||Estimating the imact of US energy efficiency programmes|
|May 5, 2011||Risk . net|
Increased interest in energy efficiency and demand response programmes in the US power markets has led to the birth of the negawatt – a tradable resource now gaining prominence in the industry. But estimating the impact of these programmes is not easy, as Elisa Wood discovers
Many US states are now mandating deep cuts in power use through energy efficiency programmes. However, for suppliers and utilities, working out the impact these programmes will have on their business models is proving extremely difficult.
Twenty-six US states, which account for 65% of the country’s electricity demand, now have energy efficiency resource portfolio standards with targets to reduce electricity demand over time. If achieved, the standards will take a 6% bite out of retail electricity sales nationwide by 2020, according to the American Council for an Energy Efficient Economy (ACEEE).
Because these, and other efficiency and demand reduction programmes, effectively increase supply, they have given birth to a new virtual resource – the negawatt – energy saved via energy efficiency measures. The negawatt is fast becoming a recognised tradable resource that can be used to bid in some of the US regional wholesale power markets head to head against power resources. The first to accept such bids was ISO New England in its forward capacity market. These negawatts have contributed to significant flattening of demand for capacity in New England.
Negawatts have not, however, created power markets that are any less complicated when it comes to navigating risk and reward, according to Daniel Allegretti, vice-president for energy policy with Maryland-based Constellation Energy, which operates in both wholesale and retail electric markets. In fact, they have added yet another wrinkle.
“As we’re seeing more demand response coming in flattening things out, we are also seeing more intermittent supply [such as wind and solar] come in. So I don’t think the markets are becoming less volatile from a trading perspective,” he says. “To understand it, to predict and see where to take a position, is becoming increasingly challenging,” he adds. “I wouldn’t say there is a magical algorithm.”
Indeed, it is ultimately the “grey matter” that must determine a supplier’s market position by taking in the many data points that influence demand, such as weather, rule changes, energy imports, regional transmission organisation information and new utility programmes, he says.
All these variables make trying to calculate the impact of energy efficiency and demand response extremely tricky. “The prevailing conventional wisdom is that energy efficiency will put downward pressure on demand and prices. I don’t think anyone argues with that. The $64,000 question is, of what magnitude,” says Martin Kushler, senior fellow at the ACEEE.
Overall demand appears set to rise despite energy efficiency programmes, due to a growing use of air conditioners and electronic devices. However, the rise is forecast at just 1% per year, according to the US Energy Information Administration (EIA).
Retail electricity rates also appear to be levelling and may even fall, according to the EIA’s Short-Term Energy Outlook, published in March 2011. Household electricity prices showed no growth from 2009 and 2010, hovering around an average 11.58 cents/kWh, not an unexpected event during a period of slow economic activity and low natural gas prices. The same forecast shows electricity prices rising by 1% in 2011 and 0.5% in 2012.
But over the long term, prices may actually fall. An early release of EIA’s Annual Energy Outlook 2011 projects that real average delivered electricity prices will drop to as low as 8.9 cents/kWh in 2016.
Scotty writes: I’ll believe a decrease in Electricity Rates when It happens. From all I read about Ameren UE’s agenda- they will not be lowering the Electricity Rates for St Louis anytime soon.