New Study Shows That the Cost of Saving Electricity Remains Low
- July 5, 2018
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The average cost to utilities to save a kilowatt-hour (kWh) in the United States is 2.5 cents, according to a new study from Berkeley Lab. It is the most comprehensive assessment to date of the cost performance of energy efficiency programs funded by electricity customers.
Cost-effective efficiency programs help ensure electricity system reliability at the most affordable cost as part of utility planning and implementation activities for resource adequacy.
Building on prior studies, Berkeley Lab analyzed the cost performance of 8,790 electricity efficiency programs between 2009 and 2015 for 116 investor-owned utilities and other program administrators in 41 states. The Berkeley Lab database includes programs representing about three-quarters of total spending on electricity efficiency programs in the United States.
The cost performance data Berkeley Lab develops are used by states, utilities and regional planning entities for many purposes — for example, to project efficiency’s impact on electricity load forecasts, compare costs (in cents per kwh) to other electricity resources, model efficiency resources to meet future electricity needs, benchmark local efficiency programs against regional and national estimates, assess how to meet any state resource targets, and evaluate how program costs are likely to change over time with funding levels and participation.
Among other findings for the study period:
- Programs for the residential sector delivered electricity savings at the lowest cost, averaging 2.1¢ per kWh. Lighting programs, averaging only 1.1¢ per kWh and accounting for 45 percent of the sector’s lifetime savings, drove these low costs.
- Programs aimed at low-income households cost much more — 10.5¢ per kWh on average — but accounted for only a modest share of spending (9 percent).
- Savings from commercial and industrial (C&I) programs cost an average of 2.5¢ per kWh. Three types of C&I programs accounted for 74 percent of the sector’s annual and lifetime savings: rebates for custom retrofits, prescriptive measures and new construction. Average values for these three program types ranged from 1.9¢ to 2.6¢ per kWh.
- For the subset of 51 program administrators that reported data for the entire study period, the average cost of saving electricity rose slightly, from 2.2¢ to 2.6¢ per kWh. That represents a compound annual growth rate of about 3.5 percent, accounting for inflation.
- The cost of saving electricity varies significantly by region, ranging from a low of 1.5¢ per kWh in the Midwest to 3.3¢ per kWh in the Northeast.
Values for 16 states were less than or equal to 2¢ per kWh. (See Figure 2.) The average cost for five states exceeded 4¢ per kWh, with most facing relatively high electricity prices, extensive histories in pursuing energy savings, and strong policy commitments to acquire all cost-effective energy efficiency or meet specified energy savings targets. The market for efficiency measures in these states tends to be more saturated, with many of the low-cost savings opportunities already mined.
- The total cost of saving electricity — both the cost to the utility or other program administrator (and thus to the utility’s ratepayers) and the cost to the utility customer participating in the efficiency program (who buys an energy-efficient product or service and gets a price discount or other benefit from the program) — is 5¢ per kWh, split almost evenly between the program administrators and participating customers. This value reflects costs in 27 states where data were available for the study period. Adjusting for inflation, the total cost has remained roughly the same during the past several years.
The Berkeley Lab report presents for the first time an aggregate “cost curve” for U.S. electricity efficiency programs. (See Figure 3.) It illustrates that efficiency portfolios are highly dependent on low-cost savings from residential lighting programs. With higher performance of these products required by federal and state efficiency standards, and continued improvements in product performance and cost, efficiency program administrators may have fewer opportunities to acquire low-cost savings through these lighting programs. A shrinking C&I market where states allow large customers to opt out of efficiency programs may put upward pressure on cost performance of efficiency programs in this sector, as well as on the overall efficiency portfolio.
The report, The Cost of Saving Electricity Through Energy Efficiency Programs Funded by Utility Customers: 2009–2015, is available at https://emp.lbl.gov/publications/cost-saving-electricity-through.
The work described in this report was supported by the U.S. Department of Energy’s Office of Electricity, Transmission Permitting and Technical Assistance Division, Office of Energy Efficiency and Renewable Energy-Strategic Priorities and Impact Analysis, and Office of Policy, and the U.S. Environmental Protection Agency.