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Using data collected by the Energy Information Administration (EIA) for the 50 electric utilities that spend the most on energy efficiency, we estimate that the median utility cost of saving a kilowatt-hour (kWh) was between three and four cents for programs run from 2001 through 2006. This estimate depends on the assumed lifetime of energy-efficiency measures and on the discounted rate used for cost levelization, and represents the average cost across all energy-efficiency programs for all market segments.
Serving as the statistical branch of the U.S. Department of Energy, the EIA annually collects a variety of data from the electric power industry on Form EIA-861, also called the "Annual Electric Industry Report." Form EIA-861 is the best source of data on demand-side management (DSM) costs and effects. Nonetheless, it is important to note that the figures provided on Form EIA-861 are self-reported and are not independently verified.
DSM data collected on Form EIA-861 include the costs and impacts of both energy-efficiency and load-management programs. Some DSM costs are labeled "indirect," meaning that they were not associated specifically with either energy efficiency or load management -- these could include, for example, the costs of managing the DSM department. In our calculations, we allocated indirect costs to either energy efficiency or load management in proportion to the direct costs of those two program types.
For each program year from 2001 through 2006, we identified the 50 utilities with the highest spending on energy efficiency. We then divided the cost of each utility's energy-efficiency program in a given year (adjusted for indirect costs) by the claimed incremental savings in annual kWh. We took the median of those values as representative of utilities' programs for that year.
Levelizing the Data
The final step was to levelize the median costs per annual kWh saved over the expected lifetime of the savings. Utilities do not report to EIA the expected duration of savings from their programs, nor do they report the discount rates they use for economic analysis, so we had to make assumptions for both of those values.
Discount rates. Dan York, a project director with the American Council for an Energy-Efficient Economy (ACEEE), cautions: "Applying a universal discount rate to efficiency savings is difficult at best as some utilities lean to the conservative side and will apply discount rates as low as 3 percent to cover the cost of bonds, while others, especially in situations of rate-payer-funded efficiency, may use a discount rate that reflects the cost of capital. There are even some that would argue that discount rates should not be applied at all." In analyzing its 2006 programs, Pacific Gas and Electric (PG&E) used a discount rate of 7.49 percent. In some recent rate cases, regulators have found investor-owned utilities' cost of capital to be in the range of 8 to 9 percent.
Program life. Just as with discount rates, we found that projected savings life also varied across utilities. For example, Debra Tachibana with Seattle City Light told E source that "depending on a mix of programs, life savings from an energy efficiency portfolio may be as high as 15 or 16 years, with commercial and industrial programs achieving the greatest lifetimes.
However, utilities that achieve a majority of savings from CFL (compact fluorescent lamp) programs can expect much shorter lifetimes, generally around five years." PG&E assumed an average life of 7.2 years for measures installed in its 2006 programs.
Results
Given the wide range of possible values for savings life and the discount rate, we computed results for 5-, 10-, and 15-year lives using discount rates of 5, 7, and 9 percent (Table 1). For the middle values -- 10 years and 7 percent -- the cost per kWh saved was under four cents in five of the six years studied (note the highlighted area of the table). Under different assumptions, the cost could be above six cents or below three cents per kWh saved.
Table 1: Levelized cost of efficiency
Using data collected by Form EIA-861 for the 50 electric utilities that spend the most on energy efficiency, we estimate that the median utility cost of saving a kilowatt-hour (kWh) was between three and four cents for programs run from 2001 through 2006. Given the wide range of possible values for savings life and the discount rate, this table shows results using 5-, 10-, and 15-year lives and discount rates of 5, 7, and 9 percent. The highlighted portion shows the middle values -- 10 years and 7 percent -- where the cost per kWh saved was less than four cents in five of the six years studied.
Resources
- Energy Information Administration, Form EIA-861 Database
- Energy Information Administration, Annual Electric Power Industry Report: General Information
- Dan York (January 2008), Project Director, American Council for an Energy-Efficient Economy, 608-243-1123.
- Berry Ng (January 2008), Program Manager, Pacific Gas and Electric, 415-973-0795.
- Debra Tachibana (January 2008), Project Manager, Seattle City Light, 206-684-3874.
For information on purchasing reprints of this article, contact Tim Tobeck ttobeck@energycentral.com. Copyright 2010 CyberTech, Inc.
I appreciate this type article. It is important to see where information on the question can be obtained and the bounds of the different program assumptions.
