Energy Efficiency and COVID-19: Implications and Considerations
Energy efficiency (EE) programs and providers have seen rapid and dramatic impacts as a result of the COVID-19 pandemic. The most immediate and obvious among them is the halt to the installation of efficiency measures as shelter-in-place and stay-at-home orders take affect across the United States. These orders already have affected hundreds of thousands of jobs as well as efficiency programs for utilities across the country. There are also many more impacts and opportunities for EE providers and utilities to consider in the weeks, months, and likely years ahead.
Implications for the EE Industry and Utility Programs
Beyond the inability to install more efficient equipment and devices, the lower levels of load and usage brought about by stay-at-home orders reduce the incentive and opportunity for customers, especially businesses, to invest in EE. At the independent system operator level, there already is evidence that loads have been significantly lower than the average for this time of year. In areas where stay-at-home orders have been in place for a number of weeks, such as New York and California, the effects have been dramatic. As data becomes available at a more granular level, it likely will show significant reductions in commercial and industrial loads. Even after stay-at-home orders are lifted, there likely will be a near-term period of economic hardship for individuals and businesses alike, making the prospect of an upfront investment for future returns less attractive. This is especially true for measures that have significant upfront costs, such as residential heat pumps.
Implications for the Supply Base
More than a million Americans work in jobs related to EE, including manufacturing, construction, installation, and implementation. Undoubtedly, some of these jobs will be affected by COVID-19 and its follow-on effects. As utilities look to return to business as usual in the months ahead, some of these effects must be considered. For utilities and states that rely heavily on implementation contractors to run EE programs, downsizing, consolidation, and bankruptcy in the industry could significantly affect the ability to implement programs going forward. Moving down the supply chain, the individual contractors, trade allies, and small businesses that conduct the installation of various measures may experience even bigger economic impacts as a result of COVID-19. For utilities reliant on these groups to implement measures, there could be further challenges to ramping up programs to achieve target savings following COVID-19. For all utilities, disruption of the manufacturing of equipment or measures now could have both near- and long-term implications for programs.
Considerations for Utility EE Programs
Even though the impacts of COVID-19 are just beginning to be felt by many utilities, there are a number of things utilities and regulators can do now to move programs forward and set the conditions for a ramp-up as stay-at-home orders are lifted. To that end, on March 27, the New York Department of Public Service held a COVID-19 input session for EE and heat pump providers, and written comments were posted in the state’s proceeding In the Matter of a Comprehensive Energy Efficiency Initiative (18-M-0084). A number of parties provided wide-ranging recommendations for programs, such as delays for loan repayments, remote inspections/audits, and remote training. Within the proceeding, the Alliance for Clean Energy New York (ACE NY) laid out a robust list of suggested actions phased from now through recovery.
There also may be opportunities to place extra focus on programs less affected by COVID-19. For example, many utilities have well-established behavioral EE programs. Now may be a time to redouble efforts within those programs and potentially tailor them to the current situation by addressing working from home or other strategies for additional savings. Opower, for example, noted in its comments within the New York EE proceeding that it already has begun engaging with its utility clients on such strategies. Of course, any actions taken or increased investments from utilities now will have to be balanced with their potential bill impact, especially in this time of increased focus on affordability. Although the implications of COVID-19 for each utility’s EE portfolio will vary, utilities and program managers can take some actions now to support programs and to begin planning for how to best facilitate a ramp-up of activity and savings once social and commercial activity re-emerges.
Considerations for Low- and Moderate-Income Customers
For utilities with specific EE programs focused on low- to moderate-income or income eligible customers, many of the impacts and considerations described above may be magnified by the more acute economic stresses these customers will face as a result of COVID-19. These same customers also are most sensitive to the cost of energy, as it makes up a larger portion of their overall income. Here, a more tailored focus from behavioral programs may provide some relief in the near-term, while more traditional EE programs can play a role in providing cost relief in the long-term. ACE NY also suggested in its comments that regulators and utilities should explore widening the eligibility criteria for low-income or income-eligible programs to include customers who have recently been laid off or furloughed as a result of COVID-19, regardless of their previous year’s income.
Considerations for Utility EE Budgets, Targets, and Incentives
For utilities, there will certainly be impacts to EE program budgets, targets, and incentives that will have long-lasting effects. Where EE is capitalized or treated as a regulatory asset, there could be a direct reduction in rate base and earnings if EE investments decrease in 2020. In addition, utilities with performance incentives, penalties, or other performance-based rates rooted in EE savings achieved could fall well short of meeting targets. The time may be now for utilities to start engaging with regulators to address the effects of COVID-19 and stay-at-home orders on incentives and penalties. Similarly, in states where unspent funds cannot be deployed in future years, it may be time to begin to change rules or establish exceptions with regulators.
Considerations for EE Evaluation, Measurement, and Verification (EM&V)
Measurements also may need to be adjusted, or time periods subject to stay-at-home orders excluded, when establishing baselines or evaluating performance. This also is true where historical load and performance are used to establish future forecasts, budgets, and targets. Gaining alignment between utilities, regulators, and stakeholders for how to treat this period will be critical. Further, the temporary drop in load and usage may affect ongoing EM&V efforts, especially long-term studies. Also, looking forward to a sustained economic downturn in the coming months or even years, there may need to be further adjustments to long-term forecasts.
EE providers and utility programs inevitably will feel broad and deep effects of COVID-19 in the weeks and months ahead, not unlike most of society and the economy. By taking actions now and planning for the future, EE also can be a part of the economic recovery and provide savings to customers in a time when they may need it most.
ScottMadden has helped our utility clients develop and improve their EE programs. We bring a depth of experience in EE process improvement, benchmarking, developing testimony and other regulatory filings, and crafting incentive proposals. This is not the first challenge we have weathered with our clients—we are here to support you each step of the way. If you need help planning your EE programs for the year ahead and assessing the effects of COVID-19 on your business, please contact email@example.com to get started.
About ScottMadden’s Energy Practice
We know energy from the ground up. Since 1983, we have served as energy consultants for hundreds of utilities, large and small, including all of the top 20. We focus on Transmission & Distribution, the Grid Edge, Generation, Energy Markets, Rates & Regulation, Enterprise Sustainability, and Corporate Services. Our broad, deep utility expertise is not theoretical—it is experience based. We have helped our clients develop and implement strategies, improve critical operations, reorganize departments and entire companies, and implement myriad initiatives.
About ScottMadden, Inc.
ScottMadden is the management consulting firm that does what it takes to get it done right. We consult in two main areas—Energy and Corporate & Shared Services. We deliver a broad array of consulting services ranging from strategic planning through implementation across many industries, business units, and functions. To learn more, visit www.scottmadden.com | Twitter | Facebook | LinkedIn.
About the Authors
Welcome to ScottMadden!
Sussex Economic Advisors is now part of ScottMadden. We invite you to learn more about our expanded firm. Please use the Contact Us form to request additional information.