National Standard Practice Manual for Energy
Description: National Standard Practice Manual for Energy Efficiency Cost-Effectiveness Prepared by The National Efficiency Screening Project Presentation at 2019 NASEO Mid-Atlantic Regional Meeting Erin Malone, Synapse Energy Economics June 3, 2019
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slide1. National Standard Practice Manual for Energy Efficiency Cost-Effectiveness Prepared by
The National Efficiency Screening Project
Presentation at 2019 NASEO
Mid-Atlantic Regional Meeting
Erin Malone, Synapse Energy Economics
June 3, 2019<br>
slide2. Overview What is the National Standard Practice Manual (NSPM)?
Which states are using the NSPM?
Database of State Efficiency Screening Practices (DSESP)
NSPM for distributed energy resources (DERs)
Questions / Discussion Slide 2<br>
slide3. What is the National Standard Practice Manual? 3<br>
slide4. NSPM for EE (Edition 1 - May 2017) 4 Align with applicable state policies
Treat costs & benefits symmetrically
Account for relevant impacts (even if hard to quantify)
A state’s test may align with a traditional test…. or not<br>
slide5. What’s Covered - NSPM Outline Executive Summary
Introduction
Part 1: Developing Your Test
Principles
Resource Value Framework
Developing Resource Value Test
Relationship to Traditional Tests
Secondary Tests Part 2: Developing Test Inputs
Efficiency Costs & Benefits
Methods to Account for Costs & Benefits
Participant Impacts
Discount Rates
Assessment Level
Analysis Period & End Effects
Analysis of Early Retirement
Free Rider & Spillover Effects Appendices
Summary of Traditional Tests
Cost-Effectiveness of Other DERs
Accounting for Rate & Bill Impacts
Glossary 5<br>
slide6. NSPM Principles Recognize that energy efficiency is a resource.
Account for applicable policy goals.
Account for all relevant costs & benefits (based on applicable policies), even if hard to quantify impacts.
Ensure symmetry across all relevant costs and benefits.
Conduct a forward-looking, long-term analysis that captures incremental impacts of energy efficiency.
Ensure transparency in presenting the analysis and the results. 6<br>
slide7. Implementing the Resource Value Framework Involves Seven Steps 7<br>
slide8. Cost-Effectiveness Perspectives California Standard Practice Manual (CaSPM) – test perspectives are used to define the scope of impacts to include in the ‘traditional’ cost-effectiveness tests
NPSM introduces the ‘regulatory’ perspective, which is guided by the jurisdiction’s energy and other applicable policy goals 8<br>
slide9. Relationship of Resource Value Test (RVT) to Traditional Tests – Results May Align or Not 9<br>
slide10. Which states are using the NSPM? 10<br>
slide11. *Numbers next to state abbreviations in map indicate number of NSPM references in state formal proceedings States Referencing and Applying the NSPM NSPM for Energy Efficiency State References and Application to Date<br>
slide12. NSPM Case Studies Case studies of NSPM application and supporting guidance documents are available on the NESP website.
In Minnesota, the MN Department of Commerce’s Framework Study applied the NSPM to develop a new primary cost-effectiveness test.
In Arkansas, the Parties Working Collaboratively followed the NSPM principles to assess the state’s current cost-effectiveness practices.
Rhode Island’s PUC developed a “Rhode Island Test” based on the NSPM principles. 12<br>
slide13. 13 Societal Cost Test as Applied in Minnesota Utility System Impacts<br>
slide14. 14 Recommended Minnesota Test<br>
slide15. Database of State Efficiency Screening Practices 15<br>
slide16. DSESP Background and Purpose Background
Part of the National Efficiency Screening Project, which produced the National Standard Practice Manual
Is a living database, updated as state practices change
Purpose
To provide information regarding state screening practices for ratepayer-funded electric efficiency programs
States can use the DSESP to learn from other state’s practices, and readily access policies, processes, and studies. Slide 16<br>
slide17. DSESP Scope The DSESP is still under construction
It currently includes 30 states
It will include all states by the end of 2019
The DSESP follows the structure of the NSPM, including state-by-state information regarding:
Which cost-effectiveness tests are used; primary and secondary
Key planning parameters; e.g., discount rate, study period
Which utility system impacts are accounted for
Which non-utility system impacts accounted for
The DSESP can be easily sorted by users
By state, by test, by planning parameter, etc.
