Pioneering a performance-based future for energy efficiency: Lessons learnt from a comparative review analysis of pay-for-performance programmes

Energy efficiency targets and funding for reducing energy consumption in buildings play a significant role in the international policy landscape. Energy efficiency can deliver both sustained reductions in energy usage by improving baseline efficiency as well as targeted peak demand reductions. However, despite the many benefits, energy efficiency faces barriers to achieving its full potential. The economic effectiveness of energy efficiency programmes is often doubted because of the evaluation, measurement, and verification practices currently used. Calculation of potential energy savings from different interventions may be unreliable due to various types of uncertainty, resulting in a performance gap between predictions and actual energy consumption. On the other hand, calculation of trustworthy savings remains critical for convincing investors and regulators of the cost-effectiveness of energy efficiency programmes and their ability to defer supply-side capital investments. Yet, incentive programmes continue to heavily rely on the robust calculation of energy savings. In this article, we lay out guidance for designing and implementing pay-for-performance schemes that reward end-users or aggregators for delivering energy savings tracked through metering and established against a business-as-usual scenario, also describing several potential obstacles and questions that utilities and regulators should consider. Through investigating eleven such programmes around the world, we summarise key design features, performance assessment methods and payment agreement processes. In addition, we provide a set of key implications and policy recommendations, which, if acted upon, could accelerate the deployment of renovation strategies and spur cost-effectiveness.