The Potential Value of ESPC Energy Efficiency Savings Under EPA’s Pending 111(d) Standard for Existing Power Plants

by David Terry, Executive Director, National Association of State Energy Officials

State ratepayer-funded energy efficiency programs approved and overseen by the states and operated by utilities invest more than $6 billion annually and typically have energy savings verified through independent evaluation utilizing protocols unique to each state. This diversity offers limited means to make comparisons across states and sometimes across utilities within states. These traditional ratepayer programs are typically the only options considered by some as they discuss ways for energy efficiency programs to provide credit in meeting the EPA’s proposed plan to reduce greenhouse gas emissions from existing power plants under Section 111(d) of the Clean Air Act. However, there is a nearly equal amount—$5 billion in 2013—of nonratepayer-funded energy efficiency investment that is growing rapidly each year: state and local public facilities energy efficiency retrofits using energy savings performance contracting (ESPC).

These energy efficiency investments by state and local governments using private and other nonratepayer financing operate outside of utility evaluation processes, but arguably have more stringent, sustained measurement and verification (M&V) of savings on a project-by-project basis, with financial penalties if those savings are not realized over the life of the project. Further, many ESPC programs are operated on a statewide basis by state energy offices or other state agencies and include standardized contracts and audits, nationally recognized M&V protocols, and contractor certification preapproval programs. These robust statewide programs were generally developed through a partnership approach of the state energy offices, energy services companies, and the Energy Services Coalition.

Recently, the National Association of State Energy Officials (NASEO) began discussions with a number of states and energy services companies about the potential for capturing the savings from ESPC projects and programs as a “win-win” solution to aid in meeting EPA’s pending greenhouse gas rule for existing power plants. To accelerate this process, NASEO is collaborating with the states and industry on a dual path.

First, NASEO has begun work with several states and ESPC industry partners to consider options for coordination of M&V accounting and other technical and policy issues to potentially meet EPA’s requirements under the pending program. This work includes a structure for ensuring consistent application of M&V protocols and related energy efficiency measures to calculate emissions reduction in the public facilities retrofit sector across several states utilizing the industry-recognized International Performance Measurement & Verification Protocol. (This could potentially be expanded to additional sectors as well, such as private commercial buildings, industrial facilities, and commercial Property Assessed Clean Energy, or PACE, programs.) In addition, states and the industry would work with state environmental agencies and the EPA to ensure the adoption of acceptable energy-savings-to-emissions calculations for CO2 reduction efforts from ESPC projects in state, local, or federal facilities. Finally, these efforts should help interested states in moving toward a shared tracking system suitable for use under a voluntary registry for purposes of capturing CO2 credits (or credit for early action). Such a system would be an important learning tool for the states and would send a valuable message to state policy makers about the ability to meet a range of federal clean air requirements in an economically sustainable manner.

Second, NASEO is cooperating with a number state and ESPC industry participants to develop comments on the EPA’s draft 111(d) rule to ensure public facility retrofits utilizing ESPC are eligible for credit under the EPA plan. The development of comments and an acceptable process is essential to ensuring existing private and state investments in cost-effective public facility energy efficiency retrofits (and on-site renewable applications) are fully recognized by the EPA.

These energy efficiency investments by state and local governments using private and other nonratepayer financing operate outside of utility evaluation processes, but arguably have more stringent, sustained measurement and verification (M&V) of savings on a project-by-project basis, with financial penalties if those savings are not realized over the life of the project. Further, many ESPC programs are operated on a statewide basis by state energy offices or other state agencies and include standardized contracts and audits, nationally recognized M&V protocols, and contractor certification preapproval programs. These robust statewide programs were generally developed through a partnership approach of the state energy offices, energy services companies, the National Association of Energy Service Companies (NAESCO), and the Energy Services Coalition.