Comments of EMC Development Company on the 2018 Virginia Energy Plan
1 Introduction
EMC thanks the Department of Mines, Minerals, and Energy (“DMME”) for this opportunity to comment on the 2018 Virginia Energy Plan (“VEP”). EMC believes that Energy Efficiency (“EE”) is one of the most cost-effective ways of ensuring Virginians’ access to affordable, reliable, clan energy. Our comments focus on two areas: (1) designing Virginia’s EE programs to best benefit from PJM capacity market opportunities; and (2) ensuring those programs have flexibility to encourage innovative or complex EE projects and provide opportunities to small businesses.
2. About EMC Development Company
EMC is a small business uniquely focused as an energy efficiency capacity provider in the PJM capacity market. We are a member of the PJM Interconnection, LLC (“PJM”) and as such have qualified over 25,000 energy efficiency projects as resources in the PJM RPM capacity market, making us the largest independent energy efficiency provider in the region. Bidding capacity in the market is generally only available for large-scale projects; however, working with our local VA partners we also aggregate smaller projects to qualify them for participation in the PJM market as capacity resources. We bid those qualified projects into the capacity auctions and provide a portion of the proceeds to the building owner and our EE contractor partners.
A large portion of our business consists of ensuring the projects we represent meet PJM’s rigorous measurement and verification (“M&V”) standards. To accomplish this, we have made considerable investment in expertise and data gathering infrastructure. This investment enables us to qualify complex, innovative, or unusual EE projects that are often poor matches for prescriptive utility energy efficiency programs.
EMC is committed to the long-term success of energy efficiency. It is the most environmentally benign source of electrical capacity; and we believe its providers (owners and contractors of energy efficiency projects) and other VA ratepayers completing EE projects should continue to be incented to provide this desirable electrical capacity. Additionally, small businesses have been a vital economic growth engine for Virginia. As a small business, we, along with our VA small business partners strongly advocate implementation of SB 966 to fuel economic growth and job creation for Virginia, while providing the most environmentally desirable electrical capacity.
3. Energy Efficiency in PJM’s Capacity Market
PJM operates a capacity market to guarantee there is sufficient supply of electricity to serve the needs of a large portion of the Eastern United States, including nearly all of Virginia. Since 2012, energy efficiency has participated in this market: EE suppliers may offer a commitment to develop EE projects delivering verified reductions in peak load. Those projects are then considered side-by-side with generation to determine the least-cost mix of resources that meet reliability standards. This provides a market-based mechanism for lower cost EE projects to displace more expensive sources of energy. Provided the EE projects are developed as promised, and meet rigorous M&V standards, they then receive capacity payments from PJM on equal terms to a traditional generation plant.
Participation in PJM’s market provides a cost-effective means for these VA ratepayers who have completed energy efficiency projects to derive an additional revenue stream from their investments. Although the primary driver of EE investment will always remain bill savings, the additional revenue derived from capacity market participation model further incents the implementation of energy efficiency projects. Consistent with the spirit of SB 966, these increased incentives for EE creates jobs, both directly in the industries that implement EE projects and indirectly through lower energy costs.
The PJM market is extremely efficient and produces a very competitive market construct. PJM business rules and processes provide a transparent framework for participation in capacity market. There are many qualified players in PJM and if there is an economically viable opportunity to participate in the market then parties will seize that opportunity. For the implementation of SB 966, EMC advocates an open market approach providing other PJM members access to these EE resources, thereby enhancing market competition and driving efficiencies. Conversely, we also advocate for an open market approach to allocating energy efficiency incentives, with EE providers who can deliver proven savings eligible to compete with utility programs to deliver the most savings per ratepayer dollar.
4 Recommendations
a. Allow project owners to retain PJM capacity rights.
The lion’s share of most energy efficiency investments comes from the owner of the facility being improved. Incentive programs can make EE investments more attractive, and financing programs can help make EE investments possible, but in most cases the project owner ultimately provides the bulk of necessary financing.
Because of this, EMC recommends that participants in future Virginia EE programs retain the capacity rights to their projects. That is, receiving a utility rebate or incentive should not preclude a customer from participating in PJM’s capacity market, or require the customer to turn their capacity rights over to the utility. Currently, Dominion claims the energy efficiency capacity rights for projects in which rebates are provided. This has the counterproductive effect of reducing the customer’s benefit from implementing EE projects, working at cross-purposes to the program’s intent.
We acknowledge that some utility programs may pay for all or most of an EE measure, and that some exceptions to this rule may be needed on a case by case basis. For example, a utility program that provided high efficiency light bulbs at no cost could reasonably entitle the utility to that program’s capacity. However, at least in the commercial and industrial sectors that we serve, this level of incentive is very much the exception rather than the rule.
b. Do not rely entirely on utility programs.
Utility energy efficiency programs can be a powerful demand side management tool, especially for mass-market applications. However, such programs also have their limits. By their nature, utility programs tend to be heavily prescriptive, relying on a fixed set of pre-approved efficiency measures. This can make it difficult for the more complex, customized energy efficiency measures used in commercial and industrial settings to realize full benefit from the program. Administrative concerns may lead utilities to implement programs in-house, or source implementation from a single contractor, limiting opportunities for small businesses.
