Energy Efficiency measures and programs need to provide a benefit or they should not be provided. Thus, some sort of benefit/cost analysis needs to be performed to ensure the measure/program is viable. Several analyses have been developed to determine whether a measure or program provides an advantage to the particular entity performing the analysis and to quantify the benefits. The analysis most common for utilities and regulators to determine whether a particular program should be included in a utility’s portfolio is the Total Resource Cost Tests-TRC.
The TRC test treats the energy efficiency measure or program as a resource in the utility’s resource acquisition to meet customer demand for energy. The TRC compares the life cycle benefits that the measure or program will deliver to the costs associated with achieving those benefits. Since there is a time difference associated with the benefits and costs, these elements are computed on a net present value basis.
The benefits in the TRC are the avoided supply and delivery costs to include net energy impacts and investments in transmission, distribution, and generation. Note that these investments may not be totally avoided but are usually postponed into the future. Still, by using the net present value analysis, this delayed investment can be quantified and compared to other benefits.
The costs include the program AND participant costs. The participant costs are the measure implementation cost before any utility incentive. Program costs include program development, management, and marketing. Participant costs include the cost of implementing the measure and any quantifiable operating costs over the life of the measure. Costs include supply costs for any period over the life cycle of the measure. Since the TRC looks at the utility and participants as a whole, incentives and revenue changes are ignored.
The result of the TRC is expressed as a net benefit or a ratio of benefits to costs. A positive TRC expressed as a net benefit or a ratio greater than 1.0 means the measure/program will have a positive impact on the utility’s resource acquisitions. Conversely, a negative net benefit or ratio less than 1.0 means that the measure/program will negatively impact the utility’s resource acquisition and will have the net effect of increasing the cost of resource acquisition to the utility.
Measures and programs that have a TRC ratio less than 1.0 are sometimes adopted because they have value for other reasons or address equity issues for energy efficiency. Some residential and low-income programs are examples of programs that may not pass the TRC but are still implemented for other reasons.
The TRC has the advantage in that it can be used to evaluate energy efficiency, demand response, and fuel substitution programs. The strength of the TRC is its scope. The TRC includes total costs (participant and program) and captures the total resource acquisition benefits. Because the TRC includes participant costs, it goes beyond utility resource acquisition and looks at the measure/program from a more broad perspective.
The TRC also has limitations. It does not address revenue loss to the utility. Since the TRC includes participant costs, it does not address the issues associated with just the power supplier. Finally, the TRC does not address other issues that may make programs desirable from other perspectives. Again, some residential and low-income programs are examples of these. Including environmental impacts is another example.
Different jurisdictions have some modifications to the TRC, but this brief covers the most common and basic elements.
In coming months, we will explore the other tests and combine them into a program planning/management model.