“More or less, my vision is this: affordable electricity. We need access to and more usage of solar energy. My vision for Kentucky is to take what’s working in other states and cities, and provide affordable clean energy services here at home.”
– Louisville resident at A Seat At The Table
What does this mean, and why is it important?
Energy efficiency (EE) and renewable energy (RE) form the cornerstone of the Empower Kentucky Plan. Together these strategies are essential low-cost and low-risk energy solutions with multiple benefits for Kentuckians. By accelerating investments in energy efficiency and renewable energy generation across our economy, Kentucky can spur local job creation and help families and businesses save money on their energy bills. These approaches help avoid or delay risky and expensive investments in new fossil fuel generation. They also result in less power plant pollution, benefiting our health, climate and economy.
Energy efficiency is often called “low-hanging fruit” because it is cheaper to save energy, on average, than it is to generate that same amount of power from any new source. But it may be more accurate to think of efficiency upgrades that are not taken as fruit that is left rotting on the ground. State policies that encourage and support Kentuckians to make our homes and businesses more efficient (by insulating buildings, improving lighting, or upgrading appliances and machinery and more), generate multiple benefits for Kentuckians. These include: lower monthly bills, increased comfort, elevated property values, and improved business productivity and competitiveness. As Kentucky energy specialist Chris Woolery often says, “Energy efficiency investments literally pay for themselves.”
Renewable energy is among of the fastest growing sectors of the U.S. economy, driven by plummeting costs and strong state policies. Many forms of utility scale wind and solar are now cheaper than new coal and cost competitive with new natural gas plants across much of the U.S., and are increasingly cost competitive in Kentucky. Across the South and Midwest, local renewable energy businesses are thriving as many states (including Georgia, North Carolina, Maryland, Michigan, Minnesota and Ohio) have adopted policies to encourage investments in renewables, including utility scale as well as rooftop and community solar.
Diversifying Kentucky’s energy mix with more wind, solar and hydro lowers risks for our ratepayers and residents and helps ensure affordable, stable energy prices. While natural gas costs are near an historic low, the risks to Kentuckians of investing in an expensive new natural gas infrastructure – investments that will be with us for at least the next 40 years – are many. Renewables help reduce our exposure to financial, regulatory, health, and climate risks that are written into any deal that expands our dependence on fossil fuels. Renewable energy can also be quickly scaled up as needed over time, compared to all-or-nothing major investments in new gas plants and pipelines.
Investments in efficiency and renewables support good, local jobs in every corner of our commonwealth. The types of jobs created by these industries include skilled HVAC installers, insulation installers, solar and wind technicians, renewable energy installers, general contractors, electricians, energy auditors and specialists, lighting and refrigeration specialists, and more. According to the American Council for an Energy Efficient Economy, clean energy jobs are more likely to be open to workers without special credentials, and they are more likely to pay those workers above average wages than jobs in the fossil fuel sector. States with renewable friendly policies also are more likely to attract and grow related enterprises, including manufacturing, research and development, energy consulting, business headquarters, and more. Additionally, access to renewable energy is a priority for many non-energy related businesses when making decision to locate in a particular state or community.
Investments in efficiency and renewables deliver economic and health benefits to the whole state, not just the customers who retrofit their homes or businesses. When their customers demand less electricity, utilities spend less on pollution control, fuel costs, new infrastructure, and costly peak demand. Those benefits accrue to all ratepayers, not just the customers who install energy efficiency measures or solar panels. Kentucky’s economy benefits when residents and businesses spend less on electricity and have more to spend locally. Public health also improves as Kentuckians use less electricity from polluting power plants, saving lives and reducing costs for both families and employers alike.
Despite these many benefits, Kentucky lags far behind other states for efficiency and renewable energy. The Empower Kentucky plan recommends many steps to accelerate these solutions and achieve better outcomes across our economy.
Empower Kentucky Recommendations
A. Set high standards
Require utilities in Kentucky to achieve 17% cumulative energy savings and 2.5% annual savings from energy efficiency programs by 2032.
To achieve this standard, Kentucky utilities must steadily improve the energy efficiency programs offered to all classes of customers. In 2015, Kentucky’s utilities helped their customers save an amount of energy equivalent to .38% of electricity sales. By 2030, they should achieve 2.5% annual energy savings, an outcome leading states are meeting today.
