practical approaches to benefit-cost challenges in energy efficiency programs
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Practical Approaches to Benefit-Cost Challenges in Energy Efficiency Programs. Kansas Corporation Commission. Mitchell Rosenberg, Vice President Topeka, Kansas March 26, 2008. Overview. Practical Approaches and Results - PowerPoint PPT PresentationTRANSCRIPT
Experience you can trust.
Practical Approaches to Benefit-Cost Challenges in Energy Efficiency Programs
Kansas Corporation CommissionMitchell Rosenberg, Vice President
Topeka, Kansas
March 26, 2008
2
Overview
Practical Approaches and Results
– Formulating cost-effectiveness tests to address a jurisdiction’s policy objectives: Expanding the Total Resources Test (TRC)
– Estimating benefits not included in the TRC– Selection of appropriate analysis periods and discount
rates to reflect policy objectives and specification of benefits
References
– KEMA work in Wisconsin
3
Policy Drives the Test
Total Resource Test
– Meet energy needs at lowest social cost, including environmental externalities
Wisconsin Goals for Energy Efficiency Programs
– Reduce energy used per unit of production– Improve energy reliability– Enhance economic development & competitiveness of WI
businesses– Reduce environmental impacts of energy use– Expand ability of market to deliver energy-efficient goods &
services– Deliver return on public investment
4
Wisconsin Approach: Test Structure
Analysis Component TRC Societal
Test
Simple BC
Test Expanded BC Test
Economic Impact
Benefits Counted Avoided supply costs of kWh, kW, therm X X X X X Avoided emissions costs included in electric delivery X X X X X Avoided externality value of market-valued emissions costs associated with customer gas use X X X X Avoided externality value of projected market value of emissions costs associated with electricity delivery X X Avoided externality value of projected market value of emissions costs associated with customer gas use X X
Non-Energy Benefits resulting in monetary flows ("economic") X X X
Non-Energy Benefits not resulting in monetary flows ("non-economic") X Secondary economic benefits X X X
Tax credits treated as reduction in customer costs X
Discount rate utility societal societal societal not
applicable
5
Wisconsin Approach: Other Elements
Analysis Period: 25 years, beginning 2001
– Needed to capture economic benefits Program Period: 10 years, beginning 2001
– Need to assume levels of program activity from 2007 – 2011
Two funding scenarios
– Low-funding: continues first 5 years– High-funding: spending increase per current legislation.
More market effects reflected in benefits Net Present Value: All benefit and cost streams
discounted to $2007, then netted.
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Wisconsin: Overview of Benefit-Cost Analysis Results
Business Residential Renewables Total % of Total
BENEFITS BY CATEGORY
Documentable Energy Savings $1,373 $658 $91 $2,122 40%
Added Market Effects $80 $95 $ - $175 3%
Economic Envt'l Externalities $45 $32 $3 $80 1%
Non-Econ. Envt'l Externalities $122 $68 $9 $199 4%
Non-Energy Benefits $399 $106 $44 $549 10%
Economic Impacts Adder $1,557 $459 $219 $2,235 42%
SUMMARY BENEFITS
Total Simple Benefits $1,498 $785 $94 $2,377 44%
Net Economic Impacts $3,454 $1,350 $357 $5,162 96%
Total Expanded Benefit $3,577 $1,418 $366 $5,361 100%
COSTS
Program Costs $145 $87 $14 $246 24%
Incremental Customer Costs $338 $382 $42 $762 76%
Total Costs $483 $469 $56 $1,008 100%
In $2007 millions
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Benefits under the Simple TestCOMPONENTS/Functional Definitions/Inputs and Other Details
‘DOCUMENTABLE ENERGY SAVINGS’ AVOIDED SUPPLY COSTS Forcasted net energy savings under two spending scenarios
Evaluation results: net energy savings per dollar of program expenditure
Forecast of program spending
Measure life and decay rates annual savings stream over 25 years
Avoided utility energy cost per unit: kWh, peak KW, therms
MARKET EFFECTS SAVINGS AVOIDED SUPPLY COSTS Savings associated with program market effects
Low-funding case: market effects documented in program evaluations and counted in program achievements to date. Mostly ‘outside of program’ CFL sales and spillover estimated in impact evaluations. Forecasted per dollar of program spending.
High-funding case: Additional market effects based on evaluation findings that are less certain. E.g. effect of retailer promotion on permanent market share gain for CFLs; spillover from promotion of high bay fluorescent fixtures, efficient motors, and efficiency practices in the Pulp and Paper Industry.
ECONOMIC ENVIRONMENTAL EXTERNALITIES Market value of avoided emissions of criterion pollutants: NOx and SOx.
Annual kWh and therm savings: historical and forecast
Historical emissions data from EPA to estimate past avoided emissions.
Forecast emissions from marginal producers from regional Multi-Pollutant Optimization Model Generation emissions factors for energy saved in out years.
Natural gas on-site use emissions factors for non-generation boilers, per boiler size.
Emission allowance prices: Historic and forecast prices generated by the Multi-Pollutant Optimization model.
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Non-Energy Benefits
Estimates developed from combination of surveys to assess incidence and secondary sources to assess unit values.
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Indirect Economic Impacts Modeling
Direct Program Effects
Economic Benefit Drivers
Benefits Counted
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Estimates of Economic Development Impacts
Note: Benefits not discounted in Sum columns.
Import substitution and increased business competitiveness are the primary drivers of economic benefits generated.
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Putting it together: Simple Test
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Year
$ M
illi
on
Documentable Energy Savings
Added Market Effects Savings
Economic Envt'l Externalities
Program Costs
Incremental Costs
Net Benefits Simple B/C
Residential Programs: High Funding Scenario
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Putting it together: Expanded Test
Residential Programs: High Funding Scenario
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Year
$ M
illio
n
Documentable Energy Savings Added Market Effects Savings Economic Envt'l Externalities
Non-Econ. Envt'l Externalities NEBs Economic Impacts
Program Costs Incremental Costs Net Benefits Expanded B/C
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Key elements of uncertaintySources of Uncertainty
Issue/Treatment
Potential Improvement
Effect on Uncer- tainty
Ability to
Improve
End-user incremental cost
Often not tracked by programs. Used combination of program tracking and survey data.
Collect and review incremental costs in program tracking system; verify in impact evaluations.
H M
Avoided costs of energy
Based on recent tariff filings and market data. Electric costs not specific to sector or measure load shapes.
Develop electric avoided costs that vary according to time of day – as done in CA.
H M
Measure life and decay rate
Based on available literature. Projections assume exponential decay to mean lifegime.
Revise based on measure life studies in various jurisdictions. M M
Trends in savings per program $
Future assumed similar to historical. Limited information available for modifying assomptions
M L
Future energy savings
Scaled historical results or near-term projections based on assumed funding levels.
Modify for known changes in program emphasis. M L
Future Incentive payments
Scaled historical patterns based on projections of total spending.
Modify for known changes in program emphasis.
M L
Non-energy benefits
Estimates include a wide range of assumptions and imported values.
Improve analysis as possible. M L
Externality values Used trading credits for SOx and NOx; projected values for CO2
Refine market analysis as more trading info becomes available
M L
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Lessons Learned Extended cost-effectiveness framework is analytically
manageable, with significant areas of uncertainty remaining
Extended cost-effectiveness creates considerable program ‘headroom’.
Incremental cost data a major weakness.
– Need to build cost data collection into program operations and evaluation
Must ensure that assumptions used in b-c calculations are incorporated into program planning
– Example of California’s E3 calculator