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.