The Electric Power Research Institute (EPRI) estimates that the cost to upgrade transmission and distribution to relieve constrained lines and meet growing power demands could reach US$100 billion. In addition to the massive amount of work needed, the difficulty and time frame required to site and install new power lines means that load relief via construction is years away. Since significant investment is required and quick fixes don't exist to meet the industry's long-term energy needs, utilities should be seriously considering demand-side management (DSM) as a viable part of the solution.

Increasing energy efficiency — one of the “classic” DSM strategies — is a key element of an integrated solution for T&D system capacity problems. By improving customer end-use energy efficiency, T&D system upgrades can be downsized, delayed, or, in some cases, avoided entirely.

Impacts of Energy-Efficiency Measures on Loads

Energy efficiency can be used to reduce existing demand and to decrease demand growth, particularly in areas experiencing rapid demand growth due to new construction. By energy efficiency, we mean technologies that produce the same or better levels of energy services (for example, light, space conditioning and motor-drive power) using less energy. Efficiency technologies are generally long lasting and save energy when the end-use equipment is in operation. Depending on the timing of equipment use, energy-efficiency measures also can produce significant reductions in peak demand. By contrast, the other principal DSM strategy, load management, seeks to lower peak demand during specific, limited periods by temporarily curtailing electricity usage or shifting usage to other periods. In that way, load management may be analogous to “peaking” generating units — supply options used only during peak demand periods.

A key advantage of energy efficiency is that it provides permanent “baseload” impacts. Most energy-efficiency measures reduce load over long periods of the year, such as the cooling season, heating season or year-round. For example, energy-efficient lighting yields energy savings whenever the lights are on throughout the year, and energy-efficient motors and drive systems yield savings whenever they are operated.

Also, once installed, energy-efficiency measures yield savings for the life of the measure, which is typically for many years, if not decades. Furthermore, energy efficiency doesn't require any “switching” or other controls to produce impacts, unlike some types of load-management or load-response measures. Finally, energy efficiency is based on permanent measure installation and doesn't have to rely on repeated behavioral compliance every time the resource is called upon.

Peak demand reduction is often a primary concern for constrained T&D systems. What is sometimes overlooked is that energy efficiency can yield significant and lasting peak demand reductions (kW) in addition to broader energy savings (kWh). For example, energy-efficient lighting and cooling system upgrades can clearly lower peak demands, similar to load management strategies such as cycling units off or reducing lighting levels.

In fact, at times, “reliability-focused energy-efficiency programs” have been specifically used to reduce peak demands. One example of such a program was the “Keep Cool, New York” program offered by the New York State Energy Research and Development Authority (NYSERDA), which provided rebates to customers who purchased energy-efficient room air conditioners and turned in their old inefficient units for recycling and disposal. This targeted program alone yielded more than 11 MW of peak load reduction in the New York City area from upgraded room A/C units (and 15 MW to 25 MW in total, counting some miscellaneous additional measures).

Reducing T&D Constraints

The nature of energy efficiency as a resource lends itself to three basic approaches for addressing T&D constraints:

• Build energy efficiency into new load growth. “Lost opportunities” occur when new buildings do not incorporate a comprehensive package of cost-effective energy-efficiency features. Once constructed, it can be impractical and costly to retrofit building equipment and systems with energy-efficient technologies. Therefore, it is imperative that policies and programs are in place to ensure that all new construction and major renovations incorporate energy-efficient technologies and features. This will help moderate the rate of demand growth and reduce the scale of new T&D system needs. Building codes and appliance/equipment standards can ensure minimum levels of energy efficiency, while programs offering rebates and technical services can encourage customers to go beyond codes and standards.

• Retrofit existing inefficient technologies and systems with energy-efficient upgrades. This will help reduce existing demand and provide capacity relief on a long-term basis. It can be especially helpful to target technologies that provide savings during peak demand periods, such as commercial lighting and HVAC, residential air-conditioning, and industrial processes and systems (motors, fans, pumps, heating technologies and compressed air systems).

• Target energy-efficiency improvements toward geographic areas facing severe T&D constraints. While experience is limited, there have been promising results for targeted load relief. Incentives can be structured to encourage greater program participation in specific areas, and program marketing can target specific customers and customer classes. This is case-specific and depends on the customer makeup in a target area. For example, are there sufficient opportunities for needed demand reductions achievable through energy-efficient upgrades and improvements?

Applying Energy Efficiency to T&D System Resource Needs

One of the earliest examples of a utility promoting energy efficiency as a solution to address T&D concerns was the Pacific Gas and Electric Co.'s (PG&E) Model Energy Communities Program (Delta Project). The purpose of the Delta Project was threefold:

• To determine whether energy-efficiency programs focused on a specific distribution planning area could effectively and economically reduce local peak load.

