Robust Energy Efficiency Programs Needed to Offset Costs of VA Clean Energy Transition, Part 5

Officials hope energy efficiency can offset costs of alternative energy supply

From the 5th Article in Series by Sarah Vogelsong, Virginia Mercury, December 4, 2020

Much of Virginia’s planned shift to a carbon-free electric grid involves grand plans: turbines sprouting hundreds of feet tall from the ocean waves and solar panels spread across thousands of acres. But another major part of the clean energy transition Virginia and other states are looking to make is often overlooked: energy efficiency.

Unlike wind, solar and storage, in which progress is seen in new construction, new megawatts and new technology, energy efficiency successes are chalked up in terms of absence: projects that no longer have to be built, costs that no longer have to be paid.

These “negawatts,” as they’re sometimes called, can be a harder sell to policymakers looking for concrete proof of their work, but to advocates they are a key counterbalance to the spending required to transform the electric grid.

“This is our bread and butter as far as addressing climate change in an equitable way,” said Walton Shepherd, Virginia policy director at the National Resources Defense Council.

An umbrella term for a host of practical and policy solutions, “energy efficiency” encompasses anything that reduces the amount of energy that would otherwise be consumed. Among the most familiar approaches are consumer products like LED bulbs, smart thermostats and “highly efficient” dishwashers or washing machines. Others are less obvious. Older or poorly constructed buildings guzzle energy because of drafts, leaky windows, inadequate insulation and other flaws.

Over time, these losses add up, increasing the energy demand that utilities like Dominion Energy and Appalachian Power are legally obligated to meet. Rising energy loads can eventually necessitate the building of new power plants and are often used by utilities to justify the ongoing operation of fossil fuel plants that offer more quickly dispatchable power than intermittent sources like wind and solar.

Energy efficiency can offset some of those load increases, although Dominion said the tool is just one of many needed to transition to a clean energy grid.

“To the extent that means on the very coldest days or the very hottest days of the year, can energy efficiency get us all of the way there?” asked Katharine Bond, Dominion’s vice president of public policy and state affairs. “No, it can’t.”

Just how far energy efficiency can push Virginia along that path is debated. Dominion is notoriously risk-averse on issues related to grid stability and reliability (“I make no apologies for that,” said Vice President of Corporate Affairs and Communications Bill Murray), and many of the parties involved in negotiating the terms of the Virginia Clean Economy Act were disappointed by the final version of the law that only established mandatory energy savings targets through 2025, leaving the task of setting future targets to the State Corporation Commission. An earlier version of the legislation had set targets through 2030.

“There currently is a question mark after 2025. … We don’t know what standard the SCC is going to set,” said Shepherd. And, he added, “historically, the SCC has been skeptical of energy efficiency.”

That may change. Gov. Ralph Northam’s announcement Dec. 1 that he would appoint former Deputy Secretary of Commerce and Trade Angela Navarro to fill a State Corporation Commission seat set to be vacated by Judge Mark Christie this January may signal a new bent on the powerful regulatory panel. Navarro, who will be the second SCC judge to be appointed by the Democratic Northam, has been publicly supportive of energy efficiency efforts: In a July webinar on the VCEA, she described such programs as “one of the least expensive ways to reduce greenhouse gas emissions.”

“Of course that helps drive down the costs for individual customers,” she said. “But it also drives down the cost to the whole system.”

During the same webinar, other energy efficiency advocates indicated that the savings targets set for utilities in the VCEA may not be written in stone. “If the goals aren’t strong enough, this is something that can also be revisited,” said Virginia Energy Efficiency Council Executive Director Chelsea Harnish. “The next five years are set in place, and if we need to make it more rigorous to meet carbon goals, we have time to do so.”

Energy efficiency programs are a counterbalance to renewables spending

The savings targets created by the Virginia Clean Economy Act are known as an “energy efficiency resource standard.” They’re the flipside of the generation targets the legislature set for wind, solar and storage: Just as the utilities are required to propose an ambitious slate of projects that will increase renewables on the grid, so must they prove to regulators that they are saving energy through efficiency programs.

“The VCEA represents a turning point in many respects,” said Bond. “It absolutely will require a greater emphasis on energy efficiency, by design. … It’s one of the key policy provisions that’s included in the legislation.”

Energy savings targets aren’t a new concept. More than half of U.S. states have energy efficiency resource standards, according to the American Council for an Energy Efficient Economy, which considers the tool “one of the most effective ways for a state to guarantee long-term energy savings.”

