In my last post, I looked at the big picture of energy
supply and consumption in New Hampshire, as well as some gross measures of
energy efficiency (EE), viz., energy intensity and energy use per capita. The
data indicated that we are making progress, but that we have a long, long way
to go before we can consider ourselves energy efficient. In this post, I take a
look at NH’s EE ranking and some important policy developments that will help
promote EE in the state.
The American Council on an Energy Efficient Economy (ACEEE)
produces an annual scorecard that ranks the states on their EE initiatives and
progress. The map below shows the state rankings in the most recent scorecard report. The ranking is done by grading each state’s
utility EE programs, transportation initiatives, building energy codes, state
government initiatives, and combined heat and power programs. NH’s ranking is
in the midrange at # 21: we are surrounded by New England states with much
better rankings, including Massachusetts, which, along with California, hold
the number 1 spot.
A closer look at the NH’s
scorecard is enlightening. The figure below shows specific data regarding
various scorecard components compared with those of NH’s immediate neighbors.
As you can see, NH’s scores were run-of-the-mill in the areas
of utility programs, building codes, and state initiatives, and poor in
transportation, appliance, and combined heat and power initiatives. The
scorecard report does note that the state took a big step forward by approving
new energy-savings targets for 2018 to 2020, but also remarked that NH could improve
considerably in the transportation and combined heat and power sectors. Our
neighbors are clearly doing more in almost all categories.
When it comes to EE, it is my view that there are three main
drivers, as indicated below.
The other type of EE initiatives are those in which we
voluntarily participate by making non-mandated but important EE decisions; for
example, the replacement of an incandescent or CFL lightbulb with a more
expensive but more energy-efficient LED bulb.
The third driver for EE is energy prices. We are very basic
creatures and respond to financial incentives, so if energy prices are high, be
it electricity, natural gas, or gasoline, we generally take active measures to
reduce our energy expenditure by driving less, buying more fuel-efficient vehicles,
or putting on a sweater and turning down the thermostat. One might argue that
high energy prices are just a driver of our voluntary actions; however, I see
them as different because there is often an altruistic/it’s good for the planet/right-thing-to-do
component to voluntary action. And if you can save boatloads of money by doing
the right thing for the planet, more power to you. (Or perhaps that should be less power to you?)
For the remainder of this post, I review utility-run EE
programs in NH. These are a combination of mandated and voluntary actions. The
utilities are mandated to offer them, but we, as home or business owners, voluntarily
participate in them, but, in doing so, we also have to open our wallets to pay
for our part of these investments.
Since
2002, NH has had a formal utility-run
program to promote EE investments in NH, known as the Core Energy Efficiency
Program. This is a New Hampshire Public Utility Commission (NHPUC)-mandated
program with required participation by the electrical and natural gas utilities.
The utilities collaborate in their efforts to provide savings, information, incentives,
and assistance in the implementation of EE investments to their ratepayers,
which include municipalities, homeowners, and industrial and commercial
operations. Information about the program is reported on the NHSaves website,
which is a good place to start looking for information about energy savings and
EE if you are a NH ratepayer. The program is directed at both the electrical
and natural gas utilities and requires savings in both.
The NHSaves program has many features and offers a lot of
services to realize energy savings. Quoting directly from the 2017
New Hampshire Statewide Energy Efficiency Plan, the elements of the program
include:
- “Working with Home Energy Raters and building contractors, to incent the construction of highly efficient homes that use 15-30 percent less energy than a standard new home.
- Incentivizing insulation, air-sealing and other weatherization measures performed by qualified private contractors to reduce a homeowner’s heating fuel use by more than 15 percent on average.
- Providing insulation, air-sealing and other weatherization measures to low-income families, saving them hundreds of dollars per year on energy costs, though a collaboration with the NH Office of Energy and Planning’s Weatherization Assistance Program and New Hampshire’s six Community Action Agencies.
- Partnering with over 100 New Hampshire appliance retailers and suppliers across the state to help customers purchase highly efficient appliances such as refrigerators, clothes washers and room air conditioners, saving 10-20 percent of the energy they would have used if they had purchased standard efficiency models.
- Partnering with over 100 lighting retailers and suppliers across the state to reduce the barriers for New Hampshire customers to purchase energy efficient lighting measures that can save between $30 to $80 over the lifetime of a single product.
- Working with qualified private contractors to help businesses and non-profits identify and install more efficient lighting, controls, motors, HVAC equipment, air compressors and industrial process equipment.
- Focusing on municipalities to help save energy in public buildings, reducing overall costs to taxpayers and making public spaces a model for efficiency improvements.”
To date, the goals of the NH program have been modest and
the annual energy savings have been small—of the order of 0.5% of NH total
energy consumption. Our neighboring states have been more aggressive in their
savings; for
example, in 2015, RI, MA, VT, and ME had savings of 2.91%, 3.74%, 2.01%,
and 1.53% of their 2015 retail sales, respectively.
