Moving to the Middle — How to Navigate the Ins and Outs of C&I Midstream Programs (Part III)
By Dave Backen, Christopher Burmester, David MacDonald and Mary Ann Sheehan
Part III: Examples from Midstream Programs in Practice
In the first two installments (read part one and part two) of our series on midstream programs, we had looked at program definitions and terminology, covered program myths and benefits, as well as looked at the challenges and barriers to midstream program adoption and success. In this final part, we illustrate some of the benefits and challenges through examples of successful utility midstream programs in lighting and HVAC.
Commonwealth Edison Company – Increasing Market Share of Energy Efficient Products
Commonwealth Edison Company (ComEd) of Chicago was seeking a way to increase the market share of energy efficient products when it launched a midstream program in 2010, initially using a retail point of sale model and transitioning over time to a distributor model.
Many lighting products, particularly replacement lamps and fixtures, are a transactional purchase lending them to a discount at the time of purchase. Since many commercial and industrial customers purchase these items through distributors and work with electrical contractors rather than retail outlets, a distributor-based midstream program offered a more effective method of targeting ComEd’s business customers. The distributor program was designed around the following parameters:
- High volume products to drive increase in market share
- Well-known products (mix of standard, specialty, high-wattage and cold-cathode CFLs, LEDs, etc.) to ensure product acceptance
- Products with fixed savings allowing for ease in calculating savings
Since its launch the program has grown annually to provide a large part of the overall program savings and has 96 participating distributors with nearly 9,000 customers participating in the most recent program year. While starting out primarily as a lighting program, it has expanded to include other products such as battery chargers and transformers, and the program design allows the addition of new measures in the future. In addition to increasing participation the program has seen additional benefits including:
- A robust and reliable base of cost-effective energy savings
- Increased control over energy efficient product specifications and quality which provided an enhanced customer experience with new technology/products in rapidly evolving markets
- Reduced paperwork, easing program participation
Number of Measures Installed by Type
Source: ComEd BILD PY7 Evaluation Report
Lastly, the midstream program provides ComEd a platform to promote the overall program to more people. Many contractors were unaware of the program until receiving the discount at the distributor. These contractors have now become more involved in the core program, becoming trade allies and increasing trade ally participation in other program offers.
Xcel Energy of Colorado – Thoughtfully Moving Midstream
In 2013, the Colorado Public Service Commission (PSC) instructed the state’s utilities to increase efficiency savings by 30 percent. At the time, Xcel Energy of Colorado’s Downstream Commercial HVAC program was providing incentives for a nominal number of tons of premium efficient HVAC equipment each year. However, information provided by one distributor – one of the major regional distributors in its territory – on the sale of high efficiency equipment in the region indicated that the downstream program was only reaching a very small fraction of total sales. A significant and overwhelming majority of sales were code-minimum units. Moreover, more than a third of units sold were “reactive” sales” – sales in response to units that have failed in service – where the owner will seek to replace the unit immediately. As these units were not currently maintained in stock, this entire fraction of the market was unserved by the program.
Xcel Energy’s Commercial Midstream Cooling (HVAC) Program Manager, who was seeking new program delivery models that could better serve the demand for high efficiency HVAC in the region, reviewed successful program implementation models nationwide, and invited experienced midstream program implementers to share best practices and information. One of the primary concerns for both Xcel Energy and PSC personnel with migrating to a midstream delivery model was that ratepayers would not benefit directly from the program as the incentive dollars would flow to distributors to support the stocking and upselling of premium efficient equipment. However, as was shared via the figure below and discussed in meetings at Xcel Energy, the typical downstream incentive amount is only a small fraction of the lifetime savings achieved from premium efficient HVAC equipment and the majority benefit from these units are in the energy saved over the lifetime of the measure – not the initial incentive.
Lifecycle Savings from a 5-ton, 3-phase Commercial Air Conditioner
Assumes base unit SEER 9, 30 percent efficiency loss, new unit SEER 17, 1,100 operating hours, $0.14/kwh, average measure life of 20 years. HVAC rebates assume average of $200/ton. Source: Energy Solutions.
By moving the program midstream, the program had the opportunity to increase claimable energy savings up to 10 times though greater market coverage, thus providing significant lifetime benefits to many more ratepayers. All the customers who are not replacing their units with efficient units represented a huge lost opportunity – for the customer, the utility, and the environment. This perspective was more than enough to allay concerns and build support amongst Xcel Energy and regulatory personnel for a midstream program approach.
Xcel Energy filed for regulatory approval to move their Commercial HVAC program to a distributor program model and in mid-2015 launched its midstream HVAC program. In its first year, the program is on track to approximately triple the volume of its previous downstream program performance. And the program is just getting started; with program model refinements, the program is expected to continue to exceed this performance in the second year.
Xcel Energy’s path to moving to a midstream program is a superb example of a planned and coordinated move – with regulatory involvement, support, and buy-in – to leverage existing best practices and lessons learned from other utility programs to launch a high performing midstream program and achieve greater impacts and benefits for its customers.
In our three-part look at midstream programs, some of the key takeaways include:
- Properly Implemented, Midstream Programs Allow Entire Market Coverage – By engaging with the market actors who serve the entire market, a properly designed program can cost-effectively influence nearly every sale of a class of technology in your service territory.
- Respect and Engage Market Actors – Every market is different, and the key successful market actors in your territory understand the market best. Engage with them, listen, and include them in your program design.
- Leverage Existing Lessons Learned – While upstream approaches are new in many areas of the country, select utilities and implementers have been running upstream programs for decades. Seek out and leverage information and lessons learned in creating your program.
- Keep the Program and Process Simple – Your market actors are busy and upstream programs have much greater volume than downstream programs. True end-to-end automation and on-line processing of administrative processes are key.
- Regulatory Change is Possible – As many states seek to introduce higher savings goals, regulatory agencies are receptive to regulatory changes to allow innovative program design strategies that provide larger and more cost-effective savings. Familiarize your regulatory personnel with upstream approaches by sharing information and success stories from other regions; share the significant benefits and how concerns about upstream strategies have been addressed elsewhere.
Dave Backen is the Director of Evergreen Consulting Group; Christopher Burmester is the Vice President of Energy Solutions; David MacDonald is Senior Consultant at DNV GL, and Mary Ann Sheehan is the Service Line Lead at DNV GL. This article is contributed by the Implementation Topic Committee.
This article originally appeared in the July 2016 issue of Strategies, the monthly magazine of the Association of Energy Services Professionals (AESP.org)