Introduction—An Emerging Opportunity for Cooperatives

Due to several large-scale trends, electricity's role in the future of energy and environmental policy is in the midst of a major change that could have a significant impact on electric cooperatives. Specifically, the increased electrification of a variety of sectors of our economy—from transportation to farm equipment—provides potential benefits to electric cooperatives across the country. With this change comes legal and policy challenges and opportunities.

Electric cooperatives have an opportunity to capitalize on emerging technological advances. These include the steady decline of greenhouse gas (GHG) emissions from the electric sector, the increased efficiency of electric appliances and products, and the need for flexible electric load to help integrate renewable energy. While historically the principal way to reduce GHG emissions from the electric sector was to reduce energy consumption through energy conservation and energy efficiency, now there are increasing opportunities to reduce emissions through increased use of electricity by using electricity to power devices that would otherwise burn fuels like gasoline, diesel, fuel oil, or propane. Policymakers, environmental advocates, academic institutions, and other stakeholders have begun to achieve consensus that the path to lower GHGs involves a lot of electrification. Lawrence Berkeley National Lab, for example, asserts that "widespread electrification of passenger vehicles, building heating, and industry heating" is essential for meeting significant GHG reduction goals.¹ This, in turn, can provide load growth opportunities for the electric industry. According to the Electric Power Research Institute, "economy-wide electrification leads to a reduction in energy consumption, spurs steady growth in the electric load, and reduces GHG emissions—even in scenarios with no assumed climate policy."²

To capitalize on these advances, the electric industry needs to revisit and reshape energy policies—particularly policies related to energy end-use and energy efficiency. To help advance this objective, NRECA and a wide group of stakeholders have been involved in developing a policy framework for "beneficial electrification."

What is Beneficial Electrification?

The term beneficial electrification is a term of art within the energy industry that has been developed over the past several years based in-part on cornerstone research developed by NRECA.³ The "short" definition of beneficial electrification is: "The use of electricity for end-uses that would otherwise be powered by fossil fuels (natural gas, diesel, propane, fuel oil, or gasoline), where doing so reduces []GHG[] emissions and saves consumers money." The definition of beneficial electrification has been refined by a non-profit group called the Beneficial Electrification League (League)⁴ with support of a group of stakeholders including NRECA and the environmental group the Natural Resources Defense Council (NRDC). The development of an agreed-upon definition is critical to advancing a widely supported policy framework for increased electrification of our economy. The current description of beneficial electrification is posted on the League's web site:

The League asserts that Beneficial Electrification includes the application of electricity to end-uses that would otherwise consume fossil fuels (e.g., natural gas, propane, oil, gasoline) where doing so satisfies at least one of following conditions, without adversely affecting the others: save consumers money over time; benefit the environment and reduce [GHG] emissions; improve product quality or consumer quality of life; or foster a more robust and resilient grid.

This definition is designed to achieve consensus on when switching from a fuel to use of electricity (sometimes referred to as "fuel-switching") is in the consumer and public interest. The definition notes that if switching to electricity meets one of the four criteria and does not harm the other criteria, it is by definition beneficial. For example, if switching to electricity saves the consumer money but does not harm the environment, reduce product quality, or have negative impacts on the grid, it is by definition beneficial. Likewise, if switching to electricity improves environmental performance at no cost, it is also beneficial. By "asserting" that beneficial electrification is inclusive of the conditions outlined in the definition, the League also leaves some room to balance the various interests. For example, if a particular electrification activity increases environmental impact slightly but saves a significant amount of money and improves quality of life vastly, one might consider it "beneficial." Similarly, if the switch costs are slight but produces a significant environmental gain, perhaps one would consider the switch to be beneficial. These tradeoffs are left available for more nuanced cases. However, for the most part, the definition seeks to avoid including electrification that costs consumers money or increases environmental impacts in order to ensure that the definition is supported by as many stakeholders as possible.

