Making the Business Case for Energy Efficiency

In a recently released analysis, the Bonneville Power Administration set out to answer a simple question: How much would the agency have paid on the spot power market for the same amount of energy it saved from FY 2001 through FY 2011?

According to the report, “BPA’s analysis demonstrates that, in the absence of the energy efficiency efforts…the agency’s costs would be higher by approximately $750 million to $1.7 billion* over a 20-year period.” The range takes into account different assumptions, but if you assumed flat Mid-Columbia trading hub prices and flat annual energy savings, the net benefit is about $1.2 billion.

That’s a significant financial savings for the agency and its customers. And there are other benefits, too. The analysis found that efficiency provides long-term value through the avoided costs of developing new resources or having to purchase power in the market where prices can be volatile. “Every kilowatt-hour of energy efficiency acquired today is a kilowatt-hour that does not need to be purchased or generated tomorrow, the next day, and any day throughout the life of the measure…and creates long-term cost savings for BPA’s customers.”

In a presentation to the Council in August, Richard Genece, vice president of energy efficiency at BPA, noted that the analysis was a year-long, collaborative project that included the participation of several utility stakeholders, as well as consultation with the Council’s energy analysts. 

“It’s sometimes a struggle to define an economic basis for investing in energy efficiency,” said Genece. “We wanted to see what it looks like at both a regional and utility level.” 

The analysis, which is something that the Council and others in the region have encouraged the agency to do, consists of two parts. One is the analysis covering the financial impact of energy efficiency for BPA. The second part is a model developed for utilities to use for their own evaluation of energy efficiency cost savings. It’s designed for the agency’s load-following customers only, and is meant to be used with BPA’s assistance. 

“This model can be a tool for general managers and boards to look objectively at energy efficiency at a utility level,” said Genece. 

Elaborating on the analysis, Josh Warner, manager of planning and evaluation for energy efficiency at BPA, noted that it was a tool that can help a utility examine its overall service territory to determine how much is saved. He emphasized that it was not a rate analysis, but a revenue requirement analysis. 

For now, says Genece, BPA intends to test the analysis to get feedback on how helpful it is and what could be changed to improve it. General roll-out of the financial impact model is scheduled for early autumn. 

“We see this as a tool to aid decisionmaking for utilities, decrease the debate around the economic basis for energy efficiency, and hopefully move that discussion forward.” 

*net present value in 2011