Require utilities to achieve 18% of their total energy savings – or about 40% of residential energy savings – from energy efficiency programs serving low-income customers.
Only a few states have a low-income efficiency standard, and there isn’t a clear benchmark for setting this goal. This standard we propose is several times larger than what Massachusetts, a leading state, achieves today. That’s appropriate, given Kentucky’s high poverty rate, greater reliance on electricity for heating and cooling, and the large number of older and inefficient houses, apartments, and manufactured homes in our state. It’s also critically important, since in many Kentucky communities, residents already spend more than 15% of their monthly income on electricity, far above the national average of less than 3% of household income.
Develop 100 MW of combined heat and power (CHP) capacity by 2021, and 100 MW annually after that through 2032, for a total of 1,200 MW of new CHP capacity.
Combined heat and power (CHP) systems allow industrial or commercial properties to generate heat or hot water and electricity from the same energy source, which is often located on-site or near the point of use. CHP systems significantly reduce wasted energy and decrease the amount of electricity demanded from the electric grid. CHP systems are among the most cost effective ways to achieve energy savings. Expanding deployment of CHP should play a key role in any strategy to help Kentucky’s industrial and commercial enterprises reduce their energy costs and stay competitive.The Empower Kentucky plan calls for Kentucky to install 1,200 MW of new CHP capacity by 2032. Meeting this goal means developing about one third of the state’s existing potential CHP sites, as identified in a 2016 Department of Energy study.
Require utilities in Kentucky to get 25% of electric sales from solar, wind or hydroelectric sources by 2032, including 1% from distributed solar.
In 2014, Kentucky generated just 3.4% of our electricity from hydroelectric generation and produced no energy from utility-scale wind or solar. Since then a few utilities have installed a small amount of new hydro and tiny amounts of new solar generation. But Kentucky lags far behind the nation, where 11.3% of all electricity was produced from those renewable sources in 2015.The Empower Kentucky plan proposes a 25% renewable standard for Kentucky, and calls for distributed solar to provide 1% of the state’s total electric sales by 2032. Across the US, state renewable energy standards are a proven and powerful driver of renewable energy jobs and investment. Twenty-nine states and Washington DC currently require utilities to get an increasing share of their generation from renewable sources. Twenty-two of those states also include a specific goal for solar and/or for distributed renewable generation. Hawaii aims to be 100% powered by renewables by 2045. North Carolina will generate 12.5% from renewable sources by 2021. Most state policies fall somewhere in between.To meet the goal for distributed solar, Kentucky’s installed rooftop solar (and other forms of distributed solar) capacity would grow from 17.6 MW to 613 MW between 2016 and 2032. Kentucky utilities could meet the rest of the 25% renewable standard by building their own renewable energy infrastructure or purchasing renewable energy credits from instate or out-of-state renewable energy developers. As a result, an analysis by Synapse Energy Economics expects instate solar capacity will reach 1,000 MW and instate wind will reach 600 MW by 2032. Those predictions are conservative; Kentucky’s renewable generation could far exceed those levels if renewable costs continue to fall faster than federal government projections.
B. Support energy transformation across our economy
Recommendations to help renters and homeowners
About 35% of Kentucky’s electricity sales were made to the residential sector in 2014. From 2010 to 2016, our residential rates were about 20% lower than the national average, while our average bills were 4% higher. That startling result is due to the fact that Kentucky homes use a lot more electricity than in other states. Kentucky’s high poverty rate and low wages mean home energy bills take a big bite out of household incomes. And those factors – high average consumption and low average incomes – leave Kentuckians vulnerable as our electric rates rise. They also mean our state is among the places that could benefit most from high-quality, comprehensive residential efficiency programs and policies. Starting immediately, Kentucky should:
Make inclusive financing (also known as Pay-As-You-Save) programs widely available to assist customers with the upfront costs of energy efficiency and renewable energy.
Inclusive financing programs make energy efficiency upgrades possible for many residential customers, including renters and low-income residents. Under this model, a utility or local government provides the capital for cost effective energy investments. Those investments are paid back by the occupant or owner over time with a portion of the energy savings.The obligation to repay the investment is assigned to the property and is transferable to the next owner or occupant. These types of deals don’t depend on a customer’s credit rating. A property qualifies if there are cost effective energy efficiency measures.
