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Investing in Energy Efficiency: Experience from California

Investing in Energy Efficiency: Experience from California. Managing Energy Demand – Bern ’09 November 4, 2009. Julie A. Fitch Director, Energy Division California Public Utilities Commission. Presentation Overview. Introduction to California experience

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Investing in Energy Efficiency: Experience from California

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  1. Investing in Energy Efficiency:Experience from California Managing Energy Demand – Bern ’09 November 4, 2009 Julie A. Fitch Director, Energy Division California Public Utilities Commission

  2. Presentation Overview • Introduction to California experience • Regulatory / financial mechanisms for utilities • Recent energy efficiency results • Current energy efficiency activities • Climate change context

  3. California: A long history of investing in clean power and energy efficiency Yesterday… … Today

  4. While the nation’s appetite for electricity has steadily grown, California has become a model of efficiency. Per Capita Electricity Sales (not including self-generation) ∆(2005) = 4,000kWh/yr = $400/capita United States kWh/person California

  5. Energy Efficiency Strategies • Flattening out the curve – yesterday • Decouple sales from revenues– eliminate disincentive • Set and strengthen building and appliance standards • Invest in utility energy efficiency programs • Bending the curve downward– tomorrow • Strengthen incentives– “Decoupling Plus” • Set long term goals to achieve durable, broad-based reductions • Enhance strategic planning: work backwards from goals • Improve branding, messaging and marketing • Invest in workforce and research and development

  6. Presentation Overview • Introduction to California experience • Regulatory / financial mechanisms for utilities • Recent energy efficiency results • Current energy efficiency activities • Climate change context

  7. Decoupling: How it works • Utility revenues are de-linked from energy sales • Utilities submit revenue requirements and estimated sales annually • Regulatory agency sets per-kWh rates by type of customer • If sales are lower, shortfall is covered in subsequent year • If sales are higher, excess revenues are credited to customers

  8. Decoupling: Why it works • Removes disincentive for utilities to encourage conservation, since revenues are not tied to amount of energy sold • Aligns utility shareholder and customer interests for more efficient resource decisions • Necessary, but not sufficient, to induce utility enthusiasm for energy efficiency

  9. Decoupling “PLUS”Utility shareholder incentives • Financial rewards for utilities for successful energy efficiency • “Shared savings” with consumers • Concept is to make financial return comparable to investment in supply resources (generation, transmission, distribution) • First tried in 1990s; new mechanism adopted in California in 2007

  10. Risk/Reward Incentive Mechanism basic concepts • Cost of utility energy efficiency programs is subtracted from the value of energy saved each year • If utilities reach a certain percentage of their savings goals, they are awarded a graduated percentage of these “net benefits” (currently set between 9 and 12%), up to a maximum cap, as additional revenues • If utilities fail to reach required goals, they face potential for penalties

  11. Presentation Overview • Introduction to California experience • Regulatory / financial mechanisms for utilities • Recent energy efficiency results • Current energy efficiency activities • Climate change context

  12. Costs Ratepayer Cost: $1.8B Customer Cost: $ .9B Benefits Energy Savings: $5.4B Total Cost: $2.7B Total Benefits: $5.4B Energy Efficiency Costs, Energy Savings and Benefits: 2006-08 The Bottom Line: Net Social Benefit = $5.4B - $2.7B = $2.7B Return on Investment = 100%

  13. 2006-2008 Savings • Equivalent to three 500 MW power plants (one each year) • 3 Million metric tons of CO2 equivalent

  14. Presentation Overview • Introduction to California experience • Regulatory / financial mechanisms for utilities • Recent energy efficiency results • Current energy efficiency activities • Climate change context

  15. The California Long Term Energy Efficiency Strategic Plan http://www.CaliforniaEnergyEfficiency.com

  16. 2010-2012 Utility Program Goals • Savings Impacts Anticipated: • 6,965 GWH • 1,537 MW • 150.3 MMTherms • 3.07 million tons of CO2e emissions avoided • Equivalent of 3 large power plants • Authorizes $3.1 billion in cost-effective energy efficiency programs

  17. 2010-12 Portfolio Highlights 12 Statewide Programs • Cal SPREE (Statewide Program for Residential Energy Efficiency) – existing homes • Commercial: Benchmarking • Industrial: Continuous Energy Improvement • Zero Net Energy New Construction • Heating, ventilation, & air conditioning: Focus on compliance • Statewide Marketing, Education & Outreach • Six other Statewide programs: Agriculture; Building Codes & Appliance Standards; Emerging Technologies; Lighting Market Transformation; Integrated Demand Side Management; Workforce Training • Plus Other Localized Programs:government partnerships; individual utility and 3rd party programs, and pilot projects

  18. Zero Net Energy Buildings • Advanced Home Partnership - $63.2 million • Aims toward Strategic Plan 2011 milestone: 50% of new homes exceed existing building standards by 20%; 10% exceed by 40% • 15% above 2008 building code • Calculated incentive structure up to 50% incremental cost • Emphasizes “green” marketing- leverage existing consumer awareness • Zero Net Energy Pilots • $43.16 million utility programs • $60 million for innovative local government programs focused on Advanced Building (“Reach”) Codes and GHG Action Plans • Commercial buildings • 100,000 building statewide benchmarking target (2010-2012) • “Path to Zero” Commercial Buildings Collaborative

