Implementing energy efficiency: Challenges and opportunities for rural electric co-operatives and small municipal utilities

Challenges in implementing demand side management (DSM) programs in rural electric co-operatives and small municipal utilities are not well understood, yet these organizations sell roughly 15% of electricity in the US, many are more coal-intensive than investor-owned utilities (IOUs), and they are politically important—rural electric co-operatives cover about 75% of the US land area and municipal utilities are found in every state except Hawaii. We provide a background on rural co-operatives and municipal utilities in the context of the US electric sector and highlight the challenges and opportunities of implementing DSM programs in these institutions. Where past studies of utility DSM have mostly focused on IOUs or consisted of qualitative case studies of municipal utilities with exemplary DSM performance, this study makes a unique contribution to the DSM literature by systematically analyzing an entire co-operative and municipal utility population in Minnesota through the use of a survey. In doing so, we provide policy recommendations relevant to energy planners and policy makers to support DSM in rural electric co-operatives and municipal utilities.     

Buying and selling power in the age of competition

The American electric power industry is currently in the throes of striving for workable competition. Driven by the converging forces of deregulation, technological revolution, and evolving customer expectations, electric utilities are having to compete as never before at both the wholesale and retail levels. At times, the transition has been particularly wrenching, with some utilities going through painful internal restructuring and others being caught up in external consolidation. Increasingly, the key to success in this more competitive environment is anticipating and actively responding to the forces that are shaping the new markets for electric power. Here, the author describes how such market management is the subject of pioneering research being conducted in EPRI's Utility Resource Planning and Management Program. On the wholesale side, this research centers on the development of powerful analytical methods to support utility decisions regarding new opportunities in the bulk power market. Research on retail market management is concentrated on developing innovative price-differentiated services that can enhance the value of electricity to customers and also foster a utility's long-term financial competitiveness     

The evolution of the US energy service company (ESCO) industry: from ESCO to Super ESCO

As the restructuring of the US electric utility industry proceeds, utility companies are expected to be either competing or partnering with Super ESCOs to provide energy-efficiency services and energy to utility customers. In this paper, Super ESCOs and utilities were interviewed to see how these organizations are currently interacting and planning to interact in the future. As part of this investigation, the types of products and services Super ESCOs will be providing in the future and how utility restructuring will affect their business were examined.     

Value-based system facility planning - a rational response to conflicting customer and regulatory demands

In a competitive energy market in which power supply reliability influence customer's purchasing decisions, utilities throughout the world are rapidly recognizing that they cannot ignore customer preferences. Reliability of electric service should be based on balancing the costs to a utility and the value of the benefits received by its customers. The customer survey approach is based on the assumption that customers are in the best position to understand how interruptions impact their activities that depend on electricity supply. A challenge to electric utilities is to increase the market value of the services they provide with the right amount of reliability and to lower its costs of operation, maintenance, and construction to provide lower rates for customers. Lastly, the value-based reliability cost-benefit assessment helps electric utilities to achieve the goal of providing reliable energy service at the lowest possible cost, which their customer values.     

Productivity growth and deregulation of Japanese electricity distribution

Deregulation of Japanese electric power industry began in 1995. After the amendment of Electricity Utility Industry Law in 1995, competition was partially introduced in a generation sector and retail competition started from 2000. Eligibility to choose suppliers was gradually extended from larger to smaller customers. As of 2008, almost all customers except households can choose their electricity suppliers. Based upon both previous implementation result of competition policy and review on their achievement, Japanese government will begin new policy debate in 2013 to assess further retail competition which includes household customers. To prepare for policy suggestion on the future electric power industry, this study examines the cost structure of Japanese electricity distribution. For the purpose, we estimate a multi-product translog cost function of Japanese electricity distribution from 1983 to 2003. Using the estimated cost function, we calculate several economic measures such as productivity growth, technical change and economies of scale and scope. The empirical results of this study indicate the improvement in productivity growth after deregulation.     

The U.S. DOE least-cost utility planning program

This paper deals with the most significant accomplishments of recent projects sponsored by the U.S. Department of Energy's Least-Cost Utility Planning Program. This overview, with its accompanying bibliography, is designed to make the resources of these projects, completed in 1989, widely accessible to utility planners and regulators. The most significant contributions of the projects relate to three areas:

1. (1) DSM technology assessments and database development,

2. (2) assessments of current planning methods and future policy directions, and

3. (3) consensus building and the development of organizational structures to support least-cost planning.

