6th Plan Conservation Resource CostEffectiveness

1
6th Plan Conservation Resource Cost-Effectiveness

• Conservation Resource Advisory Committee
• March 12, 2009

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How the Plans Cost-Effectiveness Analysis
Impacts Regional Conservation Programs

• Council Plan
• Establishes regional conservation targets based
  its interpretation of the Acts requirements
• Contains methodology and assumptions (e.g.,
  future market prices, measure cost savings) for
  determining cost-effectiveness
• Contains specific measure level (e.g. high
  efficiency electric water heaters) determinations
  of cost-effectiveness
• Bonnevilles resource acquisitions are to be
  consistent with the Councils Plan
• Utilities covered by I-937 in Washington state
  must adhere to the Councils methodology

3
The Plans Definition of Resource
Cost-Effectiveness Comes From the Regional Act

• "Cost-effective, means that a measure or
  resource must be forecast
• to be reliable and available within the time it
  is needed
• to meet or reduce the electric power demand of
  the consumers at an estimated incremental system
  cost no greater than that of the least-cost
  similarly reliable and available alternative
  measure or resource, or any combination thereof.

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Under the Act the term "system cost" means

• An estimate of all direct costs of a measure or
  resource over its effective life, including
• the cost of distribution and transmission to the
  consumer
• waste disposal costs
• end-of-cycle costs
• fuel costs (including projected increases)
• and such quantifiable environmental costs and
  benefits as are directly attributable to such
  measure or resource

5
The Acts Definition of Cost-Effectiveness

• Seeks to minimize the total cost of meeting the
  regions need for the services provided by
  electricity, i.e., its goal is economic
  efficiency.
• Does not address the distribution of these costs
  among parties in the region

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The Council Does Not Use A Single Regional
Avoided Cost To Determine Conservations
Cost-Effectiveness

• We Use What We Learn from the Portfolio Model
• Pick any forecast of future market prices
• Add Risk Premiums for conservations hedge
  value to that forecast (different ones for
  lost-opportunity dispatchable)
• Use this risk adjusted price to determine the
  value of the energy savings

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IRP Methodology

• 6th Plan is testing thousands of plans against
  750 futures
• Model identifies plans with the lowest cost for
  a given level of risk
• Model tests alternative conservation deployment
  schedules (amount and timing) as well as risk
  mitigation benefits of buying conservation above
  forecast avoided cost
• Regional Conservation Targets are derived from
  Plans on lowest-cost lowest-risk frontier

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Council Process for Estimating Cost-Effective
Conservation Resource Potential Setting
Acquisition Targets
Measure Cost
Measure Lifetime
Measure Savings and Load Shape

• Program Data
• Contractor Bids
• Retail Price Surveys

• Evaluations
• Census Data
• Manufacturers Data
• Engineering Estimates

• End Use Load Research
• Engineering Models
• Billing History Analysis
• Independent Testing Labs

Portfolio Model
Market Model
Cost-Effectiveness Model

• Determines measure and program level
  cost-effectiveness using
• Measure costs, savings load shape
• Aurora Market prices
• TD savings (losses deferred )
• 10 Act Credit
• Quantifiable non-energy costs benefits
• Financial Assumptions (e.g. Discount Rate)
• Risk Premium from Porfolio Model

Provides 20-year Forecast of Hourly Wholesale
Market Prices CO2 Emission/kWh Under Average
Water Conditions, Medium Gas Price Forecast for
Medium Load Growth Scenario
Determines NPV of Portfolios with Alternative
Levels of Conservation vs Other Resources Under
Wide Range for Future Conditions
Plans Conservation Target
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Portfolio Analysis Determines How Much Energy
Efficiency to Develop in the Face of Uncertainty
Frequency Chart
1,000 Trials
1,000 Displayed
.043
43
Portfolio Analysis Model
.032
32.25
.022
21.5
.011
10.75
Mean 689
.000
0
(3,509)
(1,131)
1,247
3,625
6,003
Dollars
NPV System Cost
Efficient Frontier
10
Plans Along the Efficient Frontier Permit
Trade-Offs of Costs Against Risk
Least Cost
Least Risk
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Alternative Cost-Effectiveness Tests

• Participant Cost Test (PTC)
• Costs and benefits to the program participant
• Total Resource Cost (TRC)
• All Quantifiable costs benefits regardless of
  who accrues them. Includes participant and
  others costs
• Utility Cost Test (UTC)
• Quantifiable costs benefits that accrue only to
  the utility system. Specifically excludes
  participant costs
• Rate Impact Measure (RIM)
• Net change in electricity utility revenue
  requirements.
• Attempts to measure rate impact on all utility
  customers especially those that do not directly
  participate in the conservation program
• Treats lost revenues (lower participant bills)
  as a cost

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Plan Uses Total Resource Cost ( Benefits)
Perspective

• Best meets the requirements of the Regional Act
• Considers all quantifiable costs benefits
  regardless of who accrues them
• Ensures that conservation expenditures are good
  for the power system, the customer and society
• Allows conservation to be compared to other
  resources considered for development by including
  all quantifiable costs benefits
• Was strongly recommended by utilities in first
  Council Plan
• Plan targets would be significantly higher if
  Plan had considered only Utility Cost

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Some Utilities Now Recommend Use of Utility Cost
Test Perspective

• Considers only those costs benefits that accrue
  to electric utility system
• Energy kWh at avoided wholesale cost at time
  saved
• Transmission distribution kW benefits if
  coincident with system peak and at value of
  deferred expansion cost
• Utility cost for incentives program
  administration
• Does not count customer costs or benefits
• Ensure that conservation is good for the utility
• Acts as the upper limit on utility incentives for
  measures with large non-electricity benefits
• Used as a measure of utility cost efficiency
• Striving for low utility cost share keeps revenue
  requirements lower

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NEET Process Raised Additional Issues

• Review method of calculating cost-effectiveness
• Is the Councils existing interpretation of the
  Acts definition too conservative?
• At what level of aggregation should the
  calculation of costs and benefits be performed?
• Measure
• System
• Building
• Program
• Portfolio

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Why Council Uses TRCAvoids Potential Double
Counting of the Savings

• Utility invest 2500 in efficient motor to
  acquire 5000 kWh/yr savings
• Levelized Cost 3.4 cents/kWh
• B/C 1.32
• Customer matches 2500 utility investment to save
  the same 5000 kWh/yr
• Simple payback 10 years, motor last 20 years
• Total of all direct cost is 5000 for 5000 kWh/yr
  of savings
• Levelized cost 6.8 cents/kWh
• B/C ratio 0.66

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Why Council Uses TRCDirects Funds Toward
Measures That Optimize Total Utility and Customer
Investments

• Utility invest 600 toward cost of 6000 solar PV
  system that saves 1200 kWh/yr
• Alternatively utility and consumer could
• Invest 160 in 40 CFLs to save 1200 kWh, reducing
  cost 440
• Invest 600 to buy 150 CFLs, saving 5000 kWh,
  quadrupling savings
• Especially important when budgets are limited

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Why Council Uses TRCAvoids promoting measures
that may impose non-energy costs on others

• Act directs the Council give second priority to
  the use of renewable resources
• Analysis in 1st Plan concluded that cost of using
  wood stoves to offset use of electric heat was
  below cost of electricity from new generating
  facilities
• 1st Plan excluded use of wood heat due to
  non-energy cost (air pollution) imposed on the
  region

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Why Council Uses TRCExpands list of conservation
options by allowing consideration of quantifiable
non-energy benefits

• Energy Star Clothes Washer in Homes with Gas
  Water Heater and Dryer
• Present Value Capital Cost
• 58/MWh
• Present Value to Power System 17/MWh (B/C
  0.3)
• Value to Region/Society (includes natural gas,
  detergent water savings) 110/MWh (B/C
  2.0)
• Power systems willingness-to-pay for these
  savings should be limited to its present value
  benefits
• Electric Utility could provide incentive up to
  17/MWh for washer in a home with gas water and
  dryer heat

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Consideration of Non-Energy Benefits Expands the
Conservation Supply Curve
Conservation Resources in Plan Created by
Consideration of Non-Energy Benefits
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Care Must Be Used in Applying The Plans
Cost-Effectiveness Results Prescriptively

• Not all measures are in the draft 6th Plan
• Plan contains over 1000 applications of specific
  EE technologies
• NOT an exhaustive list of all possible measures
  applications (e.g. custom measures)
• Plan assumes administrative costs 20 of
  capital
• Administrative cost vary widely by measure by
  program design
• Measure cost-effectiveness in Plan is an estimate
• Measure costs and savings are a single point
  estimate, but vary widely in practice
• Plan targets are based on full portfolio model
  analysis, 750 forecasts of avoided costs
• Measure/Program/Portfolio cost-effectiveness
  generally determined on a single forecast of
  avoided costs for the next 20 years (with
  adders for hedge risk)

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Granularity/Bundling So Whats A Measure?

• "Resource" means-- electric power, including the
  actual or planned electric power capability of
  generating facilities, or actual or planned load
  reduction resulting from direct application of a
  renewable energy resource by a consumer, or from
  a conservation measure.

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Why Bundle

• Measures are interactive, so total savings are
  not the sum of their parts
• Example Heat pumps, duct sealing and
  commissioning
• Deeper savings are lower cost
• Example Conversions and/upgrades to HSPF 9.0
  have a higher TRC B/C ratio than to HSPF 8.5
• Adding a non-cost effective measure reduces
  cost per unit of savings by increasing market
  penetration
• Example Adding prime window replacements
  increases participation in weatherization
  program, spreading fixed cost over more savings

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Risks of Bundling

• Reduces in economic benefits of conservation
• If the average cost of all conservation equals
  the avoided cost, theres no room for a mistakes
• If non-cost effective measure dominates
  program/portfolio, it places all savings at risk
  (i.e., not recoverable, not counted toward
  target)
• Slippery slope Can bundling of any measures
  (e.g. PVs w/CFLs) be justified?
• Is there a need for consistent application across
  the region?

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Care Must Be Used in Applying The Plans
Cost-Effectiveness Results Prescriptively

• Plans cost savings estimates are averages
• Site-specific applications may be more or less
  cost-effective than in Plan
• The Plan average may not accurately reflect
  specific program conditions
• Programs should be tailored to reflect specific
  program designs, delivery mechanisms, measure
  applications, location and other key cost or
  savings factors
• Program estimates need to be more or less
  granular than Plan estimates
• Individual measures evaluated in Plan are
  aggregated into programs/portfolios (e.g., Plan
  doesnt have Energy Star New Homes as a measure)

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Avoided Costs Are Forecast to Be Significantly
Higher
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Energy Efficiency is Still the Cheapest Option
Assumptions Efficiency Cost Average Cost of
All Conservation Targeted in 5th Power
Plan Transmission cost losses to point of LSE
wholesale delivery No federal investment or
production tax credits Baseload operation (CC -
85CF, Nuclear 87.5 CF, SCPC 85, Wind 32
CF) Medium NG and coal price forecast (Proposed
6th Plan) Bingaman/Specter safety valve CO2 cost
27
Draft 6th MWa of Technically Achievable
Conservation Potential
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Draft 6th MWa of Technically Achievable
Conservation Potential
5th Plan Estimate
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Backup Slides
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Customer Perspective

• Considers only those costs benefits that accrue
  to end use consumer
• Electric bill savings
• Quantifiable non-energy benefits
• Customer share of capital labor cost
• Customer share of periodic replacement cost
• Customer operation and maintenance cost/savings
• Ensure that conservation is good for the customer
• Common metrics B/C ratio, by simple payback,
  return on investment, years to positive cash flow

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Common Expressions of Cost-Effectiveness

• Payback
• Expressed as time to recoup investment
• Benefit/Cost ratio
• Expressed as a ratio
• Net Present Value
• Expressed as dollar value
• Levelized Cost
• Expressed as cost per kWh or /MWh

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Common Metrics for TRC Cost-Effectiveness
Benefit/Cost Ratio
Discounted Present Value of Benefits ()

Discounted Present Value of Costs ()
Net Present Value

Discounted PV of Benefits Discounted PV of
Costs ()
Levelized Cost (for comparison to other resources)
Discounted Present Value Costs Annualized over
Life ()

Annual kWh Saved at Bus Bar (kWh)
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Conservation Measure Cost-EffectivenessInputs
and Outputs
Bulk Power System Value
ECM Costs, Savings, Load Shapes Coincidence
Factors
Bulk Transmission System Benefits
Local Distribution System Value
PNW Avoided Cost by Transmission Control Area
ProCost
Local Distribution System TD Benefits
Aurora West Coast Market Price Forecast
Total Societal Value
Non-Energy Benefits
Carbon Emissions Benefits
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Council 5th Plan Forecast of Future Average
Monthly Market Prices(Mid C-Trading Hub)
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Typical On-Peak Load Profiles
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Forecast On-Peak Market Power Prices by Month and
Year
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Typical Off-Peak Load Profiles
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Forecast Off-Peak Market Power Prices by Month
and Year
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The Councils Conservations Cost-Effectiveness
Analysis Compares Savings with Forecast Market
Prices at the time the savings occur

• Four Load Segments are used to compute the
  value of savings
• Weekday Peak Load Hours
• Weekday Ramp Up/Ramp Down hours and Weekend
  Peak Load Hours
• Weekday and Weekend Off-Peak hours
• Weekend and Holiday Very-Low

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Each Conservation Measure Has a Different
Cost-Effectiveness Limit Based on When Its
Savings Occur
Weighted Average Value of Space Heating Savings
41/MWh
Weighted Average Value of Space CoolingSavings
78/MWh
42
Impact Load Shape on Regional Bulk Power System
Value

• Impact on Present Value Benefit (20-year measure
  life)
• Low End
• Street Lighting - 41/MWh
• Residential Space Heating - 41/MWh
• High End
• Central AC - 78/MWh
• Solar Water Heating - 74/MWh

43
Impact of Bulk Transmission System TD on Power
System Value

• Assumed Bulk Transmission System Avoided Cost
  of 3.00/kW-year
• Impact on Present Value Benefit (20 year measure
  life)
• Low end
• Irrigated Agriculture - 0.00/MWh
• Residential AC - 0.00/MWh
• High end
• Residential Space Heating - 1.05/MWh
• Residential Water Heating - 0.52/MWh

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Local Transmission and Distribution Benefits

• There is value in delaying utility investments in
  local distribution networks (and sub-High Voltage
  Transmission) that is caused by load growth
• Not all load growth results in the immediate need
  to increase local distribution system network
  capacity
• Other Demand Side Management (e.g. load
  control) programs may be better suited to
  deferring network expansion
• The value of reducing load growth defer
  distribution capacity expansions
• Capital expansion cost/KW-yr Probability
  expansion will be deferred by conservation
  measures impact on distribution system peak

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Illustrative Local Distribution System T D
Benefits
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Impact of Local TD on Power System Value

• Assumed Local Distribution System Avoided Cost
  of 20/kW-year
• Impact on Present Value Benefit (20-year measure
  life)
• Low end
• Solar PV - 0.14/MWh
• Solar Water Heating - 0.30 MWh
• High end
• Residential Ovens - 26/MWh
• Residential Air Source Heat Pumps - 19/MWh

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Environmental Externalities Value

• Based on Carbon Dioxide Emissions from West Coast
  Power System
• Consensus that 0 is wrong
• Used 5- 40/ton of CO2 emitted
• Varied amount and future date of carbon control
  implementation
• Adds about 3/MWh to Present Value Benefit of
  Savings (also varies by shape of savings)

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Expected Value of CO2 Control Cost by Year
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CO2/MWh Trends for Conservation Savings by Load
Segment
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Cost-Effectiveness of Conservation Varies by
Perspective

• Energy Star Clothes Washer (MEF 2.2)
• with Electric Water Heating and Electric Dryer
• Present Value Capital Cost 0.44/kWh
• Value to Bulk Power System 53/MWh (B/C 1.17)
• Value to Local Distribution System (includes bulk
  power system value) 66/MWh (B/C 1.47)
• Value to Region/Society (includes detergent
  water savings, plus carbon credit) 123/MWh
  (B/C 2.8)

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Northwest Energy Efficiency Implementation Web
Northwest Power and Conservation Council
Bonneville Power Administration
The Plan
Regional Technical Forum
Public Utilities
State Regulatory Commissions
Northwest Energy Efficiency Alliance
Investor Owned Utilities
Energy Trust of Oregon
Rate Revenues
Markets, Codes Standards
End Use Consumers
Policy
Policy Recommendations
Conservation Programs
Market Transformation Programs/Projects
Technical Recommendations
Program Funding
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5th Plan Identified Nearly 4,600 MWa of
Technically Available Conservation Potential
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Adjustments to 5th Plans Conservation Resource
Potential

• Reductions in Available Potential
• Program Accomplishments
• Changes in Law
• Federal Standards for general service lighting
• State Building Codes
• Changes in Markets
• Improved Current Practice due to Energy Star,
  LEED, Programs, Market Transformation
• Other Changes to Federal Standards (10 adopted,
  21 under revision, and 12 with effective dates by
  2014)
• Changes in Forecast
• Less new commercial floor area
• Lower industrial forecast

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Adjustments to 5th Plans Conservation Resource
Potential

• Increases in Available Potential
• Changes in Scope
• Distribution System Efficiency Improvements
• Consumer electronics (TVs, set top boxes)
• Irrigation Water Management and Dairy Farm
• Changes in Data and Technology
• Detailed Industrial Sector Potential
• New Measures (e.g. ductless heat pumps, solid
  state lighting)

55
Avoided Costs Are Forecast to Be Significantly
Higher
56
Energy Efficiency is Still the Cheapest Option
Assumptions Efficiency Cost Average Cost of
All Conservation Targeted in 5th Power
Plan Transmission cost losses to point of LSE
wholesale delivery No federal investment or
production tax credits Baseload operation (CC -
85CF, Nuclear 87.5 CF, SCPC 85, Wind 32
CF) Medium NG and coal price forecast (Proposed
6th Plan) Bingaman/Specter safety valve CO2 cost
57
Draft 6th MWa of Technically Achievable
Conservation Potential
58
Draft 6th MWa of Technically Achievable
Conservation Potential
5th Plan Estimate