# ENERGY EFFICIENCY AND CUSTOMER-SITED RENEWABLE RESOURCE POTENTIAL IN WISCONSIN

FOR THE YEARS 2012 AND 2018

July 6, 2009 PREPARED BY Energy Center of Wisconsin

with the assistance of

• The American Council for an Energy-Efficient Economy

• GDS Associates, Inc.

• L&S Technical Associates



## FINAL REPORTTelephone: (608) 266-5481 Fax: (608) 266-3957 Home Page: http://psc.wi.gov

TTY/TextNet: In Wisconsin (800) 251-8345, Elsewher e (608) 267-1479 E-mail: pscrecs@psc.state.wi.us 

# P ublic 

# S ervice 

# C ommission of 

# W isconsin

Eric Callisto, Chairperson 610 North Whitney Way Mark Meyer, Commissioner P.O. Box 7854 Lauren Azar, Commissioner Madison, WI 53707-7854



### July 6, 2009
Last summer, the Public Service Commission of Wisco nsin (Commission) retained the Energy Center of Wisconsin (Energy Center) for the purpose of preparing an assessment of the potential for the state as a whole to increase its use of ele ctric and natural gas energy efficiency and customer-sited renewable resources. This report pr esents the findings of that assessment.
The Commission requested that the Energy Center est imate maximum achievable potential for these resources, rather than that which is merely t heoretically possible. In further refining the task, the Commission asked that the Energy Center:

• Rely primarily on the Total Resource Cost (TRC) tes t to determine cost effectiveness of individual measures.

• Use locational marginal prices from the Midwest Ind ependent Transmission System Operator as the primary avoided cost estimates.

• Use the forecasts provided by Synapse, Inc., as the most likely carbon prices to be included in future energy prices.
While debate will always accompany critical assumpt ions, the requested parameters represent a reasonable, conservative future that provides a sou nd base for policy-making decisions.
I am pleased to see that many interested parties pr ovided input to the study, either through the Energy Center’s formal Delphi process used to assem ble expert opinion, or through written comments on the draft study that was released in Ap ril of this year. The active involvement of the large number of participants representing diver se interests helps to provide a broad-based perspective on these important issues.
This potential study does not represent the end of a process, but rather the beginning. The Commission plans to use it to help us guide our qua drennial planning review of energy efficiency programs and to assist the Legislature i n implementing changes in statewide energy policy, where appropriate. I look forward to many discussions about the important topics set forth in this study.
Sincerely,

Eric Callisto ChairpersonEnergy Center of Wisconsin

ECW Report Number 244-1


# Energy Efficiency and Customer-Sited Renewable Resource Potential in Wisconsin
For the Years 2012 and 2018

July 6, 2009

455 Science Drive, Suite 200
Madison, WI 53711

608.238.4601

www.ecw.orgEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin Copyright © 2009 Energy Center of Wisconsin. All rights reserved
This document was prepared on behalf of the Public Service Commission of Wisconsin. Neither the Energy Center, participants in the Energy Center, t he organization(s) listed herein, nor any person on behalf of any of the organizations mentioned herein : (a) makes any warranty, expressed or implied, with respect to the use of any information, apparatus, method, or process disclosed in this document or th at such use may not infringe privately owned rights ; or (b) assumes any liability with respect to the use o f, or damages resulting from the use of, any information, apparatus, method, or process disclose d in this document.
Project Manager

Susan Stratton
Acknowledgements
Energy Center of Wisconsin staff who contributed to this project include
Marge Anderson, Ingo Bensch, Sherry Benzmiller, Cla ire Cowan, Lee DeBaillie, Scott Hackel, Ingrid Kelley, Karen Koski, Steve Kihm, Melanie Lord, Andy Mendyk, Scott Pigg, Nick Sayen, Sean Weitner, and Cherie Williams
Sub contractor staff who contributed to this projec t include
Karen Ehrhardt-Martinez, John “Skip” Laitner, and V anessa McKinney, the American Council for an Energy-Efficient Economy
Joe Danes, Mitch Myhre, Tim Clark, Kris Hartjes, an d Bede-Julian Hampton, GDS Associates
Larry Krom and Shelly Laffin, L&S Technical Associa tesEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin ABSTRACT

ENERGY EFFICIENCY
By 2012 Wisconsin could obtain annual energy savings equivalent to:

• 1.6 percent of total electricity sales

• 1.6 percent of electricity peak demand

• 1.0 percent of total natural gas sales 1 We estimate that achieving these results could requ ire energy efficiency program investments 2 of up to $350 million per year (2008 dollars). If savings co ntinue at these rates, by 2018, the cumulative efficiency savings impact will amount to:

• 13.0 percent of total electricity sales

• 12.9 percent of electricity peak demand

• 8.7 percent of total natural gas sales Each year that these savings results are achieved, the State of Wisconsin will generate $900 million i n net lifecycle energy cost savings (present value, 2008 dollars), and reduce utility-based greenhouse gas emissions by 1.3 million tons. Energy efficiency pr ogram investments and associated economic multiplie r effects are projected to support 7,000 to 9,000 Wis consin jobs.
These energy efficiency potential estimates do not include the full effect of new behavior-based effic iency programs, or the effect of advanced utility rate de signs. The former could increase the energy savings potential and the latter could lead to greater redu ctions in peak electric demand.

CUSTOMER-SITED RENEWABLE RESOURCES
By 2012, customer-sited, customer-owned renewable energy systems in Wisconsin could produc e the following:

• 31 to 36 million annual kilowatt hours (kWh) of ren ewable electric energy

• 13 to 17 megawatts (MW) of peak renewable electrici ty generation

• 1.6 to 1.7 million annual therms of renewable therm al energy Achieving these results would require investment in state-sponsored renewable energy programs of around $15 million per year (2008 dollars). Each ye ar that these results are achieved, the State of Wisconsin will generate up to $20 million in net energy cost savings (present value, 2008 dollars) and reduce utility-based greenhouse gas emissions by 39 ,000 tons. Renewable energy program investments and associated economic multiplier effects are proj ected to support 300 to 350 Wisconsin jobs.

1 Throughout this study, references to natural gas s avings potential include natural gas and propane savings resulting from installation of energy efficient and renewable energy generating technologies. 2 Energy efficiency program investments include prog rams administered by the State of Wisconsin, volunt ary programs administered by Wisconsin utilities, and s elf-directed initiatives undertaken by large energy users.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of WisconsinEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin TABLE OF CONTENTS
Section 1: Energy Efficiency
Executive Summary
Chapter EE-1: Overview
Chapter EE-2: Statewide and Sector Results
Chapter EE-3: Scenario Analysis
Chapter EE-4: Energy Efficiency Program Considerati ons Chapter EE-5: Energy Efficiency Program Challenges
Chapter EE-6: Topics for Future Research and Develo pment
Addendum: Contrasting the 2005 and 2009 Energy Effi ciency Potential Studies
Delphi Participants, Energy Efficiency

References
Energy Efficiency Appendices
Section 2: Renewable Energy
Executive Summary
Chapter RE-1: Overview
Chapter RE-2: Results
Chapter RE-3: Utility-Owned Distributed Renewable R esources Chapter RE-4: Integrating Efficiency and Renewable Energy Strategies
Chapter RE-5: Policies Supporting Aggressive Advanc ement of Distributed Renewable Energy Technologies
Delphi Participants, Renewable Energy

References
Renewable Energy Appendices
Public Comment AppendixEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin

# SECTION 1: ENERGY EFFICIENCY ENERGY EFFICIENCY AND CUSTOMER-SITED RENEWABLE RESOURCE POTENTIAL IN WISCONSIN For the years 2012 and 2018Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of WisconsinEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-i TABLE OF CONTENTS, ENERGY EFFICIENCY
Executive Summary ..................................

................................................... ..................................... EE-1
Chapter EE-1: Overview.............................

................................................... .................................... EE-5
Study Scope ........................................

................................................... ....................................... EE-5
Methodology ........................................

................................................... ...................................... EE-6
Energy Efficiency Potential Estimates..............

................................................... ....................... EE-6
Delphi Process for Gathering Expert Input ..........

................................................... .................... EE-8
Energy Efficiency Potential Model..................

................................................... ...................... EE-10
Global Assumptions.................................

................................................... ............................. EE-12
Program Innovation .................................

................................................... ............................. EE-15
Program Cost Estimation ............................

................................................... .......................... EE-15
Scenario Analysis ..................................

................................................... ............................... EE-16
Supplementary Analyses.............................

................................................... .......................... EE-17
Chapter EE-2: Statewide and Sector Results .........

................................................... ........................ EE-19

Economic Potential.................................

................................................... .................................. EE-19

Achievable Potential...............................

................................................... .................................. EE-20
Program and Total Resource Cost Estimates ..........

................................................... ................... EE-21
Economic Benefits of Aggressive Energy Efficiency E fforts............................................. ........... EE-24
Environmental Benefits of Aggressive Energy Efficie ncy Efforts........................................ ......... EE-26
Impact on Statewide Utility Load Growth............

................................................... ..................... EE-26

Sector Results.....................................

................................................... ...................................... EE-28
Major Energy Efficiency Opportunities by Sector ....

................................................... ................. EE-33
Chapter EE-3: Scenario Analysis....................

................................................... .............................. EE-39
Approach...........................................

................................................... ....................................... EE-39

Statewide Scenario Results .........................

................................................... .............................. EE-40Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-ii Scenario Results by Sector.........................

................................................... ............................... EE-42
Chapter EE-4: Energy Efficiency Program Considerati ons................................................ ............... EE-45
Innovations to Maximize Energy Efficiency Program E fforts............................................. .......... EE-45
Strategies for Capturing Retrofit Opportunities ....

................................................... ................. EE-45
Behavior-Based Programs............................

................................................... ......................... EE-48
Upstream Market Approaches.........................

................................................... ...................... EE-52
Advanced Rate Design ...............................

................................................... .............................. EE-52

Codes and Standards................................

................................................... ................................. EE-54
Chapter EE-5: Energy Efficiency Program Challenges.

................................................... ................. EE-57
Valuation of Energy Efficiency Benefits............

................................................... ....................... EE-57

Avoided Costs ......................................

................................................... .................................... EE-59
Program Evaluation Construct .......................

................................................... ........................... EE-60
Chapter EE-6: Topics for Future Research and Develo pment.............................................. ............. EE-62
Addendum: Contrasting the 2005 and the 2009 Energy Efficiency Potential Studies ....................... . EE-65
Delphi Participants: Energy Efficiency .............

................................................... ............................ EE-69

References.........................................

................................................... ........................................... EE-70

TABLE OF TABLES, ENERGY EFFICIENCY
Table EE-1. Delphi Responses from Energy Efficiency Experts........................................... .............. EE-9
Table EE-2. Example of Program Lift Delta Approach .

................................................... .................. EE-9
Table EE-3. Sectors and Segments Addressed in Poten tial Study ......................................... ............ EE-10

Table EE-4. Avoided Costs and Carbon Value.........

................................................... ..................... EE-13
Table EE-5. Administrative Program Cost Factors....

................................................... .................... EE-14
Table EE-6: Results of Codes and Standards Analysis : Achievable Potential ............................. ...... EE-55Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-iii TABLE OF FIGURES, ENERGY EFFICIENCY
Figure EE-1: Economic Potential by Energy Type .....

................................................... ................... EE-19
Figure EE-2: Annual Achievable Potential 2012......

................................................... ..................... EE-20
Figure EE-3: Cumulative Energy Savings in 2018 by E nergy Type......................................... ......... EE-21
Figure EE-4: Program Cost Curve, 2012 Electric Effi ciency Potential................................... ........... EE-22
Figure EE-5: Program Cost Curve, 2012 Natural Gas E fficiency Potential ................................ ....... EE-23
Figure EE-6: Total Resource Cost Curve, 2012 Electr ic Efficiency Potential ............................ ....... EE-23
Figure EE-7: Total Resource Cost Curve, 2012 Natura l Gas Efficiency Potential......................... .... EE-24
Figure EE-8: Aggregate Net Benefits of Aggressive E nergy Efficiency Programs.......................... .. EE-24
Figure EE-9: Natural Gas Utility Revenue by Cost Ca tegory 2007 data for Wisconsin Investor-Owned Natural Gas Utilities ..............................

................................................... ............................... EE-25
Figure EE-10: Wisconsin Electric Sales 2000 – 2007 (Actual) and 2008 – 2018 (Projected)............. EE -27
Figure EE-11: Wisconsin Natural Gas Sales to End Us ers 2000 – 2007 (Actual) and 2008 – 2018 (Projected)........................................

................................................... .................................... EE-27
Figure EE-12: Relative Annual Electricity Savings P otential by Sector, 2012 ........................... ....... EE-29
Figure EE-13: Absolute Annual Electricity Savings P otential by Sector, 2012 ........................... ...... EE-30
Figure EE-14: Absolute Annual Demand Reduction Pote ntial by Sector, 2012.............................. ... EE-31
Figure EE-15: Relative Annual Natural Gas Savings P otential by Sector, 2012........................... ..... EE-31
Figure EE-16: Absolute Annual Natural Gas Savings b y Sector, 2012 ..................................... ........ EE-32
Figure EE-17: Top Residential Technology Markets: E lectricity Savings................................. ........ EE-33
Figure EE-18: Top Residential Technology Markets: E lectric Demand Reduction ........................... EE-33
Figure EE-19: Top Residential Technology Markets: N atural Gas Savings ................................. ..... EE-34
Figure EE-20: Top Commercial Technology Markets: El ectricity Savings .................................. ..... EE-34
Figure EE-21: Top Commercial Technology Markets: El ectric Demand Reduction.......................... EE -35
Figure EE-22: Top Commercial Technology Markets: Na tural Gas Savings.................................. ... EE-35
Figure EE-23: Top Industrial Technology Markets: El ectricity Savings .................................. ......... EE-36Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-iv Figure EE-24: Top Industrial Technology Markets: El ectric Demand Reduction............................ .. EE-36
Figure EE-25: Top Industrial Technology Markets: Na tural Gas Savings.................................. ....... EE-37
Figure EE-26: Top Agricultural Technology Markets: Electricity Savings ................................ ....... EE-37
Figure EE-27: Top Agricultural Technology Markets: Electric Demand Reduction.......................... EE-38
Figure EE-28: Top Agricultural Technology Markets: Natural Gas Savings................................ ..... EE-38
Figure EE-29: Comparison of Economic Potential Unde r Base and Environmental Scenarios .......... EE-40
Figure EE-30: Comparison of 2012 Achievable Potenti al Under Base and Environmental Scenarios ..........................................

................................................... .................................... EE-41
Figure EE-31: Comparison of 2012 Electricity Saving s Potential by Sector, Base and Environmental Scenarios ..........................................

................................................... .................................... EE-42
Figure EE-32: Comparison of 2012 Demand Reduction P otential by Sector, Base and Environmental Scenarios ..........................................

................................................... .................................... EE-42
Figure EE-33: Comparison of 2012 Natural Gas Saving s Potential by Sector, Base and Environmental Scenarios ..........................................

................................................... .................................... EE-43
Figure EE-34: Untapped Energy Efficiency Opportunit ies by Market ...................................... ........ EE-46
Figure EE-35: Economic and Achievable Potential Con cepts: Equipment Replacement Market ....... EE-47
Figure EE-36: Annual Value of Wall Insulation Under Current Program Planning Practices ............ EE-5 8
Figure EE-37: Increased Value of Wall Insulation fr om Considering All Years in which Benefits Accrue

................................................... ................................................... .......................................... EE-58
Figure EE-38: Increased Value of Wall Insulation fr om Considering All Years in which Benefits Accrue Using a 2% Discount Rate ...........................

................................................... ......................... EE-59
Figure EE-39: Comparison of Annual Achievable Energ y Efficiency Potential Estimates from the 2005 and 2009 Energy Center Studies .....................

................................................... ...................... EE-66
Figure EE-40: Comparison of Annual Budgets Necessar y to Reach Achievable Energy Efficiency Potential Estimates from the 2005 and 2009 Energy C enter Studies...................................... .... EE-67Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-v LIST OF APPENDICES, ENERGY EFFICIENCY
Appendix A: Key Modeling Assumptions
Appendix B: Measure Inputs
Appendix C: Baseline Energy Consumption: Market Seg mentation
Appendix D: Detailed Results
Appendix E: Scenario Analysis Results
Appendix F: ACEEE Report on Behavior-Based Program Potential in Wisconsin
Appendix G: Analysis of Neighborhood-Based Plug Loa d Initiative
Appendix H: Delphi Questionnaires
Appendix I: Delphi ResponsesEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-viEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-1 EXECUTIVE SUMMARY
The Public Service Commission of Wisconsin (PSCW) r etained the Energy Center of Wisconsin (Energy Center) for the purpose of analyzing the potential for Wisconsin to increase its use of energy efficie ncy resources. In developing this energy efficiency pot ential estimate, the Energy Center drew on the expertise of our co-consultants on this project, th e American Council for an Energy-Efficient Economy (ACEEE) and GDS Associates (GDS). We also obtained key technology forecasts from more than 30 Wisconsin-based energy efficiency experts. The assi stance of these capable individuals resulted in a m ore thorough analysis, and allowed us to develop a stud y that transcends that which the Energy Center alon e could have provided. 3
The modeling of energy efficiency potential was tec hnology-based and was conducted by sector. We employed a bottom-up approach for estimating energy efficiency potential in the residential sector, aggregating savings potential associated with indiv idual types of energy-using equipment found in Wisconsin homes. For the commercial, industrial, an d agricultural sectors, we employed a top-down approach, disaggregating savings estimates based on an assumed distribution of energy use within each market segment.
We analyzed a base case scenario focusing on the ec onomic benefits from saving energy and the environmental benefits of avoided carbon emissions. 4 In addition, we conducted scenario analysis, varying key input assumptions to test the outer bou nds of our potential estimates. In reporting the sc enario analysis results, we focus on the scenario with the greatest deviation from the base case, referred to as the “environmental scenario.” Under that scenario we: ( 1) quantified the value of avoided non-carbon emissions (sulfur dioxide, oxides of nitrogen, and mercury); (2) included measures that are marginally below the base case cost-effectiveness threshold; a nd (3) employed a lower discount rate to account fo r the fact that energy efficiency investments made to day are likely to be more valuable to future genera tions in a carbon-constrained world.
In developing our estimates for all scenarios, incl uding the base case, we viewed the term “potential” as representing a reasonable outer bound. In other wor ds, our estimates do not reflect business-as-usual trends, but rather reflect what could be achieved u nder an aggressive program effort. Those interested in a comparison of the energy efficiency potential estim ates developed through this study relative to those estimated in the Energy Center’s 2005 Wisconsin pot ential study should refer to the Addendum at the en d of the energy efficiency section of the report.

RESULTS: BASE CASE
Under the base case we estimate that by 2012, Wisco nsin could save 1,200 GWh of electric energy per year, reduce peak electric demand by 250 MW, and sa ve 37 million therms of natural gas/propane per

3 While the subcontractors and the individual expert s provided useful input to this study, in the end, this report represents the explicit views and judgments of the Energy Center of Wisconsin. The fact that individua ls or firms participated in the study does not imply that they necessarily agree with all statements contained in our report. 4 We assumed that in the near future carbon emission s will be priced, either via a carbon tax or a cap- and-trade mechanism.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-2 year. 5 Expressed as a percentage of projected baseline en ergy sales for 2012, these results are equivalent to 1.6 percent of electricity sales, 1.6 percent of peak electric demand, and 1.0 percent of natural gas/propane sales. Achieving these results would re duce greenhouse gas emissions by 1.3 million tons p er year. Under the assumed ramp-in from current energy effic iency program efforts to the aggressive efforts projected in this study, the cumulative energy effi ciency potential from 2009 through 2012 is 3,300 GW h of electricity savings, 670 MW of demand reduction, and 100 million therms of natural gas/propane savings.
If savings continue at the annual rates projected f or 2012, by 2018 the cumulative effect would amount to 11,000 GWh of electric savings, 2,200 MW of demand reduction, and 330 million therms of natural gas/propane savings. Expressed as a percentage of p rojected baseline energy sales for 2012, these resu lts are equivalent to 13 percent of electricity sales, 13 percent of peak electric demand, and 8.7 percent of natural gas/propane sales.

RESULTS: SCENARIO ANALYSIS
As discussed above, the Energy Center conducted a n umber of scenario analyses, varying key input assumptions to test the outer bound of our potentia l estimates. We focus on the scenario which produce s the greatest deviation from base scenario results, the “environmental scenario.” Key assumptions under this scenario include higher avoided costs, a less- restrictive cost-effectiveness screen, and a lower discount rate.

Under the environmental scenario we estimate that b y 2012, Wisconsin could save 1,400 GWh of electric energy per year, reduce peak electric demand by 300 MW, and save 47 million therms of natural gas/propane per year. Expressed as a percentage of projected baseline energy sales for 2012, these res ults are equivalent to 1.9 percent of electricity sales, 1.9 percent of peak electric demand, and 1.2 perce nt of natural gas/propane sales. Achieving these results would reduce greenhouse gas emissions by 1.5 millio n tons per year.
Under the assumed ramp-in from current energy effic iency program efforts to the aggressive efforts projected in this study, the cumulative energy effi ciency potential from 2009 through 2012 is 4,000 GW h of electricity savings, 800 MW of demand reduction, and 126 million therms of natural gas/propane savings.

5 Throughout this study, references to natural gas s avings potential include natural gas and propane savings resulting from installation of energy-efficient and renewable energy generating technologies.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-3 If savings continue at the annual rates projected f or 2012, by 2018 the cumulative effect would amount to 13,000 GWh of electric savings, 2,700 MW of demand reduction, and 400 million therms of natural gas/propane savings. Expressed as a percentage of p rojected baseline energy sales for 2012, these resu lts are equivalent to 16 percent of electricity sales, 16 percent of peak electric demand, and 11 percent of natural gas/propane sales.

ECONOMIC IMPACTS
Achieving the increased levels of energy efficiency projected in this study will reduce energy-related expenditures for Wisconsin consumers and create Wis consin jobs. Under the base case scenario, achieving projected a nnual levels of energy efficiency potential will produce net savings of around $900 million in 2012 (present value, 2008 dollars). The corresponding 2012 net savings estimate under the environmental s cenario is approximately $2 billion. Note, however, that the net savings estimates are not directly com parable because they were developed using different economic discount rates (five percent in the base c ase; two percent in the environmental scenario). 6 Achieving the 2012 annual energy efficiency potenti al levels suggested by the base case scenario are estimated to produce between 7,000 and 9,000 new Wi sconsin jobs. Achieving the savings suggested in the environmental scenario would produce between 11 ,000 and 13,000 new jobs.

ENERGY EFFICIENCY PROGRAM CHANGES
We estimate that annual energy efficiency program i nvestments of up to $350 million per year would be necessary to achieve projected 2012 savings levels derived under the base case. 7 Achieving the 2012 savings levels derived in the environmental scenari o would require approximately twice as much annual spending. Increased spending alone will not deliver the achie vable energy efficiency savings identified here. Innovation in energy efficiency program design for all market sectors will also be necessary. 8 Innovative program strategies could include:

• Aggressive strategies for capturing neglected oppor tunities through large-scale retrofits of existing buildings.

• Upstream incentives for equipment suppliers and ret ailers to affect net increases in the market share for efficient products without diverting larg e amounts of funding for purchases that would have occurred without program influence.

