Pacific Gas & Electric is hammering out the final details of a pay-for-performance energy-efficiency program for homes that will launch next year pending regulatory approval.

This is not a tweak to an existing program. It is a wholesale change in how to deliver and pay for efficiency upgrades.

California’s Senate Bill 350 requires the state’s utilities to get 50 percent of their energy from renewables by 2030 and increase building efficiency by 50 percent in the same time frame. California already has some of the strictest building codes and efficiency standards in the U.S., so getting to the new targets will require some novel approaches.

For years, most utility efficiency programs have focused on individual widgets: consumers could change out a light bulb or refrigerator and receive a rebate. The amount of energy saved is not guaranteed, but rather estimated by complex modeling. The models employed are not always correct.

A confluence of factors makes pay-for-performance an increasingly attractive option.

Most importantly, California has invested in millions of smart meters. Those meters can offer accurate baselines and measurements of energy saved.

There are also a lot more third-party aggregators, from PACE administrators like Renovate America to behavioral-based efficiency providers such as Opower, which did not exist even a decade ago. Many of these companies have built sophisticated data analytics offerings that can help crunch meter data much faster and more accurately compared to previous efficiency verification methods.

The multi-year pilot at PG&E, which was proposed by the Natural Resources Defense Council, will allow third-party stakeholders to sell efficiency services to customers. Those projects will be bundled, and the aggregate savings will purchased by the utility. That income stream can be used by the aggregators to lower their costs, thus passing savings on to consumers. The steady stream of products, backed up by meter data, should theoretically allow for even cheaper efficiency offerings.

Aggregators will be paid based on the difference between metered usage and adjusted baselines. Rather than paying for the savings at each home, however, the payments will be made on a portfolio-wide basis. The NRDC propsal outlines that payments will be made biannually, although that could change in the final proposal.

Also in the proposal, the first two payments would be made on expected performance. But once the initial data has been processed future payments would true up to reflect actual savings. The savings will be calculated using Open EE Meter, an open-source tool designed to standardize the way savings are measured. 

Currently, PG&E and stakeholders are hashing out exactly what price will be paid for every kilowatt-hour of savings and the schedule of payments. The proposal states that it should be based on the utility’s avoided marginal cost of energy procurement.

Participating third-party aggregators will likely be those that can scale quickly, although the program would eventually be open to any portfolio that can meet the confidence interval.

PG&E is already bringing some lessons learned from its Commercial Whole Building pilot, a pay-for-performance program that started in 2013. The average savings rate among participating buildings has been about 18 percent compared to the baseline.

However, it has been time-consuming to carry out the measurement and verification of the commercial pilot using both the meter data and the old-fashioned models, said Janice Berman, senior director of customer energy solutions at PG&E.

For the larger residential pilot, doing M&V both ways may not be possible, given its wider scope.

Once PG&E has the confidence to move beyond engineering-based M&V, other utilities will likely follow -- and not just in California.

“PG&E's pay-for-performance model is being very well received by customers. Better data at scale opens up new opportunities. We are already seeing other utilities looking to create services for their customers in similar win-win approaches like PG&E,” said Austin Whitman, regulatory affairs director with FirstFuel, which is involved in the commercial pilot.

Eventually, the goal is to make energy efficiency an integral part of the energy procurement process for California utilities. The first pilots have intentionally been simplified to test pay-for-performance, but subsequent programs will be more complex and include locational variables for how savings are valued.

Pay-for-performance is just one way PG&E is trying to bring its efficiency programs into the 21st century. The utility will also look at operational efficiency in commercial and industrial facilities, as well as on-bill financing to support equipment retrofits. “There is no one-size-fits-all” solution, said Berman.