Still the One: New Study Finds Efficiency Remains a Cost-Effective Electricity Resource

Energy efficiency continues to be a low-cost way to meet electricity needs, according to a new study by Lawrence Berkeley National Laboratory (Berkeley Lab) with support from the U.S. Department of Energy. The lab's research over the past decade has confirmed that the average cost of saving electricity is less than the cost of producing it. But the new study provides additional evidence that energy efficiency programs for utility customers are delivering significant savings at times when electricity needs are greatest — at lower cost. 

Berkeley Lab’s latest analysis focuses on eight consecutive years of efficiency program data. Researchers found that the cost of saving electricity has remained relatively constant since 2010, at less than 3 cents a kilowatt-hour (kWh). Importantly, they found that about half of the savings that occur during times of peak demand — for most regions, in summer — cost utilities less than $100 per kilowatt (kW) saved. Three-quarters of the peak demand reductions cost less than $200 per kW saved.¹

For comparison, the U.S. Energy Information Administration estimates the levelized cost of electricity of new resources at 3–12 cents a kWh² and the cost to develop and install power-generating technologies ranges from $700–6,800/kW.³ This indicates that electricity efficiency programs appear to be a low-cost way for utilities to meet energy and peak demand needs.

A free webinar on August 10, 2021, 1 p.m. to 2 p.m. Eastern, will discuss the findings. Register for the webinar here: https://lbnl.zoom.us/webinar/register/WN_8yH_Wl58TIS9W0jUrd-HnA. Slides will be posted several days in advance of the webinar here.

Berkeley Lab collected data on costs and annual energy savings for efficiency programs for 62 utilities and other program administrators in 21 states between 2010 and 2018. The lab also collected peak demand savings data from efficiency programs for the same states for the period 2014-2018.

The analysis found that efficiency remains a low-cost resource for both energy and demand savings. The program cost curve shows that building codes and standards, residential consumer product rebates, and prescriptive and custom programs for commercial and industrial (C&I) customers continue to provide the lowest cost savings.

Composite Cost Curve for Energy Savings from Electric Efficiency Programs: 2010-2018

Berkeley Lab used a panel analysis comprised of utilities that reported efficiency savings each year of the collection period (2010-2018) to better understand trends in the cost of saving electricity. The red dots on the chart represent the weighted average cost of saving electricity and the black lines within the boxes represent the median cost. For this group of utilities, the cost of saving electricity ranged from 2.4 cents to 3.1 cents per kWh during the study period

Panel Analysis: Trends in the Cost of Saving Electricity Over Time

Additional findings from the analysis:

• The levelized cost of saving electricity and cost of saving peak demand generally have a linear relationship, meaning that programs that have a low cost of saving electricity typically also have a low cost of reducing peak demand.
• Among residential programs studied, residential consumer products had the lowest cost of saving electricity and saving peak demand. These savings are predominately from lighting programs.
• For the C&I sector, prescriptive programs have the lowest cost of saving electricity, and custom programs have the lowest cost of saving peak demand. (Prescriptive programs cover a set of pre-approved measures. Custom programs typically include an onsite energy assessment and identification and installation of site-specific measures.)
• Low-income programs cost more than programs for other market sectors, for both energy and demand savings. These programs tend to cost the program administrator more, in part because they typically pay a higher share, or all, of the cost of the energy efficiency measures. In addition, the programs often incur costs to address issues related to the poor condition of low-income homes — which tend to be older — and health and safety issues (such as asbestos removal and old wiring) before efficiency measures can be installed.

Study authors are Natalie Mims Frick, Sean Murphy, Chandler Miller and Margaret Pigman in the Electricity Markets and Policy Department at Berkeley Lab. The U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy’s Strategic Analysis Team supported this work.

___________________________________________

¹ _{Costs are on a levelized basis, taking into account the economic lifetime of actions taken as a result of a program.}
² _{U.S. Energy Information Administration, Levelized Cost of Generation Resources in the Annual Energy Outlook 2021.}
³ _{U.S. Energy Information Administration, Cost and Performance Characteristics of New Generating Technologies, Annual Energy Outlook 2021. In some cases, efficiency resources do not provide the same services as power generating technologies, making comparisons complex. Adding controls enables active management of efficiency resources, offering additional grid services.}