Pay for Performance Incentives Using Performance-Based Rebates

pay for performance focusing energy efficiency market

The Pay for Performance Solution

Valerie Eacret, ERS, presented at Rocky Mountain Utility Efficiency Exchange on September 28, 2017

Custom-calculated efficiency rebate programs can create savings uncertainty for energy efficiency program administrators. Because rebates are typically paid based on first-year annual savings, awarded incentives for these projects may be based on greatly over- or underestimated lifetime project savings. Often, the evaluated savings for these projects are below the reported energy savings, which results in poor realization rates for the program. For example, controls projects are notorious for not delivering persistent energy savings after project completion. And, data centers may not be fully loaded until years after their construction is finished, resulting in unrealized savings from implemented measures. Uncertainty in these savings can reduce the cost-effectiveness of a program and/or leave savings on the table. Pay for performance can reduce this uncertainty, and reducing uncertainty improves program performance and has the potential to spread limited rebate funds across more customer projects, which helps address customer equity concerns.

Silicon Valley Power has successfully implemented multiple programs with performance-based incentives that address both the savings and financial concerns associated with savings uncertainty. The solution is rebate payments spread over multiple years based on the results of periodic commissioning reports and the use of measured data. This performance-based approach ensures that measures remain in place and operate as designed long after the project has been completed. Each rebate payment received is based on the results of each report, ensuring that the program is cost-effective. Surprisingly, customers have not resisted this extended payment process and sometimes welcome it. This presentation details these pay for performance programs and highlights the lessons learned from their implementation.