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Efficiency Valuation: Creating the optimal megawatt meter

From Rome to Beijing, the kind of power shortages that became headlines in California several years ago are spreading around the globe. In addition to the strains on the energy infrastructure created by fast growth, the connection of energy development to climate change is now being considered at the highest levels of government. The UN’s Kyoto protocol was adopted, and at the recent G8 Summit in Britain climate change and the related need for further action tocontrol emissions topped the agenda.

Clearly, the costs of our growing thirst for energy are beginning to shift the focus from supply-only solutions towards demand-side solutions. Increasingly, the demand side of energy development is seen as a preferred sector for investments that can address the problems of strained capacity and environmental impacts. A global marketplace for efficiency investments is emerging, but what are the rules that will guide these massive new investments? Who will assist in setting the standards for ‘measuring’ the results of energy demand-side investments?

Enter the Efficiency Valuation Organization (EVO). EVO’s vision is a global market that properly values the efficiency resource, enabling and assisting the optimal investment in these opportunities. EVO is working to accomplish this vision through a range of programmes, including developing and promoting the use of standardised protocols and tools to quantify and manage the performance risks and benefits associated with end-use energy-efficiency, renewable energy, and water-efficiency business transactions.

Supply and Demand Investment

Figure 1 – Balancing supply and demand investments

Global energy consumption of all types continues to grow. Less developed nations are still building out infrastructure to serve their populations. More developed nations continue to increase their per capital consumption of energy.Globally, electric power capacity is forecasted to grow by 3,000 GW over the next 25 years (EIA, 2004). Much of this capacity will be generated with fossil fuels. All of this energy growth will occur in the context of increasing concern about the impacts that energy systems have on the global environment and the security of energy supplies. A reliable supply of electric power is considered a necessity for development in an increasingly competitive economic world. Forcing people to ‘make do with less’ is not a strategy that will work in the modern economy. The question facing policymakers, regulatory bodies, private corporations, financiers and average citizens around the planet is how to balance investments in necessary supply, while mitigating the impact of our growing thirst for reliable energy. EVO provides tools to evaluate these investment decisions and manage the risks in efficiency development.

The concept and much of the economics of energy efficiency as a resource are not new (Franklin’s stove revolutionised wood burning and was a hit in the 1750s) but relying on large-scale efficiency investments to meet future loads is a relatively recent phenomenon. The concept of relying on ‘negawatts’ was put forth by Amory Lovins 20 years ago, and is continuing to influence energy supply procurement decisions.

Investing in negawatts is a powerful idea. However, there remains the question of how to accurately measure and value them and assess the return on investments in efficiency, both large and small. The supply side has its metering industry for quantifying consumption and billing the user. The demand side needs to continue to improve negawatt consumption and billing meters.


EVO, through the International Performance Measurement and Verification Protocol (IPMVP), has been assisting public and private decision-makers on this issue for over ten years. Starting in the 1990s, standardised approaches to energyefficiency measurement and verification (M&V) were prepared to assist developers, owners and financiers of projects. Today, the EVO-owned IPMVP is the leading international standard in M&V protocols. IPMVP has been translated into ten languages and is used in more than 40 countries. Five thousand copies are ordered or downloaded annually.

IPMVP’s flexible framework has proven successful in all types of programmes and projects, and its use has grown as a consequence.

Take California as an example. In response to recent studies that indicate a large remaining potential for efficiency investment (in an already energy-efficient economy) the Public Utility Commission has required utilities to invest in efficiency as the primary new ‘source’ of energy. Current estimates for statewide investment in energy efficiency over the next three years exceed $2.5 billion. This is a serious investment fund, and in order to help manage it, California is relying on the IPMVP as an integral part of its evaluation activities.

The US Federal government has invested approximately $2 billion in Energy Savings Performance Contracts, most of which are verified using IPMVP.

WWH Meters

Figure 2 – What meters? 

In Europe the investment in efficiency takes place in the context of national targets. EVO, through IPMVP, is working with the EU and EC to help adopt standards to quantify progress towards these targets.

In the private sector, performance contracting requires M&V to settle the value. The USbased National Association of Energy Service Companies has said the IPMVP “is widely accepted and has served for a decade as a recognisable international standard for project M&V in private and public sector energy service agreements.” EVO has partnered with energy service company (ESCO) associations around the globe to broaden the use of IPMVP in energy-efficiency transactions.

And with the recent adoption of the Kyoto Protocol, entities around the world are seeking guidance on how to certify reductions in greenhouse gases attributable to energy-efficiency investments. IPMVP is contributing to efforts with the World Resources Institute (WRI) and others to help create guidelines for ‘crediting’ energyefficiency impacts.


The metering and billing industry is aware of the complex needs of the supply side of the energy marketplace. From simple to smart, meters are used to quantify, value and settle the usage of energy commodities. The complexity on the demand side is doubled. The IPMVP design for quantifying savings requires two ‘meters’. One is used to record the baseline and post-retrofit consumption. This meter looks like, and often is, the standard billing (watt, Btu, gpm) meter. But M&V requires a second meter, one that we call the “What would have happened” meter. This virtual meter is the output of a model that indicates what energy consumption would have been in the absence of the energy-efficiency investment.


As we can see, savings are a bit more complicated to ‘measure’ than commodity supplied. In fact, IPMVP supports the idea that savings, since they don’t exist, cannot be measured directly. Consumption, performance and operational parameters can be measured. Savings are calculated using the two ‘meters’ mentioned above, and this calculation introduces some uncertainty into the quantity of savings.

And it’s not just the quantification that induces uncertainty. Other market-related terms in the energy efficiency value equation induce uncertainty as well – values such as carbon mitigation and volatility of energy markets. The goal of EVO and IPMVP is to identify, quantify and manage these risks, not ignore them.

EVO protocols allow financiers and project implementers to makedecisions informed by the real risks that exist. Hence, energy-efficiency investments can be evaluated against other options. Capital will flow to energy-efficiency projects and be priced with respect to the real risks and rewards compared to other investments.

While EVO’s IPMVP sets the international standard for properly valuing efficiency and M&V more generally, the organisation also recognises that the correct implementation of the protocol requires more than just printing a document. There must also be a vibrant usercommunity.


EVO strives to support and provide access to the global base of knowledge in the field of resource efficiency measurement and valuation. In order to raise the standards in M&V and to improve the practice of those engaged in it, EVO provides training and workshops for M&V professionals. Energy-efficiency projects and programmes are different all over the world. EVO recognises the importance of creating protocols that apply generally, but also take into account local techniques, technologies, materials, methodologies, and expertise. In order to increase international investment in efficiency projects, these differences must be addressed, and appropriate M&V education imparted to fulfill the specific needs of different regions. With the international expertise and experience of the organisation, EVO is uniquely positioned to develop and disseminate such tailored M&V education.

Building an international community is also critical to the global promotion of the efficient use of natural resources. To this end, EVO’s multi-national Board of Directors and volunteer-supported committees partner with such organisations as the Association of Energy Engineers (AEE) and the Certified Measurement & Verification Professional programme (CMVP). Working with such groups, EVO provides outreach at numerous conferences around the world and via international publications. The organisation is currently developing member services to further broaden and strengthen this global community.


Energy supply, and the consequences of energy use, will continue to be a dominant environmental and security issue for our life and times. Energy demand-side solutions will increasingly be looked upon to address these challenges, and demand-side investments will be a source of solid value to those who know how to manage the risks. Working together, EVO and the metering industry will play a crucial role in managing that risk and settling supply and demand value.