Cost-effectiveness of the Energy Smart Design Program Evaluation Unit Energy Management Services Division March 1999 Printed on recycled paper © Seattle City Light 1999 55555 (3-99) Cost-effectiveness of the Energy Smart Design Program Brian Coates Evaluation Unit Energy Management Services Division Seattle City Light March, 1999 Cost-Effectiveness of ESD Copyright © 1999 (March) by Seattle City Light Prepared by and for the City of Seattle—City Light Department Energy Management Services Division, Evaluation Unit 700 Fifth Avenue, Suite 3300, Seattle, Washington 98104-5031 Phone (206) 684-3874 — Fax (206) 684-3385 Web site: http://www.cityofseattle.net/light/conserve Seattle City Light The lowest cost, most reliable electricity in urban America Publicly owned Stewards of our environment The Energy Management Services Division: Bringing energy efficiency into every home and business in Seattle Energy Smart Design Program Seattle City Light Cost-Effectiveness of ESD i Table of Contents Table of Contents _____________________________________________________ i List of Tables _________________________________________________________ii List of Figures ________________________________________________________ii Executive Summary___________________________________________________ iii Introduction __________________________________________________________1 Program Description _______________________________________________________1 Study Objectives __________________________________________________________1 Method ______________________________________________________________2 Program Benefits and Costs_________________________________________________2 Results ______________________________________________________________3 Type of Program___________________________________________________________4 Building Type and Status ___________________________________________________5 Measure Type _____________________________________________________________6 Commercial Sector ________________________________________________________7 Year _____________________________________________________________________7 Impact of Evaluation Findings ______________________________________________11 Impact of Eliminating BPA Reimbursements __________________________________11 Discussion ______________________________________________________________11 Levelized Costs for all Program Participants __________________________________12 Levelized Costs by Program Element ________________________________________13 References __________________________________________________________15 Seattle City Light Energy Smart Design Program ii Cost-Effectiveness of ESD List of Tables Table 1. Benefits and Costs for the Levelized Cost Analysis __________________________________ 3 Table 2. Costs and Energy Savings for the Energy Smart Design Program_______________________ 4 Table 3. Levelized Program Costs (mills/kWh) by Conservation Program and Economic Perspective __ 5 Table 4. Levelized Program Cost (mills/kWh) by Building Type and Economic Perspective __________ 6 Table 6. Levelized Program Costs (mills/kWh) by Measure Type and Economic Perspective_________ 8 Table 7. Levelized Program Costs (mills/kWh) by Commercial Sector and Economic Perspective _____ 9 Table 8. Levelized Program Costs (mills/kWh) by Year and Economic Perspective _______________ 10 Table 9. Levelized Program Costs (mills/kWh) by Analysis Approach and Economic Perspective ____ 12 List of Figures Figure 1. Regional Levelized Costs by Measure Type _______________________________________ 8 Figure 2. Regional Levelized Costs by Commercial Sector ___________________________________ 9 Figure 3. Regional Levelized Costs by Year______________________________________________ 10 Energy Smart Design Program Seattle City Light Cost-Effectiveness of ESD iii Executive Summary Seattle City Light’s Energy Smart Design Program has provided financial incentives since 1991 to customers for installing energy conservation measures in commercial and industrial buildings. In one program option, Standard Incentives are available for installing lighting, motors, and HVAC measures in buildings. This option is similar to an Energy Rebate Option that was offered to customers during the years 1991-95. Customers can also participate in the Custom Incentives option for building envelope measures, energy management control systems, and other measures not funded in the Standard Incentives option. The Custom Incentive option is similar to the Site-based option that was available to customers during the 1991-95 period. A study was conducted on the levelized costs for conservation measures installed through the Energy Smart Design Program during the years 1991-1997. The costs were analyzed by several program elements (e.g., type of measure) and four economic perspectives. The four perspectives were the Pacific Northwest region, the City Light service area, City Light as a business, and the customer. The program benefits were the projected energy savings for the measures, which were obtained from the program’s tracking system. The measure life for the conservation measures was assumed to be 15 years. The costs of the conservation measures and City Light’s incentives to the customers were gathered from the program tracking system. Bonneville Power Administration reimbursements to City Light for the incentives and administrative costs were obtained from program records. For all program participants, low levelized costs were found from the service area (28 mills), utility (6 mills), and customer (35 mills) perspectives. These low levelized costs are primarily due to Bonneville Power Administration reimbursements to City Light for administrative costs and for customer incentives. A somewhat higher levelized cost, 43 mills, was found from the regional perspective, as this perspective includes both utility and customer costs for the conservation measures. This cost is substantially lower than the measure cost-effectiveness screen, 56 mills, used by Seattle City Light and the Bonneville Power Administration for the Custom Incentive and Site-based program options. The incentives paid to customers for conservation measures installed through the Standard Incentive and Energy Rebate program options were also designed to pass the cost-effectiveness screen, 56 mills. Thus, the ESD program is cost-effective when compared to the Bonneville Power Administration cost- effectiveness screen. It was also found that there was variation in the levelized costs by the several program elements: conservation program, building type and status, conservation measure, and commercial sector. Lower than average levelized