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Conservation Supply Curves for Buildings

Conservation supply curves relate energy savings achieved by implementing a given efficiency measure, to that measure's ''cost of conserved energy" (CCE).

The initial investment in an efficient technology or program is annualized by multiplying it by the "capital recovery rate" (CRR).

where *d* is the real discount rate and *n* is the
number of years over which the investment is written off (i.e.,
amortized).

Conserved energy is liberated to be "supply" for other energy
demands and therefore may be thought of as a resource and plotted
on a supply curve. There are two different kinds of conservation
supply curves. One shows *technical potential*, based on
engineering and economic calculations without concern for the
probability of successful implementation. The second type of curve
shows *achievable scenarios* based on actual experience;
typical utility conservation programs have captured only about 50
percent of the technical potential.

On a conservation supply curve, each measure or step (such as "efficiency improvements to residential refrigerators") is defined as follows:

Height = CCE (cents saved per kilowatt-hour), |
(2) |

Width = annual kilowatt-hours saved, |
(3) |

Area under the step = total annualized cost of investment. |
(4) |

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Appendix C
Conservation Supply Curves for Buildings
Conservation supply curves relate energy savings achieved by
implementing a given efficiency measure, to that measure's ''cost
of conserved energy" (CCE).
(1)
The initial investment in an efficient technology or program is
annualized by multiplying it by the "capital recovery rate"
(CRR).
where d is the real discount rate and n is the
number of years over which the investment is written off (i.e.,
amortized).
Conserved energy is liberated to be "supply" for other energy
demands and therefore may be thought of as a resource and plotted
on a supply curve. There are two different kinds of conservation
supply curves. One shows technical potential, based on
engineering and economic calculations without concern for the
probability of successful implementation. The second type of curve
shows achievable scenarios based on actual experience;
typical utility conservation programs have captured only about 50
percent of the technical potential.
On a conservation supply curve, each measure or step (such as
"efficiency improvements to residential refrigerators") is defined
as follows:
Height = CCE (cents saved per kilowatt-hour),
(2)
Width = annual kilowatt-hours saved,
(3)
Area under the step = total annualized cost of investment.
(4)

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The steps are ranked in order of ascending CCE, with the
cheapest options plotted first, causing the curve to be
upward-sloping.
To decide whether a step is profitable (and how profitable), its
CCE is compared to the "price" of the avoided kilowatt-hour. Table
C.1 shows that "price" varies from different viewpoints. The
average 1989 price of electricity in buildings (line 1) is 7.5
cents/kWh, whereas industry (line 2) pays only 4.7 cents/kWh.
Because one cannot anticipate where a conserved kilowatt-hour will
ultimately be used, the societal price is taken to be an all-sector
average of 6.4 cents/kWh (line 3). One could then subtract the tax
(1.1 cents/kWh), but tax would also have to be subtracted from the
cost of conserved energy. However, both the competing utility and
the conservation industries pay taxes, and only the difference (if
any) in tax rates should be corrected for. To simplify, one will be
assumed to cancel the other.
Line 4 addresses the fact that the short-run marginal cost of
electricity may be lower than its average price. In some parts of
the United States there is still a glut of electric generating
capacity, so that the marginal cost of a kilowatt-hour is low. In
such areas, the "rock bottom" price of generating a kilowatt-hour
from coal and delivering it to the building meter is about 3.5
cents.
Line 5 addresses externalities, although they will not actually
be used now. Today, many jurisdictions require a theoretical
"environmental adder" of 1 to 3 cents/kWh; that is, they give
efficiency an advantage of 1 to 3 cents/kWh over supply during
resource planning. For example, New York has recently adopted a
point system for evaluating competing resources in which the most
environmentally disruptive resource (a new coal plant) under the
most unfavorable circumstances is given. This point system provides
an "environmental adder" of 1.4 cents/kWh. Desiring to be
conventional and conservative in its claims for the profitability
of efficiency investments,
TABLE C.1 "Prices" of Electricity at the Meter
Price (cents/kWh)
1. Residential price (seen by consumer)
7.5
2. Industrial price
4.7
3. All-sector average price
6.4
4. Marginal cost of operating a coal plant
and delivering 1 kWh to the meter
3.5
5. Line 3 plus externality cost: 1 to 3
cents/kWh (New York has chosen 1.4 cents/kWh for the worst coal
plant)
7.4–9.4