In Virginia, voluntary savings targets have existed since 2007, when the state set a goal of reducing electricity use by 10 percent by 2022. Reaching that goal, the 2007 Virginia Energy Plan declared, “would defer or postpone the need for approximately 3,900 megawatts of new electric generation capacity by 2022, equivalent to four or five large generation stations.” Consumer savings were estimated to be in the hundreds of millions.

For the next decade, though, Virginia’s progress on energy efficiency was uneven. In its 2020 Utility Scorecard, the American Council for an Energy Efficient Economy ranked Dominion 50th out of 52 electric utilities, although Bond said the group’s rankings “don’t include all the company’s investments.” Virginia fared better in ACEEE’s state rankings, snagging the 29th position in 2019. “Since 2018 Virginia has made strong legislative progress on clean energy and energy efficiency and appears poised to significantly strengthen programs following years of relatively low savings,” the organization wrote.

A major commitment to energy efficiency came in the 2018 Grid Transformation and Security Act, which ordered Dominion and Appalachian Power to invest more than $1 billion in such efforts over the next decade, with Dominion, Virginia’s largest utility, responsible for $870 million of the spending. But that mandate still fell short for many clean energy advocates.

“The problem with that is that’s a spending target, not a savings target. The utility had no incentive to propose programs that would actually result in savings,” said Chase Counts, who as senior director of operations for Community Housing Partners Energy Solutions oversees weatherization and energy efficiency programs throughout Virginia. The energy efficiency resource standard, “on the other hand, actually stipulates kilowatt-hour savings goals year after year that utilities are required to meet.”

“Now they’re going to be incentivized to design programs that result in energy savings or load reductions year over year,” he concluded.

By 2025, the VCEA requires Dominion to have achieved savings equal to 5 percent of its average retail sales; Appalachian Power’s target is set at 2 percent. If the utilities meet their annual goals, the law allows them to recover a profit margin. Failure, though, comes with a price: The State Corporation Commission is forbidden from approving any new utility plants that emit carbon if the utility hasn’t met its savings goals.

Still, because the version of the Clean Economy Act that made it through the General Assembly left it to the State Corporation Commission to set post-2025 targets, questions remain about how robust utility efforts will be in the longer term. In its first VCEA compliance filing, Appalachian Power told regulators it had assumed savings targets would remain constant after 2025 “due to the uncertain nature of any future proceeding regarding the efficacy or cost-effectiveness of additional (energy efficiency).”

Another challenge the utilities will face is in designing programs for large customers. Prior to the VCEA, no customer that used more than 500 kilowatts of electricity had to pay for utility energy efficiency programs. Under the new law, that threshold was raised to a megawatt. Furthermore, large customers can now only be exempted from participation if the State Corporation Commission determines they have “implemented energy efficiency programs that have produced or will produce measured and verified results consistent with industry standards and other regulatory criteria.” Regulators have already begun reviewing how those exemptions will work.

“That’s a really diverse set of customers. It could be a hospital. It could be a data center. It could be a large industrial site,” said Harnish. “Each and every one of those have very diverse needs. A data center doesn’t need the same thing as a hospital. Both utilities will need to be up to the challenge to provide programs to keep them.”

Bond said it’s an issue Dominion is already keenly attuned to. “One size doesn’t necessarily fit all,” she said. “Having … solutions in mind that contemplate the differences between a 100-year old residential building versus a brand-new warehouse building is an important part of developing diverse programs that can meet the needs of our diverse customers.”

A major new revenue stream for energy efficiency

Energy efficiency might seem like a no-brainer to the average consumer worried about their bottom line. But to companies like vertically integrated utilities that make money not only by selling electricity to customers but generating it, energy efficiency can be an unappealing option. Not only do programs take money to design and implement, but by reducing energy use, utilities reduce their profits.

States, then, have long taken steps to incentivize energy efficiency measures. In Virginia, efficiency is the only area of the clean energy sector for which the legislature has earmarked a consistent funding stream.

Arguably the second most consequential energy law passed by the General Assembly during the 2020 regular session was the Virginia Clean Energy and Community Flood Preparedness Act, a bill that authorized the state’s participation in the 10-state Regional Greenhouse Gas Initiative. Under RGGI — colloquially pronounced “Reggie” — Virginia agrees to an annual declining carbon cap that will require any fossil fuel plant with a capacity of 25 or more megawatts to purchase allowances for carbon emissions at an auction. The proceeds of those auctions are then returned to the states for their use.

