New analysis from Navigant predicts spending on energy efficiency will grow at a steady pace over the next ten years, driven in part by improvements to the resource alongside business models and technologies that continue to evolve.
The integration and optimization of distributed resources is a big part of expected spending increases, experts say. Efficiency has moved beyond broad demand reductions, towards finding value in saving energy when and where it counts most.
"I don't have a crystal ball to say [energy efficiency] spending will never fall, but in the forecast period it's steadily increasing."
Jessie Mehroff
Research analyst, Navigant
While some traditional efficiencies are being squeezed out — building codes have become more stringent and there is less money to be made in LED lighting now — the future of the resource is more likely tied to the optimization of distributed resources and new technologies, say analysts.
"I don't have a crystal ball to say [energy efficiency] spending will never fall, but in the forecast period it's steadily increasing," Navigant research analyst Jessie Mehroff, a co-author of the report, told Utility Dive.
That spending is expected to increase in both the United States and Canada, she said, and is being fueled in part by a growth in business activity in the space as well.
"Recently, the North American energy efficiency market has seen more merger and acquisition activity," the report notes. "Implementers and other players are looking to position themselves for success by addressing changing customer needs and integrating more DER with the grid."
In 2018, Franklin Energy acquired Planet Ecosystems, Rubicon Technology Partners made an investment in Tendril, while WECC and Seventhwave joined to create Slipstream, Mehroff noted.
Navigant not the only one to predict growing EE spending
Estimates vary when it comes to how fast efficiency spending is growing, but multiple analysts say the trend is clear.
Navigant says it expects efficiency spending to grow at a compound annual rate of 4.6% over the next decade, looking only at spending on the electric side.
Steve Nadel, executive director of the American Council for an Energy-Efficiency Economy (ACEEE), told Utility Dive that while efficiency spending is growing, the group's own analysis (which includes gas efficiency spending) has in recent years shown a lower rate of growth than Navigant is predicting. From 2014 to 2017, ACEEE's analysis showed spending for combined electric and gas efficiency spending grew at 2.6% annually, Nadel said.
At the same time, the Edison Foundation Institute for Electric Innovation (IEI) released an analysis on March 6 that also shows increases in efficiency spending.
"Efficiency is a resource and I think it's taken some time for utilities to see that."
Adam Cooper
Senior director of research and strategy, Institute for Electric Innovation
The group's own findings appear in line with Navigant's, Adam Cooper, IEI senior director of research and strategy, told Utility Dive.
"We feel a $9 billion annual energy efficiency spend in 2025 is reasonable," Cooper said. "That seems to be around the same number as Navigant shows."
It is also similar to research from the Lawrence Berkley National Laboratory last year, which projected efficiency spending of around $8.6 billion by 2030.
LBNL also highlighted the potential for increasing energy savings, noting that in its high-adoption scenarios annual savings increase to 38 TWh/year in 2030 — compared with the 27.5 TWh utility customers saved in 2016 through efficiency programs.
2016 savings, LBNL said, equaled 0.73% of retail sales.
"Efficiency is a resource and I think it's taken some time for utilities to see that — that it is a resource you can invest in and count on, and in some cases make a return on," Cooper said.
IEI is a partner of the Edison Electric Institute, which represents investor-owned utilities. Its research "shows continued investment by electric companies in efficiency as a resource," said Cooper. The report found that since 2008, customer-funded energy efficiency program expenditures "more than doubled, increasing from $3.4 billion to $7.2 billion in 2017."
By 2025, IEI expects efficiency expenditures to exceed $9 billion.
New use cases, ever-evolving tech
According to Navigant, some of the spending is being driven by new use cases for efficiency, along with its increasing integration with distributed resources. That suggests "continued growth of energy efficiency over the coming decade," the report predicts, "as more DER technologies and connected devices come online, and utilities simultaneously work to ensure grid reliability."
Energy efficiency programs are "evolving past tools used to shave kilowatt-hours and therms," Navigant said.
As an example, said Mehroff, the United States has moved from incandescent lightbulbs to CLF to LED, each one making improvements in efficiency. Similarly, there are continual improvements to home and commercial appliances and HVAC systems.
But as these systems become more efficient, the future value comes not so much from broad decreases in consumption but in when and where those decreases are located.
"Given more precise data, we're seeing an evolution to locational and temporal efficiency," Mehroff said. "Smart meters and other advanced analytics on the program management side are allowing efficiency programs to target specific customer classes, in specific regions, even at specific times of day."
IEI's analysis also shows that efficiency programs are becoming more granular. "Technology is opening the door to energy efficiency programs that are locational, time-based, data-driven, and automated," the group's report said.
"The implementers in this market are creative. They'll aim to stay competitive and keep earning. So, in the short term, we don't foresee any decrease in spending."
Jessie Mehroff
Research analyst, Navigant
And while some utilities are turning to third-party administrators to run programs, energy companies increasingly see efficiency offerings as a channel for consumer engagement. Mehroff also said utilities are using efficiency to strengthen customer relationships through a variety of engagement tools, like home energy reports, high bill and inefficiency alerts, and other programs.
California, she noted, requires a larger portion of efficiency funding to be managed by third parties. But "this varies on a regional basis. In some states, the utilities still want or have full control over energy efficiency programs."
Either way, the outlook for efficiency spending is solid, said Mehroff.
"The implementers in this market are creative," she said. "They'll aim to stay competitive and keep earning. So, in the short term, we don't foresee any decrease in spending."
Correction: An earlier version of this article misidentified Jessie Mehroff.
