More Efficient Energy Efficiency: Smarter Program Targeting Means Higher Savings

Energy conservation is a big industry in the United States. According to new research, there are currently over 1,400 different programs for various energy efficiency upgrades in the country. Between 1989 and 2010 the United States spent over $45 billion on customer energy efficiency and conservation, known as demand-side management (DSM) programs. As a result, cost effectiveness and efficiency measurement of DSM programs has become a popular area of study. In “Targeting utility customers to improve energy savings from conservation and efficiency programs,” Nicholas W. Taylor, Pierce H. Jones, and M. Jennison Kipp study the impacts of different energy efficiency programs in Florida and compare the energy saving outcomes achieved by targeting different groups of customers. Their results show that targeting high energy customers realizes the most substantial energy savings in DSM programs.

The authors adopt the Annual Community Baseline (ACB) approach to measure the performance of DSM programs, which involves four steps. First, the authors calculate an annual consumption baseline for every house. Second, they calculate the differences between the actual and baseline consumption. Next, they measure the differences in performance before and after participation in energy saving programs. Finally, energy savings are compared between treatment and control groups.

Using the ACB approach, Taylor et al. begin their analysis by studying three common DSM programs in Florida. The three strategies adopted by these programs are high-efficiency heat pump subsidies, insulation subsidies, and professional energy audits. Within each program the study divides the program participants into four quartiles according to their pre-participation energy usage levels, with Quartile 1 being the most energy efficient.

The results of the empirical analysis show that Quartile 4 customers, the least efficient, achieve the highest energy savings relative to other subgroups. In the high-efficiency heat pump subsidy program, Quartile 4 customers achieve energy savings of 22.2 percent over the control group, while the average of the four subgroups is only 11.4 percent. Quartile 4 customers in the insulation subsidy program achieve energy savings of 12.6 percent over the control group compared to an average savings of 3.6 percent. Similar results also appear in the professional energy audit program, where Quartile 4 customers achieve 5.8 percent more energy savings than the control group, 2.6 percent more than the average savings.

Taylor at el. link the performances of different subgroups to different targeting strategies. The “status quo” group represents the targeting strategy that does not distinguish between different energy usage customers. The “low hanging fruit” group consists of Quartile 2 to Quartile 4 customers. The “reaching” group represents a targeting strategy that attracts Quartile 3 and Quartile 4 customers. The “Great Expectations” group designates a targeting strategy that only attracts Quartile 4 customers. Comparing the four strategies, the authors find that targeting “Great Expectations” is the most effective by a surprising margin. Program impacts increased by 103 percent when the “Great Expectations” target strategy was adopted in the high-efficiency heat pump subsidy program instead of the “status quo.” For the insulation and professional energy audit programs, impacts increased by 246 percent and 80 percent respectively.

When energy savings groups are devising different DSM programs to save energy, they should be aware of the potential for impact improvement through appropriate targeting strategies. Under a fixed budget constraint, involving the right energy users can be more important than involving more people. If DSM program administrators adopted a targeting strategy as a key component of comprehensive energy information management systems, the benefits could be even greater. This research also suggests that energy efficiency tax credit plans should be devised to attract the people who have the most potential to save energy.

Feature Photo: cc/(Christine)