A number of Kentucky’s rural electric cooperatives offer How$mart, a nationally recognized pay-as-you-save program. However, there is an urgent need for those co-ops to scale up their programs and increase customer participation. State government should provide performance incentives to encourage all utilities – including investor owned – to offer high-quality, large-scale, inclusive financing programs. The General Assembly should also remove a restrictive state law that bars local governments from providing “property assessed” financing for energy upgrades on residential properties with fewer than five units.
Provide comprehensive support for residential energy efficiency and renewable energy.
Kentucky should adopt a comprehensive package of new incentives and grant programs to spur investments in residential efficiency and renewables. These policies should be designed to prioritize clean energy projects that benefit low-income communities, people of color communities, and places most affected by coal industry job losses.
For example, Kentucky should establish a grant pool to support clean energy projects benefitting low and moderate-income households. (In Maryland, this fund is supported with $9-10 million annually and is allocated to counties based on the number of low and moderate income households.) Kentucky should increase support for an existing program benefiting customers who trade in old, energy-inefficient manufactured homes for Energy Star homes. The state should establish meaningful, refundable tax credits for households that install qualifying energy efficiency and renewable energy systems. And we should offer meaningful incentives for new residential construction and new manufactured homes that substantially exceed efficiency requirements.
Maximize our ability to access federal resources for efficiency and renewables.
Kentucky should choose to participate in the Clean Energy Incentive Program, a voluntary program within the Clean Power Plan that directs resources towards energy efficiency and renewable energy investments in low-income communities. The state should also immediately remove policy barriers to rooftop and community solar (including restrictions on 3rd party ownership, system size, and virtual net-metering), so that Kentuckians can take full advantage of the 30% federal tax credit for renewable energy that lasts through 2019. This credit is scheduled to drop in several steps to zero by 2023.
Strengthen enforcement of building codes statewide.
Building codes set minimum safety and energy efficiency standards, yet many counties in Kentucky don’t have anyone who is responsible for code enforcement. Kentucky should establish a state-funded program to support code enforcement in counties without their own local programs.
A current program offered by the Kentucky Energy and Environment Cabinet offers a positive example of how state government can add value to the work of local code enforcement programs. In 2016 the Kentucky Division of Efficiency and Conservation offered a series of trainings for the professional staff who enforce building codes in local communities, and they are in the process of evaluating the impact of those trainings in terms of energy savings for residential customers.
Consider providing energy rebates to low-income households, using a portion of revenues from a price on CO2 pollution.
There is evidence from the nine states participating in the Regional Greenhouse Gas Initiative (RGGI) that reinvesting CO2 revenues in energy efficiency provides greater customer benefits than offering direct bill rebates. However, Kentucky should carefully evaluate the impact of rising energy rates on low-income households over time. Some direct rebates may be warranted.
Recommendations to help Kentucky’s public sector
Many valuable community institutions – including schools, churches, hospitals, clinics, service agencies and local governments – have limited budgets and face growing community needs. Helping the public sector take advantage of clean energy solutions is an important way to generate savings that can be reinvested in local salaries, jobs, and public services. The following recommendations can help:
- State and local governments should set and work to achieve strong renewable energy and energy efficiency goals for all public buildings, including schools, by 2032.
- Assist local governments to develop and track community-wide goals and plans for energy conservation and renewable generation, including planning grants and technical assistance.
- Issue a $100 million state bond to provide low-interest capital for energy efficiency and renewable energy projects on public infrastructure between now and 2032.
Offer a range of grants and incentives for efficiency and renewable projects benefitting the public sector.
Many states offer a variety of grants, incentives, and low-interest capital to make cost-effective public sector projects possible. For example, New Mexico has a $20 million bond fund for clean energy investments on schools and state buildings. Maryland offers support for energy efficiency upgrades by local governments. And Arkansas permits local governments to issue their own bonds for energy efficiency and renewable energy projects on public properties. Kentucky’s public sector programs should be designed to prioritize projects in low-income and people of color communities and in places most affected by the decline in mining and power plant jobs.
Require all new public school buildings in KY to be net-zero.
