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Energy efficiency programs: same design, different results – Part 2

Why does a similar energy efficiency program design produce different results in different utility service territories? In a previous blog post, DNV GL presented results from an evaluation of Massachusetts’ commercial and industrial (C&I) energy efficiency programs that showed that large customers were critical to achieving program savings. That post also stated that challenges exist in effectively reaching small and mid-sized customers efficiently. This blog presents recommendations to improve participation of the small and medium segments. As shown in the figure, small (<300 kW peak demand) and mid-sized customers (300 to 750 kW peak demand) comprise almost all (99.6%) of the electric accounts in Massachusetts and almost two-thirds (61%) of total consumption. However, they account for only 51% of matched[1]  savings. Meeting Massachusetts’ aggressive efficiency goals will most likely require increasing the participation and savings achieved from these segments.

Figure 1 - Savings, Assumption, and Number of Accounts - 2012

Figure 1 – Savings, Assumption, and Number of Accounts – 2012

Achieving savings from small and mid-sized customers will require a greater number of projects, each of which is likely to have lower savings (and higher cost to achieve) than projects with large (>750 kW peak demand) customers. Smaller businesses can have substantial barriers to participation, such as a lack of staff resources (to identify and implement measures), capital constraints, and a lack of access to external expertise or information on energy efficiency opportunities. Addressing these barriers is crucial to achieving greater savings and participation.

The types of small to mid-sized businesses—both commercial and industrial—and their business approach, technical acumen, procurement strategies, capital availability, and consumption patterns can be very diverse, which requires program flexibility to address individual businesses’ energy needs. Mid-sized customers in particular can often benefit from more individualized approaches because their energy use can be more complex than small customers. However, there are often too many small and mid-sized customers for the program administrators (PAs) to maintain individual relationships using internal staff.  Thus, the PAs have turned to trade allies as a conduit to these businesses.

Small customers usually participate through the Small Business program, which is run by the electric PAs in Massachusetts through subcontractors. Achieving greater savings from these segments will probably require expanding the use of subcontractors to reach a greater number of customers or developing new pathways such as upstream or midstream models. Additionally, depth of savings from the Small Business program, especially gas savings, could be increased by some modifications to help ensure the subcontractors consider a wider range of measures and that the gas PAs have greater representation in program operations.

The two largest PAs in Massachusetts also use a preferred vendor pool, called project expeditors (PEX), to provide a level of service to large and mid-sized customers between what is available through account managers and the customer call centers. Expanding the pool of vendors could help in reaching a greater portion of the mid-sized market.  Small PAs might be able to pool their resources to hire their own PEX to reach the mid-sized customers, along the same lines as the large PAs. The two large PAs utilize slightly different approaches for their PEXs that demonstrate utilities have options when it comes to using this kind of delivery mechanism. One PA employs a greater number of PEXs and maintains less control over the PEX-customer relationhip. In contrast, the other PA uses fewer PEXs and maintains closer control over the customer relationship. The former approach resulted in greater participation rates, with lesser savings per participant. The latter approach resulted in lower participation rates, with greater savings per participant. The specific size and makeup of a utility’s mid-sized customer base should be factored in when deciding on which approach to take. Utilities with a greater number of smaller mid-sized customers would likely benefit from the wider, shallower approach. Utilities with a greater number of larger mid-sized customers would likely benefit from the narrower, deeper approach.

PAs, where needed, must also look for opportunities to streamline administrative processes to reduce transaction costs, as small businesses often lack the time and resources to be fully engaged. As mentioned above, access to capital and the process of acquiring it are key barriers to participation, particularly for larger, more resource-intensive projects. For example, some PAs offer on-bill financing, which is very helpful for mid-sized customers because it allows them to participate without adversely affecting their cashflow.

Achieving savings from small and mid-sized customers requires more work than larger customers. However, if a utility finds the right approach for its market, substantial additional savings could be realized from these segments. Utilities will find it increasingly necessary to achieve savings from these segments as efficiency goals continue to increase.

Acknowledgements
This blog was co-authored by DNV GL’s Shawn Bodmann and Max Neubauer.


 

[1] Matched savings are those savings that are limited to firms for which the PAs provided data on peak demand. Customers without peak demand data are excluded from matched savings.

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