Frequently, when folks first hear the term beneficial electrification they will ask—Isn't all electrification beneficial? Different stakeholders will have different views on this question. Without question, electrification in general provides many benefits that are well known. The National Academy of Engineers lists electrification as the most significant engineering achievement of all time.⁵ Historical data from research by the World Bank demonstrates that access to electricity is one of the most powerful economic development multipliers, enabling people around the world to break free from subsistence and prosper.⁶ In the not-too-distant past, however, the environmental impact of traditional central station power generated using fossil fuels led to a push by environmental advocates for limiting electric use in order to constrain generation. With the steep growth in renewable resources and efficiency, however, the calculus is changing. Stakeholders are evaluating the benefits—environmental, efficiency, and cost—that can flow from increasing electric use. Beneficial electrification, as a concept and a practice, has a very wide stakeholder base championing its advancement; increasing the use of a low-emissions power source can help achieve environmental goals while at the same time providing load growth opportunities. If properly defined, beneficial electrification can achieve the same widespread support enjoyed by energy efficiency several decades ago. If successful, the vision is that beneficial electrification efforts can be treated as favorably as energy efficiency has historically been in many local, state, and federal programs, easing the adoption of efficient electric consuming products.

This prospect brings the chance for load growth in the electric industry from increased market share that is currently served by other fuels, such as gasoline. This load growth would be welcome to many cooperatives that face flat or declining energy sales. Some studies suggest electricity demand increasing up to 2 percent a year through 2050 due to electrification.⁷ Goodwill towards electrification efforts garnered by use of a widely approved beneficial electrification definition also helps to support initiatives that could modify or eliminate rules, policies, and regulations that are designed to mandate lower energy consumption and that can hinder adoption of beneficial electrification.

Why is the Beneficial Electrification Framework Important?

The benefits of electricity are increasing in the eyes of many stakeholders. However, if care and attention is not paid to this fact, the benefits of electricity can be discounted. This can lead to negative outcomes for cooperatives. One example of this was a 2010 energy efficiency rule that was promulgated by the U.S. Department of Energy (DOE) that effectively banned the manufacture of large electric resistance water heaters.⁸ This rulemaking sent shockwaves through the electric cooperative community since more than 250 electric cooperatives use these water heaters as part of their demand response programs to run their electric systems more efficiently and save consumers money. The DOE had overlooked this key benefit of electric water heaters when developing the rule and many allies who traditionally favor strong energy efficiency standards agreed. As a result, NRECA was able to form a large stakeholder coalition that included environmental advocates such as the NRDC and the American Council for an Energy Efficient Economy to draft legislation that passed unanimously through Congress to fix the problem as part of the Energy Efficiency Improvement Act of 2015.⁹

This whole process begged the questions: Why did the DOE so undervalue the role electric water heaters could play in advancing their mission of improving efficiency, increasing environmental performance, and saving consumers money in the first place? What were the issues that brought the cooperatives and environmental community together in defense of electric products, and what lessons could be learned from the experience?

The answer was that the potential for wider electrification as a tool to meet environmental goals had been and was continuing to change, but policy and the beliefs of policymakers were not keeping up. The concept of "environmentally beneficial electrification," later shortened to simply "beneficial electrification," was developed and introduced to promote a significant change in how policymakers view electricity via a 2015 Electricity Journal article.¹⁰ The concept is born out of the idea that many thought leaders believe that if our nation or the world is to achieve significant reductions of GHG, the only way to do so (according to dozens of academic, research lab, and governmental studies) is to electrify more end-uses, such as transportation, space and water heating, and commercial and industrial processes.

It should be noted that promoting the benefits of electrification is different from suggesting that it is beneficial to "electrify everything." On the contrary, some of the best opportunities for beneficial electrification involve systems that use multiple fuels. For example, "dual fuel" heating systems that use electricity to heat homes on moderate temperature days and propane or gas to heat them on very cold days are a great example of beneficial electrification replacing a completely non-electric heating system.

What are the Relevant Legal and Policy Issues?