The DSESP Includes sources for every data point Slide 17<br>
slide18. DSESP Data Graphic Presentation: which test is used? Slide 18<br>
slide19. NSPM for DERs 19<br>
slide20. NSPM for DERs (Edition 2 – forthcoming 2020) 20 Growing interest in range of DERs as grid resources and for distribution planning regulators need further guidance to support BCA considerations and common framework for DER analyses
States currently are using different techniques, methodologies, and assumptions for DER BCA, leading to inconsistency even within states
NSPM for DERs will generally apply principles from the NSPM for EE guidance to DERs to support consistent and economically sound BCA policies and practices
E4TheFuture is project coordinator and funder. Other funding sources being leveraged to support project
Project Schedule:<br>
slide21. Thank you! Questions? Erin Malone Synapse Energy Economics emalone@synapse-energy.com 21<br>
slide22. For more information visit www.nationalefficiencyscreening.org
For additional questions, email NSPM@nationalefficiencyscreening.org
or
Julie Michals, E4TheFuture jmichals@e4thefuture.org 22<br>
slide23. Appendix A The Traditional Cost-Effectiveness Tests 23<br>
slide24. Appendix B NSPM for DERs - Advisory Group 24<br>
slide25. 25 Appendix B NSPM for DERs - Consulting Team * with Janet Gail Besser as Advisory Group member<br>
slide26. Appendix B The Goal of the NSPM for DERs: Answering Key Questions Why a common framework for assessing the value of DERs?
How should the Utility Cost test or Societal Cost test be used in assessing DERs? What costs and benefits should be accounted for?
Should a different, state-specific test be used in assessing different types of DERs? If so, how should that test be designed?
Should multiple tests be used to assess DERs? If so, how? Or should the same tests be used for all DERs? If not, why not?
How should DER analyses account for revenue-shifting, cost-shifting, rate increases, or rate decreases?
How should third party capital be assessed in valuing DERs (in particular for non-utility system impacts)? 26<br>
slide27. Appendix B Three Tiers of DER Analyses Single-DER analysis; where one type of DER is assessed relative to a fixed (i.e., static) set of alternative resources.
Multiple-DER analysis; where multiple DERs are assessed and optimized relative to a fixed set of alternative resources.
Integrated-DER analysis; where all electric resources, both distributed and utility-scale, are optimized.
NSPM for DERs will focus on #1-2 27<br>
slide28. 28 Executive Summary
Introduction
Common Framework for Benefit-Cost Analysis of DERs
Energy Efficiency Resources
Demand Response Resources
Distributed Generation Resources
Distributed Storage Resources
Electrification
Non-Wires Alternatives/Solutions
Analysis of Multiple DERs
Integrated DER Planning
Tools and Techniques for DER BCAs Appendix B NSPM for DERs Table of Contents<br>
slide29. Appendix B Project will Build on Past & Ongoing Projects 29<br>
slide30. 30 Appendix B
EE vs Distributed Energy Resources Utility System Impacts<br>
slide31. Appendix B EE vs Distributed Energy Resources Non-Utility System Impacts 31<br>
slide32. Appendix C Limitations of the Rate Impact Measure Test The RIM Test not appropriate for cost-effectiveness analyses:
Does not provide meaningful information about the magnitude of rate impacts, or customer equity
Will not result in lowest costs to customers
Is inconsistent with economic theory. The RIM test includes sunk costs, which should not be used for choosing new investments
Can lead to perverse outcomes, where large benefits are rejected to avoid de minimus rate impacts
Can be misleading. Results suggest that customers will be exposed to new costs, which is not true
Other approaches should be used to assess rate and equity issues. 32<br>
slide33. Appendix C Better Options for Assessing Rate Impacts Participation impacts are also key to understanding the extent to which energy efficiency resources are being adopted over time. 33 A thorough understanding of rate impacts requires a comprehensive analysis of three important factors: Rate impacts, to provide an indication of the extent to which rates for all customers might increase.
Bill impacts, to provide an indication of the extent to which customer bills might be reduced for those customers that install distributed energy resources.
