Energy Efficiency - Measuring the Energy That Might Have Been

Energy Efficiency may be the fifth fuel, but different than carbon, nuclear, wind, and solar, energy efficiency cannot be measured or metered - by definition, energy efficiency is the absence of the use of energy, which can only be calculated by comparing what might have been with what is. It is the delta between these values that comprises energy efficiency, which makes it a calculated value.

This complexity leaves energy efficiency open to interpretation. One can always debate what might have been if energy efficiency actions had not been taken. There are many complicated and interactive factors that can play into the resulting energy efficiency including, weather, building usage, building changes, changes to resource costs, and occupant behavior.

One can compare past bills against future results, but the savings are often obscured by significant noise that is common in building energy bills, and coming up with a bankable number that everyone can agree often not straightforward or clear.

Fortunately, there are many examples of markets investing in calculated metrics. In fact, globally $1.2 Quadrillion Derivatives Market Dwarfs World GDP. While energy efficiency is complicated, it is possible for markets to agree on a standard set of “weights and measures” and is a foundational step that is underway - one project in particular to watch is the EDF Investor Confidence Project, a methodology that could be be equally applied to residential and commercial energy efficiency (full disclosure, I run this project for EDF).

Energy Efficiency is expressed in every transaction as a prediction or estimate of savings to come. This estimate is part of a calculation made by investors (Including: building owners, financing firms, utilities, energy services companies, insurance providers) and the validity and transparency is critical to create investor confidence and ensure real results are being delivered.

Given the complexity, I wanted to go over some of key terms necessary to have a real conversation about energy efficiency. There are in fact, a number of ways to express energy efficiency, and there is not a single right answer.

Realization Rate:
Realization Rate is a comparison between predicted and actual energy usage, generally corrected for weather, and sometimes societal norms with a control group. A 100% realization rate means that on average savings were delivered as expected. A 60% realization rate would mean that on average from every 100 predicted kWh of savings, only 60 kWh were delivered.

Average is highlighted above, as there can be considerable differences between energy efficiency portfolio’s that have the exact same realization rate. We will discuss Variance more in the next section, but it is possible for two portfolios with the same realization rate to have substantially different numbers of winners and losers.

It is also important to recognize that realization rate always comes with a confidence interval. Sufficient pre and post data is required to calculate savings vs. the baseline. A single or small number of projects may not be indicative of overall results, and it is necessary to get enough heating and cooling degree days to make sure we can calculate realization rate for different end uses and fuel types.

Variance:
Variance is the expression of not our average performance, but instead the number of outliers. This is often expressed as  standard deviation.

Variance rates are critical in combination with Realization Rate to understand the actual performance of a portfolio. It is possible to get a 100% realization rate while having a lot of winners and losers. If 25% of projects were over by say 50%, and another 25% under by 50%, it is still possible to have a 100% realization rate.  

In the context of program design and markets, both realization rate and variance are important, though potentially for different stakeholders. Utilities and public programs, for example, may be most interested in average performance as that is what drives fewer power plants, however they also have interest in protecting ratepayers, so variance becomes important. Individual consumers may care about realization rate in a general sense, however when it comes to what they should expect on their personal investment, variance level may be just as important as realization rate in their decision making.

As anyone who has worked with real live clients knows, even if one is perfectly correct on average, if there is a lot of variance (winners and losers) your phone will still ring on the weekends. If a client saved $25 a month, when they expected $50, they are no happier to learn their neighbor savings $75. 

What Kind of Savings Are We Talking About?
It turns out that in addition to how we measure savings, there are number of ways we talk about the savings themselves:

Gross Savings:
Gross Savings is how utilities and regulators think about savings. This is the volume of savings in terms of units of energy saved. While this sounds simple, to consumers who generally barely understand the difference between a therm of gas or a kWh of electricity, gross savings may be confusing.

Percentage Savings:
Many programs (including federal legislation) look at savings in terms percentage reduction for a specific building. This approach can be applied using site, source, or cost (more to come on that).

While this approach sounds really simple, it can have some interesting unintended consequences, such as rewarding smaller projects on home’s with lower bills at the same level as project on larger consumers that may in fact cost a lot more, and save a lot more gross energy.  This can result in a selection bias that favors projects that save less energy.

Site Savings:
Site Savings looks as savings in terms of reduced BTU and kWh at a specific building. While on the surface it is very simple, in reality because different fuel types may have different costs, percent reduction in site energy may not have a lot to do with percentage reductions in bills. This measure can also encourage fuel switching when it may not always be in the societal or even the customers best interest to do so.

Source Savings:
Source Savings looks at energy savings based on reductions in generation, not end use consumptions. In many cases and locations, there may be as many as three kWh generated for every one kWh that is ultimately consumed in a building (the other 66% being lost to grid inefficiencies). While source makes a lot of sense to utilities and policy makers, it is often very confusing to consumers, and hard to apply in a way that is accurate due to varying fuel mixes around the country and even in different places in a single region or time of day.

Cost Savings:
Money saved is what customer care about most and understand best. It also tends to split the difference between site and source (as cost is also a reflection of energy production). This approach is not used widely, but is built into new federal legislation.

Making Energy Efficiency a Resource:
This energy efficiency stuff is a lot harder than it would seem on the surface. While I fully support the basic notion of more transparency, registries, and public accounting, energy savings do not just pop out of the numbers. We need to define our terms and agree on the key metrics we are applying, and recognize with every choice, there are a host of often unintended consequences we must address.

Once we have agreed on a common metric and standard approach to calculating and expressing energy efficiency, and the accuracy of predictions, then we can start using this data to drive behavior (consumers, contractors, and regulators) and most importantly create alignment that encourages private markets to emerge.

---