How Vermont electric savings help fund heating efficiency

by Abby White, Director of Marketing, Communications, and Public Affairs

Spring seems finally to be taking hold in Vermont after a late winter that didn’t go out without a fight.  It reminded us of how dependent we are on heating fuels to make modern life possible in our cold climate.

The weather also reminds us of just how expensive that warmth can be as we scramble to stay warm.

This is yet another example of the value of energy efficiency. Having a well-sealed and insulated home with proper ventilation saves families a lot of money during these cold months while promoting comfort and health.

In Vermont, we’re fortunate to have heating efficiency programs and incentives available to help us button up our homes and purchase more efficient heating appliances. But the story behind how those programs are funded is something of a mystery to many and speaks to the innovative and forward-thinking leadership in our state.

Since 2000, the Energy Efficiency Charge (EEC) on customers’ electric bills have funded Efficiency Vermont programs and services to help customers save electricity. This work has helped reduce electricity bills and lower electric demand around the state – and the cost of supplying that demand. Saved energy is a solid investment. In 2017, every $1 spent on energy efficiency delivered $2.10 in total lifetime savings for participating customers.

But the EEC funds can’t be applied to fund non-electricity saving programs. And since the majority of Vermont homes and businesses don’t use electricity as their primary heating fuel, this presented a challenge. Vermont needed to secure a reliable funding source to make heat-saving or thermal efficiency programs readily available to all Vermonters. Enter the Forward Capacity Market (FCM).

Electrifying thermal savings

About 10 years ago Vermont started turning the electricity savings it achieved through energy efficiency programs into a funding source for heating efficiency programs that are available to all Vermonters.  

Saved energy is a valuable resource. These savings, when rigorously and methodically verified, stand with traditional “supply-side” resources like power plants as a resource for meeting electricity demand on the regional power grid, which is operated by ISO New England.

According to ISO-NE, “ISO New England utilizes a Forward Capacity Market (FCM) to ensure that the New England power system will have sufficient resources to meet the future demand for electricity. Forward Capacity Auctions (FCAs) are held annually, three years in advance of the operating period. Resources, including saved energy, are bid into the auction to obtain a commitment to supply capacity in exchange for a market-priced capacity payment.”

The value of capacity payments fluctuates from one year to the next. It will hit an all-time high this summer, at $9,551 per megawatt of capacity available each month. Vermont has bid 104 MW of capacity to make available to the grid in 2018-2019 from savings expected to be achieved through Efficiency Vermont programs. That will net approximately $10 million in capacity payments in the period that begins June 1. The price of capacity payments for all capacity resources, including this Vermont efficiency resource, will drop in the subsequent years, so some of this year’s revenues will be held in reserve to maintain more consistent program funding over time.

The savings bid into the FCM come from the investments Efficiency Vermont customers are making in energy efficiency. Our work with commercial customers is vital – providing about 60 percent of the demand savings we bid into the FCM in a typical year. From the ENERGY STAR appliance a resident purchases with an Efficiency Vermont discount, all the way to a large-scale air compressor, refrigeration, and other equipment upgrades made by commercial & industrial customers with the support of Efficiency Vermont account managers and engineers; every saved megawatt counts.

What gets measured

Because ISO New England is in the grid reliability business, it must have the assurance that any power resource – whether that’s from a power generator or from energy savings – will be available when it is needed. For saved energy, that requires a rigorous evaluation, measurement, and verification process to provide assurance to the grid operator that the energy savings we say we can deliver through our efficiency programs are real and have been deployed. Efficiency Vermont’s Evaluation, Measurement, and Verification (EM&V) team provides certainty to ISO New England system planners.

Through rigorous evaluation, measurement, and verification of energy savings, Efficiency Vermont demonstrates that the efficiency resource has been built – as if it were a virtual power plant – and we are able to satisfy our FCM commitment.

Substantial benefits to Vermonters

Since we began bidding energy savings into the FCM in 2008, $32 million in capacity payments have come back to Vermont to fund thermal efficiency programs. Those dollars have been combined with revenues from the Regional Greenhouse Gas Initiative (RGGI) to create a sustainable funding source for thermal efficiency programs.

Vermont winters can be long and cold. Programs that help all Vermonters access efficiency programs to save heat and reduce heating bills are vital. Reserving revenues from the FCM ensures that such programs are funded and available into the future.

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