     

Demand-side management by electric utilities in Switzerland: Analyzing its impact on residential electricity demand

In this paper, we use panel data from a survey conducted on 30 utilities in Switzerland to estimate the impact of demand-side management (DSM) activity on residential electricity demand. Using the variation in DSM activity within utilities and across utilities over time we identify the impact of DSM programs and find that their presence reduces per customer residential electricity consumption by around 5%. If we consider monetary spending, the effect of a 10% increase in DSM spending causes a 0.14% reduction in per customer residential electricity consumption. The cost of saving a kilowatt hour is around 0.04CHF while the average cost of producing and distributing electricity in Switzerland is around 0.18CHF per kilowatt hour. We conclude that current DSM practices in Switzerland have a statistically significant effect on reducing the demand for residential electricity.     

What do customers want from improved residential electricity services? Evidence from a choice experiment

Improvements in customer satisfaction as well as product/service quality represent a common objective of all businesses, and electricity services are no exception. Using choice experiments and a mixed logit model, this study quantitatively analyzes customers' preferences and their marginal willingness to pay for improved residential electricity services. The study provides an ex ante evaluation of customers' acceptance of hypothetical electricity services. According to the results, customers consider the electricity bill and the electricity mix as the two most important attributes when choosing their electricity services. Customers are willing to pay 2.2% more in the average electricity bill (an additional monthly electricity bill of KRW 1,064; USD 0.96) for a significant increase in the share of renewable energy, which is far less than the actual cost of achieving this renewable target. Therefore, it is better to maintain the current electricity mix in principle, and the renewable share should be gradually expanded instead of making a sudden change in the electricity mix. In addition, customers are willing to pay KRW 6,793 (USD 6.15) more to reduce blackouts once in a year and KRW 64/year (USD 0.06/year) to reduce a minute of each blackout.     

Reenergizing the grid: greater regulatory, legislative certainty needed

The North American Electric Reliability Council's (NERC) new reliability standards are an important milestone for the council and the electric power industry. They clarify existing NERC reliability standards, and they create the foundation for adopting enforceable standards. The grid ensure that the nation's retail electricity customers enjoy reliable and affordable electricity service, and it enables the country's evolving wholesale electricity markets. To support both functions in the future, the grid will require more investment. The nation's shareholder-owned electric utilities recognize this need and are building transmission facilities. Even with this new spending, the continually growing demand for electricity, coupled with the expanding number of wholesale market transactions, means that more investment will be necessary. To encourage it, a number of regulatory and legislative policies should be adopted at both the federal and the state level to improve investor certainty and cost recovery.     

Financing solar thermal technologies under DSM programs: an innovative approach to promote renewable energy

A wide range of demand side management (DSM) options has been practiced so far in developed as well as in developing countries. However, solar thermal technologies have been left out from DSM programs considering them as supply side options. This study argues that a number of solar thermal technologies, which provide the same services as electric appliances, can be considered as DSM options and examines the possibility of promoting solar water heaters (SWH) under DSM programs in Thailand. The study found that installation of SWH in place of conventional electric water heaters (EWH) to meet hot water demand in the residential sector would be economically beneficial to the country as a whole. However, switching to SWH from EWH would be unlikely without having government interventions as there would be no incentives to individual consumers in doing so. If the government or state electric utilities provide funding to residential consumers through DSM programs for replacing their EWH by SWH, the total electricity generation in Thailand during the 2000–2015 period would decrease by 3.8 per cent. Moreover, promotion of SWH under DSM programs would cause 3.35 and 1.41 per cent reductions of total power sector CO₂‐ and NO_x‐emissions respectively, during the same period. This study also reveals that solar thermal technologies, especially the SWH, could be better options for DSM programs compared to the end‐use efficiency improvement options in Thailand. Copyright © 2000 John Wiley & Sons, Ltd.     

