Yes, Power Plant Owners Can Reduce Emissions with Energy Efficiency. Here’s How.

March 20, 2015
How can power plant owners reduce emissions with energy efficiency? Think of energy efficiency as a product to buy and sell, explains NRDC’s Dylan Sullivan.

How can power plant owners reduce emissions with energy efficiency? Think of energy efficiency as a product to buy and sell, explains NRDC’s Dylan Sullivan.

When the EPA proposed carbon pollution targets for fossil fuel-fired power plants under the Clean Power Plan last summer, the agency recognized that energy efficiency is a powerful tool for reducing emissions in the electricity sector. As customers save energy in their homes and businesses, fossil-fuel fired power plants are called upon less and emit less pollution. But some power plant owners complain that a Clean Power Plan target that relies on reductions achieved through actions outside power plants’ boundaries, like saving energy in buildings and factories, would be unachievable (see Comments of Class of ’85 Regulatory Response Group at 43-44). They are wrong.

Carbon pollution credits from energy efficiency will be accessible to power plant owners, regardless of a state’s regulatory model. Buying it may not yet be as easy as one-click ordering on Amazon, but even now, before the Clean Power Plan is in place, energy efficiency is evolving into a “product” that power plant owners can purchase.

All types of energy efficiency “products” share some key features:

  • A definition of what types of projects are eligible to generate credits, like a requirement that projects go beyond business-as-usual or standard market practices
  • Requirements for estimating savings from the projects,
  • Back-up provisions for what happens if those planned energy savings do not occur.

I categorize these energy efficiency products by how the price of energy efficiency – the amount a power plant owner pays to the energy saver – is set.

Fixed price

In this approach, power plant owners would make an offer to buy a quantity of energy efficiency credits for a set price, businesses would respond with projects, and the power plant owner would then buy credits for energy savings up to their budget constraint. There’s ample precedent for this: every utility-run energy efficiency portfolio I know of has a program where customers with big projects receive a set incentive per-unit of energy savings. For example, Commonwealth Edison in Illinois currently offersincentives of 7 cents per-kWh of energy savings for eligible projects.

Competitive solicitation

In this approach, power plant owners would issue a competitive solicitation for energy efficiency credits, and businesses would respond with energy saving projects they can complete at a price they determine. Southern California Edison recently applied this strategy to make up for lost capacity when the San Onofre Nuclear Generating Station closed. They issued a Request for Offers for energy saving projects that would reduce system stress in two areas of its service territory most affected by the power plant’s closure. The utility selected energy efficiency projects from three vendors, totaling 130 MW of load reduction due to the energy efficiency measures.

Another example of a program that uses competitive solicitations is Consolidated Edison’s Targeted DSM program, which the utility operates in its New York City and Westchester County service territory. It is called a “targeted” program because ConEd seeks load reductions in specific areas during specific hours, to defer or avoid specific transmission and distribution system investments. The utility determines the price it will accept for these load reductions by analyzing the costs it would avoid if it deferred the specific investment, and then issues a request for proposals to energy efficiency businesses. The program is described in this 2010 ACEEE Summer Study paper.


In the third strategy, the utility or generator conducts an auction where businesses compete to provide energy savings for a set incentive, essentially asking the question: what energy saving projects would you do for a $10,000 incentive. This is a new approach, pioneered by AEP-Ohio. AEP has hired Overlay Consulting to run the auctions. Pre-qualified customers and efficiency service providers bid on incentives on a $/kWh saved basis, and incentives are granted to the lowest priced bids. AEP has to-date run three auctions and paid $19.15 million in incentives. The most recent auction, in October 2014, yielded energy savings at an average incentive of 2.5 cents per-kWh of savings.

Or hire a company in the energy efficiency program industry

A power plant owner could also hire one of the companies in the energy efficiency program industry, and have this company deal with customers, service providers, retailers, etc. When required by a consent decree to undertake an environmental mitigation project, wholesale generation provider American Municipal Power hired the Vermont Energy Investment Corporation – one of the nation’s best energy efficiency program administrators – to run a portfolio of energy efficiency programs for its member utilities.

The takeaway: generators have ample tools to reduce emissions by helping customers save energy.

This article originally appeared on Switchboard, the staff blog of the Natural Resources Defense Council.  Dylan Sullivan is an NRDC staff scientist in San Francisco.

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