Thanks for a great article.
bill payne 6.16.09
PNM electric load forecaster identified the problem.
In a oal fired plant, the fuel cost of the life-cycle cost of the plant are about 80%. In a gas or oil fired plant they run up to 90% of the cost. In a combined cyclle plant they are estimated to be 60%.
It is past time that we got back to the basics and start testing the existing equipment in the plants. With modern instrumetation, it is poassible to run hourly tests on most power plant equipment using programs like PEPSE and others.
I was with TVA during the 70's and 80's. Each plant had a "test and economy group" that was charged with running turbine/generator, boiler, air preheater, main condenser, cooling tower (if present) and other heat rate affecting equipment.
TVA also measured the coal that was used in a boiler very accurately. We also tested the btu content of the coal almost hourly.
We found that if the problems found by the Performance Program were corrected - and in some cases performance was improved over and above the design - that TVA received almost a 4 to 1 Return on Investment - based on the lifetime of the improvements.
Very few utilities support such programs now. I have found engineers that called themselves performance engineers that did not know how to go from a test cycle in a power plant to a contract cycle. This should be fundamental "tool box" knowledge.
In "getting back to basics", I believe that EVERY UTILITY should start and maintain a rigorus training program for engineers that wish to enter the performance engineering field. It has been a very rewarding career for me...and it is documented fact that I and other members of our team,,,saved the ratepayers of TVA hundreds of millions of dollars in fuel cost savings.
I am an staunch opponent of Global Warming due to CO2 emissions; but I am also a staunch advocate of improving the efficiency of power plants. Performance programs that lower heat rates save the ratepayer money and lower CO2 emissions.
Johnny Williams
Paul Stevens 6.17.09
This is a tiny thing, but I wonder how they derive the savings? Lab tests?
I know, as an example, that the ten year lifetime flourescent replacement bulbs I buy, at 4-5 times the cost of incandescent, rarely last more than a year, under my at home, real world condition.
Obviously a world of difference between lighting up a bulb, or a hundred, in lab conditions and then extrapolating from the failure rate what the lifetime would be, and operating the things at home.
A few more examples like this, in an industrial setting, and the 3-4 cents /kWh could easily turn into 6-7 which completely changes the picture. I don't know if efficiency programs have been running long enough to provide an accurate picture.
Paul
Len Gould 6.18.09
Paul: As I write, my home is lighted by a set of CFL bulbs which I bought over 5 years ago. Either you've been sold a set of under-spec bulbs or your utility is feeding you bad power.
Len Gould 6.18.09
Johnny: "I am an staunch opponent of Global Warming due to CO2 emissions; but " -- I'm curious about the disclaimer. Has the engineering community become such engineers that they can ignore odds? I realize that engineers deal only in "sure bets", otherwise buildings would be collapsing about us regularly, but certainly no Vegas casino builder ever made a dime by going against the odds. What's the worst outcome of intelligent mitigation? We might be criticised by posterity for leaving them some fossil fuel resources?
Malcolm Rawlingson 6.19.09
Len do you ever turn your lights off? My mini flourescent fixtures don't last anywhere near 2 years let alone the 10 suggested by the makers. The only ones that seem to last long enough to make it worthwhile are my four outside lights which I leave on all night. As the CFL's burn out I am returning to incandescent lighting. It is much softer and it does not make that awful buzzing noise.
If you build nuclear power plants you will feel so good in being able to leave behind all of the remaining fossil fuel resources of which you speak and I am sure future generations will be truly thankful. And you don't have to worry too much about fuel efficiency in a nuclear plant (although of course we do) as there are not too many other uses for Uranium.
It takes really good engineers to make electricity out of lumps of rock with hardly a puff of CO2.
Malcolm
Malcolm Rawlingson 6.19.09
A good article Kelsie. Well written and very informative. I am all in favour of energy efficiency where it makes sense and (like CFL's) is not a bogus way of fleecing the public of their hard earned cash. Engineers of my generation spent a lot of time on the efficiency of machines and industrial processes but very often it is the economics that restrict deployment of otherwise good ideas.
I favour very low tech methods of energy savings and efficiency. To me it is much smarter to turn your lights off when they are not required than install a CFL. No change in the system is required - just a change in human habits that costs nothing to implement.
I have switched back to using a washing line to dry clothes rather than use the dryer. It cost nothing as I used old parts. I bought some clothes pegs for three bucks but that was it. Savings in gas are very substantial for a $3 investment.
