Energy efficiency programs have been operating in various markets for more than 30 years. As a result of these programs' efforts, and the changes in energy efficiency codes and standards that have followed, their savings potential is shrinking.

Traditional resource acquisition programs (monetary incentives for energy efficient products and services) are designed to garner savings quickly with a straightforward effectiveness metric of $/kWh. Conversely, market transformation programs are designed to change markets permanently by making energy efficient equipment and practices the norm. As utilities look for new pathways to increase energy efficiency, market transformation programs offer a compelling alternative.

Market transformation

Illinois recently passed the Future Energy Jobs Act (FEJA), which transferred the administration of market transformation programs in the state from the Illinois Department of Commerce and Economic Opportunity to the utilities in the state. With this change, ComEd, the largest electric utility in Illinois, wanted to learn more about planning and executing market transformation programs.

During a Market Tranformation Summit, several themes emerged across three issue areas, providing insights for utilities looking to implement such initiatives.

Issue Area 1: How does market transformation work in today’s energy efficiency portfolio?

A comprehensive energy efficiency portfolio has both resource acquisition and market transformation programs designed to work together synergistically. Every energy efficiency program represents an intervention in a market.

Resource acquisition programs can influence markets and potentially have market transformation impacts that often are not measured. Market transformation initiatives can dovetail with resource acquisition programs at certain stages to accelerate change, enhancing program impacts.

There are advantages to a broad market approach. For example, market transformation programs can address gaps in customer equity and reach customers or market segments that traditional energy efficiency programs may not have reached.

Issue Area 2: What are the must-have components of a market transformation initiative?

During the summit, participants identified several commonalities regarding the steps to successful market transformation program design and implementation:

• Understand your market
• Create a logic model
• Draft a business plan
• Determine success metrics
• Get stakeholder participation and buy in
• Involve the regulator
• Develop a means to assess market transformation program ideas
• Hire the right people
• Cultivate a conducive regulatory environment
• Develop partnerships

Designing and implementing successful market transformation initiatives requires an intimate understanding of the target market. Program designers must first gain an understanding of who the market actors are and how they work together to provide goods and services before embarking on program design. Before program initiation, market baselines must be established to enable measurement of progress.

Successful market transformation initiative design clearly defines the market intervention strategy and leverage points that will allow the utility's efforts to be multiplied by other market actors. The Summit recommended logic modeling as the preferred method to define the intervention strategy and desired outcomes. From a well-developed logic model, designers can construct a detailed business plan, including implementation strategies and tactics, success metrics and interim milestones.

Market transformation intervention strategies need to be transparent and accessible to all stakeholders at all stages of development. Program development needs to be coordinated such that buy-in occurs along the way for all stakeholders. Regulatory treatment of market transformation programs will need to differ from resource acquisition programs. For example, market transformation programs typically require resource commitments over a longer period and may have savings impacts that are longer term and different to quantify than those from resource acquisition programs.

Evaluation methods for market transformation programs will also need to differ from those used for resource acquisition programs. These issues should be addressed in advance of major market transformation investments to ensure there are shared views and expectations among stakeholders regarding program goals and success metrics.

Before embarking on a specific market transformation program design, it is important to develop an overall policy and market transformation framework that can be used to assess specific alternatives. This framework serves as a lens through which more detailed program plans can be viewed and evaluated.

Cross-cutting support strategies are also needed to develop successful market transformation initiatives. Examples include supporting workforce development skills needed across a range of markets, working with financial institutions to address issues in financing energy efficiency investments across markets, and providing processes for regular information sharing across energy efficiency stakeholders.

Overall success of market transformation programs requires quality in design and also in implementation. The implementer, whether in-house or a third party, needs the correct skills and experiences for their role. A focus on quality across all activities involved in delivering programs is important, independent of program design.

Market transformation focuses on influencing markets. These markets may not align with utility service territories. For this reason, it is important to work with allies throughout the region to attain the appropriate level of scale needed for success.

Issue Area 3: What market transformation initiatives could be pursued today?

A goal of the Summit was to identify some candidate market transformation programs that would be appropriate to implement in the near term. While the focus at this meeting was on initiatives for the Midwest, most of the programs suggested below could be implemented in any region.

The experts emphasized that local market research is a necessary precursor to successful market transformation initiative design. Therefore, the ideas below would need to be thoroughly vetted for specific markets. Below is a list of potential market transformation initiatives recommended for ComEd’s consideration. They fall into three categories:

1. Initiatives that could be started right away
2. Initiatives that leverage existing resource acquisition programs and accelerate new technology adoption
3. Initiatives that leverage regional or national efforts

Getting a program going quickly could help program sponsors accelerate their understanding of their markets and the market transformation process. Recommended market transformation program options that leverage existing capabilities and programs to facilitate rapid deployment include the following:

• Code-compliance initiative
• Residential HVAC quality install
• ENERGY STAR Retail Products Platform          
• Commercial benchmarking and transparency initiatives
• Strategic energy management programs
• Building Operator Certification program

The Summit identified five technology-based markets for which a market transformation initiative could add momentum to existing resource acquisition programs through training, education, demonstrations and other market transformation approaches.

• Cold climate heat pumps
• Advanced HVAC
• Advanced lighting controls        
• Smart commercial buildings
• Clean water pumps 

The Summit suggested two initiative types that would leverage regional or national efforts and take advantage of experience gained elsewhere:

• Stretch code adoption initiatives
• Existing municipal building upgrade requirement