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P4P Is Not the Boogeyman: Primer on Pay-for-Performance from NEEP

Watch the full webinar here.

The growing role of pay-for-performance (P4P) presents an opportunity to rapidly scale the deployment of efficiency across the country. By creating stable markets that draw private investment, P4P sets the stage for the transformation of demand flexibility into a time- and location-sensitive grid resource.

But while the emergence of P4P is undeniably promising, many implementers, program managers, regulators, and other efficiency stakeholders have questions about how traditional programs can transition to a performance-based approach.   

Last week, OpenEE CEO Matt Golden and Senior Data Scientist Hassan Shaban joined experts from NYSERDA (Megan Fisher), DC Sustainable Energy Utility (Patti Boyd), Con Ed (Mei Poon), and the Northeast Energy Efficiency Partnerships (NEEP) on a webinar hosted by NEEP to explore the challenges and opportunities presented by the rapidly growing shift from traditional efficiency programs to pay-for-performance (P4P) models.

A survey during the presentation asked almost 150 participants about what they believed was the biggest challenge to implementing P4P efficiency; the survey results are shown below (82 percent response rate - 130 respondents).

The presenters then detailed how answers to all of these challenges already exist:

  • Almost forty percent of respondents said willingness of aggregators to accept performance risk was the biggest obstacle to pay-for-performance. By encouraging an aggregated, portfolio-based approach, P4P markets rely on the "law of large numbers" to produce very stable average results with a clear, quantifiable risk profile. By shifting from unmanageable uncertainty of an individual building-based approach to the manageable risk of portfolios, aggregators cans secure performance risk insurance to hedge against loss.
  • Twenty-four percent believed that transitioning from upfront rebates to after-the-fact settlement posed the greatest challenge. But manageable risk can attract private investment. Aggregators can leverage this investment to be paid up front on projects; efficiency investors can be paid back over time in the same way project finance investors are.
  • Approximately a fifth of respondents were concerned about issues with savings quantification, but open-source, verifiable methods and software that already exist (e.g. CalTRACK) ensure that savings can be quantified in a standard, reproducible way.
  • Another seventeen percent of respondents perceived data quality and data access issues as a major challenge. Robust, automated extract-transform-load (ETL) pipelines can be set up with enterprise-grade security to automatically clean and sort data from almost any source.

The overwhelming takeaway is that the perceived barriers to metered efficiency and pay-for-performance can all be overcome -- and that the only thing holding efficiency back from this new paradigm comes down to how hard it is to change course. However, there is no one size fits all, and while some states and utilities are committed to moving fully into time and locational efficiency as a resource through pay-for-performance, even the most traditional efficiency program can start with simple tracking of performance today, and put that data to work to have better outcomes.

To learn more about how P4P can address today's energy efficiency challenges, you can watch the full webinar or download the slides.

Have more questions about P4P? Contact us today.