I turned the thermostat down on the hot water tank. That cost nothing to do and the savings are about 10% on my gas bill.
I don't have air conditioning so when it gets really hot (about 5 days of the year in Canada) I go outside or to a building that is air conditioned. Not really a saving but when it is really hot I am tempted to install one. Once I am cooled off the temptation quickly subsides.
I turned my thermostat down at night and when no one is home in winter. The cost is nothing to do that and the savings I estimate about 8-10%. I heat with gas not electricity.
I think this is the approach that business should use. The high tech solutions rarely pay for themselves in a reasonable time frame but simple changes pay back immediately because they cost nothing or almost nothing to implement.
I looked at ground source heat pumps. Technically and from an engineering standpoint they are an ideal solution for heating and cooling with efficiencies in excess of 100%. (Energy out over energy in). But the cost for my house was $40,000 including a $7000 government subsidy so true cost of nearly $50k. The payback time is never. At a 4% rate of return the $50k would earn $2k per year which is more than the total cost of my electricity and gas combined. So a good idea but killed stone dead by the economics.
My rule of thumb these days is that if you need to get out a calculator to figure if you'll save money then you won't.
Malcolm
Len Gould 6.21.09
Malcolm: I've no disagreement with any of your suggestions except "I think this is the approach that business should use. The high tech solutions rarely pay for themselves in a reasonable time frame " -- Some businesses really need to re-evaluate their building HVAC strategy in the light of modern (as of the 1980's) technology. As an owner of an energy efficiency business a while back I was shocked at some of the control systems i would commonly discover in commercial buildings. I ALMOST ALWAYS found, in large box stores and other public spaces, instances of multiple rooftop HVAC units working to control commons spaces each controlled by individual thermostats thermostats installed near the units. It was VERY common to find two 500,000 btu units CONSTANTLY running gas heating all summer trying to counteract the other two 20 ton cooling units also running continuously. The sollution is a simple Honeywell etc. averaging controller with four ot more RTD sensors replacing the thermostats, and the units staged in operation from the public doors inwards. Simple installations such as these would reduce the owner's utility bills by enough to pay the install cost in months, but it's very difficult to convince owners to spring for the cost. Another very common problem is rooftop unit economizer grills (designed to automatically substitute cool outdoor air for electrically cooled recirculated air) with the grill vanes frozen wide open because the cheap factory-installed plastic vane bearings had disintegrated. Indoor public swimming pools trying to control humidity by exhausting huge amounts of humid and replacing it with cold outdoor air in mid-winter then spending fortunes on gas heating to warm the airflow and the pool water, instead of simply de-humidifying the indoor air and returning the heat from the dehumidifier condenser to the pool water, a strategy which again will pay for itself even at 1980's fuel prices in months (but just try to explain it to a pool owner's accountant). Fresh air makeup units with huge gas burners and no exhaust air heat exchangers, no control of airflow even though reliable variable-speed electric starter/drives now cost just a few hundred dollars.
My suspicion is there's still a huge amount of low-hanging fruit out there, and I've seen no evidence of any improvements in engineering, very likely due to "lowest bidder design-build" contracts. This sort of thing should have been mandated after the 1970's energy shocks, but is still just hanging there. I'm sure there's lots more as well.
Murray Duffin 6.27.09
Johnnie Williams - I think your experience would make a good and usefully informative EnergyPulse article. How about writing one.
Re: CFLs My most used bulb is on about 3-4 hours per day usually, and 100% of the time when I'm on trips.which is in excess of 10 weeks per year.. that's about 2200 hours per year. It is now beginning it's 5th year. My other bulbs don't get used as much. I haven't had a burn out yet. Bought at Lowes or K-Mart.. They cost about $5.00 each 4 years ago, but are now 2 for $3.99. Murray
Murray Duffin 6.27.09
Malcolm - What kind of ground do you have? I put in a GSHP for the house I built 10 years ago at a cost about 20% higher than conventional a/c. Mine was used mainly for cooling. Tubes went down 200 feet into wet sand and marl, with a constant loop temperature of 59 degrees F. Heating worked fine when needed, but I live in SC so the heating load is trivial compared to Canada. However I don't see why it wouldn't have heated just fine. I financed the installation as part of the mortgage on the house, and the energy saving was more than the interest on the incremental mortgage value, so immediate payback for me. Murray