• To determine whether intensive marketing and implementation techniques could garner the desired and necessary high market penetration levels.

• To assess the program's performance and customer acceptance of the selected program delivery mechanisms.

The pilot program, which ran for two years, from 1991 to 1993, produced approximately 2.3 MW of demand reduction coincident with the local area-specific peak, while also reducing consumption by more than 4.3 million kWh annually. The Delta Project successfully deferred the substation capital investment for at least two years, albeit for a shorter deferral period than originally projected.

A few prominent current examples of the application of energy efficiency to T&D system resource needs are located in Connecticut and Long Island. ISO New England (ISO-NE) needed an emergency supplemental capacity in 54 targeted communities in southwest Connecticut to avoid potential disruptions in service resulting from the constraints on supplying power to this area. In early 2004, ISO-NE solicited competitive bids from qualified entities to deliver demand response services over a four-year period, from May 2004 to May 2008. One contractor was selected to deliver 4 MW of demand reduction through projects using a variety of energy-efficient lighting technologies.

This southwest Connecticut example represents a breakthrough for energy efficiency. Other ISOs may use the ISO-NE RFP as a model for future RFPs attempting to include energy efficiency as part of bids for demand-response services. It is noteworthy that Connecticut has allocated a greater portion of its system benefit charge funds (public goods charge) to southwest Connecticut to fund energy-efficiency programs for addressing reliability and congestion charge concerns.

In May 2004, the Long Island Power Authority (LIPA) announced a comprehensive portfolio of new energy resources that will add more than 1000 MW of new energy to LIPA's portfolio over the next eight to 10 years. One of the key elements of the portfolio is energy efficiency and demand reduction, targeted to both small and large commercial and industrial customers, publicly owned buildings and multi-family dwellings. The LIPA plan aims to achieve up to 73 MW of energy and capacity savings. One contractor will provide almost 24% of the reductions (17.5 MW) through retro-fitting buildings with energy-efficient lighting, heating and ventilation systems, appliances and refrigeration systems.

One of the more recent and most ambitious examples of an organization addressing these issues is the Bonneville Power Administration (BPA). In 2002, BPA announced its Non-Wires Solutions (NWS) initiative with the goal of identifying and investigating:

• Least-cost solutions that may result in deferring potential transmission reinforcement projects.

• Ways to incorporate a specific planning methodology into the transmission planning process

• Opportunities for and potential constraints on integrating NWS into the transmission system.

• A set of criteria to help determine when NWS are feasible and when they are not, including developing a set of screening tools for future non-wires candidates.

• Ways to integrate the work from this effort sufficiently early in the planning process so that NWS can make a difference.

BPA defines NWS as a broad array of alternatives (including but not limited to demand response, distributed generation, energy-efficiency measures, generation siting and pricing strategies) that individually or in combination delay or eliminate the need for upgrades to the transmission system.

BPA is now committed to using NWS screening criteria for all capital transmission projects over $2 million, so it becomes an institutionalized part of planning. An initial screening determines whether a project presents the opportunity to explore NWS. If so, BPA continues with a detailed analysis of the non-wires potential (this has been done for three projects to date). BPA is also sponsoring pilot projects to test technologies, resolve institutional barriers and build confidence in using non-wires solutions. BPA has budgeted $1 million for pilots in each of fiscal years 2005 and 2006.

One other regional effort has taken an initial look at non-wires alternatives (that is, the New England Demand Response Initiative involving state, regional and federal agencies, as well as utility and environmental regulators, and focusing on state appliance standards and funding of energy-efficiency programs for reducing demand), although they are not nearly as far along as BPA in formulating a specific policy.

Furthermore, interest is now global. The International Energy Agency has recently created a research project on “network-driven DSM” to provide viable alternatives to relieve electricity network constraints, including capacity limitations, voltage fluctuations and reliability issues. The project (with U.S. participation) will prepare reports on the following topics:

• A worldwide survey of network-driven DSM projects.

• An assessment and development of network-driven DSM measures.

• The incorporation of DSM measures into network planning.

• The evaluation and acquisition of network-driven DSM resources.