Many policies hinder the advancement of beneficial electrification. For example, some states have legal provisions that prohibit fuel switching to electricity. These policies should be scrutinized in light of the increasing benefits of electrification. Additionally, many energy efficiency programs were designed in the oil embargo era of the 1970's and are designed to reduce energy use and can be counterproductive to beneficial electrification efforts. The goals of these existing energy efficiency programs are generally to save consumers money and improve environmental performance of the energy system, yet they can inadvertently discourage beneficial electrification that would meet these same goals. Some states, for example, set aside utility revenue to be spent on reducing kilowatt hour sales via energy efficiency programs. These programs could be opened up to allow beneficial electrification to help achieve the same goals. This can be done by changing the metrics upon which the programs are based from reduction of energy consumption (improved energy efficiency) to reduction in energy-related emissions (improved emissions efficiency). When diesel, gas, or another fuel is displaced by electricity and overall emissions are reduced, the utilities can get credit towards the program goals. It is important to note that including beneficial electrification in these programs does not, and is not intended to, diminish the important role of energy efficiency in energy policy, but rather is a logical evolution in policy designed to save consumers money and improve environmental performance.

An illustration of how this works is presented in a 2016 Electricity Journal article¹¹ that shows how the design of rules such as the Clean Power Plan can discourage beneficial electrification. The research shows that switching vehicles, water heaters, and space heaters to electricity from natural gas, oil, gasoline, and propane could reduce emissions by 25 percent while maintaining the same level of electric consumption and thus making no progress towards meeting the rule's requirements that are designed to reduce emissions. In the future, efforts to reduce emissions could include beneficial electrification and provide more effective outcomes.¹²

Conclusion

As with all things electric cooperatives strive to do, the efforts to support beneficial electrification should center on the consumer and what is in their interests. If a consumer wants to use a certain product that runs on gas or diesel, the choice may be best left to their preference. What is perhaps a helpful role for the cooperative community is to ensure that policy, law, and publicly available information are providing accurate and updated information on the benefits of electrification. As technology progresses, NRECA continues to work to ensure the benefits of electrification are well known and that they increase as we learn new ways to bring value to consumers and improve their way of life.¹³

1 Max Wei et al., Scenarios for Meeting California's 2050 Climate Goals, California's Carbon Challenge Phase II: Volume I, Cal. Energy Comm'n (Sept. 2013).

2 Elec. Power Research Inst., U.S. Nat'l Electrification Assessment, (Apr. 2018).

3 Keith Dennis, Environmentally Beneficial Electrification: Electricity as the End-Use Option, 28 The Electricity Journal 9, 100–112 (2015).

4 The League is a nonprofit organization focused on promoting market acceptance for beneficial electrification concepts, policies, practices, technologies, and business models. More information is available at www.beneficialelectrification.com.

5 George Constable & Bob Somerville, A Century of Innovation: Twenty Engineering Achievements That Transformed Our Lives (2003).

6 The World Bank Indep. Evaluation Grp., The Welfare Impact of Rural Electrification: A Reassessment of the Costs and Benefits (2008).

7 Jürgen Weiss et al., Electrification: Emerging Opportunities for Utility Growth, The Brattle Grp. (Jan. 2017).

8 Energy Conservation Program: Energy Conservation Standards for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters, 75 Fed. Reg. 20,112 (Apr. 16, 2010) (codified at 10 C.F.R. pt. 430).

9 Energy Efficiency Improvement Act of 2015, Pub. L. No. 114-11, 129 Stat. 182.

10 Dennis, supra note 3.

11 Keith Dennis et al., Environmentally Beneficial Electrification: The Dawn of 'Emissions Efficiency,' 29 The Electricity Journal 6, 52–58 (2016).

12 Another important issue relevant to policy is using "source energy" metrics in energy policy. This policy is based on conventional wisdom that two-thirds of energy is lost when generating, transmitting, and distributing electricity. This policy is out of date and unfairly treats electricity as if it were a much less efficient resource than it is, yet underpins many energy policies.

13 NRECA voting delegates adopted a member resolution concerning beneficial electrification entitled "Promoting the Benefits of End-Use Electrification." See 2019 Member Resolutions.