Participation impacts, to provide an indication of the portion of customers that will experience bill reductions or bill increases. Taken together, these three factors indicate the extent to which customers will benefit from energy efficiency resources.<br>
The National Efficiency Screening Project
Presentation at 2019 NASEO
Mid-Atlantic Regional Meeting
Erin Malone, Synapse Energy Economics
June 3, 2019<br>
slide2. Overview What is the National Standard Practice Manual (NSPM)?
Which states are using the NSPM?
Database of State Efficiency Screening Practices (DSESP)
NSPM for distributed energy resources (DERs)
Questions / Discussion Slide 2<br>
slide3. What is the National Standard Practice Manual? 3<br>
slide4. NSPM for EE (Edition 1 - May 2017) 4 Align with applicable state policies
Treat costs & benefits symmetrically
Account for relevant impacts (even if hard to quantify)
A state’s test may align with a traditional test…. or not<br>
slide5. What’s Covered - NSPM Outline Executive Summary
Introduction
Part 1: Developing Your Test
Principles
Resource Value Framework
Developing Resource Value Test
Relationship to Traditional Tests
Secondary Tests Part 2: Developing Test Inputs
Efficiency Costs & Benefits
Methods to Account for Costs & Benefits
Participant Impacts
Discount Rates
Assessment Level
Analysis Period & End Effects
Analysis of Early Retirement
Free Rider & Spillover Effects Appendices
Summary of Traditional Tests
Cost-Effectiveness of Other DERs
Accounting for Rate & Bill Impacts
Glossary 5<br>
slide6. NSPM Principles Recognize that energy efficiency is a resource.
Account for applicable policy goals.
Account for all relevant costs & benefits (based on applicable policies), even if hard to quantify impacts.
Ensure symmetry across all relevant costs and benefits.
Conduct a forward-looking, long-term analysis that captures incremental impacts of energy efficiency.
Ensure transparency in presenting the analysis and the results. 6<br>
slide7. Implementing the Resource Value Framework Involves Seven Steps 7<br>
slide8. Cost-Effectiveness Perspectives California Standard Practice Manual (CaSPM) – test perspectives are used to define the scope of impacts to include in the ‘traditional’ cost-effectiveness tests
NPSM introduces the ‘regulatory’ perspective, which is guided by the jurisdiction’s energy and other applicable policy goals 8<br>
slide9. Relationship of Resource Value Test (RVT) to Traditional Tests – Results May Align or Not 9<br>
slide10. Which states are using the NSPM? 10<br>
slide11. *Numbers next to state abbreviations in map indicate number of NSPM references in state formal proceedings States Referencing and Applying the NSPM NSPM for Energy Efficiency State References and Application to Date<br>
slide12. NSPM Case Studies Case studies of NSPM application and supporting guidance documents are available on the NESP website.
In Minnesota, the MN Department of Commerce’s Framework Study applied the NSPM to develop a new primary cost-effectiveness test.
In Arkansas, the Parties Working Collaboratively followed the NSPM principles to assess the state’s current cost-effectiveness practices.
Rhode Island’s PUC developed a “Rhode Island Test” based on the NSPM principles. 12<br>
slide13. 13 Societal Cost Test as Applied in Minnesota Utility System Impacts<br>
slide14. 14 Recommended Minnesota Test<br>
slide15. Database of State Efficiency Screening Practices 15<br>
slide16. DSESP Background and Purpose Background
Part of the National Efficiency Screening Project, which produced the National Standard Practice Manual
Is a living database, updated as state practices change
Purpose
To provide information regarding state screening practices for ratepayer-funded electric efficiency programs
States can use the DSESP to learn from other state’s practices, and readily access policies, processes, and studies. Slide 16<br>
slide17. DSESP Scope The DSESP is still under construction
It currently includes 30 states
It will include all states by the end of 2019
The DSESP follows the structure of the NSPM, including state-by-state information regarding:
Which cost-effectiveness tests are used; primary and secondary
Key planning parameters; e.g., discount rate, study period
Which utility system impacts are accounted for
Which non-utility system impacts accounted for
The DSESP can be easily sorted by users
By state, by test, by planning parameter, etc.
