# Presentation: 266192

## Total Resource Cost Effectiveness Test

- Utility Brown Bag Series
- by
- Tom Eckman, NWPCC
- Ken Keating, BPA
- October 4, 2006

## The Plan’s Definition of Resource Cost-Effectiveness Comes From the Regional Act

***"******Cost-effective******,”*** means that a measure or resource must be forecast:
- to be _*reliable and available*_ within the time it is needed
- to meet or reduce the electric power demand of the consumers _*at an estimated incremental system cost no greater than that of the least-cost similarly reliable and available alternative*_ measure or resource, or any combination thereof.

## Under the Act the term "system cost" means:

- An estimate of _*all direct costs*_ of a measure or resource over its effective life, including:
- the cost of distribution and transmission to the consumer
- waste disposal costs
- end-of-cycle costs
- fuel costs (including projected increases)
- and such quantifiable environmental costs and benefits as are directly attributable to such measure or resource

## The Act’s Definition of Cost-Effectiveness

- Seeks to minimize the _*total cost*_ of meeting the region’s need for the services provided by electricity, i.e., its goal is _*economic efficiency.*_
- Does not address the _*distribution*_ of these costs among parties in the region

## Alternative Cost-Effectiveness Tests

- _Participant Cost Test (PTC)_
- Costs and benefits to the program participant
- _Total Resource Cost (TRC)_
- All Quantifiable costs & benefits regardless of who accrues them.  Includes participant and others’ costs
- _Utility Cost Test (UTC)_
- Quantifiable costs & benefits that accrue only to the utility system.  Specifically excludes participant costs
- _Rate Impact Measure (RIM)_
- Net change in electricity utility revenue requirements.
***Is a measure of “equity”, not “cost-effectiveness”***
- Attempts to measure rate impact on all utility customers especially those that do not directly participate in the conservation program
- Treats “lost revenues” (lower participant bills) as a cost

## Common Metrics for TRC Cost-Effectiveness

**=**

- Discounted Present Value of Benefits ($)

- Discounted Present Value of Costs ($)

**=**

- Discounted Present Value Costs Annualized over Life ($)

- Annual kWh Saved at Bus Bar (kWh)

- Benefit/Cost Ratio

- Net Present Value

- Levelized Cost (for comparison to other resources)

**=**

- Discounted PV of Benefits – Discounted PV of Costs ($)

## Each Conservation Measure Has a Different “Cost-Effectiveness” Limit Based on When It’s Savings Occur

**Weighted Average Value of Space Heating Savings = $41/MWh**

**Weighted Average Value of Space Cooling Savings = $78/MWh**

## Plan Uses Total Resource Cost (& Benefits) Perspective

- Best meets the requirements of the Regional Act
- Considers all quantifiable costs & benefits regardless of who accrues them
- Ensures that conservation expenditures are good for the power system, the customer and society
- Allows conservation to be compared to other resources considered for development by including all quantifiable costs & benefits
- Was _*strongly*_ recommended by utilities in first Council Plan
- Plan conservation targets would be _*significantly*_ higher if Council had used only “Utility Cost”

## Why Council Uses TRC (1)Avoids Potential Double Counting of the Savings

- Utility invest $2500 in efficient motor to acquire 5000 kWh/yr savings
- Levelized Cost = 3.4 cents/kWh
- B/C = 1.32
- Customer matches $2500 utility investment to save the same 5000 kWh/yr
- Simple payback = 10 years, motor last 20 years
- Total of _*all direct cost*_ is $5000 for 5000 kWh/yr of savings
- Levelized  cost = 6.8 cents/kWh
- B/C ratio = 0.66

## Why Council Uses TRC (2)Directs Funds Toward Measures That Optimize Total Utility and Customer Investments

- Utility invest $600 toward cost of $6000 solar PV system that saves 1200 kWh/yr
- Alternatively utility and consumer could:
- Invest $160 in 40 CFLs to save 1200 kWh, reducing cost $440
- Invest $600 to buy 150 CFLs, saving 5000 kWh, quadrupling savings
- Especially important when budgets are limited

## Care Must Be Used in Applying The Plan’s Cost-Effectiveness Results “Prescriptively”

- Not all measures are in the Plan
- Plan contains over 1000 applications of specific EE technologies
- NOT an exhaustive list of all possible measures & applications
- Plan assumes administrative costs = 20% of capital
- Administrative cost vary widely by measure & by program design
- Measure cost-effectiveness in Plan is an estimate
- Measures in Chapter 3 are based on a single estimate of “avoided costs” for the next 20 years
- But Plan targets are based on full portfolio model analysis, about 750 estimates of “avoided costs”
- Measure costs and savings are a single point estimate, but vary widely in practice

## “Cost-Effectiveness” of Conservation Varies by Perspective 

- Energy Star Clothes Washer (MEF 2.2)
- with Electric Water Heating and Electric Dryer
- Present Value Capital Cost = $44/MWh
- Value to Bulk Power System*= $53/MWh (B/C = 1.17)*
- Value to “Power System” (includes value to _bulk power_ and _local distribution_ system value)*= $66/MWh (B/C = 1.47)*
- Value to Region/Society (includes detergent & water savings, plus carbon credit)*= $123/MWh (B/C = 2.8)*