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TABLE C.2 Unit Energy Consumption for a New
Refrigerator
Base (kWh/yr)
Target (kWh/yr)
1. Average new 1990 refrigerator consumption
"frozen" until year 2000
1000
—
2. Anticipated efficiency resulting from the
1993 National Appliance Standards for refrigerators
700
—
3. Better efficiency in year 2000 achieved
by 1980s-type utility efficiency programs
—
600
4. Most efficient refrigerator in year 2000,
including all technical improvements with cost of conserved energy
(CCE) less than 6 cents/kWh
—
200
the Mitigation Panel has followed the standard sin of setting
the adder tozero, but line 5 at least points out that if 1 to 3
cents/kWh is added to theall-sector average price, one arrives at a
societal after-tax price of 7.4 to9.4cents/kWh, which brackets
nicely the present 7.5-cent/kWh price to buildingsdrawn on all the
supply curves in Part Three of this report.
Each of the energy prices above can be drawn as a horizontal
line across a supply curve. All steps located below a selected
price line are cost-effective, and the rational investor should
take each of these steps, stopping where the staircase crosses the
line. Of course, different price assumptions drastically alter
estimates of dollar savings.
Having addressed the uncertainties in price (y-axis), the
panel next addresses the uncertainties in savings (x-axis).
To do this, in Table C.2 the unit energy consumption of an average
new 1990 refrigerator (1000 kWh/yr) on line 1 is compared with the
consumption of an optimal refrigerator (200 kWh/yr) on line 4. From
an engineer's point of view, the potential savings from replacing
line 1 with line 4 is obviously 800 kWh/yr. However, from the point
of view of the utility forecaster or program manager, whose
programs never achieve more than one-half to two-thirds of the
potential savings, line 3 is more realistic and reflects a
sales-weighted average of refrigerator efficiency that is below the
optimum. The program manager would target an "achievable" savings
of only 400 kWh/yr.
An additional complication should be noted. Many efficiency
studies start with a year 2000 base case that has already been
reduced by about 30 percent for anticipated efficiency gains, as a
result of standards or occurring naturally (see Table C.2, line 2).
They then subtract about 300 kWh/yr from their estimates of the
savings. The problem with using this "estimated"

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TABLE C.3 Calculations of Conserved Electricity (using
Table C.2 as an example)
Base
Savings
Line 1 (1000) - line 4 (200) = 800 kWh
Frozen efficiency
Technical potential
Line 1 (1000) - line 3 (600) = 400 kWh
Frozen efficiency
Achievable
Line 2 (700) - line 4 (200) = 500 kWh
Naturally occurring
Technical potential
Line 2 (700) - line 3 (600) = 100 kWh
Naturally occurring
Achievable
NOTE: In its supply curves, the panel has adjusted
all curves to "frozen efficiency—technical potential" energy
savings and to a real discount rate of 6 percent.
base case is that estimates frequently change, thus muddying
cleaner technical potential calculations.
Table C.3 shows how an energy savings of only one efficiency
measure on a supply curve can be reported in four ways. In supply
curve literature, each of these ways is used, often without
explicit distinctions being drawn between types.
Figure C.1 displays the costs and technical potential of the
11-step EPRI conservation supply curve, with an additional first
step for white surfaces/urban trees to save air conditioning. To
transform these electrical savings into units of avoided CO2 as displayed in Figure C.2, two
conversions must be made (see Table C.4).
First the x-axis is converted by using the CO2 produced from the mix of fuels burned by
U.S. power plants—estimated to be 500 megatons (Mt) carbon (C)
for 1990 electric sales of 2610 billion kilowatt-hours (BkWh)
(Edmonds et al., 1989).1 To get tons
of CO2, multiply by 3.666.
1 kWh = 0.7 g CO2,
(5)
1 TWh = 0.7 Mt CO2.
Then the y-axis is divided by 5; so
1 cent/kWh = $14.3/Mt CO2.
(5a)
Figure C.1 has two y-axis scales: on the left,
direct CCE for the investment in efficiency; on the right,
net CCE, which accounts for the price of avoided electricity.
By using equation (5a), net CCE can then be converted to net cost
of conserved CO2 (CC CO2). The reason is that the ultimate goal
is a "grand supply curve" of avoided CO2 from conserved electricity, oil, natural
gas, and so forth. When these fuels are combined, it is no longer
possible to track their individual prices; thus one can work only
with net savings. Accordingly, Figure C.2 uses the all-sector
electric price of 6.4 cents/kWh to create the net scale.

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FIGURE C.1 Cost of conserved electricity (CCE)
for buildings.

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FIGURE C.2 Net cost of conserved carbon dioxide
(CC CO2) for electric efficiency in
the buildings sector.

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Table C.4 Worksheet for Conservation Supply Curves
for Figures 21.8 and 21.9 (C.1 and C.2) and Table 29.2

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Table C.4 on page 714

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Note
1. Throughout this report, tons (t) are metric; 1 Mt = 1 megaton
= 1 million tons.
Reference
Edmonds, J., W. Ashton, H. Cheng, and M. Steinberg. 1989. A
Preliminary Analysis of U.S. CO2
Emissions Reduction Potential from Energy Conservation and the
Substitution of Natural Gas for Coal in the Period to 2010. Report
DOE/ NBB-0085. Washington, D.C.: Office of Energy Research, U.S.
Department of Energy.