Even though NH’s annual savings have been relatively small,
these small savings, year on year, have accumulated over time. It
has been estimated that, since the start of the Core program, customers
have saved over $1.9 billion and reduced electricity consumption by 12 billion
kWh and natural gas use by 24.5 million MMBtus (million BTUs). The Core
program, by most measures, has been a successful one.
These accumulated savings are great, but there is a cost for
the program that NH ratepayers fund. The
2016 budget was ~$24 million for the electrical EE programs and ~$7 million
for the gas programs. The electrical component has been funded by part of the
Systems Benefit Charge (SBC) paid by each electrical ratepayer (in
2017, the EE portion will be 0.198 cents/kWh
of the 0..354 cents/kWh SBC charge averaged across the four utilities), money
from the Regional Greenhouse Gas Initiative (RGGI) auctions that are
distributed to the NE states, and from the ISO-NE capacity market. The natural
gas savings program has been funded through the local distribution adjustment
charge (LDAC) paid by natural gas users. Typically, the split in funding for
the electrical program has been 70% from SBC funds, 19% from RGGI, 10% from the
forward capacity market, and 1% from
carryover and interest, whereas the natural gas savings program is funded
completely from the LDAC charge.
It is important to appreciate that all ratepayers pay their
share towards the program, but only those that elect to participate benefit
directly and reap the big savings. To actively benefit from this program and
reap the rewards requires you, as the ratepayer, to make an upfront EE investment.
The amount that you have to pay depends on your utility, class of service, and
particular type of EE investment. Even though there is a requirement for an
upfront investment, the utility-run EE programs have been popular: there have
been waiting lists and money to fund EE investments has run out before the end
of each year.
Even if you don’t participate directly, you, along with other
non-participating ratepayers, benefit indirectly because reduced energy
consumption, regardless where it comes from, benefits us all. It improves the resiliency
of our energy-delivery systems because less energy has to be sourced, it keeps
our costs down because fewer power plants have to be built, our resources last
longer, less pollution results, greenhouse gas emissions are reduced, local
jobs are created, and, as
noted in my previous post, there is a cascade of other benefits that results
from EE investments.
The Core program is well run and carefully administered, and
a great deal of effort is expended in evaluating its effectiveness. It is
overseen by the NHPUC, but is run by the electrical and natural gas utility
companies that are required to submit a joint annual plan and budget. The joint
administration and shared marketing resources through the NHSaves program
ensures consistency and best practice implementation across all utilities. Each
utility is required to provide quarterly and annual reports and is subject to
annual financial audits and independent certification of savings. The program is a serious endeavor and is continually
reviewed. THE
NHPUC has over 130 reports evaluating the effectiveness of EE programs in
NH and NE. I consider this to be an important and well-run, documented,
audited, and verified initiative.
As part of their administration of the EE program, the
utilities carefully vet the projects that are considered and each undergoes a thorough
cost-effective screening. Each program is required to have a benefit-to-cost
ratio above one. The costs and benefits are over the lifetime of the project (which
vary depending on the nature of the project); costs include both the utility
and ratepayer contributions. The specific benefit:cost goals laid out in the
2017 plan are shown in the table below.
As mentioned, the utilities report annually on their EE
programs, recording what was spent and what the benefits were. I have
summarized some key findings from the 2015 reports in the table and bullet
points below:
- Eversource, with the largest number of customers in NH, spent the most on EE programs.
- There are variations from utility to utility, but the end users (homeowners, commercial, industrial and municipal) are paying, on average, 45% of the costs of EE investment; the utility pays the other 55% out of their funds allocated for EE.
- Homeowners are paying, on average, 37% of their EE investments.
- The lifetime benefit/cost ratio is an average of 2.2, which means that, for every $ invested in EE, NH reaps over $2 in benefits in terms of energy savings.
Overall, the cost of EE investments in NH through the Core program has
been estimated to be 3.7 cents/kWh. If we
had spent this money on just buying more electricity, we would have paid the
retail price of about 16 cents/kWh. The natural gas savings are similar:
$0.336/therm for EE vs. $0.81/therm for purchase. In short, investing in EE is
a bargain.
The challenge with the Core program is that, while it has
been popular, funding has been limited and a lot of deserving EE projects have not
yet been implemented. To support more EE savings and meet the objectives
of NH’s
10-year Energy Strategy, the NHPUC has recently approved a new statewide
utility-run EE policy, known as the Energy Efficiency Resource Standard (EERS).
This program boosts the annual goals for energy efficiency and increases funding
available for EE investments. It kicks in at the start of 2018 and requires utilities
to increase their annual energy savings. The EERS program was developed with significant
stakeholder involvement, ranging from environmental lobbying groups, utilities,
state representation, community action groups, and other energy-related
non-profits. The program will be overseen by NHPUC with input from stakeholders
and will be jointly administered by the utilities, as with the Core program.
The annual goals for the new EERS program, and how they
compare with the recent Core program goals, are shown in the figure below.
