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Valuing Energy Efficiency in the Electricity Market

Passive Solar Net Zero House Photovoltaic Modules Richard Levine Kentucky

The world of electricity is changing quickly. With all the photovoltaic modules out there generating solar power and the advent of the smart meter, there’s a revolution going on within the electric utility industry. I wrote a little bit about it recently when I discussed the duck curve. Near the end of that article, I mentioned that Matt Golden said something about the “new world where [energy efficiency] is dead.” So I spoke with Matt last week, and here’s more about what he said.

Time and location matter

Let’s say you do something in your home to save energy. You might, for example, do all the things on my list of 10 uncommon tips for winterizing your home and cut your energy bills in half. You reap the benefit of having a more comfortable, healthful, and energy efficient home. Sadly, your utility company probably doesn’t care at all about your savings. If you take advantage of a rebate program they sponsor, they get to pat themselves on the back and show the Public Service Commission they’ve done their duty, but they still don’t really value the savings you’ve provided.

The problem is power versus energy. You know, the old rate versus quantity question. Utility companies don’t think of electricity in terms of how much total energy they supply to their customers. They have to think of it in terms of power, providing the right amount of energy each minute of the day.

They don’t want to have plants running with nowhere to send the power they generate. They also never want to have more demand than they can meet. It’s a delicate balancing act.

In my conversation with Matt Golden, he said, “As we’ve thought of saving energy traditionally, in terms of kilowatt-hours and BTUs, well, that’s not capacity. Capacity includes location and time.” Capacity, to Golden, is having enough power to meet the demand.

“In California, we have this duck curve, which is very real — and very, very real in some places. The statewide average is one thing, but go to Sonoma, where next year, 15% of their capacity will come from local generation. What happens on a cloudy day on the spot market?” Well, they lose up to 15% of their capacity and have to make it up from somewhere else.

The opposite situation also occurs. There are some times where they have “negative energy, when people get paid to use energy” because of oversupply.

Energy efficiency to the rescue?

Currently, energy efficiency rebates can cover individual measures like window or HVAC replacements. They can also pay for full home performance upgrades. According to Golden, “When I look at the data on home performance compared to more traditional approaches, home performance saves a lot more energy. The data shows it actually works, compared to box-swapping, which we always knew.”

But it’s not just about saving energy. “Energy savings aren’t actually valuable to the grid. If we want to move out of the ratepayer bucket and maximize the value of what we’re doing, we have to think of it as capacity, which has to include time and location,” said Golden.

Transforming the electricity market

That’s exactly what they’re trying to do in California, Golden told me. They’re taking a market-based approach and rewriting the rules so that efficiency does get valued. Aggregators will look at all the forms of capacity available and put together portfolios of the ones that make the most economic sense.

As the aggregators put together their portfolios, they make their decisions based on the bottom line. Maybe they choose some control strategies that turn off air conditioners and water heaters during the peak. Perhaps it’s solar. Or, if energy efficiency looks good, they put more of it in the basket. “Efficiency just has to be cheaper than the alternative to be a good deal,” said Golden.

The goal is to be able to participate in emerging markets for power. And there’s a lot more money when efficiency is considered alongside solar power and new nuclear power plants than there is in ratepayer rebate programs. “If energy efficiency isn’t counted in the forecast, we may be helping people with their bills, but we’re not really having the macro-impact we want.”

“The big innovation is to make energy efficiency look like car loans or solar or building a power plant. It’s all the same mechanism,” said Golden.

I can get behind that. Energy efficiency rebate programs have had some success, no doubt about it. But they’ve really had a small impact overall because they’ve been the street vendor setting up near a busy store. A little bit of money gets exchanged there, but far, far less than what happens inside the store.

“The nature of the grid is fundamentally changing,” Golden said. Let’s help energy efficiency get inside the store.

 

Allison A. Bailes III, PhD is a speaker, writer, building science consultant, and the founder of Energy Vanguard in Decatur, Georgia.  He has a doctorate in physics and is the author of a bestselling book on building science.  He also writes the Energy Vanguard Blog.  For more updates, you can subscribe to Energy Vanguard’s weekly newsletter and follow him on LinkedIn.

 

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This Post Has 8 Comments

  1. Matt makes some key points.
    Matt makes some key points. They question is HOW to get EE inside the store, particularly here in Georgia. Let’s start a discussion about that.

  2. In the Pacific NW this has
    In the Pacific NW this has been a requirement for a while now. Energy Efficiency is required to be considered an energy source on par with any other. In addition, as future power plans are created to meet the changing market energy efficiency not only has to be considered but is required to be given a 10% bonus compared to all other sources. You can find out more here: http://www.nwcouncil.org/energy/powerplan/ The 7th power plan is in draft form at this time and available if you want a little light reading.

