Many Utilities and Grid Operators Undervalue Energy Efficiency’s Contributions to the Electric Grid

May 2, 2019

Energy efficiency savings achieved by increased standards for appliances, utility rebate programs, and more stringent residential and commercial building codes  reduce overall power demand and avoid CO2 emissions. But energy efficiency’s benefits extend to other areas of the electric system as well. Energy efficiency resources also make the grid more reliable and resilient. By fully recognizing energy efficiency’s contribution to the reliability and resilience of the electric grid, utilities and grid operators will be better positioned to continue to provide consumers with safe and reliable electricity, at a lower cost.  

Sources: Con Edison, 2018 and SEPA, E4TheFuture, and PLMA “Non-Wires Alternatives: Case Studies from Leading U.S. Projects” November, 2018.

In the United States, as electricity demand has grown and shifted geographically, utilities and grid operators have invested in additional power plants and transmission and distribution (T&D) lines to balance energy supply and demand and ensure a well functioning grid. Historically, this focus on increasing supply to meet reliability needs was an expensive, but effective and necessary solution. Today, industry experts have recognized that a number of new technologies and approaches exist that can provide the same reliability benefits as supply-side infrastructure, but at a lower cost.

So called non-wires alternatives (NWAs), such as energy efficiency, can reduce energy demand to offset the need for additional power generation. Energy efficiency can also function as an alternative to, or deferral of, new T&D resources by avoiding transmission system use in constrained areas. However, many utilities and grid operators do not fully take into account these additional benefits when assigning value to energy efficiency resources in energy markets and during resource planning. This means consumers could get hit with higher energy costs if supply resources are pursued to address reliability issues on the grid instead of energy efficiency installations or other NWAs. A recent report from the American Council for an Energy-Efficient Economy finds that “energy efficiency is typically undervalued for resource screening, analysis, and evaluation if its reliability benefits are excluded. The result is overinvestment in generation and T&D resources, and higher system costs that are ultimately borne by the utility customers.”

One of the reasons utility program administrators often do not include energy efficiency resources in their electric system planning processes is because quantifying those benefits is difficult. Similarly, grid operators without capacity markets are not able to provide quantifiable value for energy efficiency’s reliability benefits either. The ACEEE report, outlines five concrete steps grid operators, regulators and other stakeholders can take to ensure the U.S. captures the full range of energy efficiency’s reliability and resilience benefits:

  • Integrated resource planning should fully value the reliability benefits of energy efficiency in the analysis and selection of resources.
  • Evaluating NWAs to T&D investments should become standard practice.
  • Capacity auctions and wholesale power markets should include efficiency as a resource. Those already doing so should expand efficiency resource additions as markets grow and efficiency provides a least-cost, reliable solution. Those currently not doing so should make efficiency eligible to participate in their markets.
  • Energy efficiency and related customer program administrators should explore integrated efficiency/demand response programs.
  • Programs should target critical loads to make them energy efficient and thereby improve resilience.

While NWA projects are still limited – there are only a little over 100 in various planning stages today – they are a proven cost effective solution to grid reliability needs. A recent survey of NWA projects by the Smart Electric Power Alliance (SEPA) and E4TheFuture found that these projects successfully delayed or deferred infrastructure upgrades, provided flexible solutions to load growth uncertainty and provided significant potential for cost savings. For example, the Brooklyn Queens Demand Management Project in New York has deferred infrastructure needs that would have cost customers approximately $1 billion (see chart above). In 2017, $63 million was spent on these kinds of alternative projects, but that’s projected to increase to $580 million by 2026.

By recognizing non-wires alternatives’ ability to solve transmission and distribution system challenges, utilities and grid operators can avoid or defer expensive and time consuming physical infrastructure projects, saving consumers significant sums on their utility bills. You can read the full reports from ACEEE and SEPA here:

ACEEE: Keeping the Lights On: Energy Efficiency and Electric System Reliability

SEPA: Non-Wires Alternatives: Case Studies from Leading U.S. Projects