For State Policymakers

Setting a Policy Environment that Guides Beneficial Electrification

In some states, policymakers are looking to beneficial electrification as a mechanism to address greenhouse gas emissions and/or other air pollutants regulated by the federal Clean Air Act, increase energy system and building resilience, moderate peak demand, lower electric system costs, and support grid modernization. In order to accelerate this progress, state policymakers can open up marketplaces for Active Efficiency technologies by developing targets for Active Efficiency and demand flexibility. In developing such policies, state policymakers, including State Energy Offices that advise or develop energy policies and plans, as well as utility regulators, should consider the energy resource mix of their state, the building stock, and the state of grid modernization efforts (such as deployment of advanced metering infrastructure) to support two-way communication flows. Policymakers, with input from State Energy Offices and utility regulators, should develop these targets in consultation with utilities, businesses, technology providers, and other stakeholders who can help policymakers understand the potential for Active Efficiency in the state.

As already noted, maximizing Active Efficiency through flexible, beneficial electrification can help achieve state decarbonization goals, integrate renewable generation and distributed energy resources (DERs), and increase resilience. However, there are many challenges to overcome before widespread deployment is achieved, and many states lack a clear vision and roadmap to do so. This is an area where state policymakers can have a catalytic impact.

• Establish a clear vision and roadmap. Clear guidance empowers regulators to develop strategies promoting beneficial electrification that delivers on established goals.
• Build on a strong energy efficiency strategy. Energy efficiency is often a least-cost investment, and by reducing energy use it both contributes to overall emissions reductions and facilitates beneficial electrification. Further, the value of demand flexibility is enhanced when combined with energy efficiency to provide additional cost and energy savings. Energy efficiency results in smaller energy loads, which are operationally easier to shift to a different time of day and can increase utilization during periods with greater renewable resources available. Combined with grid-interactive strategies, energy efficiency can provide additional relief from system stress and resiliency benefits.
• Ensure affordability and access to power for all. Beneficial electrification efforts should adopt a multi-faceted, measurable approach to ensure equitable outcomes in all policies. Such a strategy could include elements such as the equitable allocation of system costs and benefits (both direct and indirect); commitments to prevent environmental and public health damage, especially to vulnerable and frontline communities; development of localized workforces; prioritization of infrastructure, such as multifamily retrofit programs and minimizing the potential for stranded gas assets (a critical component for low-income populations without accessible heating alternatives).
• Develop state-wide analyses of the potential of demand flexibility. Additional analysis is critical to understand the potential for demand flexibility to support improved reliability, resilience, and affordable energy, and its impacts on all consumers.
• Use state-owned facilities as test beds for beneficial electrification and demand flexibility. State-owned facilities, including government buildings and fleets, are valuable test beds to demonstrate and validate use cases while supporting workforce training and development.
• Support the development of critical infrastructure, including smart meters and controls, which allow end-uses to communicate and respond to grid conditions. These technologies are necessary to ensure electrification is beneficial. Greater control over load shapes and aggregated end uses can provide a range of grid support, including load shifting, peak shaving, ancillary services, grid balancing services, load-following demand response, and regulation demand response. The result can keep overall costs low for consumers or directly save consumers money on their electric bills or appliance purchases, depending on how programs and rates are set up.
• Facilitate the aggregation of end-use loads. To ensure beneficial electrification amplifies the potential of demand flexibility, policies should enable utilities and third-party energy service providers to aggregate residential and small commercial and industrial customers’ loads and DERs to provide grid services and receive appropriate compensation for such services.
• Work collaboratively with the industry to design rates, markets, utility compensation, and policy incentives. Time-differentiated rates, Clean Peak Standards, markets and compensation for DER-provided grid services, and performance-based utility compensation can help advance Active Efficiency, beneficial electrification, and grid-interactive efficient buildings (GEBs).
• Recognize the value of flexible load for grid operations and compensate asset owners for value delivered. Beneficial electrification can provide flexible load that enables the integration of variable energy resources into the system, thus reducing the need for non-renewable resources to meet demand peaks. This load requires recognition and compensation, and incentives are typically more powerful than avoided costs. Currently, not all DERs are able to participate in wholesale electric markets, and some markets do not recognize long-term resource value.
• Understand the marginal emissions impact of changes in load. Properly assessing the benefits of electrification requires the ability to recognize and measure the emissions impacts from each additional kWh used or avoided.
• Explore new metrics, like emissions efficiency, to measure the impact of beneficial electrification on air pollution. Determining the pollution reductions associated with different types of electrification investments can assist regulators and utilities in assessing the relative benefits of electrifying certain end uses.

Every government office can play a critical role, and collaborations across offices – and with utility commissions – are likely to achieve the most consistent policy frameworks. Legislatures can set emissions targets, allocate resources to programs, and guide tax policy. Governors’ offices establish key priorities (like decarbonization) and voluntary targets, emit executive orders, develop programs, and rally collaboration among stakeholders and state agencies. State Energy Offices can develop roadmaps to advance Active Efficiency and GEBs policies and programs in their states and present analysis to aid decision-making.

