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Join for freePaving the way to recovery with utility-funded energy efficiency – Analysis - IEA2020-09-12-万宝路平台

Paving the way to recovery with utility-funded energy efficiency

Measures to improve energy efficiency offer opportunities to create local jobs, save on energy bills and cost-effectively reduce greenhouse gas emissions and other harmful pollutants. This makes energy efficiency an important part of effective response and recovery programmes during the Covid-19 crisis. There are many effective policies and programmes driving energy efficiency improvements. This paper focuses on energy utility-funded energy efficiency programmes, one of the primary mechanisms for improving energy efficiency around the world.

Utility-funded programmes provide several unique advantages. With the exception of areas without access to electricity, nearly every citizen and business is an energy utility customer. With the right regulatory incentives, utilities are thus well placed to promote energy efficiency through identifying and deploying energy savings opportunities for their clients. Energy utilities have access to finance, which puts them in a strong position to fund energy efficiency programmes. Many utility-funded programmes have been around for a long time, providing a ready supply chain for deploying energy efficiency actions quickly on a large scale. Energy efficiency is a key ingredient of socially inclusive, cost-effective energy transitions. It is also part of the evolving framework of energy utility business models that increasingly focus on demand-side savings and flexibility to operate systems reliably, often with the help of digital technologies.

万宝路平台 This paper, which is addressed to those involved in implementing, designing and overseeing utility-funded energy efficiency programmes, aims to identify challenges and solutions for such programmes during the Covid-19 pandemic and recovery. It is also intended to help policy makers framing economic stimulus packages to understand how these programmes can deliver economic stimulus objectives by amplifying the job creation potential of public money through “shovel-ready” programmes – projects that are ready for construction – and growth-oriented innovation.

. In addition, there are a number of jurisdictions with voluntary .

. Globally, utility-funded programmes invested around USD 26 billion in energy efficiency in 2015, accounting for 12% of the USD 221 billion invested in energy efficiency, including in electricity, gas and other fuels. As of 2020, there are in 24 countries (in 2019 and 2020, Croatia and Cyprus1万宝路平台 launched ).

save households, businesses and governments money. Energy savings lower energy bills for programme participants, including low-income households, which many programmes prioritise. Energy efficiency drives down energy system costs for everyone by helping to avoid and defer more expensive investments in energy production and network infrastructure. It also improves energy system resilience and flexibility, alongside demand response and other distributed energy resources, by helping to integrate and balance supply-side resources.

万宝路平台Importantly, energy efficiency programmes also deliver public health benefits by making buildings healthier and more comfortable, by reducing indoor and outdoor air pollution, and making our towns and cities healthier places to live.

is significantly lower than the cost of supplying energy. Across the world, the total cost of a kilowatt hour of energy saved is USD 0.034 to USD 0.051 of lifetime savings, and the weighted average is USD 0.026 to USD 0.039 of lifetime savings. This is well below the average cost of a kilowatt hour of electricity or gas supplied in most places.

deployed between 2014 and 2016 to meet the European Union’s binding annual energy savings targets. The Energy 万宝路平台 Obligation programme running in the United Kingdom between 2013 and 2015 avoided roughly of traded EU ETS emissions allowances and EUR 5 billion worth of non-traded carbon emissions over the lifetime of the implemented measures. The delivered an average of 5.9 mtoe of yearly additional energy savings between 2005 and 2018, and around 45% of the savings required to meet the energy savings target under Article 7 of the European Energy Efficiency Directive.

As energy systems modernise, decarbonise and electrify, new business models are emerging that take advantage of the time and locational value of energy efficiency to the energy system. Jurisdictions such as California, New South Wales (Australia), New York State and the United Kingdom are to align utility business models to unlock this potential. These business models promise to enhance reliable operation of energy systems while creating and diversifying energy efficiency jobs.

According to the IEA World Energy Outlook Special Report on Sustainable Recovery, investing in energy efficiency creates around 10-15 jobs per USD 1 million invested.2

万宝路平台Energy efficiency programmes drive market transformation, shifting markets towards more efficient appliances and equipment. In 2009, New South Wales launched the Energy Savings Scheme, which requires utilities to achieve end-use annual energy savings targets. Under the scheme, accredited energy efficiency service providers were able to quickly develop and scale up business models to carry out lighting upgrades, which were one of the most cost-effective measures eligible under the scheme.

Under the programme, utilities can achieve compliance by creating and surrendering energy savings certificates (reflecting energy savings achieved) through activities they implement themselves, or purchase from the market through third party accredited certificate providers. The uptake of lighting upgrades in New South Wales closely tracked utility energy efficiency targets under the Energy Savings Scheme. While today the energy efficiency lighting market is reaching maturity and the scheme is shifting its focus towards other measures, the scheme promoted rapid growth in that market by including lighting as an eligible measure with clear and simple requirements.