Improving energy efficiency and smart grid program analysis with agent-based end-use forecasting models

Electric utilities and regulators face difficult challenges evaluating new energy efficiency and smart grid programs prompted, in large part, by recent state and federal mandates and financial incentives. It is increasingly difficult to separate electricity use impacts of individual utility programs from the impacts of increasingly stringent appliance and building efficiency standards, increasing electricity prices, appliance manufacturer efficiency improvements, energy program interactions and other factors. This study reviews traditional approaches used to evaluate electric utility energy efficiency and smart-grid programs and presents an agent-based end-use modeling approach that resolves many of the shortcomings of traditional approaches. Data for a representative sample of utility customers in a Midwestern US utility are used to evaluate energy efficiency and smart grid program targets over a fifteen-year horizon. Model analysis indicates that a combination of the two least stringent efficiency and smart grid program scenarios provides peak hour reductions one-third greater than the most stringent smart grid program suggesting that reductions in peak demand requirements are more feasible when both efficiency and smart grid programs are considered together. Suggestions on transitioning from traditional end-use models to agent-based end-use models are provided.     

Saving megabucks by saving megawatts

Investment in energy conservation frequently provides better rates of return than investment in energy supply. The notion that energy conservation investments can be evaluated as an alternative to an expansion or indeed replacement of energy saving investment may appear at first sight novel, even contradictory. However, utility customers do not require electricity or gas per se, but rather they require energy services: heat, light, mechanical power etc; these can be met by the combination of supply expansion or demand reduction, whichever meets their needs for energy at the lowest possible cost to society. This can come not only from new power supply sources but equally from energy efficiency investments actively encouraged by the utility itself. Economic theory says that in competitive markets utilities will themselves take the correct ‘least cost resource acquisition’ decision, but economic theory and practice differ.     

Explaining Demand for Green Electricity Using Data from All U.S. Utilities

Green electricity programs enable households to voluntarily contribute to the development of renewable electricity by purchasing green electricity through their local utility. Using a dataset of all utilities in the United States, this paper explores the utility, consumer, and program characteristics that influence participation levels in green electricity, as well as whether a utility chooses to offer a program. Among other results, we find that the key determinants of program participation are the education of the consumer base and the affordability of the green electricity program. Our results enhance understanding of private provision of environmental public goods and could aid in ex ante evaluations of whether a green electricity program is likely to cover its administrative costs or be a cost-effective way of improving environmental quality.     

Area- and time-specific marginal capacity costs of electricity distribution

Marginal costs of electricity vary by time and location. In the past, researchers attributed the variations to factors related to electricity generation and transmission. These authors, however, have not analyzed possible variations in marginal distribution capacity costs (MDCC). The objectives of this paper are:

1. (i) to show that large MDCC variations are due to the dispersion in distribution capital expenditures by time and space,

2. (ii) to propose a method for quantifying the area- and time-specific MDCC in the presence of lumpy investments, and

3. (iii) to compare our MDCC estimates to those commonly used in the electric utility industry.

Our proposed method and its results were adopted by the California Public Utilities Commission (CPUC) in 1992 for Pacific Gas and Electric Company (PG&E), the largest privately owned electric utility in the U.S.     

Demand response in U.S. electricity markets: Empirical evidence

Empirical evidence concerning demand response (DR) resources is needed in order to establish baseline conditions, develop standardized methods to assess DR availability and performance, and to build confidence among policymakers, utilities, system operators, and stakeholders that DR resources do offer a viable, cost-effective alternative to supply-side investments. This paper summarizes the existing contribution of DR resources in U.S. electric power markets. In 2008, customers enrolled in existing wholesale and retail DR programs were capable of providing ∼38,000 MW of potential peak load reductions in the United States. Participants in organized wholesale market DR programs, though, have historically overestimated their likely performance during declared curtailments events, but appear to be getting better as they and their agents gain experience. In places with less developed organized wholesale market DR programs, utilities are learning how to create more flexible DR resources by adapting legacy load management programs to fit into existing wholesale market constructs. Overall, the development of open and organized wholesale markets coupled with direct policy support by the Federal Energy Regulatory Commission has facilitated new entry by curtailment service providers, which has likely expanded the demand response industry and led to product and service innovation.     

Effect of demand management on regulated and deregulated electricity sectors

Our society derives a quantifiable benefit from electric power. In particular, forced outages or blackouts have enormous consequences on society, one of which is loss of economic surplus. The society relies on having a continuous supply of electrical energy. Some customers may willingly risk this continuous supply and participate in demand management programs for electrical power. If the power system grid is in trouble, electric utilities need to have demand relief. Customers willing to reduce their demand to help the system can receive an incentive fee for helping the utilities. Demand relief can be system wide or location specific. Sometimes it can be more effective to fix the electrical demand vs. supply imbalance from the demand side. The value of demand management contracts is greatly affected by customer location. Inclusion of locational attributes into the contract design procedure increases the effectiveness of the contracts by helping a utility get more value from its demand management programs. Independent System Operators and regulators, among others, can also benefit from effective demand management. This paper will investigate how this type of demand management contracts can help the electricity sector both in regulated and deregulated environments.     

