State Funding for Energy Efficiency Set to Boom: Report

LBNL imageThe federal stimulus bill is allocating billions for energy efficiency projects, but a new report by the Lawrence Berkeley National Lab predicts that state-level, ratepayer-funded efficiency programs already in the pipeline will be an even bigger recipient of funding in coming years. The study found that funding for these projects –- in the form of subsidies for energy-saving light bulbs, for example, or home energy audits or incentives for commercial building retrofits — will increase to anywhere from $5.4 billion to as much as $12.4 billion a year by 2020, from just $3.1 billion in 2008. The result will be a “fundamental re-drawing of the energy efficiency map,” according to the recently released report, entitled “The Shifting Landscape of Ratepayer-funded Energy Efficiency in the U.S.

There’s been a proliferation of new state-level policies enacted in recent years that promote energy efficiency, the report found.  These policies include energy efficiency portfolio standards, requirements that utilities adopt cost-effective energy efficiency programs, and regulatory incentive mechanisms to better align utility financial interests with improvements in customer energy efficiency. These programs are funded through rate increases on the sale of electricity and gas (as opposed to federally funded initiatives like the Weatherization Assistance Program), hence the “ratepayer-funded” focus of the report. 

Support for energy efficiency has grown in recent years as a result of widespread recognition that it’s less expensive to save a kilowatt-hour than to build a plant to produce that same unit of energy. While the new funding described in the report will ultimately come from ratepayers, the alternative would have been to build more plants to meet growing demand for power, the cost of which would have also been passed to those same consumers.

State-level energy efficiency programs have so far been concentrated in a handful of regions, with the top 10 states accounting for about 80 percent of the total spending last year. Among the leaders, California is the heavyweight, having spent about $1 billion in 2008 on ratepayer-funded energy efficiency programs.

But much of the projected increase in spending will be centered in populous states that have historically been minor players on the energy efficiency stage, the report predicts. Maryland, Michigan, North Carolina, Ohio and Pennsylvania, which together represented less than 4 percent of energy efficiency program spending in 2008, could account for more than 60 percent of the projected increase in total U.S. spending through 2020. The cumulative electricity savings from these programs is expected to be between 4.7 percent and 8.6 percent of total U.S. retail electricity sales by 2020.  

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Companies offering services or products for the energy efficiency market will of course benefit from these trends, according to a research note by financial services firm Canaccord Adams. The firm breaks the sector into three segments: energy efficiency program administrators like ICF International (s ICFI), energy efficiency program implementers like Johnson Controls (s JCI), and energy efficiency product suppliers like Baldor Electric (s BEZ). We’ll add to that list startups like hi-tech insulation maker Aspen Aerogels, home energy retrofitter Sustainable Spaces and green building products developer Serious Materials. There might also be opportunities for startups in the building energy management sector, such as Powerit Solutions.  

Charts courtesy Lawrence Berkeley National Laboratory.