which is cash flow."

I don't think the metric is important. There are some very progressive firms that are willing to accept lower returns or longer payback periods on energy efficiency measures. However all firms have limited capital budgets and they have a responsibility to their owners to invest those funds where they earn the highest returns. For better or for worse, at current prices energy efficiency measures often yield lower returns than other available investment alternatives.

Sure, we can subsidize energy efficiency, but please explain why? I live in a mild climate where air conditioning is not required. Why should I subsidize energy efficiency measures for someone who chooses to live in a hot place and then builds a home with the cheapest (and least efficient) air conditioner available?

Jack,

It's the "neighborly" thing to do. Get with the program. :-)

Ed