Across the United States, the benefit-cost ratio for energy efficiency programs is decreasing over time, bringing new challenges for third-party and utility program implementers. Changes in the energy landscape, as well as in the regulatory environment, significantly impact the performance of programs.
In response, dynamic management strategies for energy efficiency programs can help program managers and utilities secure better results.
New Challenges for Energy Efficiency Programs
Decreasing benefit-cost ratios are impacted by different factors, including many measures becoming industry standard practice, increased administration costs, and inflation in costs such as labor and equipment. In many cases, much of the “low-hanging fruit” measures that were easy to implement have already been completed. The projects that have not yet been addressed are generally more complicated, requiring more engineering resources, additional monitoring and verification, and policy changes. To implement these complex energy efficiency measures, customers are further required to use energy efficiency project management to realize savings.
Beyond engineering and project challenges, new policy changes surrounding energy efficiency programs can also present different considerations for program implementers. Looking at California as an example for recent and impactful changes, the California Public Utilities Commission’s Decision 21-05-031 in 2021 provided new guidance for identifying energy efficiency opportunities and how program managers should set goals in design and implementation of programs.
First, energy efficiency programs were required to adopt, forecast, and track a new metric known as Total System Benefit (TSB). This metric combines multiple benefits, such as optimizing energy and peak demand savings goals and greenhouse gas benefits of energy efficiency.
In addition, Decision 21-05-031 created a new segmentation of “energy efficiency program portfolios, into programs whose primary purposes are resource acquisition, market support, or equity”. The resource acquisition segment focuses on energy and capacity savings as well as greenhouse gas emissions reductions.
These resource acquisition programs must meet a cost-effectiveness threshold, which is now typically assessed using the Total Resource Cost (TRC) test. Over time, regulators have made the benefit-cost ratio requirement more rigorous. Currently, the resource acquisition segment of utility portfolios must meet a TRC test of 1.0, which can strain the existing resources of utility-led programs.
Finally, Net-to-Gross (NTG) ratio ensures that program results reflect only the energy savings that are the outcome of the energy efficiency program. NTG is a significant factor in determining TRC, and there are various challenges that are causing NTG to decrease year after year. In the last several years, NTG for custom projects has been decreasing, primarily due to “free ridership” and that projects are not being implemented because of program influence. A post-installation portfolio evaluation will review a sample of projects to determine how much of the energy savings are caused by program influence. If the evaluation determines that there is increasing free ridership, then the NTG ratio will consequently decrease. A lower NTG ratio will decrease the energy savings attributed to the program or portfolio.
In this challenging environment, utilities are trying to maximize their TSB while also balancing TRC — all while NTG is getting lower in recent years. Achieving all of these goals is becoming more difficult for utilities and energy efficiency program managers to complete with a traditional program approach.
Rethinking Static Program Management
With these challenges in mind, energy efficiency program managers face measure options that are more costly in management, engineering, measurement, and verification. It can be more expensive for customers to implement these measures, even if they are leveraging a program manager to realize the savings.
Energy utilities typically require quarterly or annually program performance reporting from program implementers. These regular metrics are static, and most basic project management tools in the market today do not provide feedback on demand. Basic project management tools typically only incorporate backward-looking data and may have limited capabilities to perform automated forecasting updates based on historical data. It’s critical to incorporate accurate and automated forecasting capabilities to ensure that the program can meet or exceed its goals.
While utilities may only ask for metrics on a quarterly or annual basis, in managing a program, the program implementer can benefit from more timely information. An automated dynamic tool can provide comprehensive weekly or even daily updates and recommendations, giving program managers the ability to make proactive, rather than reactive, decisions.
Leveraging Dynamic Program Management for Program Success
In order to hold program managers responsible for better overall program performance, dynamic tools need to report the performance metrics back to the program manager, who can then manage accurate forecasts by making ongoing adjustments. When dynamic program concepts are applied to existing programs, even under most rigorous calculation tools, we can significantly increase the benefit-cost ratio of programs.
This improved benefit-cost ratio can come from many different options for increasing the success of the programs, such as limiting sub-performing measures, setting a threshold for measure costs for certain measures, requiring performance requirements from installation contractors, and increasing project incentives to improve participation of more cost effective measures.
Dynamic systems can update project inputs in live time, providing energy savings estimates on a daily or weekly basis that allow program managers to make changes early in the program. Program managers know the energy efficiency program performance on demand, with exact measure information, type of application, selected and participating contractors, and unique marketing methods.
Dynamic management assists energy efficiency program managers with goals such as:
- Meeting program target dates and other metrics, and to avoid end-of-year or seasonal changes.
- Tracking program results and implementation contractor performance to avoid unwanted surprises in achievements and budgets.
- Executing programs in accordance with your utility and regulatory standards, policies and procedures.
- Providing a program tracking and reporting system to effectively monitor all aspects of program results, measure categories, program administration and implementation costs and to avoid “surprises” in program goals such as unnecessary activities, expenditures, customer and market participation and challenges or issues.
- Reviewing monthly program budget reports and ensure corrections are made as soon as the challenges are discovered.
- Capturing real-time database information about labor and equipment cost, updating project pricing periodically.
With transparent and frequent understanding of actual benefit-cost ratios and other performance metrics, program implementation costs can be significantly reduced. Dynamic management holds program managers responsible for the final outcome of their programs on a rolling basis and will prove to the regulators that the public funds (energy efficiency surcharges) are properly expended.
Meeting Energy Efficiency Program Goals
Energy efficiency program implementers aim for projects to be completed on reasonable and predictable timelines, with maximized performance. Energy efficiency program implementers should ensure program managers are leveraging dynamic tools and are able to provide a tailored recommendation for a program in the face of new challenges.
Lincus brings over a decade of experience managing energy efficiency programs with utilities. Our team can provide program management services such as engineering and consulting, as well as regulatory services such as advising on how to best manage programs around upcoming policy changes.
As an energy efficiency program partner, Lincus can help identify qualified advanced technologies at the top 20% of the market, compared to peers, which then should be awarded the maximum NTG possible. A tailored project plan, utilizing cutting-edge technology that has less saturation in the market, can help meet program goals.
We want to help you become optimally energy efficient. Contact us or visit our Program Design and Management page for solutions and more information on dynamically managed energy efficiency programs.