Efficiency Guru: The Behind-the-Scenes EE Revolution

By Reid Smith & Elisa Wood

When consumers open their electric bills and see rates going up and up, it’s natural for them to ask, “Why isn’t anything being done?” Truth is, an enormous behind-the-scenes revolution is taking place when it comes to energy efficiency.

To get an inside look, we recently spoke with one of the industry’s long-time gurus, Steve Cowell, chairman and CEO of Conservation Services Group in Boston.

Much of the action is happening on the state level where industry players are hammering out ways to lower costs by reducing energy consumption. In most cases, the goals are aggressive and could increase efficiency investments by 2.5 to 3 times what we have today, says Cowell.

Industry insiders often talk about efficiency as the invisible power plant. If you need 50 MW of new power, you can build a new generating facility. Or you can find ways to reduce energy use by 50 MW. That’s like building a virtual power plant. The virtual power plant saves ratepayers money because a 1% reduction in load during high peak periods can reduce wholesale electricity prices by 10%, according to the Electric Power Research Institute.

Cowell sees three ground-breaking efforts in the works to increase the use of efficiency: portfolio standards, procurement, and demand resources in forward-capacity markets.

Energy efficient portfolio standards require electricity providers to meet a set amount of their annual demand through efficiency measures. In other words, the state decides to cut back on energy use by say 15% by 2015 -- the goal set by New York. State officials then work out a regulatory or legislative strategy to reach the goal. This isn’t always easy. What programs should the state push to encourage more use of efficient light bulbs by homeowners, better refrigeration in supermarkets, smart meters by businesses? And who should be in charge of the programs: utilities, a state authority, cities?

A second way to implement energy efficiency is to use the so-called procurement approach. Some people describe this as making energy efficiency the “first fuel.” When a utility needs more power, it must look first at increasing efficiency. “If there’s something cheaper on the efficiency side, you’d have to buy that first,” Cowell explains.

The third approach involves using energy efficiency—such as demand resources—in a forward capacity market. The objective of the forward capacity market is to purchase sufficient capacity to operate a reliable system for the next year at competitive prices. Traditionally, only power generators were allowed to bid in such markets. But ISO New England recently allowed demand resources to compete head-to-head in its auction. Two-thirds of the selected resources were demand resources. This was a huge “win” for energy efficiency in New England, says Cowell. (See our March 6 newsletter, Blog: “Negawatts beat megawatts in New England,” March 6, www.realenergywriters.com)

Whatever method states choose to bring more efficiency to the power grid, the goal is the same. “At the end of the day, when a customer is looking for help to lower their energy use, they will see a unified plan, easy to use, with known technologies,” Cowell says.

For businesses and consumers who are seeing their electric bills skyrocket, we hope that day will come sooner rather than later.

Visit Reid Smith and Elisa Wood at www.realenergywriters.com and subscribe to their free Energy Efficiency Markets newsletter.

Energy Efficiency: Not a Sound Bite Business

By Elisa Wood

I’m a star at the neighborhood playground because I write about energy. Let me explain. I have a young son, and often find myself next to the swings talking with other parents. Inevitably we talk about work. Inevitably it comes up that I know a little about energy. And inevitably I'm surrounded by a crowd that wants to know-- demands to know--why the US doesn’t use more green energy.

They are looking for a sound bite answer, like “It is Bush’s fault” or “Exxon is evil.” Instead, I find myself grasping for an answer, even though I’ve been following this business for 20 years -- or more accurately – because I’ve been following this business for 20 years.

Overhauling a nation’s energy infrastructure is no easy task and far more complex than people realize. And unfortunately, this lack of understanding, among politicians and the general public, is what gets us into trouble. Since the 1970s, we have swung back and forth from urgency to complacency about energy independence. We forget about the problems created by our over-dependence on fossil fuels once gasoline prices drop. We seem to operate under the false impression we can fix our energy problems near instantly should we really need to act.

A new World Bank book underscores the complexity of revamping energy infrastructure, in this case, energy efficiency in three countries where demand is growing rapidly. Called “Financing Energy Efficiency: Lessons from Brazil, China, India and Beyond,” the book finds enormous energy savings opportunities in these countries, which are among the top 10 energy consumers in the word. But to realize the savings, the countries must develop “large numbers of relatively small projects scattered among hundreds of thousands of industries and building complexes.”

Needless to say, the logistics are daunting. Moreover, efficiency projects tend to lose when competing for up-front capital against power plants because efficiency is about saving money – a more difficult concept to sell than making money.

But interestingly, it is not lack of capital in these countries that thwarts efficiency but “inadequate organizational and institutional systems for developing projects and accessing funds.” In other words, efficiency is not on the main agenda of business and government.

The challenge for governments is to influence the broad technology choice decisions of investors and encourage them to adopt energy efficiency solutions, according to the book. The problem, the authors say, needs to be fixed on the institutional level and must consider the unique local economies. The book attempts to provide a framework for creating financing systems.

