Resource Planning & Value

Planning for Energy Efficiency  

Small amounts of energy efficiency can happen because of the advancement of technology and general market trends. This is referred to as “natural” energy efficiency or the “natural market baseline.” However, the vast majority of energy efficiency is the result of careful planning. Utilities make plans to acquire energy efficiency resources through some of the same types of processes that they use to acquire supply-side resources. By determining the value of energy efficiency resources and comparing that value to other resource options, utilities try to minimize the cost of providing energy services to their customers while increasing the customer benefits. 

Measuring Energy Efficiency – Cost-effectiveness 

Cost-effectiveness is a fundamental requirement for energy efficiency – the monetized benefits of the portfolio or program need to exceed the monetized costs. Assessing cost-effectiveness through benefit-cost analysis (BCA) requires a standardized test or tests that determine which benefits and costs are included in the analysis. The common BCA tests for energy efficiency come from the California Standard Practice Manual (CaSPM), which was last updated in 2001. Many experts feel that the California tests are outdated as the tests originated three decades ago and could not foresee the needs of modern utilities and regulators to understand how efficiency (and other resources) can meet different policy goals in a rapidly changing energy market. 

The effort to modernize cost-effectiveness testing resulted in the 2020 National Standard Practice Manual for Benefit-Cost Analysis of Distributed Energy Resources (NSPM for DERs). This manual provides a comprehensive framework for cost-effectiveness assessment of DERs. The NSPM provides a set of policy-neutral, non-biased, and economically-sound principles, concepts, and methodologies to support single- and multi-DER benefit-cost analysis for: energy efficiency, demand response, building and vehicle electrification, distributed generation and distributed storage. It helps jurisdictions to understand which resources are needed to meet their specific policy objectives. 

Comparison of Primary Cost-Effectiveness Tests 

A jurisdiction has a primary cost-effectiveness test as the main screening tool for identifying beneficial programs and for ensuring that program goals were met. Other tests are sometimes considered as secondary tests to help prioritize choices among projects that passed the primary test. The primary cost-effectiveness tests that are used in the Midwest are shown below. 

Primary Cost-Effectiveness Tests in the Midwest

Primary Cost-Effectiveness Tests in the Midwest

Jurisdiction-Specific Test (JST) 

  • Primary test in: Minnesota. 
  • Perspective: Regulator / decision-makers. 
  • Key Question Answered: Will utility system costs be reduced, while achieving applicable policy goals? 
  • Includes: The utility system benefits and costs, plus those benefits and costs associated with achieving relevant applicable policy goals. 
  • Developed using the framework in the NSPM for DERs. 

Utility Cost Test (UCT) 

  • Primary test in: Michigan. 
  • Perspective: The utility system. 
  • Key Question Answered: Will utility system costs be reduced? 
  • Includes: The benefits and costs experienced by the utility system. 
  • AKA Program Administrator Cost Test. 

Total Resource Cost Test (TRC) 

  • Primary test in: Illinois, Indiana, Iowa, Kansas, Kentucky, Missouri, Nebraska, South Dakota and Wisconsin. 
  • Perspective: The utility system plus program participants. 
  • Key Question Answered: Will utility system costs plus program participants’ costs be reduced? 
  • Includes: The utility system benefits and costs, plus benefits and costs to participants. 
  • In practice, no two states’ TRC tests are really comparing all of the same benefits and costs. 


Measuring Energy Efficiency – Amount of savings 

EE by the Book 

To value energy efficiency, you must measure how much energy is being saved. It is widely accepted to use specified or calculated values for each energy efficiency measure, and to add up those values for all measures to show the benefits and costs produced by an energy efficiency program. 

A technical reference manual (TRM) is the handbook for energy efficiency programs in a state. A statewide TRM contains approved savings values for all energy efficiency measures that could be included in programs in the state. These could be in the form of deemed savings, a researched average value that is applied the same to any use of that measure, or as a calculation that uses installation-specific parameters to determine a value. The value of a TRM comes from having all parties working with the same playbook, with values from the TRM being considered non-controversial in most regulatory situations. TRMs should be created with a process for regular and ongoing updates to account for new technologies and changes to federal appliance standards that may change baseline assumptions. 

In the absence of a statewide TRM, utility-specific measure lists serve the same purpose but may vary between utilities, making the regulatory role more complicated. Utility measure lists often draw on out-of-state TRMs or vendor supplied values and may lack the specificity of a regularly updated statewide TRM. 

Advanced Measurement of EE 

With smart meters and other analytical tools, there has been an increasing push for real-world, direct measurement of savings. Pre- and post-installation measurements can show directly how much energy was saved by a project. Measurement-based valuation of energy efficiency can enable pay-for-performance programs that use a targeted approach to find projects that focus on total value to the energy system rather than the number of measures installed. This approach is not yet common in the Midwest but is growing in popularity around the country. 

Potential Studies 

Beyond knowing how much each measure is worth, a utility needs to know how many of those measures are likely to be installed in their territory. That is where a potential study comes in. A potential study looks at the current market for energy efficiency in a territory and how much it can be expanded. The studies look at several levels of potential (in decreasing scale): 

  • Technical potential: how much energy can be saved considering the current state of technology? 
  • Economic potential: how much of the technical potential can be saved cost-effectively? 
  • Achievable potential: how much of the economic potential can be saved considering market conditions and other limiting factors? 

The achievable potential typically determines what measures a utility will adopt for its energy efficiency portfolio and the number of each of the measures that are expected to be included. A large gap between the economic and achievable potential could indicate that there are substantial market barriers that need to be addressed. 

The Planning Cycle 

Resource Planning 

Utility long-term planning should include energy efficiency. Vertically integrated utilities-, those that own both generation and distribution-, often engage in Integrated Resource Planning (IRP) processes. In an IRP, existing and future possible energy resources are compared with forecast customer energy needs, and resource acquisition models select resources meet future scenarios at a reasonable net present value (NPV). Demand-side options that are identified in the utility’s potential study should be included along with supply-side distributed energy resources and baseload power to optimize the future resource mix.  

For utilities that have EERS requirements for energy efficiency, resources necessary to meet those targets can be ‘locked in’ to resource selection with additional efficiency allowed to compete against supply-side resources in IRP modeling.  

For distribution-only utilities, planning is typically simpler – ensuring that the utility will have agreements in place to purchase resources to meet forecasted future energy needs. Again, inclusion of future demand-side resources can lower future costs of resource acquisition for the utility. 

EE Planning 

Planning for energy efficiency typically starts with consideration of the utility’s resource plan, recent energy efficiency potential studies, and any legislative and regulatory requirements. Planners design energy efficiency programs, which are packages of one or more energy efficiency measures along with administration and delivery methods targeted at a specific customer segment. Program designs are tested for expected cost-effectiveness, and selected programs are combined with programs that serve similar customers to create a customer segment. Typically, these segments are residential and non-residential (also called business or commercial & industrial), and the low-income subsector is usually segmented out from residential. The segments are again screened for cost-effectiveness, and the whole utility energy efficiency portfolio is also tested.  

Along with multi-year energy efficiency plans, utilities often also develop year-to-year implementation plans that consider progress made in meeting the plans goals and make adjustments to program operations to re-align with those goals.