1 Cost-Effectiveness Screening Issue for RTF August 30, 2007

2 RTF 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

3 Why RTF Uses TRC: 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  Total of all direct cost is $5000 for 5000 kWh/yr of savings  Levelized cost = 6.8 cents/kWh  B/C ratio = 0.66

4 Why RTF Uses TRC 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, saving $440 Invest $600 to buy 150 CFLs, saving 5000 kWh  Especially important when budgets are limited

5 Why RTF Uses TRC Avoids promoting measures that may impose non-energy costs on others  Act directs the Council give second priority to the use of renewable resources  Analysis in 1 st Plan concluded that cost of using wood stoves to offset use of electric heat was below cost of electricity from new generating facilities  1 st Plan excluded use of wood heat due to “non- energy” cost (air pollution) imposed on the region

6 Why RTF Uses TRC: Expands list of conservation options by considering quantifiable “non-energy” benefits  Energy Star Clothes Washer in Homes with Gas Water Heater and Dryer  Present Value Capital Cost = $58/MWh  Present Value to Power System = $17/MWh (B/C = 0.3)  Value to Region/Society (includes natural gas, detergent & water savings) = $110/MWh (B/C = 2.0)  Power system’s “willingness-to-pay” for these savings should be limited to its present value benefits  Electric Utility could provide incentive up to $17/MWh for washer in a home with gas water and dryer heat

7 Application of TRC to Projects and Programs – “What’s the incremental cost?”  It is not always practical and/or possible to quantify the incremental cost of energy efficiency improvements  It is often impractical to obtain “with” and “without” cost estimates, especially for large custom projects  Many measures/projects have “joint” features/purposes, so separating the cost imposed by higher efficiency from other features is often problematic  Incremental “cost” may be quite different than “incremental price”

8 Joint Product Problem: Incremental Cost of Energy Efficiency Improvements, e.g., Dishwashers

9 Joint Product Solution: Base Incremental Cost on “Minimum Cost to Achieve Efficiency”, e.g., Dishwashers

10 Joint Product Problem: Incremental Cost of Clothes Washer Energy Efficiency Improvements

11 Joint Product Solution: “Minimum Cost to Achieve Efficiency” Doesn’t Always Work, e.g., Clothes Washers

12 And...Sometimes Higher Efficiency Cost Less: Average Retail Price Of Energy Star Clothes Washers Energy Star Level Units* Average Retail Price* MEF* Water Factor* Total Units 15,568 $ Tier 1 Units 7,564 $ Tier 2 Units 8,004 $ *2004 Oregon Tax Credit Data

13 Today’s Issue: “Cost vs. Price” – High Efficiency Heat Pumps  BPA has received comments that high efficiency air source heat pumps are costing considerably more than the RTF estimates  It appears there is a significant difference between incremental “cost” and incremental “retail price”  Issue: Which value should the RTF use for determining the cost-effectiveness of high efficiency heat pumps (and central AC)?

14 Heat Pump Cost Estimates  Three Sources:  Existing RTF cost estimate based on federal Department of Energy data from standards setting process  STAC – Survey of regional HVAC contractors (preliminary returns from 23 contractors  Online HVAC equipment sales sites (“box cost” only)

15 Cost to Consumers of HSPF 7.7/SEER 13 Three Ton Heat Pump

16 Cost to Consumers of HSPF 8.5/SEER 14 Three Ton Heat Pump

17 Cost to Consumers of HSPF 9.0/SEER 15 Three Ton Heat Pump

18 Incremental “Cost” to Consumers of HSPF 8.5/SEER 14 Three Ton Heat Pump

19 Incremental “Cost” to Consumers of HSPF 9.0/SEER 15 Three Ton Heat Pump

20 Incremental “Cost” to Consumers of PTCS System Commissioning

21 So What’s Your Call  The incremental cost of high efficiency heat pumps (and central AC) should be based on:  Current retail market prices (STAC?)  Incremental equipment cost from online data sources? Adjusted for contractor markups?  Engineering estimates of incremental cost (DOE)  Other?