Thursday, March 25, 2010

EE funding: The cascade begins

By Elisa Wood

March 25, 2010

It’s been a heady time for the energy efficiency businesses, with the federal government last year announcing financial support never before seen by the industry. But months after the initial hoopla many of the smaller companies – which make up a large swath of the marketplace – say they still have not seen dollars come their way.

That’s changing now, according to the National Association of Energy Service Companies, which held a recent workshop in Washington, DC to discuss federal energy efficiency initiatives. Donald Gilligan, NAESCO president, and James Dixon, NAESCO, vice chairman, took a few minutes away from the action to talk to me about their view of the marketplace.

Dixon, who is also a vice president at ConEdison Solutions, says his company has been seeing a lot of business spurred by federal stimulus dollars. The funds are now flowing from the energy service performance contractors and energy service companies (ESCOs) down to the general contractors, lighting contractors, manufacturers and others in the chain of services. “It’s a huge cascading effect with far ranging impact throughout the country,” Dixon said.

Gilligan expects this cascade to flow even faster in the second quarter. “It is ramping up quickly. We expect most the money to be committed in a few months.”

How do you stay on top of the action?

The federal government is engaged in a large-scale effort to bring more efficiency to its buildings. Those contracts tend to go directly to the “super ESCos,” sixteen companies that were awarded special umbrella energy savings performance contracts by the U.S. Department of Energy late last year. A list of the super ESCOs and contacts is here: http://www.nema.org/gov/economic-stimulus/upload/Fact%20Sheet%20and%20Contact%20Info%20for%20ESCOs.pdf

Super ESCos often subcontract work out to the smaller energy companies. Smaller players also can keep an eye on the significant increase in energy efficiency spending by state governments, particularly in the Northeast. Much of the state money flows directly to utilities who in turn subcontract projects to energy service companies.

Those who have been in the industry for decades have seen interest in energy efficiency ebb and flow. What’s the impetus this time? And how long will efficiency hold society’s interest?

“If you go back four to five years, then you begin to see the trend toward increased energy efficiency. That was also the time when you began to see utility companies propose to build new power plants,” Gilligan said.

“Those new power plants are phenomenally expensive. What happened across the country, at the state level, at the public utility commissions, when they were asked to review the applications for those power plants, they said, ‘What else is there? There has got to be something less expensive than this.’ You saw a real renewed interest in energy efficiency in parts of the country that had not show interest in energy efficiency for 10 or 15 years. That trend is not going to stop, as the country continues to grow, as we continue to need more power supplies. Energy efficiency is always less expensive than new power plants,” Gilligan added.

Dixon concurred: “I‘ve been working the utility industry for about 28 years, so I’ve seen this ebb and flow. I think this is a long term trend.”

So if you’re in the energy efficiency business and haven’t yet seen increased action yet, hang on, it’s coming soon. And it looks like you’re in for a long ride.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Thursday, March 18, 2010

Smartest smart meter: The gasoline pump?

By Elisa Wood

March 18, 2010

Americans do many things well. These things do not include sacrifice of creature comforts.

So it came as a surprise to see US Rep. Brian Baird (D-Wash) suggest we can avert 20% of our energy use if we take short “military showers” over 20 weeks.http://content.usatoday.com/communities/greenhouse/post/2010/03/can-behavioral-changes-save-enough-energy-to-save-earth/1. Who the heck is going to do that?

We already know from Jimmy Carter-era energy policies that lecturing Americans does not result in sustained conservation. So what’s Baird getting at? A clinical psychologist, he is among a growing group looking at behavioral triggers that will encourage us to consume energy more intelligently.

To buy prudently, consumers need to know

  1. What a product costs
  2. How much of the product they need

Sounds obvious, but it’s often not how we’re sold electricity.

Imagine if you had never been in a supermarket, and all of your food was delivered on demand via a conveyor belt into your house. You pay for the food just once a month and have no idea of the cost for each item you eat. When your bill shoots up, you do not know why. Having never done any grocery shopping, you’re unaware of the high price of the many pints of out-of-season, raspberries you consumed. So you buy the raspberries again and again.

