Energy Efficiency Feed-in-Tariff: Key Policy & Design Considerations

Transcription

1 Energy Efficiency Feed-in-Tariff: Key Policy & Design Considerations Chris Neme, Energy Futures Group Richard Cowart, Regulatory Assistance Project June 2013 The Regulatory Assistance Project 48 Rue de Stassart Building C, BE-1050 Brussels, Belgium Phone: web:

2 The Regulatory Assistance Project (RAP) RAP is a global, non-profit team of experts providing technical and policy assistance to government officials on energy and environmental issues. We have advised governments in more than 30 countries and 55 states and provinces. The RAP Europe team includes 10 professionals, with offices in Brussels and Berlin. Chris Neme is a Principal of Energy Futures Group. Since 1990 he has advised on efficiency policies and programs in more than 25 states and provinces across North America. He is an advisor to RAP in both the U.S. and Europe. Richard Cowart is the Director of European Programmes for RAP. A member of the IEA DSM Executive Committee, he served 12 years as Chair of the Vermont PSB (utilities regulator), Chaired the National Council on Competition and the Electric Industry. Now also Chair of the US Department of Energy s Electricity Advisory Committee.

3 Presentation Overview 1. Policy/Economic Context 2. The Concept of an Energy Efficiency FiT 3. EE FiT Design Challenges A. Target Market B. Pricing C. Timing of Payments D. Evaluation, measurement & verification (EM&V) 4. Pros and Cons of an EE FiT 3

4 1. Policy/Economic Context 4

5 The Context Enormous untapped, cost-effective efficiency potential Persistent market barriers to tapping that potential Lack of successful business models for sellers of efficiency products and services Can t meet climate goals economically without efficiency Current policies are inadequate to meet 2020 targets EED allows MS s to use different mechanisms including financing schemes and instruments EE FiT is one such alternative option 5

6 2. The Concept of an Efficiency FiT 6

7 EE FiT vs. Energy Saving Obligations Energy Savings Obligation Efficiency Feed-in-Tariff Price Paid Determined by market Established up front Quantity of savings Established up front Determined by market Delivery agent(s) Chosen by obligated entity Determined by market, subject to quality control Obligated Entity Chosen by government to deliver Chosen by government to pay Renewables analogies: ESOs are like ROs; EE FiTs are like renewables FiTs 7

8 Experience w/ee FiTs To Date No experience w/fit as central policy for EE but significant experience with related efforts o US utility standard offer programs New Jersey, New York, Texas, California, etc. o Northeastern US ISO s capacity markets New England, PJM o Illinois (Midwestern U.S.) efficiency procurement policy o European tradable white certificate programs E.g., Italy, France 8

9 3. EE FiT Design Challenges A. Target Market Which savings will be acquired? B. Pricing C. Timing of Payments D. Evaluation, measurement & verification (EM&V) 9

10 A. Target Market Which Fuels? Electricity only? Or Multi-Fuel? o Many measures save multiple fuels o We may all be heating with electricity eventually Recommendation: address all fuels o Option 1: separate electric & gas EE FiTs o Option 2: one kwh equivalent EE FiT o Option 3: payment per CO2 reduced 10

11 A. Target Market Which Customers? Just large business customers? Or all customers? o Potential concern about administration costs if every small customer can participate directly o But limiting access, by definition, forgoes benefits o Also, residential and small business markets may be most in need of innovation that the market can bring Recommendation: Allow all customers to participate o Transaction costs can be addressed thru aggregation rules (e.g. minimum savings levels to participate) o Aggregators likely necessary for small customers anyway U.S. capacity markets suggest this works well 11

12 A. Target Market Which EE Measures? Just retrofits? Or mass market programmes too? o Limiting FiT to retrofits foregoes important savings (many opportunities at time of new product purchase) o But mass market efficiency programmes pose challenges Defining the baseline from which savings are measured Free ridership can be non-trivial Recommendation: open to any type of initiative o Good EM&V requirements/protocols 12

13 B. What Should Be the FiT Price(s)? One price or many? o Cost of efficiency savings varies widely By measure, by depth of savings, by market segment Large remaining reservoir of even low cost savings o Thus, a single price at marginal cost of supply will Require consumers to pay more than necessary (even if savings are still cost-effective) Lead to cream-skimming, at least in the near-term Primarily address easiest customers social equity issue o Value of efficiency savings can also vary By location, on-peak vs. off-peak 13

