Efficiency First

Hang out in energy efficiency circles these days, and you’re bound to hear about “cost-effectiveness.” Cost-effectiveness is a major consideration for public utility commissions to approve utility energy efficiency programs, so using the most appropriate test is critical to growing the residential energy efficiency space.

But current cost-effectiveness tests do not always fit today’s home performance industry. Says Steve Cowell of Conservation Services Group:

Another concern with current deployment of the TRC is that while the calculations usually include all the costs, including consumers’ own investments, they rarely include all benefits that accrue to the consumer and society, such as environmental improvement, health and safety, operation and maintenance improvements, and protection from energy cost volatility. Price volatility is exacerbated when regulators use unreasonable discount rates and underestimate long-term energy costs. This flawed analysis leads to defective policy. At the very least, cost-effectiveness needs to be calculated on a program-wide or even portfolio basis, not at individual projects or measures, and include all benefits as well as all costs.

The National Home Performance Council (NHPC) just released a report on cost-effectiveness with three key recommendations to improve cost-effectiveness tests of ratepayer-funded energy efficiency programs.

TRC vs. PAC
The study notes a major shortcoming of the commonly used Total Resource Cost (TRC) test — that it doesn’t account for non-energy benefits to the customer and society, like quality of life improvements, increased energy cost stability, job creation and economic development, and financial savings. Those factors are very important but difficult to quantify. The report first suggests substituting the Program Administrator Cost (PAC) test as the main cost-effectiveness test where feasible. The PAC includes costs incurred by the program administrator like incentives, which are not accounted  for in the TRC test but are key to helping utilities compare energy efficiency costs with other resources.

Improve the TRC
In places where it’s not feasible to use the PAC test and to improve the TRC test in general, the study secondly outlines a suite of best practices to standardize application of the TRC. These include incorporating appropriate costs and discount rates, evaluating cost-effectiveness measures on realistic time scales, and practicing fuel neutrality.

Here’s an assessment of effective useful life (EUL) measures, another issue addressed in the best practices: