Why Aren't Utilities Combining Energy Efficiency, Solar and Storage?

In February 2020 the ACEEE released a report outlining the benefits of integrated energy efficiency (EE) with solar and storage. According to the report, EE improvements prior to installation of solar and storage have the dual benefit of reducing the sizing needs of systems to support loads while freeing up capital (from bill savings) to help finance these systems.

Other benefits are better management of mismatched supply and demand (which is common when peak demand occurs when the sun goes down), and the ability to enhance clean energy portfolios for the purpose of deferring traditional infrastructure investments in distribution, transmission, and generation. According research completed in 2019 by the Rocky Mountain Institute, 90% of proposed gas-fired power plant construction through 2025 is more costly than equivalent clean energy portfolios consisting of distributed solar, storage and energy efficiency. Further, the economics to operate fossil fuel powered generation is expected to decline significantly, resulting in a higher risk of stranded assets. There is plenty of indication that utilities are embracing solar plus storage. United States Energy Information Association (EIA) data shows that solar and wind generation sites paired with energy storage had grown from 19 to 53 between 2016 and 2019, with another 56 planned installations to come online by 2023. High profile sites such as those in Nantucket Island (National Grid) and Santa Barbara (Southern California Edison) have received national coverage. However, while residential and system-level investments in solar and storage are on the rise, investments in energy efficiency have been in a state of decline. According to the EIA’s annual survey of more than 600 electric utilities and third-party program managers, spending declined in both 2017 and 2018 (2019 data is not yet available), both in terms of administrative and EE incentive spending. Why is this the case? For one, traditional EE program structures don’t line up with those of solar and storage. Unlike the latter, which are typically viewed as grid management investments, EE programs are traditionally more focused on lowering customer costs. They are managed by different groups within the utility and evaluated, marketed and financed differently. Another issue could be the cost of EE programs. According to EIA, the cost of achieving EE savings at the residential level increased between 2017 and 2018, and commercial EE costs have remained flat since 2016. These costs represent planning, marketing, and overhead material costs that are likely to remain consistent while they are siloed into standalone programs. Additionally, EE spending is often incentivized by top-down state energy efficiency resource standards, while the clear economic benefits of solar plus storage projects drive those investments. Combined financing and de-siloing of these costs has mostly occurred at the pilot level, according to examples provided by the ACEEE report. In a lot of cases, it comes down to an apples versus oranges problem with how EE is financed, managed, evaluated, and made available to residential and larger C&I customers compared to solar and storage investments. The fast rise of solar plus storage is indicative of the power sector’s rapid evolution, while utility and policymaker thinking about EE represents a more traditionalist outlook—and that needs to change.