Promoting Cost-Effective Utility Investment in Energy Efficiency



Graphic showing piggy bank with green dollar signs depicting saving money by going green.Energy efficiency delivers several benefits including: reducing pollution, saving households and businesses money on energy bills, improving health and comfort, increasing electric grid resilience, creating jobs and expanding economic development. Additionally, by investing in efficiency, utilities can defer or avoid building new power plants. Being the cheapest energy resource, efficiency is also an excellent investment, with research finding that it often returns benefits of $2 or more for each dollar invested.

However, energy efficiency faces market and other barriers, some of the largest of which are regulatory and legal barriers. Under many utility business models, greater profits are linked to selling more energy and making more capital investments—objectives that conflict with energy efficiency, which seeks to reduce energy usage and waste. There are policies and strategies that states have employed to address these barriers, including utility regulatory reforms. Certain policies and changes to utility business models can incentivize utilities to invest in energy efficiency instead of investing in electricity generation resources. This webpage explores state policy options to promote cost-effective utility investments in energy efficiency, including decoupling mechanisms, lost revenue adjustment mechanisms (LRAMs) and performance incentives