What the EPA emissions plan means for energy efficiency and demand response

Demand-side efficiency is the biggest bang for your buck, the EPA says. But the agency's draft rule leaves "demand-side efficiency" open to interpretation.

By Claire Cameron
June 23, 2020
Utility Dive

For utilities and states that rely heavily on coal power, the Environmental Protection Agency’s (EPA) new emissions reduction proposal could have been the nail in coal’s coffin.

That will not necessarily be the case, Malcolm Woolf, SVP of government affairs at Advanced Energy Economy, a trade organization for the advanced energy industry, told Utility Dive.

“I sometimes am asked to put myself in the shoes of an electric utility executive with a large amount of coal in my fleet,” he said. To ensure that coal plants continue to be profitable under the EPA's plan, states and utilities will need “to decarbonize the grid in other areas.”

"Investments in efficiency lengthen your other investments,” Woolf said.

“If you build a hotel for 1000 guests, but only usually have 200 guests, it would be out of business pretty quickly,” Woolf told Utility Dive. Similarly, building out the electricity system to meet a few hours of peak demand per year “is kind of crazy.”

“You can use demand response, flatten that out, and not have to build such a huge amount of over-investment for a few hours a year,” he said. Energy efficiency and demand response are products and services “that the grid does not yet really monetize, but that we can monetize, and I think this EPA rule will help us do that.”
EPA: Energy efficiency is 'biggest bang for the buck'

Of the four broad-strokes compliance strategies -- coal to natural gas power plant conversions, environmental upgrades at existing power plants, new renewable energy and demand-side energy efficiency -- outlined by the EPA, energy efficiency is the cheapest, cleanest and most achievable system of emissions reduction under the agency's CO2 emissions rule, advocates say.

“The biggest bang for the buck is efficiency," EPA administrator Gina McCarthy recently stated. "It’s getting waste out of the system from the power plant to the plugs.”

A 1.5% annual reduction in overall electricity usage is possible, according to the EPA, if states implement “demand side energy efficiency."

The EPA names “energy efficiency programs, building energy codes, state appliance standards (for appliances without federal standards), tax credits, and benchmarking requirements for building energy use” as possible mechanisms to drive demand-side efficiency, but leaves it up to the states to pick and choose their own preferred compliance methods.

By implementing greater demand-side and end-of-use energy efficiency, the U.S. could reduce CO2 emissions 26% by 2030 compared to 2012 levels, according to a report from the American Council for an Energy-Efficient Economy -- a more significant reduction than the EPA's projected emissions cut under its own rules. This would avoid the need for an additional 494 power plants and reduce U.S. electricity usage by 925 million megawatt-hours.

In a state-by-state analysis, ACEEE found this level of emissions reduction and energy savings would be achievable if states “implement an energy efficiency savings target; enact national model building codes; construct combined heat and power systems; adopt efficiency standards for products/equipment.”
 
"End use efficiency that reduces total demand for electricity is almost always the best, cheapest thing to do," Lena Hansen, a principal with Rocky Mountain Institute's electricity practice, told Utility Dive. "I can't say what states will choose to do, but when faced with replacing significant coal capacity, efficiency is a cost-effective choice."

"It's also comparatively easy to access," explained Hansen. "It doesn't require several years to build like a big power plant, but rather than be put in place usually very quickly."

But a challenge to implementing these and other efficiencies is that utility revenue traditionally derives from electricity sales. More energy efficiency means less electric sales, which ultimately equals less money. Decoupling utility revenue from electric sales is seen as the best way to, at the very least, render utilities indifferent to energy efficiency. Until that happens -- in some states, it already has -- utilities are largely be disincentivized to invest in energy efficiency.
Under new rule, EPA 'need to be more specific'

“Demand response and smart grid offer new business models for utilities that they should probably be considering anyway,” Dan Delurey, Executive Director of the Association for Demand Response & Smart Grid, a trade association for electric utilities and smart grid vendors, told Utility Dive.

The EPA is to be “commended for their flexibility” in devising the draft rule, Delurey said. In its proposal, the EPA “doesn’t preclude anything” from being part of an energy efficiency and demand response-driven compliance plan. But leaving the question of what policies and program to implement open to interpretation is not ideal, either.

“I think there is creativity and customization that could be done in the bounds of a state plan,” Delurey said. “We are asking EPA to be a bit more acknowledging as to what smart grid and demand response can offer so we don’t have to start from scratch educating state regulators.”

“They need to be more specific,” he explained.

The Advanced Energy Economy recently put out a report that details forty different energy efficiency and demand response technologies and services available to states and utilities, from better building insulation to distribution voltage regulation.

While nothing is necessarily missing from the EPA rule, "some clarity" is needed for states and utilities, Sara Hayes, Senior Manager and Researcher for Policy and Utilities at ACEEE, told Utility Dive.

If she were a state regulator, Hayes explained, she would want to know exactly what "demand-side energy efficiency" means.

The EPA proposal's acknowledgement of not only the potential of energy efficiency, but the emissions reductions already achieved by some states through increased efficiency, will ultimately be beneficial, according to Woolf. The proposal notes that twelve states are on pace to or have already reduced their annual energy consumption by 1.5%, in particular citing California, which reduced projected electricity demand by 12.5% in 2012 via demand-side efficiency programs.

For states without robust energy efficiency programs in place, meeting the 1.5% reduction rate will take more time. Those “already at or above” 1.5%, according to the EPA, can “realize a 1.5% rate in 2017 and maintain that rate through 2029.”

Not only does the evidence show that this goal is “eminently doable,” said Woolf, but it is “pretty conservative.” In Maryland, for example, the 1.5% target has already been met. If the target is achievable with present-day technology and services, he said, then advances made in the next 16 years will only increase states' and utilities' abilities to meet the energy savings goal.

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