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Does it pay to be precise for energy efficiency programs?

The energy efficiency industry spends millions on quantifying both the energy saved and the influence of the programs on those savings.  Due to legislation, regulation, and having to safeguard against fraud, much of this cost is unavoidable.  However, there are relatively new approaches in the C&I marketplace that can have a large influence on energy efficiency, obtain large savings, and minimize the administrative costs associated with prescriptive energy efficiency programs.  One proposed solution to address high implementation costs is to develop a midstream approach to programs.

Traditional prescriptive programs are usually application based, list a “menu” of energy efficiency measures, claim a standard or “deemed” savings amount, and list the financial incentive / rebate if the item is installed.  Depending on the utilities’ regulatory environment, prescriptive applications can be as simple as an online line application, a 1-2 page form, or an 8-12 page application form with multiple pages of legal boilerplate language.  In addition to the application process (which burdens the customer or trade ally), there is an application verification process, which is often many times more labor intensive and costly.  Programs vary across the country, but some of the basic steps in application processing are:

  1. Account eligibility / verification
  2. Measure / equipment verification
  3. Project cost checks
  4. Funding checks
  5. Scope of work review
  6. Pre-inspection (if there is a pre-approval process)
  7. Reservation letters (if there is a pre-approval process)
  8. Final invoice review
  9. Post inspection (if needed)
  10. Issue incentive / rebate check

The turnaround time for pre-approval and final review can take several weeks.  Obviously all this work isn’t free.  There are administrative people, inspectors, engineers, reviewers, and supervisors all of whom will add to the administrative costs of the program.  These costs will generally be between 20-25% of the total program costs.  Incentives for measures will also vary by measure and utility territory, but will generally range around 7-8 cents per kWh saved.  Program influence scores (net to gross) for prescriptive program offers also depend on measure, market maturity, and evaluation methodology, but generally run around 75%.  Therefore, total cost per kWh for a prescriptive program will be approximately 9-11 cents per gross kWh or 11-15 cents per net kWh.

On the other hand, a midstream program is not a customer application-based program and many of the program features occur at the distributor level.  Instead of a customer application form, the program develops an approved product list of eligible measures.  Customer eligibility is also determined at the distributor level, using lists of eligible customers, geographic boundaries, or eligible zip codes.  The basic steps for a midstream program are:

  1. The distributor sells the eligible products to eligible customers
  2. The distributor provides product sales data and customer data to the program
  3. The program validates the submitted data
  4. The incentive check is sent to the distributor

As you can see, there are several benefits to this model compared to an application based system:

  • Administrative costs for a midstream program are significantly lower
  • The incentive is applied closer to the customer’s decision time frame, allowing the program to influence many more transactions than a traditional application based program
  • Since the measure mix for a midstream program is for “self-install” or “replace on failure” measures and the costs is just the products, incentives can be lower than measures that include installations costs
  • Distributor staff are now engaged as ambassadors of the energy efficiency program, influencing both customers and contractors
  • The program can easily define product specifications in advance, eliminating the possibility of cancelling / rejecting program applicants
  • No delay in receiving incentives
  • Customers do not have to fill out paperwork

Although midstream and prescriptive are two completely different program delivery mechanisms, here are some comparative metrics between the two program offers:

Chart 1 EE

A midstream offer can create tremendous value for both market participants and the utility’s energy efficiency program.  However, careful planning on how the two offers interact is required.  Also, each utility’s regulation and evaluation framework is different, thus a midstream approach may or may not be a good fit.

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