We buy electricity much the same way. Power costs vary throughout the day, but we are unaware of any variation because of the way we consume and pay.

However, the marriage of energy, information technology and behavioral science are changing the way we buy electricity and other forms of energy. Several new devices help us see price, consumptions and alternatives. These include real-time traffic maps that helps us avoid routes where the car will idle and eat up gasoline, Quicken-type software to track our energy costs, smart meters and other new gadgets that lift the cloak from energy pricing. In the March 16 article, “Microsoft Puts Its Weight Behind IT’s Energy-Saving Potential,”http://www.greenercomputing.com/blog/2010/03/16/microsoft-puts-weight-behind-it-energy-saving GreenerComputing’s Marc Gunther discusses some of these technologies and the “democratization of information” they create to end the blind way we now shop for energy.

In the vein of making the consumer more aware, the Natural Resources Defense Council this week published a white paper that shows what drivers suffer most when gasoline prices rise. The paper comes as some analysts predict prices will exceed $3/gallon again this spring.

The economic impact will differ by state based on per capita gasoline use, according to the NRDC paper. http://docs.nrdc.org/energy/files/ene_10031601a.pdf

Gasoline hikes hurt drivers most in these states:

  • Mississippi
  • Montana
  • Louisiana
  • Oklahoma
  • South Carolina
  • Kentucky
  • Texas
  • Maine
  • Georgia
  • Idaho

Price spikes cause the least economic harm in:

  • Florida
  • Washington
  • Pennsylvania
  • New Jersey
  • Colorado
  • New Hampshire
  • Maryland
  • Massachusetts
  • New York
  • Connecticut

Gasoline prices are more apparent than electricity prices to the consumer, since we see the cost each time we fill up at the pump. Indeed we see them blazing from lit signs along the roadway. We cannot miss each penny rise.

Perhaps that is why gasoline consumption drops when prices rise. People modify their behavior. Chances are if you spotted your state in the most vulnerable list, you’re already thinking of sacrifices or changes you will make this spring if the prices go up. It may be that behavioral psychologists need look no further than their neighborhood gas station for ideas on how to get people to take military showers. A price billboard in every home just might do the trick.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Thursday, March 11, 2010

Did energy cause this mess?

By Elisa Wood

March 11, 2010

Much of today’s economic debate boils down to these questions: How did we get in this mess? And how do we get out? Two recent studies implicate the energy industry as a cause and a solution.

While our economic tumble is clearly linked to an inflated housing market and overly-hedged financial products, we cannot discount pressure from high energy prices.

In fact, 10 out of the 11 U.S. recessions since World War II (including this one) occurred after oil price spikes, says “Reassessing the Oil Security Premium,” a discussion paper by Resources for the Future.http://www.rff.org/News/Features/Pages/Reassessing-the-Oil-Security-Premium.aspx

The Washington, D.C. think tank looks at price spikes caused by oil supply disruption and the economic reverberation. In particular, the paper analyzes oil externalities – the spillover effect of high oil prices onto those who are not players in the energy market.

It works like this. If I pay a lot of money for oil, not only do I take a financial hit, but so do my neighbors down the street, even if they buy no oil. This is because high oil prices lead to losses in gross domestic product and wealth transfers to foreign oil producers. In other words, my pricey oil purchase harmed the economy and therefore harmed my neighbors.

The report attempts to quantify the costs to society to keep oil flowing our way during worldwide supply disruptions. It calls this cost an “oil security premium.” The report estimates costs of $4.45 per barrel of oil consumed in 2008, rising to $6.82 in 2030 for imported oil. We’re damaged less by disruption in domestic oil supply, which carries a security premium of $2.28 per barrel in 2008 to $4.45 in 2030.

If the energy sector contributed to today’s economic slowdown, can it help lift us out?

We can improve our energy security somewhat by displacing imported oil with domestic oil. But an even better way to avert the pain is through energy efficiency, according to the paper: “Our estimates suggest that energy security is more greatly enhanced by policies to reduce overall oil consumption than by those that substitute domestic production for imports.”

