As California races towards a clean energy future, not only do we need new aggressive goals for all sectors, but we also need to rethink how we manage distributed energy resources, like rooftop solar and customer side energy storage. This is particularly true for one such resource, energy efficiency.

Two weeks ago, the California legislature passed a number of clean energy related bills including SB 350 (De León), a bill that sets the state on a path to achieve Governor Brown’s ambitious clean energy goals. The governor’s “50/50/50” plan aims to increase electricity from renewable sources to 50 percent, reduce petroleum use by 50 percent, and double building efficiency by 2030.

Most media reports have focused on the bill’s ambition to increase the renewable portfolio standard and energy efficiency goals, and some observers have expressed justified concern about items left on the cutting room floor(the petroleum use reduction target). But there has been little discussion of the bill’s most important provisions – those that address how energy efficiency will be measured and delivered going forward.

Not only does the bill essentially double California’s energy efficiency goals, it does so by making a number of crucial changes in how we approach energy efficiency in the state. These changes, if implemented, represent the beginnings of a major paradigm shift for this clean energy resource.

Changes to how California defines and measures energy efficiency

First, SB 350 fundamentally changes the way energy efficiency is measured in California. Traditionally, regulators rely on a series of after-the-fact studies, including regulation which considers energy code and attempts to account for a number of subjective impacts. SB 350 on the other hand, is clear that “energy efficiency savings and demand reduction reported…shall be measured taking into consideration the overall reduction in normalized metered electricity and natural gas consumption.” This removes much of the subjectivity from measuring energy efficiency by taking a more holistic look at electricity and gas-use reductions.

This is a huge shift from current practices. It promises to standardize how energy efficiency is measured based on meter data and evaluate its performance based on straight reductions in energy demand. More importantly, it has the potential to finally put in place a standardized and replicable system for measuring energy efficiency as a source of electricity available to the grid. In doing so, markets can treat energy efficiency as a reliable energy commodity.

The bill also directs the California Public Utilities Commission (CPUC) “achieve greater energy efficiency in existing residential and nonresidential structures that fall significantly below the current standards in Title 24 of the California Code of Regulations.” In essence, this definition places importance on what results show at the meter, not how a given customer gets there. Further, it defines those results as the difference between the buildings’ baseline use before energy efficiency interventions, and consumption during the performance period of the retrofits or upgrades.

Building on this data driven approach to measuring energy savings, SB 350 puts in place “pay for performance programs” and goes on to direct that, “Incentive payments shall be based on measured results.” These programs will compensate customers who develop and implement energy efficiency plans based on measured results of those plans. This approach is not new. National Resources Defense Council (NRDC) and The Utility Reform Network (TURN) proposed a similar program to the CPUC in the form of their pay-for-metered performance pilot. Pacific Gas & Electric (PG&E) supported the pilot because of its potential to promote comprehensive upgrades while minimizing implementation costs.

SB 350 is not the only bill shaking up energy efficiency

Though it is getting somewhat less attention, the legislature also passed AB 802 (Williams). In addition to its primary goals of implementing statewide benchmarking across the energy industry and providing access to energy data, this bill also moves the state towards meter-based energy efficiency. It does so by directing the CPUC to incorporate meter-based performance into its goals and budgets. In addition, it instructs the California Energy Commission (CEC) to count efficiency starting from a building baseline rather than energy code (which breaks down a major barrier to energy efficiency).

Taken as a whole, these changes – supported by a surprising group of stakeholders including environmental groups, local governments, industry, utilities, and ratepayer advocates – fundamentally shift California’s approach to energy efficiency. As they come into effect, we will move from a programmatic, regulated approach, to markets which treat energy efficiency as a reliable energy resource. Further, we will rely on private capital and innovation to create the business models necessary to achieve Governor Brown’s goals.

When the Governor signs these landmark bills into law, the state will take a major step forward, creating new opportunity for energy efficiency in California and a model for the rest of the nation to follow.

By Matt Golden 

Originally Published on September 24, 2015

The Energy Exchange Blog is a forum where EDF‘s energy experts discuss how to accelerate the transition to a clean, low-carbon energy economy. Follow them on Twitter here: @EDFEnergyEX