California Climate Solutions achieving environmental goals + creating business opportunities

Powering the Savings

How California Can Tap the Energy Efficiency Potential in Existing Commercial Buildings

Despite recent efforts, California’s efficiency gains are not keeping pace with electricity load growth. Reducing the energy demand from existing buildings, such as through efficient lighting and heating and cooling systems, represents one of the most cost-effective ways to reduce pollution and increase economic savings. It is also crucial for meeting California’s long-term climate goals. Changes in state policy and new financing and transaction opportunities will be required to move the state’s efficiency efforts in a more cost-effective and scalable direction.

Energy efficiency and climate goals rely on retrofitting existing buildings. Electricity use in existing buildings resulted in almost 21 percent of the state’s total emissions. SB 350 codified doubling energy efficiency in buildings by 2030.

California’s efforts to date have relied on the voluntary consumer market.  California policies have boosted rebate and incentive programs, which encourage rather than require the adoption of energy efficient equipment, behavior, and monitoring.

The older stock of commercial buildings represents a critical and largely untapped market for energy efficiency improvements to meet state goals. With 5.25 billion square feet of commercial space built before the 1978 Title 24 standards, these existing buildings represent a greater portion of the demand.

Policy Needs

Policy Solutions

Standardizing Measurement and Verification of Energy Efficiency Savings.

Implement Pilot Projects with Measurement Technologies that Track Normalized Metered Energy Usage to Inform New Regulations.

California Public Utilities Commission

Encourage utilities to engage in pilots that utilize emerging normalized metering technologies.

The Commission may want to encourage a range of projects that use both individual buildings and portfolio-based (multiple buildings) statistical approach to measurement and verification, in order to give utilities greater energy efficiency opportunities, provided they maintain transparency.

California Public Utilities Commission & Energy Commission

Build on existing work to improve the accuracy and cost effectiveness of normalized metered efficiency.

California could bolster the state’s development of calibration protocols to ensure accuracy, reliability, and cost effectiveness for normalized metered efficiency by relying on the research already conducted by various research entities (e.g. National Renewable Energy Laboratory, Northwest Energy Efficiency Alliance, Cadmus, Idaho Design Labs, Seattle City Light, and Portland State University.)

California Legislature, Energy Commission & Public Utilities Commission

Accelerate deployment of normalized metering technologies.

Technology purveyors of normalized metering technologies would benefit from additional support to verify existing technologies, improve and tailor them to California’s specific requirements, and encourage the development of additional purveyors.

Industry Leaders & Advocates

Convene experts for follow-up discussions and working groups to assess the progress of various pilot projects and regulator efforts.

As the pilot projects deploy, industry leaders and other stakeholders may want to formalize expert working groups to track the progress, identify ongoing challenges, and recommend next steps and solutions for policy makers and the industry to implement.

California Public Utilities Commission

Develop and expedite clear and definitive rules to support standardized measurement and verification technologies, particularly for normalized metered efficiency.

Without regulatory approval of these technologies, industry actors may be reluctant to invest in pay-for-performance programs and projects.

California Public Utilities Commission

Consider standardizing the reporting of energy conservation measure performance by parties seeking pay-for-performance incentives.

The commission could use methodologies related to pay-for-performance with incentives paid quarterly within a specified number of days of receipt of reports demonstrating performance. Performance reports could provide normalized meter data from the participating site. Third-party servicers could potentially provide these reports or metering service instead of the utilities.

State Leaders

Consider unifying measurement and verification rules and technologies with other states to facilitate a multistate energy efficiency market.

A coalition of states could collectively address advanced metering solutions with the aim of creating a standardized market. Ultimately, a multi-state market for energy efficiency, using standardized measurement and verification technologies, could encourage more investment and innovation by the energy efficiency industry and its financial backers.

California Legislature

Consider legislation to expedite standardized rules for measurement and verification technologies.

