When California lawmakers passed a pair of energy bills earlier this month, most people focused on two high-profile targets: a 50 percent renewable electricity mandate and a doubling of energy efficiency in buildings by 2030.
Some also fixated on the oil industry's successful campaign to kill a provision in SB350 that would have mandated a 50 percent cut in petroleum use by 2030. (Although upon further examination, there's a lot buried in the bill that will help California get closer to that goal anyway.)
But aside from a few efficiency wonks in California, very few have paid any attention to language in both SB350 and AB802 that could transform how the state procures energy efficiency.
As we and many others have discussed (with some controversy), energy efficiency has a verification problem. Because the resource is really hard to measure, the industry relies on a slew of complex mathematical models to determine savings. Economists, regulators and efficiency professionals are often in heated disagreement over how effectively the industry is realizing energy savings.
Program complexity is a problem too. Electric utility efficiency programs have historically depended on lavish rebates that require contractors to follow a rigid checklist and chase subsidies with mixed regard for performance. Thus, numerous state efficiency programs have been expensive and have underperformed.
It's not just in America. The U.K. government recently dismantled its national home retrofit program after cost overruns, poor verification and outright fraud made it completely ineffectual.
There's a growing movement within the industry -- started by a small cadre of agitators and now growing more mainstream -- to make efficiency in the U.S. simpler and easier to measure. There are a lot of different ideas out there for improving performance, but a dominant one is treating efficiency like a generation resource, tracked at the meter.
If generators are paid for every kilowatt-hour they deliver to the grid, why shouldn't efficiency professionals get paid for every kilowatt-hour they save?
It sounds simple in theory. In practice it means agreeing to new standards for measuring savings at the meter, while dismantling the old way of running programs. Utilities don't move quickly, companies take a long time to agree on standards, and the consulting firms administering programs often feel protective of their turf.
But SB350 and AB802 may help break this stalemate in California and move the state toward a new efficiency measurement paradigm.
Matt Golden, a California efficiency professional who's been a vocal advocate for efficiency reform, rated the changes a "nine out of a 10" in terms of importance.
SB350, the bill expanding California's renewables and efficiency mandates, calls for "programs that link incentives directly to measured energy savings." That means the California Public Utilities Commission (CPUC) and the state's regulated utilities will need to start crafting pay-for-performance programs that "shall be based on measured results."
"As part of pay-for-performance programs authorized by the commission, customers should be reasonably compensated for developing and implementing an energy efficiency plan, with a portion of their incentive reserved pending post-project measurement results," reads the bill.
The companion bill, which beefs up California's efficiency benchmarking program, also includes language directing regulators "to incorporate meter-based performance into determinations of goals, portfolio cost-effectiveness, and authorized budgets" by September of next year.
Such programs would "provide financial incentives, rebates, technical assistance, and support to their customers to increase the energy efficiency of existing buildings based on all estimated energy savings and energy-usage reductions, taking into consideration the overall reduction in normalized metered energy consumption as a measure of energy savings.”
What does that mean exactly?
Writing on his blog, Golden explained why these changes would be so monumental if implemented.
"It is a huge shift from current practices, one that promises to standardize how efficiency is measured based on meter data, and evaluate it based on straight reductions in demand. More importantly, it has the potential to finally put in place a standardized and replicable system for measuring efficiency as capacity in a way that markets can treat as a reliable demand-side energy commodity," he wrote.
With the passage of both bills, California now must find a way to reduce building energy consumption by 50 percent within a decade and a half. The pay-for-performance requirements suggest a recognition in California that the old way of implementing efficiency isn't going to work.
Shortly after the bills passed, I talked with Golden about their importance. He had an even more succinct answer: "For the first time ever, projects that work will be worth more money. This turns energy efficiency into cash flow."
It's not just outspoken efficiency advocates like Golden who are excited about the potential for change. Utility officials are also lauding the language.
"Meter-based savings will positively impact our customers by allowing PG&E to standardize and improve the way we measure customers’ energy savings as they take energy efficiency actions," said Vincent Davis, PG&E's senior director of energy efficiency.
Smart meters and better analytics are increasingly giving utilities the tools to support such programs. PG&E itself has 10 million smart electric and gas meters, which Davis said allow the utility to better track behavior changes nearly in real time. PG&E is also working on implementing a pay-for-performance pilot in California.
While enthusiasm is strong, these two pieces of legislation do not yet create a revolution in efficiency. It will take at least a year for proposals to get submitted by utilities and considered by California regulators. And across the country, the old way of measuring and implementing efficiency still reigns supreme.
However, California is clearly attempting to meet its ambitious efficiency goals with a new set of measurement standards. And if implemented correctly, California could encourage change in other states -- just as it has with pro-renewables policy.
"There is a consensus that the combination of [the bills] is a pretty darn big deal," said Golden.