Clean Power Plan Could Unshackle Energy Efficiency Market, Says Report

Dec. 23, 2014
Expect expansion in the U.S. energy efficiency market from the Clean Power Plan. And yes, states can achieve the required energy savings rates…

Look for new players, new programs and an expanding energy efficiency market if the Clean Power Plan goes forward as drafted.

So says a new report by the Analysis Group, which examines whether states can meet the energy efficiency targets set out by the Environmental Protection Agency. The report concludes that the states can meet the targets — and then some.

The Clean Power Plan calls for states to come up with strategies to reduce U.S. carbon dioxide emissions 30 percent by 2030. Energy efficiency is one of four building blocks that the EPA says will get us there. (The others are improving power plant heat rates, swapping coal for natural gas-fired generation, and maintaining nuclear power, while expanding renewables.)

In developing the carbon reduction plan, the EPA assumed that states can increase energy savings levels by at least 0.2 percent of annual electricity sales, and maintain a 1.5 percent savings level through 2030.

The Analysis Group examined what states have accomplished so far and goals they’ve set for the future. The economic consultants found that the EPA numbers are “on solid ground and, if anything, understate the potential to reach and sustain high levels of EE savings.”

The report also offers some interesting insight into the shape and form of today’s energy efficiency market and where it may go in the future.

Electric efficiency has seen dramatic growth in under a decade in the U.S. Budgets totaled $6.3 billion in 2013, a 37 percent increase over 2010, and almost four times spending in 2006. Money for energy efficiency continues to flow mostly from utilities; they were responsible for 89 percent of the customer-funded electric efficiency. However, in some cases states instead hold the purse strings or channel funds to independent third parties, such as energy efficiency utilities. In addition:

  • Fourteen states collect system benefits charges that help fund energy efficiency and clean energy programs.
  • Thirty-four states undertake integrated resource planning, which requires that utilities consider a range of resources to meet supply needs, including energy efficiency.
  • Twenty-eight states require that utilities submit regular demand-side management plans
  • Twenty-four states have energy efficiency resource standards — energy savings goals they must achieve
  • At least 16 states have revenue decoupling, which takes away financial disincentives for utilities to save energy
  • Thirty states have performance incentives that reward utilities for exceeding energy efficiency targets

In addition, the private sector is now making “substantial investment” in energy efficiency, according to the report.

The future looks even more encouraging. The Lawrence Berkeley National Laboratory forecasts that energy efficiency spending could exceed $12.2 billion by 2025 — but could go even higher with a national carbon policy in place.

Keep up on efforts to reduce greenhouse gases through energy efficiency. Subscribe to Energy Efficiency Markets free newsletter.

The Analysis Group sees the Clean Power Plan “opening the door to states, new and existing market entities, owners of affected units, and utilities all investing in energy efficiency to take advantage of the use of EE as a compliance mechanism.”

This could “unshackle EE investment from constrained state regulatory policy, and open up EE activity to new players, new programs, an expanding market for EE services, and new revenues.” More states will pursue energy efficiency and new business opportunities will emerge, as energy savings efforts expand beyond utility programs, according to the report.

Those that already support energy savings programs are likely to keep advancing — since even they still have a long way to go.

“Through continuous implementation of EE over multiple decades, it is becoming clear that EE is not a finite resource – that is, as states and utilities have implemented EE programs over many years, few if any have begun to see meaningful diminishing returns in EE investments. Huge energy efficiency potential remains even in states that have had sustained aggressive levels of EE investment,” said the report.

The plan represents the closet thing the U.S. has ever had to a national strategy for the power sector — or it will if it is finalized. And it’s good news for the energy efficiency industry that the EPA positioned it as key resource.

Not a Done Deal

But before anyone bets the farm on energy efficiency, it’s important to note that the Clean Power Plan is not final. The EPA plans to release a final rule in June. Then states will begin work on their strategies.

The plan has ardent opponents, especially from coal country. And the next 2016 presidential election looms ahead as a wild card for climate change policy. Furthermore, energy efficiency programs have been taking some hits lately in states like Florida and Indiana.

So great promise lies ahead for energy efficiency markets, if the Clean Power Plan make it to the finish line.

Here is a link to The Analysis Group report, Assessment of EPA’s Clean Power Plan:  Evaluation of Energy Efficiency Program Ramp Rates and Savings Levels.

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

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