Pursuant to SB 350, the California Public Utilities Commission will assess and adopt policies that promote pay-for-performance efficiency programs. Given the urgency of meeting the 2030 goals, state legislation could allow the commission to expedite the process for adopting measurement and verification rules in its upcoming proceeding pursuant to SB 350.

Providing Regulatory Certainty and Rate Design to Encourage Innovative Efficiency Programs.

Implement Regulatory and Rate Design Pilot Projects That Could Encourage Pay-For-Performance Business Models and Inform New Policy.

California Public Utilities Commission

Encourage energy efficiency retrofit pilot projects that utilize pay-for-performance.

These pilot projects could inform new regulations to launch more pay-for-performance mechanism or energy efficiency. The commission could introduce a functioning path for rapid approval of innovative pilot projects supported by a specific sponsor and host utility.

California Public Utilities Commission

Encourage utility-focused energy efficiency pilot projects via rate designs or tariffs that spur improved financing mechanisms for retrofits.

Commission leaders could develop two types of pilots that could inform the development of new utility standard offers or tariffs. First, the agency could encourage more sustained utility commitment to soliciting projects that combine both energy efficiency and demand response into a single transaction and to pay a front-end price for expected performance.  Second, utilities could use “preferred resource” combinations of demand-side programs.

State Leaders

Incorporate lessons from the pilot projects into rate design and tariffs to encourage pay-for-performance energy efficiency programs.

Regulators should consider adopting rates and tariffs that promote energy efficiency bids bundled with other services such as demand response.

State Legislators and Regulators

Ensure completion of rules that would allow cheaper financing of energy efficiency retrofits by third parties through state-backed credit guarantees.

For example, state credit enhancement benefits can be provided for third parties that finance and execute energy efficiency improvements, either through loans to customers, energy service agreements, or energy efficiency leases. These credit enhancements could also cover on-bill repayment and a loss reserve pool. Ultimately, they could allow customers who participate in energy efficiency financing programs to receive reduced borrowing costs.

Standardizing Energy Data to Measure Energy Efficiency Performance.

Improve Standardized and Streamlined Energy Data Access For Customers and Their Designated Representatives.

California Public Utilities Commission

Ensure that commercial meter data is streamlined and made available by utilities to designated energy efficiency providers, as required by AB 802.

The data are critical to assisting building owners with energy efficiency improvements, and they should be made available within a specified number of days after submission of the request for access. Designated third parties, with customer approval, should be able to secure the data via a fee payment, which utilities could increase in exchange for faster processing.

California Public Utilities Commission

Consider requiring a certain percentage of energy efficiency programs to be based on pay-for-performance by a certain date.

Policymakers approved the current commercial customer rebate program for contracting based on discrete efficiency measures and ex ante estimates, with payments based in part on ex post performance. Perhaps as a result, California’s commercial customer rebate program has had low realization rates of about 50 percent. The commission should therefore transition energy conservation programs to pay-for-performance.

Promote an Energy Efficiency Workforce to Execute and Market Retrofit Projects.

Identify Workforce Needs and Support Training Programs That Address Them.

State Leaders

Develop a roadmap on ways to improve the energy efficiency industry workforce based on a charge to pay-for-performance contracting.

Such a roadmap, based on research and consultation with industry experts, could lay out the projected workforce needs and the specific training that contractors may require based on new requirements. State agencies or other research entities could convene stakeholders to develop the workforce training programs and priorities.

State & Utility Leaders

Coordinate and support contractor training efforts through existing networks and programs.

These leaders could develop the training programs using organizations such as the Western HVAC Performance Alliance (WHPA), in order to educate them on new pay-for-performance programs and rollout timing. The California Public Utilities Commission could use its existing Workforce, Education, and Training Program to assist, along with pay-for-performance demonstration projects. State leaders could also provide more marketing and training funds for the contractor networks.

“Over time, 20 to 30 years out, we can reduce building loads by 25 to 40 percent by creating long-term investment opportunities, when efficiency is viewed as a persistent and measurable resource.”

Cynthia Mitchell, Energy Economist and TURN Consultant