Energy efficiency: It's all about saving cash, cleaning up carbon, and creating local jobs

Caulk, insulation, efficient appliances, and programmable thermostats may not be the sexiest aspects of Michigan's energy landscape.  

But many experts believe it's these humble energy efficiency measures that will help Michigan bridge the gap between old and new sources of energy, while reducing carbon emissions, saving money, and creating local jobs.

Two weeks ago, as part of our "Powering the Mitten" series, we asked seven energy experts working in advocacy, utilities, politics, and the private sector the same question:

"What will Michigan's energy landscape look like in 20 years, and how will we get there?"

This week, we take an in-depth look at one of the most important aspects of that future: reducing our energy demand through increasing efficiency. Because when it comes to "Powering the Mitten," the energy we avoid using is the cheapest power source out there.

Revisiting Michigan's Policy

Michigan got started in earnest toward increasing energy efficiency in 2008 with the passage of Public Act 295. The law set in place an energy optimization resource standard, requiring utilities to work with customers to reduce overall demand by implementing energy efficiency measures like efficient light bulbs and programmable thermostats. 

"The resource standard called for the state to reduce its electric energy use by one percent of sales every year and gas reductions of 0.75 percent of sales," says Vicki Campbell, director of energy efficiency for DTE Energy. "We had kind of a ramp-up when we first started, but since 2012, we've been at the full requirement. We spend about $100 million a year on the programs."

Utilities comply with the law through a variety of programs and incentives targeting residential and business customers, including things like free or subsidized energy audits, rebates on appliances and weatherization, tracking tools, and education. As a whole, the state exceeded its target, saving 125 percent of the goals for electricity and 126 percent of goals for natural gas as of 2012.

"Since the law's been implemented, we've seen a great transition to cleaner and more efficient energy," says Sarah Mullkoff, energy program director at the Michigan Environmental Council. "Now, energy optimization seems to be widely regarded as the cleanest and most cost-effective resource."

The law currently caps how much utilities can spend on energy efficiency programs in Michigan to 2 percent of sales revenue. That measure was put in place to ensure affordability and cost-effectiveness for customers, according to Campbell.

"From a consumer and business advocate position, they wanted to make sure that it didn't get out of control or start to exceed what would be affordable for Michigan," says Campbell.

But as legislators get ready to revisit the law, one of the questions they will likely consider is whether that spending cap should be lifted.

"We'd like to see that cap removed," says Mullkoff. "It ends up costing more in the end for generation, and that’s sort of counteractive."

Michigan currently ranks number 12 on the American Council for an Energy Efficient Economy's State Energy Efficiency Scorecard. Megan Billingsley, a senior research associate with the Lawrence Berkeley National Laboratory, notes that while there have been a number of states with very aggressive targets, such as Rhode Island, Vermont, and Massachusetts, it often comes down to a delicate negotiation between the amount of funding the public service commissions and utilities are willing to put towards energy efficiency.

"Some have argued that it gets more expensive the longer you've been in the energy efficiency game," she says. "And while that's true, some states have been doing this for a long time and they're still doing it cost-effectively with some pretty aggressive targets."

How Michigan strikes that balance will be a key determinant for how aggressively Michigan moves forward with energy efficiency in the future.

"It is possible in the future, as costs go up, that it will become more difficult to achieve those goals and we will need to spend more," says Campbell. "We recognize that, but we want some kind of control so that we give assurance to the ratepayers -- the people paying the bill -- that there is prudency."

Another issue that will likely come up includes the target itself--should it stay the same, decrease or increase? A 2014 study by the American Council for an Energy Efficient Economy recommends setting state targets of 1.5 percent of revenue per year.

"What we're worried about is if the program's one percent savings for electric and .75 percent for electric and natural gas aren't increased, there's a lot of missed opportunity for the continued job growth of the energy efficiency industry and also for the continued savings," says Mulkoff. "What we advocate for is expanding the annual savings goals for electric from one percent up to two percent (of utility revenue)."

Campbell believes continuing the one percent target for electricity makes sense going forward. According to a 2013 energy efficiency potential study commissioned by the Michigan Public Service Commission, DTE Energy and Consumer's Energy, the achievable potential for savings by 2023 is 15 percent of forecasted electricity sales and 13.4 percent of natural gas sales.

"The one percent target has made sense for us," says Campbell. "If you look at the energy efficiency potential study, it's in that range of one percent, maybe a little over one percent, per year. So we think one percent is almost like a sweet spot; it's do-able, it doesn't put too much pain on the electric bill, yet it lets us chip away at that waste that's out there."

