End-Use Energy Efficiency: National Plan for Regional Energy Challenge 26 - 27 July, 2010

1. Euro-Mediterranean
Energy Market Integration Project
Germany
France
Lebanon
Five tests for DSM cost effectiveness
Tunis, 26 July 2010
Belgium
Dr. Albrecht Kaupp
Team Leader
“The contents of this publication are the sole responsibility of
the author and can in no way be taken to reflect the views of the
European Union”.
This project is funded
by the European Union
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2. Support for the enhanced integration and
the improved security of the
Euro-Mediterranean energy market
This project is funded
by the European Union

3. A regulator’s basic recommendation
A power utility should consider energy
efficiency as a RESOURCE and should
spent money to PROCURE that resource
as they would for other resources.
The choice is between a new MW power plant or a NEGAWatt power plant
This project is funded
by the European Union
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4. Power Utilities basic response
“We agree as long as DSM projects can
deliver as reliably and as predictable
MWh saved as we supply MWh generated
This project is funded
by the European Union
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5. How does a utility buy a kWh of solar electricity ?
Power industry grid
You are an IPP Your meter
40 $Cents/kWh
Feed-in-Tariff
The bottom line: An almost risk free investment in this PV power
plant should earn you an 8% interest every year for 20 years
This project is funded
by the European Union

