Changing Efficiency Programs Require Changing Business Models

From plug-in EVs to mandated use of electric appliances, swift grid electrification will require energy efficiency to shave the demand curve and keep the lights on. In February 2020, the American Council for an Energy-Efficient Economy (ACEEE) released its Utility Energy Efficiency Scorecard. This Scorecard, combined with Guidehouse Insights, a Guidehouse Company’s findings, indicates an evolution in energy efficiency programs. The business models that support these programs must also evolve.

North American Energy Efficiency Programs Are Changing

Guidehouse Insights finds that growth in efficiency programs and other demand side management initiatives is becoming more location targeted. This pinpointing of appropriate customers reduces utility costs by taking advantage of customer engagement and analytics-driven data. It markets programs to fewer, but more interested customers. Confirmed by the ACEEE Scorecard, utilities are dedicating their efficiency spending to new customer classes and to technologies where it can have the greatest effect. Disruptions to the efficiency status quo included in the Scorecard are:

• An average increase in energy savings of 60% among low income customers since 2015.
• Development of programs to support growth in EV charging.
• Response to recent state laws requiring greater building efficiency.

Efficiency Business Models Should Change

By taking advantage of customer data, utilities can improve the cost-effectiveness of their efficiency programs. However, ACEEE reported even top-scoring utilities use more traditional business models to achieve efficiency savings. Pay-for-performance and performance-based ratemaking, for example, are adopted at rates slower than indicated by national conversation. Even as these models enter into practice, more legacy energy efficiency programs across customer segments will remain valuable as the energy system transforms toward clean and distributed energy.

However, new technologies are providing utilities with a swath of customer data. The challenge will be accessing, using, and translating data into engaging, energy-saving programs. Where companies like Itron and Landis+Gyr have announced partnerships to bolster smart meter-driven analytics, utilities can make use of these technologies to improve business cases for efficiency programs. Where access to behind-the-meter (BTM) data is limited, utilities can incentivize customers to share insight into their energy assets and energy demand patterns through online or in-person audits.

Utilities can render growing knowledge of BTM activity into action. They can stack value across programs, repeatedly engage customers, and generate real savings in this decade of beneficial electrification by using new data-driven insights. Where some sources report the rate of growth of traditional efficiency programs may be waning, Guidehouse Insights anticipates energy efficiency spending will experience steady growth by 2029. The growth will likely come from using new business models to optimize an increasing number of distributed energy resources and strategic market programs to receptive customer segments.