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A New Dawn for Demand-Side Management

A New Dawn for Demand-Side Management

Utility incentives and government funds help drive upgrade activity for electrical contractors

Rebates, energy grants, stimulus funds, financing options, custom programs, upgrade incentives… Never have so many funding options been available to electricity customers. Never has the U.S. legislative and economic landscape been so favorable to commercial, industrial, and institutional end-users pursuing energy-efficient lighting and electrical product upgrades in their facilities (see How to Identify Energy-Efficient Buyers), and never has a community been better positioned to help end-users capitalize on today’s extensive range of demand-side management (DSM) opportunities than electrical contractors.

Looking back

DSM practices were first introduced by many of the nation’s electric utility companies during the height of the oil crisis of the 1970s, when America’s attention was necessarily focused on and frantic over the status of its precious and finite energy supply. At that time — though seemingly at odds with a utility’s goal of selling more electricity — product rebates and other incentives encouraging the use of more energy-efficient technologies were offered by utilities because, in light of our limited energy sources and relative to the capital-intensive construction of more power plants on the supply side, DSM proved to be a solid and significantly less-costly means of meeting the country’s growing energy requirements. It remained effective through the ensuing decades, with a 1990’s U.S. Department of Energy (DOE) analysis confirming that DSM measures — or activities that incentivize users to reduce their energy consumption or modify their patterns of usage (such as through load shedding or installation of energy-efficient products) — could be counted on to meet as much as one-third of our nation’s electricity requirements.

Over the years, and through changing utility approaches to the market, the magnitude of utility DSM funds and programs has waxed and waned based on utility balance sheets, competitive forces, and legislative directives. Today, industry analysts agree that we are now in a time of aggressive DSM activity in which the nation’s utilities and state energy offices (supported by a proactive federal administration intent on enhancing our energy independence and boosting the use of clean and green energy) have never offered such a high level of funding or such a varied menu of options for every customer and need.

According to the U.S. Energy Information Administration’s 2008 Electric Power Annual (the most current edition available), the nation’s 3,000+ utilities spent a reported $3.72 billion on DSM activities in 2008, a 47% increase over the $2.52 billion spent in 2007 and an 81% increase over the $2.05 billion spent in 2006 (click here to see Figure). Data collected by the Consortium for Energy Efficiency reveals that relative to 2008, U.S. utilities further increased their spending on energy efficiency programs by 43% in 2009. Recent forecasts call for continued growth of this trend, with a recent joint analysis by the DOE and Lawrence Berkeley National Laboratory predicting that these levels could double or even triple by 2020, potentially rewarding customers who pursue energy-efficient upgrades with up to $12 billion in incentives by the end of this decade.

Legislative support

Without a doubt, the current legislative landscape has created a more favorable environment for DSM than ever before. Among other ground-breaking federal overtures, two pieces of energy legislation enacted in the past five years have paved the way for DSM and significantly expanded the financial rewards offered on energy-efficient initiatives.

The landmark 2005 Energy Policy Act put into place unprecedented financial incentives in the form of tax deductions for commercial buildings that conduct qualifying energy-efficient upgrades over the thresholds set forth by the ASHRAE 90.1-2001 standard. Originally available for eligible technologies placed into service between Jan. 1, 2006, and Dec. 31, 2007, the commercial building tax deduction has since been extended through Dec. 31, 2013. This will help to offset some of the cost of an upgrade and channel our nation’s commercial buildings toward a more energy-efficient and sustainable future.

Driven by the Obama administration’s desire to reduce America’s energy consumption/costs and enhance our level of energy independence and global competitiveness, the American Recovery and Reinvestment Act (ARRA), signed into law in 2009, has been instrumental in making billions of dollars in new funding available for state- and utility-sponsored energy efficiency programs and other green initiatives.

“This is indeed an extremely robust and active time for demand-side management activity,” confirms Ed Legge, spokesman for the Edison Electric Institute, which represents roughly 70 investor-owned utilities that account for some 70% of the electricity currently sold in the United States. “Driven by a very informed and proactive White House, green practices and DSM measures have finally entered the mass consciousness. As a result, the water level is increasing, and all boats will rise with the tide.”

DSM comes into its own

Supported by current utility directives, the success of past DSM activities in reducing energy consumption, and the availability of new funding for energy efficiency programs, DSM programs and product rebate opportunities are being offered by more entities and to a greater degree than ever before.

