March 16, 2020
By Alan Elliott
Originally published in AESP Strategies March 2020 edition
In 2020, California stands at the precipice of major changes to program design, implementation, and evaluation. At the center of this zeitgeist are two pieces of landmark California climate legislation, SB100 and SB350, which raised the bar for the state’s greenhouse gas (GHG) reduction goals and the integration of renewables into utilities’ resource mix.
According to SB100, utilities must achieve a 60 percent renewable portfolio standard by 2030 and 100 percent carbon-free electricity by 2045.
SB350, also known as The Clean Energy and Pollution Reduction Act, requires the state to double statewide energy efficiency electric and gas savings as well as achieve greenhouse gas reductions of 40 percent below 1990 levels by 2030. The next 10 years of policy direction and program implementation will be critical if California hopes to meet these goals.
Gas and electric utilities in California find themselves facing both exciting opportunities for innovation and daunting challenges in achieving these aggressive climate goals. To explore these topics, the AESP Evaluation Topic Committee interviewed three experts from gas and electric utilities in California who have decades of experience planning and implementing utility energy efficiency programs. Experts discussed what they felt were the most pressing industry and policy trends that would impact customer programs in the next decade. These trends included the rise of new types of program administrators, growing enthusiasm for electrification, and mounting calls for updates to the state’s interpretation of cost-effectiveness to make room for innovation. Experts also discussed what they see as key research and evaluation priorities to help utilities and the policymakers with the challenges of the decade. These included developing data tracking standards to parse out the overlapping influence of new program administrators on program savings, setting the baseline for measuring GHG reduction impacts, understanding when and where savings occurs, and establishing the appropriate methods for evaluating meter-based programs.
Will New Types of Program Administrators Be Game Changers?
Over the last 10 years, California saw a massive rise in the number of non-investor owned utility (IOU) program administrators and will likely see the state continue that trend in the 2020s. The state’s first Community Choice Aggregator (CCA) launched in 2010 and began offering energy efficiency programs in 2013. In 2014, the California Public Utilities Commission (CPUC) approved funding for two Regional Energy Networks (RENs), one in the San Francisco Bay Area and one in the Greater Los Angeles Area, to begin offering energy efficiency programs. Since then, 18 more CCAs have formed (two currently offer energy efficiency programs) and the CPUC has approved the formation of an additional REN serving California’s Central Coast region. While IOUs like Pacific Gas and Electric (PG&E) and Southern California Edison (SCE) have remained and will continue to be important to administrators of customer energy efficiency programs (as well as demand response and distributed generation programs), CPUC approved these new program administrators with the idea that they would usher forth innovative program designs that would help the state achieve its GHG reduction goals. The CPUC doubled down on this idea in 2018, by requiring that 60 percent of IOU program funding supports third-party originated programs by 2022. The IOUs are now in the process of soliciting and reviewing bids for this new wave of third-party programs.
“Difficult to sort out,” sums up the opinion of one utility representative we interviewed, who was both excited and concerned about the rise of new program administrators and the new requirement for third-party programs. On the one hand, the respondent remarked that new administrators and the emphasis on third parties may bring new and exciting ideas to the table. The IOUs have traditionally worked with third-parties as implementers of their programs, but the notable change in this policy is that these new programs must be conceived of by third-parties. On the other hand, the sheer number of program administrators, plus statewide, upstream, and midstream programs create considerable risk for customer confusion and double counting of savings. It also brings unprecedented logistical and data privacy challenges as these administrators coordinate, share information between entities, and capture the necessary data for savings claims. “And the evaluators want all that same data,” the expert commented, “but we need the logistics of all this data capture and [these] databases to exist to support the data that our evaluators are going to want.” It will be a priority to establish a database and data tracking standards among all these administrators for evaluation, the expert said.
The Electrification Wave
The prospect of a “cleaner” electric grid in the future, driven by SB100 and SB350, has been a boon to electrification (converting from fossil fuels to electricity in our buildings and automobiles) as a strategy for GHG reduction. “Energy efficiency becomes less important because you are saving carbon-free power,” one utility representative commented. Although the realization of carbon-free electricity is still many years away, the experts expect to see a gradual shift away from energy efficiency as a focus of utility programs. “We are starting to invest rather heavily in building electrification and vehicle electrification,” said the expert, “knowing that we can then power those things from a cleaner fuel source.” Plug-in electric vehicles, fuel switching in existing buildings, and all-electric new construction will be priorities for this utility’s programs in the next decade.