It is good to see the annual savings increase: over the next
four years (2017 to 2020), there will be a cumulative savings of 3.1% of
electricity and 2.25% of natural gas (compared with 2014 consumption). But,
again, I need to note that, compared with our neighbors, these goals are rather
humble: the
average annual electrical savings increases are 2.1% for Vermont, 2.9% for
Massachusetts, 2.4% for Maine, and 2.6% for Rhode Island.
The
EERS plan also has the following features:
- Instead of the two-year planning and implementation cycles used in the Core program, the EERS program will use a three-year cycle.
- Funding for EE investments will more than double over the next few years. In 2016, the budget for EE investments was $31 million; in 2020, it proposed to be $74 million.
- The money for these increased EE investments will come from an increase in the SBC and LDAC components of the utility bill. The average SBC and LDAC in 2017 will be 0..354 cents/kWh and 4.95 cents/therm, increasing to 0.821 cents/kWh and 6.91 cents/therm in 2020, respectively. This will result in a $2.70 monthly increase in the electrical bill for a ratepayer using 600 kWh per month. Overall, the EERS program will contribute to a 2 to 3% increase in NH utility bills from 2017 to 2020.
- To compensate utilities for the lower energy sales and lost revenue associated with EE, a lost revenue adjustment mechanism (LRAM) will be implemented. This is new and is built into the SBC rate increase.
- As with the Core program, there are built-in performance incentives to encourage utilities to make these investments. Basically, the utilities will earn a bonus for achieving above-budget energy savings.
- The EESE Board, which is a multi-stakeholder committee that works with the NHPUC to promote energy efficiency and sustainable energy in the state, will serve as a review and advisory council.
- Evaluation, monitoring, and verification will be carried out by independent consultants.
- The low-income assistance portion of the program will increase from 15.5% to 17% of the total EE budget for the first three years.
There are, of course, objections to the EERS program. It
will increase the bills of all ratepayers across the state, but big savings
only accrue to those who participate and have the funds to foot their part of
the investment. However, bear in mind that if your neighbor makes a big
investment in EE and significantly reduces her monthly cost, you indirectly
benefit from improved energy system resiliency, lower long-term energy costs,
less pollution, etc. This is similar to the benefits that an SUV driver might derive
from drivers of EE vehicles: those drivers of EE vehicles extend the lifetime
of oil resources, reduce pollution, and keep oil prices down. Ultimately, it is your choice whether to pour
your dollars into your gas tank or into inefficient energy use in your home,
but keep in mind that you do benefit from the EE activities of others.
Should you find yourself agitated by the increase in utility
rates associated with the EERS program, I encourage you to take direct action
that undo that increase. Go through your home and find three old style
incandescent ightbulbs and change them to LED bulbs (which can be purchased for $2/bulb). The annual energy savings from these bulbs (assuming you have changed
to 10W LEDs, burning for 4 hours a day
and your average electricity use per month is 600 W) will save you 2.7% of your
electricity bill which more than relieves that phased SBC increase.
It must also be appreciated that EE presents a problem to
regulated utility companies. They are in business to sell electricity or natural
gas and thereby earn a return on their investments to pass on to their investors.
(And before you get all self-righteous about money-grabbing investors, look at
the companies in your retirement investments: you will mostly likely find some
utility companies in your portfolio, making you one of those investors. Utility
company shares have proved to be extraordinarily reliable investments with steady
returns.) When utilities are obligated to make investments in EE, this reduces
the amount of electricity or natural gas they sell, reduces revenue and profits,
and limits opportunities to make infrastructure investments on which they can
earn a return. Moreover, they have to administer these EE investments, employ staff
to run these programs, and incur costs. Generally, the utilities would not be
in favor of these programs so they need to be incentivized to participate. This
is done by compensating them for the lost sales and costs associated with the
EE program, which is built into the SBC or LDAC charges. In essence, the
utilities get to sell less of their energy commodity at higher prices.
This post has covered NH’s middle-ranking EE. We are way
behind our New England neighbors in EE, but the saving grace* is that that NH is
in the process of transitioning from the Core to the EERS program, which is an
important step forward. Required annual
energy savings will increase and EE investment budgets will more than double.
This will have utility-cost implications because NH ratepayers will see a 2 to
3% increase in their utility bills over the 2017–2020 period as a result of
these changes. However, these are good programs that make a difference and we
all benefit and, by our implementing our own simple EE actions, like changing over to LED lightbulbs, we can cancel out the effect of the rate increase. It is a far better idea to make EE investments now that reduce our exploitation of fuel
resources and reduce energy infrastructure investments. This will reduce energy
cost increases in the future.
However, to fully benefit from these programs requires
action and investment on our part. This is something that we don’t always do—even
when we know it is the right thing. I will discuss this lack of action in my
next post. In the meantime, do your bit for energy efficiency and turn off the
lights when you leave the room.
Mike
Mooiman
Franklin
Pierce University
mooimanm@franklinpierce.edu
(*Saving Grace: A fabulous tune with a great driving groove
by one of my favorites: Tom Petty. From the Highway
Companion album released in 2006. Enjoy Saving Grace.)
