Technologies and Key Policy Trends

Technology Overview

Buildings account for roughly three-quarters of U.S. electricity consumption.1 The $83 billion U.S. energy efficiency industry improves energy productivity by using traditional technologies such insulation; light-emitting diode (LED) light bulbs; ENERGY STAR appliances; and state-of-the-art measures such as data analytics, peak demand management, behavioral efficiency and smart thermostats.2


There are more than 2.3 million energy efficiency jobs in the United States.3 In 2018, the industry grew by 3.4% — faster than overall U.S. employment growth.4 The cost of energy efficiency measures varies considerably by region and customer class, but the average cost of a kilowatt- hour saved is appropriately 5 cents per kilowatt-hour,5 which is less than half of the average price of electricity to utility customers in the United States.6

Key Policy Trends

  • Spending on efficiency continues to increase

  • More than half of U.S. states have an energy efficiency resource standard (EERS)

  • Incremental electricity savings continue to grow

  • “Smart” home devices continue to multiply

Opportunities, Challenges
 and State Solutions


The least expensive kilowatt is the one not needed. Improving energy productivity is sometimes considered a no-regrets policy option because efficiency investments reduce bills for residential, commercial and industrial customers; drive domestic job creation; reduce emissions; and improve grid reliability and resiliency.

Despite major investments over the past decade, every state still has a large electric energy efficiency potential that it can use as a cost-effective energy resource.1 For example, EPRI estimated in 2017 that energy efficiency economic potential will range from 12% in Missouri to 21% in Florida in 2035 relative to adjusted baseline sales.2


Despite its numerous benefits, a variety of market barriers hinder optimal deployment of energy efficiency technologies. For example, building owners are often reluctant to invest in efficiency improvements, even when they have a payback period of less than two years.3 Transaction costs, such as difficulty identifying the best technological solution, hiring and overseeing contractors and completing the paperwork, are frequently cited as factors that discourage implementation of efficiency measures.4 Other barriers include limited access to capital and the split incentive problem, whereby the costs and benefits of efficiency are split across different parties (such as the owner of rental property not generally realizing the benefits of reduced electric bills).5

In addition, energy utilities are traditionally paid based on the volume of kilowatt-hours they sell, creating a powerful disincentive to reduce sales of their product. Similarly, the market has been slow to recognize the benefits of exceeding minimum energy building codes, such as health, environmental and resilience benefits, resulting in underinvestment in appliances, lighting and other building technologies.

State Solutions

States have developed an array of policy interventions, often in partnership with local utilities and others, to overcome these specific challenges. State solutions include the following:

  • Establish or strengthen EERS

  • Implement demand response programs

  • Update and enforce state building codes

  • Expand state government-led financial incentives

  • Lead by example

  • Expand weatherization and other low and moderate income (LMI) programs

  • Encourage use of smart energy management devices

  • Establish and use building benchmarking and disclosure policies

  • Decouple utility revenues from volumetric sales

  • Encourage performance-based utility incentives for energy efficiency initiatives

  • Accelerate the evolution of utility business models

State Solutions Spotlights

Opportunities to enhance energy efficiency exist in every state. Some states describe these opportunities as accelerating energy productivity; others characterize it as ensuring energy optimization or reducing energy waste. Regardless of the nomenclature, governors have successfully pioneered a range of state policies. Those efforts have been driven by objectives such as helping reduce consumer and business utility bills, enhancing grid reliability, deferring infrastructure upgrades and promoting local job creation.

Establishing or Strengthen EERS

Twenty-seven states have created energy efficiency targets. These long-term EERSs are typically binding on the state’s utilities, which administer a range of ratepayer-funded incentives and programs to reduce residential, commercial and industrial consumption. Collectively, these programs saved an estimated 242 million megawatt-hours (MWh) in 2017, which is equivalent to 6.4% of overall U.S. electricity consumption.1

Traditionally, states have established incremental energy savings targets in the range of 1% to 1.5% annually (e.g., Nevada at 1.15%, Arkansas at 1.2% and Colorado at 1.6%). Recently, however, seven states have raised their annual incremental savings targets to 2% or more (e.g., Maryland at 2%, New Jersey at 2% electric and 0.75% gas, and New York at 3%),2 while others established requirements that utilities or third-party administrators achieve “all cost-effective” energy efficiency as determined by the state’s public utility commission (PUC).3 Sixteen states also have EERS policies in place for natural gas.4 Consider the following state spotlights:

  • Arizona

  • Nevada

  • Vermont

Implement Demand Response Programs

Demand response programs complement energy efficiency by focusing on reducing consumption during peak hours, when demand is highest and most expensive. In addition to the cost savings, demand response programs can help avoid outages and offset the need for aging, inefficient peak power generation. Consider the following state spotlights:

