#OpenEnergyMarkets and the EPA Carbon Rules

Yesterday, the EPA released their long-awaited carbon rules that aim to reduce US carbon by 30% by 2030.  

While there will of course be plenty of partisan bickering about jobs versus our burning planet, the more interesting issue question is how states will meet the carbon mandates given the flexibility in the EPA draft regulations.

In most states, energy efficiency will be the cheapest method to reduce carbon emissions. But these EPA rules should be a catalyst to dramatically scale energy efficiency via #OpenEnergyMarkets. 

Our friends at EnergySavvy made some great points in a blog post yesterday:

Even though the U.S. is on a positive energy efficiency trend – annualized electricity savings are up 82% in 5 years and utility programs saved 126 Terawatt hours in 2012 – the rate of spending has outstripped savings. Spending was up 155% over the same period to $6.9B in 2012.

This spending is almost 100% government and utility run “programs” that involve a considerable amount of planning, bureaucracy and inefficiency. To scale energy efficiency, therefore, the paradigm of command-and-control energy efficiency “programs” must end, and “program administrators” need to transition to “market administrators”. 

This starts with #OpenEnergyData, but also requires #OpenEnergyMarkets, which can be generally defined as the ability for third parties to get paid for generating verified energy savings.

These markets exist in a fairly robust manner in the Commercial & Industrial demand response space, with companies like EnerNoc managing load reductions for large manufacturing plants and businesses, getting paid by Independent System Operators like PJM that are in charge of managing the grid. 

In the residential sector, there are a few models of how #OpenEnergyMarkets can be created and structured. Perhaps the most advanced market is the California ISO, which has created rules enabling third parties to monetize peak demand reductions from residential homes. So far the most innovative company taking advantage of this market is Ohmconnect, which frames their business model this way:

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But while the CAISO market is a great model for residential peak demand reductions, it does not yet cover energy efficiency, or the reduction of energy regardless of time.  

The CT Class III REC market provides one example of an energy efficiency market in action. In this market, third parties can apply to the CT Public Utilities Regulatory Authority (PURA) to get a project certified, and eligible to sell credits to electricity suppliers that are required to buy these RECs. Unfortunately, it is difficult for residential projects not run by the utility companies to qualify, as only 4/35 approved projects are residential, and those are all for lighting.

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Connecticut’s challenge is an ad-hoc process for measurement & verification (M&V), which puts pressure on the regulators to only approve things that have already been approved in previous processes. This makes things easier for regulators, but much harder for innovative companies trying to create new models for saving energy.

Illinois, on the other hand, represents perhaps the most mature energy efficiency market in the country today. Despite relatively low energy prices, Illinois enables third parties to bid energy efficiency programs to the Illinois Power Agency (IPA), which much be accepted as long as they are cost-effective. This simple, but powerful rule was embedded in Illinois’ 2011 smart grid bill to mandate that the IPA procure:

Cost-effective energy efficiency programs or measures that are incremental to those included in energy efficiency and demand response plans

There are now more third-party programs than utility-administered programs for ComEd, the biggest electric utility in the state. 

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This third-party program structure can eventually turn into #OpenEnergyMarkets if policymakers, regulators and utilities can design transparent protocols for measuring savings that meet the standard the EPA has set:

quantifiable, non-duplicative, permanent, verifiable, & enforceable

To reach this standard will require a thoughtful process that leverages the market templates that exist today, a commitment to #OpenEnergyData, and the adoption of a “market creation” mentality that rewards a new generation of companies dedicated to saving energy.