14 B. What Should Be the FiT Price(s)? One price or many? o Cost of efficiency savings varies widely By measure, by depth of savings, by market segment Large remaining reservoir of even low cost savings o Thus, a single price at marginal cost of supply will Require consumers to pay more than necessary (even if savings are still cost-effective) Lead to cream-skimming, at least in the near-term Primarily address easiest customers social equity issue o Value of efficiency savings can also vary By location, on-peak vs. off-peak 14

15 B. What Should Be the FiT Price(s)? Recommendation: multiple and/or tiered prices o By measure: e.g., CFLs vs. LEDs? o By end use: e.g. more for on peak? o By market segment: e.g., more for low income? o By depth of savings: e.g., more for deep retrofits? but don t make it too complicated 15

16 B. Standard Offer Programme Pricing Examples Vary by end use e.g. California 1990s o $0.05 for lighting o $0.08 for motors o $0.165 for air conditioning & refrigeration o All prices per 1st year kwh Vary by savings depth e.g. New Jersey 2011 o $0.18 for minimum 15% savings o $0.34-$0.40 marginal price for 16% - 19% o No bonus above 19% savings (not ideal) o All prices per 1st year kwh 16

17 C. Timing of Payments After installation? over life of savings? hybrid? o Pure pay for performance would be paying each year Ensures you only pay for what you get Analogous to payments by renewable FiTs o But there are costs to that approach: Large transaction costs for small (compared to supply) resources Substantial increase in uncertainty for suppliers Erects barriers when whole point of EE FiT is to reduce them Result: less efficiency, more cream-skimming, and greater cost (see New Jerseys 1990s standard offer program experience) o With rigorous EM&V, little risk with paying up-front 17

18 C. Timing of Payments Recommendation: hybrid approach o pay in first year for deemed savings measures o pay over 2+ years for measures needing M&V Similar to current New Jersey approach 18

19 D. EM&V - How is Delivery Verified? How rigorous? o Critically important that savings are real/verifiable o Diminishing returns from higher levels of precision Recommendation: balance precision and cost o Texas standard offer programme model: Deemed savings (or algorithms) for measures with small savings, predictability over many customers Simple M&V (e.g. short-term metering) for measures whose savings vary primarily on one key variable Full M&V for large, complex projects Need documented M&V standards and other quality standards E.g. New England ISO Capacity Market M&V Manual 19

20 4. Pros and Cons of an EE FiT 20

21 EE FiT vs. Energy Saving Obligations Cost to Consumers Administrative Complexity Certainty that Savings Target Achieved Certainty of Revenue to Market Suppliers Openness to New Market Participants ESO* Less per unit of savings but amount of cost-effective savings is capped, possibly increasing total energy costs lower for government because fewer market actors, less need for adjustment greater by definition, government is prescribing what it wants varies obligated entities change payments, sometimes abruptly lower leaving decisions with discrete number of obligated entities EE FiT more per unit of savings, but diff. minimized with multiple prices gets more cost-effective savings, so may lower total energy costs greater for government but manageable & not signif. added cost less but leaves open the possibility of exceeding targets depends if payments are made upfront rather than over time and prices set for specific periods, can be an advantage greater one of the key advantages of FiTs is openness to any entity with a good idea /market approach * ESO comparison is for policy without tradable white certificates. 21

22 Which is better? It depends What do you value more? o Potential for deeper savings, greater innovation (EE FiT)? o Potential of lower costs per unit of savings, lower administrative complexity for government and greater certainty about savings levels (ESO)? Politics, administrative issues may also matter o Philosophical preference for competition and open entry to prospective market participants o Level of concern about potential concentration of market power (if energy suppliers are also efficiency suppliers) o Trust or lack thereof! in incumbent energy suppliers as potential obligated entities 22

23 About RAP The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies that: Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers Learn more about RAP at Chris Neme: cneme@energyfuturesgroup.com Richard Cowart: rcowart@raponline.org Eoin Lees: elees@raponline.org