GHPs Need Recognition and Fairness Under Efficiency Rules

Efficiency is America’s biggest, cheapest, cleanest, quickest—and mostly untapped—energy resource. Indeed, it could reduce U.S. energy consumption by 40 to 60 percent by 2050. Yet energy efficiency—not the least of which could be fulfilled by geothermal heat pumps (GHPs)—has been largely ignored as a strategy for compliance with air regulations. Public officials (especially at the state level) have so far failed to recognize GHPs for their energy efficiency, and more importantly, for their renewable thermal energy production from the earth.

A new report by the American Council for an Energy-Efficient Economy (ACEEE) reveals how energy efficiency can be used by states, policymakers, and utilities in developing compliance strategies to meet the goals of federal air regulations. Stricter regulations on the horizon offer a unique opportunity for adoption of new energy efficiency measures. The ACEEE report, Energy Efficiency: The Slip Switch to a New Track Toward Compliance with Federal Air Regulations, looks at energy efficiency as an effective compliance tool.

Energy efficiency can play a major role under new clean air regulations and federal permitting rules. Why? Because its many and varied measures can be deployed much more quickly than new power plants can be built. More importantly, energy efficiency cuts power demand, reduces the need for peaking power resources, and lessens the load and stress at various points in the electric power distribution network.

The pursuit of reliability and reasonable rates led many state public utility commissions to approve or order ratepayer-funded energy efficiency programs starting in the 1980s. And the EPA encouraged the states to use energy efficiency early as 1995. Energy efficiency programs are now a standard part of the utility regulatory process in almost every state. In 2010 the national total for efficiency program spending for electric utilities across all states was over $4.5 billion.

“Geothermal heat pumps should be in the forefront of such measures, both for renewable energy production and for energy efficiency,” said Geothermal Exchange Organization (GEO) President and CEO Doug Dougherty in reference to the report. “GHPs don’t just save energy, they produce renewable thermal energy from the earth that displaces electricity consumption and the use of fossil fuels. That makes them one of the most efficient and cost-effective technologies for improving our environment.”

ACEEE says the average cost to a utility for energy efficiency measures is 2.5 cents per kilowatt-hour (kWh), compared to new generation sources ranging from 6 to 15 cents per kWh. Energy efficiency can be quickly deployed compared to permitting and building new power plants, plus there are vast quantities of untapped energy savings across the nation. “And they’re not even considering the vast quantities of untapped renewable thermal energy potential that would be unleashed by more widespread adoption of GHPs,” adds Dougherty.

According to the report, investment of $70-180 billion will be needed to comply with federal air regulations in the next decade, creating a strong incentive to reduce compliance costs. As a compliance tool, says ACEEE, energy efficiency can help ensure the lowest cost for cleaning the air. Recognizing this, the U.S. Environmental Protection Agency (EPA) has long provided guidance on how energy efficiency can be used in the context of air regulations.

Even so, past efforts to blend energy efficiency into air quality compliance strategies have had limited success. To make the best and most cost-effective decisions to comply with the upcoming onslaught of new rules, stakeholders and policymakers must proactively and strategically address long-standing barriers to energy efficiency measures and technologies.

This is most apparent for GHPs, says Dougherty. “More than 30 states have renewable, clean energy, or energy efficiency portfolio standards, yet few have truly embraced our technology.” GHPs aren’t recognized for the renewable energy they produce from the earth compared to renewable power purchases by utilities. “And they’re often not given credit—or rebates—in efficiency policies and programs because of a widely used formula for cost recovery that is wrongly applied to geothermal heat pumps,” he explains.

Utility regulators and other policy-makers typically require that initiatives to promote energy efficiency and other demand-side investments are shown to be “cost effective” before they are approved. For the past 20 years, the Total Resource Cost Test (TRC) has been the principal regulatory measure for assessing the cost-effectiveness of energy efficiency programs and approval of utility funding. In essence, the TRC compares the value of avoided energy from all sources with the cost of an efficiency measure plus program costs.

According to a 2010 ACEEE report, Is it Time to Ditch the TRC? Examining Concerns with Current Practice in Benefit-Cost Analysis, the TRC as commonly applied has fundamental problems. In particular, use of the TRC ignores non-energy benefits (comfort, reliability, health, safety, productivity, environment, etc.), and is inconsistent regarding treatment of supply alternatives. The TRC only looks at the cost of an energy efficiency system vs. the electricity it saves.

“For GHPs this means that the TRC ignores renewable thermal energy production from the earth that displaces propane, natural gas and fuel oil formerly used to heat a residence or business,” says Dougherty. ACEEE believes that the TRC has significant flaws. GEO couldn’t agree more, especially regarding the TRC’s stifling effect on promotion of GHP installations and recognition of the vital role they can play in truly efficient energy efficiency programs.

GHPs are a tool that states and utilities can’t afford to overlook. “Geothermal heat pumps should play a key role in state energy efficiency policies and programs,” says Dougherty, whose home state of Illinois uses the TRC as part of its Energy Efficiency Portfolio Standard (EEPS). “I’m trying to get it fixed for geothermal heat pumps here first,” he concluded, “then tackle the problem nationwide.”

Energy Efficiency: The Slip Switch to a New Track Toward Compliance with Federal Air Regulations reviews opportunities to use energy efficiency as a tool for compliance with clean air regulations, and barriers to its use. Is it Time to Ditch the TRC? Examining Concerns with Current Practice in Benefit-Cost Analysis makes the case for another look at how energy efficiency measures are quantified in state policies and programs. Click here and here to register for free access to the reports and other AEEE documents.