Think about it. We’d be spared a couple of dollars per barrel by buying domestic instead of imported oil. But we’d be spared more than double that amount if we could forego the barrel completely.

Another analysis, released this week by the American Council for an Energy Efficient Economy, gets even more to the point about how efficiency can help our society financially. The advocacy organization looks at how many jobs energy efficiency programs create.

More specifically, ACEEE calculated the likely job creation from three programs under consideration before Congress. The programs include a residential retrofit program, also known as Home Star or “Cash for Caulkers,” and the commercial retrofit program, Building Star. Both programs would offer rebates for energy efficiency installations and improvements. The third program would offer $4 billion in energy efficiency grants for manufacturers. http://www.aceee.org/press/030810.htm.

ACEEE found that three efficiency programs could add 333,000 jobs in 2010 and 184,000 in 2011.

Steven Nadel, ACEEE executive director, points out that the job creation points out that these job figures “are probably conservative.” There is a bigger picture to consider: “We did not examine the impact of lower energy consumption on energy prices. When energy prices go down, money is freed up for spending in more labor-intensive parts of the economy.”

No sophisticated math here. These reports indicate that consumption carries a price tag, particularly when energy supply is low. High energy costs add to economic destabilization. Reducing energy costs – by reducing consumption – frees up money, which can help right the economy again.

Debate about the cause of the recession has focused heavily on problems within the financial arena. Maybe we’ve been too quick, this time around, to let the energy sector off the hook?

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Thursday, March 4, 2010

Will public support for efficiency continue?

By Elisa Wood

March 4, 2010

What’s the shelf life of today’s support for energy efficiency technologies? The industry has seen an unprecedented boom over the last several years. But all booms eventually bust.

A recent souring of public opinion about global warming science has some industry insiders bracing for impact. Will American enthusiasm for clean energy come to a halt? Only if it was global warming that spurred the enthusiasm in the first place – and I suspect it was not.

Americans tend to make energy decisions first based on economics, second on environment. While climate change has been the mantra within the energy and the environmental community, it is dollars – coupled with energy independence concerns – that have largely driven public support.

Consider the trajectory of today’s clean energy boom. It took off in a big way following the rapid price spikes in natural gas and oil after Hurricane Katrina in 2005.

True, the boom sustained itself even when prices dropped again. Why? While some industry analysts credit climate change concerns, others point to turmoil in the Middle East and our desire to reduce dependence on foreign oil.

I tend to favor the theory that we continued to see the post–hurricane price spikes in the rear-view mirror. For once our memories served us when it comes to energy policy.

But it’s not just hindsight that will prod us to incorporate more efficiency and free-fuel renewables into the power portfolio. The road ahead indicates price increases to come for electric power, and consumers are not likely to take kindly to them. So says the 2010 annual utility industry outlook by Moody’s Investor Services:

“The desire to refurbish, enhance and rebuild a relatively antiquated electric infrastructure is driving the need for steadily increasing rates…In our July 2009 Industry Outlook Update report, we estimated that consumers might stop tolerating rate increases at a 50%-or-so rise above the current average U.S. rate of $0.10 per kwh. At the time we wrote that, this “inflection point” would not be reached until about 2018 or 2019. Whether or not this inflection point remains the base case is unclear, but recessionary pressures on residential household budgets, and a lack of clear evidence of wage inflation, lead us to wonder whether the inflection point might arrive sooner.”

How likely are these rate increases? Moody’s cites several reasons electric rates may rise, in addition to the need for new energy infrastructure. Roughly $65 million in utility credit facilities is set to expire in 2011 and again in 2012. At the same time, utility pension plans are underfunded by $29 billion – leaving them 78% funded at the end of 2009.

In addition, as the economic slowdown continues to deplete local government coffers, new tax revenue will be sought. Adding more taxes on utility bills is not unlikely. In some states such taxes are already the norm. New York public service commissioner Maureen Harris pointed out during a recent public meeting that of a $421 million rate hike being sought by Consolidated Edison, $140 million is attributable to taxes.

Climate change concerns or no, with so much pressure on electricity rates, the American consumer is likely to continue to support energy efficiency as a quick, low-cost way to reduce energy bills.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.