Utility programs also run the risk of conflicting incentives, sometimes described as the utility being told to “pay our customers to use less of our product.” This problem is well-documented, and we acknowledge and support Virginia’s attempt to address this through the lost-revenue adjustment mechanism (“LRAM”).
To avoid these problems, we recommend that some portion of mandated spending on DSM programs be directed to alternatives other than traditional utility offerings. This approach opens up EE incentive opportunities that might not be otherwise realized, and can act as a hedge against the LRAM not performing as expected.
Our understanding is that specific programs will be determined by the State Corporation Commission in future proceedings, and so detailed comments on potential programs are not appropriate at this time. Instead, we simply note that there are a variety of alternative approaches: revolving funds, energy efficiency grants, performance-based contracting for public facilities, specialized programs run through NGOs, RFP’s designed to procure multiple small tranches of energy efficiency savings, etc.
c. Reserve a portion of EE spending for open, market-based energy efficiency
An extension of the previous recommendation is that Virginia reserve some portion of the SB. 966 DSR spending for market-based energy efficiency. As we note in the next two recommendations, well-designed M&V protocols allow an objective determination of the MWh (or peak hour MW) savings delivered by disparate EE programs.
Once delivered savings from EE programs can be objectively measured, energy efficiency can be treated essentially as a commodity. For example, it would be possible for the Commonwealth to hold an auction with the goal of procuring 1000GWh of energy efficiency from the lowest cost bidders. Going even further, a truly ‘off-the-self’ energy efficiency program could be possible, where the SCC directs Virginia utilities to purchase a quantity of PJM certified EE capacity.
Regardless of the specific design, EMC’s view is that a market based approach where EE providers compete to provide commoditized energy efficiency MWh (or peak MW) would lower barriers to providing energy efficiency services, vastly extend the reach of EE incentives, and ultimately deliver more savings for ratepayer’s dollars. We thus recommend that Virginia earmark some portion of the SB. 966 DSM commitment towards open, market-based procurement of verified EE savings.
d. Establish transparent M&V standards and an independent M&V process.
Needless to say, accurate and effective M&V protocols are vital to the success of any energy efficiency effort. Going beyond that level, competition and innovation in energy efficiency is best promoted when M&V processes are open to all and administered by a party with no market interests.
The goal of an M&V regime should be for all EE projects to be evaluated and quantified on an objective basis, regardless of the project’s sponsor. By separating M&V from program design, Virginia would remove one of the largest barriers to non-utility provision of energy efficiency and enable tremendous innovation in EE program approaches. For example, nearly all of the possible alternative programs mentioned above would be benefit from ‘open access M&V’: a revolving fund could make delivering verified quantities of EE a covenant of their loans; standardized M&V could be used to evaluate performance of NGO’s serving specialized communities; would-be commercial EE providers can submit offerings for evaluation to allow comparison on an objective dollars per MW basis, and so on.
To accomplish this goal, we recommend that the SCC establish an independent measurement and verification body. This body would be funded through the SB 966 mandated DSM spending, and could be a contractor or housed within a state agency. Its responsibilities would be to validate M&V approaches, audit and analyze M&V data, and ultimately, to quantify the amount of energy efficiency delivered by any particular program.
We believe that such an approach would exponentially increase the options for reaching Virginia’s energy conservation goals.
e. Leverage the existing PJM M&V framework
As a related issue, we point out that as part of administering their energy efficiency market, PJM has developed a flexible, rigorous approach to M&V. Because Virginia utilities offer their energy efficiency into PJM markets, they have already developed M&V plans that meet PJM requirements. EMC and other independent energy efficiency providers must also meet PJM M&V requirements.
This suggests that future Virginia EE programs can gain efficiencies by aligning their M&V protocols with PJM’s. Such an approach would ease administrative burdens for parties already operating in Virginia, and lower the cost of entry for out-of-state EE providers contemplating expanding their business into Virginia. It would also have the advantage of guaranteeing that Virginia EE programs are measured in a way consistent with PJM’s evaluation of their capacity and planning value, and thus help ensure program metrics match wholesale cost causation/avoidance.
We recommend that while developing EE programs, the SCC (or other responsible body) evaluate PJM M&V protocols to determine if they can be used in Virginia, and/or evaluate if Virginia-specific M&V protocols can be designed to complement and avoid duplication with PJM’s.
f. Ensure Effective Access to Useful Data
Energy Efficiency programs are data intensive, and properly controlled access to utility AMI data can reduce the cost of identifying and verifying EE opportunities. EMC endorses and seconds the recommendations made by Virginia Advanced Energy Economy in the section of their comments in this matter titled “Rec. 2.1-C: Ensure Effective Access to Useful Data.”
5. Conclusion
The 2018 Virginia Energy Plan and the forthcoming SCC proceedings on demand side management make this an exciting time for energy efficiency in Virginia. EMC firmly believes that expanded incentives for energy efficiency will help Virginia meet its policy goals while economically benefiting Virginia ratepayers and businesses. Future EE programs will be most effective if they allow participants to retain the PJM capacity rights for their projects, and are designed in a way to encourage flexible small business participation. We thank the DMME for their time and attention to our recommendations.