Curtailing Carbon

As legislators revisit the 2008 law this fall, they'll also have new federal requirements to consider in the form of EPA's new Carbon Pollution Standards under the Clean Air Act. The new rule will require states to reduce carbon emissions from existing power plants to 30 percent below 2005 levels by 2030. The actual targets will vary by state, based on a formula that takes recent emissions, energy mix, and coal-fired power plant retirement plans into account.

Under the rule, states will have some flexibility in setting their goals, using a combination of four "building blocks," including increasing fossil-fuel plant efficiency, increasing use of low-emitting sources such as natural gas, increasing use of low- or zero-emitting sources such as renewables like wind and solar, and energy efficiency.

Given the potential role of energy efficiency in meeting these new requirements, Campbell says it may make sense to increase targets in the future, though it is too soon to tell.

"We really look at this in context of a new EPA guidelines; we may want to be more aggressive (with targets), but we don't know yet," she says. "If it's more cost-effective for us to do more energy efficiency as one of those building blocks, we'd like to give the Michigan Public Service Commission the authority to include that in a plan."

According to a 2014 ACEEE study, energy efficiency measures alone have the potential to reduce carbon emissions by 26 percent below 2012 levels by 2030 across the nation, reducing electricity demand by 25 percent and obviating the need for nearly 500 new power plants.

And those measures aren't limited to just caulk and insulation.  As new technologies for things like combined heat and power generation and conservation voltage reduction mature, the opportunity for new energy efficiency measures will expand.

"So far, we've just focused on what we consider customer-side measures," says Campbell. "We'd really like the state to be able to look at opportunities in the whole grid that could be optimized and that would save energy and again, save everybody money."

Mulkoff also advocates for adoption of the 2012 International Energy Conservation Code for buildings, which will require new construction to meet the most stringent energy efficiency criteria.

"It's really important all of these options are on the table as we consider which pillars we'll use to ultimately reduce our carbon footprint," says Mulkoff. "If we continue to ramp up the targets, then we're well positioned to meet those carbon reduction goals."

Generating Jobs

Energy efficiency is not just about saving money and reducing carbon, however. It's also a big economic driver. An estimated 22,000 Michigan jobs were related to energy efficiency in 2009, according to a study conducted by the Michigan Department of Energy, Labor & Economic Growth.

"A huge piece is the jobs and economic development angle that the law has helped bring," says Mulkoff. "Those types of jobs include contractors, suppliers, engineers, auditors, and evaluators."

Implementing energy efficiency requires skilled workers across the industry, according to Campbell.

"One of the lessons learned is that it takes the entire supply chain to get involved to really make some big differences," she says. "When we started the programs, there were not fully trained folks that knew how to do sophisticated audits, so we had to bring in a training program. Having everybody involved -- from the HVAC contractors and equipment manufacturers to the retailers and distributors -- is really important to make sure that the products are available, they're put in right, and folks know about them."

Increases in energy efficiency activities will continue to drive the economy, according to the ACEEE study, which estimates $17.2 billion added in GDP, supported by 611,000 new jobs across the nation by 2030.

"I say this over and over again: energy efficiency is an incredibly low cost resource," says Billingsley. "I think it's one of those things that almost everybody benefits from."

This piece was supported in part through a partnership with Michigan Saves as part of our Powering the Mitten series on Michigan's energy future. Future pieces will include additional stories highlighting people and their engagement with energy efficiency across the state.

Photos at top: Amanda Godward (right) and Nicholas LeRoy of Ecointelligent Homes conduct a home energy audit. Photo credit: Amy Sacka
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Why Save Energy in Michigan?
Why Save Energy in Michigan?

Q: Why is the future expected return on investment for energy efficiency less than what was realized in the past?

A: As utilities harvest the "low-hanging fruit" of cheap and easy savings, energy efficiency measures are expected to cost more. Still, the projected ROI is nearly 3:1, and as technology matures experts expect more energy efficiency measures to become cost-effective.

Q: How are utility energy efficiency programs financed?

A: Utility energy efficiency programs are financed through an energy optimization surcharge on customers' electricity bills.

Q: How much have Michigan utilities spent as a whole on energy efficiency, and what have been the returns?

A: Michigan utilities have spent $246 million as a whole on energy efficiency and have reaped $935 million in rewards, calculated based on avoided costs due to energy savings.

Q: How can I save energy?

A. The first step is an energy audit. Check with your energy utility about incentive programs. Information on programs and financial assistance can be found here. A full list of energy efficiency measures can be found here.