The state is revamping how it calculates energy efficiency incentives. The goal? Base payments on real-world benefits for customers and the grid — not estimates.

For the past few years, California has been trying out a new way to do energy efficiency. Rather than measuring the value of efficiency investments based on estimates — the dominant method throughout the U.S. — the new approach uses real-world data to pay providers based on how useful their projects are to the power grid.

Now data from some of these efforts is coming in — and the results look promising.

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Study after study has shown that energy-efficiency improvements are vital to reducing carbon emissions. The International Energy Agency dubs efficiency the ​“first fuel” for the clean-energy transition due to its cost-effectiveness compared to increasing the supply of clean power, with the added benefits of reducing utility bills and improving resiliency in the face of energy disruptions.

But the potential for efficiency to cut carbon emissions and ease grid strains is far larger than the funding now available https://www.canarymedia.com/articles/energy-efficiency/from-home-improvement-to-securitization-the-virtuous-cycle-to-supercharge-residential-energy-efficiency, industry experts say. Energy-efficiency programs, which are mainly funded by utilities and governments, have suffered from a combination of underinvestment and overly critical scrutiny of their cost-effectiveness. Reorienting incentives around outcomes rather than projections could be key to getting more return on every efficiency dollar — and potentially drawing more capital into a field that’s struggled to attract it.

Now, California regulators are requiring the state’s three big utilities Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric to incorporate this measured pay-for-performance approach. That requirement applies to the programs that are slated to direct nearly $9 billion in efficiency portfolio spending through 2031. https://www.cpuc.ca.gov/news-and-updates/all-news/cpuc-adopts-milestone-investment-in-energy-efficiency-2023 Pay-for-performance has actually been an official goal of California efficiency policy since a 2015 law made it so — but the complexities of the industry have held back implementation until recently.

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