The American Council for an Energy-Efficiency Economy (ACEEE) released a new report entitled Beyond Carrots for Utilities: A National Review of Performance Incentives for Energy Efficiency. The research, conducted and written by a group of energy efficiency researchers (Nowalk, Baatz, Gilleo, Kushler, Molina, and York), analyzes why utilities continue to play a role in the expansion of energy efficiency programs. The research hones in on a topic we examined in a previous article that asked: why does my utility company want to help me lower my bill? The simple answer: incentives. Energy efficiency state regulators “give financial rewards or earnings opportunities to program administrators, utility companies, and their shareholders for meeting energy efficiency goals” (ACEEE). The research analyzes the differences in the incentive packages for all 50 states. For the purpose of this article, we will focus on only Massachusetts energy efficiency performance incentives and what an active energy efficiency program means for Massachusetts residents and business owners.
The Commonwealth has incentivized energy efficiency programs since the ’90s. However, a big change came in 2008 after the Green Communities Act passed, which “required gas and electric companies to file energy efficiency investment plans with the Department of Public Utilities (DPU)” (ACEEE). These investment plans have thus far been administered in two (2) three-year plans. The first plan rolled out from 2010 to 2012, and we’re currently in the second three-year plan from 2012 to 2015. The third plan is currently under development.
Incentives are measured based on three mechanisms: savings, value, and performance metrics. During the first plan, utility companies shared an incentive pool of $65 million. The utilities that provided the highest contribution to the statewide savings goals based on the three mechanisms received a larger piece of the incentive pie. Programs such as MassSAVE and Direct Install (DI) programs were formed for small and large commercial facilities, which is one of Prism’s main business focuses. Utility companies partnered with energy efficiency vendors like Prism to help them administer these programs. Both the partnered vendors and the utilities are required to demonstrate how necessary steps are taken to meet state energy efficiency goals. Below shows a graph of the 2010 – 2012 three-year plan incentive structure and the three mechanisms.
In the 2012-2015 plan, several changes. The incentive pool was increased to $80 million for the electric program and $16 million for the gas program, totaling $92 million. Similar to the first three-year plan, each utility company is required to meet a certain energy efficiency savings threshold. Below depicts a graph showing each utility and its required threshold.
This graph depicts the amount of incentive monies utility companies received based on program cost and energy savings.
Since 2010, incentives were capped at 5%, but utility companies that exceeded their goals were provided bonus incentives, hence why the incentive percentages exceed 5% from 2010 through 2013.
What This Means For Businesses
As utilities receive higher incentives, there will be a greater push to enhance the energy efficiency programs. The graph below analyzes states with and without incentive policies in place.
You will note that states with energy efficiency performance incentives spend more money on energy efficiency programs and see higher energy savings for customers. This may be in part of the evolution of the energy efficiency programs. Utilities that have an incentive to push these programs are going to continue to introduce new energy efficiency measures. Over the past few years, we’ve seen energy efficiency programs evolve from simple lamp and ballast lighting retrofits to whole building energy management upgrades, including HVAC controls, boiler controls, range hood controls, and more. For utilities to earn more incentive monies, customers must continue to see significant energy savings. Therefore, it is in the best interest of Massachusetts-based utility companies to continue to find new energy saving technologies to help residential and commercial customers save energy.