  19. Other Portfolio Highlights • Advanced Lighting Programs (53% of total lighting budget) • $89 million (LEDs, specialty/super CFLs, halogens); $78 M - CFLs • 2020 Strategic Lighting Plan Work Group • Codes and Standards Programs • New Compliance Enhancement Program • training/support to building officials; • streamlining permitting and compliance requirements; • enhanced certification processes; Focus on HVAC • Reach Codes; coordination at state level and with voluntary codes • Heating, Ventilation and Air Conditioning • Compliance focus: certification and training, CA specifications, quality installation and maintenance • Industrial – certification/pilots on energy management

  20. Marketing/Brand that engages moves customers to take action • New or Revised Clean Energy Brand (2010) • Interactive EE Web Portal • exchange expert resources & engage average citizens • Will utilize social networking techniques • Variety of in-language marketing and outreach programs • Universal Integrated Audit/Survey Tool • Behavioral Programs

  21. Financing Funds - Growing • Additional financing of US$8 - $25 billion needed • for efficient hardware alone 2010 -2020 • Statewide Utility On-bill financing (OBF): • For commercial and institutional customers • Initial $41.5 million in new funds for OBF loan pool • Common loan caps and terms • Utility program coordination with municipal property-based financing • linked to national economic stimulus funds/retrofit programs • CPUC/State Treasurer’s office collaboration on state facilities

  22. Economic Impact of Energy Efficiency Programs 2010-2012 • 15,000 – 18,000 new “green collar” jobs in 2010-2012 over 2006-08 • 6,000 – 10,000 jobs in Residential Retrofit alone • $122 million budgeted for workforce education *Job benefits calculated based on Council of Economic Advisers’ May 2009 publication of “Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009”

  23. McKinsey and Co’s Compelling Case for Energy Efficiency as U.S. Climate Action • U. S. National Potential: • 23% reduction in end use energy consumption • Reduce 1.1 gigatons GHG (15% of US 2005 emissions) • $1.2 trillion in gross energy bill savings (Net Present Value) • $540-630 billion net savings (NPV) after EE investment & program costs* • Strategies Needed: • Comprehensive, innovative scale approaches to “unlock” EE in 100 million buildings, with billions of devices • Biggest challenges: • up-front funds, fragmented stage, stakeholder alignment, low “mind-share” * (@ 10-30% of investment)

  24. Presentation Overview • Introduction to California experience • Regulatory / financial mechanisms for utilities • Recent energy efficiency results • Current energy efficiency activities • Climate change context

  25. California Global Warming Solutions Act of 2006 (AB 32) • 2010: emissions at 2000 levels • 2020: emissions at 1990 levels • 2050: emissions 80% below 1990 levels* • Covers all major emitters, to be defined by California Air Resources Board (ARB). • Covers all major greenhouse gases (GHGs). *Set in Executive Order S-3-05, June 2005.

  26. California’s Greenhouse Gas Emissions (480 MMTCO2E) Commercial Residential Elec. Gen. (Imports) Transportation Elec. Gen. (In State) Industrial Source: CEC Agriculture CARB 2007

  27. Electricity-Related Emissions: Imports Source: CEC (for electricity sales); CARB (for emissions inventory)

  28. California’s Climate Policy Road Map • Required by AB32 • Adopted by California Air Resources Board (CARB) Dec. 2008 • Targets 174 MMtCO2e reduction from BAU • Multi-agency effort led by CARB • CPUC provided formal recommendation of strategies for the electricity and gas industries • Lays out comprehensive regulatory program • Combines mandates with market based measures

  29. A Role for GHG Trading… Reduce Demand GHG Trading Choose Cleaner Supplies • Stimulate • Technological • Innovation

  30. … And for Mandatory Measures • Reduce Demand • Energy efficiency • Advanced metering/demand response • Water conservation • Choose Cleaner Supplies • Loading Order • Renewable Portfolio Std. • CA Solar Initiative • Emissions Performance Std. • Promote Technological Innovation • RD&D investments • Standards

  31. Nearly 40% of reductions from mandates are from electric sector programs Total Reductions from 2020 BAU: 169 MMTCO2E Electricity/Gas Mandates: 49.7 MMTCO2E 21.2M 26.4M 2.1M Source: CARB Proposed Scoping Plan

  32. Clean and Efficient Fossil-fired Energy Renewable Energy Efficiency and Demand Response California’s Loading Order Staged priorities for procurement of new resources Mostly command and control mandates

  33. Aggressive EE/GHG Goals California Air Resources Board Scoping Plan Target (Nov, 2008): • 32,000 GWh and 800 MMTherms/year by 2020 • 19.5 MMT CO2E in 2020 CPUC 2020 interim energy efficiency goals (July, 2008): • 16,000 GWh and 620 MMTherms/year • Equal to nine or ten power plants avoided

  34. Climate/EE Policy Issues Ahead for California and the U.S. • Demand-side management (DSM) strategies not part of Cap and Trade; no mechanism to sell GHG benefits from DSM • Cap and trade places limits on sources of GHGs; demand-side strategies not directly integrated into cap and trade. • GHG emission price will make more DSM “cost-effective” • “Offsets” typically allowed outside the capped jurisdiction only • Local Governments can influence building and transportation, but how to pay for actions? • Allowance auctions may provide EE funds to expand programs &/or creative allowance “retirement” • EE Institutional challenge: Need broad vision, strong and clear leadership, over sustained period – to overcome ”friction” of diffuse markets and action venues

  35. Thank YouJulie A. Fitchjf2@cpuc.ca.govwww.cpuc.ca.gov

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