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We Can Harness Markets to Scale Energy Efficiency; Our Report Shows How

During the holiday season, we are inundated with marketing messages as well as goods and services — hallmarks of our market economy. Popular products include holiday lights, once made only with incandescent bulbs but now mostly with LEDs. This shift to efficient LEDs is an offshoot of a much larger market transformation in lighting, which has saved vast amounts of energy.

Our new report examines such successes and looks at ways to harness market forces for increased energy efficiency across a broad spectrum of products and services. It also identifies several promising markets in the early stages of transformation, such as smart thermostats, zero energy buildings, and strategic energy management.

What is market transformation?

Market transformation is rooted in the early experience with utility customer energy efficiency programs and appliance efficiency standards. In the late 1970s, California established the first standards for making appliances more efficient. Early utility programs demonstrated customer interest and savings potential by reducing energy waste in homes, businesses, and industry. Building on these initial successes, many thought leaders saw a much greater potential for energy efficiency. They observed that many products, such as clothes washers, lightbulbs, and windows, wasted energy. They proposed strategically intervening in selected markets to transform them to make energy-efficient products the norm.

This idea came to be called “market transformation” and became a model for many energy efficiency programs delivered by utilities and other state and regional entities beginning in the early 1990s. It showed how efficiency can be expanded and some of its gains locked in by setting standards and codes.

ACEEE has been actively engaged in market transformation since its inception. We conducted early research and helped develop some of the foundational concepts and practices. Many of our allies have been leaders in the field. For 20 years, ACEEE and the Consortium for Energy Efficiency convened the National Symposium on Market Transformation so program practitioners and key stakeholders could share experiences and best practices.

We document successes and lessons learned

While there have been dramatic changes in some markets and technologies over the past 25 years, recent ACEEE research finds that the market transformation program model is still very relevant. In our new report, we present case studies of successful market transformations, including residential lighting, clothes washers, and high-performance schools, and draw lessons that can be applied to new opportunities.

Market transformation is complex, requiring a long-term commitment and collaboration among a large and diverse set of key stakeholders — typically at a regional or national scale. For example, transforming the market for front-loading clothes washers involved national leadership by the US Department of Energy and the Consortium for Energy Efficiency, along with collaboration from manufacturers, a group of western utilities, and selected cities. The approaches and strategic interventions vary; they typically include performance specifications, marketing campaigns, incentives for suppliers or retailers, product labeling, training, and/or demonstration projects. They also need a transition or exit strategy, which can include establishing or upgrading codes and standards.

The market transformation model, however, is not suited to all types of products and services. For example, it has had limited success with home energy efficiency retrofits because of challenges faced by consumers and contractors.

Where to go from here?

Despite successes, market transformation is not currently the prevalent model for customer energy efficiency programs. More common are “resource acquisition” efforts that save energy measure by measure or customer by customer. Utility programs can use both approaches, which can complement and build on each other.

Regulatory support remains the biggest challenge to transforming markets. Its interventions occur over a long period and do not sync with shorter utility and regulatory program cycles. Another challenge is establishing market baselines for measuring impact. Market transformation requires different approaches to evaluation, measurement, and verification to demonstrate impacts and garner support.

As our utility industry is being transformed, we can apply market transformation to continue to increase the efficiency of products, services, and practices. Numerous forces shape the markets all around us. Market transformation can be one force to guide markets toward higher energy efficiency, which saves consumers energy and money.

DOWNLOAD THE REPORT

By Dan York, Utilities, State, and Local Policy Program Fellow

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