costs were found for participants in the Custom Incentive Program, industrial buildings, and three commercial sectors-- office, education, and utilities and communication. The levelized costs for each of these elements were at or below 3.4 mills per kilowatt-hour saved. These findings suggest that lower levelized costs for energy savings could be achieved by targeting these elements in future program activities. Seattle City Light Energy Smart Design Program iv Cost-Effectiveness of ESD Several program elements had substantially higher than average levelized costs. These elements include four types of conservation measures (building envelope, hot water, motors, and refrigeration) and three commercial sectors (retail nonfood, warehouse, and other). One implication of these findings is that considerable scrutiny should be given to the cost-effectiveness of future projects that include these sectors or measures. Energy Smart Design Program Seattle City Light Cost-Effectiveness of ESD 1 Introduction Program Description Seattle City Light has operated the Energy Smart Design Program (ESD) in conjunction with the Bonneville Power Administration since 1988. In the first three years of the program, technical and financial assistance was provided to commercial building owners for designing energy efficient new and remodeled buildings. The building owners could install the conservation measures identified in these designs. The Energy Smart Design Program was expanded in 1991 to include financial assistance for installing conservation measures in new, remodeled, and existing commercial buildings. In the first program option, Energy Rebate, fixed rebates were offered for the most common lighting, motor, and heating, ventilating, and air conditioning (HVAC) measures. Under the Site-based Incentive option, incentives were offered for conservation measures not on the rebate list. The Energy Smart Design Program underwent additional changes in 1993, with two types of financial incentives offered to customers for installing conservation measures in their buildings. In the first option, Standard Incentives were available for lighting, motors, and HVAC measures. Customers could also participate in the Custom Incentive option for building envelope measures, energy management control systems, and other measures not funded in the Standard Incentives option. Study Objectives Electricity savings in the Energy Smart Design Program are the largest share of savings achieved to date for City Light’s commercial and industrial customers. Through 1997, the Energy Smart Design savings are 57% of the total savings for these customers (Tachibana et al., 1998). Given the importance of these savings for conservation efforts at Seattle City Light, an earlier report (Coates, 1998) examined the relationship between the savings and several important elements of commercial conservation programs. These elements included program type, building type, building status (e.g., new), type of measure installed in the building, and commercial sector (e.g., office). The report also examined the extent to which the savings achieved through the Energy Smart Design Program had met the conservation goals for commercial buildings outlined in the 1992 Conservation Implementation Plan (Seattle City Light, 1992). The present report expands upon the earlier report (Coates, 1998) by examining the relationship between the program elements (e.g., program type) and a second widely used measure of conservation program effectiveness. The second measure is levelized cost which relates the program delivery and administrative costs for the conservation measures to the electrical energy savings achieved with these costs. The levelized costs were done not only for each of the program elements described earlier, but also for each of four economic perspectives. These perspectives are the Pacific Northwest region, the City Light service area, City Light as a business, and the customer. A Seattle City Light Energy Smart Design Program 2 Cost-Effectiveness of ESD description of how the levelized costs were calculated and the four economic perspectives is given in the next section. Method The cost-effectiveness test used for the Energy Smart Design Program was levelized program cost, which is the present value of program costs divided by the present value of the energy savings. The levelized costs were calculated from four economic perspectives: the Pacific Northwest region, City Light service area, City Light as a business, and customers who participated in the Energy Smart Design Program. Program Benefits and Costs For each of the economic perspectives (Table 1), the program benefits were the projected kilowatt-hour energy savings for Energy Smart Design participants. These savings were obtained from the Commercial/Industrial Management Tracking System, which is maintained in City Light’s Energy Management Services Division. The measure life for the savings was assumed to be 15 years in the cost-effectiveness analysis. This measure life was used in an earlier evaluation of energy savings from conservation measures installed through the Energy Smart Design Program in 1991 and 1992 (Xenergy et al., 1996). In that evaluation, a weighted average measure life was calculated using the lifetime of each measure installed through the conservation program. The economic analysis also used a 3% real discount rate in discounting the energy savings to a present value. The 3% rate is the long-term discount rate used in economic analyses at Seattle City Light. The economic analysis from the customer perspective used a 10% discount rate. All costs for the cost-effectiveness analysis were adjusted to 1997 dollars with the Consumer Price Index for the 1991-1997 period. Table 1 shows the method used in calculating the various costs for the analyses. From the regional perspective, the costs were the sum of the installation costs for the conservation measures and the administrative costs for Seattle City Light. Administrative costs for the Bonneville Power Administration were not available. From the City Light service area perspective, the costs were calculated by subtracting the Bonneville Power Administration incentive and administrative reimbursements to City Light from the total of the measure installation costs and the utility administrative costs. This service area calculation was also used for the City Light as a business perspective, except that the conservation measure costs for the customers were excluded from the calculation. In the fourth economic perspective, the costs were the customers’ share of the measure costs. Energy Smart Design Program Seattle City Light