- Under supply-side accounting, energy efficiency faces binding capacity market commitments, giving market operators more confidence in the quantity and delivery of energy efficiency measures.
- Supply-side accounting leads to improved load forecasts relative to demand-side accounting, which is inherently conservative, reducing load forecast uncertainty and avoiding capacity over-procurement.
- Energy efficiency—particularly non-utility or ‘merchant’ energy efficiency—faces fewer barriers to entry under a supply-side accounting paradigm because all resources are able to compete to provide capacity on the same forward time horizon.
- Capacity market and resource adequacy procurement outcomes are more cost-effective with supply-side accounting due to the factors above, which facilitate more energy efficiency participation and avoid inflated load forecasts, thereby reducing overall capacity costs.
The second paper, Enabling Cost-Effective Energy Efficiency in the Midcontinent ISO Resource Adequacy Construct, focuses on the MISO market, where the resource adequacy construct is being reviewed and updated in light of a changing resource mix and system needs. The Brattle Group identifies two key decision points for energy efficiency participation, and offers recommendations to maximize the benefits of energy efficiency in the MISO market.
First, The Brattle Group recommends continuing to allow energy efficiency to participate in the market as a supply-side capacity resource, for all the reasons outlined above. Second, The Brattle Group also recommends continuing to rely on gross accounting rather than making a switch to net accounting. Under gross accounting, peak energy reductions from an energy efficiency measure are compared to a baseline that corresponds with the MISO peak load forecast. Under net accounting, gross savings are adjusted to reflect total savings caused by an energy efficiency program. The Brattle Group explains that while net accounting has a role in evaluating the efficacy of state or utility energy efficiency programs, it is not a relevant metric for wholesale capacity markets, where what matters is real and verified energy efficiency contributions to resource adequacy—exactly what gross accounting measures.
“Imposing proof of ‘net’ savings on merchant EE providers would increase participation costs, reduce developers’ ability to achieve EE savings, under-count the total quantity of EE deployments, lead markets to procure more expensive (but unused) capacity resources, and increase costs for customers,” the paper finds. The Brattle Group further explains that studies to prove “causality” as would be required to determine net savings would be subjective, discriminatory, and unfairly burdensome, since equivalent determinations are not required for other resource types.
“Avoiding subjective and discriminatory administrative barriers to participation by energy efficiency—including merchant energy efficiency—is essential to maintain competitive markets,” said Dennis. “Allowing supply-side participation by energy efficiency and relying on gross accounting methodologies are two key ways to ensure that energy efficiency can compete fairly, and for customers and systems operators to leverage the benefits of that participation.”