Commercial Direct Install – New York’s Secret Weapon for Reforming the Energy (Efficiency) Vision

In this post, co-written by Adam Procell, Lime Energy President and CEO, and Matthew Kahn, Lime Energy blogger and content writer, the authors explain how New York’s existing Commercial Direct Install programs have led the state’s existing energy efficiency achievements and are positioned to continue that progress under future energy efficiency initiatives.

Commercial Direct Install (CDI) programs have formed the center of New York’s energy efficiency achievements as they have evolved over the last several years. They have already made significant progress toward the state’s energy efficiency goals. CDI programs, even with Governor Andrew Cuomo set to announce a new comprehensive energy strategy, remain one of the best means for New York to hit its clean energy targets.

As New York looks to deliver on the promise of its Reforming the Energy Vision (REV) initiative, it has turned its focus to the key foundational element of the initiative’s goals – energy efficiency.  Specifically, New York is improving the efficiency of building energy usage.  On April 22, Governor Cuomo will propose a new energy efficiency initiative for New York to help meet the existing goals he already created via REV. When he does so, we urge him to consider the ongoing success of CDI programs and to expand and improve those programs.

New York already has an existing energy efficiency ecosystem. That ecosystem is already designed to enable all of the beneficial change that REV aims to bring to the market. The Commercial Direct Install programs have formed its center over the last several years and now represent the best of utility and market actor innovation. CDI programs have already made significant progress toward REV goals. The thousands of New Yorkers working in these programs have demonstrated the ability to scale and innovate for the delivery of cost-effective energy efficiency resources. By maintaining robust CDI programs, Governor Cuomo can expand the broad energy savings already achieved.

 

CDI Success to Date

Commercial Direct Install programs accounted for a significant portion of New York’s success under the Energy Efficiency Portfolio Standard (EEPS) era. They achieved more than 53% of all commercial sector EE resources delivered during EEPS and the subsequent Efficiency Transition Implementation Plan (ETIP), with an average EE resource acquisition price of under 2.5 cents per kWh. According to a Pace Energy & Climate Center report, the CDI Program outperformed all other programs for each of New York’s six independently-owned utilities (IOUs) during EEPS.

Commercial Direct Install_Commercial Building Demographics by Size

Figure 1: Commercial Building Demographics by Size, U.S. Commercial Building Market

CDI programs address commercial customers with peak demand of less than 300 kW, a segment that represents more than 90% of all commercial customers nationwide and as much as two-thirds of all commercial energy usage. The innovative CDI programs developed in New York State over the last several years revolutionized the industry’s approach. They replaced the old program administrator / trade ally model with an open market incentive structure that allows project aggregators to deliver innovative products that compete on a level playing field.

 

CDI Program Evolution Consistent with REV goals

Governor Cuomo’s initiative to Reform the Energy Vision is timely and its goals with respect to energy efficiency are consistent with industry trends and with the changes being made in anticipation of the utility of the future. Even as REV moves from a “program” environment to a “market-based” environment for EE resource delivery, regulators will find great progress toward the REV goals below in today’s CDI programs.

Elimination of soft costs like program administration – CDI’s pricing structure has evolved to eliminate all such costs, allowing utilities to lock in a price for EE resources while driving down costs.

Driving market animation by being less prescriptive – CDI is the flexible counterpart to traditional, prescriptive incentive programs. Contractual obligations are measured in delivered EE resources, not installed units of a specific technology.

Flexibility to drive innovation – By procuring EE resources through a fixed price contract, utilities empower third-party aggregators to introduce innovative building technologies.

Pay-for-Performance (P4P) – CDI contracts pay only for delivered and verified EE resources, a true PPA. CDI providers front the capital for all development, administration, procurement and construction, inclusive of required M&V equipment.

Locational pricing – Each CDI bid is for a distinct territory. These territories can be all or part of a utility’s territory. Several utilities have used the programs to target load pockets and constrained circuits with premium incentives.

Simplified EE for customers – By contracting with third parties using exclusive territories, utilities have used CDI to achieve unprecedented levels of participation. CDI bidding drives down incentives, indicating that enhanced participation results from ease of participation and the existence of a single standard offer.

Building on CDI for REV Success

The good news is that CDI Programs already deliver much of the energy efficiency innovation that REV hopes to spur. There is already a “market” in which actors innovate and unleash the power of distributed energy resources (DER). Utilities act in the capacity of Distributed System Platform and solicit competitive third-party proposals for DER. As New York’s Public Service Commission (PSC) breaks down current regulatory siloes, other distributed resources like demand response, renewable energy, and storage can be added to these programs as simply as adding a new measure. The objectives laid out for REV are worth pursuing and if the PSC gets this right, it will result in increased adoption of DER – as advertised. These CDI programs have been adopted nationwide, and it would be a shame to see the rest of the country benefit from the “Born in NY” DER delivery methods that have resulted from the CDI program evolution while New York fails to capitalize on these advances.

With a statewide ecosystem in place and ready to go, the PSC can make immediate gains while supporting initiatives that will pay long term dividends. Here is what the State of New York can do to benefit all ratepayers:

  • Support broader use of CDI by utilities in concert with Earnings Adjustment Mechanisms
  • Demonstrate annual bidding, targeting of sectors, driving deeper retrofits, locational or segment pricing, measured savings, and payments over time through NYSERDA P4P.
  • Encourage utilities to incorporate lessons learned from NYSERDA P4P in subsequent CDI RFPs
  • Encourage utilities to broaden reach of the Direct Install model beyond the commercial sector to energize other sectors.
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