6 The difference in discount rates reflects differen t perspectives on the value of a dollar of energy s aved in the future. For a given level of Btus saved, the associated dol lar savings under a low discount rate will be highe r than the savings under a high discount rate merely because t he lower discount rate implies that future cash flo ws are relatively more valuable than that suggested by the higher discount rate. Thus, the estimate of dollar savings under various discount rates reflects different value jud gments across individuals, and not necessarily that one scenario is preferable to the other on economic grounds. 7 Energy efficiency program investments include prog rams administered by the State of Wisconsin, volunt ary programs administered by Wisconsin utilities, and s elf-directed initiatives undertaken by large energy users. 8 For illustrative purposes, the study discusses a n umber of innovative program strategies in Chapter E E-4. However, developing detailed program design guidance for the purposes of energy efficiency program planning is outside the scope of this study.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-4 Though we did not develop quantitative estimates of potential energy savings and demand reduction from expansion of behavior-based approaches to motivatin g energy efficiency improvement, or from deployment of advanced rate designs that reduce pea k electric demand, such strategies could deliver additional savings to Wisconsin residents and busin esses. The programmatic shifts above will likely also requ ire some adjustments to program protocols. 9

9 These issues are discussed in Chapter EE-5.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-5 CHAPTER EE-1: OVERVIEW

STUDY SCOPE The PSCW asked the Energy Center to develop estimat es of the potential for economic efficiency improvements to reduce energy demand in Wisconsin. Webster’s Dictionary defines potential as: “existing in possibility, not in actuality .” (Emphasis added.) A proper potential study shoul d tell us what could be achieved if we change policies relating to energy efficiency, and not wha t one would expect to occur under current policies.
Because this study is not an investigation of the i mpact of business-as-usual policies, the scenarios discussed in this study have little in common with the forecasts presented to the PSCW in rate proceedings and power plant construction hearings. Those forecasts assume that the political-economic structure that drove energy demand in the past will , for the most part, continue to drive it in the fu ture.
The issue under review is what might happen if we c hange our energy policy to be as supportive as possible of energy efficiency. The important point to note here is that, in a potential study, we reco gnize that the utility sales forecast is to some extent a choice variable, not an exogenous event beyond the control of utility executives and policymakers. In keeping with this notion, we reiterate that ultimat e issue is not how much energy efficiency we should expect, but rather how much energy efficiency we want to obtain

. We spend little time in this study discussing pessi mistic or even middle-of-the-road scenarios. In estimating achievable potential, our focus is on fi nding the reasonable upper bound—“potential” in the truest sense of the word. Rather than conducting sc enario analyses of less aggressive policies, we sti pulate that if policymakers do not fund energy efficiency programs at the levels suggested by this study, if energy efficiency program practices are not revised , or if consumer interest in energy efficiency wane s over time, then Wisconsin will obtain noticeably le ss energy efficiency improvement than we suggest is possible in this study. Spending time and resources analyzing such scenarios does not appear to be a g ood use of resources, and does not tell us much about e nergy efficiency potential

. With this perspective in mind, we view our energy e fficiency potential estimates as representing the reasonable upper limit

by assuming that policymakers want to achieve high levels of energy efficiency.
This study focuses on estimates of achievable efficiency potential , defined as “the amount of energy use that efficiency can realistically be expected to di splace assuming the most aggressive program scenari o possible.” 10 The Energy Center also estimated technical and eco nomic efficiency potential. Technical potential represents the theoretical maximum level of potent ial energy savings, assuming immediate implementation of all technologically feasible ener gy efficient technologies regardless of costeffectiveness. Economic potential , typically a subset of technical potential, assume s immediate implementation of the most cost-effective energy ef ficient technology for any given application. As practical measures, estimates of technical and econ omic potential have limited usefulness, as they do not

10 Optimal Energy, Inc. (2007). Guide for Conducting Energy Efficiency Potential St udies . Prepared in connection with the National Action Plan for Energy Efficiency . Available at: www.epa.gov/eeactionplan

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-6 account for capital constraints, the useful lifetim e of existing installed equipment, or other barrier s than inhibit adoption of energy efficiency measures.
The achievable potential estimates reflect those pr actical constraints. The principal considerations a re that consumers do not typically replace equipment early, and they have limited budgets. Thus, the pace of acquiring energy efficiency gains is slower, and th e amount of savings is lower than under economic potential estimates. Since the achievable potential estimate considers pragmatic factors, it is more u seful to policy makers than the technical or economic pot ential estimate. We focus most of our discussion in this report on achievable potential.
We note that our achievable potential estimates cou ld be higher if we were able to fully quantify the impacts of behavior-based programs and rate design innovations. Our potential estimates include some impacts of behavior-based program approaches, but a pproaches for quantifying the energy savings impacts of behavior change are still in their infan cy. Some studies suggest that behavior programs can reduce energy use by 20 percent. If that is the cas e, then achievable efficiency potential may be high er than we suggest. The same is true for advanced rate design approaches which produce demonstrated reductions in peak demand, but quantitative estimat es of peak demand reduction potential resulting fro m advanced rate designs were not developed for the pu rposes of this study.

METHODOLOGY

Energy Efficiency Potential Estimates The results of this study are projections of achiev able energy efficiency potential in Wisconsin in 20 12 and 2018. Cost-effectiveness screening was conducte d using the total resource cost (TRC) test, which compares the net present value of benefits achieved over the lifetime of the measure with the costs incurred by the program and the participant. 11 For the purposes of this analysis, quantified bene fits include the avoided cost of conserved energy and th e value of avoided carbon emissions. Other environmental benefits and non-energy benefits were not included. Costs include all expenses associate d with measure installation, including equipment and labor costs, as well as program administrative cost s. Measures with a benefit/cost ratio of 1.0 or greate r are cost-effective and pass the TRC test. It is i mportant to note that cost-effectiveness analysis was conduc ted at the measure (technology) level, and that modeling a bundle of energy efficient technologies at the program level could yield different costeffectiveness results. See section entitled, Global Assumptions, below for a summary of the avoided costs used in evaluating cost-effectiveness.
Achievable energy efficiency potential estimates we re developed for 2012 and represent annual costeffective savings that could be achieved in that ye ar. For 2018, we focus on cumulative potential—the sum of annual achievable potential estimates from 2 009 through 2018. Thus, the 2012 estimate provides a sense of pace, while the 2018 figure represents an end result.

11 Detailed information on economic screening methodo logy is available in the California Standard Practice Manual , available at: http://drrc.lbl.gov/pubs/CA-SPManual-7-02.pdf

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-7 We place greater emphasis on the 2012 estimates giv en the high level of uncertainty associated with a ten-year projection. Energy prices, technology cost s, the state of the economy, and federal climate po licy are all factors that will have a dramatic effect on energy efficiency potential in the coming decade, and in the current economic and political climate these fa ctors are more difficult to predict than ever. Many of the policies and technologies that will have a sign ificant impact on energy efficiency potential in fo ur years are at least visible on the horizon today, wh ich may not be the case for policies and technologi es that will have a significant impact on energy effic iency potential in ten years.
There is another important uncertainty-related issu e that should be noted. While the credibility of information for certain technologies is well-establ ished, for other measures—especially emerging energ y efficient technologies—the available data on saving s, measure life, and other key assumptions may be less certain. There is, however, a portfolio effect associated with looking at a large number of measu res in a potential study such as this one. If measurement error is not systematically biased to the high side or the low side, but rather tends to be randomly distribut ed around zero, overestimates of savings potential for some measures are likely offset by underestimates o f savings potential for others.
The portfolio analogy is quite apt here. Financial research demonstrates that the aggregate risk of a stock portfolio can be much lower than even that of the safest individual stock in the portfolio. 12 This is due to the cancellation of simultaneous upward and downwar d price changes for the stocks n the portfolio. In a similar fashion, the uncertainty associated with th e aggregate potential estimate could be quite low, even though the uncertainty associated with certain indi vidual technologies is not, as the individual techn ology errors may move in opposite directions. As a result , the aggregate estimates of savings potential are more certain than individual estimates of potential for any given energy efficient technology.
We report estimates in terms of net savings, or sav ings resulting directly or indirectly from program activities. Net savings estimates exclude free ride rs (program participants who would have undertaken efficiency improvements without program interventio n) and include spillover effects (individuals who d id not directly participate in a program, but undertak e efficiency improvements as a result of program influence). These estimates are roughly comparable to the “verified net savings” results reported in F ocus on Energy evaluations, 13 with the caveat that limited evaluation resources are devoted to measuring spillover effects for Focus on Energy programs, so reported results generally do not include spillover effects. Net effects represent the difference in en ergy consumption and peak electricity demand that would occur under an aggressive program scenario an d what would occur under a “no program” scenario.
Potential estimates exclude the impacts of naturall y-occurring efficiency improvements, which are represented in the modeling baseline. “Naturally-oc curring efficiency” encompasses general increases i n the efficiency of buildings and equipment due to fa ctors other than program influence. Naturallyoccurring efficiency includes increases in lighting and appliance efficiency resulting from known chan ges in state or federal standards, as enacted through l egislation such as the Energy Policy Act of 2005 (E PAct 2005) and the Energy Independence and Security Act of 2007 (EISA 2007). It also includes energy

12 Steven G. Kihm (June 2003). “How Improper Risk Ass essment Leads to Overstatement of Required Returns for Utility Stocks.” NRRI Journal of Applied Regulation

. 13 Focus on Energy is a state program that works with eligible Wisconsin residents and businesses to ins tall cost effective energy efficiency and renewable energy pr ojects. Additional information is available at: www.focusonenergy.com./Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-8 efficiency levels specified by energy-related build ing codes. However, any future changes to codes and standards that are not known at the time this study was conducted are not included in the baseline of naturally-occurring efficiency improvement.

Potential estimates include the effects of measure interaction, where installation of an energy effici ency measure that has a primary effect on one end use (s uch as lighting) produces a corresponding secondary effect on another end use (such as heating or cooli ng). Interactive effects can cause an increase or decrease in the energy consumption associated with the secondary end use. The majority of interactive effects considered in the analysis are associated w ith fuel switching measures (e.g., switching from a n electric water heater to a natural gas water heater ), heating penalties and cooling benefits associate d with installation of energy efficient lighting and equip ment, and insulation/air sealing measures that save electricity used for cooling and natural gas used f or heating. Accounting for measure interaction, as we have done in this study, provides accuracy beyond t he level achieved by many potential studies.

Delphi Process for Gathering Expert Input As noted above, estimating what could be achieved u nder a future scenario of aggressive energy efficiency policy and program efforts involves proj ecting future conditions that represent a significa nt departure from business-as-usual. A key component of the Ener gy Center’s approach to this analytical challenge was a Delphi process querying experts abo ut what an aggressive energy efficiency future woul d look like in Wisconsin.
The Delphi technique is a forecasting tool that has been in use for several decades. 14 Researchers use the Delphi technique to tap into the collective wisdom of experts to inform forecasts of future conditions under various scenarios. It involves iterative roun ds of revealed forecasts, a process which often all ows for greater consensus among experts. For technology -related forecasts, such as those involved in this study, the Delphi technique has tended to outperfor m other approaches in terms of ultimate forecast accuracy. 15
In the fall of 2008, the Energy Center distributed Delphi questionnaires to nearly 100 individuals who were identified by staff at the Energy Center and t he PSCW as energy efficiency experts. Sector-specif ic Delphi questionnaires focused on key technologies t hat are expected to have a large impact on energy efficiency potential over the time period of the st udy. Participants were asked to estimate market sha re or retrofit rates under three scenarios: (1) in the ab sence of efficiency programs; (2) under existing pr ogram approaches and funding levels; and (3) under the mo st aggressive possible program approaches and funding levels. They were also asked to provide inp ut on policy and programmatic changes that would be necessary to achieve this aggressive energy efficie ncy future in Wisconsin.
The Energy Center received 33 energy efficiency res ponses, as shown in Table EE-1. Appendix H includes a copy of Delphi survey instruments. Appen dix I includes a transcript of individual Delphi responses.

14 For a brief description of the Delphi technique, s ee R. S. Duboff, “The Expert Wisdom of Crowds,” Harvard Business Review , September 2007. 15 G. Rowe and G. Wright, “The Delphi Technique as a Forecasting Tool: Issues and Analysis,” International Journal of Forecasting (1999).Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-9 TABLE EE-1. DELPHI RESPONSES FROM ENERGY EFFICIENCY EXPERTS

Sector Numbe r of Responses Agriculture 6 Commercial/Institutional 8

Industrial 7 Residential 12 TOTAL 33

After compiling results from the initial survey rou nd, the Energy Center developed a summary of responses which presented maximum, minimum, and med ian responses for each technology-specific estimate. During a second survey round, participant s were given the opportunity to revise their initia l estimates after reviewing the summary of responses from other participants.
Following the conclusion of the second round, the E nergy Center used Delphi responses to develop “achievable factors” for each energy efficiency mea sure addressed in the study. This achievable factor is broader than the typical achievable factor as defin ed in other potential studies. Here it accounts for convertibility (the technical/engineering feasibili ty of converting equipment to a more energy efficie nt alternative) and the amount of equipment that has n ot already been converted to a more energy efficien t technology (sometimes referred to as a “remaining f actor”), in addition to accounting for a program’s ability to influence market penetration of the tech nology.
Since the Delphi questionnaires did not cover all t echnologies addressed in the potential study, achie vable factors for non-Delphi technologies were derived us ing Delphi data, using a multi- step process. First , a “program lift delta” was calculated for each Delphi measure by calculating the difference in market sh are between the aggressive program and no-program scena rios, as provided by Delphi responses. Table EE-2 illustrates this approach.

TABLE EE-2. EXAMPLE OF PROGRAM LIFT DELTA APPROACH
Delphi Response: Percent Market

Share in 2012 No Program Scenario Aggressive

Program Scenario Program

Lift Delta Rank
Delphi Measure X 10 15 5 Low Delphi Measure Y 20 30 10 Medium Delphi Measure Z 15 35 20 HighEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-10 Next, we segmented the dataset of program lift delt as for all Delphi measures into quartiles, 16 Delphi measures within the first quartile were defined as “low-potential” measures, and Delphi measures withi n the fourth quartile were defined as “high-potential ” measures. The remaining Delphi measures were defined as “medium-potential” measures.
Last, achievable factors for non-Delphi measures we re derived by taking the median value within each o f these three categories. The median value within the first quartile was selected as the default achieva ble factor for low-potential measures, the global media n was selected as the default achievable factor for medium-potential measures, and the median value wit hin the fourth quartile was selected as the default achievable factor for high-potential measures. The Energy Center then assigned each non-Delphi measure to one of these three categories based on a qualita tive assessment of the impact aggressive programs a re likely to have on the measure. Achievable factors d erived from the Delphi process became key inputs in the energy efficiency potential model. Appendix B p rovides detailed information on the ranking for eac h measure, and the achievable factor that was used.

Energy Efficiency Potential Model There are two primary analytical approaches to mode ling energy efficiency potential: bottom-up or topdown. The bottom-up approach begins at the measure level, multiplying the costs and savings associated with deploying each energy efficient measure by the number of units of each measure expected to be installed during the study period, and aggregating the results. The top-down approach begins with a forecast of energy sales over the study period, and disaggregates this forecast within each sector by market segment and end use. Each energy efficient t echnology reduces the base forecast by a certain percentage, and the difference between the base for ecast and the efficiency forecast represents effici ency potential. 17
As end use energy consumption is relatively homogen eous within the residential sector, the Energy Center was able to use a bottom-up approach for the residential market. The commercial and industrial sectors require a top-down approach, given the vari ability in energy end use and technology installati ons across market segments and facility types.
Market sectors and segments addressed in the study are shown in Table EE-3.

TABLE EE-3. SECTORS AND SEGMENTS ADDRESSED IN POTEN TIAL STUDY

SECTOR SEGMENT Residential Single family owner-occupied Multifamily rental (1-4 units) Multifamily rental (5+ units) Mobile home

16 A quartile is one quarter of a data set that has b een segmented into four parts with an equal number of data points in each. The lowest 25 percent of the data is withi n the first quartile, and the highest 25 percent of the data is within the fourth quartile. The remaining 50 percent of th e data are within the second and third quartiles. 17 Optimal Energy, Inc. (2007). Guide for Conducting Energy Efficiency Potential St udies . Prepared in connection with the National Action Plan for Energy Efficiency . Available at: www.epa.gov/eeactionplan

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-11 SECTOR SEGMENT Commercial Education Food sales Food service Health care Lodging Mercantile Office Other (including labs) Public assembly Public order and safety Religious worship Service (including some light industrial) Warehouse and storage Industrial Beverage & tobacco Chemicals Fabricated metals Food Machinery Metals – primary Other Plastics & rubber Pulp & paper Transportation equipment Wood products Water & wastewater treatment Agriculture

The Energy Center’s efficiency potential model is a Microsoft Excel®-based tool that employs a straightforward, linear structure for analytical tr ansparency. Individual worksheets for each sector calculate the savings potential using a bottom-up a pproach for residential measures, and a top-down approach for commercial, industrial, and agricultur al measures. The model evaluates over 500 unique measures across the four sectors addressed in the s tudy.
Key inputs in the energy efficiency potential model include: base energy consumption, disaggregated by market segment and end use; market saturations of t he energy efficient technology; primary fuel saving s; demand reduction for electricity-saving measures; s econdary fuel impacts caused by measure interactions, 18 measure installation cost; useful life of equipmen t; and the Delphi-derived achievable

18 The primary measure interactive effects considered in the analysis include fuel switching (e.g., swit ching from an electric water heater to a natural gas water heater ), and heating penalties/cooling benefits achieved through installation of energy-efficient lighting.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-12 factor. GDS Associates provided technical assistanc e in the development of measure inputs, and inputs were benchmarked against values used in similar stu dies, including the Energy Center’s 2005 Wisconsin potential study, a 2008 Quantec study of potential in Iowa, 19 and a 2007 study of Vermont potential conducted by GDS Associates. 20 A list of measure inputs is included in Appendix B

. Within the model, a stacking algorithm addresses th e issue of mutual exclusivity, ensuring that potent ial savings are not over-estimated. The stacking algori thm ranks energy efficient technologies in order of cost-effectiveness; as each technology is ranked (f rom highest TRC ratio to lowest TRC ratio) the savi ngs potential that it captures is no longer available t o the remaining technologies.

Global Assumptions A number of global assumptions were consistent acro ss the residential, commercial, industrial, and agricultural components of the Energy Center’s anal ysis.
Energy efficiency measures reduce energy consumptio n and associated costs, and avoided energy supply costs prices provide the primary basis for valuing energy savings benefits. For electricity, the avoid ed costs used in this analysis are based on recent loc ational marginal prices (LMPs) from the Midwest Independent System Operator (MISO). We developed av erage prices for on- and off-peak power based on 2005-2008 data from four nodes: Weston, Pleasant Pr airie, Columbia, and Dairyland Power.
MISO LMPs reflect the cost of energy and the implie d cost of generation capacity, but not the cost of transmission or distribution (T&D) capacity, nor do they reflect line losses. Therefore, we adjusted t he prices to reflect those factors. An explicit value of $30/kW-year was used for avoided T&D capacity, which is in line with T&D values reported by Iowa i nvestor-owned utilities in their 2009-2013 energy efficiency program plans. 21
We also included an eight percent adjustment to ref lect transmission and distribution line losses. Thi s is consistent with the line loss factor used in Focus on Energy evaluation studies. 22 To value natural gas savings, we used an avoided cost of $0.84 per therm , which is used by the Focus on Energy evaluation team in conducting benefit-cost analysis and measur e screening. 23

While the costs associated with carbon emissions ar e not currently a direct cost, it is prudent to ass ume that this situation will change in the near future. Since our focus is primarily on the potential to g arner energy efficiency opportunities in the future, a fo rward-looking carbon cost estimate is appropriate. We relied on the 2008 levelized carbon cost estimate r eported by Synapse Energy Economics under its

19 Quantec (2008). Assessment of Energy and Capacity Savings Potential in Iowa . Prepared for the Iowa Utility Association in collaboration with Summit Blue Consu lting, Nexant, Inc., A-TEC Energy Corporation, and Britt/Makela Group. 20 GDS Associates (2007). Vermont Electric Energy Efficiency Potential Study . Prepared for the Vermont Department of Public Service. 21 Interstate Power & Light Company (2008). 2009-2013 Energy Efficiency Plan . Docket No. EEP-08-1. MidAmerican Energy Company (2008). 2009-2013 Energy Efficiency Plan . Docket No. EEP-08-2. 22 Personal communication with Bryan Ward, PA Consult ing, November 3, 2008. 23 Email communication from Miriam Goldberg, KEMA, In c. to Public Service Commission of Wisconsin staff and the Focus on Energy evaluation team (February 6, 20 07). Final Assumptions for Focus BC Analysis and Measure Screening

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-13 medium-range forecast, which equates to $30 per ton of carbon dioxide (CO 2 ) emitted. 24 Using carbon emissions factors for Wisconsin as reported in rece nt Focus on Energy evaluations (0.9 tons of CO 2 per MWh and 11.708 lbs CO 2 per therm), 25 this carbon price amounts to approximately $0.025 per kWh and $0.18 per therm.
Avoided cost and carbon values used in the Energy C enter’s analysis are summarized in Table EE-4.

TABLE EE-4. AVOIDED COSTS AND CARBON VALUE

Summer Peak Summer

Off-Peak Winter

Peak Winter

Off Peak Electricity ($/kWh) $0.074 $0.037 $0.072 $0.039 Avoided T&D capacity ($/kW-year) $30.00 $30.00 Carbon surcharge for electricity ($/kWh) $0.025 $0.025 $0.025 $0.025 Natural gas ($/therm) $0.840 $0.840 $0.840 $0.840 Carbon surcharge for natural gas ($/therm) $0.176 $0.176 $0.176 $0.176

For the purposes of the TRC test, costs include exp enses associated with measure installation as well as program administrative costs. Expenses associated w ith measure installation include the incremental co st of energy efficient equipment over standard efficie ncy equipment, and may also include labor costs associated with measure installation and maintenanc e. Since incentives are essentially a transfer paym ent from program to participant, they represent a porti on of the measure cost and are not disaggregated fo r the purposes of the TRC test.
Program administrative costs include all costs asso ciated with program implementation except incentives, such as expenditures for program planning and admin istration, marketing and outreach, education and training, and evaluation, measurement, and verifica tion (EM&V). Administrative costs typically vary based on program design, target market, program mat urity, and other factors.
To maintain a simple, transparent analytical struct ure, the Energy Center elected to develop and apply pro rata program administrative cost factors at the measure level, rather than bundling measures into programs, which can be a subjective and analyticall y opaque process. The Energy Center developed administrative program cost factors on a per-kWh an d per-therm basis (based on lifetime energy savings ) using historical program expenditures and savings r esults from Focus on Energy, as well as programs in Minnesota (Xcel Energy and Southern Minnesota Munic ipal Power Agency), Iowa (MidAmerican Energy and Alliant Energy), and Vermont (Efficiency Vermon t). These program data showed relatively minor variability across programs for the commercial and industrial (C&I) market, but some differences

24 Synapse Energy Economics, Inc. (2008). Synapse 2008 CO 2 Price Forecasts

. 25 The CO 2 emissions factor for electricity is from: PA Consul ting Group Inc. (2008). Quantifying Environmental Benefits of Focus on Energy: Emission-Rate Estimate s 2002 to 2006. Prepared for the Public Service Commission of Wisconsin. The CO 2 emissions factor for natural gas is from: PA Consul ting Group, Inc. (2008). Focus on Energy Evaluation: Semi-Annual Report (First Half of 2008) . Prepared for the Public Service Commission of Wis consin by the Focus on Energy evaluation team (PA Consulting, Glacier Cons ulting Group, KEMA, and Patrick Engineering, Inc.).Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-14 between programs for the residential market. Table EE-5 summarizes the administrative cost factors use d in this analysis.

