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Where Do Energy Incentives Come From?

Where Do Energy Incentives Come From?

by Emmy Riley

January 11, 2017

Hi there, I’m Emmy, and I’ve been a part of Cyclone’s Energy Lab team for the past year and a half. Something I work on a lot here is helping people apply for incentives for energy efficiency measures they’ve implemented. In fact, a highlight of 2016 for me picture1was helping one of our clients secure $69,000 in incentive funding after they installed a new high performing chilled water plant in their building. Scratch that, the highlight was trying to take that big check through a revolving door.

Anyway, I thought I’d explore a few incentive-related topics over the next several weeks here in Incentive Corner. But any way you slice it, too much incentive talk gets boring, so we’ll try to keep these pithy. Let’s start at the beginning for week one: where do energy incentives come from? Or more specifically, where do they come from in Illinois, since that’s probably where you are if you’re reading this. Here are five questions I had about our incentives when I first started working with them:

  1. How long have there been energy incentives in Illinois?
    Since 2008. In 2007 the Illinois General Assembly passed the Illinois Power Agency Act (IPAA), which allowed efficiency programs to start the following year. The IPAA is what created the energy efficiency and demand response programs we’re familiar with today.
  2. Whom did the IPAA affect?
    Downstream it affects almost all Illinois residents, but the bill directly affects investor-owned utilities (yeah, “IOUs”). In a nutshell, investor-owned utilities are private companies that provide utilities like electricity and natural gas, as opposed to municipalities or public utilities that do the same thing. For example, ComEd is the biggest investor-owned utility in Illinois, so it was affected by the IPAA. Alternatively, City Water, Light, and Power, which is the municipal electric and water utility for Springfield, is a government-owned utility, so it wasn’t directly affected by the IPAA.

    Fun fact: Seven towns in Chicagoland—Naperville, St. Charles, Batavia, Geneva, Winnetka, Rochelle, and Rock Falls—have their own public utilities and don’t pay into the fund even though they’re in ComEd territory.

  3. What did the IPAA make utilities do?
    Like most things, the details of this get more complicated, but basically electric utilities (ComEd and Ameren) have to demonstrate 2% end-user savings over the previous year’s consumption, and natural gas utilities (Peoples, North Shore, and Ameren) have to demonstrate 8.5% cumulative savings by the year 2020.
  4. How do the utilities achieve their savings targets?
    You guessed it—in large part it’s through things like their incentive programs. Improving energy efficiency is one of the most economic ways to reduce overall energy demand, and incentives help encourage end-users to do things like add high efficiency equipment and advanced controls to their new or existing buildings.
  5. And just where do they get all the money for incentives?
    In Illinois, our energy efficiency programs are funded by utility customers. If you look on one of your utility bills, you’ll see a line item that probably doesn’t amount to much compared to your total bill. On the bill below from spring 2016, the customer paid $0.00139 per kWh used by the building, or around $400 on an $11,000 electric bill.

    When every rate payer in Illinois pays that line item though, utilities are able to use that money to provide incentives for residential, commercial, and industrial efficiency improvements. Since 2008, over $330 million in incentives have been issued to ComEd business customers. If you haven’t done an efficiency project and received incentives for it, someone else is getting the money that you paid into the fund! Get your billions back, Illinois!

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Here are some more resources, if you’re interested:

MEEA – Energy Efficiency Policies and Practices in Illinois

Illinois Power Agency

DSIRE – Energy Efficiency Resource Standards

SEDAC – Funding for Energy Efficiency

Illinois DCEO – Energy Efficiency