To understand how energy efficiency impacts the energy systems we use, we must assign a value to it. We measure the value of energy efficiency monetarily by comparing its benefits to its costs, demonstrating its cost effectiveness. Through a process called Evaluation, Measurement & Verification (EM&V), we can assess energy savings goals and targets by calculating the energy savings that can be attributed to the intervention.
Cost-effectiveness is a primary requirement for energy efficiency– the monetized benefits of the portfolio or program need to exceed the monetized costs. Assessments of energy efficiency cost-effectiveness through benefit-cost analysis (BCA) requires a standardized test or tests that determine which benefits are costs are included in the analysis. The tests for BCA of energy efficiency originated in the California Public Utility Commission's Standard Practice Manual (CaSPM), last updated in 2001. The CaSPM's tests, outlined below, are in common use around the country, but many experts feel that they are outdated. 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 has led to the 2020 National Standard Practice Manual for Benefit-Cost Analysis of Distributed Energy Resources (NSPM for DERs). This provides a comprehensive framework for cost-effectiveness assessment of DERs. The manual 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 (EE), demand response (DR), distributed generation (DG), distributed storage (DS), and building and vehicle electrification. The manual is intended for use by jurisdictions to help inform which resources to acquire to meet the jurisdiction’s specific policy goals and objectives.
The NSPM for DERs incorporates and expands upon the 2017 National Standard Practice Manual for Assessing Cost-Effectiveness of Energy Efficiency Resources (NSPM for EE). Jurisdictions and interested stakeholders are encouraged to refer to the NSPM for DERs to guide BCA efforts in their jurisdiction, whether for a single DER type (including EE) or multiple DER types.
Comparison of Cost-Effectiveness Tests
Jurisdiction-Specific Test (JST)
- Perspective: Regulator / decision-makers
- Key Question Answered: Will utility system costs be reduced, while achieving applicable policy goals?
- Categories of Costs and Benefits Included: The utility system costs and benefits, plus those costs and benefits associated with achieving relevant applicable policy goals
- Not a California Manual test*
- Developed for a jurisdiction using the framework in the NSPM for DERs.
- Originally known as the RVT (Resource Value Test) in the 2017 NSPM for EE
*A JST could be designed using the NSPM guidelines to look like one of the traditional CaSPM tests, but it does not need to.
Program Administrator Cost Test (PAC)
- Perspective: The utility system
- Key Question Answered: Will utility system costs be reduced?
- Categories of Costs and Benefits Included: The costs and benefits experienced by the utility system
- Originally name, still commonly used, is the Utility Cost Test (UCT)
Total Resource Cost Test (TRC)
- Perspective: The utility system plus participating customers
- Key Question Answered: Will utility system costs plus program participants’ costs be reduced?
- Categories of Costs and Benefits Included: The costs and benefits experienced by the utility system, plus costs and benefits to program participants
Societal Cost Test (SCT)
- Perspective: Society as a whole
- Key Question Answered: Will total costs to society be reduced?
- Categories of Costs and Benefits Included: The costs and benefits experienced by society as a whole
Participant Cost Test (PCT)
- Perspective: Customers who participate in the energy efficiency program
- Key Question Answered: Will the participant’s costs be reduced?
- Categories of Costs and Benefits Included: Costs and benefits to program participants
Ratepayer Impact Measure (RIM)
- Perspective: All utility customers, including participants and non-participants
- Key Question Answered: Will customer rates change due to the efficiency program?
- Categories of Costs and Benefits Included: Compares utility revenues and operating costs from the efficiency program, including utility incentives
Cost-Effectiveness Testing in the Midwest
The table below provides a simple overview of which tests are used in each Midwest state. The table does not include full detail on legislative and regulatory requirements for those tests, which impacts are included in each state's testing or other details on how cost-effectiveness testing is actually performed. That information is available, however, in the NESP's Database of Screening Practices (DSP).
The DSP provides information on state cost-effectiveness screening practices for utility customer-funded electric efficiency programs across 52 states and jurisdictions. States can use the DSP to learn about other states’ practices, and readily access and better understand policies, processes and studies that support assumptions used in benefit-cost analyses.
Summary of Cost Effectiveness Testing in the Midwest
|State||Primary Test||Other Tests Used|
|Indiana||TRC||PAC, PCT, RIM|
|Iowa||TRC||SCT, UCT, PCT, RIM|
|Kansas||TRC||PAC, PCT, SCT, RIM|
|Kentucky||TRC||PAC, PCT, RIM|
|Michigan||PAC||TRC, PCT, SCT, RIM|
|Minnesota||SCT||PAC, PCT, RIM|
|Missouri||TRC||PCT, SCT, RIM|
|South Dakota||Varies||TRC, RIM, PAC, SCT, PCT|
|Wisconsin||TRC||PAC, SCT, RIM|
Evaluation, Measurement & Verification
Evaluation, measurement and verification (EM&V) is a set of practices and protocols to test the impact of energy efficiency measures, projects and programs. EM&V helps regulators ensure that energy efficiency program administrators are meeting their targets, ratepayer funds are being spent judiciously and that EE programs are cost-effective. Non-regulated efficiency providers conduct EM&V to ensure that customers are receiving the intended benefits from energy efficiency projects.
Ways of Measuring Savings
Program administrators rely on three major categories of EM&V methodologies: quasi-experimental methods (such as randomized controlled trials), project-based measurement and deemed savings. The deemed savings method– stipulated metrics associated with well-understood energy efficiency measures– is most common in the Midwest, and is often documented in a Technical Reference Manual (TRM), a guidance document for energy efficiency program design and evaluation for a state.
New data analysis technologies allow for measurement of savings directly at the meter. Using direct customer usage data to measure savings is often called M&V 2.0 and can be deployed with or without advanced metering.
Net Savings v. Gross Savings
When evaluating the savings attributed to ratepayer-funded efficiency programs, policymakers must decide whether to consider net or gross energy savings. Gross savings are the change in energy demand attributed to an energy efficiency program for actions taken by customers, regardless of whether the program influenced the customer to take the action. Net savings are the subset of the gross savings that are directly attributable to an energy efficiency program.
Summary of Net vs. Gross in the Midwest
|State||Net or Gross Reported|
|Nebraska||Varies by utility|
|North Dakota||No program reporting has been identified|
|South Dakota||Varies by utility|
EM&V at the Regional and National Level
Several regional and national efforts are attempting to create a more standardized approach to EM&V. In the Northeast and Mid-Atlantic, the Northeast Energy Efficiency Partnerships (NEEP) convened a regional EM&V Forum. NEEP is bringing together stakeholders "to support the development and use of consistent protocols to evaluate, measure, verify and report the savings, costs and emission impacts of energy efficiency and other demand-side resources." Building on the efforts in the Northeast, the U.S. Department of Energy (U.S. DOE) has launched the Uniform Methods Project to "establish easy-to-follow protocols based on commonly accepted engineering and statistical methods for determining gross savings for a core set of commonly deployed energy efficiency measures." In addition, U.S. DOE is also addressing EM&V protocols through the State and Local Energy Efficiency Action Network (SEEAction) Evaluation, Measurement and Verification Working Group.