MARKET POWER Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals April 28, 2020
Proprietary and Confidential What can be expected from Midstream programs? 900% better results! 65,000 900% MORE…. 60,000 55,000 Tons of HVAC Equipment 50,000 Program participation 45,000 • 40,000 35,000 Energy impacts • 30,000 25,000 Customer benefits • 20,000 15,000 Customer touchpoints • 10,000 5,000 - 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Downstream Years vs. Midstream Years ††PG&E Commercial HVAC Market Power 2 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Proprietary and Confidential 1 History of Midstream Programs 2 Applicability to Illinois (even during COVID-19) 3 AGENDA Midstream Program Results 4 Challenges & Lessons Learned 5 Recommendations for Illinois Market Power 3 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Proprietary and Confidential Supply Chain Overview Promote new & existing products • Increase market share • Manufacturers Midstream ally • When manufacturer has no • sales force, rep is more cost effective For the purposes of this presentation, Promote new & • Manufacturers’ existing products using consistent terminology as March reps Increase market share 6, 2020 Midstream-Upstream • Midstream ally • Working Group Presentations Sales / marketing support • “Upstream” are incentives • Elevate inventories • paid to manufacturers Distributors Product / program training • “Midstream” are incentives • Lines of credit / financing terms • paid to distributors or dealers Midstream ally • Trusted advisor • Contractors Licenses, insurance & • training Trade ally • Indoor comfort • Improvements in health & safety • End users Lifetime benefits & tangible savings • Customer information; future • opportunities Market Power 4 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
History of Midstream Programs The real story of how midstream programs came to be 5
Proprietary and Confidential History of Midstream Programs • In 1998 PG&E launched a Distributor HVAC and Motors Program, with Energy Solutions support • Distributors received rebates, but had to provide end- use customer installation addresses • Why midstream was considered • Challenges to launching • Market actors: CEOs • Internal utility concerns: paperless applications, loss of customer touch point, no wet signatures • Regulatory barriers: free markets work best • Public Utility Commission: closing and reopening commercial midstream HVAC program, later mandating residential midstream HVAC program Market Power 6 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Applying Midstream Programs to Illinois Are midstream programs designs from other regions, climate zones, fuels, and service territories applicable to Illinois? Do midstream programs work during the COVID-19 pandemic? 7
Proprietary and Confidential Short Answer: Yes, midstream programs are applicable in IL, but your goals will dictate design • Are energy savings your number one goal? • Are customer touch points a primary concern? • Are there regulatory goals that need to be met? Depending on your goals, there are solutions that can benefit IL customers, stakeholders, and utilities, but midstream programs aren’t a silver bullet on their own. Market Power 8 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Proprietary and Confidential Plumbing, foodservice & refrigeration supply chains applicable in IL • Hot water (plumbing) and restaurant designs and their usage are similar across states • Technology from plumbing, foodservice, and refrigeration don’t depend on weather, but scale of the market Circulator pump supply chains also applicable in IL • Hydronic heating applications in winter • Water heating year round • Applies to both residential & commercial • The market exists, but do the energy savings justify inclusion of midstream programs for these technologies in your portfolio? Market Power 9 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Proprietary and Confidential HVAC Applicable to IL, but have to compare weather & market size • ASHRAE climate zones are a good proxy • Looking at climate zones 4 & 5, the weather is similar to Illinois • Compare populations to existing midstream HVAC programs in CO, WA, MI, MA, RI, NH, VT as a proxy to an IL program POPULATION (2019) • * States with asterisks are not statewide IL = 12.67 M RI = 1 M CO* = 5.7 M NH = 1.3 M WA* = 7.6 M VT = 0.6 M MA = 6.9 M Market Power 10 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Proprietary and Confidential Midstream Programs during COVID-19 • All implemented midstream programs continue to operate • Mechanical, refrigeration, and electrical supply chains are considered essential businesses • Remote outreach continues to influence majority of sales through distributors rather than individuals or select contractors • New midstream programs launched in April 2020 in WA, WI, and NY • Technologies included HVAC, Plumbing, and Foodservice (gas and electric) • HVAC and Plumbing are considered essential services in these states • Launch with pay-for-performance contracts to minimize risk • Product availability update • End-Of-Year forecasts decreased by 15% to 30% depending on technology Market Power 11 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Proprietary and Confidential Electric Association of Chicago Releases COVID-19 Survey Results Chicago area electrical distributors 157 companies responded; all are still operating, with 110 operating at better than 75% capacity. 41% of responding remain busy. The survey companies are still working at 100% capacity; only 13% were shows 87% of the distributors who less than 50% operational. responded are working at nearly full capacity. Just 4% say they are below half capacity right now. Electrical Contractor Results Electrical manufacturers in the Chicago area are telling a similar story. More than 90% says they are more than 75% operational; just 6% say they are working at less than 50% capacity. Market Power 12 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Results Applicability to gas and electric program administrators and to various program administrator sizes in HVAC, plumbing, and foodservice. 13
Proprietary and Confidential HVAC Results Xcel CO Midstream vs. Downstream VT ASHP Cumulative Volume Participation by Installation Date 8,000 30,000 7,000 25,000 6,000 Tons of Cooling 20,000 5,000 15,000 Tons Downstream Tons Downstream 4,000 Tons Midstream Tons Upstream 10,000 3,000 5,000 *Midstream Program 2,000 launched on May 11, 2015. - 2014 2015* 2016 2017 2018 1,000 Program Year Same incentives used Incentives redesigned for IECC Midstream and Downstream 2015 Baseline Market Power 14 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Plumbing Results Proprietary and Confidential Midstream Massachusetts C&I Water Heaters: Midstream vs Vermont Heat Pump Water Heaters Prescriptive CUMULATIVE UNITS SOLD 7,000 Puget Sound Energy 6,000 THERMS SAVED 5,000 500,000 4,000 400,000 3,000 300,000 2,000 200,000 1,000 100,000 0 Launched 0 Midstream 2013 2014 2015 2016 2018 2019 Midstream Downstream mid-year Downstream Midstream Market Power 15 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Foodservice Results Proprietary and Confidential Connecticut Foodservice Participation Connecticut Foodservice Participation (electric units) (gas units) 200 800 150 600 100 400 50 200 0 0 2017 2018 2019 2017 2018 2019 Total CT Downstream Electric Units Total CT POS Electric Units Total CT Downstream Gas Units Total CT POS Gas Units Massachusetts Foodservice Programs Gas Convection Ovens & Fryers Gas & Electric Equipment 2000 3000 1500 2000 1000 1000 500 0 0 2013 2014 2015 2016 2017 2018 2019 2016 2017 2018 2019 Prescriptove Midstream Prescriptive Gas Midstream Gas Midstream Electric Market Power 16 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Proprietary and Confidential What if these savings don’t fit in your portfolio? But That Would Be My Whole 65,000 Portfolio Budget! 60,000 55,000 Tons of HVAC Equipment 50,000 45,000 40,000 35,000 30,000 Portfolio Manager 25,000 20,000 15,000 Budget for full program volume. 10,000 5,000 - Fund most cost-effective measures. 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Downstream Years vs. Midstream Years Pilot with selected market actors or products. ††PG&E Commercial HVAC Partner with market to forecast volume. Communicate status in real-time on program budgets. Avoid stop/start. Market Power 17 Leveraging Supply Chain Strategies To Achieve Dynamic Program Goals
Challenges and Lessons Learned Questions from SAG Stakeholders 18
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