Library: Evaluation, Synapse Energy Economics, Inc.

Energy efficiency is widely recognized as a low-cost, readily available resource that offers a variety of benefits to utility customers and to society as a whole. Many states have established efficiency savings targets, some states require that energy efficiency be the first choice among resource options, and an increasing number of states require energy efficiency program administrators to pursue all cost-effective energy efficiency. As states continue to advance ratepayer-funded energy efficiency initiatives and establish increasingly aggressive savings goals, it is vitally important that effective practices be communicated and used in screening energy efficiency resources for cost-effectiveness.

There is a great amount of variation across the states in the ways that energy efficiency programs are screened for cost-effectiveness. Many states are applying methodologies and assumptions that do not capture the full value of efficiency resources, leading to under-investment in this low-cost resource, and thus higher costs to utility customers and society.

The purpose of this report is to address two elements of energy efficiency program screening that are frequently treated improperly: other program impacts (OPIs) and the costs of complying with environmental regulations. In some states, proper treatment of these two elements would likely result in a significantly larger amount of energy efficiency being deemed cost-effective relative to today’s practices.

Energy efficiency is widely recognized as a low-cost, readily-available resource that offers a variety of benefits to utility customers and to society as a whole. Many states have established efficiency savings targets, some states require that energy efficiency be the first choice among resource options, and an increasing number of states require energy efficiency program administrators to pursue all cost-effective energy efficiency. As states continue to advance energy efficiency initiatives and establish increasingly aggressive savings goals, it is vitally important that best practices be used in screening energy efficiency resources for cost-effectiveness.

There is a great amount of variation across the states in the ways that energy efficiency programs are screened for cost-effectiveness. Many states are applying methodologies and assumptions that do not capture the full value of efficiency resources, leading to under-investment in this low-cost resource, and thus higher costs to utility customers and society.

The purpose of this report is to identify the best practices available for screening energy efficiency resources, in order to capture and assess the full value of those resources. Many of these best practices are based on economic theory, while others are a matter of public policy and should be based on thoughtful decisions by legislators and regulators. Our goal is to help inform those decisions.

This 2007 Avoided-Energy-Supply-Component (AESC) report provides projections of marginal energy supply costs which will be avoided due to savings in electricity, natural gas, and other fuels resulting from energy efficiency programs offered to customers throughout New England. These projections were developed in order to support energy efficiency program decision-making and regulatory filings during 2008 and 2009.

This report highlights important changes in inputs to the computation of avoided energy costs in New England, in particular the current and projected fuel prices and the amount of generation being added in New England. In addition, New England now has more experience with the operation of the restructured market, allowing this update to model more realistically the bidding behavior of generators and the pricing behavior of power marketers. The energy-supply components developed in this report are to be used for the purposes of demand-side-management planning, evaluation, and implementation only.