6. How do you sell a kWh of electricity saved
Your 2 kWh/day The new one has an energy
fridge goes here star rating of 1.3 kWh/day
If 1,000,000 are bought then you are operating a NEGAWATT Power
plant supplying (2 - 1.3) x 365 = 255 GWh/ year (saved)
This project is funded
by the European Union
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7. You may sell your kWh (saved) from
your NEGAWATT power plant by
…..receiving a cash rebate from a power utility
(investment subsidy for you and buying kWhS
for the power utility )
…..a tax incentive by the Government
(revenue loss to the treasury)
….. Sell the kWh to utilities and others that must buy
white certificates for a market price
….. but you cannot sell the kWh saved under a feed-
in-tariff since you cannot transmit “kWh saved”
This project is funded
by the European Union
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8. Four cost effectiveness tests judge the
total effectiveness of these schemes
- Participant (Quantifiable benefits and costs to a customer
participating in the program)
- Ratepayer Impact Measure (What happens to all
customer rates due to changes in utility revenues and operating
costs by the program)
- Total Resource Cost (Net costs of the program based on
total costs including participants and utility’s costs)
- Program Administrator Cost (all program
management costs including incentives costs to the participants )
This project is funded
by the European Union
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9. Only the very naive or very brave will try to
solve this left equation
This project is funded
by the European Union
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10. National compact fluorescent lamp (CFL) campaigns
Baseline ILB CFL 15 Watt
60 Watt, 1000 h life 4000 h life
2000 hours/year 2000 hours/year
8 $c/kWh, 1 US$ 8 $c/kWh, 6 US$
This project is funded
by the European Union
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11. US$ costs and savings over 24 months
NPV (all costs) = 6 @ 10% per year
-$6 0 0 0
6 months
1 1 1 1
$ 3.6 3.6 3.6 3.6
NPV (all savings + incentives) = 7.45 @ 10% per year
Benefit/Cost = 16.72 / 6 = 2.8
This project is funded
by the European Union
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12. Participants test conclusions
….You invested $6 in one CFL
….Financially attractive investment: Benefit/Cost = 2.8
....Return on CFL investment about 165 %
….Pay back period only 7 months but CFL last 24 months
….180 kWh saved by the CFL, before it burns out, are up
for sale if you find a buyer
….No apparent need for incentives through utilities !
WHY REBATES or
INCENTIVES ?
This project is funded
by the European Union
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13. …..Let the debate begin
Stay cool and unbiased
Define and argue scenarios
Be informed www.energy.ca.gov
Target subsidies to the needy
in other words think “BAC”
This project is funded
by the European Union
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14. …..The “50 kWh metered lifeline tariff ” poor
household scenario :Provide CFL’s for free
Logical conclusion: Even providing the
CFL for free at $ 6 benefits the utility based
on a program administrator cost test (PAC)
Utility supply costs are 5 $cents/kWh
Utility realized revenues are 1 $cents/kWh
Loss reduction to Utility 180 x 4 = $ 7.2 per CFL
Free CFL distributed (“cash rebate”) $ 6.0 for CFL
Net benefit to utility $ 1.2
The utility has just bought 180 kWh of saved electricity for
600/180 = 3.3 $Cents/kWh from this consumer group
This project is funded
by the European Union
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15. … The “commerce” scenario
Logical conclusion: No power utility will
voluntarily promote CFL in this sector
under such conditions
Utility supply costs 8 $cents/kWh
Utility revenues are 10 $cents/kWh
Revenue loss for utility 180 x 10 = $ 18.0 per CFL
Profitability loss 180 x (10-8) = $ 3.6 per CFL
This project is funded
by the European Union
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16. The basic problem: „Rate Cases“
Needed income from electricity sales
SAR($ / kWh ) 
Annual sales in kWh
In a “rate case” the power utility reports to a regulator its
expected kWh sales and required income which includes
an acceptable return for the investors. If the regulator
approves this approach, the power utility would not always
benefit from reduction of kWh sales by a DSM program.
Rates are fixed for 3 - 5 years and usually not renegotiable.
Intelligent but fair decoupling of tariffs and targeted DSM is
required to make DSM attractive to a power utility.
This project is funded
by the European Union
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17. Rate Impact Measure (RIM)
A power utility has settled its rate case of annual required
revenues of $ 500 Million from expected sales of $ 10
Million MWh of electricity. The regulator approved SAR is
therefore 5 Cents/kWh for the next 3-5 years.
A national CFL campaign manages a penetration of 5
CFL each for 100,000 business. Estimated 90,000 MWh
of electricity are not bought and the utility looses $ 9
Million revenues from this sector annually .
This project is funded
by the European Union
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18. Required income split up
The utility reports its split up for the required income of
$ 500 Million as follows
- 30% fixed cost ($ 150 Million)
- 70% variable costs ($ 350 Million).
Fixed Cost (30%) Variable Cost (70%)
Interest Fuels
Debt service Consumables
Depreciation Repair and maintenance
Taxes, Royalties Technical losses
Public relations
Staff cost
Lease, insurance
Pension fund
Dividends
This project is funded
by the European Union
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19. The rate increase asked by the utility
$350 Million 9.91
New cos t  $150 Million   $496.85 Million
10
$496.85 Million
New SAR   5.013 Cents / kWh
9.91 Million MWh
The range of variations between 0% and 100% fixed cost
0% fixed costs: 5.00 Cents/ kWh ( 0% tariff increase)
100% fixed costs: 5.045 Cents/ kWh (1% tariff increase)
This project is funded
by the European Union
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20. Most sensitive cases and concerns
 Power utilities which have high fixed costs and no fuel costs
such as RE power plants and distribution companies are
mostly vulnerable to reduced sales through DSM.
 Too generous rebates and other financial or fiscal incentives
resulting in “paying for the same kWh saved twice”.
 Utilities misunderstanding tariff decoupling and increasing
fixed monthly service fee or demand charge.
 Utilities reducing their natural business risk by blaming
successful DSM for revenues losses even if variation in cold
and hot days have caused the consumption to go down.
This project is funded
by the European Union
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21. The dream approach
A Government or power utility should tender a national
energy efficiency program (NEEAP) as a complete
package. Many variations are possible and could be
refined:
“We offer $ 500 million over 5 years to the bidder with
the lowest average $/MWh (saved) “ or
“We offer 90% of the kWh supply cost of our next
planned 300 MW peak load expansion in 2015 to a
bidder who could avoid this investment as reliably and
on time as the peak capacity expansion.
This project is funded
by the European Union
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22. The problem with this dream
Writing an offer for this tender is more costly,
more complicated and requires more data input,
many more field surveys, monitoring and
experience than preparing the engineering
procurement offer for a 300 MW “peaker”
Let us sponsor such an attempt and call it
“Public tendering of NEEAP’s”
This project is funded
by the European Union
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23. First signs of climate change and adaptation
This project is funded
by the European Union
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24. Energy modesty as inconvenient truth
Best case future
scenario
India and China 2060
This scenario may require
CHINA two resource worlds
INDIA
HUMAN DEVELOPMENT INDEX,
a measure of human well-being, reaches Earth I Earth II
its maximum plateau at about 4000 kWh
of annual electricity use per capita.
Poverty alleviation is therefore strongly
linked to increased electricity
consumption up to a certain level.

25. Convergence and Contraction by ALL
Shadow of possible scenarios
The one Earth scenario of
convergence and contraction of
the energy consumption among
industrialized and industrializing
Countries

26. “Everything should be made
as simple as possible, but
not simpler”
(ALBERT EINSTEIN)
THE END
This project is funded
by the European Union
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