TABLE EE-5. ADMINISTRATIVE PROGRAM COST FACTORS

Measure Type $/lifetime kWh $/lifetime

therm Residential lighting and appliances 0.005 0.040 Residential new construction and building shell 0.0 09 0.140 Commercial, industrial, and agricultural 0.003 0.03 0

We used a five percent real discount rate to conver t future costs and benefits to present values in th e TRC test. This societal discount rate is consistent wit h values used in Focus on Energy evaluations. 26
The efficiency potential model uses sector growth r ates to project annual eligibility for equipment replacement based on failure of existing equipment (the “replace on burnout” market) or new construction. In light of the current economic down turn and uncertain timing of recovery, which affect these rates, we assumed a conservative one percent annual growth rate across all sectors. To benchmark this assumption, we compared these values with macr oeconomic data from the Energy Information Administration’s (EIA) Annual Energy Outlook 2009 Early Release. 27 Using historical values and projection data for 2006 through 2018, we determine d annual growth rates for the following indicators: real Gross Domestic Product (2%), commercial floor space (1%), manufacturing value of shipments (1%), and housing starts (0.3%). 28 The Wisconsin Department of Revenue’s Division of Research & Policy projects similar economic trends for the state, wit h employment falling two percent in 2009 before resuming a growth trend of 0.8 percent in 2010 and 1.4 percent in 2011. 29 Wisconsin housing starts are projected to hit bottom in 2009 and begin climbing again in 2010.
Future savings achieved by installed measures will decline over the lifetime of the measures due to fa ctors such as early failure, removals of energy efficient equipment due to consumer dissatisfaction or other factors, or failure to maintain equipment at optima l performance levels. Instead of using a savings de cay function, this decline is addressed by the fact tha t measure lifetimes used in the analysis are based on the median equipment lifetime. This practice reflects a conservative approach to estimating future savings

. 30

26 PA Consulting Group, Inc. (2008). Focus on Energy Evaluation: Semi-Annual Report (Fir st Half of 2008)

. Prepared for the Public Service Commission of Wisco nsin by the Focus on Energy evaluation team (PA Con sulting, Glacier Consulting Group, KEMA, and Patrick Enginee ring, Inc.). 27 U.S. Department of Energy, Energy Information Admi nistration (December 2008). Annual Energy Outlook 2009 Early Release . Available at: http://www.eia.doe.gov/oiaf/aeo/

. 28 Our assumption for growth in housing starts is sti ll conservative, as EIA projects annual growth in h ousing starts of ten percent from 2009 through 2018. 29 Wisconsin Department of Revenue, Division of Resea rch & Policy (December 2008). Wisconsin Economic Outlook . Available at: http://www.revenue.wi.gov/ra/0812/0812okma.pdf

. 30 The most recent semi-annual evaluation of Focus on Energy employed a different approach to addressing savings decay, assuming an exponential decay function such that half of the savings remain after the measure l ife. Under a five percent discount rate, the two approaches prod uce equivalent savings results for measures with a lifetime of 15Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-15 Program Innovation The Energy Center’s approach was to estimate levels of savings that could be achieved under an aggressive approach to energy efficiency program fu nding and delivery. Key modeling assumptions that reflect an aggressive approach to program delivery are summarized below. Though the modeling effort required defining some basic parameters for innovat ive programs, it is important to note that our anal ysis was primarily conducted at the measure level, rathe r than at the program level. Thus, the discussion o f innovative program strategies are intended to be il lustrative, and the potential study should not be v iewed as a roadmap for program planning and design.
Across all sectors, the Delphi-derived achievable f actors are the primary mechanism for estimating savings that could be achieved through aggressive a pproaches to energy efficiency. For key technologie s, Delphi experts were asked to estimate levels of mar ket penetration that could be achieved through continuation of business-as-usual funding levels an d program approaches, and also to estimate levels o f market penetration that could be achieved through a ggressive funding levels and program approaches. Respondents included the effect of innovative progr am delivery in this aggressive scenario. Aggressive program scenario responses were the primary input f or developing the measure-specific achievable factors discussed above. In addition, some sector-specific modeling adjustme nts were made to reflect key innovative program approaches discussed in Chapter EE-4. In particular , to model the “neighborhood blitz” (a program strategy targeting retrofit opportunities in the re sidential market) we modified achievable factors fo r specific retrofit measures to reflect levels of mar ket penetration that could be achieved through a community-based direct install initiative. Addition al details on neighborhood blitz modeling assumptio ns are provided in Appendix A.
Upstream incentives are another innovative program strategy discussed in Chapter EE-4. The approach to modeling program costs reflects a shift in program emphasis from downstream consumer incentives to upstream incentives for equipment suppliers and ret ailers to affect net increases in the market share for efficient products. For example, consider an applia nce where energy efficient models currently enjoy sixty percent market share. Using a downstream ince ntive strategy, a program could theoretically have to pay an incentive for every unit sold, so moving the market from sixty percent to seventy percent might not be cost-effective. However, for the purposes of this analysis we assume that the program could use an upstream approach and only pay incentives based on the ten percent increase in market share. This approach provides a basis for the increased penetra tion rates we modeled for energy efficiency measure s that currently enjoy a significant market share in Wisconsin.

Program Cost Estimation The TRC test is a useful analytical tool for evalua ting investments in energy efficiency and renewable energy against investment in traditional supply-sid e alternatives. However, from a policy perspective it is also useful to estimate the cost energy efficiency programs would incur in achieving estimated savings potential. Though the program administrator cost te st was not used in this analysis, the Energy Center

years. However, the Energy Center’s approach is mor e conservative for measures with a lifetime shorter than 15 years, as it excludes savings occurring from the 50 percent of installed measures which out-last the m edian equipment lifetime. The average savings-weighted li fetime for measures addressed in this study is 12 y ears.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-16 developed program cost curves to provide general in formation to policy makers. It is important to note that since this study was conducted from a total re source cost perspective, program cost estimates are intended as a general approximation. Comprehensive program planning would be necessary to develop a more precise estimate.
The Energy Center developed program cost curves by applying the general assumption that under an aggressive program scenario, programs would pay 50 percent of the cost of replace-on-burnout and new construction measures, and 90 percent of the cost o f retrofit measures. 31 The cost of replace-on-burnout and new construction measures is typically the incr emental cost difference between the energy efficien t technology and the standard efficiency alternative. The cost of retrofit measures is typically the sum of capital and installation costs. Total resource cost and program cost curves are provided in Chapter EE -2, which includes a discussion of why higher incentive levels were assumed for retrofit measures.

Scenario Analysis As with any projections of future conditions, poten tial studies entail a high degree of uncertainty. Uncertainty is driven by a variety of factors, incl uding imperfect data on baseline market conditions and the fundamental challenges associated with predicti ng human behavior. Setting aside these obstacles, future trends of energy efficiency improvement will be affected by a number of factors that are also difficult to predict: energy costs; technology cost s; rates of technology advancement; and federal pol icies that could be enacted, such as regulation of greenh ouse gas emissions and adoption of increased efficiency codes and standards.
Our primary scenario analysis focuses on an environ mental scenario that represents an upper bound for energy efficiency potential estimates. This scenari o includes the following modifications to base scen ario modeling inputs:

• Increased Avoided Costs : Utility avoided costs are increased by $0.02 per kWh and $0.25 per therm to reflect the cost of all non-carb on environmental externalities, such as sulfur dioxide (SO 2 ) emissions, oxides of nitrogen (NO x ) emissions, and mercury (Hg) emissions.

• Relaxed TRC Screen: The TRC threshold is relaxed from 1.0 to 0.75 to re flect distributional aspects of benefit-cost analysis.

• Lower Discount Rate : In a carbon-constrained future, it is likely that the value of energy efficiency investments made today will increase ove r time, rather than decrease, so we lowered the real discount rate from five percent to two percent.
In Chapter EE-3, we compare the results under this environmental scenario with the base scenario resul ts. We also conducted additional scenario analyses to a ssess the individual impacts that modifying each on e of the above inputs would have on efficiency potent ial estimates. Lastly, we conducted an additional

31 Using incremental costs and program costs reported in the October 2008 semi-annual evaluation of the Focus on Energy program conducted by PA Consulting Group (Ta ble 2-15), incentives currently cover around 30 per cent of the incremental cost of energy efficiency measures, averaged across all programs and measures. This es timate assumes that incentives represent around 60 percent of Focus on Energy program costs, which is consist ent with historical results.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-17 scenario which removed the carbon cost adder from t he avoided costs used in the base scenario. Supplementary scenario analysis results are summari zed in Appendix E.

Supplementary Analyses The Energy Center conducted three additional analys es to supplement baseline estimates of energy efficiency potential: (1) the impact of programs ta rgeting energy efficiency improvement through behavior-based programs; (2) the impact of innovati ve rate design, demand response initiatives, and sm art grid technologies; and (3) the impact of revisions to building codes and appliance standards.
These supplementary analyses provide qualitative an d quantitative assessments of what could be achieve d through these specific demand-side management (DSM) approaches. It is important to note that the results of these analyses are, for the most part, n ot additional to our baseline estimates of energy efficiency potential. Rather, quantitative estimate s developed through these supplementary analyses represent a subset of the efficiency potential that could be achieved through aggressive policy and program approaches, which are assumed present in th e final results of this study. In the case of codes and standards, mandatory approaches can achieve savings that are not available through voluntary program approaches. The approaches used in these supplement ary analyses are discussed below, with additional information provided in Chapter EE-4.
Behavior-based programs are efforts to influence hu man choices that affect energy consumption. This diverse category of programs may seek to affect cho ices regarding purchase decisions, operational practices, equipment installation practices, or bui lding design practices. Examples include informatio nal efforts like the ENERGY STAR® brand awareness campa igns, social marketing efforts, and continuing education for architects and engineers. Many techno logy-focused programs include an informational/educational component, blurring the d istinction between traditional energy efficiency programs and behavior-based programs.
Given the degree of overlap between technology-focu sed programs and behavior-based initiatives, we pursued a three-fold approach for addressing the en ergy-savings potential associated with behavior-bas ed approaches. Our co-consultants, ACEEE, created a Wi sconsin-specific version of a model they recently developed for estimating behavior-based energy effi ciency potential at the national level. In addition , we estimated potential savings from a neighborhood-bas ed plug load initiative that combines an appliance audit, consumer information, and viral marketing, w ith trained staff of “plug load specialists” that p rovide customized recommendations for each home they visit . Lastly, we conducted research into use of feedback techniques for reducing energy consumption . These preliminary analyses illustrate the degree to which behavior-based approaches could play a role i n an aggressive energy efficiency program portfolio in Wisconsin.
We also provided a qualitative assessment of result s that could be achieved through advanced rate desi gns that employ dynamic pricing, where the retail cost of electricity varies according to electric demand. We conducted a literature review, including a 2008 stu dy that reviewed the findings from 17 recent experiments with dynamic pricing. 32 Based on this research, we drew qualitative conclu sions on the

32 A. Faruqui and S. Sergici (November 2008). Household Response to Dynamic Pricing of Electricit y: A Survey of Seventeen Pricing Experiments . The Brattle Group.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-18 potential energy saving and peak demand reduction i mpacts from wider deployment of dynamic pricing in Wisconsin.
The building codes and appliance standards componen t of our analysis assesses the amount of energy efficiency potential that could be achieved through mandatory requirements, rather than voluntary programs. We assessed the incremental impact of ene rgy-related revisions to building codes and appliance efficiency standards by modifying key inp uts in the energy efficiency potential model under the following assumptions:

• A 15 percent increase in the energy efficiency of n ew homes resulting from changes in the residential code. 33

• A 15 percent increase in the energy efficiency of c ommercial new construction resulting from changes to the commercial code. 34

• State energy efficiency standards for new residenti al furnaces, new commercial boilers, and commercial packaged air conditioning systems. 35

33 This code-based efficiency level is slightly highe r than current levels required by the Wisconsin ENE RGY STAR Homes program. 34 This 15 percent increase is based on the approxima te savings in switching from current code to an ave rage of the 2007 and 2010 versions of ASHRAE 90.1 35 The Governors Global Warming Task Force recommended establishment of state standards for residential g as furnaces and furnace fans, compact audio equipment, high efficiency commercial boilers, and industrial boilers, State standards can be established for equipment wh ere there is no existing federal energy efficiency standard, or where a state has been granted authority to preempt the federal standard.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-19 CHAPTER EE-2: STATEWIDE AND SECTOR RESULTS

ECONOMIC POTENTIAL As previously noted, this analysis focuses on estim ates of achievable energy efficiency potential, though estimates of economic potential were developed as w ell. Recall that as a practical measure, estimates of economic potential have limited usefulness, as they do not account for capital constraints, the useful lifetime of existing installed equipment, or other barriers than inhibit adoption of cost-effective en ergy efficiency measures. Figure EE-1 presents economic potential estimates by energy type.

Figure EE-1: Economic Potential by Energy Type

Across the scenarios, economic potential represents between 16 and 20 percent of baseline energy consumption. In other words, if Wisconsin energy co nsumers immediately installed all cost-effective energy efficient measures, statewide energy use wou ld decline to around 80 percent of existing levels.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-20 ACHIEVABLE POTENTIAL The primary focus of our modeling effort was to det ermine the annual savings that statewide energy efficiency programs could achieve in the year 2012. Figure EE-2 shows achievable potential estimates b y energy type.

Figure EE-2: Annual Achievable Potential 2012

We also developed achievable potential estimates fo r 2018. However, as noted earlier, ten-year estimat es are associated with a much higher degree of uncerta inty than the 2012 estimates. We do not know how existing energy efficient technologies will advance over this time period, and what new technologies w ill emerge. Technology costs, energy prices, the state of the economy, and federal climate policy are othe r factors that will have a dramatic effect on energy efficiency potential in the coming decade. In the c urrent political and economic climate these factors are mo re difficult to predict than ever.
In developing efficiency potential estimates for 20 18, we considered two related but countervailing factors: technology advancement and technology matu rity. As new technologies come on the market, older technologies fade away or become commonplace, which takes them out of the domain of program potential.
Though we know technology advancement and technolog y maturity are offsetting forces, it is difficult t o say which one would have the larger impact over a t en-year time horizon. As a starting point, a simple way of considering both factors is to assume that t hey cancel each other out. Lacking compelling data to support an alternative forecast, we adopted this as sumption.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-21 This leaves the annual

rate of efficiency gains in 2018 at the same level assumed for 2012. Over time, the cumulative impact continues to grow as the constant rate of a nnual savings accrues. Figure EE-3 shows the cumulative savings for each energy type by that will be generated by the year 2018.

Figure EE-3: Cumulative Energy Savings in 2018 by E nergy Type

PROGRAM AND TOTAL RESOURCE COST ESTIMATES A critical consideration for policymakers is the co st Wisconsin energy efficiency programs would incur in achieving the aggressive energy savings projected i n this study. This study was primarily conducted fr om a total resource cost perspective rather than a pro gram administrator cost perspective. Costs and savi ngs were evaluated at the measure level, rather than at the program level. However, the Energy Center appl ied some broad assumptions to provide a general approxi mation of the level of program investment that coul d be necessary to achieve the savings projected in th is study. Comprehensive program planning would be necessary to develop a more precise estimate.
The Energy Center’s estimates are based in part on the assumption of significant increases in program activity targeting the retrofit market. To achieve success in the retrofit market, programs must inves t substantial resources to overcome consumer inertia and informational/awareness barriers. In addition t o the administrative (non-incentive) costs associated with running a successful program (market research , program design and planning, marketing, outreach, e ducation, training, technical expertise, etc), 36 we suggest that energy efficiency programs will have t o pay for most of the costs associated with installing the measures. For retrofit measures, we assume that the program will incur 90 percent of the costs

36 We estimated administrative program costs (e.g., n on-incentive costs) based on historical results fro m Focus on Energy and other programs, as described in Chapter EE-1. These costs were scaled proportionately to re flect the greater level of savings suggested in this study.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-22 associated with measure installation. For equipment replacement and technologies installed in new construction, we assume the program will incur 50 p ercent of the incremental technology costs. As note d above, these broad assumptions are intended to prov ide a general approximation of necessary levels of program investment, and detailed program planning a nd cost estimation would be necessary to develop accurate estimates of program investment.
These assumptions lead to the following annual budg et estimate for the year 2012 (2008 dollars):

RETROFITS $305,000,000

EQUIPMENT REPLACEMENT $36,000,000

NEW CONSTRUCTION $12,000,000

GRAND TOTAL $353,000,000
To reach these savings and spending levels in 2012, energy efficiency programs would need to ramp up quickly. That means that funding increases will be needed now to set us on a course that allows us to reach the estimated 2012 levels of achievable energ y efficiency.
Figures EE-4 and EE-5 show the levels of electric a nd natural gas potential that can be achieved in 20 12 under increasing levels of program investment (2008 dollars).

Figure EE-4: Program Cost Curve, 2012 Electric Effi ciency PotentialEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-23 Figure EE-5: Program Cost Curve, 2012 Natural Gas E fficiency Potential Evaluating costs from a total resource perspective (which includes both the cost to the program and th e cost to the consumer) produces the cost curves show n in Figures EE-6 and EE-7. The total resource cost of achieving 2012 levels of energy efficiency is ap proximately $400 million (2008 dollars).

Figure EE-6: Total Resource Cost Curve, 2012 Electr ic Efficiency PotentialEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-24 Figure EE-7: Total Resource Cost Curve, 2012 Natura l Gas Efficiency Potential

ECONOMIC BENEFITS OF AGGRESSIVE ENERGY EFFICIENCY E FFORTS The most direct impact of an aggressive energy effi ciency policy would be the substantial energy cost savings for Wisconsin consumers. Figure EE-8 shows lifecycle cash inflows and outflows to Wisconsin based on a single year of increased program spendin g.

Figure EE-8: Aggregate Net Benefits of Aggressive E nergy Efficiency ProgramsEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-25 It is important to interpret this chart correctly. It shows the lifecycle impact of annual energy efficiency spending. More specifically, each year that we spen d $340 million on efficiency programs we obtain $1. 3 billion in lifecycle energy savings. If we spend $3 40 million one year, and another $340 million the following year, we set the stage for a total of $2. 6 billion in lifecycle energy cost savings: $1.3 bi llion from the first $340 million investment and another $1.3 billion from the second.
Energy efficiency program expenditures also bring e mployment benefits for Wisconsin’s work force. The literature offers a range of approaches for estimat ing the employment benefits associated with energy efficiency initiatives. For the purposes of this st udy, we used job creation factors developed by Focu s on Energy program evaluators, as well as factors publi shed in a national study by the Center for American Progress. 37 Using these factors, achieving the 2012 energy eff iciency levels projected in this study would produce between 7,000 and 9,000 new jobs for Wiscon sin. Spending money on utility service causes a noticeab le cash outflow not only to consumers, but to the s tate as well. This is especially true for natural gas ut ilities. Reducing consumption of utility services r educes that cash outflow. Wisconsin has no indigenous natural gas resources ( nor any oil or coal resources for that matter). Therefore, any natural gas we burn must be imported . Figure EE-9 shows that, as a result, most of the customer’s payment to a Wisconsin natural gas utili ty leaves the state immediately in the form of payments to gas producers (e.g., Chevron) and inter state pipelines (e.g., ANR Pipeline).

Figure EE-9: Natural Gas Utility Revenue by Cost Ca tegory 2007 data for Wisconsin Investor-Owned Natural Gas Utilities

37 The Energy Center developed employment estimates u sing job creation factors developed by Focus on Ene rgy program evaluators, as referenced in: PA Consulting Group, Inc. (October 2008). Focus on Energy Evaluation: Semi-Annual Report (First Half of 2008) . Prepared for the Public Service Commission of Wis consin. We also used job creation factors published in: Dep artment of Economics and Political Economy Research Institute, University of Massachusetts-Amherst (2008). Green Recovery: A Program to Create Good Jobs and S tart Building a Low-Carbon Economy . Prepared under commission with the Center for Ame rican Progress.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-26 The drain of cash associated with electric utility sales is likely not as great as it for natural gas utilities. Nevertheless, of the three choices—energy efficienc y, gas sales, or electricity sales—energy efficienc y has the greatest positive economic development impa ct on the state.

ENVIRONMENTAL BENEFITS OF AGGRESSIVE ENERGY EFFICIE NCY EFFORTS Energy efficiency not only delivers net economic be nefits, it also delivers environmental benefits. To measure the environmental impact of energy efficien cy, we estimated avoided greenhouse gas emissions from utility-supplied energy.
If Wisconsin can achieve the energy savings levels set forth in this study, in 2012 it will reduce CO 2 emissions by 1.3 million tons per year, reduce SO 2 emissions by 12 million pounds per year, and reduc e NOx emissions by 2.4 million pounds per year. 38
If we shift our analysis to reflect a longer-term, environmentally-focused perspective, our results pr oject even greater benefits. The Energy Center conducted analysis to determine the impacts under an environmental scenario which assigned costs to emis sions of other pollutants in addition to CO 2 (e.g., SO 2 , NOx, and Hg), and reduced the economic discount r ate to place a higher value on future energy savings generated by current program efforts, among other changes. (See Chapter EE-3 for a detailed comparison of the base scenario with the environmen tal scenario). Under the environmental scenario, th e present value of energy efficiency investments incr eases, justifying additional spending on energy efficiency programs to achieve higher savings level s. This scenario produces estimated CO 2 emission reductions totaling 1.5 million tons per year, SO 2 emissions reductions totaling 14 million tons per year, and NOx emissions reductions totaling 2.8 million t ons per year. As we attempt to garner additional energy efficienc y resources, however, we begin to encounter noticeable diminishing returns to scale. For exampl e, to increase annual achievable electric savings potential from 1.6 percent of baseline sales under the base scenario to 1.9 percent under the environm ental scenario (a 20 percent increase in energy savings), the program costs necessary to obtain those saving s more than double. That is not to say that seeking o ut those additional savings is necessarily poor pol icy— the environmental scenario produces positive net be nefits. However, it is important to note that achie ving the emission reductions estimated under the environ mental scenario is proportionately more expensive than obtaining the emission reductions associated w ith the base scenario.

IMPACT ON STATEWIDE UTILITY LOAD GROWTH Figures EE-10 and EE-11 show the impacts of both th e existing moderate and the proposed aggressive energy efficiency levels on the state’s electric an d natural gas utility sales. (The effect on electri c peak demand is similar to that shown for electric sales. )

38 The Energy Center calculated avoided environmental impacts using emissions factors developed by Focus on Energy program evaluators, as referenced in: PA Con sulting Group (October 2008). Quantifying Environmental Benefits of Focus on Energy: Emission-rate Estimate s 2002 to 2006 . Final Report. Prepared on behalf of the Public Service Commission of Wisconsin.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-27 Figure EE-10: W isconsin Electric Sales 2000 – 2007 (Actual) and 20 08 – 2018 (Projected)

Figure EE-11: Wisconsin Natural Gas Sales to End Us ers 2000 – 2007 (Actual) and 2008 – 2018 (Projected )Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-28 All other factors equal, if we meet the achievable levels of energy efficiency set forth in this study , Wisconsin electric utilities’ energy sales begin a trajectory of gradual decline, as anticipated by th e Governor’s Task Force on Global Warming. Natural ga s utilities’ sales, already on a gradually declinin g path, will decline more rapidly.
The implications are significant. Examining the imp act of those savings on utility load projections re veals that we will sever the link between electricity sal es growth and economic progress. Note that the link has already been severed for natural gas utilities, as the state’s economy has continued to grow while nat ural gas sales have declined.
We present the results on utility load growth to de monstrate the significance of the energy efficiency policy shift suggested in this study. Unlike the im pacts suggested by the previous study of statewide energy efficiency potential conducted in 2005, whic h slightly altered the utilities’ long-term sales trajectories, the savings estimates suggested here, if achieved, will change the future supply-side investment trajectory more noticeably. 39
The PSCW has conducted an investigation of the impa cts of energy efficiency programs on utility finances, and possible remedies to correct for any problems in that regard. 40 A discussion of that topic is beyond the scope of this study.
Also beyond the scope of this study is the strong p ossibility of rapid increases in electrification of cars and light duty trucks during the study period. This trend will likely add significant load to the elec tric grid, primarily during off-peak periods. This study has set aside any synthesis of this issue, and the countervailing effects of transportation electrific ation. Reductions cited here are for non-transporta tion energy consumption.