Net-zero schools are highly energy efficient buildings that generate as much on-site renewable energy as they use in a year. Richardsville Elementary in Bowling Green, Kentucky was the first net zero school in the nation. Along with Turkey Foot Middle School in Northern Kentucky, it offers a compelling example of the many economic and educational value of energy efficient, net-zero school design. By requiring all new school construction to be net-zero, Kentucky will help school districts reduce their operating expenses now and for decades to come.
Raise the limit on the size of net-metered systems to at least 2,000 MW (up from 30 kW) and allow power-purchase agreements for renewable energy.
Kentucky’s restrictive renewable energy laws prevent many cost-effective renewable energy investments by the public sector. Kentucky caps the size of net-metered rooftop solar at 30 kW. In West Virginia the cap is 2,000 kW. In Indiana the limit is 1,000 kW, and in Virginia it’s 500 kW.Kentucky is also one of just four states to ban 3rd party ownership and power-purchase agreements for renewable energy. This means that a church or city council can’t make a deal with a solar energy developer to install a rooftop system for little or no upfront cost, and then pay for the energy the system generates over time. Lifting the restriction on 3rd party ownership will allow more churches, schools, and commercial businesses to make mission-driven and cost-effective investments in rooftop solar and other forms of renewable energy.
At the very least, Kentucky should immediately pass a five-year pilot program allowing nonprofits and public buildings to install 500 kW rooftop solar systems and enter power-purchase agreements.
If Kentucky’s policy makers aren’t willing to remove Kentucky’s restrictions on rooftop solar altogether, one incremental but meaningful step would be to follow Virginia’s lead by temporarily lifting the restrictions nonprofits and public buildings. A five-year pilot project in Kentucky should allow churches, schools and other buildings to install larger, net-metered rooftop solar arrays and reduce their upfront costs by entering into power-purchase agreements. This approach would allow project investors take advantage of federal tax credits, which will begin to decline in 2019 and will disappear altogether by 2023.
- Make inclusive financing (also known as Pay-As-You-Save) programs widely available to assist customers with the upfront costs of energy efficiency and renewable energy.
Recommendations to help Kentucky’s commercial and industrial sectors
Kentucky’s industrial sector comprises just 1% of all utility customers in the state, but consumes 41% of our electricity, a share that far exceeds the national average of 26%. Our state is home to many energy-intensive industries, including aluminum smelters, chemical plants, steel mills, and a broad range of manufacturing plants. Those industries and the jobs they provide are a vital part of our state’s economy. Kentucky should do everything possible to partner and assist our manufacturers and industries to be the most energy efficient and advanced in the world.
Kentucky’s commercial sector consumes about 25% of Kentucky’s electricity, a smaller share than the national average. As is true for other sectors, energy saving programs offered by utilities in other states – including Illinois, Ohio, Indiana, and Missouri – outperform many commercial programs offered in Kentucky.To accelerate clean energy investments that benefit our commercial and industrial sector, Kentucky should:
Provide state incentives for Combined Heat and Power (CHP) systems and establish fair interconnection standards for these projects.
Combined heat and power (CHP) systems allow industrial or commercial properties to generate heat or hot water and electricity from the same energy source, which are often located on-site. CHP systems significantly reduce wasted energy and decrease the amount of electricity demanded from the electric grid. They are among the most cost effective ways to achieve energy savings and a powerful way to help industrial and commercial sectors cut energy costs and reduce their exposure to the risk of rising rates.
Many states, but not yet Kentucky, offer a range of targeted incentives for hospitals, universities, office buildings, manufacturers, and industrial facilities that install CHP projects. Maryland invests $4 million per year in CHP, with incentives of $425 to $575 per kW and up to $500,000 per project. New York created a 3-year, $20 million “acceleration fund” to provide grants up to $1.5 million to industries and state and local governments for combined heat and power projects. New Jersey pays 30-40% of installed project costs up to $250,000 for smaller scale combined heat and power systems installed by commercial, industrial, nonprofit, government, educational, agricultural, or multi-family housing customers.CHP offers a good example of why states and utilities need to partner with industrial customers in order to take full advantage of available, cost effective efficiency measures. CHP systems are a least-cost energy solution. But many industries may still choose not to invest their capital in a CHP system on their business, unless the payback can be measured in a few short years. A package of state and/or utility incentives, along with clear, fair interconnection standards for CHP systems, can make all the difference. By investing in energy efficient CHP systems today, Kentuckians can help our industries be more competitive and our jobs more secure over the long-term.