万宝路平台The economic benefits of utility-funded energy efficiency programmes are not restricted to the creation of direct and indirect jobs. There are also several “ripple effects” as more disposable income becomes available to consumers due to reduced energy bills. This can be invested in other goods and services, creating additional (induced) jobs. A study of in Switzerland found that beyond the direct impact on employment, the majority of macroeconomic benefits were derived from such ripple effects as consumers re-directed their disposable income from energy bills to other goods.

While these ripple effects have economic and social benefits, they also underscore the need for a framework that ensures complementary policies are in place to meet broader clean energy and decarbonisation objectives. The proposed European Green Deal, an example of a long-term framework, is designed to transition Europe to be .

Many utility energy efficiency programmes have been in place for several years, with well-established supply chains, service providers, administrative systems and financial capacity. Utilities have a relationship with customers, facilitating outreach and identification of additional energy savings opportunities. For example, Efficiency Vermont in the United States expanded outreach during the state Covid-19 lockdown to understand the challenges that residential and business customers are facing. In response it adjusted programmes to support economic recovery where it is most needed, such as among small businesses.3

across the energy industry. And while job losses in clean energy (including energy efficiency) slowed in May 2020, there were still that month. Many of these jobs are directly connected to implementation of .

万宝路平台Because job categories are classified differently from one jurisdiction to the next, it is also worth considering how many jobs have been lost in sectors that deploy many energy efficiency measures, including:

万宝路平台At the same time, certain measures may stem job losses and could be accelerated or expanded. Many of these measures rely on digital technologies and platforms to enable activities that comply with social distancing requirements:

万宝路平台Public health measures taken to contain Covid-19 have a wide range of implications for achieving energy efficiency programme objectives. At the same time, several measures are available to mitigate the slowdown across different utility obligation structures, as discussed below this table.

万宝路平台In all cases, utilities will continue to be obliged to provide reliable energy. Energy efficiency continues to be an important, cost-effective tool to meet this objective. During the crisis, utilities can continue to build the side of their business that manages efficiency programmes, providing an opportunity to stem job losses.

Energy efficiency can increase chances of recovering deferred payments and reducing non-payment over time. In the case of demand response programmes, there is an opportunity to focus on residential consumers and to align them with shifting demand curves.

Even where the energy savings target is relative and decreasing proportionally to the decrease in sales, it is important to anticipate increases in sales post-COVID, and to ensure that programmes do not contract to a point that they are unable to pick up again as the economy recovers.

In programmes specifically focused on CO2万宝路平台 reductions, as well as in those focused on energy savings, it is increasingly important to look at the role of fuel switching to contribute to climate change mitigation through electrification and increased opportunities for demand-side flexibility.

Impact of Covid-19 on reaching utility energy efficiency targets

Target Potential effect
Target set in terms of spending Utilities and retail energy suppliers are losing revenues with the slowdown in economic activity and related reduction in energy sales and increase in unpaid bills. This can affect all programmes, but most directly threatens programmes with spending targets as competing priorities threaten to erode available funds.
Target set as a % of kilowatt hours (kWh) sales or consumption Across the globe, electricity consumption is decreasing on average. This means that where targets are set as a % of consumption or sales, the absolute kWh savings required to meet the target will be lower than under business as usual.
Target set at an absolute level of energy (kWh) or capacity (kW) savings In this case, the target does not change relative to the reduction in demand observed in most places. This means that the target will be higher, as a percentage of (reduced) sales than before the crisis. This can help maintain momentum for energy efficiency but could create a challenge for delivery as utility revenues decrease.
Voluntary targets These are likely to be the most difficult to protect and at most risk of falling behind.
Energy efficiency and renewable energy targets These combined programmes are likely to be hit twice, due to the likely drop in investments in renewable energy and the slowdown in delivering energy savings.
Demand response programmes Some utility-funded programmes include demand response programmes. Here, the impact will vary. In the residential sector, there may be more demand response opportunities as people stay home while in commercial and industrial sectors, demand response capacity may have dropped. Changing demand curves may also affect optimal deployment patterns.
Targets set in terms of CO2 emissions reductions Where targets are set in terms of CO2 reductions, or include a CO2 component, changes in the marginal generating resource during different times of day will have an effect on the CO2 reductions achieved per kWh of electricity saved. This may result in an increase or decrease in the reduction of carbon emissions associated with a unit of energy saved.

