Ameren Missouri Warns of Diminishing Returns from Energy Efficiency

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LED Light Bulb CreeAmeren Missouri warned state regulators in a recent filing that it sees diminishing returns from energy efficiency.

The warning came within a three-year energy efficiency proposal submitted before the Missouri Public Service Commission. The utility is seeking approval for $135 million in energy efficiency programs to achieve $260 million in savings over 20 years.

The utility, which serves 1.2 million customers, said energy efficiency is becoming increasingly important, especially in light of federal plans to reduce carbon dioxide  from the power sector.

However, it is also becoming increasingly hard to achieve energy savings.

“It is fair to say that the ‘low hanging fruit’ is harvested first and additional savings become incrementally more difficult and costly to achieve,” the utility said in the PSC filing.

Ameren pointed out that its latest three-year plan does not save as much energy, for money spent, as did its previous three-year plan. The new plan spends almost as much — 90 percent –yet achieves only 54 percent of the energy savings.

“This is not by any means an indication of a decrease in Ameren Missouri’s commitment to energy efficiency,” the utility said. “Instead, it is a manifestation of a dynamic marketplace that has already seen significant evolution from three years ago.”

Several factors are making it harder for utilities to achieve their own energy savings goals. These include federal appliance standards that are separately driving down home energy use.

Lower energy costs also impact the  cost-effectiveness of energy efficiency programs. When energy costs are high, there is a greater gap between what it costs to produce energy and what it costs to save energy.  Today’s lower power and natural gas costs diminish the gap and make energy efficiency savings look less impressive.

“This market price decline impacts the cost effectiveness of energy savings and can cause previously marginal measures to no longer be worth offering based on economics,” the utility said.

Energy efficiency never more important

These factors arise at a time when “the importance of energy efficiency in the resource mix of utilities may never have been greater,” the utility said.

Energy efficiency is one of four pillars the Environmental Protection Agency advises that states consider to meet carbon mandates now under review in the Clean Power Plan. Since 2009, Ameren’s energy efficiency efforts have saved 900,000 MWh, which reduced carbon dioxide emissions by an estimated 600,000 tons.

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Ameren urged state regulators to begin a dialog on ways to overcome the problem of diminishing returns. It suggested  possible legislative and rule changes to incentives, cost-effectiveness tests, and rate design. The utility also is looking at innovations to unlock more energy efficiency potential, among them a small business direct install program, pre-paid billing, company-owned street lighting, distributed generation and electric vehicles.

Despite the diminishing returns, energy efficiency remains  cost-effective. Ameren’s recent integrated resource proposal found that the cost of saving a kWh is generally cheaper than the cost of generating a kWh from a new resource.

In fact, because of the energy savings it is achieving, Ameren says it can retire its Meramec Energy Center by 2022 without building replacement generation, “thus avoiding significant capital investment,” the filing said.  Meramec is Ameren’s oldest coal-fired system.

Ameren’s new three-year energy efficiency plan is projected to save more than 400,000 MWh for businesses and households.

“This plan demonstrates our continued commitment to energy efficiency, which offers a wide variety of ways for our customers to reduce energy consumption and better manage their energy costs,” said Tara Oglesby, assistant vice president of customer experience at Ameren Missouri. “Investing in energy efficiency programs is the right thing to do for our customers and the environment.

The 2016–2018 energy efficiency plan includes 10 programs that offer a variety of energy-saving opportunities from reduced prices on energy efficient lighting to efficient HVAC replacement rebates and appliance recycling incentives.

Changing energy efficiency market

The utility asked for some deviations from its previous approach to energy efficiency, noting that “At their core, energy efficiency programs are marketing programs that must respond to a changing marketplace and keep up with new technology offerings, delivery channels, and customer preferences.”

The changes include:

  • Annual updates of Ameren Missouri’s Technical Resource Manual to ensure the latest and best information is used when determining savings.
  • Simplified evaluation, measurement, & verification to reduce program costs and reduce the likelihood of litigation
  • A self-adjusting energy savings target to improve responsiveness to market conditions and eliminate ambiguity for stakeholders.
  • Program continuity between its current energy efficiency plan and its 2016-18 plan to ensure consistent availability of rebates.

Missouri energy efficiency programs i received a boost with passage in 2009 of the Missouri Energy Efficiency Investment Act (MEEIA), which requires utilities to capture all cost effective energy efficiency.

Ameren credited the MEEIA framework for boosting energy efficiency by paving the way for utility financial incentives, timely cost recovery and earnings opportunities. The utility was compensated for the energy efficiency program through what it calls a demand side investment mechanism, which includes collection of predicted costs through a rider on customer bills. The new plan calls for continuation of the recovery mechanism.

Ameren’s 2016-18 efficiency plan is available on the PSC site.

Track utility energy efficiency proposals by subscribing to EnergyEfficiencyMarkets’ free newsletter.

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Elisa Wood About Elisa Wood

Elisa Wood is the chief editor of MicrogridKnowledge.com. She has been writing about energy for more than two decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.

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