Residential Energy Efficiency

Residential energy efficiency is a critical node in combating our interconnected energy and climate challenges, equivalent to about 35% of total US energy use and 15% of total US greenhouse gas emissions. Investments in residential energy efficiency can dramatically reduce US energy use and greenhouse gas emissions while providing substantial economic benefits. The best estimates put the potential savings from residential energy efficiency at about $30 billion per year using current technology. Many experts believe the potential is even greater, with energy efficiency poised to displace a significant chunk of the $700 billion spent on residential energy use in America alone.

To develop this “fifth fuel” of energy efficiency, as it is often called, electric and gas utilities are leading the way, funding a variety of programs aimed at reducing aggregate energy demand. These programs have been in existence since the first energy crises of the 1970s, but have recently gained more prominence as energy use and carbon emissions have become top priorities. Utilities now spend more than $1 billion per year on residential energy efficiency alone, with consumer benefits exceeding $3 billion per year.

And these investments are only expected to grow in the coming years. State regulators and forward-looking utilities are developing new incentives that significantly increase the demand for energy reductions. While the exact form of these incentives may vary from state to state, a few commonalities are emerging:

First, profits are being decoupled from energy delivery to break utilities’ incentives to sell more energy. Traditionally, utilities have made money when they sell more energy. With decoupling, however, utilities make the same amount of money whether they sell more or less than expected. Decoupling has been implemented in many states, discussed in many more and may be the topic of federal legislation in the next few years (see figure 1).

Second, energy efficiency goals are being institutionalized and penalties set for utilities that do not meet these goals. Many states now have an Energy Efficiency Resource Standard (EERS) that requires utilities and other market actors to meet explicit demand reduction goals. A national EERS may also be imposed, mandating that 15% of total energy use be offset through energy efficiency by 2015 (see figure 2).

And third, incentives are being created that put energy demand on the same level as supply. Planning authorities and system operators and progressive utilities recognize that a negawatt is just as good, if not better, than a megawatt, and should be compensated accordingly.

Together, these policies are changing the way that utilities and regulators view energy efficiency. Demand reductions are now an integral part of resource planning, with energy efficiency and demand-response as the first choice to meet rising energy demand.

Efficiency 2.0 is at the forefront of this new market, providing utilities, government and other market actors with advanced software tools needed to effectively reduce residential energy use.