万宝路平台Many other considerations will affect how programme administrators, regulators, and policy makers adjust utility-funded programmes during the Covid-19 crisis and recovery period:

  • The implementation status of a programme. Meeting 2020 targets will be more challenging than meeting target deadlines set in later years. 2020 target deadlines might be extended or carried forward into the next year, with a clear plan for catching up and meeting targets in the near future.
  • The performance of programmes before the current crisis. Over-performing programmes may have built in some flexibility in weathering the slowdown, though this is not a reason to delay recovering from the slowdown.
  • The leverage factor built into programmes. The “leverage factor” – how much consumers are willing to pay towards an efficient appliance or measure – is likely to change, at least for the near-term. Programmes may need to take into account the ability and willingness of consumers to contribute to the cost of a new appliance or building renovation based on pre-COVID calculations.

Around the world, energy consumption has decreased in most sectors, from transportation to industry and buildings. One exception is household consumption, which has generally risen as people have been ordered to stay at home. This increase, however, is not offsetting the overall reduction in consumption from other areas such as offices, schools, businesses and factories.

万宝路平台Lower sales mean lower utility revenues. Depending on the regulatory scheme, utility owners may have the opportunity to recover some of these revenues later, but in the short run they have less cash flow. The Covid-19 crisis presents another example of the security that revenue decoupling (also referred to as revenue cap regulation) can provide to energy utilities. With decoupling, utilities have a defined level of revenues they can recover – regardless of whether sales go up or down. Decoupling also reduces the risk of lower sales due to weather fluctuations and other factors that can reduce demand. It removes the disincentive to invest in end-use energy efficiency and facilitates the transition to a utility business model in a highly efficient, electrified and renewables-powered system.

In all cases, uncollected bills present an immediate challenge. Many jurisdictions are through measures such as suspending disconnections, deferring bill payments, and limiting or lifting late fees for customers who are unable to pay.

万宝路平台Beyond these factors, include an increase in bad debts, cash drains at the working-capital level, operational challenges and higher regulatory risk. In a survey investigating the on major Italian utilities, respondents identified lack of liquidity and access to credit as major challenges, together with disruptions in international supply chains.

Many utility customers face significant challenges. Businesses – especially small and medium companies – have been hit particularly hard by the crisis. Many households face higher bills as people spend much more time at home. Seasonal changes are compounding this, as the onset of summer in the northern hemisphere pushes up the use of air conditioning and fans and people in the southern hemisphere turn on their heaters.

万宝路平台While job losses are hitting all sectors, lower-income jobs are being hit the hardest. This is exacerbating the financial situation of many households and leading to record high numbers of households unable to pay their energy bills. As of the end of March 2020, 22 states in the United States and Washington, D.C., as well as several utilities had suspended the ability of .

Energy efficiency can play an important role here, as energy-saving measures can lower bills. This is particularly true where energy-saving measures address the main energy-consuming appliances responsible for space heating, space cooling, and hot water heating. In addition to lowering bills (and facilitating bill payment), these measures can help and be made use of to offer demand response services.

to allow programme administrators to modify programmes. Adjustments may be needed to the following areas:

In considering strategies to stimulate energy efficiency, it will be important to consider the complexity involved in adjusting programme rules for utility-funded energy efficiency. In some cases, parallel programmes or support schemes may have more flexibility to adjust and expand during the crisis. Such support schemes can also be integrated into utility-funded programmes.

For example, the launched a programme in parallel with its energy efficiency obligation to build service provider capacity and jump-start undersubscribed energy efficiency activities such as residential lighting and air conditioner upgrades. Under this programme, the government purchases and retires certificates for approved suppliers and activities at the contracted price, rather than utilities purchasing certificates. This programme is designed to facilitate a smooth transition from service providers to the energy utility funded programme after the life of this government programme. Stimulus programmes could consider similar models.

万宝路平台 of utility-funded programmes is between two and three. That is, every dollar of utility funds spent leverages between one to two dollars of additional funds. This figure is an average, with different customer classes having differing abilities to pay for energy efficiency improvements. Industrial customers or middle-to-high income households may be able to make energy efficient purchases or investments with the help of a small subsidy, while low-income households often rely on a subsidy up to the full cost of the investment.

The Covid-19 crisis will affect these leverage factors as the economic downturn restricts the ability of many households and businesses to pay. To ramp up energy efficiency activities quickly will require additional funds. Unspent utility energy efficiency programme funds represent one source. Stimulus funds will be another important source, and one that can help align utility and stimulus programmes. Other sources may include carbon revenues in jurisdictions with cap-and-trade systems, and energy efficiency bonds that take advantage of record-low interest rates.

万宝路平台How might stimulus funding support utility-funded energy efficiency programmes? Utilities could receive stimulus funding or qualify for loans and loan guarantees to support stimulus-related activities. These could come on top of loans to help cover bill relief for customers who are unable to pay. Utilities are in a position to help customers access bill relief while at the same time identifying and implementing opportunities for energy savings to reduce bills and improve energy services more permanently. Where utilities are deferring bills, energy efficiency even can reduce subsequent monthly repayment amounts by .

