Meter and pay or deem and pray

California has long been regarded as a leader in energy efficiency – although as in many things in California and in life – the grass often looks greener on the other side and not everything in the Golden State on efficiency that glitters is real gold.  However now it seems as if California is making changes that once implemented will truly lead the world in energy efficiency and probably transform the state and ultimately global market.  Everyone with an interest in energy should be watching these changes.

Like most things in US politics the changes are wrapped up in acronyms, in this case the laws AB 802 and SB 350.  SB 350 will increase building energy efficiency targets in the state by 50 percent by 2030. It will also boost the amount of renewable energy utilities are mandated to buy to 50 percent by 2030.  According to the California Public Utilities Commission’s fourth quarter 2014 report the three investor owned utilities in the state are well on their way to meeting the current 2020 goal of 33% renewables so SB 350 will keep up the pressure.  AB 802 mandates state-wide energy benchmarking and access to building performance data for commercial buildings.  Benchmarking and open data are critical tools in driving action in commercial real estate.

The real game changer in SB 350 lies is the way that energy efficiency will be counted in future.  Up until now the state incentive schemes run by the utilities have only been able to reward energy savings over and above Title 24 – the rigorous building code.  What this means is that you can only get an incentive to improve your existing building to a level over and above the high level of efficiency required for new buildings.  Given that it is often impossible to do this, lesser but still valuable improvements were not being rewarded by incentives and what is more, the code is heading to net zero buildings leading to an existential problem.  Furthermore incentives were paid out in advance either based on deemed savings, or the results of engineering models  (which we know don’t work very well).  SB 350 turns this system around completely – it requires measurement of savings and actually defines savings as “reducing the quantity of baseline energy services demanded” and includes both the adoption of efficiency measures and practices such as behavioural change – another important innovation.  The law says that savings “shall be measured taking into consideration the overall reduction in normalized metered electricity and natural gas consumption”.

The model will switch to something we have never had in energy efficiency – pay for performance.  The system won’t care what measures are implemented – leave that up to the market, it will just pay for actual savings delivered.  We will move from deeming savings and hoping or praying the result will be OK to measuring actual results and paying for performance.

Watch this space – but the switch from deemed savings to metered savings enables all kinds of new business models.  We are actively developing these in Europe and will be happy to discuss them with interested parties.

NB Thanks to Terry Egnor for the title.