SECTOR RESULTS While energy efficiency opportunities exist in all sectors, the magnitude of potential varies by secto r. Figure EE-12 presents 2012 annual electricity savin gs potential by sector, expressed as a percentage o f baseline sales. 41

39 Energy Center of Wisconsin (November 2005). Energy Efficiency and Customer-Sited Renewable Ener gy: Achievable Potential in Wisconsin 2006-2015 . ECW Report Number 236-1. Prepared on Behalf of Th e Governor’s Taskforce on Energy Efficiency and Renewables. 40 See PSCW Docket 05-EI-114. 41 For baseline annual sales by sector, we used 2007 sales data as reported in the Wisconsin Office of E nergy Independence’s 2008 Wisconsin Energy Statistics

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-29 Figure EE-12: Relative Annual Electricity Savings P otential by Sector, 2012

As a percentage of current sales, we see that that greater potential for electric energy savings exist s in the business sectors, with the commercial, industrial, and agricultural areas all showing relatively more opportunity than the residential market.
Yet while the potential reduction as a fraction of baseline in the agricultural sector is large, the a bsolute amount of savings potential is not. The absolute el ectricity savings potential in the residential mark et dwarfs that of the agricultural sector. Figure EE-1 3 compares electricity savings potential in absolut e terms for each sector. Under objectives of producin g the greatest amount of energy bill savings and reducing aggregate greenhouse gas emissions, the ab solute numbers matter more than relative reductions in annual sales.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-30 Figure EE-13: Absolute Annual Electricity Savings P otential by Sector, 2012

From this perspective, we see that potential saving s in the residential sector lags that of the commer cial and industrial sectors. Nevertheless, this figure s hows that the residential sector has substantial ag gregate electricity savings potential—significantly more th an is available from the agricultural sector.
Figure EE-14 presents absolute demand reduction pot ential by sector. Similar to the results shown for electricity savings potential, the commercial and i ndustrial sectors represent the largest opportuniti es for demand reduction, followed by the residential secto r. Demand reduction potential in the agricultural sector is relatively small compared with other sect ors.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-31 Figure EE-14: Absolute Annual Demand Reduction Pote ntial by Sector, 2012
Figure EE-15 presents natural gas savings results b y sector, expressed as a percent reduction in basel ine sales. 42 Figure EE-16 shows the absolute natural gas saving s potential by sector.

Figure EE-15: Relative Annual Natural Gas Savings P otential by Sector, 2012

42 Natural gas savings for the agricultural sector ar e primarily comprised of propane savings. In many c ases, natural gas service is not available to farms.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-32 Figure EE-16: Absolute Annual Natural Gas Savings b y Sector, 2012

Expressed as a percent reduction in baseline sales, the potential savings in the commercial, industria l, and agricultural sectors is greater than that of the re sidential sector. However, in comparing absolute en ergy savings potential across sectors, we see that the r esidential sector potential is much greater than is the agricultural sector potential. At the same time, re sidential and agricultural savings potential are dw arfed by the magnitude of the savings potential in the co mmercial and industrial sectors.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-33 MAJOR ENERGY EFFICIENCY OPPORTUNITIES BY SECTOR Figures EE-17 through EE-28 present major opportuni ties for energy savings by sector. More detailed results are included in Appendix D.

Figure EE-17: Top Residential Technology Markets: E lectricity Savings

Figure EE-18: Top Residential Technology Markets: E lectric Demand ReductionEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-34 Figure EE-19: Top Residential Technology Markets: N atural Gas Savings
In the residential market, 2012 electricity savings potential is dominated by purchased replacement of CFL bulbs, with weatherization measures and in-home energy usage feedback displays representing other significant opportunities for electricity savings. Opportunities for demand reduction are similar, tho ugh furnaces with electronically commutated motors (ECM furnaces) represent the largest fraction of demand reduction potential. Weatherization improvements re present the largest component of natural gas saving s potential, followed by hot water conservation measu res such as low flow showerheads and drain water heat recovery.

Figure EE-20: Top Commercial Technology Markets: El ectricity SavingsEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-35 Figure EE-21: Top Commercial Technology Markets: El ectric Demand Reduction

Figure EE-22: Top Commercial Technology Markets: Na tural Gas Savings

In the commercial market, electricity savings poten tial is dominated by lighting—equipment, controls, and efficient lighting design. Retrocommissioning ( RCx) and controls to optimize the operation of HVAC and refrigeration equipment also represent signific ant opportunities for electricity savings and deman dEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-36 reduction. Efficient cooling equipment also represe nts a substantial component of demand reduction potential. For natural gas efficiency, the largest areas of savings potential consist of HVAC RCx and controls for gas-fired systems, water heating syste ms, and water conservation measures such as low-flo w devices.

Figure EE-23: Top Industrial Technology Markets: El ectricity Savings

Figure EE-24: Top Industrial Technology Markets: El ectric Demand ReductionEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-37 Figure EE-25: Top Industrial Technology Markets: Na tural Gas Savings

In the industrial sector, motor system improvements and lighting efficiency upgrades represent the lar gest opportunities for electricity savings and peak dema nd reduction. Natural gas savings potential is dominated by improvements to steam systems and proc ess heating equipment—including improved operational and maintenance practices as well as im proved system design and controls.

Figure EE-26: Top Agricultural Technology Markets: Electricity SavingsEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-38 Figure EE-27: Top Agricultural Technology Markets: Electric Demand Reduction

Figure EE-28: Top Agricultural Technology Markets: Natural Gas Savings
For electricity savings in the agriculture sector, the majority of the energy efficiency potential is associated with dairies and other livestock operations. Improv ements to milking parlors represent the largest opp ortunity, including installation of high efficiency compresso rs (including scroll compressors), heat recovery ta nks, plate coolers, variable speed drives for milk and vacuum pumps, pump re-sizing, and conversion of electric w ater heaters to gas water heaters. Other significant opp ortunities for electricity savings and peak demand reduction include lighting efficiency upgrades and ventilatio n system improvements.
For natural gas or propane efficiency, process impr ovements in grain drying operations and space heati ng efficiency upgrades in greenhouses represent the la rgest opportunities for savings.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-39 CHAPTER EE-3: SCENARIO ANALYSIS

APPROACH The Energy Center conducted scenario analysis, vary ing key input assumptions to test the outer bounds of energy efficiency potential estimates. In reporting the scenario analysis results, we focus on the sce nario with the greatest deviation from the base case, ref erred to as the “environmental scenario,” which inc ludes the following modifications to base scenario modeli ng inputs:

• A charge of $0.02 per kWh and $0.25/therm is added to the utility avoided cost data to reflect the cost of all non-carbon-based externalit ies, such as emissions of SO 2 , NO x , and Hg.

• The TRC threshold is relaxed from 1.0 to 0.75 to re flect distributional aspects of benefitcost analysis.

• The real discount rate is lowered from five percent to two percent.
The first change is straightforward in concept. Con sumption of fossil fuels creates both direct and ex ternal costs. The $0.02 per kWh figure is a rough proxy fo r costs associated with environmental externalities other than carbon emissions, which are included in the base scenario. Our goal was not to develop a precise estimate of non-carbon externality costs, a s valuations of externality costs tend to range wid ely. Rather, we wanted to test the sensitivity of our re sults to the introduction of such a cost.

The TRC threshold is relaxed to 0.75 to account for the fact that the cost-effectiveness test represen ts the average costs and benefits of installing the measure. An e nergy efficiency measure with a benefit-cost ratio of 0.8 fails the benefit-cost test on average , but it could still be an economic choice in some cases. Relaxing the TRC provides some indication as to the amount of additional efficiency gains we could obtain if we included measures that just missed the cutoff in the base scenario.
The discount rate change is the most important of t he three and deserves the most attention. Economic principles suggest that different discount rates ca n apply to consumption and to environmental costs.
[I]f conventional consumption is growing but the en vironment is deteriorating, then the discount rate for consumption would be positive but for the environment it would be negative. 43
This is not a new economic concept, but rather one that developed long ago in the mainstream literatur e. Most of us are comfortable in thinking about a posi tive discount rate. Using the five percent real rat e that we employ in the base scenario for purposes of illu stration, we note that $1.00 saved 20 years from no w is worth only $0.38 to us today. That makes intuitive sense.
But what if the discount rate were -5%, rather than +5%? Then the value of $1.00 saved 20 years hence is worth much more than a $1.00 today. In fact, that $ 1.00 saved in the future is worth $2.79 today.

43 United Kingdom, HM Government Economic Service (20 06). The Stern Review on the Economics of Climate Change . Available at: http://www.hm-treasury.gov.uk/stern_review_report.h tm

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-40 Using a negative discount rate suggests that the in terests of consumers in the future are more of a co ncern to us than are our own self interests. While seemin gly counterintuitive, such an approach may be particularly relevant when considering strategies t o address the risk of climate change. If a policy i s established in an effort to mitigate the impacts of climate change, the action could reflect a desire to bear greater costs in the present, in order that future generations bear lower costs. A positive discount r ate fails to capture the rationale for taking this action. To be conservative, we use a positive discount rate o f two percent for the purposes of the scenario analysis. This rate still values the interests of current gen erations more than those of future ones, but it does give fu ture citizens more consideration than they would ha ve under a five percent discount rate.
We also examined the effects of varying each of the se three inputs—increased avoided costs, lower TRC threshold, and lower discount rate—individually. La stly, we conducted a final scenario which removed the carbon cost adder from the avoided costs used i n the base scenario. These additional scenario anal ysis results are presented in Appendix E.

STATEWIDE SCENARIO RESULTS Figure EE-29 contrasts the economic potential betwe en the scenarios. Figure EE-30 does the same for achievable potential.

Figure EE-29: Comparison of Economic Potential Unde r Base and Environmental ScenariosEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-41 Figure EE-30: Comparison of 2012 Achievable Potenti al Under Base and Environmental Scenarios

Under the environmental scenario, electricity savin gs and peak demand reduction potential increase by around 20 percent and natural gas savings potential increases by around 25 percent, as compared with t he base scenario. Emissions of CO 2 , NOx, and SO 2 are also around 20 percent lower under the environmental scenario.
While there are clearly some differences between th e two scenarios, the gap is not as wide as one migh t anticipate. A number of measures that are not cost- effective in the base scenario pass the TRC screen in the environmental scenario, but the aggregate effic iency potential of these measures is not large. Thi s result makes intuitive sense, as marginally cost-ef fective technologies that are associated with large savings potential represent attractive opportunitie s for research and development, leading to technolo gical improvements that increase cost-effectiveness.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-42 SCENARIO RESULTS BY SECTOR Figures EE-31 through EE-33 compare sector-level re sults under the base and environmental scenarios.

Figure EE-31: Comparison of 2012 Electricity Saving s Potential by Sector, Base and Environmental Scenarios

Figure EE-32: Comparison of 2012 Demand Reduction P otential by Sector, Base and Environmental ScenariosEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-43 Figure EE-33: Comparison of 2012 Natural Gas Saving s Potential by Sector, Base and Environmental Scenarios

The largest increase in savings potential between t he base and environmental scenarios is found in the residential sector, where natural gas savings poten tial is over 180 percent higher under the environme ntal scenario. These results reveal that a large amount of natural gas savings potential lies just under th e costeffectiveness threshold in the base scenario. Relax the cost-effectiveness threshold a bit and we obta in significantly more natural gas savings, primarily d ue to increased shell improvements during remodelin g, some additional energy efficient types of water hea ters (tankless, heat pump, and condensing), and shower controls that save energy for water heating. Electricity savings potential is around 16 percent greater under the environmental scenario. Additiona l savings come primarily from heating system fuel switching from electric to gas, as well as from ins tallation of ENERGY STAR qualified refrigerators, freezers and clothes washers.
In the commercial sector, electricity savings poten tial is around 20 percent higher under the environmental scenario, and natural gas savings pot ential is around 30 percent higher. Additional savi ngs come primarily from lighting advancements such as e lectronic ballasts and high performance T8s (HPT8s) becoming cost-effective in additional marke t segments; installation of energy management systems in offices and schools; compressor retrofit s in refrigerated storage facilities; insulation re trofits in offices and schools; LED exterior lighting; and chi lled water free cooling.
In the industrial sector, electricity savings poten tial increases by around 20 percent under the environmental scenario, while there is little chang e in natural gas savings potential between the two scenarios. Additional electric savings are primaril y the result of lighting improvements (primarily T1 2 to HPT8/T5 retrofits and replacement of HID lighting w ith pulse start metal halides). Other sources ofEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-44 additional savings include motor optimization and u se of variable speed drives and control systems in categories other than general process motors; impro vements in process cooling, air compression and HVAC systems; and early retirement and replacement of inefficient machining and molding equipment with more efficient designs. Though the natural gas potential increase was minor, there were some additional savings from waste heat recovery applica tions in process heating and system isolation and controls in heating.
In the agriculture sector, electricity savings pote ntial increases by around 40 percent, and natural g as savings potential increases by 140 percent under th e environmental scenario. The increase in electric savings potential is primarily the result of introd uction of variable frequency drives for manure pump s in milk houses, and more aggressive pump repairs in ir rigation. Natural gas savings increase due to the introduction of radiant heating in greenhouses and heat recovery in grain drying operations.
Additional details on changes in energy savings pot ential and total resource costs between the base scenario and environmental scenario can be found in Appendix E.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-45 CHAPTER EE-4: ENERGY EFFICIENCY PROGRAM CONSIDERATI ONS
In this chapter, we discuss three program-related i ssues that affect Wisconsin’s capacity for attainin g the levels of energy efficiency projected in this study : energy efficiency program innovation; advanced ra te design; and enactment of mandatory codes and standa rds.
In the area of program innovation, new strategies c an be developed to influence broader adoption of energy efficient products and practices. Energy pri cing affects decisions regarding energy use, and we discuss the potential for innovative energy pricing structures to support energy efficiency and peak demand reduction. Though the majority of this analy sis focuses on voluntary approaches to promoting energy efficiency, we also estimate incremental ene rgy savings that could be obtained through mandator y approaches such as changes to energy-related codes and standards.

INNOVATIONS TO MAXIMIZE ENERGY EFFICIENCY PROGRAM E FFORTS Innovative program approaches across all sectors wi ll be necessary to reach the aggressive energy efficiency results projected in this study. In some cases we have attempted to include the impacts of these efforts directly in our modeling. In other cases, w e have not. (See the Methodology section of Chapter EE1 for a discussion of how modeling efforts incorpor ate the effects of innovative program strategies).
The following sections discuss three innovative pro gram strategies that have the potential to signific antly increase the acquisition of cost-effective energy e fficiency in Wisconsin:

• The retrofit market represents a major area of unta pped efficiency potential, and the “neighborhood blitz” is one strategy for capturing greater savings from the retrofit market.

• Behavior-based programs seek to promote fundamental shifts in the way we make decisions regarding energy consumption.

• Upstream market approaches help to ensure the cost- effective use of program resources by paying incentives based on incremental increases in the ma rket share of energy efficient equipment.
This analysis provides examples of a few potential areas of program innovation for the purposes of illustration. However, the strategies discussed in this report do not encompass all areas of program innovation that have the potential for delivering s ubstantial energy savings in Wisconsin. For example , while this analysis does not discuss industrial pro gram innovation in depth, one innovative model for the industrial sector is program funding to support ene rgy management staff positions at manufacturing facilities. As noted above, program innovation acro ss all sectors and market segments will be necessar y to achieve the savings levels projected in this study.

Strategies for Capturing Retrofit Opportunities Energy efficiency programs employ three primary str ategies to induce consumers to undertake energy efficiency improvements:

1. Encouraging consumers to replace inefficient applia nces or equipment with more energy efficient models when the inefficient model expires (an equipment replacement program strategy).Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-46 2. Persuading those involved in the construction of ne w buildings to use energy efficient construction practices and install energy efficient equipment (an efficient new construction program strategy). 3. Replacing installed but still working equipment wit h more energy efficient alternatives, or making efficiency improvements to building compo nents such as adding insulation or sealing air leaks (a retrofit program strategy).
Past energy efficiency program efforts have achieve d the greatest results in the equipment replacement market, because it is easier to influence upgrade d ecisions at the time of purchase than it is to moti vate consumers and businesses to implement improvements that may be expensive, and which they are likely unaware they need. However, equipment replacement m arkets have inherent limits in achievable energy savings because equipment stock turns over at a low annual rate. New construction opportunities are similarly constrained by the number of houses or bu ildings constructed each year. Retrofit improvement s are not constrained in this way, but face barriers in terms of consumer motivation and awareness. Figu re EE-34 shows the energy efficiency potential identif ied by market.

Figure EE-34: Untapped Energy Efficiency Opportunit ies by Market

Figure EE-35 illustrates why the difference between the economic potential estimate and the annual achievable potential estimate is so great for measu res in the equipment replacement market.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-47 Figure EE-35: Economic and Achievable Potential Con cepts: Equipment Replacement Market

This illustration shows that retrofit programs are scalable. If we are willing to spend more money, we can achieve more in the retrofit market. Programs targe ting the equipment replacement and new construction markets are not scalable in the same way. Though hi gher incentives and more aggressive program strategies can certainly increase the effectiveness of equipment replacement and new construction program efforts, these approaches will not cause eq uipment to burn out faster, and will not cause more buildings to be built.
This is not to say that retrofit programs can move at lightning speed. The greatest challenge associat ed with retrofit programs is consumer inertia. When ap pliances burn out, or when a new building is being designed, motivating people to think about energy e fficiency may take a relatively small nudge. But in the case of retrofits, the path of least resistance is to do nothing. Indeed, consumers and businesses may not be aware of significant energy-saving opportunities . While the energy efficiency opportunities under t he retrofit model are vast, to overcome this inertial state, program managers need to work harder to get consumers’ attention. They also need to pay consume rs more to persuade them to take action. Other limiting factors include logistical challenges and the labor-intensive nature of retrofit initiatives. For example, it takes substantial training, man-power, time, and resources to retrofit more than one milli on homes.
As a result of these challenges, retrofit programs tend to be relatively more expensive to operate, particularly in comparison with equipment replaceme nt programs. Nevertheless, because there is so much more untapped cost-effective energy efficiency oppo rtunity in the retrofit category, expanding effort in this area is essential to increase energy savings s ignificantly.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-48 The “neighborhood blitz” is one example of a large- scale retrofit program that uses an innovative community-based approach to capture the substantial energy efficiency potential found in the residenti al retrofit market. It works as follows:

• All residences in a particular neighborhood receive information that an audit crew will be in their area during a given week, and residents ca n indicate their interest in receiving the audit services.

• The audit crew works its way through the neighborho od, identifying energy efficiency retrofit opportunities through walk-through audits as well as through comprehensive diagnostic tests based on building science. Such op portunities might include air sealing, increased wall and ceiling insulation, and replacem ent of inefficient HVAC equipment. Direct installation of low-cost measures such as lo w-flow showerheads, faucet aerators, and CFL bulbs can be offered during the initial wal k-through.

• The innovation associated with the blitz approach i s contained in the following offer—if the resident wishes, another crew of installers wil l return to the house at a later time to implement the higher-cost measures on the list.

• The program will pay for most of the cost of making the efficiency improvements.
The neighborhood blitz approach actually overcomes two barriers—it addresses the inertia problem by coming to the customer, and it addresses the lack o f capital problem by paying the lion’s share of the cost. We see a large potential for energy savings from th is approach, and have included the impact associate d with this concept in our achievable potential estim ates. Similar efforts could be implemented in many segments of the commercial market.

Behavior-Based Programs Behavior-based programs have attracted the attentio n of energy efficiency advocates and researchers in recent years as a way to supplement traditional pro gram approaches. The great interest in behavior-bas ed programs warranted their inclusion in this potentia l study. Because our collective understanding of behavior-based programs’ potential energy savings i s not yet as well-developed as that of more traditi onal program approaches, we examined behavioral potentia l separately from our base assessment of statewide energy efficiency potential. 44 Our goal in this analysis was to understand whethe r behavior-based programs warrant additional exploration as an area of significant energy savings opportunity.

DEFINING BEHAVIOR-BASED APPROACHES Behavior-based programs are built around the unders tanding that decision-making is driven by numerous influencing factors beyond rational economic motiva tions. Traditional energy efficiency programs appea l to people’s economic sense, making use of rebates a nd financial arguments to promote efficient technological solutions over inefficient ones. Beha vior-based programs draw on research in the fields of psychology, sociology, and behavioral economics to provide additional tools to influence human choices

. These tools include appeals to people’s innate tend ency to follow social norms, respond to feedback, avoid loss and waste, seek rewards, and be motivate d by a myriad psychological factors.

44 Two behavior change measures are included the base and environmental scenario modeling efforts: progr ammable thermostats, and residential energy feedback displa ys that provide real-time information on household energy use. The effects of these measures are included in our q uantitative estimates of energy savings potential.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-49 Behavior-based programs can address both technology choices and also provide alternatives to technological solutions. Such approaches differ fro m traditional energy efficiency approaches not in t he end goal, but in the means to achieve that goal. As such, there is some overlap between the end target of behavior-based programs and that of traditional pro gram approaches. For example, behavior-based programs can:

• Promote the use or acquisition of energy efficient equipment. A behavior-based program might seek to educate consumers about the w ays that efficient devices (like CFLs) relate to values that matter to them, like en vironmental concerns. Such programs might also provide information about the increasing prevalence of the technology in others’ homes and businesses. Indeed, traditional e nergy efficiency programs are already using behavioral techniques to promote some product s, in addition to traditional incentive strategies.

• Promote non-technology alternatives to energy-inten sive practices. A behavior-based program might seek to encourage consumers to use al ternatives to energy-using devices, such as clothes lines instead of electric clothes d ryers or social and physical activities in lieu of electronic entertainment for their many (en ergy and non-energy) benefits.

• Promote either of the above through non-targeted ed ucation and motivational practices . Some behavior-based programs do not make specific recommendations at all, but appeal to people’s choices at a higher level in ways that cause individuals to change the choices they make. Feedback programs are one su ch example. Research has shown that simply providing better feedback on energy con sumption patterns (even without any change in the inherent economic incentive) has caus ed people to reduce their energy usage. Reductions in energy use could result from t echnology purchases or through nontechnology changes in daily habits, or a combinatio n of both. These examples illustrate that traditional and beha vior-based programs are not mutually exclusive. In fact, they have already been functioning side-by-side as traditional programs employ behavior-oriented messaging and benefit from general public awareness driven by environmental or public health concerns. Similarly, behavior-based programs benefit from the existence of traditional programs that stress the economic benefits of the desired actions and reduce the consumer’s cost of engaging in those actions. As such, traditional and behavior-based programs may b e most effective when they work together rather tha n as independent initiatives.

