California's energy policy continues to provide valuable lessons going forward

Energy efficiency continues to be the cheapest, cleanest, fastest source of energy available today. Take California for instance. Over the last several decades, California has implemented a number of key energy policies – efficiency programs, innovative changes to the utility business model, and standards for buildings and appliances – that make efficiency the state’s leading energy resource. In addition to these efficiency policies, California also has an aggressive renewable energy effort to ensure the State’s second energy option comes from clean sources of energy.

California’s track record of success with efficiency policies spans decades of bi-partisan leadership. This effort has relied on a highly-coordinated effort between agencies, market players, and utilities to bring new efficient technologies to consumers. As a result, California’s energy efficiency policy drives innovation, creates jobs, lowers electricity bills for consumers, and provides a higher quality of life. For instance:

• Californians pay 20% less on residential electricity bills than the average U.S. household
• California’s energy savings avoided the need to build nearly 30 large (500 MW) power plants since the mid-1970s, the equivalent of CO2 emissions from nearly 3 million cars
• The net financial savings from the utilities’ energy efficiency programs (that is, the money remaining after accounting for the costs of the programs) reached $5 billion from 1998-2008
• Significant reductions in energy use as a result of efficiency will more than offset the expected growth in demand through 2020, according to California’s energy agencies (see Chart 1 in source link)

As shown in Chart 1, efficiency policies adopted by California have directly avoided the need for dirtier and more expensive energy. For more on this topic, see my NRDC colleague Sierra Martinez’s blog on how California is bending the demand curve downward.

California’s energy policies have also improved the state’s economic productivity:

• Reinvesting utility bill savings into highly job intensive local economies (e.g., retail, food services) stimulates California’s economy by creating 50 jobs for each job foregone in the fossil fuel sector, according to a University of California at Berkeley report, Energy Efficiency, Innovation and Job Creation in California
• According to the same report, 1.5 million jobs have been created from 1972-2006 due to California’s efficiency policies
• California spends half as much of its GDP on electricity than does the rest of the U.S., and produces twice as much GDP per kWh, based on the Bureau of Economic Analysis and state and federal publicly available energy data
• Economic productivity of California’s electricity use improved about 50% since 1980, while the rest of the nation improved by only 15% (see Chart 2 in source link)

Utility Efficiency Programs

State policies require private and public utilities to invest in cost-effective energy efficiency programs and make efficiency part of their long term energy resource plan. In particular, the public utilities, under the guidance of the California Energy Commission, set new energy saving targets and increased independent evaluation of their programs over the past few years.

Another component of the success of California’s model is due to the regulatory changes to the private utilities. These changes ensure that the utilities invest in efficiency before costlier and dirtier power plants and are further incentivized to save energy above and beyond their efficiency goals. The California Public Utilities Commission, the state agency that regulates these utilities, took the following actions to align the incentives of the utilities with California’s clean energy goals. For example, the CPUC set aggressive energy and demand saving targets, removed powerful financial disincentives (also known as “decoupling” policies), and created a performance-based incentive that rewards excellent performance, and penalizes poor performers. All these steps make energy efficiency as attractive as other energy resources.

Step by step, the state adopted an extensive suite of policies resulting in flourishing energy efficiency progress. Even under the most discounted energy savings estimates, utility programs over the past few years provided hundreds of millions of dollars in net savings to their customers. Furthermore, 2006-2008 savings also avoided costly investments in dirty sources of energy, and result in annual reductions equivalent of CO2 emissions from more than 500,000 cars.

Codes and Standards

Utility efficiency programs not only save a great deal of energy and money, but they are also critical to advance codes and standards for building and appliances. California was the first state in the nation to mandate efficiency standards for appliances, starting with refrigerators that were later adopted by the federal government. As a result, refrigerators today use less than one-fifth of the electricity they did back in 1976, even though they have continued to get bigger and cheaper! (see Chart 3 in source link).

In addition, many utility efficiency programs are also specifically designed to pull new technologies and practices to market so they can ultimately be adopted as a code or standard. For example, utility efficiency programs directly incentivized manufacturers and retailers to build and sell more efficient television models in California. Due in great part to these efforts, the California Energy Commission adopted television standards that went into effect January 1, 2011. TV’s sold in California now use 30 to 50% less energy and save Californians almost $1 billion dollars a year in the form of lower electricity bills. Furthermore, because California utilities helped advance the lighting market through their efficiency programs, a federal lighting standard was possible. Once the federal light bulb efficiency standards are fully implemented in 2020, consumers in California and the rest of the U.S. will save more than $12 billion per year; an average household will save $85, which is like getting one month of electricity free every year.

In addition to California’s appliance standards, the state’s efficiency building codes are among the strongest in the world. The codes are ratcheted up every three years to increase minimum efficiency levels for new buildings, thereby significantly reducing energy consumption. The estimated savings from the planned updates to existing codes that will go into effect 2014, will avoid the need for 8-16 large power plants, depending on the future rate of growth in the housing market.

Renewable Energy

California’s new 33% Renewable Portfolio Standard (RPS) is a cornerstone of California’s clean energy efforts. The law, which passed this year with broad bipartisan support, increases the share of renewable energy (e.g., solar, wind, biomass, geothermal, and small hydroelectric) supplied by utilities to 33 percent by 2020. The RPS will help overcome the market barriers that currently exist for renewables development and send a strong market signal to investors, renewable energy developers, utilities, and regulators. Importantly, the 33% RPS is expected to have at most a minor impact – 6% or less – on utility bills, as the cost of renewable technologies continues to decline and as renewables displace the more carbon intensive energy resources.

Further, the California Independent System Operator has already approved enough transmission to reach 33 percent renewables and the private utilities have signed power purchase agreements for more than 20,000 MW of renewable power. Last year alone, the California Energy Commission approved almost 4,200 MW of new solar thermal capacity in California. According to the CPUC’s Quarter 1 report to the California Legislature, the state’s private utilities are well on their way to meeting the RPS requirements within their compliance timeframe. By the end of 2011, the utilities will have cumulatively met an interim requirement to get 20% renewables, and all utilities are on target to meet the 20% goal by 2013, which is the end of their authorized compliance period.

Building on Success

California’s success highlights the importance of continuing strong energy efficiency and renewable energy policies. There are a number of ways the state can continue to push for deeper energy savings. In particular, California should continue to expand and improve low-income energy efficiency programs, make water conservation the top priority for water utilities, pave the way for plug-in electric vehicles, and ensure the "smart grid" helps Californians save energy and integrate renewables. For more on these and other strategies, see my NRDC colleague Devra Wang’s blog where she lays out the top ten priorities for the California Public Utilities Commission.

In addition, while the public utilities show recent progress by saving their customers $1 billion since 2006, much more potential remains. For instance, public utilities should continue to expand energy saving programs and truly treat efficiency as their top energy priority. See my recent blog for more on how public utilities can achieve even greater savings.

Bottom line, while there are opportunities to capture even more savings, California continues to be a leader in achieving significant benefits from energy efficiency and renewable energy. These efforts can also offer lessons to states and utilities outside California that want to expand clean energy and provide even greater environmental and economic benefits to their residents. As California moves forward into 2012 and beyond, it must continue to step-up its efforts. Expanding on current achievements while fostering innovation is critical to meet our clean energy goals and recharge our economy.

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