The effect of sociodemographic diversity of residential customers on the financial risk experienced in the retail electricity market

The sociodemographic diversity of residential customers can affect the level of financial risk that an electricity provider experiences in the retail market. To demonstrate the relationship between sociodemographic diversity and financial risk, electricity consumption data drawn from the United Kingdom Power Networks ‘Low Carbon London’ project was analyzed to explore the relationship between sociodemographic diversity and financial risk experienced by electricity retailers. The results show that when increasing the sociodemographic diversity amongst a group of residential customers the effect on financial risk depends on the electricity consumption patterns of individual customers and the relationship of consumption patterns between residential customers. Increasing sociodemographic diversity amongst residential customers with very distinct energy consumption patterns can decrease the overall financial risk associated with the aggregated revenue received from these customers. However, the results showed that adding customers to a customer base without consideration for their sociodemographic background can cause the overall financial risk associated with the aggregated revenue received to change erratically. Whilst previous studies have considered customer diversity and its influence on peak electricity demand, this research advances the state-of-the-art by showing the importance of customer diversity to the financial quantity risk experienced by electricity retailers. This finding has serious implications for electricity providers seeking to mitigate financial risk in the retail electricity market.     

零售竞争对电力合约市场及电力批发价格的影响

针对我国电力市场零售竞争对电力合约市场及批发电价的影响问题,结合电力零售模型和批发市场竞争模型,评估了零售竞争对合约市场及由此引起的电力批发价格的影响程度。结果显示,若短期市场价格波动剧烈且远期合约市场存在竞争,则零售竞争将减少市场中的远期合约交易量,并促使电力批发价格升高。     

Regulatory reform of the electricity industry in Japan: What is the next step of deregulation?

In Japan, competitive bidding for new generating capacity (IPPs) is in progress since 1996. Retail competition was introduced for large customers (contract demand over 2 MW) after March 2000. Although the liberalization is limited in part by the fact that the retail power market has only about 30% share of total electricity demand, the eligible customers now have a choice among the nine major utilities and ten new entrants. Since November 2001, the electricity industry committee has been discussing the next step of liberalization, including the opening of the market for medium-size industrial and commercial high voltage (6 kV) customers from 2004 and 2005 on. This paper presents the experiences so far acquired and the technical issues for further deregulation. The process includes the creation of nationwide power exchange and of a neutral organization to coordinate the transmission system by 2005. The paper deals with the characteristics of the new regulatory reform of the electricity supply industry in Japan during the period of 2003–2007. We show that it is important to understand the complexity of market behavior and design the market reform carefully.     

Acceptance among residential electricity consumers regarding scenarios of a transformed energy system in Switzerland—a focus group study

The Swiss energy system will undergo successive restructuring in the next decades as a result of recent decisions in energy policy (Switzerland’s Energy Strategy 2050) and the expected second step in the market liberalization process (free choice of provider for small customers). This transformation will probably lead to the following trends: an increasing share of renewable energies, a shift from centralized to distributed generation and the emergence of new players in the energy market. Because of the associated integration of renewables, the grid will increasingly face problems of intermittent loads, the need to integrate smart information and communication technology, and mechanisms for demand-side management. However, these key elements of the future energy system also raise issues concerning social acceptance, as they tend to interfere with basic human needs like autonomy and privacy. Additionally, market liberalization may reshuffle existing customer utility relationships considerably. This focus group study contributes to understanding residential consumers’ attitudes and expectations regarding four scenarios of future utility/customer interactions in the Swiss electricity sector (dynamic tariffs, direct load control, energy storage and novel energy services). The findings show that as to acceptance of future scenarios, there are no “one-fit-for-all” solutions, as the needs of different consumer groups are very diverse. However, the analyses reveal that for acceptance of novel models of interaction, transparent communication and a trusted relationship are crucial. The discussion touches on practical implications for research, policymaking and electric utilities’ market strategies.