ACEEE Evaluates the Impact of Performance Incentives on State Energy Efficiency

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Performance incentives are an important part of a comprehensive state policy strategy that includes energy efficiency savings targets and utility business model tools, according to an American Council for an Energy-Efficient Economy (ACEEE) report.

The report describes the foundation necessary for energy efficiency to thrive as a resource for a utility of the future and analyzes actual energy savings performance compared to the set of policies in place.

While performance incentives play an important role in elevating utility interest in energy efficiency outcomes and are increasingly being aligned with specific savings thresholds to encourage utilities to meet or exceed their targets, by themselves they are not associated with as much energy efficiency achievement as are energy efficiency resource standards (EERS).

The report found that states with energy performance incentives for utilities tend to invest more in energy efficiency and have more energy savings than states without performance incentives. In 2013, states with utility performance incentives had investments equivalent to 2 percent of revenues and saved an average of 0.9 percent of sales, compared with states without performance incentives, which had investments equivalent to 1.4 percent of revenues and saved 0.5 percent of sales.

While utility performance incentives appear to be tied to higher savings, complementary EERS policies appear to be driving much of those differences. Among states without an EERS, the statewide averages were almost the same with or without incentives; however, those with both an EERS and incentives vary widely in savings results. The top-achieving states — those saving 1.5 percent or more — all have performance incentives in place. The very highest levels of energy efficiency achievements are in states with both an EERS and performance incentives.

Policies Matter: Creating a Foundation for an Energy-Efficient Utility of the Future is one in a three-part series on utility business models for energy efficiency. The two other reports examine state-by-state experience with utility performance incentives and lost revenue adjustment mechanisms.

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