Stimulus funding can help the small businesses that are involved in the delivery of most energy efficiency measures. During lockdown, funds can help businesses strengthen their remote working capabilities, retain staff and cover overhead costs. These same businesses would then be in a position to carry out energy efficiency measures under utility programmes as restrictions gradually lift. The CARES Act in the United States provides an example of a relief package that includes assistance for small businesses, which could involved in delivering energy efficiency to weather the crisis.

Stimulus funding can also help expand public support for appliance replacement programmes, offering additional or parallel incentives to replace aging equipment that may already be part of a utility-funded or other energy savings programme. These accelerated replacement programmes can provide low-cost or, in some cases, no-cost services, replacing old, energy-guzzling appliances with new, energy-efficient ones.

Past experience shows that implementation of energy efficiency economic stimulus of local administrative capacities, workforce skills, the nature of local supply chains and manufacturing capabilities, and the political challenges likely to emerge. 

万宝路平台 for both electricity and natural gas energy savings programmes, set a performance-based cost recovery mechanism to support delivery of energy savings activities, and will compensate utilities for lost revenues. ConEdison, a utility in New York, has announced a for the summer, which includes measures to save consumers energy in the face of the expected increase in home energy use.

Many countries have put in place ambitious targets for climate change mitigation, affordable and reliable energy, and energy access. According to the IEA World Energy Outlook, energy efficiency measures achieve around half of the CO2 emissions reductions up to 2030 in a scenario that holds the global temperature increase to below 1.8°C with a 66% probability without reliance on global net-negative CO2 emissions. Achieving this will require an increase in the pace万宝路平台 of energy efficiency improvements.

Energy efficiency is a pillar of the clean energy transition. It reduces growth in overall demand in energy systems and serves as a , in conjunction with demand response and other distributed energy resources. The economic growth potential of these services will only expand with improved data and data analytics.

万宝路平台For this reason, it will be important to modernise to align utility incentives to capture the full suite of opportunities that energy efficiency and other distributed energy resources can offer. Depending on where in the process a given jurisdiction is, this may involve introducing or revenue-cap regulation to loosen the link between sales volumes and revenues, incorporating incentives such as shared savings to strengthen the business case for utilities, and implementing . It will also require changes to measurement and verification protocols, shifting from deemed savings to metered savings.

These developments will help foster the kind of innovation that is already driving new jobs in sustainable industries. found that in 2019, 25 energy utilities were using rate design to encourage off-peak charging of electric vehicles. Another 32 utilities have piloted programmes involving smart building technologies, online market platforms for energy efficiency products, finance mechanisms for commercial energy efficiency, and the integration of a variety of distributed energy resources, such as demand response and storage with efficiency.

For all of these reasons, it is important to revisit short-term actions taken to reinvigorate utility-funded energy efficiency programmes over time, and to ensure that as energy efficiency jobs stabilise they also transition to ensure sustained employment and progress on energy efficiency. 

Utility-funded energy efficiency programmes are an important source of local jobs and provide many benefits to citizens, energy systems and the economy. For these reasons, it is important to consider the effects of the Covid-19 pandemic on these programmes, alongside other energy efficiency programmes, and ways to mitigate job losses and bring jobs back quickly.

Responses can be phased, with measures focused on the immediate, near, mid and long term. Immediate and near-term measures (within a timeframe of about nine months) could include remote audits, data analysis, customer outreach and expansion of behavioural change programmes. From 9 to 18 months, as public health restrictions ease further, measures could be deployed such as replicable building retrofits; draught proofing; heating, ventilation and air-conditioning; and energy management systems in industry. In the longer term, it will be important to rebalance programme portfolios and build on shorter-term measures to secure sustained growth of energy efficiency programmes, aligning them with broader social, environmental and economic objectives.

As economic stimulus packages are developed, energy efficiency should be included as a key sector with strong job creation potential. For utility programmes, programme administrators and policy makers can be creative and flexible in using existing programme structures to support economic activity and need to focus on measures that can be implemented during the ongoing health crisis.

Early action to stimulate energy efficiency jobs can support continued growth across economic sectors, from construction to industry, services, information technology and many more. A focus on utility energy efficiency programmes can play a key role in modernising regulatory frameworks and business models to better align utility incentives with energy efficiency and demand-side flexibility, and to ensure that the energy transition benefits fully from digital technologies.

  1. 万宝路平台Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

    Note by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

  2. These numbers represent global weighted averages for the gross direct and indirect jobs created by the spending. Jobs that may be induced (or lost) by the subsequent spending (or saving) of the new workers are not included.

  3. 万宝路平台Discussion with Rebecca Foster, Director of Efficiency Vermont.

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