Last Monday PG&E officially submitted plans for a residential pay-for-performance program that has the potential to shape the way energy efficiency is monetized and delivered to market. This innovative program, put forward by the utility as a “high-opportunity program” under the state’s new AB-802 efficiency law, represents a step toward a creating a real market for energy efficiency as a distributed energy resource.
In its proposal to the California Public Utilities Commission (CPUC), PG&E describes a residential pay-for-performance pilot that uses newly available and standardized energy and project data, combined with open-source standard methods to calculate savings, to enable a marketplace that pays for results measured at the meter, rather than upfront estimates. This approach aligns incentives so that we can better engage private companies and capital markets, develop new business models that increase demand for efficiency retrofits, and boost innovation and competition to drive down costs.
California leads the world in cleantech and "fintech" innovation. But energy-efficiency program design and regulation has created perverse incentives that block the most promising innovations. By contrast, metered pay-for-performance programs will invite innovation while protecting ratepayers by only paying for actual performance at the meter and thus aligning public policy goals with business interests in a competitive market.
“Pay-for-performance and metered efficiency send the signal that will further increase demand for financing while encouraging those projects that deliver the most efficiency," said Cisco Devries, the CEO of Renew Financial.
PG&E’s proposed approach solves both of these problems. Rather than pick technologies or business models, PG&E will pay for results at the meter regardless of how businesses deliver them. Whether savings come from the newest technologies, well-trained crews, customers who change their behavior, or some other approach, PG&E will pay for the savings delivered, similar to how it procures supply-side resources.
PG&E described the shift this way: “This program allows technical innovations, leverages innovative intervention and market strategies, and is designed to provide scalable savings with less ratepayer funds than existing segment offerings. The program grants aggregators the freedom to tailor a mix of interventions based on customer needs, granting them unparalleled flexibility to introduce new measures to help customers save energy as long as these measures lead to persistent measurable consumption reductions, measured at the customer’s meter.”
Energy savings will be measured using the CalTRACK system, which is an open-source platform for tracking energy savings that “will access smart meter data via the PG&E’s Share My Data platform allowing for near-real-time transmittal of usage data,” according to PG&E.
PG&E’s innovation promises to simplify the roles of both utilities and regulators, as well as reducing the cost of program overhead. Regulators will be able to focus on protecting customers, creating a market that correctly values efficiency and allowing customers and the market to determine the ways that work.
“With the ability to quantify savings, we can reward those who do good work, allowing the market to flourish by allowing new options to emerge for homeowners and contractors," said Charles Cormany, executive director of Efficiency First California.
This change becomes even more important as efficiency moves into more complex distributed energy markets with a new set of rules. Meeting these challenges through traditional regulatory and bureaucratic processes is no longer possible.
There is a long way left to go. This initial pilot is a leap forward in a number of key respects, including the use of standard open-source metering savings, and payments based on delivered results. However, it represents just a first step toward a future where energy efficiency can become capacity that includes the dimensions of time and location, in order to take its place as a true grid resource.
PG&E clearly understands this vision. While this pilot is designed to be as simple as possible, it is based on a revolutionary idea.
The future of energy efficiency is at hand.
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Matt Golden is a principal with Efficiency.org, an organization that works with government and industry to close the gap between public policy, private investment and the delivery of energy efficiency to market. He is also the CEO of Open EE Meter.