Each state has discretion over how it spends those proceeds, which aren’t insignificant. According to the most recent numbers from RGGI, participating states received a total of $248 million in auction proceeds in 2018, with almost 40 percent of those funds ultimately going toward energy efficiency programs.

While Virginia won’t participate in its first auction until March 2021, state fiscal analysts have projected annual revenues will amount to more than $100 million, with much of the cost passed along to utility ratepayers. Half of that, under the Clean Energy and Community Flood Preparedness Act, will go to low-income energy efficiency programs that will be managed by the state’s Department of Housing and Community Development with assistance from the Department of Mines, Minerals and Energy.

Exactly how that roughly $50 million will be spent, though, remains a question mark. Stakeholder meetings to map out a course of action were initially anticipated to begin in fall 2020 but were delayed by the COVID-19 pandemic and the General Assembly’s special session over the summer, said Department of Mines, Minerals and Energy Director John Warren. A Department of Housing and Community Development spokesperson said meetings would start “before the end of December.”

“We’ll know a lot more once those meetings get started and underway and there’s some framework established for that,” Warren said.

Gov. Ralph Northam’s administration has indicated that “deep energy retrofits” of affordable housing and improvements to public housing that couple energy efficiency and sustainability goals are at the top of its priority list for the new funding stream.

“One of the primary intentions from the administration is for those housing choice voucher holders or other low-income tenants, they’ll have the ability to rent more highly efficient properties as a result of this, because we’ll be able to make more investments in energy efficiency as we both develop and renovate affordable housing units,” said Navarro during a DMME webinar this July.

Counts is eager to see at least some of the funds extend to weatherization efforts such as roof upgrades needed for low-income customers to install solar panels on their homes. Community Housing Partners has to turn away roughly a third of all households that seek weatherization services because of restrictions in the use of federal funds for such repairs.

“RGGI resources would go a long way to unlock the energy efficiency potential for low-income households we already have in the funnel but cannot serve,” he wrote in an email.

DMME Director Warren also pointed to the priority his department is putting on solar: “We need to find a way to incorporate solar into low-income communities so it actually impacts their electric bill.”

Energy efficiency projects can be an equalizing force

For many of its proponents, the attraction of energy efficiency is the promise it holds for incorporating equity concerns into the design of a 21st-century grid. Unlike most other aspects of the clean energy transition, where the benefits of renewables are understood to be broadly shared, energy efficiency improvements have their most immediate impact on the individual level.

“Energy efficiency as a solution is very personal, because in order to make improvements to somebody’s home, you have to be in their home,” said Bond.

The rapid changes ushered in by the Virginia Clean Economy Act and other laws geared toward achieving Virginia’s clean energy transition will come with a price tag, although how large it will be is still disputed. SCC staff during hearings on Dominion’s long-range plan this October estimated that the average residential customer’s monthly bill is expected to be $67 higher in 2030 than it was in May 2020. Lawmakers at the General Assembly during the regular session fretted about the costs of moving from fossil fuels to renewables, a concern only heightened by the economic dislocations of the COVID-19 pandemic.

Energy efficiency, say advocates, is a counterbalance to those costs, one that can help ensure that the most disadvantaged Virginians, many of whom have long borne disproportionate pollution burdens from fossil fuel plants, don’t also bear disproportionate costs as the state turns to renewables.

It’s a charge the Department of Mines, Minerals and Energy, which has begun partnering with Virginia’s Council on Environmental Justice, said it’s taking seriously: “We try and really be advocates for those that we’re representing such as low-income residents and homeowners,” said Warren.

A newly convened organization called the Virginia Multifamily Energy Efficiency Coalition, which includes groups such as the Natural Resources Defense Council and the Virginia Poverty Law Center, has urged the Department of Housing and Community Development to prioritize communities of color in its allocation of RGGI funds by requiring measures such as annual program reviews and mandatory reporting of data.

“RGGI funding provides a remarkable opportunity to prioritize Black and brown households as a mechanism to address these disparities,” the group wrote in a letter to the department. “Program implementation must be structured accordingly.”

To Harnish, part of the promise of energy efficiency isn’t just the savings it can provide for households facing high energy bills, but jobs. Like distributed solar, energy efficiency is a labor-intensive industry, and one that is likely to grow all around the state.

“We could be talking about a Google who’s putting on the Nest thermostat … all the way down to contractors and people who spend their day in people’s crawl space,” she said. “During the General Assembly, when you heard folks talking about the expanded potential for jobs in Virginia, energy efficiency jobs were the bulk of them.”

***— Last in a five-part series on the VA commonwealth’s transition to a carbon-free electric grid —***