Written by Tom Sherman, president, Sustainable Energy Services, Inc. and posted by ROI-Energy with permission
When customers consider capital expenditure projects aimed at reducing energy consumption, utility rebate programs can play an important role in getting those projects approved. Rebates help to shorten the payback period and improve the return-on-investment.
But why do utilities offer rebates anyway?
After all, aren’t rebates an incentive offered by utilities to its customers encouraging them to buy less of the product they sell? How does that make sense in a democracy based on capitalism? If we set aside for a moment that the four investor owned utilities in Ohio (FirstEnergy, AEP, DP&L, Duke) are legal monopolies, and only focus on the economic argument, we can start to understand the reason why utilities offer rebates.
The long-term trend for growth in U.S. electricity consumption is roughly 3%. In order for utilities to plan for this growth, they have to plan increases in their base load generation well into the future. Because Ohio is deregulated, there is huge risk in long-term planning of power plants (30-year planning horizon) when there is no longer any guarantee of a financial return on investment in base load generation. Furthermore, the two traditional base load generation fuels, coal and nuclear, are no longer favored due to environmental and safety concerns. So smaller investment outlays and shorter-term planning cycles are needed, and natural gas provides this. However, a typical natural gas plant produces 800MW while a coal or nuclear plant can produce 2,000MW or more. Clearly additional energy resources are needed. Renewables help but they are not considered “firm” power because of their intermittent nature. This is where energy efficiency comes in. Permanent reduction in energy consumption is a “capacity resource”. A 3% growth in demand can be offset by either producing 3% more, or by reducing 3% somewhere else. So therein lies the economic reason utilities have for offering rebates; by offering incentives to its customers for reducing energy consumption, utilities can use the reduced energy consumption as a capacity resource resulting in less pressure to build new plants in order to address growth in demand. This in turn reduces the long-term risk to utilities.
The current state of utility rebates are as follows:
FirstEnergy: Cash rebates may return mid-2017. Energy efficiency projects may still be submitted for exemption from the DSE-2 Rider. This includes projects completed within the last three years.
AEP: Offers a broad range of rebates, both prescriptive and custom, for virtually any kind of business.
DP&L: Offers a Rapid Rebate program along with its custom rebate program. Rapid Rebates cover lighting, HVAC, motors & drives, and compressed air equipment.
Duke: Offers their Smart $aver Incentive Program for lighting, HVAC, motors, pumps and other qualifying equipment. There is also a Mercantile Self Direct rebate for projects completed within the past three years.
Municipal power utilities: Many municipal utilities offer rebates through a program called Efficiency Smart.
PJM: (PJM is the independent system operator for the electric grid serving all Ohio and 13 other states) Offers a rebate for permanent kW reduction. Their rebate is available even if a customer receives a utility rebate for the same project.
Sustainable Energy Services, Inc. is a full service energy management company, helping its customers save money on both sides of the utility meter. This includes helping customers purchase energy at the best rate, reducing energy consumption through energy audits, energy project engineering and post project measurement and verification. Demand Response, utility bill audits, energy budgeting and energy efficiency financing are also services it offers.Tom Sherman can be contacted at 440.773.5044 Tom@sustainable-energy-services.com.