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Total Resource Cost Effectiveness Test

Total Resource Cost Effectiveness Test. Utility Brown Bag Series by Tom Eckman, NWPCC Ken Keating, BPA October 4, 2006. The Plan’s Definition of Resource Cost-Effectiveness Comes From the Regional Act. " Cost-effective ,” means that a measure or resource must be forecast:

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Total Resource Cost Effectiveness Test

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  1. Total Resource Cost Effectiveness Test Utility Brown Bag Series by Tom Eckman, NWPCC Ken Keating, BPA October 4, 2006

  2. The Plan’s Definition of Resource Cost-Effectiveness Comes From the Regional Act • "Cost-effective,” means that a measure or resource must be forecast: • to be reliable and available within the time it is needed • to meet or reduce the electric power demand of the consumers at an estimated incremental system cost no greater than that of the least-cost similarly reliable and available alternative measure or resource, or any combination thereof.

  3. Under the Act the term "system cost" means: • An estimate of all direct costs of a measure or resource over its effective life, including: • the cost of distribution and transmission to the consumer • waste disposal costs • end-of-cycle costs • fuel costs (including projected increases) • and such quantifiable environmental costs and benefits as are directly attributable to such measure or resource

  4. The Act’s Definition of Cost-Effectiveness • Seeks to minimize the total cost of meeting the region’s need for the services provided by electricity, i.e., its goal is economic efficiency. • Does not address the distribution of these costs among parties in the region

  5. Alternative Cost-Effectiveness Tests • Participant Cost Test (PTC) • Costs and benefits to the program participant • Total Resource Cost (TRC) • All Quantifiable costs & benefits regardless of who accrues them. Includes participant and others’ costs • Utility Cost Test (UTC) • Quantifiable costs & benefits that accrue only to the utility system. Specifically excludes participant costs • Rate Impact Measure (RIM) • Net change in electricity utility revenue requirements. • Is a measure of “equity”, not “cost-effectiveness” • Attempts to measure rate impact on all utility customers especially those that do not directly participate in the conservation program • Treats “lost revenues” (lower participant bills) as a cost

  6. Common Metrics for TRC Cost-Effectiveness Benefit/Cost Ratio • Discounted Present Value of Benefits ($) = • Discounted Present Value of Costs ($) Net Present Value = • Discounted PV of Benefits – Discounted PV of Costs ($) Levelized Cost (for comparison to other resources) • Discounted Present Value Costs Annualized over Life ($) = • Annual kWh Saved at Bus Bar (kWh)

  7. Each Conservation Measure Has a Different “Cost-Effectiveness” Limit Based on When It’s Savings Occur Weighted Average Value of Space Heating Savings = $41/MWh Weighted Average Value of Space Cooling Savings = $78/MWh

  8. Plan Uses Total Resource Cost (& Benefits) Perspective • Best meets the requirements of the Regional Act • Considers all quantifiable costs & benefits regardless of who accrues them • Ensures that conservation expenditures are good for the power system, the customer and society • Allows conservation to be compared to other resources considered for development by including all quantifiable costs & benefits • Was strongly recommended by utilities in first Council Plan • Plan conservation targets would be significantly higher if Council had used only “Utility Cost”

  9. Why Council Uses TRC (1)Avoids Potential Double Counting of the Savings • Utility invest $2500 in efficient motor to acquire 5000 kWh/yr savings • Levelized Cost = 3.4 cents/kWh • B/C = 1.32 • Customer matches $2500 utility investment to save the same 5000 kWh/yr • Simple payback = 10 years, motor last 20 years • Total of all direct cost is $5000 for 5000 kWh/yr of savings • Levelized cost = 6.8 cents/kWh • B/C ratio = 0.66

  10. Why Council Uses TRC (2)Directs Funds Toward Measures That Optimize Total Utility and Customer Investments • Utility invest $600 toward cost of $6000 solar PV system that saves 1200 kWh/yr • Alternatively utility and consumer could: • Invest $160 in 40 CFLs to save 1200 kWh, reducing cost $440 • Invest $600 to buy 150 CFLs, saving 5000 kWh, quadrupling savings • Especially important when budgets are limited

  11. Care Must Be Used in Applying The Plan’s Cost-Effectiveness Results “Prescriptively” • Not all measures are in the Plan • Plan contains over 1000 applications of specific EE technologies • NOT an exhaustive list of all possible measures & applications • Plan assumes administrative costs = 20% of capital • Administrative cost vary widely by measure & by program design • Measure cost-effectiveness in Plan is an estimate • Measures in Chapter 3 are based on a single estimate of “avoided costs” for the next 20 years • But Plan targets are based on full portfolio model analysis, about 750 estimates of “avoided costs” • Measure costs and savings are a single point estimate, but vary widely in practice

  12. “Cost-Effectiveness” of Conservation Varies by Perspective Energy Star Clothes Washer (MEF 2.2) with Electric Water Heating and Electric Dryer • Present Value Capital Cost = $44/MWh • Value to Bulk Power System= $53/MWh (B/C = 1.17) • Value to “Power System” (includes value to bulk power and local distribution system value)= $66/MWh (B/C = 1.47) • Value to Region/Society (includes detergent & water savings, plus carbon credit)= $123/MWh (B/C = 2.8)

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