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December 2, 2024 •Jonathan Budner
Just over a century ago, US utilities pondered the country’s electrical future and realized the road ahead was too important to forge alone. America was electrifying. Utilities were consolidating, and state public utilities were forming to protect consumers.
The ensuing balance between electric utilities and state agencies presided over a formative period of growth in electrical demand and consumption. From 1907 to 1927, electricity consumption in America grew from 5.9 million kWh to 75.4 million kWh. During that time, per-unit costs of electricity declined by 55%.
Fast forward to 2024, and utilities face a similar challenge in serving the American public with safe, reliable power in a time of significant electric growth and transition. The rise of artificial intelligence (AI), increased domestic manufacturing, and electrification trends have led the Department of Energy (DOE) to predict US electrical demand will increase 15-20% over the next decade. The estimated spike in electrical demand comes after two decades of relatively flat demand and at a time when the federal government is ramping up the nation’s climate initiatives.
The Biden administration has established nationwide climate goals that include reducing greenhouse gas emissions 50-52% below 2005 levels by 2030, reaching 100% carbon pollution-free electricity by 2035, and achieving a net-zero emissions economy by 2050. On the road to that future state, residential customers are feeling the financial strain of rising electric bills that show no sign of subsiding. The Energy Information Administration expects typical household electricity bills to increase steadily. Electric rates nationwide are up 2% on average in 2024 compared with 2023 when the average price of electricity for residential customers rose over 6%.
Just as they did a century ago, utilities have an opportunity to align with state agencies to manage customer demand and consumption while reducing electric bills and carbon emissions in the process. This time, there is a windfall of federal funding to ease the challenges of the road ahead and contribute to widespread market transformation.
The Inflation Reduction Act Allocates $8 Billion for Home Energy Rebates
The Inflation Reduction Act (IRA) provides nearly $400 billion to support clean energy and address climate change, including $8.8 billion for home energy rebates.
These rebates will be administered through Home Efficiency Rebates (HER) and Home Electrification and Appliance Rebates (HEAR), two new programs created to help American households save on select home improvement projects that can lower energy bills and contribute to reduced carbon emissions. The DOE estimates these rebates will save households up to $1 billion annually on energy bills and support over 50,000 U.S. jobs.
Utilities Should Align with IRA-funded Programs to Increase Funding for Residential Whole-Home Programs and Increase Participation
Before they can administer HER and HEAR funds, State Energy Offices (SEOs) must apply for the funding through a detailed process outlining how the money will be used. The programs were specifically created to help low- and moderate-income customers receive rebates on electrification retrofits. SEOs must prove the money will fulfill its intended purpose before they can receive access to the funding.
This is an opportunity for electric utilities.
By aligning residential demand-side program (DSM) energy auditing requirements, measures, and eligibility calculations with HER and HEAR requirements, utilities can leverage IRA funding to reduce customer costs and increase conversion rates. Utilities can then evolve their legacy direct install-based residential program designs toward whole-home decarbonization programs that reward customers for reducing energy waste, electrifying appliances, and shifting their electric loads to help reduce peak demand and carbon emissions.
This stacking and braiding approach to program funding combines federal dollars with utility-based ratepayer funding, allowing utilities to offer broader whole home programs at a lower cost.
Stacking and Braiding: Whole-Home Demand-Side Programs Reward Customers for Lowering Peaks, GHG Emissions, and Bills
Across the country, utilities are evolving residential demand-side programs away from isolated energy efficiency rebates and direct install programs and toward a whole-home approach that rewards participants for permanent demand reduction and load-shifting during peak demand hours.
By combining traditional energy efficiency and behind-the-meter peak demand management, whole-home demand-side energy management programs offer benefits to customers and utilities. Program participants reduce their electric bills and lower peak demand, which helps utilities reduce costs and GHG emissions associated with peak-hour generation.
For example, instead of only calculating the total demand reduction (kW) of a home’s lighting upgrade from incandescent to LED fixtures and rewarding for the permanent demand reduction (as traditional energy efficiency programs do), the whole-home approach considers the entire house as a system and analyzes individual demand (kW) and consumption (kWh) associated with components such as insulation, windows, doors, HVAC, appliances, and lighting for all 8,760 hours of a given year.
Analyzing hourly consumption allows utilities to reward customers for shifting loads during peak hours when generation is the costliest and the most carbon-intensive.
Partner with the Right Implementer for Your Residential DSM Program
For electric utilities tasked with keeping the lights on, the air clean, and their customers safe and happy, choosing the right implementer that can potentially help secure federal funding through SEOs and implement whole-home residential demand-side programs is critical.
The right implementer has extensive experience designing, integrating, marketing, and tracking energy efficiency and demand-side management programs in every region of the US. Utilities nationwide have the same mission: deliver safe and reliable power to customers. The specific challenges their grids face, however, vary depending on geography. That’s why partnering with an implementer with a national presence and regional expertise is crucial to ensure the best chance for program success.
A century ago, utilities faced a challenging future and decided that aligning several entities to produce a single, more effective whole was the answer to the country’s electric future. And today, the opportunity is clear. Contact Franklin Energy to learn what partnering with the right implementer can do for your utility.
