The Numbers Are In: Energy Efficiency Is Cheap

Frank Ackerman December 13, 2016
Tags: energy efficiency

Energy efficiency is a bargain, costing utilities less than $0.04 per kWh of saved energy. Larger programs are even cheaper, with average utility costs of $0.023 per saved kWh. That’s the message that emerges from a huge database of reports on efficiency programs, updated annually by the Energy Information Administration (EIA).

Utilities and other energy efficiency providers submit annual reports on efficiency programs on EIA’s Form 861. We examined the total of more than 2,600 complete reports from 2010 to 2015. Key findings include:

  • In the average energy efficiency program, the cost to the utility is $0.039 per saved kWh.
  • Larger programs have lower costs, so the sales-weighted average is even less expensive: the average saved kWh costs only $0.026.
  • Costs are less than $0.06 per saved kWh in 87 percent of all programs, as shown in Figure 1.
  • Average costs have declined in recent years, due to the decreased costs of small programs, as shown in Figure 2. Large programs, with first-year savings greater than the median 0.41 percent of sales, have consistently low costs, around $0.023 per saved kWh.
  • The size of the average program, measured by the ratio of savings to sales, increased by 20 percent from 2010 through 2015.
Figure 1. Distribution of program by cost per saved kWh

Figure 1. Distribution of programs by cost per saved kWh

 

These low costs imply that the cost to utilities of an average energy efficiency program is comparable to costs of generation, while larger efficiency programs are cheaper than generation.

Figure 2. Average cost per saved kWh by size of program and year, 2010 to 2015

Figure 2. Average cost per saved kWh by size of program and year, 2010 to 2016

To calculate the present value of lifetime savings from efficiency measures, we used a 5 percent discount rate and a measure half-life of 10.2 years. The latter is based on a study from Lawrence Berkeley National Laboratory, cited by the U.S. Environmental Protection Agency in recent analyses. The result is that the present value of lifetime savings, used in our cost per kWh calculations, is 8.0 times the utilities’ first-year savings.

For additional information on our analysis, see our report, Estimating the Cost of Saved Energy: The EIA 861 Database.