We've seen this all before.
It's 1973. Oil is in short supply due to an embargo. And the federal government jumps into the energy efficiency and renewable energy incentive business with both feet. The energy crisis ends. So does the interest in energy efficiency incentives.
It's 1994. The high prices of electricity in the '80s help make demand side management programs all the rage. Utilities are handing out rebates and other energy efficiency incentives like there's no tomorrow. Then tomorrow comes when California announces its decision to deregulate its market. That year DSM funding dries up.
It's 2001. Again secure access to energy is in question. The response is a slew of demand side management and government-sponsored incentives. But facility executives are questioning the viability of these programs. Is there any wonder why?
Despite doubts about these new incentives, states and utilities have plowed ahead with ways to encourage energy efficiency and renewable energy. And while some of today's programs do look a lot like the old DSM programs, there are new programs, too.
Finally, while there's a risk based on the past short shelf lives of these programs, there appears to be strong political support for keeping them around, especially as state legislators put electric utility deregulation legislation back on the front burner. A
As Gary Davidson with the New York State Energy Research and Development Authority says of the state's utilities-based programs as funding was extended out another five years, the legislature and PSC saw "too great a need" to let the programs lapse.
Determining what is available, and what is useful, however, can be maddeningly confusing for facility executives. No two regions', states' or utilities' programs are exactly the same, nor do all states and utilities have programs.
"There's real money out there," says Fred Gordon with Pacific Energy Associates, an energy consulting firm. "But how do you get to it? That's the problem."
States' Impact
Different than in years past, the states, not the federal government, are playing the lead role. They are providing a combination of educational, tax credit and rebate programs and are requiring utilities to offer energy efficiency programs. The most active states tend to be those that are currently deregulated or have pending deregulation legislation. But it's not necessarily deregulation driving it. Wisconsin and Oregon, both with deregulation legislation on hold, have moved forward with incentive programs.
The federal government, on the other hand, will probably not be a significant contributor to energy efficiency programs, says Bill Prindle, buildings and utilities program director with the Alliance to Save Energy. Last year the federal budget for efficiency was about $800 million; this year the Bush budget proposal would cut it by more than $100 million, Prindle says.
"That gives you an idea where the leadership on energy efficiency in this country is coming from," he says. "And many of those states, including New York, have Republican governors, so this is not a partisan issue."
And the states are increasing their funding of the programs.
"Seventeen states together are spending well over a billion and a half dollars this year on energy efficiency and related programs," Prindle says. "That's up from about $800 million last year."
Finding appropriate state-run energy efficiency incentive programs, however, could be a hit and miss proposition. Still, it is worthwhile to search them out:
- California, for example, has a number of state programs for the commercial sector, including a demand response or reduction program called the 20/20 Rebate Program. This program gives commercial building owners a 20 percent rebate on their energy bill if they reduce demand during peak times by 20 percent. And the California Energy Commission has programs such as a rebate for reflective roof membranes and grants for energy efficiency projects.
- Oregon has one of the longest standing energy credit programs. For the past 15 years, that state has offered the Business Energy Tax Credit. It encourages investments in energy conservation, recycling, renewable energy resources and less-polluting transportation fuels.
- Also in the energy-strapped West Coast, Washington offers little in terms of credits or rebates for energy efficiency in the commercial sector but does offer tax exemption for wind generators, photovoltaics and fuel cells. Credits for renewable energy technologies are widely available both from the states and the federal government.
- New York offers a number of programs including green building tax credits that support energy efficiency and green building construction strategies. To qualify for energy efficiency credits, the building has to achieve a minimum of energy savings. Maryland now offers similar green building credits.
- Massachusetts, Pennsylvania, Montana, Vermont, Minnesota, and a handful of other states offer similar tax credit programs.
While there are billions of dollars of funding for these programs, there is a limited number of states offering them, says Karl Rabago, director of Rocky Mountain Institute.
"We're entering a kind of twilight zone," Rabago says. The California situation has put the breaks on deregulation legislation and as a result a lot of funding for energy efficiency.
And that may not be such a bad thing, says Joel Stronberg with JBS Group, a renewable energy consulting firm. Remembering the programs of the 1970s, Stronberg thinks the tax credits at best have minimal effect on the energy efficiency and renewable energy markets, and at worst actually scare customers off. They ultimately fail as a sales tool and actually can encourage some dubious products, Stronberg says.
One way to avoid this or at least minimize it, he says, is make tax credit programs long term or permanent, and reward performance of any technology or operational strategies.
That's just about what's happening these days, Prindle says.
"Tax credits in place and under development today are better focused on workable technologies, on overcoming market barriers and on documenting energy performance," he says.
Marty Kushler, director of utilities program for American Council for an Energy Efficient Economy, doesn't think that's enough. Their real-world impact is more symbolic than useful.