“Two years ago, our tracking revealed that 36 states offered some level of funding for lighting upgrades, even if it was only in a small way,” confirms Leendert Enthoven, president of BriteSwitch LLC, a Princeton, N.J.-based company that specializes in securing and managing rebates, tax incentives, and other financial rewards (primarily in the lighting arena) for commercial properties. “In 2010, however, our data shows that organizations in 47 states are now actively offering incentives for lighting upgrades — a 31% growth in national participation — and the programs themselves are far more rich, generous, and extensive.”

Leon Mowadia, Jr., a national accounts manager for Texas-based Facility Solutions Group, a national provider of electrical products, services, and energy management solutions, concurs. “We’ve seen utilities in states that have never traditionally offered rebates or incentives coming onboard with programs for the first time, while many of the more active utility companies nationwide are introducing aggressive and creative new programs involving such offerings as immediate rebates and on-bill financing.”

According to Enthoven, utilities and other organizations that have historically been less active in the rebate arena, such as those in the South, are definitely coming onboard quickly and making more money available. At the same time, he says traditionally active utilities, such as those in the Northeast (e.g., NY, NJ, and MA), Northern Midwest (e.g., IL, MI, and WI), and Western regions (e.g., CA, OR, WA, NV, and AZ) are ramping up their programs as well.

With commercial buildings in nearly 70% of the country now covered by some kind of utility rebate or other financial incentive, DSM has hit a new stride and is poised to help drive greater upgrade activity than ever before. According to Enthoven, popular lighting products rebated by most utilities include T8 and T5 lamps, electronic ballasts, ceramic metal-halide technology, CFLs, occupancy sensors, induction lighting, and LEDs, for which many rebate program standards are still being written but that definitely represent an up-and-coming opportunity.

Upgrade opportunities

The existence of these rebates is definitely driving upgrade activity in the markets served by Chesterfield, N.J.-based Bauer & Bauer Electric, Inc., says Bill Bauer, owner/operator of the firm. “In today’s economy, even though it might make perfect financial sense for a customer to undertake an energy-efficient upgrade, it can still be difficult to sell a project without a rebate,” he says. “The rebate can help ensure that the project payback period is brought to under two to three years, which we’ve found to be the tipping point for many commercial customers — as the time limit on these rebates often forces a customer to move more quickly to complete the project. So we’ve definitely seen a growth in our business when rebates are available.”

While most utility rebate dollars and programs are currently associated with lighting — because lighting upgrades are relatively easy to conduct and can deliver sizable savings quickly — other electrical technologies are making headway. Dave Hayward, Connecticut energy efficiency fund program administrator at Connecticut Light and Power (CL&P), which serves more than 1.3 million customers in Connecticut, explains his utility not only rewards lighting programs, but also a broad range of other energy-efficient building envelope technologies, such as variable-frequency drives, stack economizers, boilers, condensing units, chillers, wastewater treatment pumps, LED cooler lights, and process improvements.

A long-time leader on the DSM frontier, CL&P’s approach to DSM is “fuel neutral,” maintains Hayward, explaining that it will consider any energy-efficient source that saves BTUs and develop an incentive for that technology. CL&P, United Illuminating, and the state’s natural gas utilities design and administer the programs of the Connecticut Energy Efficiency Fund, which is supported by ratepayer contributions. The Energy Efficiency fund drives a variety of DSM programs that use incentives and low or no-interest customer loans to encourage energy-efficient new construction and retrofit projects in addition to hosting educational programs, such as technology seminars for contractors and distributors.

“Because of the key role that they play in helping to seed more energy-efficient technologies in the marketplace, we treat contractors like preferred customers and try to make the process easy for them — from understanding the technology itself to helping with the paperwork aspect — to encourage their greater participation,” says Hayward.

Tangible results

According to the Energy Information Administration’s 2008 Electric Power Annual, the money that utilities have spent on DSM activities has not been in vain. The $3.72 billion spent in 2008 delivered energy savings of more than 86 million MWh, an amount that could power the entire states of Missouri or Washington. The same study projects that while electricity consumption in the U.S. residential, commercial, and industrial sectors will grow at an annual rate of 1.07% from 2008 through 2030, energy efficiency programs have the potential to reduce this growth rate to 0.83% per year from 2008 through 2030 — theoretically to as low as 0.68% per year under an ideal set of conditions.

