With increased constraints on our nation’s electric grid—a combination of growing energy demand and aging generation/infrastructure— energy experts turn to large energy users to reduce energy waste and ensure long-term electric reliability. According to the Energy Information Administration, the industrial-sector uses 34% of all electricity in the Midwest region. The Midwestern states consume 38% of the United States’ industrial sector electricity, with eight states ranked in the top 15 for industrial energy consumption.
In short, the industry-heavy Midwest could benefit significantly from industrial energy efficiency.
What’s Wrong with Opt-Outs
MEEA Policy Associate Leah Scull recently completed an in-depth analysis of industrial opt-out policies and their impact on program portfolio cost-effectiveness. The findings from her paper were presented at the 2017 ACEEE Summer Study for Industry.
She found that industrial energy efficiency programs are consistently the most cost-effective on average, largely because industrial processes are energy intensive with long hours and constant equipment run times. However, recent policy developments aimed at industrial customers stand to undercut the potential for savings and decrease the overall value of energy efficiency in the Midwest. Specifically, state legislatures have passed numerous policies that seek to afford large energy users energy efficiency independence by allowing them to:
- Self-direct their program funding,
- Opt out of paying energy efficiency program charges, or
- Be exempt from utility energy efficiency programs altogether.
These policies effectively undermine a utility’s ability to meet required targets and reduce portfolio cost-effectiveness, while reducing the availability of energy savings and investment data.
States with Industrial Opt-Outs
These policies now exist in some form in Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Ohio and Wisconsin. Iowa is the only MEEA state that has required energy efficiency targets and utility programs into which all customers pay.
In Indiana, a combined energy efficiency resource standard repeal and opt-out bill became law in 2014. The opt-out placed eligibility at 1 MegaWatt (MW) – any customer that has a peak demand of at least 1MW can opt-out of paying the charge levied to support the utility-run energy efficiency program. To date, approximately 70% of eligible customers have opted out and annual energy savings have dropped roughly 20%. Without the proper funding levels, utilities struggle to offer attractive energy efficiency programs.
In Illinois, Governor Rauner signed an energy package into law at the end of 2016 that includes a provision that exempts certain utility customers from paying into and participating in energy efficiency programs. The provision sets the eligibility at 10 MW peak demand (15-minute interval for one utility, 30-minute interval for the other). The IL utilities estimate this will remove 10-30% of their individual load.
In Ohio, an opt-out came into effect on January 1, 2017. It permits any industrial utility customer to opt-out if they use at least 45,000 MWh annually. The Ohio legislature is supportive of proposals to expand the opt-out to what are known as “Mercantile” customers – those customers that use 700 MWh annually – and aggregated “national accounts”.
Making the Business Case for Industrial Participation
These few examples illustrate the serious threat to utility-run energy efficiency program portfolios. The shift away from mandatory payments into the energy efficiency program places the burden on energy efficiency proponents to make a stronger case for industrial energy efficiency. We must work with utilities and regional partners, such as the Industrial Assessment Centers and Combined Heat and Power Technical Assistance Partnership (CHP-TAP), to engage industrial customers through audits and hands-on guidance. Additionally, the Department of Energy and the Environmental Protection Agency have programs to encourage industrial energy savings through guidance documents, recognition programs (50001 Ready and ENERGYSTAR Challenge for Industry) and project funding.
The only way to solve the expanding problem of undercut resource standards and underfunded energy efficiency programs is to make the business case to the customers and to equip them with the tools necessary for success through continuous energy savings.