New and Improved
Many utilities offer more programs with better funding than the states do -- thanks to the insistence of state legislators. Many of these utility programs, some of which don't look different than the demand side management programs of the early '90s, offer more energy efficiency for the buck than state programs.
These utility-based programs -- often called public benefit funds, public purpose funds or system benefit funds -- are funded by utilities through sales of electricity. Typically a fee -- usually one mill or one-tenth of a cent -- is assessed per kilowatt-hour. They support various types of programs from service-oriented efforts to low-interest loans to cash rebates.
Because there is a broader range of programs than has been offered in the past, strong political support for keeping them and an energy future of steady if not rising prices, many experts think facility executives should be giving these utility-based programs a good look.
And there are a lot of programs to look at. Indeed, that is part of the problem. A quick search on the Internet reveals 191 public benefit fund programs just for rebates in California alone. To complicate matters further, some programs are administered by the state, some by the utilities and some by a third party.
Flexibility is Key
To help make sense of these programs, it helps to break them down into several categories: rebates, buy-downs, and offers.
Rebates and buy-downs. There is a category of strictly prescriptive programs, which may be the most popular programs because they are often the most accessible and most available. Often referred to as rebates and buy downs, these programs will pay facility executives a certain percentage of the cost of a specific technology, such as energy efficient windows and lighting, occupancy sensors and motors, and even chillers.
The rebates, in many cases, are 20 to 30 percent. When rebates and operating cost savings are added in, payback can often be very respectable. There are also grants available in many states for renewable energy projects, which, coupled with production incentives, can also make technologies such as photovoltaics and wind generation viable options.
Standard or custom offers. Arguably the most effective program from an energy efficiency standpoint is a class of programs called the standard offer or custom offer program. With these programs, the building owner is paid to reduce energy use.
Sometimes states and utilities slip the standard offer approach in with various other strategies such as peak demand reduction programs. That is the case in New York, where NYSERDA allows facility executives to customize strategies to reduce energy use. The goal is to encourage innovation. With plenty of programs to cover all standard attempts to do this, NYSERDA is providing cash incentives for owners to create new ways to save energy. This is the strategy California employs with its 20/20 program.
Sometimes these programs are channeled into new construction and large retrofit programs where customers are reimbursed a sliding percent of the total cost of a project based on the energy savings of the entire project. Some states use this strategy to capture energy saving strategies that don't already have a home in an existing rebate program.
California and New York are leaders in the incentives game, but many states offer a more limited variety of similar programs. The good news is that all these programs are increasing in popularity. The bad news is this year's funding is drying up.
A rush by residents and commercial owners in California has nearly tapped that state's programs dry.
According to Mike Messenger, program manager for the California Energy Commission, most utilities are running out of money in the first half of the year. The CEC is in the same boat, going through three-quarters of its $323 million, which was allocated in April, Messenger says.
Variable Rates. A third category of rate reduction programs offers opportunities such as interruptible rates and various load-shifting programs that are familiar to facility executives. The California ISO, similar to other ISOs, for instance, encourages load shifting projects on a seasonal basis. California ISO is interested in attracting large users, 1 megawatt or more of power.
Perhaps less familiar is a new version of minimal curtailment zones, where an owner makes a commitment to cut demand by a defined amount but is reimbursed a significant percentage of the utilities' savings for doing so.
Availability and Growth
Direct financial support from public benefit fund programs is greater in some states than in others. In the 24 states that are or are nearly deregulated, the programs are more active and better funded. They tend to offer more rebate programs and demand response options. Elsewhere, the programs tend to be more education-based rather than having a direct financial incentive, and offer educational materials and energy audits.
Of course, there are exceptions. Montana and West Virginia, which have passed restructuring legislation, do not have very extensive programs, while Washington, which has not passed legislation, has fairly active incentive programs. But in general the rule holds.
The Building Owners and Managers Association (BOMA) International is advising members to check with states' public utility commissions and advocacy groups to find out what incentives are available in their state, says Karen Penafiel, assistant executive director of advocacy advancement for BOMA.
Will the Programs Last?
"The trend is back up," says Margaret Gardner, executive director of the Northwest Energy Efficiency Alliance. The programs are being driven by electric generators' high costs of producing electricity and reliability problems due to energy shortages.
"For the short term," Gardner says, "there is an incentive by the utilities to curtail power."
But, she says, utilities are also increasingly concerned about long-term effects of power shortages. As a result, the utilities are increasing their budgets in both short-term efforts to cut power, such as demand reduction programs, and in long-term efforts, such as public benefit fund programs.
"There's a lot of buzz out there about energy efficiency," Kushler says. "The fact that restructuring is stagnating doesn't mean these programs have stagnated."
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David Kozlowski is senior editor of Building Operating Management. Copyright 2001 Building Operating Management, all rights reserved.