California has always been at the forefront of efforts to accelerate clean-energy innovation and address climate change. This past Friday, the state took another giant leap by updating several obscure but important regulations that were inadvertently hindering progress in energy efficiency.
It’s hard to overstate the significance of these new rules and the directive to accelerate high-opportunity pilot projects and programs into the market. This new “pay-for-performance” paradigm is a big deal for California and has the potential to unleash market forces to bring efficiency to scale.
Growing social and political pressure is driving ever more aggressive climate and energy goals, such as California Governor Jerry Brown’s commitment to double the efficiency of existing buildings in the state. Political commitments like these, along with the emergence of a smarter distribution grid, are about to transform energy efficiency, allowing it to take its place alongside solar, storage, demand response and other resources in emerging distributed energy resource markets.
By turning changes in load shape into tradable demand capacity (efficiency + time + location), the new paradigm for energy efficiency will allow the system to shift from programs to markets where businesses compete to offer products and services while delivering the most valuable services to the grid. This transformation will be driven by a new and valuable cash flow created when utilities procure the results of efficiency as demand capacity, and a new crop of innovative market actors step up to invest and scale to meet this opportunity.
In early October, Governor Brown signed two important bills, AB 802 and SB 350, into law. SB 350 requires an aggressive 50 percent increase of California’s efficiency and renewable energy goals, while AB 802 mandates statewide benchmarking and access to whole-building energy data for commercial buildings.
Often overlooked, these new laws also establish substantial policy changes that could allow efficiency to achieve its market potential by directing the California Public Utilities Commission (CPUC) to implement pay-for-performance programs "that link incentives directly to measured energy savings.”
Additionally, they go on to overcome some of the most challenging regulatory barriers in the current system, including the inability to put a value on energy-efficiency savings unless it comes from installed equipment that exceeds current code, and, more importantly, simplifying the process of program evaluation by using newly available energy data to calculate savings at the meter.
Efficiency proceeding amended in light of new legislation
In a ruling filed on October 30, the CPUC acknowledges that in light of SB 350 and AB 802, the previous rolling portfolio process will not be sufficient to meet deadlines for action required by law. To that end, the commission amended a previous ruling to allow “expedited authorization of high-opportunity projects or programs.”
To achieve this, pilot programs that were originally planned to begin in the third phase of the previously defined rolling portfolio process will now commence on January 1, 2016.
These high-opportunity projects or programs will be subject to a new regulatory framework that includes the use of a home's or building’s baseline rather than code. Savings will be calculated based on normalized meter data, including gains from both equipment and operational efficiency.
Before the end of 2015, the CPUC will rule on what constitutes “high-opportunity programs or projects” so that the January 1, 2016 timeline set forth in AB 802 can be met.
The CPUC takes swift action
The CPUC, which at times can get mired in its web of bureaucratic procedures, should be commended for its quick action. In less than two months, the CPUC has responded to the mandate created by SB 350 and AB 802 by amending a previous ruling to establish a new process for efficiency regulation that will accelerate innovation and remove longstanding barriers to progress.
The CPUC has often come under criticism for its earlier rulings on energy efficiency; some observers have accused the commission of failing to act boldly. However, in light of this revised proceeding and the urgency that the CPUC now seems to share with utilities, advocates, and the industry, there is newfound optimism in the potential for the CPUC to take a leadership role in this next phase of efficiency.
California is at the heart of cleantech innovation and financial breakthroughs, such as the booming PACE market and the first-ever securitization of efficiency as an asset-backed security comprising unsecured consumer energy-efficiency loans. However, rigid efficiency programs and complex regulations that rely on engineering estimates and computer models rather than newly available data have limited the impact of this innovation.
Through advances in technology coupled with innovative business and financial models, this emerging marketplace for energy efficiency as demand capacity will encourage new and better solutions for the homeowners and business owners of California. From the data that is generated, those in energy procurement, transmission and distribution, and emissions regulation will gain confidence that energy efficiency can be valued as a form of capacity.
This ruling opens the gates for real innovation by putting the foundation in place for a pay-for-metered performance approach to energy efficiency that can value negawatts as capacity at the meter and allow competitive markets to find the ways that work to deliver solutions to the citizens of California.
***Matt Golden is a principal with Efficiency.org, an organization that works with government and industry to close the gap between public policy, private investment, and the delivery of energy efficiency to market.