Some common challenges for setting a strong policy/regulatory framework include the need to test and validate performance of new technologies; quantifying economic benefits to the state and ratepayers; valuation of resilience, environmental and social impacts; insufficient qualified workforce to install technology; building owners that are unfamiliar with new technology; clarifying benefits of participation to facility owners and tenants; developing standards for communication; and rolling out advanced metering infrastructure and distribution management systems. Cybersecurity concerns must also be addressed. Fundamentally, building and facility owners as well as utility and grid operators must perceive benefits to installing and operating grid-interactive, demand flexibility functionality.

Examples of Implementation

Optimal policy design for beneficial electrification and demand flexibility varies significantly by local context, but many states are exploring different strategies and generating lessons-learned. The following examples of implementation provide some insights on different objectives, approaches, and outcomes, including the roles of key stakeholders.

• New York leads with Decarbonization: Citing the need for rapid decarbonization, Governor Andrew Cuomo announced an additional $2 billion in energy efficiency and building electrification initiatives in January 2020. The New York State Public Service Commission approved ambitious energy efficiency and electric heat pump targets; taken together with programs through the New York State Energy Research and Development Authority, New York Power Authority, the Long Island Power Authority, and a previous PSC order on efficiency, New York State’s investments in energy efficiency and clean heat investments will reach more than $6.8 billion from 2020 through 2025.
• Electrification of Transportation in Colorado: Colorado has implemented an integrated strategy to promote electrification of vehicles through legislation supporting electric vehicle tax credits, executive orders to establish a transportation electrification work group and zero emission vehicle program, PUC procedures to authorize electric utilities to recover costs on charging ports, and a Memorandum of Understanding with other states in the region to create an Intermountain West Electric Vehicle Corridor.
• A Vision for Equitable Decarbonization in Minnesota: The Minnesota Center for Energy and Environment has created a 2040 Vision for Equitable Decarbonization of the Building Sector. This vision is intended to center “equitable decarbonization” – “the just and equitable transition from the carbon-intensive energy services… to decarbonized technologies and fuels in planned, managed steps.” The vision considers disruptions to utility business models and regulatory frameworks, which may alter the use of incumbent energy infrastructure and impact costs to energy consumers. The vision also includes consideration of the future energy workforce, using flexible, efficient load as a resource, transitioning to decarbonized heat and other end uses, equitable utility regulation, and a “commitment to the public good.”
• Rebates for heat pumps in Maine: The Efficiency Maine Trust (EMT) utilized aggressive online ad campaigns, public service announcements, and a strong partnership with more than 400 trade allies to promote the electrification of space and water heating with high-efficiency heat pumps. EMT provides tiered rebates, ranging from $500-$2,000, and financing on more than 55,000 high-efficiency mini-split ductless heat pumps that meet the minimum rating of 12 heating seasonal performance factor (HSPF). In 2019, EMT also crafted legislation that established a goal of installing 100,000 new high-performance heat pumps in Maine homes and businesses over five years and secured funding commitments of nearly $20 million/year for financial incentives to help achieve that goal.

• NASEO-NARUC GEBs Working Group: The National Association of State Energy Officials (NASEO) and the National Association of Regulatory Utility Commissioners (NARUC)  direct the NASEO-NARUC Grid-interactive Efficient Building Working Group, with the support of the U.S. Department of Energy (DOE) Building Technologies Office and the Pacific Northwest National Laboratory (PNNL). This collaboration allows discussions and sharing of best practices on GEB technologies and applications; identifies opportunities and barriers for technical and policy issues; identifies state priorities and interests; informs policy, planning, programs and regulation; considers unregulated electric sector investments and implications; and advances GEB roadmap and pilot options.
• NASEO-NARUC Joint Task Force on Comprehensive Electricity Planning: Investments that relate to demand flexibility and DERs increasingly require regulatory and policy innovation with a greater emphasis on planning to overcome the challenges in integrating multiple systems. The National Association of Regulatory Utility Commissioners (NARUC) and the National Association of State Energy Officials (NASEO) convened a joint task force on comprehensive electricity planning that brought together representatives of State Energy Offices and Public Utility/Service Commissions from 15 states to consider how emerging technologies, decreasing costs, consumer preferences, new energy service providers, and state and local efforts are driving significant growth in DERs such as solar, storage, energy efficiency, demand management, and microgrids. The Task Force has compiled a large library of resources covering 15 areas of interest, and is developing state-led pathways toward a more resilient, efficient, and affordable grid through better aligning resource and distribution system planning.
• Microgrids and Demand Flexibility in the California Wildfires: Southern California Edison’s Demand Response customers played a critical role in managing grid conditions on Labor Day weekend, 2020. When the California ISO (CAISO) dispatched SCE emergency demand response resources on September 5th, a load drop of nearly 1000 MW occurred in 30 minutes as recorded by SCE’s SCADA systems. Demand response by SCE’s customers played a critical role in balancing power and grid stability in the SCE territory, and also across the Golden State to avoid California ISO rotating outages. Similar experiences were illustrated by EnelX, which saw seven hours of demand response dispatches in one California demand response program (the Base Interruptible Program).

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