  • Maryland

  • New Mexico

Update And Enforce Building Energy Codes

Improved technologies and building methods have enabled significantly more effective energy codes, which could save consumers an estimated $126 billion between 2010 and 2040 and avoid the equivalent of 177 million passenger vehicles driven for one year in greenhouse gases (see Figure 1).12

To capitalize on these improvements, states need to periodically incorporate the latest version of these codes, which are usually developed by independent groups such as the International Energy Conservation Code or the American Society of Heating, Refrigerating and Air- Conditioning Engineers. Tools are available to help states estimate the energy and carbon savings of updating energy codes.13 Educating builders and ensuring code compliance have also proven to be effective long-term strategies. Consider the following state spotlights:

  • Massachusetts

  • Rhode Island

  • Texas

Expand State Government-Led Financial Incentives

Many state governments offer a suite of financial incentives that complement ratepayer-funded utility programs. State energy offices, for example, offer rebates, loans or grants, particularly for low-income, nonprofit and other underserved communities. Some states also offer income tax credits or sales tax holidays for eligible efficiency investments. Consider the following state spotlights:

  • Colorado

  • Florida

  • Mississippi

  • Tennessee

Lead By Example

Many states have adopted programs to lead by example, conducting energy audits and benchmarking state government buildings to help lower energy use, lower costs and demonstrate new technologies. Energy savings for new and existing state facilities can be regularly tracked and the saving targets periodically reviewed. An increasing number of states are also benchmarking public sector buildings to help prioritize the most cost-effective efficiency projects. Consider the following state spotlights:

  • Kentucky

  • New Mexico

  • Oregon

  • Rhode Island

Expand Weatherization And Other LMI Programs

Low- income families, on average, spend 7.2% of their income on utilities — nearly three times the amount that higher income households pay (2.3%).27 To supplement the federally funded DOE Weatherization Assistance Program, some states budget additional taxpayer funds. Others set specific LMI targets for ratepayer- funded utility programs, often applying a more relaxed cost-effectiveness test. Consider the following state spotlights:

  • Illinois

  • New York

  • Pennsylvania

Encourage Use Of Smart Energy Management Devices

Consumers have far greater control over their energy consumption than ever before because of the growing adoption of internet-enabled smart devices, such as thermostats, light
bulbs, home energy controllers and building energy management systems. States can encourage use of these devices through ratepayer incentives, tax rebates and similar policies. For example, Massachusetts and Vermont offer residential customers rebate incentives to purchase smart thermostats, which can help customers reduce energy consumption and enable them to participate in utility demand response programs.31,32

Establish And Use Building Benchmarking And Disclosure Policies

Many states and cities are using the power of the market by requiring energy benchmarking of commercial buildings to help potential tenants consider energy consumption in their decision making. To add similar sunlight to the residential real estate markets, a growing number of local governments are requiring homeowners to disclose their annual energy consumption or home energy rating at the time of listing. Sixteen states have energy benchmarking policies or voluntary programs.33 California and New Jersey have policies in place that mandate energy benchmarking for commercial and public buildings.34

Decouple Utility Revenue From Volumetric Sales

Electric and gas utilities traditionally earn their revenue based on the volume of electricity or natural gas they sell, which creates a powerful disincentive to engage in efficiency. Thirty
states have addressed this barrier by either decoupling (paying the electricity utility for the services provided rather than the kilowatts sold) or creating a lost revenue adjustment mechanism.35 Similarly, 28 states have decoupled or created a lost revenue adjustment mechanism for natural gas.36

Encourage Performance-Based Utility Incentives For Energy Efficiency Initiatives

Twenty-six states use performance- based incentives to reward utilities for encouraging energy efficiency.37 For example, utilities in Georgia can recover a higher rate on their energy efficiency investments when the program or project achieves at least 50% of projected energy savings.38

Accelerate The Evolution Of Utility Business Models

Many states and utilities are reevaluating the traditional utility business model in
light of higher customer performance expectations, stagnating utility revenues and grid modernization needs.39 Moving away from the traditional cost-of- service model (where utilities earn revenue based on what they spend), performance-based ratemaking compensates utilities based on their ability to meet or exceed state-established metrics, such as affordability, reliability and low carbon intensity. As of January 2019, at least 10 states had started or completed at least one aspect of a utility business model reform proceeding.40

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  • Overviews of Technologies & Policy Trends

    Understand the landscape and see what’s on the horizon.

  • Opportunities, Challenges & State Solutions

    Meet state goals for advancing clean energy.

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