Developing Energy Efficiency Programs

Energy efficiency policies and programs can help address a number of energy issues that have a direct impact on development. Learn how to create an effective combination of activities to achieve specific country needs.

STEP 0: Considering Preconditions

If you know where to look, the opportunity for energy efficiency programs to positively impact a particular market can be easy to see. Below are a few questions to ask when you initially consider developing a program to promote energy efficiency:

• Do electricity prices reflect the real cost of energy? If not, the government is likely using subsidies to lower the cost of electricity for consumers. This means there are no price signals to change consumption behavior and consumers have little incentive to use energy efficiently. Subsidies are an expensive way for governments to reduce costs to support low-income populations. These funds could instead be directed into programs that reduce electricity bills through energy efficiency and also create economic opportunities for new businesses in technology, energy services, and construction.
• Are there frequent power outages? If there is not enough power supply to meet demand, especially when temperatures spike, planned or unplanned outages will occur. This is problematic for the economy, health, and safety. Energy efficiency has an immediate impact on demand and can be used to quickly improve power reliability. However, customers who experience frequent power outages will prioritize reliable power over energy efficiency, and are likely to have difficulty connecting the two issues.
• Is there evidence of power theft? Power theft, or system losses, is often seen when a number of lines are set up to illegally access power lines. This means utilities are losing revenue. Efficiency programs that save customers money can be a positive offering to pair with activity to tighten up on losses.

While not an exhaustive list, answers to these questions are strong indicators of where energy efficiency is a clear solution. Looking at the market in this way is also a start at designing an efficiency program suited to country-specific opportunities.

It is also important to understand the current value placed on energy efficiency in local markets. In the questions above, if electricity prices are low, there is little opportunity for local businesses selling efficient products and services to make money. Policy assistance on energy subsidies is a critical first step. As another example, frequent power outages may mean utilities can invest less in new electricity sources if they reduce customer demand through efficiency programs. These utilities may need communications support to message the opportunity to their customers prior to rolling out efficiency programs. Considering the incentives and disincentives for consumers, businesses, and utilities is a critical piece of successful energy efficiency program planning.

The steps described below guide development by addressing existing market and policy failures for energy efficiency, as well as strengths and resources, for a successful program approach.

Step 1: Identify Goals and Opportunities

First, identify how development goals relate directly and indirectly to energy. A description of ways in which energy is connected to different country priorities is featured on the Energy Efficiency Basics page. These priorities include energy security and access, electricity affordability and reliability, environmental sustainability, low-emission economic development, gender equality and health. While not an exhaustive list, these are common issues for which energy efficiency can help provide solutions.

A broad country-level comparison of the regulatory environment for energy efficiency among countries can be a helpful tool during the early stages of program planning. RISE (Regulatory Indicators for Sustainable Energy) is an analysis framework developed by the World Bank in response to Sustainable Development Goal 7--to “Ensure access to affordable, reliable, sustainable and modern energy for all.” RISE measures 27 indicators related to energy access, energy efficiency, and renewable energy across 111 countries. The results identify gaps in supportive policy and regulation. For energy efficiency, RISE uses indicators that include the presence of planning for energy efficiency at the national level, minimum performance standards for technology, and financing mechanisms. The results of the 2016 report, for example, point to critical deficits in carbon pricing and monitoring, as well as in network connections and access across developing countries. RISE reports are planned to be released on a biennial basis.

Connecting a country’s development goals with policy opportunities to improve energy efficiency will support interventions that have broad support across government entities and local stakeholders. If programs do not address a recognized local need, even well-developed political and market mechanisms are likely to fail. For example, if homes and businesses do not have reliable electricity and face common power outages, it will be extremely difficult to engage consumers in making investments to use less energy. In this case, programming may need to start with incentives for load shifting by the highest-consuming customers, followed by education and steps to build up capacity in the market for efficiency services and products. USAID mission staff can play an active role in goal-setting and visioning activities and should include key stakeholders from the relevant sectors they are trying to influence. This type of collaborative goal setting will set the right direction for programs, increase buy-in, help set realistic energy savings targets and create a road map for success with which all parties will be comfortable.

Step 2: Identify Policy and Program Approaches

There are a variety of approaches to implementing energy efficiency policies and programs that target different sectors of a country’s economy. Certain approaches are better suited for a particular energy sector while others can be applied across multiple sectors. To determine which strategies have the greatest chance of impact and success, a number of different factors should be evaluated. These factors include policy opportunities, development needs, and local support, as described above. Narrowing down effective strategies involves looking at potential barriers to implementation, such as disincentives to behavior change, limitations in public awareness and information, and financing constraints.

The USAID Opportunity Assessment Tool simplifies the decision-making process by allowing policymakers to input country-specific data and information (i.e. existing barriers to regulation, financing, research and development) and compare program options. The tool was developed with a video user guide series and reference terms to support use by policy makers and non-energy program managers. Users can compare specific energy efficiency program opportunities on three levels: cost of saving energy, total savings potential, and the likelihood of success based on available market support and infrastructure.

The results provide helpful insights into program strategies. In Kazakhstan, for example, increasing heating and cooling equipment efficiency for commercial buildings was the most cost-effective measure of those analyzed. However, programs to promote efficient industrial motors and use of energy management systems (EMS) to control residential district heating systems were also found to be cost effective. The motors and EMS programs were also found to have a greater chance of success than heating and cooling equipment improvements due to market and policy conditions, and had a much greater chance of energy savings over time.

Energy efficiency strategies can be combined into an energy efficiency program portfolio to support national programs such as green growth and energy access. Consider focusing on a single sector, such as industrial or agriculture. A strategy can also be selected which will be effective across multiple sectors, such as targeting efficient lighting to impact residential, commercial and public sector buildings. Consider portfolios that focus on the highest-consuming sectors. For example, if a country’s energy use breakdown suggests 45 percent of all energy consumption can be attributed to the industrial sector, and within this segment, 75 percent of all consumption can be attributed to four distinct industries, focusing on a few representative manufacturing facilities can be an effective strategy. A program can start with representative energy audits from each industry to establish a baseline consumption scenario. From there, analysts can quantify the opportunity for saving energy across different sources of energy use, such as motors and pumps used in manufacturing processes. Any barriers to implementation should also be identified, such as affordable technology, maintenance, and impact on production. It is important to estimate all upfront and lifetime costs associated with each opportunity. This type of study can be scaled up across industries to estimate country-level savings potential and help design effective programs. Working with industry representatives, the financial sector, and other stakeholders as described in Step 1, will also ensure a strong program approach and smooth roll-out.

Learn more about policy and program approaches.

Step 3: Define Financing Strategies

Financing for energy efficiency can come from a variety of sources. The most effective strategy depends on the type of program, such as lighting or smart meters. It also depends on the sector—financing opportunities will be different for consumers making choices about products in their home than for major hotel chains. The maturity of the market (i.e. the level of acceptance of energy efficiency among consumers) will also be a major factor.

Learn more about financing strategies.

Step 4: Establish Processes for Monitoring and Evaluation

Establish processes through which policies and programs will be evaluated, monitored and verified to make sure that they are meeting their stated goals. The review and confirmation of the success of energy efficiency programs is a critical step towards achieving long-term energy savings. Monitoring and evaluation should be included in the scope of work when designing an energy efficiency project. Ideally, steps for completing the evaluation are first discussed when determining individual implementation approaches. While there are several mechanisms that can be put into place at the outset to make evaluation more successful, a simple approach is to subdivide the evaluation into goals and metrics.

Learn more about monitoring and evaluation.