  3. I’m wondering if Matt or
    I’m wondering if Matt or anyone else has done some modeling of the effect of ee on load profile in a utility area? SMUD did a study a while back that showed the amount of load shed during peak use due to a new housing development where homes all had PV installed.

  4. If the objective is to
    If the objective is to forestall grid and generation infrastructure costs, it should be obvious that measures designed specifically to address peak load (especially smart controls and storage) will be more effective than more general EE measures designed to reduce consumption. So there’s a potential conflict, or at least poor correlation among solutions that aim to reduce CO2 emissions versus solutions that aim to optimize generation and distribution infrastructure investment.

    What’s now clear is that rooftop solar (PV) and net metering work against the latter objective, since the impact is far greater on a home’s overall consumption than on its maximum load. In fact, PV typically has little or no impact on the maximum current a home might draw at any given time.

    On the other hand, certain EE measures do have some impact on peak, but EE also amplifies the disparity among households in terms of their relative contribution toward infrastructure costs.

    A tariff with a demand (kW) component would be the most equitable way to address this, and would provide the correct price signals for various energy related investments. However, unless such a tariff is mandatory, it’s unlikely to have much of an impact. Politically, that’s not gonna happen anytime soon.

    1. Time of Use and Variable Peak
      Time of Use and Variable Peak Pricing will replace the old “flat rate” as smartmeters become more common. Utilities can price the TOU/VPP rates aggressively so the typical customer can save considerably by reducing peak use.

      In our area we have smarthours, which is a summertime VPP program. Over 100,000 have signed up since it’s inception in 2012. http://www.ogepet.com/programs/smarthours.aspx

  5. EE will always contribute to
    EE will always contribute to whatever plan you are on. It is a result of rising utility costs. Let’s just concentrate on electricity.
    What are the main causes of rising electric rates? Maintenance of the infrastructure of the delivery of electricity. Sure, profit is part of it but taking care of transformers, power lines, sub stations etc costs money. Some studies mention up to 50 percent.
    Will those costs go down? Hell to the no!
    When it comes to rooftop PV, a couple of points: Saying that PV has little or no impact on a home/ business’s maximum draw is incorrect. Electricity distribution through the ‘grid’ is great but up to 15 percent of the electricity never makes it to your home/business. Guess what? With rooftop solar and net metering, the electricity you are not using goes to your neighbor. I would say that is more efficient. As for drawing power with PV…from where? The PV power first goes to your home/business then goes back to the grid. As for Bob, you are exactly right, target peak. And for David, tou is a result of higher demand at certain times of the day/year where most people are using a lot of electricity for different reasons and the grid is over worked due to delivery limitations and inefficiencies causing black outs, more labor dollars, more maintenance, part replacements etc. Let’s not get complicated: It’s a wire delivering us electricity from 100’s of miles away and during certain times we want our washer/dryer, AC, 3 big screen TV’s, pool pump and hot tub to be working all at once. Rooftop PV obviously eases the workload on that power plant and wire.
    David and Allison, I read your articles on attic heat, what could I do to use attic heat to heat my water heater without putting a heat exchanger in my attic but rather using a fan to bring the heat closer to my water heater downstairs through a pipe and then to my water heater, or does this even make sense?
    Regards,

    1. Justin: No, it doesn’t make
      Justin: No, it doesn’t make sense to use a fan to bring heat from your attic to where your water heater is. If you have a heat pump water heater, some of that heat would go to your hot water. You could try ducting straight into the intake of the HPWH to increase the amount, but even if you were able to do this without increasing the cooling load on the house, you’d be creating a pressure difference by bringing air in without exhausting the same amount of air.

      Putting the HPWH in the attic would be better for efficiency, but I personally don’t like the idea of a water heater in the attic. If you live in a hot place like Las Vegas or Phoenix, you could put a HPWH in the garage and use the heat that way.

      If you’re just talking about a conventional water heater, however, it’s an even worse idea to bring heat from the attic into the house. It’s not going to help your water heater but it will make you AC run more.

  6. @Justin, I do know someone
    @Justin, I do know someone who ducted attic air directly into the intake of their HPWH. As Allison said, this creates positive pressure on the house (typically several hundred CFM), which forces an equal amount of conditioned air to exfiltrate through the envelope. It also increases the discharge temp of the HPWH, thus reducing it’s cooling benefit. My friend mitigated these effects using a timer to operate the HPWH early in the day in summer before the AC would normally kick on, and later in the day during winter after that attic temperature peaks. But I’m not convinced this is a net-positive strategy.

    Regarding PV vs maximum current draw… Your comment focuses on what happens when PV is producing power. But the utility infrastructure still has to support peak draws when there’s no sun. The highest peaks for the typical home can and do occur in the morning and evening when the sun is low or during a mid-day shower. This is true in summer and winter.

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