The DSESP Includes sources for every data point Slide 17<br>
slide18. DSESP Data Graphic Presentation: which test is used? Slide 18<br>
slide19. NSPM for DERs 19<br>
slide20. NSPM for DERs (Edition 2 – forthcoming 2020) 20 Growing interest in range of DERs as grid resources and for distribution planning regulators need further guidance to support BCA considerations and common framework for DER analyses
States currently are using different techniques, methodologies, and assumptions for DER BCA, leading to inconsistency even within states
NSPM for DERs will generally apply principles from the NSPM for EE guidance to DERs to support consistent and economically sound BCA policies and practices
E4TheFuture is project coordinator and funder. Other funding sources being leveraged to support project
Project Schedule:<br>
slide21. Thank you! Questions? Erin Malone Synapse Energy Economics emalone@synapse-energy.com 21<br>
slide22. For more information visit www.nationalefficiencyscreening.org
For additional questions, email NSPM@nationalefficiencyscreening.org
or
Julie Michals, E4TheFuture jmichals@e4thefuture.org 22<br>
slide23. Appendix A The Traditional Cost-Effectiveness Tests 23<br>
slide24. Appendix B NSPM for DERs - Advisory Group 24<br>
slide25. 25 Appendix B NSPM for DERs - Consulting Team * with Janet Gail Besser as Advisory Group member<br>
slide26. Appendix B The Goal of the NSPM for DERs: Answering Key Questions Why a common framework for assessing the value of DERs?
How should the Utility Cost test or Societal Cost test be used in assessing DERs? What costs and benefits should be accounted for?
Should a different, state-specific test be used in assessing different types of DERs? If so, how should that test be designed?
Should multiple tests be used to assess DERs? If so, how? Or should the same tests be used for all DERs? If not, why not?
How should DER analyses account for revenue-shifting, cost-shifting, rate increases, or rate decreases?
How should third party capital be assessed in valuing DERs (in particular for non-utility system impacts)? 26<br>
slide27. Appendix B Three Tiers of DER Analyses Single-DER analysis; where one type of DER is assessed relative to a fixed (i.e., static) set of alternative resources.
Multiple-DER analysis; where multiple DERs are assessed and optimized relative to a fixed set of alternative resources.
Integrated-DER analysis; where all electric resources, both distributed and utility-scale, are optimized.
NSPM for DERs will focus on #1-2 27<br>
slide28. 28 Executive Summary
Introduction
Common Framework for Benefit-Cost Analysis of DERs
Energy Efficiency Resources
Demand Response Resources
Distributed Generation Resources
Distributed Storage Resources
Electrification
Non-Wires Alternatives/Solutions
Analysis of Multiple DERs
Integrated DER Planning
Tools and Techniques for DER BCAs Appendix B NSPM for DERs Table of Contents<br>
slide29. Appendix B Project will Build on Past & Ongoing Projects 29<br>
slide30. 30 Appendix B
EE vs Distributed Energy Resources Utility System Impacts<br>
slide31. Appendix B EE vs Distributed Energy Resources Non-Utility System Impacts 31<br>
slide32. Appendix C Limitations of the Rate Impact Measure Test The RIM Test not appropriate for cost-effectiveness analyses:
Does not provide meaningful information about the magnitude of rate impacts, or customer equity
Will not result in lowest costs to customers
Is inconsistent with economic theory. The RIM test includes sunk costs, which should not be used for choosing new investments
Can lead to perverse outcomes, where large benefits are rejected to avoid de minimus rate impacts
Can be misleading. Results suggest that customers will be exposed to new costs, which is not true
Other approaches should be used to assess rate and equity issues. 32<br>
slide33. Appendix C Better Options for Assessing Rate Impacts Participation impacts are also key to understanding the extent to which energy efficiency resources are being adopted over time. 33 A thorough understanding of rate impacts requires a comprehensive analysis of three important factors: Rate impacts, to provide an indication of the extent to which rates for all customers might increase.
Bill impacts, to provide an indication of the extent to which customer bills might be reduced for those customers that install distributed energy resources.
Participation impacts, to provide an indication of the portion of customers that will experience bill reductions or bill increases. Taken together, these three factors indicate the extent to which customers will benefit from energy efficiency resources.<br>