COMPARISONS TO TRADITIONAL POTENTIAL ESTIMATES ARE CHALLENGING Initially, we sought to develop an estimate of the energy-savings potential of behavior-based programs that could be added to that of traditional programs . However, this approach proved to be infeasible fo r several reasons:

• Traditional programs already include some behavior- based techniques. As noted above, existing programs already use some behaviora l techniques, and limited behaviorbased programs are already being considered as part of traditional program portfolios. The dissemination of whole-house feedback displays— a behavioral strategy—is one of the measures included in our model of residential e nergy savings potential. To exclude the savings associated with such approaches from th e base estimate would undercount what could be achieved even without a specific emph asis on behavioral approaches. Conversely, to exclude such savings from a stand-al one estimate of behavioral potential would undercount the value and need for behavioral approaches.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-50 • There is substantial overlap in the savings that co uld be addressed through either traditional program approaches or through behavior- oriented techniques. Our coconsultants, ACEEE, developed a model for estimatin g energy savings potential that could be achieved in Wisconsin through deploying be havioral approaches in the residential market, and found substantial energy sa ving opportunities associated with efficiency upgrades and building shell measures. Ho wever, these opportunities are also included in our base model as they are largely addr essed by traditional program approaches, albeit using a different strategy. In s ome cases, behavioral approaches offer an alternative or supplement to traditional program s, and may be more effective for some consumers. We do not currently have a thorough enou gh understanding of the interactive effects between behavioral and traditional program approaches to sort them out reliably.

• We have less experience in quantifying and estimati ng the effects of behavior-based approaches. Traditional programs have been in place for severa l decades, and we have developed numerous techniques to estimate their eff ects on energy consumption. While behavior-based approaches have also been in common use for many years, their application has generally been in other disciplines , such as public health. We do not yet have as strong a repertoire of knowledge and accept ed assessment tools to determine the energy savings potential of behavior-based approach es with a similar degree of confidence that we have for traditional program app roaches.

• The role of cost-effectiveness in evaluating behavi oral approaches is less clear. Energy efficiency measures included in our base est imate were subject to a costeffectiveness test, and some measures were screened out because they do not provide sufficient societal “payback.” However, these scree ning criterion may not be appropriate for behavior-based approaches, where individuals ma y choose to take actions that do not make strictly economic sense, but that they deem wo rthwhile because they appeal to a more complex set of decision-making factors. Furthe rmore, in certain cases the participant costs associated with behavior-based ac tions are unclear or difficult to estimate. For example, is there any cost to the con sumer associated with turning off the lights when leaving a room, or drying clothes on a line instead of a dryer? At the same time, to apply cost-effectiveness screening for tra ditional measures but to not do so for behavioral approaches would result in two efficienc y potential estimates that cannot be compared.

SAVINGS POTENTIAL As a result of the complications noted above, we ch ose to employ a three-fold approach for addressing the energy-savings potential associated with behavior-b ased approaches, illustrating the degree to which behavior-based approaches could play a role in an a ggressive energy efficiency program portfolio in Wisconsin. One of these approaches attempted to est imate behavior-based energy efficiency for an entir e sector, while the other two are more narrowly focus ed around a specific behavioral program strategy.
First, ACEEE created a Wisconsin-specific version o f a model they have recently developed for estimating behavior-based energy efficiency potenti al at the national level. This model suggests that the savings potential for a behavior-based portfolio of programs in Wisconsin’s residential sector alone i s substantial—as much as 1,700 GWh of electricity sav ings and 323 million therms of natural gas savings in 2012. 45 This estimate is equivalent to around 8 percent of projected base electricity sales in 2012 and

45 ACEEE’s model produces cumulative estimates of energy efficiency potential. Cumulati ve potential represents the sum of annual savings for the years 2009 throug h 2012.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-51 around 20 percent of projected base natural gas/pro pane sales. However, as explained above, these estimates are not necessarily comparable or additiv e to the savings potential from traditional program approaches presented in our base analysis, and they were not subject to a cost-benefit screening. Thes e estimates also do not include behavior-based progra m opportunities in non-residential sectors. Appendi x F contains ACEEE’s report on their findings from th is modeling effort, and some additional discussion concerning ways to think about behavior change.
Second, we estimated potential savings from a neigh borhood-based plug load initiative that combines an appliance audit, consumer information, and viral ma rketing, with trained staff of “plug load specialis ts” that provide customized recommendations for each ho me they visit. We estimate such efforts could resul t in around 370 MWh of savings per plug load speciali st per year, or 3.7 GWh for a ten-person crew operating for one year. Such a program could send t rained individuals into communities to provide hous especific feedback on the energy use of their plugge d-in appliances, and provide customized strategies for reducing the energy consumption associated with hou sehold plug load. Likely energy-savings opportunities include the consolidation of refriger ators and freezers, use of power management setting s on computers, habitual use of power strips to cut powe r to devices with a high stand-by load, and unplugg ing selected items. The auditors would also leave behin d carefully designed materials with the households they visited, as well as in gathering places like c ommunity centers and libraries in those neighborhoo ds as part of a “viral marketing” campaign. Appendix G pr esents our assumptions and savings calculations for this analysis in more detail.
Third, we conducted research into use of feedback t echniques for reducing energy consumption. This research suggests that residential energy savings i n the five to twenty percent range may be possible from feedback techniques. In a review of the literature, Oxford University researcher Sara Darby found that studies of feedback devices routinely provided ener gy savings from changed consumer choices in this range. 46 While we do not know what specific changes people made to reduce energy consumption, we do know that feedback approaches have had influence on their behavior. Supplementing the evidence from the Oxford study, a feedback pilot underway at the Sacramento Municipal Public Utility District appear s to be yielding savings of two to three percent with in the first few months. 47 This pilot incorporates academic research on social norms into usage report s provided to randomly selected households. Several other utilities, including at least one each in Min nesota and Illinois, are now beginning similar pilo ts with the same provider.
Though these three analytical approaches did not yi eld a definitive estimate of behavior-based energy efficiency potential for Wisconsin, the results sug gest that there is significant potential to obtain energy savings through behavior-based program approaches.

NEXT STEPS The potential savings from behavior-based tools, pr ograms, and portfolios suggest that these approache s have a place in an aggressive energy efficiency pro gram portfolio for Wisconsin. To explore these approaches more fully, Wisconsin could consider:

46 S. Darby (2006). The Effectiveness of Feedback on Energy Consumption . A review for DEFRA of the literature on metering, billing and direct displays. Environmenta l Change Institute, University of Oxford. 47 Personal communication, Alex Laskey, Positive Ener gy (February 19, 2009).Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-52 • Including or broadening behavior-based techniques a s a supplement to existing program strategies.

• Collaborating with programs in other jurisdictions that are also exploring behavior-based programs, sharing information and research findings

. • Encouraging experimentation with behavior-based pro gram concepts, including those that do not meet traditional cost-benefit screening criteria or provide energy impacts that are easily measured using current evaluation tools.

• Conducting applied research (in conjunction with an y program pilots and experiments) to build a clearer understanding of behavior-based pro grams’ effects on consumer behavior, program opportunities, and energy savings.

• Developing new measurement tools that will allow th e effects of behavior-based approaches to be included in program impact evaluat ions. These issues are addressed in the Chapter EE-5 disc ussion on energy efficiency program challenges.

Upstream Market Approaches The most common approach to encouraging consumers t o be more energy efficient is to pay them to do so (e.g., offer an incentive to offset the higher cost of purchasing an energy efficient product over the cost of a similar, standard efficiency product). In many ca ses, consumer incentives work well. Nevertheless, offering incentives to retailers, equipment supplie rs, or other upstream market actors may generate gr eater penetration rates at a lower program cost.
Under an upstream approach, the equipment supplier receives an incentive for every unit of energy efficient equipment they sell over and above a pre- established sales baseline, or for increasing sales by a certain percentage over baseline—i.e., rewarding th e supplier for “market lift.” This arrangement requ ires the supplier’s willingness and ability to share cur rent and historical sales data with the energy effi ciency program manager. The primary advantage of this upstream approach is that it allows for the cost-effective use of progra m resources. Under a downstream approach, everyone wh o purchases a qualifying product is eligible for an incentive, whether the incentive motivated their pu rchase or not. The upstream approach awards incentives based on incremental increases in equipm ent sales, reducing the problem of free riders and conserving program resources.
While we have not specifically modeled this program approach per se in our study, it does provide a basis for the increased penetration rates we expect in th e future for energy efficiency programs, and our estimates of program costs. The program cost estima tes discussed in Chapter EE-2 assume that incentive s are paid on the basis of incremental increases in the market share of energy efficient equipment. For a more detailed discussion of our cost estimation app roach, see the Methodology section in Chapter EE-1.

ADVANCED RATE DESIGN Energy utility rate structures also play a role in consumer decision-making regarding energy use. Thou gh we did not develop quantitative estimates of the im pacts advanced rate designs can have on energy use and peak demand in Wisconsin, we provide a qualitat ive discussion of the potential for advanced rate design to affect changes in the timing and magnitud e of energy consumption.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-53 The term “advanced rate design” refers to rate stru ctures that employ dynamic pricing, where the retai l cost of electricity varies according to electric de mand. The most common dynamic rate structures include: 48

• Time of Use (TOU) Rates : Rate structures that employ standard differentiat ed prices for electricity consumed during on-peak and off-peak pe riods, which are consistent throughout the year. In some cases TOU rates also i nclude seasonal price differentiation.

• Real Time Pricing (RTP) : Rate structures that vary continuously according to the wholesale price of electric power.

• Critical Peak Pricing (CPP): Rate structures that employ a high price that comes into effect during “critical peak” periods of high elect ric demand, typically with some advance notice to the customer (as much as one day ahead or in some cases only a few hours ahead).
Though some studies show energy savings impacts res ulting from dynamic rate offerings, historically th e primary objective of these rate structures has been reducing peak electric demand reduction (demand response).
For example, a program that uses super-peak pricing signals to shift air conditioner use from the midd le of the day to early evening reduces the 3 PM peak, but in so doing increases energy demand at 7 PM. When air conditioning is switched off on hot days, the temperature inside the building increases. When the air conditioner comes back on in the early even ing, the building temperature will be higher than i t would have been if the air conditioner had been all owed to cycle on and off as necessary earlier in th e day. The air conditioner will then have to run more longer to return the building temperature to the desired setting.
Thus, such programs typically shift the timing of energy use; they may not reduce energy use. That is not to say that such programs are unimportant. Controll ing peak demand on critical days has historically b een and will continue to be a key priority for utilitie s. However, with respect to greenhouse gas emission s, such programs can have negative impacts.
In the case of fossil fuel-based plants, the peakin g plants that serve the mid-day summer loads are am ong the cleanest on the system. They tend to be fired w ith natural gas. The base load and intermediate loa d plants are usually coal-fired. Thus, shifting deman d from the peak period to the shoulder period shift s generation responsibility from the natural-gas-fire d plants to the coal-fired units. While combustion of either natural gas or coal leads to CO 2 emissions, those associated with burning coal are noticeably higher than those from natural gas facilities.
With this complication in mind, we review the gener al conclusions about the impact of rate design on utility peak demand based on numerous studies. Most of these studies relate to the impact on residenti al

48 U.S. Department of Energy and the U.S. Environment al Protection Agency. National Action Plan for Energy Efficiency (2006) Available at: www.epa.gov/eeactionplan

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-54 customers, as advanced pricing structures are alrea dy widely available to large commercial and industr ial customers. The major studies conclude that: 49

• Introducing time-of-use rates with broadly-defined on-peak and off-peak periods can reduce peak demand by three to six percent.

• Introducing time-of-use rates with more-specific critical period pricing can reduce peak demand by 13 to 20 percent.

• Introducing time-of-use rates with more-specific critical period pricing along with providing consumers with advanced technologies so that they can react to those prices, can reduce peak demand by 27 to 44 percent.
One example of the advanced technologies mentioned in the third bullet above would be a home-based computer network that allows residents to program a utomatic adjustments to home appliances in response to possible utility price changes. Under this appro ach, the consumer does not have to respond manually to hour-to-hour price changes from the utility.
We see that if we narrowly define peak pricing peri ods and if we provide residents with the tools that enable them to react to price changes, the impacts on peak demand can be staggering. Widespread implementation of such a joint approach could have a major impact on peak demand growth. As we note above, however, it is likely to have little effect on overall energy use.

CODES AND STANDARDS Though this study focuses on results that could be achieved through voluntary energy efficiency initiatives, another strategy for procuring energy efficiency is to mandate it. Mandatory approaches t o promoting energy efficiency include revisions to th e energy component of building codes, and the enactment of energy efficiency standards for applia nces and other equipment.
We used our efficiency potential model to determine the effect of deploying a few select codes and standards in Wisconsin. The codes and standards cho sen were based on the areas given priority by the Governor’s Global Warming Taskforce. However, the a ssumptions used in estimating potential savings were based on the Energy Center’s model inputs, rat her than on the Taskforce’s calculations, so that results would be comparable to baseline potential e stimates.
This analysis estimated the effects of the followin g codes and standards changes:

• A 15 percent increase in the energy efficiency of n ew homes resulting from changes in the residential code. 50

• A 15 percent increase in the energy efficiency of c ommercial new construction resulting from changes to the commercial code. 51

49 These estimates come from A. Faruqui and S. Sergic i (November 2008). Household Response to Dynamic Pricing of Electricity: A Survey of Seventeen Pricing Exper iments . The Brattle Group. 50 This code-based efficiency level is slightly highe r than current levels required by the Wisconsin ENE RGY STAR Homes program. 51 This 15 percent increase is based on the approxima te savings in switching from current code to an ave rage of the 2007 and 2010 versions of ASHRAE 90.1Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-55 • State energy efficiency standards for new residenti al furnaces, new commercial boilers, and commercial packaged air conditioning systems. 52
The revisions to residential and commercial buildin g code by 2012 represent a faster ramp-up than has historically occurred, but they are well within the range of codes that have been adopted in other are as. However, the changes to equipment efficiency standa rds represent a fairly aggressive approach; these standards require preemption of the federal equipme nt standards. There is little precedent for preempt ing these standards. However, if preemption of standard s were possible and aggressive building codes politically feasible, the potential for mandatory c odes and standards could actually be above that estimated here.
Results for the estimated annual achievable potenti al in the three areas investigated are shown in Tab le EE-6.

TABLE EE-6: RESULTS OF CODES AND STANDARDS ANALYSIS : ACHIEVABLE POTENTIAL

Electricity (GWh) Electric

Demand (MW) Natural Gas

(1000 therms)

Codes Residential 0.4 1.5 1438

Commercial 1.0 1.4 84
CODES TOTAL 1.5 2.8

Standards Residential 0.0 0.0 1619

Commercial 10.1 7.4 75
STANDARDS TOTAL 10.1 7.4 Grand Total 11.6 10.2 3216

The results shown in Table EE-6 are incremental to the voluntary program impacts presented in Chap ter EE-2 of this study. In other words, they represent the additional energy savings that could be achieved through enactment of codes and standards, on top of baseline potential estimates. However, it is impor tant to acknowledge that there is overlap between saving s that could be achieved through voluntary versus mandatory approaches. Improved codes and standards would make affected technologies ineligible for voluntary programs (e.g., a residential furnace pro gram is not needed if high efficiency furnaces beco me the required standard).
From a program perspective, enacting a new code or standard would represent a less expensive approach to obtaining energy efficiency than a voluntary pro gram approach. In effect, costs would shift from th e

52 The Governors Global Warming Task Force recommended establishment of state standards for residential g as furnaces and furnace fans, compact audio equipment, high efficiency commercial boilers, and industrial boilers, State standards can be established for equipment wh ere there is no existing federal energy efficiency standard, or where a state has been granted authority to preempt the federal standard.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-56 program to the participant—or in some cases, to the home builder or other market actor, if they are un able to pass associated costs on to the consumer.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-57 CHAPTER EE-5: ENERGY EFFICIENCY PROGRAM CHALLENGES
As previously noted, increasing energy efficiency p rogram spending alone will not likely produce the potential savings estimates that we suggest are pos sible. To reach those levels, innovative program strategies will be required (see Chapter EE-4). Inn ovations in energy efficiency program design may necessitate adjustments to program cost-effectivene ss analysis and evaluation methods.

VALUATION OF ENERGY EFFICIENCY BENEFITS Underestimating the value of energy efficiency bene fits has a fundamental effect on program design, as measures that could produce substantial aggregate s avings are ruled out because they do not pass the c osteffectiveness screen. There are several components to this issue: (1) failure to value the savings acc rued over the full lifetime of measures that last a long time; (2) the use of discount rates that devalue f uture savings produced by long-lived measures; and (3) th e use of inappropriate supply-side avoided cost benchmarks that energy efficiency measures are valu ed against in benefit/cost tests.
The first two issues are closely related, and prima rily affect long-lived measures like insulation or other components of energy efficient new construction. Fo cus on Energy uses a benefit/cost horizon of 25 years, where any benefits occurring after 25 years are ignored. 53 Even if benefits occurring after year 25 were considered, high discount rates fail to approp riately value the lion’s share of the long-term sav ings. The cost-effectiveness calculation used in this stu dy does not employ the 25 year constraint, but the base scenario does employ the five percent discount rate used in Focus on Energy program planning.
Assume, for example, that we wish to develop a prog ram that encourages builders to add higher-thanrequired levels of wall insulation. Such measures c ould provide energy savings of $100 per year for 75 years. Let us assume that we are working in real te rms. The discount rate is five percent. Figure EE-3 6 shows the benefits estimated under the current prac tice.

53 The measure lifetime is used for measures lasting fewer than 25 years.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-58 Figure EE-36: Annual Value of Wall Insulation Under Current Program Planning Practices

If we remove the artificial cap of 25 years, we val ue the additional savings shown in Figure EE-37.

Figure EE-37: Increased Value of Wall Insulation fr om Considering All Years in which Benefits AccrueEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-59 Recall from the discussion of the environmental sce nario in Chapter EE-2 that if a measure offers long

run environmental benefits, a higher discount rate could be viewed as devaluing the benefits associate d with future savings. If we lower the discount rate to two percent to reflect the long-lived nature of the benefit stream, we place a higher value on future s avings benefits, as shown in Figure EE-38.

Figure EE-38: Increased Value of Wall Insulation fr om Considering All Years in which Benefits Accrue Using a 2% Discount Rate

Under the current approach, the present value of th e savings benefits associated with wall insulation is $1,409. If we value the benefits accrued over the f ull lifetime of the insulation, the savings increas e to $1,948. If we also lower the discount rate to two p ercent, the savings increase to $3,868. If the adde d insulation costs $1,500, under the current practice it is not cost-effective. Under either of the two other scenarios, it is. If we want to encourage energy ef ficiency programs to promote long-lived measures, s uch valuation issues may warrant reconsideration.

AVOIDED COSTS Another valuation issue pertains to the appropriate supply-side cost benchmark against which energy efficiency measures compete on a benefit/cost basis . The avoided costs used in this study are based on MISO prices, which have a backward-looking flavor t hat is likely inappropriate for a carbon-constraine d future. The MISO system is dominated by older coal- fired power plants. With increasing concerns about global climate change, it is unlikely that such pla nts could be built in the future. 54 This issue begs a

54 M. Warner (February 15, 2009). “Is America Ready t o Quit Coal?” The New York Times

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-60 question as to whether those plants should form the basis for a forward-looking evaluation or assessme nt. Some analysts have proposed that the appropriate be nchmark is a utility-scale wind facility. 55 Such an approach would be consistent with the goal of meeti ng future energy demand while reducing greenhouse gas emissions, and would certainly change the cost- effectiveness calculations for a number of energy efficiency resources and program approaches. To the extent that MISO prices influence the selection of avoided costs used in Focus on Energy program plann ing efforts, the benefits associated with energy efficiency program efforts would be understated.

PROGRAM EVALUATION CONSTRUCT In light of the program innovations proposed in thi s study, a reconsideration of the energy efficiency program evaluation construct may be appropriate. We are not challenging the work of the program evaluators. They, in fact, do a good job operating within the confines imposed on them. It is the conf ines that are at issue here.
As previously noted, this study is predicated upon an aggressive and innovative approach to energy efficiency policy and program design. Program scree ning criteria should accommodate experimentation with program efforts with limited track records, li ke the neighborhood blitz and behavior-based models

. Innovative programs should be credited with reasona ble energy savings estimates even if there are high degrees of uncertainty in both directions from thos e estimates. These changes will be necessary if we are to reach the aggressive energy efficiency levels pr ojected in this study.
A key component of program evaluation is determinin g how much influence an energy efficiency program had on adoption of energy efficient technol ogies and practices (reported as “net” savings in program impact evaluations). Separating program inf luence from the myriad other factors that affect consumer decision-making is challenging, and evalua tors typically use a combination of ex post surveys and econometric methods to analyze market effects. In particular, a number of recent critiques have pointed out the limitations of ex post survey appro aches. 56
Another important issue is the tendency of prevaili ng evaluation approaches to understate the true influence of the program on consumer behavior. The danger, in terms of achieving the aggressive energy savings potential presented in this study, is evalu ation results that drive premature termination of p rogram activities in markets where there is substantial re maining potential—or conversely, not initiating pro gram activities in markets where there is significant en ergy savings opportunity.
Under the current construct, some evaluation studie s have concluded that, because most program participants say they would have bought the energy efficient product without program intervention, the program has reached maturity and possibly should be discontinued. To provide an illustrative example, a 2007 Focus on Energy evaluation reported that aroun d 70 percent of consumers who received a $2

55 N. Hall, et al

(2009). Reaching our Energy Efficiency Potential and Our Gr eenhouse Gas Objectives - Are Changes to our Policies and Cost Effectiveness Test s Needed? Proceedings of the Association of Energy Services Professionals 19th National Energy Services Confere nce and Expo, January 2009. 56 J. S. Peters and M. McRae (2008), Free-Ridership Measurement is Out of Sync with Prog ram Logic ... or , We’ve Got the Structure Built, But What’s Its Foundation? G. Cook (2008), Attribution Methodology Wars: Self-Report Methods versus Statistical Number Crunching—Which S hould Win? Proceedings of the 2008 ACEEE Summer Study on Energy Efficiency in Buildings.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-61 incentive for a CFL bulb said they were somewhat or very likely to have purchased the product without the incentive. 57 But another recent study of CFL installation rates in Wisconsin found that CFLs were installed in only about 20 percent of eligible hous ehold sockets. 58 Does that seem like the CFL program has reached its capacity? One could argue that the program is just getting started.
If we are to achieve high levels of energy efficien cy savings, we should consider whether current evaluation methods bias savings estimates to the do wnside. The PSCW could convene a workgroup to assess the current program evaluation construct, wi th the goal of developing a total market-based construct.

