Maximizing Program Yield with Negotiated Incentives

The offer of standardized (or “standard offer”) commercial-sector energy efficiency incentives, based upon either energy saved or project cost, can underestimate the potential value of a given project to that customer. First, these incentives presume a single, up-front payment of project costs, overlooking the impact of amortization of project costs on customer criteria such as internal rate of return or net present value. Additionally, standardized incentive offers typically ignore associated non-electric or non-energy benefits, because of the difficulty in quantifying them, failing to account for benefits of great importance to a business. Finally, standard offer programs can also inhibit the development of relationships between demand-side management (DSM) program administrators and commercial and industrial sector customers, particularly small businesses. This paper reviews the results of two separate efforts testing the effect of incentive negotiations on program performance and yield. The first is a one-year pilot run by Efficiency Vermont to test how traditional financing options integrated with cash flow analysis would affect project completion rates and incentives offered (as compared to measure costs and energy saved). The second, Long Island Power Authority’s (LIPA’s) Commercial Construction Program, combined an energy efficiency sales training course with cash flow-based incentives. The Efficiency Vermont pilot highlights certain benefits through its negotiation process – a higher project completion rate with slightly lower-than-average paid incentives. This pilot also proved effective with small businesses. LIPA’s pilot project is still underway. Both pilots identify management challenges in transitioning from standard offer to negotiated incentive program designs