A message from the Executive Director
Trend toward market based funding for energy efficiency
Two years ago, NEEP conducted a study on the economically achievable energy efficiency potential for the New England states. The findings were significant:
- Energy efficiency programs are 67 percent cheaper than the average cost of supplying electricity.
- Investing in energy efficiency in New England can provide net benefits of between $13 and $23.7 billion to the region’s economy.
- Capturing New England’s energy efficiency potential can more than offset the projected increase in demand for energy (estimated by the Independent System Operator for New England to increase annually at a rate of 1.2 percent through 2013).
- Energy efficiency measures can significantly reduce greenhouse gas emissions
NEEP’s study concluded that by realizing the full economically achievable energy efficiency potential for New England, energy savings in the region would equal the annual electricity needs of 2.4 million households by 2008. By 2013, energy savings could total the annual needs of all Connecticut and New Hampshire households combined.
It is clear that energy efficiency is a vital, cost effective resource that can help the Northeast meet its energy, environmental and economic needs. However, in most Northeast states, current funding policies are constraining efficiency efforts precisely at a time when customers need and want more.
To generate funds necessary to advance energy efficiency as a key resource, it is essential to tie energy efficiency to the procurement of resource needs. The continually increasing costs of energy, matched with current funding limits, has created a regional trend toward market based policy options to advance energy efficiency. These include:
The Federal Energy Regulatory Commission (FERC) approved settlement agreement between the Independent System Operator-New England (ISO-New England) and more than 100 New England stakeholders
In 2003 FERC charged ISO-New England with developing a market to address the reliability of the electric system in New England. The resulting settlement agreement includes a competitive market structure to sustain reliability going forward. Known as the Forward Capacity Market (FCM), the arrangement revolves around a “futures” market in which monetary compensation is promised for resources that are available to meet future capacity needs during critical energy demand periods. The FCM settlement provides for the inclusion of energy efficiency as a resource, the market rules for which are in development. For more information, see the related article.
The Regional Greenhouse Gas Initiative (RGGI)
The eight Northeast states participating in the development of a regional carbon dioxide cap and trade system as a means to reduce green house gasses and control climate change, have agreed to a model rule that will govern the trading system. Included in this model rule is a funding mechanism for increased energy efficiency. The rule requires that a minimum of 25 percent of the carbon trading proceeds of each state be allocated to a “consumer benefit or strategic energy set aside account,” which may include energy efficiency. Vermont legislation directs 100 percent of carbon allowances to energy efficiency.
Energy Efficiency Portfolio Standards
Policies that require energy providers to obtain a minimum amount of their power from energy efficiency have been adopted in Rhode Island, Connecticut and Maine and are under consideration in several others including Massachusetts, New Jersey and New York.
Challenges
Challenges associated with market based energy efficiency initiatives, include the establishment of common regional protocols to measure and verify energy savings. NEEP is helping states to develop these common measures through a recent policy research project which examined the specific policy needs of the region, the current frameworks used in the Northeast and the lessons derived from common protocols in other regions. The findings from this research are being used to inform the measurement and verification requirements of the ISO-New England Forward Capacity Market.
While these market based procurement policies are a creative and effective way to fund efficiency efforts, the region needs a comprehensive range of options to capture all of the savings associated with our economically achievable energy efficiency potential. This includes maintaining a base level of funding through ratepayer programs and expanding existing efficiency efforts to address retrofit opportunities. An important element of such an approach will be to work with co-investors such as energy service companies.
It also requires coordination of demand side programs to minimize market and consumer confusion. Energy efficiency program administrators currently managing ratepayer-funded programs can address this issue by serving as “portfolio managers” for a broad range of demand side program offerings.
As new market mechanisms increasingly develop across the Northeast, I am encouraged that efficiency is positioned as a resource critical to address the reliability and sustainability needs of our energy infrastructure. But there is more potential to be achieved and NEEP is committed to working regionally to advance and implement energy efficiency policies including new market based approaches.
Susan Coakley
Executive Director