57 PA Government Services, Inc. (2007). Residential Lighting Program: Compact Fluorescent L ighting Installation Rate Study . Prepared on behalf of the Public Service Commissi on of Wisconsin by R. Winch and T. Talerico, Glacier Consulting. 58 PA Consulting Group (2008). FY08 CFL Customer Research—Draft Report . Prepared on behalf of the Public Service Commission of Wisconsin by R. Winch and T. Talerico, Glacier Consulting.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-62 CHAPTER EE-6: TOPICS FOR FUTURE RESEARCH AND DEVELO PMENT
The scope of this study focuses on developing estim ates of achievable energy efficiency potential. In the course of this study, we identified several key are as where further research and development is necess ary to support attainment of the aggressive energy savi ngs estimates presented herein.
Most important is the need for program approaches t hat can significantly increase retrofit activity, a nd also increase penetration of energy efficient produ cts in the equipment replacement market while minimizing payments to free riders. The neighborhoo d blitz, upstream market approaches, and behaviorchange models presented in Chapter EE-4 are but a f ew examples of program approaches that address these objectives, and additional innovative program strategies will need to be developed.
Innovative program strategies should be preceded by market research in strategic areas and accompanied by a parallel research process when they are pilote d. Separating research from program implementation and evaluation ensures efficient delivery of key fu nctions. Research goals would include quantificatio n of the energy impacts produced by these innovative pro gram strategies. Even more importantly, such research would identify areas where the program inn ovations achieve success in affecting market actor and end user decision-making and where they fall sh ort, and create a better understanding of why certa in outcomes have occurred. Other parties within and ou tside Wisconsin are piloting innovative program approaches and conducting similar research, so it i s also important to remain abreast of local, region al, and national activities on these fronts and avoid d uplication of effort.
If energy efficiency programs are to increase many fold in size, and if we are to capture previously untapped energy efficiency resources in the retrofi t market, we will have a great need for training a workforce that can deliver energy efficiency improv ements. As we have seen in the weatherization arena , it takes approximately one week to train a new weat herization provider on the skills needed to do a competent job. Due to technology changes and the co mplex and interactive nature of the building energy system, continuing education is needed to keep a pr ovider competent over the lifetime of his/her caree r. Program managers are not likely to have the time or resources to train people to do the work that need s to be done. Therefore, it will be important for local, state, or federal governments to fund training pro grams to create the workforce that will enable us to reac h the energy efficiency levels projected in this st udy.
As energy efficiency plays an increasingly importan t role as an alternative to supply-side investments , there is a need for new research to validate critic al assumptions about end use load shapes that are u sed in energy efficiency program planning efforts. Wiscons in-specific resources in this area are over a decad e old, and updated information would be valuable, par ticularly in the areas of emerging energy efficient technologies and innovative program strategies such as behavior change.
Another promising area for future research relates to a joint assessment of water and energy savings. The largest expense incurred by municipal water and sew er utilities is the cost of electricity used in the pumping process. Saving water in turn saves electri city at the utility. Wisconsin data show that on average, it takes 2,000 kWh to pump one million gal lons of water. A single household uses about 50,000 gallons of water a year, delivered at an energy cos t of 100 kWh. Pre- and post-consumption water treatment also requires energy. The PSCW could spon sor research to determine the full amount of energy embedded in our water use, and then to create progr am offerings promote the joint advancement of water and energy efficiency objectives. Further, the ener gy associated with reductions in water use could be credited to energy savings goals.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-63 The final research recommendation relates to rate d esign. Research shows that peak demand could be reduced by up to 44 percent with a combination of r ate design and advanced technologies that facilitat e consumer response to changing electric prices. 59 Savings of that magnitude are definitely worth pur suing to allow more effective use of supply-side resource s, but research is needed to reduce the uncertainty associated with energy savings estimates, and ident ify the optimal technological components that maximize savings at the lowest cost.

59 There would be environmental consequences associat ed with such approaches. See Chapter EE-4 for a dis cussion of this issue.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-64Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-65 ADDENDUM: CONTRASTING THE 2005 AND THE 2009 ENERGY EFFICIENCY POTENTIAL STUDIES
The Energy Center completed the previous assessment of statewide energy efficiency potential in 2005. 60 Since that time, there have been significant change s to the energy landscape that affect our analytica l approach, and thus the magnitude of energy efficien cy potential projected in this study as compared wi th the 2005 analysis.
Energy markets are in a considerable state of flux. Consider, for example, several key events that hav e occurred in the past two years:

• The U.S. Supreme Court ruled that CO 2 could be subject to regulation under the Clean Air Act. 61

• More than 40 coal-fired power plants planned for th e U.S. were cancelled. 62

• In excess of 5,000 MW of wind generating capacity w as installed nationwide. 63

• Wisconsin convened a Task Force on Global Warming w hose charge was to develop recommendations as to how the state can reduce its greenhouse gas emissions. 64
We have seen related changes in corporate America t oo, as businesses begin to accept the likelihood of climate change regulation. 65 In 2007, Exxon announced that it would no longer p rovide financial support to the Competitive Enterprise Institute (CEI), whos e work refuting carbon’s climate impacts Exxon had previously funded. Even more surprising was the Jan uary 2009 speech of Exxon Chairman Rex Tillerson in which he called on Congress to enact a carbon ta x to help reduce greenhouse gas emissions.
In light of these circumstances, many energy analys es now assign a cost to carbon emissions in recognition of the high likelihood of impending car bon regulation. The Energy Center’s analysis includ es a carbon cost of $30 per ton of CO 2 emitted. 66
Additionally, our analysis assessed the increased p otential that could result from significant innovat ions in energy efficiency program design, such as a “nei ghborhood blitz” approach for delivering comprehensive energy efficiency improvements to exi sting homes. We considered the impact of substantially higher incentives for implementation of energy efficiency measures. We also considered t he impact of changes in the policy and evaluation fram ework governing energy efficiency program administration.

60 Energy Center of Wisconsin (November 2005). Energy Efficiency and Customer-Sited Renewable Ener gy: Achievable Potential in Wisconsin 2006-2015 . ECW Report Number 236-1. Prepared on Behalf of Th e Governor’s Taskforce on Energy Efficiency and Renewables. 61 Massachusetts v. Environmental Protection Agency , 549 U.S. 497 (2007). While the narrow issue in th is case related to regulation of tailpipe emissions, a stat e Court in Georgia relied on this decision to deny a construction permit for a coal-fired power plant. See M. L. Wald (July 1, 2008). “Georgia Judge Cites Carbon Dioxid e in Denying Coal Plant Permit,” The New York Times

. 62 M. Clayton (March 4, 2008). “U.S. Coal Power Boom Suddenly Wanes.” The Christian Science Monitor

. 63 American Wind Energy Association. 64 Wisconsin Executive Order 191 , April 5, 2007. 65 J. Ball (January 11, 2007). “Exxon Mobil Softens I ts Climate-Change Stance.” Wall Street Journal

. R. Gold and I. Talley (January 9, 2009). “Exxon CEO Advocates Emissions Tax.” Wall Street Journal

. 66 Synapse Energy Economics, Inc., 2008 Synapse Carbon Price Forecasts . The price we report here is the 2008 levelized long-run cost of the Mid CO 2 Price Forecast.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-66 The Energy Center’s 2005 study estimated Wisconsin could achieve a 0.6 percent reduction in electricit y consumption, a 0.4 percent reduction in electric de mand, and a 0.3 percent reduction in natural gas consumption.
In this study, we estimate that in 2012 Wisconsin c ould obtain annual energy efficiency savings equivalent to:

• 1.6 percent of total electricity sales

• 1.6 percent of electricity peak demand

• 0.9 percent of total natural gas sales
Our current estimates of achievable energy efficien cy are approximately three times greater than estimates reported in the 2005 study. The differenc e between the results of the two studies is partly due to the inclusion of the cost of carbon emissions. The more important driver, however, is the impact of innovative program strategies.
Figure EE-39 contrasts the base case results of the Energy Center’s 2009 study with those of the 2005 study:

Figure EE-39: Comparison of Annual Achievable Energ y Efficiency Potential Estimates from the 2005 and 2009 Energy Center StudiesEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-67 To obtain this significant increase in energy effic iency improvement, the state’s energy efficiency programs would need substantial funding increases. Figure EE-40 compares the estimated required annual funding levels from the 2005 and 2009 studies. (Not e both figures are in 2008 dollars.)

Figure EE-40: Comparison of Annual Budgets Necessar y to Reach Achievable Energy Efficiency Potential Estimates from the 2005 and 2009 Energy Center Stud ies

To put these figures in perspective, the 2005 fundi ng estimate represented about 1.1 percent of total electricity and natural gas sales revenues in the s tate. The 2009 figures would represent about 3.1 pe rcent of total electric and gas revenues.
Though the 2009 estimates are significantly higher than the estimates produced in the 2005 study, we f ind that these results are consistent with the changed policy and economic realities brought about by increased focus on the problem of climate change.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-68Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-69 DELPHI PARTICIPANTS: ENERGY EFFICIENCY
Steve Argall, Alliant Energy Wes Arndt, WPPI Energy Norman Bair, Wisconsin Department of Administration , Division of Energy Services Jonathan Beers, Madison Gas & Electric Lee DeBaillie, Energy Center of Wisconsin Harvey Dorn, Alliant Energy Jerry Eaton, Masters Academy George Edgar, Wisconsin Energy Conservation Corpora tion Jeff Erickson, Summit Blue Consulting Mindy Guilfoyle, Franklin Energy Larry Hacker, Temperature Systems, Inc. Rich Hackner, GDS Associates Mark Hanson, Hoffman Corp Rich Hasselman, GDS Associates Don Hynek, Wisconsin Department of Administration, Division of Energy Services Jason Kollwelter, We Energies Mary Klos, Summit Blue Consulting Ken Kozak, Wisconsin Public Service Corey Kuchta, Wisconsin Public Service Kathy Kuntz, Wisconsin Energy Conservation Corporat ion Jim Mapp, Wisconsin Department of Administration, D ivision of Energy Services Joe Nagan, Home Building Technology Services Ralph Prahl, Prahl & Associates Joel Sandersen, Orion Energy Systems Scott Sanford, University of Wisconsin Madison David Sumi, PA Consulting Brody Vance, Franklin Energy Sara Van de Grift, Wisconsin Energy Conservation Co rporation John Viner, GDS Associates Ken Williams, Wisconsin Energy Conservation Corpora tion Rick Winch, Wisconsin Energy Conservation Corporati onEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-70 REFERENCES
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Energy Center of Wisconsin EE-71 Economy . Prepared under commission with the Center for Ame rican Progress. Available at: http://www.americanprogress.org/issues/2008/09/pdf/ green_recovery.pdf

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Electric Power Research Institute (2009). Assessment of Achievable Potential from Energy Effi ciency and Demand Response Programs in the U.S. (2010-2030).
A. Faruqui and S. Sergici (November 2008). Household Response to Dynamic Pricing of Electricit y: A Survey of Seventeen Pricing Experiments . The Brattle Group.
GDS Associates (2009). Additional Opportunities for Energy Efficiency in N ew Hampshire: Final Report

. Prepared on Behalf of the New Hampshire Public Util ities Commission. Available at: http://www.puc.state.nh.us/Electric/GDS%20Report/GD S%20Final%20Report.htm

. GDS Associates (2007). Vermont Electric Energy Efficiency Potential Study . Prepared for the Vermont Department of Public Service.
GDS Associates (2007). Equipment Suppliers Survey

. GDS Associates (2005). The Maximum Achievable Cost Effective Potential for Natural Gas Energy Efficiency in the Service Territory of PNM

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. Final Report to Governor Jim Doyle.
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Energy Center of Wisconsin EE-72 N. Hall, et al

(2009). Reaching our Energy Efficiency Potential and Our Gr eenhouse Gas Objectives - Are Changes to our Policies and Cost Effectiveness Tests Needed? Proceedings of the Association of Energy Services Professionals 19th National Energy Services Conference and Expo, January 2009.
Itron, Inc. and KEMA, Inc. (2008). California Energy Efficiency Potential Study. Draft Final . Prepared on behalf of Pacific Gas & Electric Company.
Itron, Inc. and KEMA, Inc. (2007). 2004/2005 Statewide Residential Retrofit Single-Fam ily Energy Efficiency Rebate Evaluation . CPUC-ID#: 1115-04. Prepared for California's Inve stor-Owned Utilities.
Interstate Power & Light Company (2008). 2009-2013 Energy Efficiency Plan . Docket No. EEP-08-1.
J. A. Laitner, K. Ehrhardt-Martinez, V. McKinney (2 009). Examining the Scale of the Behaviour Energy Response Continuum. Draft paper produced by ACEEE.
Keating of Chicago, Inc. (March 2007). Technical specification for 24” MIRACLEAN® Gas Grid dle

. Available at: http://www.keatingofchicago.com/media/spec/2007%20S pecs/24mrcln2007.pdf

. KEMA, Inc. (2006). Lighting and Motor/Drive Channel Market Effects Con tract Metrics Assessment

. Prepared on behalf of the Wisconsin Department of A dministration.
KEMA, Inc. and Quantum Consulting (2005). Focus on Energy Business Programs: Supply Chain Characterization and Baseline Study

. S. G. Kihm (June 2003). “How Improper Risk Assessme nt Leads to Overstatement of Required Returns for Utility Stocks.” NRRI Journal of Applied Regulation

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. MidAmerican Energy Company (2008). 2009-2013 Energy Efficiency Plan . Docket No. EEP-08-2.
M. Warner (February 15, 2009). “Is America Ready to Quit Coal?” The New York Times

. Nexus Market Research (2004). Impact Evaluation of the Massachusetts, Rhode Islan d, & Vermont: 2003 Residential Lighting Programs

. Optimal Energy Inc. (2007). Guide for Conducting Energy Efficiency Potential St udies . Prepared in connection with the National Action Plan for Energy Efficiency. Available at: www.epa.gov/eeactionplan

. Pacific Gas & Electric Company, Emerging Technologi es Program (2008). LED Street Lighting: Oakland, California . Application Assessment Report #0714. Available at : http://betaled.com/docs/Emerging%20Technology%20Rep ort%20for%20LED%20Street%20Lighting.pd f

. PA Consulting Group (2008). FY08 CFL Customer Research—Draft Report . Prepared on behalf of the Public Service Commission of Wisconsin by R. Winch and T. Talerico, Glacier Consulting.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin EE-73 PA Consulting Group (2008). Quantifying Environmental Benefits of Focus on Ener gy: Emission-rate Estimates 2002 to 2006 . Final Report. Prepared on behalf of the Public Se rvice Commission of Wisconsin.
PA Consulting Group, Inc. (2008). Focus on Energy E valuation: Semi-Annual Report (First Half of 2008) . Prepared for the Public Service Commission of Wis consin by the Focus on Energy evaluation team (PA Consulting, Glacier Consulting Group, KEMA , and Patrick Engineering, Inc.).
PA Consulting Group, Inc. (2007). Focus on Energy E valuation: Residential Lighting Program: Compact Fluorescent Lighting Installation Rate Study . Prepared for the Public Service Commission of Wis consin by Glacier Consulting Group, LLC.
J. S. Peters and M. McRae (2008). Free-Ridership Measurement is Out of Sync with Prog ram Logic

... or, We’ve Got the Structure Built, But What’s Its Found ation? Proceedings of the 2008 ACEEE Summer Study on Energy Efficiency in Buildings.
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Summit Blue Consulting, Quantec LLC, and Skumatz Ec onomic Research Associates. (2006). Midwest Residential Market Assessment & DSM Potential Study . Prepared on behalf of the Midwest Energy Efficiency Alliance with sponsorship from Xcel Ener gy. Available at: http://www.mwalliance.org/image/docs/resources/MEEA -Resource-5.pdf

. Summit Blue & Wisconsin Energy Conservation Corpora tion (2007). Duke Energy Indiana: SM Market Assessment & DSM Action Plan: Final Report

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.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

# SECTION 2: RENEWABLE ENERGY ENERGY EFFICIENCY AND CUSTOMER-SITED RENEWABLE RESOURCE POTENTIAL IN WISCONSIN For the years 2012 and 2018Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of WisconsinEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-i TABLE OF CONTENTS, RENEWABLE ENERGY
Executive Summary ..................................

................................................... .....................................RE-1
Chapter RE-1: Overview .............................

................................................... ...................................RE-3
The Nature of Renewable Energy Resources...........

................................................... ....................RE-3
Customer-Sited Renewable Energy Technologies Addres sed in this Study.................................. ...RE-4
Methodology ........................................

................................................... ......................................RE-7
Renewable Energy Potential Estimates...............

................................................... .....................RE-7
Cost-Effectiveness Analysis........................

................................................... ............................RE-8
Delphi Process.....................................

................................................... .................................RE-10
Chapter RE-2: Results ..............................

................................................... ....................................RE-13
Aggregate Statewide Potential Estimates ............

................................................... ......................RE-13
Technology Results .................................

................................................... .................................RE-15
Program and Total Resource Cost Estimates ..........

................................................... ...................RE-18

Economic and Environmental Benefits ................

................................................... .....................RE-21
Chapter RE-3: Utility-Owned Distributed Renewable R esources ........................................... ..........RE-25
Chapter RE-4: Integrating Efficiency and Renewable Energy Strategies .................................. ........RE-27
Chapter RE-5: Policies Supporting Aggressive Advanc ement of Distributed Renewable Energy Technologies.......................................

................................................... .........................................RE-29
Delphi Participants: Renewable Energy ..............

................................................... ..........................RE-33

References.........................................

................................................... ...........................................RE-34

TABLE OF TABLES, RENEWABLE ENERGY

Table RE-1. Cost-Effectiveness Results for Customer -Sited Renewable Energy Technologies ...........RE-8

Table RE-2. Avoided Costs and Carbon Value.........

................................................... .......................RE-9
Table RE-3. Delphi Repsonses Received from Renewabl e Energy Experts ................................... ...RE-11Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-ii TABLE OF FIGURES, RENEWABLE ENERGY
Figure RE-1: Comparison of Conservative and Aggress ive Customer-Sited Renewable Resource Potential vs. Energy Efficiency Base Scenario – Electricity ..

................................................... ...............RE-14
Figure RE-2: Comparison of Conservative and Aggress ive Customer-Sited Renewable Resource Potential vs. Energy Efficiency Base Scenario – Peak Electric Demand ............................................ ......RE-14
Figure RE-3: Comparison of Conservative and Aggress ive Customer-Sited Renewable Resource Potential vs. Energy Efficiency Base Scenario – Natural Gas..

................................................... .............RE-15
Figure RE-4: Renewable Electric Energy Potential by Technology in 2012, Aggressive Strategy.....RE-16
Figure RE-5: Renewable Peak Generating Capacity by Technology in 2012, Aggressive Strategy ...RE-16
Figure RE-6: Renewable Thermal Energy Potential by Technology in 2012, Aggressive Strategy....RE-17
Figure RE-7: Program Cost of Achievable Renewable E lectric Potential, 2012 – Aggressive Renewable Strategy ...........................................

................................................... .....................................RE-19
Figure RE-8: Program cost of Achievable Renewable T hermal Potential, 2012 – Aggressive Renewable Strategy ...........................................

................................................... .....................................RE-19
Figure RE-9: Total Resource Cost of Achievable Rene wable Electric Potential, 2012 ..................... .RE-21
Figure RE-10: Total Resource Cost of Achievable Ren ewable Thermal Potential, 2012 ...................RE -21
Figure RE-11: Net Benefits of Customer-Sited Renewa ble Energy Technologies, 2012 ...................RE- 22
Figure RE-12: Estimated Job Creation Benefits by Te chnology, 2012..................................... .........RE-23
Figure RE-13: Estimated Avoided Carbon Emissions by Technology, 2012.................................. ...RE-24Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-iii LIST OF APPENDICES, RENEWABLE ENERGY

Appendix A: Valuing Renewable Resource Flexibility
Appendix B: Renewable Technology Inputs for Cost-Ef fectiveness Analysis
Appendix C: Detailed Results
Appendix D: Delphi Questionnaire
Appendix E: Delphi ResponsesEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-ivEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-1 EXECUTIVE SUMMARY
Renewable energy technologies generate heat or elec tricity using resources such as the sun, the wind, and biomass, rather than through combustion of fossil f uels. Unlike energy efficiency measures which reduc e energy consumption, renewable energy technologies d isplace fossil fuels and associated pollutants and greenhouse gas emissions. Renewable energy technolo gies can be deployed in utility-scale installations , or in distributed applications for homes and busine sses (“customer-sited” installations). This study estimates the potential for deployment of customer- sited renewable energy technologies in Wisconsin through 2018.
The Energy Center of Wisconsin (Energy Center) eval uated the cost-effectiveness of fifteen renewable energy technologies using the total resource cost t est (TRC), which compares the cost of installing an d maintaining the renewable energy system with the be nefits of avoided utility-supplied energy.
A number of the renewable energy technologies evalu ated in this study are cost-effective today, includ ing distributed wind projects with utility-scale turbin es, anaerobic digesters, biomass combustion systems (residential- and commercial-scale), and large-scal e biomass combustion for electricity generation. Fo r the technologies that do not pass the TRC test unde r current conditions, there is considerable economi c option value associated with building and maintaini ng an infrastructure that enables Wisconsin to significantly ramp-up deployment of distributed ren ewable resources should conditions change in the future. This flexibility benefit of renewable resou rces may be much larger than the value associated w ith the technologies that are currently cost-effective.
Considering only those technologies that are cost-e ffective today, we estimate that by 2012, customersited renewable energy technologies could have a pe ak generating capacity of 12.5 megawatts (MW), displace around 31 million kilowatt hours (kWh) of grid-supplied electricity per year, and displace ar ound 1.6 million therms of natural gas/propane per year. By 2018, estimated annual renewable electricity generation capacity increases to approximately 37 M W, displacing 77 million kWh per year. The growth in potential for electricity-generating technologie s from 2012 to 2018 is substantial—a 300 percent increase in peak generating capacity over the perio d, and a 250 percent increase in electricity genera tion. Over the same time period, the capacity for displac ement of natural gas/propane increases to around 2 million therms per year—an increase of 30 percent.
We note that even if Wisconsin promoted all of the renewable resource technologies addressed in this study regardless of cost-effectiveness , the total capacity pales in comparison to that av ailable in the energy efficiency arena. The 2012 annual achievable potential for the technologies addressed in the energy efficiency component of this study is 30 tim es greater than the renewable potential estimate, o r 1.1 billion kWh for energy efficiency compared with 36 million kWh for customer-sited renewables (includes those technologies that are not currently cost-effe ctive as determined by the TRC). Similar comparison s can be made for peak generating capacity (231 MW fo r energy efficiency versus 17 MW for renewables) and for natural gas/propane displacement (37 millio n therms for energy efficiency versus 1.7 million therms for renewables).
While we expect the potential for energy efficiency to grow at a fairly even rate after 2012, the pote ntial for renewable resources expands much more rapidly o ver the same period, particularly for electricitygenerating technologies. These results suggest a di fferent strategy for state support of customer-site d renewable resources as compared with energy efficie ncy resources. For energy efficiency measures thatEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-2 are cost-effective today, aggressive acquisition ma y be the appropriate path. For renewable resources, the optimal strategy may be to develop the capability for large-scale expansion should future conditions
warrant

. The costs that a statewide renewable energy program would incur to achieve projected 2012 results are estimated to be between $13 million and $22 million per year (2008 dollars). These results would reduc e utility-based greenhouse gas emissions by between 2 1,000 and 39,000 tons per year. They would also support between 240 and 350 Wisconsin jobs.
The renewable energy generating potential estimated in this study would generate as much as $21 millio n in net benefits for Wisconsin consumers (present va lue, 2008 dollars). Almost 90 percent of estimated net benefits are associated with thermal energy generat ing technologies. However, the electricity-generati ng renewable energy technologies addressed in this stu dy are expected to experience faster growth than th e thermal energy-generating technologies.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-3 CHAPTER RE-1: OVERVIEW
To supplement the assessment of statewide energy ef ficiency potential, the Public Service Commission o f Wisconsin (PSCW) retained the Energy Center to anal yze the potential for deployment of customer-sited renewable energy resources through 2018. 1 We summarize the renewable energy analysis in this section of the report.
Our analysis reflects the knowledge of experts from both within and outside the Energy Center. We drew heavily on the technical knowledge of our renewable resource co-consultant, L&S Technical Associates. We also obtained key technology forecasts from more than 30 Wisconsin-based renewable energy experts who participated in a Delphi process. 2

THE NATURE OF RENEWABLE ENERGY RESOURCES Renewable energy resources are local in nature. Sol ar panels harvest local sunshine and wind turbines must be located where the wind blows to produce ene rgy. Wisconsin’s sun and wind offer average-togood capability, but the state’s most abundant rene wable energy potential can be found in its northern forests, its agricultural biomass resources in the west and south, and other organic waste streams statewide. Wisconsin’s dairy and food production in dustries offer opportunities to produce methane for both electricity and heat.
Wisconsin’s forestry and agriculture industries can provide not only secondary products, but also prim ary products, such as new crops dedicated to energy pro duction that can be used to produce electricity, he at, and transportation fuel (however, transportation fu el is not considered in this assessment). Since Wisconsin has no indigenous fossil fuel resources, how we manage our biomass resources will be the key to determining the state’s potential for energy ind ependence.
Our method for analyzing renewable resources was di fferent from the approach used to analyze energy efficiency potential, in large part because the two resource types are distinct. For example, while th ere are around 500 unique energy efficiency measures consid ered in this study, only fifteen renewable energy technologies were addressed in this analysis.
While both energy efficiency and renewable resource s are important components of a clean energy strategy for Wisconsin, they play two fundamentally different roles. Energy efficiency technologies lo wer energy use, ultimately reducing the need to generat e kilowatt hours or therms. On the other hand, renewable energy technologies generate heat or elec tricity using resources such as the sun, the wind, forestry and agricultural products, rather than thr ough combustion of fossil fuels. Renewable energy technologies do not save energy, but displace fossi l fuels and associated pollutants and greenhouse ga s emissions.