At CL&P, the value of DSM has been proven many times over, says Hayward. “Here in New England, where we have high population, congestion charges, and restrictions on building new capacity, we clearly need to reduce energy demand,” he says. “Every $1 invested in a Connecticut Energy Efficiency Fund program results in approximately $3 in electric and gas system benefits. With an expanding U.S. population that relies on an ever-increasing range of electrical gadgets like computers, cell chargers, and other electronics that are often kept on in an instant-start mode, our energy needs continue to grow by leaps and bounds. We truly can’t see a sunset on the opportunity for DSM incentives.”

Contractor connection

All on their own, energy-efficient upgrades represent some of the most attractive investments in the marketplace today. The current record-high availability of a broad range of DSM and other financial incentives only improves ROIs, reduces payback periods, and provides an even more compelling reason for end-users to pursue an upgrade. The key is education of your customers.

Savvy electrical contractors looking for new or supplemental revenue streams should familiarize themselves with their local DSM opportunities so that they can deliver this value-added opportunity to their customers, thereby securing a position in this exciting upsell market. “DSM activity is currently at a very high level, and at least 50% of the projects we’re conducting today qualify for a rebate,” says Craig Coffey, vice president of Maul Electric, a mid-sized industrial/commercial contractor located in central New Jersey. “With both rebate offerings and the technology changing so rapidly these days, we try to stay on top of these details so that we can offer customers the most up-to-date information and recommendations.”

Bauer reiterates the importance of taking the time to research this information. “In addition to helping a customer reduce the cost of their upgrade project, a contractor’s in-depth knowledge of local rebate opportunities and other financial resources will definitely serve to elevate that contractor’s value in the customer’s eyes and help secure repeat business,” he says.

In full agreement with this philosophy is Phil Burne, vice president of sales & marketing for Ohio-based CLS, a national leader in facility management services that boasts more than 1,400 electrical contractors on active duty nationwide. Burne advises that contractors also be well-versed in the merits of the upgrade itself. “Contractors need to be able to demonstrate to their customers the sound business principles behind the upgrade, the sustainable energy savings and improvements it will drive, and the environmental benefits it will deliver,” he says. “Then it’s time to present any incentives or rebates available as true ‘icing on the cake,’ a bonus that will help enhance an already attractive and justified investment.”

Bloom, a freelancer and consultant, is an 18-year veteran of the lighting and electrical products industry. She can be reached at [email protected]

SIDEBAR: How to Identify Energy-Efficient Buyers

E Source, a company headquartered in Boulder, Colo., that provides independent research, advisory, and information services to utilities, major energy users, and other key players in the retail energy marketplace, recently developed “Four Segments of Energy-Efficiency Buyers,” a method for segmenting U.S. households that identifies their readiness to participate in demand-side management (DSM) programs, particularly those focused on energy efficiency. This research was based on a survey that focused on products and services as well as the saturation of appliances and equipment. According to E Source, utilities and efficiency implementers can use the following four segments to better market DSM program offerings and understand the motivations of consumers.

EE Achievers. The energy-efficiency (EE) Achievers segment, which makes up 12% of the population, includes those customers most engaged with DSM programs. They have demonstrated willingness to participate in more than one DSM action, which could include recent rebate activity, weatherization, audits, load management, or more than one compact fluorescent lamp purchase. E Source considers this the prime target segment for additional DSM programs.

EE Anticipators. The EE Anticipators segment (26%) is dominated by customers who are inclined to participate in DSM programs but have not yet done so extensively. Possessing some of the same demographic characteristics and attitudes as the EE Achievers, they say they will start participating in the coming 12 months. E Source considers the EE Anticipators to be a strong secondary audience for DSM programs.

EE Uncommitteds. Although consumers in the EE Uncommitteds segment (25%) show high interest in saving money through saving energy, they are not ready to commit to participating in utility programs. EE Uncommitteds appear to have significant barriers to participation and could therefore be a good segment for low-cost and no-cost approaches to energy savings.

EE Indifferents. The EE Indifferents, the largest segment at 37%, is the least promising target audience for DSM program marketing. They are taking few, if any, DSM actions — and are the least enthusiastic about saving money through energy savings.

“Understanding exactly what customers need and want from their utility is critical to developing energy-efficiency programs and demand-response plans that get results,” says E Source Research Manager Alexandra Behringer. “Our research shows that after participating in one DSM program, the chances that a customer will participate in another DSM program nearly doubles — and keeps increasing over the next several programs in which they participate.”

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