Carbon-neutral electric generation and electrification will change not only the goals of programs but also the metrics and methods used to evaluate their achievements. For instance, in January 2020, the Sacramento Municipal Utility District (SMUD) became the first utility in California to change its primary impact metric for programs from gigawatt-hours to GHG reduction, and one expert commented that many other municipal utilities will likely follow this trend in the coming years. While this is an exciting new direction for utility programs, this shift will introduce new challenges related to attribution. When you measure carbon reduction, new types of market actors like electric vehicle manufacturers, or elements of politics and policy, may influence customer decision-making around reducing carbon emissions, the expert noted. This creates a challenge when measuring the impacts of utility programs. “We need to set a good baseline now.” the expert said, in order to properly estimate GHG reduction impacts of utility electrification efforts. While we await a 100 percent carbon-neutral electric grid, the expert commented, energy efficiency programs will continue to be important, but the evaluation will also need to better understand when and where electric savings occur to ensure that these programs are targeting usage at times and in locations where generation is most reliant on fossil fuels.
Cost-Effectiveness Requirements Could Make or Break Innovation
While municipal utilities, not regulated by the CPUC, may be able to push the envelope, several utility representatives commented that the current cost-effectiveness requirements may inhibit the ability of programs to contribute to the state’s GHG reduction goals. According to current regulations, IOU energy efficiency program portfolios must meet a minimum threshold of 1.25 using the Total Resource Cost (TRC) Test. As we get closer to 2030, there has been mounting criticism among utilities and industry advocacy groups to make major changes to the cost-effectiveness framework, lest it becomes a barrier to achieving the necessary levels of electric and gas savings and GHG reductions.
“Until we remove that requirement,” one expert commented, “unfortunately, I think we’re going to be stuck where we are, having to close programs down and only focusing on those that are cost-effective and not giving new technologies and program ideas a chance to grow and become cost-effective.” There aren’t that many untapped new ideas that are cost-effective under the current framework, one expert commented. Just recently, in December 2019, the CPUC rejected PG&E and SCE’s annual budget advice letters for 2020 energy efficiency programs because they did not meet the 1.25 TRC requirement, likely forcing these IOUs to cut program funding by 40 percent in order to scale back efforts to only the most cost-effective programs. While the CPUC envisions third-party programs as potential generators of innovative programs, they will also face this TRC requirement. “The [TRC] mandate, on top of how third-parties earn money, generate revenue, that’s not conducive to innovation…. I think everyone in California is going to see that once we finish all these [2022 third-party] solicitations,” one expert suggested.
Experts we spoke with saw exciting opportunities for the role of research and evaluation to change in the next few years to help overcome challenges related to cost-effectiveness. One expert was extremely focused on the timing and location of savings. The expert suggested that targeted marketing informed by data analytics may help utilities target their programs to cost-effective pockets of their territory, where the potential for avoided costs are highest. The expert also thought that evaluations will need to prioritize estimating the timing of savings, with the hopes that programs can encourage savings specifically when avoided costs are highest, thereby increasing the cost-effectiveness of savings.
Meter-Based Programs: The New Frontier
Two experts commented that the biggest things to happen to evaluation in California in the last five years are meter-based programs, and normalized metered energy consumption (NMEC) evaluation approaches. NMEC approaches may allow utilities to closely monitor the performance of their program participants, helping them manage risk, maximize program savings, and ultimately maintain cost-effectiveness. “The ability to engage the customer right away is the focal point,” one expert explained, and that enhanced responsiveness could have major benefits especially when managing the performance of very large-usage customers, whose performance alone may make or break the cost-effectiveness of the entire program. Another expert was hopeful about NMEC, but still very cautious about its prospects and applications, seeing the next few years as critical to proving-out the concept. “NMEC has been more challenging and complicated than many people had predicted. And it’s still evolving…and we’re still learning. Not all meter-based programs can be evaluated the same.”
As we enter a new decade, the path ahead appears to be equal parts ambitious and uncertain. Utilities across the country will be keeping a close eye on ever-trendsetting California, eager for inspiration and lessons learned as many of them also seek to accomplish aggressive energy efficiency goals and a carbon-free future.
Alan Elliott is a Principal Consultant at Opinion Dynamics and serves as co-chair of the AESP Research and Evaluation Topic Committee. He has managed numerous evaluations of programs and pilots implemented by California program administrators, including the CPUC, IOUs, regional energy networks, and municipal utilities.
This article is the second in a series of articles on the state of program evaluation by region, based on interviews conducted by the AESP Research and Evaluation Topic Committee.