1 All references in this document to renewable resou rces refer to customer-sited renewable resources, a nd not utilityscale renewable resources, unless noted otherwise. 2 As noted in the energy efficiency section, all opi nions expressed in this document are those of the E nergy Center of Wisconsin, and do not necessarily reflect the posit ions of others who contributed to the study.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-4 Renewable resources offer one advantage that energy efficiency measures do not—they are energy supply sources. The entire demand on a utility system coul d conceivably be met with renewable resources. (Whether such an approach would be cost-effective i s a separate matter.) However, the entire demand on a utility system could never be met with energy eff iciency measures. Those measures reduce demand; they do not eliminate it.

CUSTOMER-SITED RENEWABLE ENERGY TECHNOLOGIES ADDRES SED IN THIS STUDY This study considers fifteen non-transportation ren ewable energy applications appropriate to Wisconsin ’s climate and resources. These applications draw on f our renewable energy resources: solar, wind, biomas s and hydropower. Because these resources offer appli cations that vary in their likelihood of adoption o r development in Wisconsin, we have allocated each te chnology into one of four categories:

• Technologies that are currently cost-effective unde r certain circumstances in Wisconsin.

• Technologies that have achieved considerable popula rity among consumers despite the fact that traditional discounted cash flow (DCF) an alyses show they are not costeffective.

• Technologies that could make a substantial contribu tion to the state’s renewable energy resource portfolio once technical challenges have b een overcome and market conditions have developed further.

• Technologies with limited or problematic developmen t potential in Wisconsin.
We provide a description of each technology within each category.

1. Technologies that are currently cost-effective unde r certain circumstances in Wisconsin include:

Large-Scale Wind: Wind farms with utility-scale turbines are usually installed by developers or utilities, but individual turbines can be erected through community wind projects. Turbines sized up to 1.5 M W are included in this study as potentially customer-sited.
Biogas Combined Heat and Power (CHP) : Anaerobic digesters for combined heat and power harvest biogas from organic wastes s uch as animal manure, sewage or food processing waste to generate electri city. Waste heat from the generator can be used to regulate the digester temp erature or for other processes. A number of farms in Wisconsin have partnered with their utility on ownership and maintenance of digester systems.

Biomass Thermal: Technologies that burn wood or other biomass to pro duce heat include residential and small commercial-scale wood, pellet or corn stoves, wood-fired boilers for space and water heating in s chools and manufacturing facilities, or wood burning for industrial process heat. Because of transportation costs associated with this fuel, cost-effectiveness depends on having a reliable fuel source nearby.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-5 2. Technologies that have achieved considerable popula rity among consumers despite the fact that they are not cost-effective as determined through a traditional DCF approach include:
Small-Scale Solar Photovoltaics (PV): Solar PV systems sized under 20 kilowatts (kW) have become popular among home owner s, small businesses, schools, churches and municipalities in Wisconsin. Despite the long payback for these systems, they have become a primary symbol of commitment to clean energy, and Focus on Energy is experiencing high de mand for solar PV incentives.

Small-Scale Solar Hot Water – Thermal: Solar water heaters that augment conventional natural gas water heaters (using less than 5,000 therms annually) are also popular among home owners and small busine sses. On average, these systems are more cost-effective in the short run th an solar PV, but their popularity is also attributable to similar non-econ omic reasons as those noted for PV.

Small-Scale Solar Hot Water – Electric: Though this technology did not pass the TRC screen, solar water heating to augment an e lectric residential water heater is cost-effective in some cases based on the value of displaced electricity consumption. During Wisconsin winters, a solar wate r heater can provide 30 to 40 percent of hot water requirements, and an even h igher percentage in summer. With appropriate solar access, solar pool heaters f or seasonal outdoor pools can be highly cost-effective in Wisconsin.
Large-Scale Solar Hot Water – Electric: Though this technology did not pass the TRC screen, solar water heating for commercial applications or industrial processes can also be cost effective if augmenting an electric water heater (greater than 7,300 kWh), and installed in faciliti es where there is year-round demand for hot water.

Small-Scale Wind: Residential-scale wind turbines (less than 20 kW) c ontinue to be attractive to rural property owners, both for reasons similar to those for buying solar PV, and for energy self-reliance in is olated locations.

3. Technologies that could make a substantial contribu tion to the state’s renewable energy resource portfolio once technical challenges have been overc ome and market conditions have developed further include:

Biomass CHP: Biomass CHP technologies burn wood, crop waste, or other organic matter to generate electricity and heat. Th ese technologies passed the cost-effectiveness test used in this analysis, and applications of biomass CHP are most economical where space or process heat is need ed and electricity is a secondary product, such as in industrial processes. Like the biomass thermal technologies described above, close proximity of th e fuel is important to ensuring economic viability.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-6

Solar Thermal Air: This technology uses dark metal perforated panels t hat collect the sun’s heat to preheat make-up air for v entilated spaces. Solar thermal air systems work well to reduce heating costs in bo th large, open buildings such as barns and warehouses, and in heavily populated b uildings that are highly ventilated, such as schools. This technology is wel l established in Europe and Canada, but needs aggressive marketing to reach its potential in Wisconsin.
Biogas Renewable Natural Gas (RNG): Methane gas collected from anaerobic digesters and landfills can be cleaned of abrasive chemicals and injected into a natural gas pipeline. Challenges include improving reliability of current technology and establishing generally acceptable ut ility standards and interconnection rules. The ability to collect bio-m ethane from multiple for injection into the pipeline would make anaerobic di gestion economical for farms too small to generate electricity with their methan e on site.
Large-Scale Solar PV: Solar PV systems larger than 20 kW (the current net metering limit in Wisconsin) will become economical as PV panel prices drop, which they are expected to do worldwide over the ne xt few years. Large solar arrays could be located on the roofs of big box sto res and other large buildings, and potentially installed by a utility or a third p arty developer which would lease the space from the building owner.
Large-Scale Solar Hot Water – Thermal: There are many commercial and institutional applications for solar hot water yet to be explored in Wisconsin, particularly for systems using more than 5,000 ther ms annually. Potential sites include hotels, restaurants, athletic clubs, nursin g homes and hospitals, car washes, correctional facilities and municipal pools , which could all save between 40 and 60 percent of the energy they need to heat t he high volumes of water they use daily. A mature and readily available and relia ble technology, this application will gain in popularity as natural gas prices rise and businesses and institutions learn of the potential for savings.

4. Technologies with limited or problematic developmen t potential in Wisconsin include: 3

Small-Scale Hydropower: Despite the fact that the first hydropower generati on station in the country was built on the Fox River i n Appleton, Wisconsin in 1882, hydropower is not a significant renewable resource in Wisconsin. Many small towns in Wisconsin had built hydropower plants on l ocal rivers in the early twentieth century, but most have been closed due to operating costs or environmental concerns. There are few locations lef t where hydropower resources would be worth developing, although micro -hydro technology, which

3 The technologies in this category are unlikely to make a significant contribution to renewable energy in the state. We received no Delphi responses for either of these applications, and therefore did not include them i n our renewable energy potential estimates.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-7

harnesses the energy in small streams, is occasiona lly installed by interested landowners.

Landfill RNG: Many landfill operators collect methane gas and fla re it to get rid of it, making the idea of collecting it for injecti ng into the natural gas pipeline an attractive one. However, there are only a limited n umber of landfills and new waste management techniques are attempting to reduc e the magnitude of existing landfills. In addition, there are still technical c hallenges to cleaning the gas to meet pipeline standards. While it makes sense to ha rvest and use gas from landfills, it can often be more economically used o n-site for heat or electricity generation rather than injected into the natural ga s pipeline.

METHODOLOGY

Renewable Energy Potential Estimates As discussed in the energy efficiency section of th e report, it is important to note that the Energy C enter’s definition of achievable potential represents a dep arture from business-as-usual conditions. As was th e case for the energy efficiency analysis, the renewa ble energy analysis focuses on what could be achiev ed under significant increases in program funding and support for deployment of customer-sited renewable energy technologies. Similar to the energy efficien cy analysis, Delphi responses were critical to developing estimates of what could be achieved thro ugh an aggressive approach to renewable energy policies and programs. (Additional information on t he Delphi process is provided below).
The results of the renewable component of the poten tial study are projections of annual renewable elec tric and thermal energy generation from customer-sited i nstallations deployed in Wisconsin in 2012 and 2018

. Achievable renewable energy potential estimates rep resent annual customer-sited generation that could be achieved in those years rather than cumulative valu es. Renewable energy potential estimates are reported i n terms of net generation, or generation that is directly or indirectly attributable to program activities. N et savings estimates exclude free riders (program participants who would have installed the system wi thout program intervention) and include spillover effects (individuals who did not directly participa te in a program, but install renewable energy syste ms as a result of program influence). These estimates are comparable to the “verified net” results reported in Focus on Energy evaluations.
Net achievable estimates were derived by applying a standard net-to-gross (NTG) ratio of 0.5 for all renewable energy technologies. We reviewed historic al net-to-gross ratios from FY 2002 through the fir st 12 months of FY08, as published in the October 2008 Focus on Energy evaluation. 4 The average NTG ratio across renewable kWh, kW, and therms was 0.3. However, since more aggressive program strategies could potentially achieve lower free-ridership rate s, we assumed an NTG ratio of 0.5 across the technologies addressed in this study.

4 PA Consulting Group, Inc. (October 2008). Focus on Energy Evaluation: Semi-Annual Report (First Half of 2008)

. Prepared for the Public Service Commission of Wisco nsin by the Focus on Energy evaluation team (PA Con sulting, Glacier Consulting Group, KEMA, and Patrick Enginee ring, Inc.).Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-8 Cost-Effectiveness Analysis The analytical foundation for the cost-effectivenes s analysis of customer-sited renewable energy resources was developed by L&S Technical Associates , Inc. A benefit-cost model addressed fifteen technologies, with key inputs by technology summari zed in Appendix B. Cost-effectiveness screening was conducted using the TRC test, which compares th e net present value of benefits achieved over the lifetime of the technology with the costs incurred by the program and the participant. 5 Cost-effectiveness results are summarized in Table RE-1.

TABLE RE-1. COST-EFFECTIVENESS RESULTS FOR CUSTOMER -SITED RENEWABLE ENERGY TECHNOLOGIES

Energy Generated Technology TRC Ratio Electric Small-scale wind (<=20 kW) 0.29

Mid-sized wind (>20 kW to 100 kW) 0.26 Large-scale wind (>100 kW to 1.5 MW) 0.96 Small-scale solar electric (<=20 kW) 0.23 Large-scale solar electric (>20 kW) 0.23 Small-scale solar hot water (<=7,300 kWh/year) 0.21 Large-scale solar hot water (>7,300 kWh/year) 0.15 Biogas CHP 6 1.58 Biomass CHP 7 4.83

Thermal Small-scale solar hot water (<=5,000 therms/year) 0 .24

Large-scale solar hot water (>5,000 therms/year) 0. 36 Solar thermal air 0.56 Biogas RNG 8 4.82 Residential-scale biomass thermal 1.29 Commercial/institutional-scale biomass thermal 4.19

For the purposes of this analysis, quantified benef its include the avoided cost of conserved energy (e nergy and capacity) and the value of avoided carbon emiss ions. Other environmental benefits and non-energy

5 Detailed information on economic screening methodo logy is available in the California Standard Practi ce Manual, available at: http://drrc.lbl.gov/pubs/CA-SPManual-7-02.pdf

. 6 This category includes anaerobic digester systems generating electricity only, as well as those gener ating both electric and thermal energy. 7 This category includes biomass combustion systems generating electricity only, as well as those gener ating both electric and thermal energy. 8 This category includes anaerobic digesters produci ng biogas for injection into a natural gas pipeline

.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-9 benefits were not included. Avoided cost and carbon values used in the Energy Center’s analysis are summarized in Table RE-2.

TABLE RE-2. AVOIDED COSTS AND CARBON VALUE

Description Value Avoided electricity ($/kWh) 9 $0.0546 Avoided T&D capacity ($/kW-year) $30.00 Carbon surcharge for electricity ($/kWh) $0.025 Avoided natural gas ($/therm) $0.840 Carbon surcharge for natural gas ($/therm) $0.176

The Energy Center used Midwest Independent System O perator (MISO) locational marginal prices (LMPs) as the basis for avoided electricity costs. We developed average prices for on- and off-peak power based on 2005-2008 data from four nodes: West on, Pleasant Prairie, Columbia, and Dairyland Power. As the value of generation capacity is embed ded in on-peak MISO prices, the only capacity value we included was for transmission and distribution ( T&D), at $30/kW-year. This value was determined in consultation with PSCW staff, and is in line with v alues reported by Iowa investor-owned utilities in their 2009-2013 energy efficiency program plans. 10 We also included an eight percent adjustment to re flect transmission and distribution line losses. This is consistent with the line loss factor used in Focus on Energy evaluation studies. 11
Natural gas avoided costs are consistent with value s used in Focus on Energy program planning and evaluation. 12 The values for avoided carbon emissions were calcu lated based on average carbon prices in projections developed by Synapse Energy Economics, Inc. (medium range forecast) 13 and carbon emissions factors for utility-supplied electricity and natural gas as reported recent Focus on Energy evaluations—0.9 tons of carbon dioxide (CO 2 ) per MWh and 11.708 lbs CO 2 per therm. 14 A real discount rate of five percent was used to obtain the net pre sent value of future benefits.

9 In the energy efficiency analysis, avoided costs o f on-peak and off-peak energy savings were develope d. However, the renewable energy analysis averages these on- an d off-peak prices into a single blended rate. 10 Interstate Power & Light Company (2008). 2009-2013 Energy Efficiency Plan . Docket No. EEP-08-1. MidAmerican Energy Company (2008). 2009-2013 Energy Efficiency Plan . Docket No. EEP-08-2. 11 Personal communication with Bryan Ward, PA Consult ing, November 3, 2008. 12 Personal communication, PSC staff. 13 Synapse Energy Economics, Inc. (2008). Synapse 2008 CO 2 Price Forecasts

. 14 CO 2 emissions factor for electricity is from: PA Consul ting Group Inc. (2008). Quantifying Environmental Benefits of Focus on Energy: Emission-Rate Estimate s 2002 to 2006. Prepared for the Public Service Commission of Wisconsin. CO 2 emissions factor for gas is from: PA Consulting Gro up, Inc. (2008). Focus on Energy Evaluation: Semi-Annual Report (First Half of 2008) . Prepared for the Public Service Commission of Wis consin by the Focus on Energy evaluation team (PA Consulting, Glacier Consulting Group, KEMA, and Patrick Engineering, Inc.).Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-10 The cost component of the TRC test includes system costs (minus the value of any tax incentives 15 ), installation costs, operations and maintenance (O&M ) costs, and program administrative costs. L&S Technical Associates developed average cost and ren ewable energy generation values based on past participation in the Focus on Energy program.
It is important to note that the TRC framework has significant shortcomings in terms of assessing the viability of renewable energy resources. Most impor tantly, the standard discounted cash flow (DCF) model does not capture the intangible benefits asso ciated with renewable energy development. These benefits include increased energy security and the expanded opportunity to transition to a new energy economy. These types of benefits are often categori zed as “resource flexibility” benefits.
Though DCF-based approaches like the TRC test offer no mechanism for valuing resource flexibility benefits, more sophisticated economic models such a s real options pricing models can address this need

. However, real options models are more complex and d ifficult to implement than the standard DCF approach. An in-depth explanation of the concepts s upporting an options-based approach to valuing the flexibility benefits associated with renewable ener gy technologies is contained in Appendix A. However , developing an options-based model is beyond the sco pe of this analysis.
Due to the shortcomings of traditional DCF analysis when it comes to evaluating renewable energy resources, we rely on the TRC results to a lesser e xtent than we did in the case of energy efficiency resources. We developed a range of renewable energy potential estimates based on two scenarios: a conservative strategy and an aggressive strategy. T he conservative renewable strategy, representing th e low end of the range, targets only those customer-s ited renewable energy resources that are currently costeffective under the TRC test. The aggressive renewa ble strategy includes some additional renewable resources that are not currently cost-effective, as determined by the TRC test.

Delphi Process By definition, estimating what could be achieved un der a future scenario of aggressive renewable energ y policy and program efforts involves projecting futu re conditions that represent a significant departur e from business-as-usual. A key component of the Ener gy Center’s approach to this analytical challenge was using a Delphi process to query more than 50 re newable energy experts about what an aggressive renewable energy future would look like in Wisconsi n. For the renewable energy component of the potential study, sector-specific Delphi questionnaires focus ed on key technologies that are expected to have a lar ge impact on distributed renewable energy potential over the time period of the study. Participants wer e asked to share their perspective on future trends and market barriers for each renewable energy technolog y in their area of expertise, and were also asked t o rate the relative importance of a number of market barriers and program components for addressing market barriers. Then they were asked to estimate f uture installation levels under four scenarios:

15 The value of tax incentives was calculated based on technology-specific rules and caps which were in e ffect prior to passage of the American Recovery and Reinvestmen t Act of 2009, on February 12, 2009.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-11 • A continuation of the status quo with respect to pr ogram design and funding, and the current status quo for market barrier reduction.

• Optimal program design and funding, but a continuat ion of the current status quo for market barrier reduction.

• A continuation of the status quo with respect to pr ogram design and funding, but optimal market barrier reduction.

• Optimal program design and funding, and optimal mar ket barrier reduction. The Energy Center received responses from 32 renewa ble energy experts, as shown in Table RE-3. Appendix D includes a copy of Delphi survey instrum ents. Appendix E includes a transcript of individua l Delphi responses.

TABLE RE-3. DELPHI REPSONSES RECEIVED FROM RENEWABL E ENERGY EXPERTS

Technology Responses

Biomass thermal 7 Solar electric 6 Solar hot water 6 Biogas (CHP or RNG) 5 Wind 4 Biomass CHP 2 Solar thermal air 2 Total 32

After compiling results from the initial survey rou nd, the Energy Center developed a summary of responses which presented maximum, minimum, and med ian responses for each technology-specific estimate. During a second survey round, participant s were given the opportunity to revise their initia l estimates after reviewing the summary of responses from other participants.

Estimates of achievable customer-sited renewable en ergy potential are based on Delphi responses. Given the four scenarios addressed in the survey, Delphi experts provided a range of potential estimates for customer-sited renewable energy development in 2012 and 2018. In developing a point estimate, we took a conservative approach and used the geometric mean of the highest and lowest Delphi values for each technology. (The geometric mean puts relatively mor e weight on the lower value and less weight on the higher figure.)Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-12Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-13 CHAPTER RE-2: RESULTS

AGGREGATE STATEWIDE POTENTIAL ESTIMATES As noted in the previous chapter, we present a rang e of renewable energy potential estimates based on two alternative resource strategies: a conservative strategy toward development of customer-sited renewable resources in Wisconsin, and an aggressive strategy. The conservative strategy ignores the flexibility value associated with developing custom er-sited renewable energy resources, and only inclu des those technologies that are currently cost-effectiv e, as determined by the TRC test. As discussed in Chapter RE-1, this approach has serious limitations and undervalues development of distributed renewable energy capacity in Wisconsin. The aggress ive strategy includes additional renewable resource s that are not currently cost-effective, but which cu rrently enjoy popularity among consumers due to the non-energy benefits they provide, and/or have the p otential to make a substantial contribution to the state’s renewable energy resource portfolio once te chnical challenges have been overcome and market conditions have developed further.
The following customer-sited renewable energy techn ologies are included in the conservative strategy estimates. (Detailed descriptions and size criteria are included in Chapter RE-1).

• Large-scale wind : Distributed applications of utility-scale wind tu rbines 16

• Biomass CHP : Large-scale biomass combustion for electric and p otentially also thermal energy

• Biogas CHP : Anaerobic digesters generating biogas for electri c and potentially also thermal energy

• Biomass thermal : Small- and large-scale biomass combustion for the rmal energy

• Biogas RNG : Anaerobic digesters generating biogas for injecti on into a natural gas pipeline
There is demonstrable value in promoting these reso urces, as they can produce energy at comparable or lower cost than utility supply-side assets.
The following additional technologies are included in the aggressive strategy estimates:

• Small-scale wind : Wind turbines sized for residential/commercial ap plications

• Solar PV : Large- or small-scale solar electric systems

• Solar hot water : Water heating with solar energy, supplanting eith er electric or gas-heated water

• Solar thermal air : Systems that preheat make-up air for ventilated s paces in large commercial/institutional facilities

Under either strategy, the scale of potential assoc iated with customer-sited renewable energy resource s pales in comparison to the estimates presented in t he energy efficiency section of this report. Figure s RE1 through RE-3 compare the potential for energy eff iciency and customer-sited renewable energy technologies to displace utility-supplied electrici ty and natural gas/propane.
Note that even by 2018, the customer-sited renewabl e resource potential represents but a small fractio n of the 2012 energy efficiency estimate. That is not to say that renewable resources should be ignored.

16 This technology has a TRC ratio of 0.96, which is rounded up to 1.0.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-14 However, compared with energy efficiency resources, distributed renewable resources have a relatively small role to play in promoting a clean energy futu re for Wisconsin.

Figure RE-1: Comparison of Conservative and Aggress ive Customer-Sited Renewable Resource Potential vs. Energy Efficiency Base Scenario – Ele ctricity

Figure RE-2: Comparison of Conservative and Aggress ive Customer-Sited Renewable Resource Potential vs. Energy Efficiency Base Scenario – Pea k Electric DemandEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-15 Figure RE-3: Comparison of Conservative and Aggress ive Customer-Sited Renewable Resource Potential vs. Energy Efficiency Base Scenario – Nat ural Gas
Note that for either fuel, we do not obtain substan tially more renewable resource capacity by moving from the conservative to the aggressive scenario. T his is consistent with the idea that to maximize op tion value, one must have the capability to expand the acquisition of renewable resources, rather than pursuing them outright.
Our strategy analysis assumes that renewable resour ces would be promoted under existing programs. There is, however, a potential development afoot in Wisconsin that could remake the landscape for distributed renewable potential: utility-owned, cus tomer-sited renewable energy installations. This mo del is discussed in Chapter RE-3.