With many case studies on ways efficiency has been financed in various countries, this nearly 300-page book makes it no easier to come up with a quick sound bite for why it is a struggle to green our energy supply. But the authors do give some valuable industry perspective on how to get there as the world prepares for a 53% increase in energy demand over the next two decades. It is worth a look. Written by Robert P. Taylor, Chandrasekar Govindarajalu, Jeremy Levin, Anke S. Meyer and William A. Ward, the publication is available at http://www.esmap.org/filez/pubs/211200830655_financing_energy_efficiency.pdf

Visit energy writer Elisa Wood at www.realenergywriters.com and pick up her free Energy Efficiency Markets newsletter.

How to Find “White Tag” Markets

By Elisa Wood

Doing business in the US can be a crazy venture if you’re an international company trying to make inroads. Europeans often say it’s like learning the rules of 50 different countries. This is because important energy policy decisions are often made by state governments.

It looks like the emerging “white tag” market for energy efficiency may be no different. So far, Congress has resisted the idea of a national energy efficiency portfolio standard, which would set uniform energy savings requirements for utilities nationwide. But several states are moving ahead with their own standards.

Often the standards allow trading of white tags, or energy efficiency certificates. The tags are proof that an entity reduced consumption through energy efficiency. A manufacturer might earn the tags by upgrading motors; a store might install more efficient refrigeration; a hospital could add cogeneration. The business or institution can then sell the tags to utilities who use them to show they (or a surrogate) met the state’s efficiency requirement.

Which states should you watch for white tag business?

A useful starting place is “Renewable Portfolio Standards in the United States: A Status Report with Data through 2007,” which can be found at http://eetd.lbl.gov/ea/ems/reports/lbnl-154e.pdf. Released in early April 2008 by the Lawrence Berkeley National Laboratory, the report focuses more on renewable energy, but includes an informative section on efficiency.

Connecticut has taken the lead in white tag trading. Pennsylvania and Nevada are not far behind. Other states that have created efficiency portfolio standards are Colorado, Illinois, Minnesota, New Jersey, New Mexico, and Texas. Meanwhile, Hawaii, Nevada, and North Carolina have melded efficiency requirements in with broader renewable energy goals, according to the report. Cogeneration developers might take a particularly close look at Colorado, Connecticut, Hawaii, Illinois, Maine, Nevada, North Carolina, since they specifically count the high efficiency plants toward their green goals.

Meanwhile, still more states are taking a hard look at creating efficiency portfolio standards. The New York Public Service Commission, for example, is well on its way.

The good news for energy efficiency companies is that portfolio standards are catching on. The bad news is there may be 50 different sets of rules to learn.

Elisa Wood is an energy writer. Visit www.realenergywriters.com and subscribe to her free Energy Efficiency Markets newsletter and podcast.

Rhode Island: Little State, Big Energy Efficiency Opportunity

By Lisa Cohn

Rhode Island is often the butt of jokes about its size, a lot of them having to do with an inability among residents to screw in electric light bulbs. But when it comes to energy policy, the state has often loomed large, even if few people notice.

For example, it was Rhode Island that led the way with electric industry restructuring in the 1990s. California and Massachusetts usually get the credit.

And more recently, the smallest state in the nation became a big innovator in energy efficiency policy. Rhode Island in 2006 passed a law that requires National Grid https://www.nationalgridus.com/narragansett/, its major electric utility, to eke out all cost-effective energy efficiency before turning to power plants for generation.

The law was slow to ramp up, but is now getting under way. The state Public Utilities Commission is putting together rules to make it work. http://www.ripuc.org/eventsactions/docket/3931page.html

A few other states have made similar attempts, but eventually “settled” for less efficiency than was available, according to Andrew Dzykewicz, state energy czar, in a recent letter updating state regulators on the plan. Rhode Island, on the other hand, intends to go after energy, capacity and system cost savings to assist all customers: residents, institutions and commercial & industrial operations.

Rhode Island also is unusual in that it links the need for efficiency with the requirement to maintain a reliable electricity delivery system. Along with coming up with a comprehensive efficiency plan, National Grid must seek out ways it can integrate into its transmission and distribution system alternative technologies, like combined heat & power, distributed generation, renewable energy, demand response and efficiency.

State regulators continue to work out details, but look to July 15, 2008 as a major milestone. On that date the Rhode Island Energy Efficiency and Resource Management Council will file an energy efficiency “opportunity report “ with the Public Utilities Commission. The report will help determine how National Grid proceeds.

Once the program gets going, maybe the jokes will be more flattering, as in: How many Rhode Islanders does it take to screw in a light bulb? Not very many, since they hardly ever need to change their light bulbs, given how highly efficient they are.

Visit writer Lisa Cohn at www.realenergywriters.com, pick up her free Energy Efficiency Markets newsletter and listen to her Energy Efficiency Markets podcast.