P4P Efficiency – a Climate Action Game Changer

JouleSmart is the chosen implementer for a ground-breaking program serving NY small to midsized businesses, Business Energy Pro. The program replaces legacy Energy Efficiency (EE) program models targeting installation of specific equipment with a Pay-for-Performance (P4) design that pays for delivered energy savings at the meter. A simple-sounding shift, but one with profound implications for NY (and other) States’ Climate Action and economic development goals.

Purpose of P4P design

NY’s ambitious goals of 85% reduction in GHG emissions by 2050 and 100% Carbon Free electricity generation by 2040 will require a rapid and wholesale change in NY’s energy system. This “energy transition” will require replacing centralized (typically fossil fueled) generation with a network of Distributed Energy Resources (DERs) centered around renewable generation. Commercially available technologies are fully capable of driving this transition. Indeed, renewable generation is now the most cost-effective generation source for an increasing portion of every year.

Unfortunately, the electric grid as designed struggles to work around the intermittency renewable generation brings.  In states like CA, regular periods of oversupply have resulted in the California Independent System Operator curtailing 461 GWh of renewables in 2018. This number gets bigger every year and means essentially throwing this clean energy away because the rest of the system cannot balance its variability. This is all about supply and demand and until the demand side of the system can keep up, even modest amounts of renewable generation will create big issues along with attractive GHG reduction.

To its credit, NY’s solution to the above issue is to drive systemic, market-based reforms that will reward innovation and compensate for delivered value in an increasingly dynamic energy system.  P4P is a key policy modernization called out in NY’s Reforming the Energy Vision  and opens demand reduction/control to compensation for the grid and climate outcomes it creates. NY’s P4P program design also drives innovation in EE project finance. With measurement and standardization, EE can attract project capital using traditional models for financing energy infrastructure.

The new energy infrastructure 

With measurement and cloud-based oversight, the new breed of EE becomes a resource in grid management and planning as it brings along increasingly valuable “demand flexibility” that can be targeted by time and place, which only enhances EE’s role as the most cost-effective resource, the “first fuel”. This sets up EE for a primary role among DERs – top of the value stack in the rapidly changing energy system. GreenTech Media’s Q3 Grid Edge Briefing noted that “by 2025, DER capacity added since 2016 will be comparable to renewables on the bulk generation side — a measure of just how impactful initiatives such as FERC Order 2222 could be for the grid”

JouleSmart was founded with an eye towards just this kind of market innovation. What NY is looking to accomplish through BEP is being mirrored nationally and globally as orders like FERC 2222 further open markets to behind the meter resources. We are excited to get to work demonstrating the power of the P4P model.

More in part two on what P4P means to customers