The next 12 years will see "a dramatic and sustained increase" in utility spending on energy efficiency, according to a new study by researchers at Lawrence Berkeley National Laboratory.

Efficiency spending financed by utility ratepayers could grow from the $3.1 billion paid out in 2008 to between $5.4 billion and $12.4 billion per year, with a medium case projection of $7.5 billion, the report says.

Forecasts across low-, medium- and high-growth scenarios show several populous states -- Illinois, Maryland, Michigan, North Carolina, Ohio and Pennsylvania -- moving into leadership roles on efficiency despite having been "minor players" in the past.

Those states, which together made up less than 4 percent of energy efficiency program spending in 2008, could account for as much as 60 percent of total U.S. spending over the years 2008 through 2020, the researchers found, based on assessments of energy policies that have recently been enacted or are in the pipeline.

Three states where efficiency policies have traditionally been strong -- New Jersey, New York and Massachusetts -- are likely to see significant funding boosts, as well, the researchers said, while some projections show traditional leaders California, Connecticut, Minnesota and Wisconsin also increasing their investments.

States use a wide range of ratepayer-based strategies for efficiency financing, the researchers noted. Some mandate that utilities reach certain energy savings milestones as a percentage of total electricity sales, while others require that they implement some or all of the efficiency strategies that would be cost-effective.

Today, California is the far-and-away national leader in ratepayer-funded efficiency spending, accounting for about a third of the nationwide total.

That would change under all three scenarios, with spending levels becoming greater even across states as California's ratepayer funding slows in favor of other funding mechanisms, even as other states ramp up.

The projections amount to cumulative savings over the 2010 to 2020 period of between 4.7 percent and 8.6 percent, compared with a base case forecast by the Energy Information Administration.

State programs could swamp national mandates

The researchers noted that given the strong increases projected at the state level, federal efficiency mandates could be a minor factor going forward if they do not set aggressive goals.

A federal energy efficiency resource standard (EERS) or energy efficiency portfolio standard (EEPS) requiring cumulative savings of 5 percent of retail sales by 2020 "would result in little or no incremental increase in energy efficiency savings" over what would likely occur without it, the study says.

The House-passed energy and climate measure would require large utilities to supply 15 percent of their power sales from qualified renewable sources of electricity by 2020, with 5 percent energy savings through efficiency measures. The energy savings figure could alternately grow to 8 percent if state governors opt to limit their renewable energy use.

The committee-passed Senate measure would require utilities nationwide to provide 15 percent of their power from renewable sources like wind and solar power by 2021, while allowing up to a quarter of the requirement to be met with energy-saving measures instead.

If a national efficiency mandate called for 10 percent or 15 percent energy savings rates, then individual states could need as little as 8 percent savings or as much as 68 percent, depending on their current efficiency policies and usage, the study found.

The impact of such a national policy depends on the fine print, the researchers noted. In particular, what kinds of savings programs count and whether and how much trading of energy savings certificates is allowed will heavily influence utility responses, they said.

If Congress allows unrestricted trading of energy savings certificates and does not set a sufficiently aggressive target, they said, it could "substantially degrade the incremental impact of a national EEPS."

On the other hand, an aggressive target on the order of 15 percent national savings could drive major increases in efficiency spending above and beyond current commitments; the impact would be felt most heavily in the roughly 20 states that have not given efficiency policies a high priority, the researchers said.

Challenges for states

The study noted several challenges that states are likely to face in implementing aggressive efficiency programs. These include:

  • Working with public utility commissions to address rate structures that discourage saving energy.
  • Finding deeper and broader energy savings by going beyond the policies in wide use today.
  • Addressing a potential near-term shortage of trained energy efficiency personnel.
  • Implementing programs during an economic downturn that could affect both the availability of energy efficiency opportunities and the political climate for funding them.
  • Developing the regulatory oversight and infrastructure to manage new policies, in states without strong existing programs.

Senior reporter Ben Geman contributed.

Reprinted from Greenwire with permission from Environment & Energy Publishing, LLC., 202-628-6500