TECHNOLOGY RESULTS Figures RE-4 through RE-6 present customer-sited re newable energy generating potential by technology under the aggressive renewable strategy. Under the conservative renewable strategy, potential estimate s are the same for cost-effective technologies, and t he estimates associated with technologies that are not currently cost effective (small-scale wind, solar P V, solar hot water, and solar thermal air) are not included.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-16 Figure RE-4: Renewable Electric Energy Potential by Technology in 2012, Aggressive Strategy

Figure RE-5: Renewable Peak Generating Capacity by Technology in 2012, Aggressive StrategyEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-17 Figure RE-6: Renewable Thermal Energy Potential by Technology in 2012, Aggressive Strategy

Among electricity-generating technologies, wind tur bines represent over half of the estimated annual potential for 2012. Anaerobic digesters producing b iogas for electricity and possibly also thermal ene rgy generation represent around 35 percent of the poten tial. Solar PV represents around 13 percent of the potential, however PV is only included under the ag gressive renewable strategy as it is not currently costeffective under the TRC framework. For peak demand reduction, wind represents around 65 percent of the potential, PV represents around 24 percent, and anaerobic digesters represent around 10 percent.
Among thermal energy generating technologies, the l argest opportunities are associated with biomass combustion for residential-scale and commercial/ins titutional-scale applications. Anaerobic digester projects that inject biogas into a natural gas pipe line represent another area of substantial potentia l for renewable thermal energy generation.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-18 PROGRAM AND TOTAL RESOURCE COST ESTIMATES A critical consideration for policymakers is the co st Wisconsin’s statewide renewable energy program would incur in achieving the potential estimates pr esented in this study. In this section we present c ost estimates for state-sponsored support of renewable resource programs. 17
To estimate program costs, the Energy Center assume d that incentives would cover 30 percent of the installed system cost. Incentives include cash-back rewards, grants, and other forms of financial supp ort. Of course, Focus on Energy’s current incentive stru cture varies by technology, generally covering a percentage of the installed cost up to a per-projec t cap. We made a simplifying assumption of 30 perce nt based on Focus on Energy’s current “cash back rewar d” incentive levels for solar PV, solar thermal, wind, and biomass. Cash back rewards range between 25 and 35 percent of the installation cost for thes e technologies.
Program administrative costs were estimated using t he technology-specific administrative cost factors shown in Appendix B. Program administrative costs i nclude all costs associated with program implementation except incentives, such as costs associated with program planning and administration, marketing and outreach, education and training, and quality assurance.
It is important to note that even for the aggressiv e renewable strategy, we used lower incentive level s for renewable energy technologies than we did for energ y efficiency technologies, which were incented at 5 0 to 90 percent of the incremental cost. In part, thi s approach reflects the fact that with renewable en ergy, the idea is to preserve the “option” value—e.g., la ying the groundwork for a future in which renewable energy technologies have the opportunity to expand rapidly. Thus, the incentive strategy is different than for energy efficiency technologies that are cost-ef fective today. In addition, a more conservative inc entive approach may also be appropriate to avoid what happ ened in the 1970s and early 1980s, where high incentives attracted a number of opportunists who d elivered inferior installation services, doing dama ge to the nascent industry in the process.
Figures RE-7 and RE-8 below present the cost of ach ievable renewable electric and thermal energy potential for 2012 in terms of expenses that would be incurred by Wisconsin’s renewable energy programs.

17 These estimates do not include any costs that migh t be associated with a customer-sited, utility-owne d approach discussed in Chapter RE-3. Standard ratemaking meth ods would be used to recover the cost of such an ap proach, and estimating the cost to Wisconsin ratepayers is outside the scope of this study.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-19 Figure RE-7: Program Cost of Achievable Renewable E lectric Potential, 2012 – Aggressive Renewable Strategy

Figure RE-8: Program cost of Achievable Renewable T hermal Potential, 2012 – Aggressive Renewable StrategyEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-20 Using this information, an outer bound program cost estimate was developed based on the aggressive renewable energy strategy presented in Chapter RE-1 . All program cost estimates are in 2008 dollars.

Year: 2012 (Aggressive Strategy)

ELECTRICITY-GENERATING TECHNOLOGIES $19,800,000

THERMAL ENERGY-GENERATING TECHNOLOGIES $2,600,000

TOTAL $22,400,000
We also estimated the program costs that would be i ncurred under the conservative renewable strategy, i.e. , the one in which we pursue only those resources t hat currently pass the TRC test. In that case, program budget estimates become $12.8 million.

Year: 2012 (Conservative Strategy)

ELECTRICITY-GENERATING TECHNOLOGIES $11,000,000

THERMAL-ENERGY-GENERATING TECHNOLOGIES $1,800,000

GRAND TOTAL $12,800,000

The appropriate funding level would be the one that captures available cost-effective renewable resour ces while retaining much of the flexibility to expand a cquisition of other technologies that could become costeffective in future. This funding level is likely w ithin the range offered by the two estimates presen ted above.
Figures RE-9 through RE-10 present estimated total resource costs of achieving 2012 renewable energy potential estimates. Total resource cost estimates include both program administrative costs and the c ost of system installation to the consumer. Total resou rce costs are estimated at $36 million for the conservative renewable strategy and $76 million for the aggressive renewable strategy.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-21 Figure RE-9: Total Resource Cost of Achievable Rene wable Electric Potential, 2012

Figure RE-10: Total Resource Cost of Achievable Ren ewable Thermal Potential, 2012

ECONOMIC AND ENVIRONMENTAL BENEFITS Figure RE-11 presents the net benefits associated w ith the technologies represented in 2012 renewable resource potential estimates. The technologies with negative net benefits are those that do not pass t he TRC screen. The conservative renewable strategy pro duces the largest aggregate net benefits—$21 million in 2012. Under the aggressive renewable str ategy, aggregate net benefits are -$10 million.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-22 Figure RE-11: Net Benefits of Customer-Sited Renewa ble Energy Technologies, 2012

In the energy efficiency portion of this study, we estimated job-related impacts using factors develop ed by Focus on Energy evaluators, as well as national fac tors developed by the Center for American Progress. 18 To our knowledge, Focus on Energy has not developed similar factors for state investment in renewable energy resources. Applying the Focus on Energy fact or for energy efficiency (jobs per Btu) to the renewable energy potential estimates results in an estimate of 350 Wisconsin jobs by 2012. The factor developed by the Center for American Progress produ ces a slightly lower estimate of 240 jobs. Figure RE-11 presents job creation estimates by technology

.

18 PA Consulting Group, Inc. (October 2008). Focus on Energy Evaluation: Semi-Annual Report (Fir st Half of 2008) . Prepared for the Public Service Commission of Wis consin. Department of Economics and Political Economy Resea rch Institute, University of Massachusetts-Amherst (2008). Green Recovery: A Program to Create Good Jobs and S tart Building a Low-Carbon Economy . Prepared under commission with the Center for American Progress.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-23 Figure RE-12: Estimated Job Creation Benefits by Te chnology, 2012
Lastly, Figure RE-13 presents estimated 2012 displa cement of carbon emissions associated with utilitysupplied energy. 19

19 The CO 2 emissions factor for electricity is from: PA Consul ting Group Inc. (2008). Quantifying Environmental Benefits of Focus on Energy: Emission-Rate Estimate s 2002 to 2006. Prepared for the Public Service Commission of Wisconsin. The CO 2 emissions factor for natural gas is from: PA Consul ting Group, Inc. (2008). Focus on Energy Evaluation: Semi-Annual Report (First Half of 2008) . Prepared for the Public Service Commission of Wis consin by the Focus on Energy evaluation team (PA Consulting, Glacier Cons ulting Group, KEMA, and Patrick Engineering, Inc.).Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-24 Figure RE-13: Estimated Avoided Carbon Emissions by Technology, 2012Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-25 CHAPTER RE-3: UTILITY-OWNED DISTRIBUTED RENEWABLE R ESOURCES
The renewable energy potential estimates presented in Chapter RE-2 are based on the assumption that Wisconsin will continue to promote the acquisition of customer-sited renewable resources through a sta tewide renewable resource program. There is, however, an alternative model under consideration that coul d dramatically change the future outlook for distribu ted renewable energy technologies.
The PSCW has opened an investigation to consider th e possibility of combining the concepts of customer siting and utility ownership of renewable energy te chnologies—specifically, solar PV. Under this approach, the utility locates viable sites where it could erect solar PV facilities within its service territory. Candidate sites could include customer-owned as wel l as utility-owned property. Prime examples include rooftops of large corporate facilities, although sm aller sites, such as residential roofs, could also be included. The utility then rents the roof space fro m the building owner, which entitles the owner to a lease payment.
The only direct benefit customers receive is the le ase payment. They receive no special rate for elect ricity service. Since they do not own the solar equipment, there is no buyback payment. The utility owns and maintains the system. The utility gets credit for a ll the power produced, which is applied toward its Renewable Portfolio Standard (RPS) requirement. The customer’s role is simply to rent the space.
There are two primary advantages of this approach: (1) the cost of the facilities can be treated as conventional rate base assets in the utility ratema king model; and (2) economies of scale can likely b e achieved under such an approach, reducing per-syste m costs.
This model avoids financing challenges faced under the customer-ownership model. While consumers may experience capital access problems in today’s e conomic climate, utilities, especially those in Wisconsin, do not have a significant problem in thi s regard. 20 In addition, this model does not require funding from Wisconsin’s statewide renewable resour ce program. Systems would be financed as utility assets, and the costs associated with facilities co uld be recovered from ratepayers through standard ratemaking practices.
The second benefit is economies of scale. A utility initiative that installs 500 MW 21 of PV capacity can negotiate discounts that would not be available to one-off system installations.
If this approach is implemented as proposed, the re source potential is huge. Five hundred MW of instal led PV capacity would generate more than 657 million kW h per year. 22 The maximum statewide renewable resource potential estimate under an aggressive pro gram strategy for 2018 is 112 million annual kWh (s ee Chapter RE-2). Therefore, full deployment of the ut ility-owned model for solar PV represents about six times the potential we project under an aggressive approach to promoting customer-owned renewable energy systems.

20 Wisconsin Energy Corporation (December 8, 2008). “ Wisconsin Electric Announces Agreement to Sell $250 Million Principal Amount of Debentures.” Press Rele ase. 21 Sierra Club’s Initial Brief , Wisconsin Public Service Commission Docket 6680-U R-116, October 9, 2008, p. 10. Sierra Club’s experts suggest that the potential fo r Wisconsin Power & Light Company is 517 MW. 22 Assumed capacity factor is 0.15 kWh/kW.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-26 The PSCW has opened a docket to investigate the pro posal, 23 and an in-depth assessment of this model is outside the scope of this study. Failure to at leas t mention this possibility, though, would be an ove rsight given the magnitude of the potential. If the PSCW c oncludes that this approach has merit, the utilityowned model has the potential to dwarf results that could be achieved under a customer ownership approach.

23 Notice of Investigation , Wisconsin Public Service Commission Docket 05-EI- 147, January 16, 2009.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-27 CHAPTER RE-4: INTEGRATING EFFICIENCY AND RENEWABLE ENERGY STRATEGIES
The development and promotion of energy efficiency technologies and renewable energy technologies have long traveled parallel but separate roads as o ptions for creating a cleaner energy future. Recent emphasis on curbing carbon emissions has led to rec ognition that using less energy and using clean energy both contribute to the same goal. The practi ce of integrating both strategies in the same commercial building projects to potentially gain ad ditional carbon emissions savings is well establish ed in the US Green Building Council’s LEED standards and other green building guidelines.
In the residential sector, a comparable example is the “zero energy home” concept where energy use is cut to a minimum with high performance building methods , and the reduced energy requirements are then met with renewable energy. The U.S. Department of E nergy has been developing the zero energy home concept to include passive solar heating and coolin g, energy-efficient construction, energy-efficient appliances and lighting, and solar water heating an d photovoltaic systems, with grid connectivity to a llow an exchange of power. The idea of making commercial and institutional buildings “net zero energy” as well is beginning to gain popularity, particularly among state and local governments.
While it is always more cost-effective to build ene rgy efficiency and renewable energy into a new structure than to incorporate them into an existing one, integrating the two in a retrofit can save mo ney as well. This is an excellent strategy for homeowners who are interested in installing solar PV or hot wa ter panels. Reducing household electricity use by makin g relatively modest investments in energy efficienc y can reduce the load to be handled by a PV system dr amatically.
In an example scenario, Bob and Harriet’s family us es about 12,000 kWh of electricity per year. They decide they are interested in installing PV panels that will generate all of their electricity. A well -sited PV array can produce about 1200 kWh every year from ea ch kilowatt of panels installed, so Bob and Harriet will need to buy a 10-kW system to meet their needs . At a cost of about $8,500 per kilowatt for installation, their system would cost them approxim ately $85,000. However, let’s say they took a close look at their appliances, their heating and cooling system, and their family’s energy habits. They dis cover that by investing in an ENERGY STAR refrigerator ($ 1,100) and heating/cooling system ($3,000), and buying a gas water heater ($800), as well as instal ling compact fluorescent lights, a setback thermost at, and power strips for their electronics ($100), they can cut their electricity use by 30 percent. Addit ional attention to improving family energy habits yields another five percent. By investing $5,000 in energy efficiency they have reduced their electricity requ irements by 35 percent to 7800 kWh per year. A 6.5 kilowatt solar PV system would now meet their needs , and it would cost $55,250.
Similarly, if Bob and Harriet are also interested i n a solar water heater, they can cut their natural gas requirements by investing in water conserving fixtu res and appliances. If less hot water is needed, le ss gas will be required. A solar water heater can reduce g as use even further by providing 40 to 50 percent o f the load from the sun’s heat. Reducing the amount of ho t water required will either raise that percentage of savings, or reduce the initial water heater investm ent by reducing its size. Combining water conservat ion and solar water heating also works well in commerci al and institutional settings. Low-flow showerheads , efficient washing machines and dishwashers can save both water and energy costs for hospitals, nursing homes, correctional facilities, health clubs, and t he hospitality industry. And energy saving devices like heat recovery units can add to the natural gas savi ngs as well.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-28 Passive solar strategies such as south-facing windo ws combined with interior thermal mass to store sol ar heat and daylighting strategies that supply natural light are dependent on a highly efficient building shell to perform optimally. It is standard practice among renewable energy professionals to recommend maximizing energy efficiency improvements before re newable energy technologies are installed. This is true for both new construction and renovation of ex isting buildings, and for buildings of any type, fr om residential to institutional, commercial and indust rial structures.
This example illustrates the benefits of pursing a complementary approach to energy efficiency and renewable energy development. Consumers can reap gr eater benefits from renewable energy installations if they have maximized energy efficiency potential. Program strategies that deliver energy efficiency and renewable energy solutions offer more value to Wisc onsin consumers and businesses than could be achieved under a single resource approach.
Similarly, in a potential future that includes wate r efficiency initiatives, incorporating all efficie ncy and renewable resource strategies in a single into a si ngle integrated program strategy is ideal for consu mers and businesses. Consumers should not have to unders tand the bureaucracy of program management; they simply need a “resource case worker” to help them c reate a plan of action.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-29 CHAPTER RE-5: POLICIES SUPPORTING AGGRESSIVE ADVANC EMENT OF DISTRIBUTED RENEWABLE ENERGY TECHNOLOGIES
Policymakers interested in supporting significant e xpansion of Wisconsin’s distributed renewable energ y resource base may consider the opportunities listed below.

• Increased program support for renewable energy tech nologies

Incentives
There are several ways that increasing funding for renewable energy programs would move Wisconsin closer to its clean energy goals. Expandi ng existing incentive programs would give more people the opportunity to install renewable en ergy systems on their own property. The firsthand experience of owning a system will be shared w ith friends, family and community, invoking what marketing professionals agree is the most pote nt form of advertising: word of mouth. While the incremental addition of customer-sited kilowatt s or therms to Wisconsin’s renewable energy supply may not be as great as utility-scale install ations can achieve, the resulting expansion of public awareness of renewable energy’s viability an d reliability through personal experience will be invaluable to further development and acceptance of utility-scale projects.

Education
Education to raise consumer awareness is an importa nt component of the current Focus on Energy program, and program support for renewable e nergy development can also be increased through a broad range of educational initiatives.
Within the structure of the current Focus on Energy program, development of educational materials and training for professionals has not be en fully explored. With increasing demand for skilled equipment installers and operators, a promi sing avenue involves directing program funding toward supporting and expanding the profess ional development programs emerging from the technical college and university systems in Wis consin. Program support could include assistance with curriculum development and coordina tion with existing expertise and resources. Expansion of technical training opportunities could be directed toward recent high school graduates seeking a career as well as working plumb ing, electrical or HVAC professionals wishing to broaden their skills. Program funding co uld also support development of academic certificate and degree programs in community energy planning and program design to provide a pool of candidates to head up municipal energy inde pendence efforts.
Development of courses about renewable energy resou rces for established academic majors such as urban planning, engineering and architecture are also needed. There is also the need for more education and training for established professional s in these fields. Program resources could assist in coordinating these education efforts and helping to make them universally available to these professionals and to municipal officials and staff involved in community energy planning.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-30 Research
There is still too little known about certain aspec ts of Wisconsin’s renewable energy resources. Researchers are beginning to address such areas as life cycle costing and environmental impacts of biomass crops or waste, and some studies have be en undertaken to understand the environmental impacts of wind farms. However, signi ficant gaps in knowledge remain in the following areas: (1) level, availability, and techn ical potential of resources; (2) effectiveness of technology applications in Wisconsin; and (3) magni tude and characteristics of non-technical and behavioral barriers. Program funding directed towar d economic, environmental and behavioral impacts and uses of renewable energy in the state w ould promote the design of more effective programs and policy for meeting Wisconsin’s energy goals.

• Develop consistent advanced renewable energy tariff s The most important tool we have for encouraging the growth of renewable energy industries in Wisconsin is the regulation of buy-back rates for c lean energy. The establishment of consistent and realistic tariffs for both customer-sited and utili ty-scale installations is vital to success.
As a developing industry, the renewable energy sect or needs a diversity of approaches in order to stimulate jobs and value for the state. Customer-si ted renewable energy systems contribute their own value to the emerging industry, providing opportuni ties for demonstration and raising general public awareness of clean energy alternatives. They are al so important in the growth of net-zero-energy homes and buildings, and contribute to energy secur ity as manifested through a distributed generation system. Utility-scale installations will carry rene wable energy industries into prime time, harnessing the state’s renewable resources to generate grid po wer. To recognize the value of these two differing roles we will need to develop an advanced, two-tier ed tariff system that encourages both sectors to flourish.
Such a system might use the current cut-off definit ion for distributed generation which is 15 MW or less. Operators in this range have great difficulty existing under present tariffs based on the avoide d costs of producing coal-fired power. An advanced ta riff structure for small operators in Wisconsin might be based on the European tariff concept which uses the break-even cost for each separate technology to determine the rate, with the potentia l to include a profit margin as well. If structured after existing European models, this tariff structu re would not be open-ended, and overall subscriptio n caps would be imposed. With this system it would be necessary for regulators to stay current with technology costs and periodically adjust premium co sts based on shifting break-even points. For utility-scale installations, the present tariff str ucture would serve the renewable energy industry be tter if a more consistent statewide approach were taken.

• Address remaining interconnection barriers to distr ibuted generation
PSC 119, Rules for Interconnecting Distributed Gene ration Facilities (adopted in 2004), went a long way toward establishing a consistent procedure for interconnecting a small renewable energy generator to the state grid. This rule has made it less frustrating for owners and installers of syste ms, and given utilities a set of statewide guidelines t o incorporate into their process. Five years have elapsed since its adoption, and the rule could be r evisited to determine what interconnection barriers remain. Discussion has also begun on the issue of i nterconnecting to the natural gas pipeline to injec tEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-31 biogas. This is another important policy to pursue because farms too small to generate electricity fro m their biogas could still sell it to the pipeline.
Incorporating distributed generation planning into the transmission and distribution discussion is another important issue for policy makers. This app roach might include consideration of “smart grid technologies” that would help incorporate renewable energy generation systems, and the use of micro-grid planning of distributed generation to in crease energy security.

• Address local land use and community planning barri ers Local governments have a lot to say about renewable energy development and installation within their communities. Wind turbine ordinances, system permitting processes and fees or land use planning requirements all contribute to the likelih ood that renewable energy installations will happen in a given community. Now that communities all over Wisconsin are setting goals to reduce carbon emissions or be energy independent, these common po litical barriers to renewable energy development should be addressed. Statewide programs that encourage community energy planning can assist by opening this conversation across the state, finding best practices, and helping communities share their experiences with others.

• Encourage economic development through renewable en ergy Wisconsin’s economy could greatly benefit from expa nsion of renewable energy industries in the state. This would be true both for harnessing renew able resources at the local level and for creating a renewable energy industrial base that would serve r egional and national markets. This study recommends economic development efforts that foster renewable energy equipment manufacturing and resource processing capacity, and increase avai lability of skilled labor in Wisconsin through partnership with the state’s technical college syst em.

• Develop new protocols for defining value As previously noted, the traditional, TRC-based app roach for assessing cost-effectiveness has significant shortcomings when it comes to evaluatin g investments in renewable energy. These shortcomings mean that the value of renewable energ y investments is likely understated. We recommend new approaches for quantifying the non-en ergy benefits associated with pollution prevention and economic development, as well as eff orts to quantify the option value of renewable energy technologies, which could include an investi gation of real options models.

• Investigate the possibility of using the customer-s ited, utility-owned model Though in-depth analysis of this model is outside t he scope of this study, and it is not yet possible to draw firm conclusions as to the viability of this m odel in Wisconsin, analysis by other parties suggests that the potential for renewable resource acquisition under this model is significant. The PSCW is currently investigating this concept.Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-32Energy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-33 DELPHI PARTICIPANTS: RENEWABLE ENERGY

Aaron Adler, Hot Water Products Don Albinger, Johnson Controls David Donovan, Xcel Energy Jim Funk, Energize LLC Duane Hanusa, Alliant Energy Kari Heinrich, Wisconsin Energy Conservation Corpor ation Eric Kostecki, WPPI Energy Kathy Kuntz, Wisconsin Energy Conservation Corporat ion Rachel Lee, Strand Associates Dan Nemke, Clear Horizons LLC Terry Mace, Wisconsin Department of Natural Resourc ess Michael Malmstead, STS Consultants TJ Morice, Earth Wise LLC/Marth Biomass Katie Nekola, Clean Wisconsin Chad Olsen, McMahon Associates Robert Owen, Jr., Superior Safety and Environmental Services, Inc.
Bob Ramlow Carl Siegrist, We Energies Wes Slaymaker, EcoEnergy LLC Terry Stebor, STS Consultants David Toso, Madison Gas & Electric Frank Weeks, Design Homes, Inc. Don Wichert, Wisconsin Energy Conservation Corporat ion Niels Wolter, Wisconsin Energy Conservation Corpora tion Tom Wroblewski, Clean Tech PartnersEnergy Efficiency and Customer-Sited Renewable Reso urce Potential in Wisconsin July 2009

Energy Center of Wisconsin RE-34 REFERENCES
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Interstate Power & Light Company (2008). 2009-2013 Energy Efficiency Plan . Docket No. EEP-08-1.
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. PA Consulting Group, Inc. (2008). Focus on Energy E valuation: Semi-Annual Report (First Half of 2008) . Prepared for the Public Service Commission of Wis consin by the Focus on Energy evaluation team (PA Consulting, Glacier Consulting Group, KEMA , and Patrick Engineering, Inc.).
PA Consulting Group Inc. (2008). Quantifying Environmental Benefits of Focus on Energy: EmissionRate Estimates 2002 to 2006. Prepared for the Public Service Commission of Wisco nsin.

Sierra Club (October 9, 2008). Sierra Club’s Initial Brief . Wisconsin Public Service Commission Docket 6680-UR-116 p. 10.
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Energy Center of Wisconsin EE-74 U.S. Department of Energy, Office of Energy Efficie ncy and Renewable Energy (2008). 2008 Buildings Energy Data Book . Available at: http://buildingsdatabook.eren.doe.gov/

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. U.S. Environmental Protection Agency and the U.S. D epartment of Energy. Formulas to Calculate the ENERGY STAR Criteria for each Refrigerator Product Category by Adjusted Volume using NAECA Levels . Available at: http://www.energystar.gov/ia/products/appliances/re frig/NAECA_calculation.xls

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.