Offer comprehensive support for commercial and industrial customers who invest in energy efficiency and renewable energy systems.
Many states and utilities offer a comprehensive package of incentives, grants, technical assistance, and low-cost capital to support clean energy investments that benefit their commercial and industrial customers. There is a great need across Kentucky for high-quality, customized, and affordable technical assistance – in addition to incentives and low cost financing – to help businesses and industries benefit from cost effective energy upgrades.We do have some important assets around which a stronger system of support could be built. TheKentucky Pollution Prevention Center, based at the University of Louisville, is a state program providing research and technical assistance to businesses, industrial customers, and utilities in Kentucky about ways to save energy. The Mountain Association for Community Economic Development offers technical assistance and low cost financing for energy efficient upgrades for nonprofit and for-profit enterprises in the Appalachian region of Kentucky.But many commercial enterprises don’t have access to the energy services they need to identify and implement the best strategies for saving energy and money. While some utilities will do commercial energy audits, it often requires an upfront cost to the customer. And Kentucky’s small corporate tax credits for energy efficiency and renewable energy systems expired in 2015. We can and should do much better. The following steps would help:
- Raise the limit on the size of net-metered systems to at least 2,000 MW and allow customers to enter into power purchase agreements for distributed renewable energy. (See discussion in section 2 above.)
- Continue to support on-farm energy efficiency and renewable energy projects with grants through the Kentucky Agricultural Development Fund, technical assistance, and other incentives.
Close a loophole that lets industrial customers opt-out of energy efficiency programs.Kentucky’s industrial customers are currently allowed to “opt-out” of utility sponsored energy efficiency programs.
They make the argument that they will, of course, do whatever is cost effective on their own, so it’s not necessary for utilities to offer efficiency programs. They also balk at paying for utility-sponsored industrial efficiency programs which any given company might or might not take advantage of in a given year.However, experiences in other states indicate that such “opt-out” policies leave important efficiency gains on the table.Kentucky’s opt-out policy should be revisited as part of a comprehensive approach to ensure our manufacturing sector is resilient and competitive in a changing world. One alternative is to allow some industrial customers to self-direct their energy efficiency spending, rather than opt-out. This allows qualifying industrial customers to direct their share of energy efficiency fees towards projects at their own facility, with oversight to ensure efficiency savings are achieved.
Consider bill rebates for Kentucky’s most trade-exposed energy intensive industries, using a portion of revenues from a price on CO2 pollution.
There is evidence from other states that reinvesting CO2 revenues in energy efficiency provides greater customer benefits than direct rebates. However, Kentucky should carefully monitor the impact of energy rates on our trade-exposed energy intensive industries. Some direct rebates may be warranted.
- Provide state incentives for Combined Heat and Power (CHP) systems and establish fair interconnection standards for these projects.
- Empower Kentucky Plan Executive Summary (pdf)
- Empower Kentucky Plan (pdf)
- Empowering Kentucky Synapse Analysis-Final (pdf)
- KFTC EJ Analysis Executive Summary (pdf)
- Environmental Justice Analysis for Kentucky, Technical Documentation (pdf)
- State policies and best practices for advancing energy efficiency, renewable energy, and combined heat and power, a report by the US Environmental Protection Agency, 2015
- Database of state incentives for renewables and efficiency, updated continuously by the North Carolina Clean Energy Technology Center
- Big opportunities for small business: successful practices of utility small commercial energy efficiency programs, a report by the American Council for An Energy Efficient Economy, November 2016
- Scaling up participation and savings in residential energy retrofits, a report by the American Council for an Energy Efficient Economy, October 2016
- Lifting the high energy burden in America’s biggest cities: How energy efficiency can improve low-income and underserved communities, a report by the American Council for an Energy Efficient Economy, April 2016
- Recognizing the value of energy efficiency’s multiple benefits, a report by the American Council for an Energy Efficient Economy, December 2015
- Combined Heat and Power Technical Potential in the United States, a report by the US Department of Energy, March 2016
- The greatest energy story you haven’t heard: how investing in energy efficiency changed the US Power Sector and gave us a tool to tackle climate change, a report by the American Council for an Energy Efficient Economy, August 2016
- A Wave of Net Zero Energy Schools Crests in the South, a story by Ken Edelstein for the Kendeda Fund, April 2017.