CIP-related rebates offer a financial tool for utilities to acquire energy savings
Over the past year, I have traveled throughout Minnesota to talk about the Conservation Improvement Program ("CIP"), Minnesota’s nation-leading demand side energy efficiency resource standard.
Both in small rural towns and our biggest cities, we’re informing policymakers and the general public about CIP and the benefits of energy efficiency to local businesses and the local economy. Through rebates, incentives, and program delivery, CIP allows utility companies to help customers cut energy costs and reduce harmful emissions from power generation. While energy efficiency has many advantages, one key benefit is that it is much cheaper for customers to save energy (averaging about 1.5 cents per kilowatt-hour) than to buy it from their utility (9-14 cents per kilowatt-hour).
It may seem intuitive that demand-side efficiencies would cost less than generation. However, people often struggle to understand why a utility is best positioned to drive efficiency as a system resource, or how utilities might “purchase efficiency” from their customers.
Since utilities don’t own the equipment in customers’ homes and businesses the same way they own the infrastructure on their supply end, the challenges on the demand end are quite different. Under normal conditions, utilities have little control over how or what their customers choose to turn on, turn off, or operate differently on their side of the meter.
So Minnesota’s policymakers, electric and gas utilities, and efficiency advocates developed the Conservation Improvement Program to help utilities acquire demand-side efficiency.
It works like this: Electric utilities raise revenue from consumers to pay for CIP and cost-effectively meet system-wide savings goals. CIP-related resources are then channeled directly to consumers through utility-funded rebates to help with the purchase of efficient lighting, HVAC equipment, insulation, boilers, building recommissioning, or any other approved high-efficiency process, design, or appliance.
As crucial as they are, these utility-funded customer rebates remain a source of confusion. It is easy to think simply of rebates as a “subsidy.” But in the context of CIP, it is more accurate to consider rebates as a financial tool used by utilities to acquire more efficient options on the demand side of the meter, at each consumer’s home or business — akin to utilities acquiring a wind farm, solar array, or natural gas plant on the supply side of the meter. According to financial analysis firm Lazard, the lowest-cost wholesale generation supply option for electric utilities is wind energy, which averages 3.2-7.7 cents per kilowatt hour. Solar and natural gas combined are also low-cost generation options.
CIP may look like a big complicated program but it is essentially a system to help utilities acquire efficiency from their customers. And it matters that utilities are focused on purchasing energy efficiency.
The American Council for an Energy-Efficient Economy (ACEEE) found that on average states with an energy efficiency resource standard spend and save three times as much as states without strong efficiency policies. In Minnesota, utility CIP programs are a very large part of our system — and the policy has delivered. CIP savings account for approximately 14% of our entire electric system and create $4 in benefits for every dollar spent! CIP has also contributed to keeping Minnesota’s electricity prices low and created more than 10,000 jobs for efficiency businesses.
So we’ll keep spreading the word about the impact of CIP, because efficiency is one energy-related resource that Minnesota can’t afford to lose.