queenschamber.org THIS IS QUEENSBOROUGH ENERGY EFFICIENCY: PUTTING OUR MONEY WHERE BY MARIA FIELDS MANAGING DIRECTOR, INVESTOR RELATIONS While it is two to three times more cost-effective to save a kilowatt than generate one, energy efficiency 8 has lagged its potential role in producing a more modern and clean electricity system.1 Representing the best value for America’s energy dollar, energy efficiency (EE) remains the cheapest solution, whether the goal is upgrading energy infrastructure or reducing greenhouse gas emissions, and therefore remains top-of-mind for utilities, regulators, and investors. THE OLD PARADIGM: THROWING MONEY AT THE PROBLEM Historically, utilities and states have relied on a pay-in-advance model to promote energy efficiency. In this model, the customer gets a rebate for installing energy efficiency technology regardless of how the technology ultimately performs. This pay-in-advance approach has been a common historical model for creating efficiency, but rebates structured this way are based on estimated savings and do not directly incentivize long term energy efficiency performance; in fact, such rebates can even have a perverse effect on intended efficiency goals. This issue is only exacerbated by the sizeable investment made by states such as New York to track and evaluate program performance, a backward looking process that eats up $200 million in energy efficiency program dollars annually.2 Ironically, the pay-in-advance approach has proven grossly inefficient in its primary reason for being, i.e., overcoming barriers to creating energy efficiency at scale. It is increasingly recognized that traditional efficiency programs contribute to, rather than solve, the documented barriers to energy efficiency market growth, including fragmented and opaque market structures, absence of price transparency, and lack of access to financing solutions. A NEW PARADIGM: SMART ENERGY EFFICIENCY The good news is that technologies with the demonstrated ability to cost-effectively control, measure, and verify energy reduction (often in near real-time) already exist. These applications replace engineering estimates with actual metered savings, creating a new paradigm for scaling energy efficiency. The ability to measure and pay for energy reduction, enhanced by the ability to control consumption, make it possible for “Smart Energy Efficiency” to be measured and delivered when and where it is needed, offsetting costly generation, transmission, and distribution upgrades. With expected investments of $400 billion required to bring the grid to modern standards according to EPRI, this Smart EE has a valuable role to play, and monetizing that value will be an increasing focus of utility programs.3 Con Edison’s Brooklyn Queens Demand Management (BQDM) program, which seeks 52MW of demand side resources to avoid $1.2 billion in more traditional transmission and distribution system upgrades is an industry-leading example. PRIVATE CAPITAL INVESTMENT IN THE GRID OF THE FUTURE As states and utilities look for even more from energy efficiency, another transition is under way. New York and California are leading a growing number of states that are redesigning their EE programs with the specific goal of attracting private capital investment to replace public funding models. A critical goal of New York’s Reforming the Energy Vision (REV) initiative is “market animation,” i.e., specifically structuring programs to attract private capital and create efficiency at scale. A measured performance requirement enables a transactional model that goes a long way towards meeting these goals. Still, attracting mainstream capital sources to energy efficiency investments requires standardization, streamlined processes, and the ability to understand and manage performance uncertainty. Pay for performance models go a long way towards this end by creating a standard measure for energy reduction as an asset—but more is needed. The Investor Confidence Project (ICP), which was started by the Environmental Defense Fund and is now part of the US Green Building Council, incorporates proven industry standards into three protocols with a transparent and interoperable process to ultimately reduce transaction costs. This inclusive, scalable design is exactly what the industry has needed to address the SME market. ICP certification provides a “seal of approval” that increases property owner’s confidence in energy efficiency vendors and enhances market efficiency. The Investor Ready Energy Efficiency™ certification creates projects with uniform project development and performance tracking requirements, so that SMEs can benefit from the same sophisticated financing that large commercial buildings have benefitted from for years. Also mitigating investor risk, Hartford Steam Boiler Inspection and Insurance Company (HSB), a subsidiary of Munich Re, has entered the market with energy efficiency performance insurance designed around the needs of the SME market. When investments in “smart energy efficiency” can be guaranteed to perform and are insured with an investment grade counterparty, the private market is demonstrating its ability to take on and manage performance risk for the benefit of property owners and utility program managers alike. This is expected to be a breakthrough period for energy efficiency market growth as the industry aligns around pay-for-performance standards, helping “smart” efficiency take its proper role in the grid of the future. 1 American Council for an Energy Efficient Economy. (2015). The Best Value for America’s Energy Dollar: A National Review of the Cost of Utility Energy Efficiency Programs (U1402). Retrieved from http://aceee.org/ press/2014/03/new-report-finds-energy-efficiency-a 2 `Consortium for Energy Efficiency. (2015). CEE Annual Industry Report: State of the Efficiency Program Industry. Retrieved from https://library.cee1.org/ sites/default/files/library/12628/CEE_2015_Annual_ Industry_Report.pdf 3 `Power-technology.com. (2016, May 26). Upgrading the US power grid for the 21st century. Retrieved from http://www.power-technology.com/features/featureupgrading the-us-power-grid-for-the-21st-century 4866973/ 4 `Investor Confidence Project. (n.d.). Commercial Protocols. Retrieved from http://www.eeperformance. org/commercial-protocols.html 5 `Investor Confidence Project. (n.d.). ICP Project Certification. Retrieved from http://www.eeperformance. org/project-certification.html THE METER IS
QB032017
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