Barriers to Using Energy Efficiency to Address T&D Needs

Despite a strong conceptual rationale for using energy efficiency to help reduce the need for T&D expansion and a few noteworthy examples of such use, there are still a number of real-world practical barriers to the widespread application of energy efficiency for such purposes. These include incompatible time frames, disaggregated benefits, lost revenues, lack of incentives for accurate forecasting, lack of transparency in transmission planning, inaccurate price signals for energy and transmission, and lack of experience with NWS. The following discusses two of these barriers in particular, because they represent fundamental structural obstacles that will require public policy intervention to address:

• Incompatible time frames

  As the electric industry has evolved over the last decade, responsibility for transmission planning and investment and for ensuring electric system reliability has migrated to regional entities (RTOs and ISOs) under a market-based paradigm for managing the overall electric system. Market mechanisms have been developed as the preferred mechanism for balancing supply and demand.

  Unfortunately, the instantaneous and “day ahead” markets that have been nurtured are fundamentally incompatible with energy efficiency as a resource. Energy efficiency is not a “dispatchable” resource, but rather takes a lengthy period (months or years) to deploy. Energy efficiency also requires significant up-front capital investment, and delivers resources that return their value over many years. There is simply no practical way for energy efficiency to participate in these current market mechanisms, as presently configured. Energy-efficiency requires a planning mechanism with a long-term time frame (decades) and a cost-recovery structure that recognizes energy-efficiency benefits are delivered over many years.

• Disaggregated benefits

  Another major result of the trend toward electric restructuring has been the dispersion of the multiple benefits (generation, transmission, distribution, environmental) of energy efficiency. These benefits used to accrue to a single vertically integrated utility, but now in many cases affect multiple disparate entities (separate distribution, transmission and generation companies). Because there is no single entity that realizes — and therefore would be willing to pay for — the multiple benefits of energy efficiency. This is a major barrier to the selection of energy efficiency as a resource.

In the context of transmission planning, for example, the avoided transmission costs are just a small fraction of the overall “value” of energy efficiency. In all but the most extreme cases, the avoided transmission cost alone is not nearly enough to pay for the costs of acquiring the energy-efficiency resource. Hence, energy efficiency would typically never be selected in a market-based “bid” of transmission resource options, because bidders could not afford to provide the energy efficiency for just the compensation based on avoided transmission costs. There needs to be some way to recognize, aggregate and pay for the full value that an energy-efficiency resource delivers to the electric system.

The bottom line is that no existing or anticipated market mechanism addresses either the “time-frame discrepancy” or “disaggregated benefits” barriers facing energy efficiency. It will take specific public policy mechanisms to overcome these barriers and allow energy efficiency to meet its full potential to help reduce transmission system costs.

Conclusion

The old adage “an ounce of prevention is worth a pound of cure” is a good way to think of energy efficiency's role in relieving T&D congestion. By ensuring energy-efficient load growth, we can reduce the rate of such growth. In turn, this can help ensure that existing T&D systems and resources do not become overloaded — or at least by dampening the magnitude of load growth, it may be possible to defer the need for capacity upgrades to T&D systems. A public policy goal should be to ensure that energy efficiency is integral to all new construction and major renovations of existing buildings and facilities. To accomplish this requires a multi-pronged approach using a variety of mechanisms — including but not limited to building codes, appliance and equipment standards, energy-efficiency programs, and development of markets for energy-efficient products and services. In addition, carefully targeted upgrading of energy efficiency in existing facilities and equipment can help relieve congestion on existing T&D systems, and similar mechanisms need to be employed to achieve that objective, when appropriate.

Overcoming the barriers to capturing the T&D benefits of energy efficiency — incompatible time frames and disaggregated benefits — may require structural and process changes in the way that T&D lines and related equipment are planned and constructed. We need to take long-term, integrated approaches to planning for future resource needs. BPA's approach to examine “non-wires solutions” as part of future resource needs assessments is one prime example of such an approach. Most states and regions, however, lack an entity with such wide oversight of system planning. In these cases, then, policymakers and regulators will need to take action to create structures and processes that allow for long-term planning and for the aggregation of the benefits of (and payments for) energy efficiency. Such processes may well involve funding of energy-efficiency programs, which suggests that entities in states charged with administering such programs would need to coordinate their funding and activities to capture the T&D benefits of energy efficiency.

Dr. Martin Kushler is director of the Utilities Program for the American Council for an Energy-Efficient Economy. He has 25 years in the field, including 10 years as the Supervisor of Evaluation at the Michigan Public Service Commission. Mgkushler@aol.com

Dr. Edward Vine is a staff scientist at the Lawrence Berkeley National Laboratory, where he has been involved in the evaluation of energy-efficiency programs and technology performance measurement for over 25 years. elvine@lbl.gov

Dr. Dan York is a senior research associate with the Utilities Program for the American Council for an Energy-Efficient Economy. In this position, he researches utility sector issues on energy-efficiency policies and programs. DanWYork@aol.com