By Alexandra Rekkas, Senior Research Associate, David Gardiner and Associates and the Alliance for Industrial Efficiency
Today, the Alliance for Industrial Efficiency published a factsheet that details the many problems of opting out of industrial energy-efficiency programs. Although energy use presents a significant cost to manufacturers, there are often cost-effective energy savings opportunities that companies have not yet captured. Manufacturers typically report that their energy efficiency investments must realize a very short (one- to two-year) payback period requirement, which means that many projects that are cost-effective in the long-term will not be approved and initiated.
That’s where utility industrial energy efficiency programs come in. These programs help industrial customers identify and address energy saving opportunities and provide incentives that reduce project payback periods to help make projects viable. Ultimately, they help manufacturers save on energy costs, improve power reliability, and increase companies’ competitiveness.
Utility efficiency programs have the best chance for success when all customers invest in them and benefit from them. Just like a customer would help pay for a new power plant, they also help pay for energy efficiency programs through smalls fees on their electric bills. In fact, energy efficiency is a “least-cost system resource.” That means that fulfilling customer energy demands through increasing energy efficiency is cheaper than building new power plants or transmission and distribution infrastructure. Not only that, large commercial and industrial (C&I) efficiency programs are among the most cost-effective of all efficiency programs, and can meet demand for as little as 3¢/kWh.[1]
However, in certain states, the largest energy users are allowed to opt out of these payments. When large energy consumers stop participating, all other customers have to pay more to achieve the same energy efficiency goals. Opt-out policies can create a ripple effect, where the largest energy users leave the funding pool for efficiency programs, resulting in programs that are essentially crippled and unworkable. For example, as the Alliance’s new factsheet details, opt-out policies in Indiana have resulted in about 70-80% of the industrial electricity market leaving the state’s utility efficiency programs over the course of a year. This exodus of large customers from the efficiency programs resulted in much less money for Indiana to meet its energy efficiency goals.
Several states, such as Pennsylvania and Ohio, have recently considered inequitable opt-out policies and may do so again in the near future. The Alliance recently released a memo on the potential effects of a hypothetical opt out policy in Pennsylvania, based on the actual energy savings that the C&I programs achieved from 2008 to 2013. Assuming only 20% of participants opt out of one year of the programs, we found that Pennsylvania’s ratepayers would forego more than 7.3 billion MWh of lifetime energy savings. That is equivalent to more than $369 million in missed bill savings.
While large manufacturers are the direct beneficiaries of industrial efficiency programs, utility customers from all sectors benefit from lower electricity demand resulting from such programs. Reducing demand for energy allows utilities to defer costly power plant construction or transmission and distribution system upgrades, ultimately resulting in lower bills for everyone. Long-term energy cost savings for not only the industrial sector, but for all sectors, is a “win” for everyone!
[1] ACEEE, Mar. 2014, “The Best Value for America’s Energy Dollar: A National Review of the Cost of Utility Energy Efficiency Programs” (http://aceee.org/research-report/u1402).
