Are we thinking about energy all wrong?

By Elisa Wood

April 29, 2010

The energy world operates under the premise that more is better. If we build more power plants, we’ll have ample supply, and electricity prices will drop. Even better, if those plants are clean and green, we’ll displace older, dirtier plants and reduce emissions. That will help our economy by producing jobs.

But is that the right way to think about power?

Truth be told, new energy sources are likely to play a smaller role in economic recovery than advances in energy efficiency, according to speakers at a recent symposium held by the American Council for an Energy Efficient Economy, as part of its 30^th anniversary celebration.

“Cost-effective investment that can reduce the amount of energy necessary to support a dollar of economic activity is the single most important driver of economic productivity within the United States and around the world,” said John A. “Skip” Laitner, director of economic and social analysis, American Council for an Energy-Efficient Economy.

But too often policymakers view energy efficiency not as an economic driver, but as a means to control demand until we can deploy conventional resources, such as nuclear and oil, he said.

Consider the following data that emerged from the symposium:

• America’s economy has tripled in size since 1970 and three-quarters of the energy needed to fuel that growth came from efficiency advances, not by adding more energy.
• Still, the U.S. economy remains only about 13 percent energy efficient, meaning 87% of the energy we use is wasted. We are behind Japan and several European countries, which have a 20% efficiency level.
• Energy efficiency investments can provide up to one-half of the greenhouses gas emissions reductions most scientists say are needed between now and 2050 – while lowering energy bills.

“The greatest barrier of all to more energy efficiency is the mentality of the growth imperative: the deep seated conviction that growth assures survival in the competitive global race. The focus is on growth, with profits secondary. But we have to ask: The race is to where?” said Robert Ayres, an emeritus professor at the European Institute of Business Administration and author of “Crossing the Energy Divide: Moving from Fossil Fuel Dependence to a Clean-Energy Future.”

“Growth that consumes limited resources is itself unsustainable,” he added. “A new paradigm is urgently needed. The new paradigm must focus on the cost-effective re-use, renovation, remanufacturing and recycling. The energy firms of the future will need to sell efficiency, and energy security, not fuel.”

To hear Laitner and Ayres summarize their findings and answer media questions go to: http://www.aceee.org/.

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

Efficiency beyond pizza money: The military’s gigantic bite

By Elisa Wood

April 22, 2010

Is efficiency worth the bother if you save only $5-$10 per month on your energy bill? Many homeowners think not. One dad told us his family would rather save money by just skipping a pizza order once a month. That sentiment is not unusual.

But it is hard to negate the economic value of efficiency if you spend $20 billion per year on energy, as does the US military, our government’s largest energy user, responsible for nearly 80 percent of the government’s total energy consumption.

“Re-energizing America’s Defense,” a recent report by The Pew Project on National Security, Energy and Climate, http://www.pewclimatesecurity.org/reenergizing-americas-defense/ looks at how profoundly our energy mix affects the military.

The military has great motivation to make our energy supply more efficient and less oil-dependent. For every $10 per barrel increase in oil prices, the Defense department’s energy bill increases more than $1.3 billion. That is a lot of pizza.

But it’s not just cash that motivates the military. Much of our military’s work goes into defending energy supplies – such as oil tankers moving through pirate waters along the Somali coast or fuel conveys making their way to troops in the Middle East.

So for the military energy efficiency brings not just savings of coin but of blood. The less energy we use, the less they must fight to protect. Thus, Defense Secretary Robert Gates has identified energy as one of the department’s top 25 “transformational priorities.”

It comes as little surprise, therefore, that the military would pursue clean energy innovation and aggressive efficiency goals, several of which the Pew report highlights. Here is a sampling.

• The Army will transition to 4,000 electric vehicles during the next three years, giving it one of the world’s largest electric fleets.
• The Navy plans to reduce its oil use in its commercial fleet 50 percent by 2015. In October it commissioned the first amphibious assault ship to use a hybrid gas turbine/electric drive machinery plant. The Navy also is testing algae and camelina-based biofuels for use in jet aircraft fuel and as shipboard diesel fuel.
• In Iraq, the Marine Corps has joined the Army to test energy-efficiency foams that reduce energy consumption 50 to 75 percent in temporary structures
• The Air Force leads all federal entities in clean-power purchasing, with 37 bases meeting some portion of their electrical needs with renewable sources. Nellis Air Force Base has one of the largest solar arrays in North America, providing more than 25 percent of base energy

Our energy mix affects the military, and the military is determined to affect our energy mix.

“DoD has historically been a national leader in technological innovation, creating such transformational tools as the Internet and the Global Positioning System. Building on this history, DoD can be a leader in creating alternative fuels, advanced energy storage and more efficient vehicles on land, in the air and at sea,” says the Pew report.

Given that the military is often an incubator for new technology, homeowners will likely reap the fruits of these efforts. That $5 to $10 we can save through energy efficiency may double or triple under new innovation. And suddenly it won’t be so easy for us to ignore the benefit.

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

The plug instead of the pump: Will the electric car put money in your pocket?

By Elisa Wood

April 15, 2010

For consumers, discussion of electric cars tends to focus on how long the vehicle travels before needing a recharge and what it will cost to buy. But a new report backed by several large corporations takes a broader view of what the electric car will mean to our overall finances.

And the news is good.

Fueling our cars with electricity instead of gasoline – this one change – could avert a lot of economic pain, according to “Economic Impact of the Electrification Roadmap” by the Electrification Council.

The council, which includes NRG Energy, CISCO, PG&E, Nissan Motor, Fedex and other major companies, wants to see us drive electric cars by 2040 for 75 percent of the miles we travel.

In pursing this target, we could reduce our federal debt by $336 million, increase cumulative household income $4.6 trillion, improve our trade balance by $127 billion and add 1.9 million jobs by 2030, says the report.

How can an electric car do all of this? Our use of oil would fall dramatically, and we’d be spared the sharp financial blows we now experience when oil prices spike.

“Probably the single most important conclusion of the study is that by substantially reducing America’s oil dependence, the economy will be much better prepared to withstand a future oil shock such as those that contributed to recessions in 1973–74, 1980–81, 1991, 2000–01 and 2007–09. That is, the policy package can be thought of as a self-financing insurance policy that will make the economy more robust in good times and more resilient when subjected to energy shocks,” says a letter introducing the report by Robert Wescott, president, Keybridge Research and Jeffrey Werling of the University of Maryland’s Department of Economics.

The report envisions electric vehicle use reducing US foreign oil imports by 11.9 billion between 2010 and 2030. To put this number in perspective, the nation’s total proved reserves are slightly less than 30 billion barrels.

World demand for oil would fall, leading to lower oil prices, putting more money in our pockets. It’s also a lot cheaper to run a car on electricity than gasoline, about 2.5 cents/mile for an electric vehicle compared with 10 cents/mile for a combustion engine, says the report.

David Crane, NRG Energy president and CEO, says the electric vehicle represents the “next great tectonic shift in our economy, one that will transform the way we use energy both in our homes and on the road.”

The report doesn’t bring up the bad news. Bad news, that is, if the goal is to reduce carbon dioxide emissions. The US now gets about 50% of its electricity from coal, and the US Energy Information Administration does not forecast much change in coal’s dominant position over the next two decades, even with today’s rapid injection of renewable energy into the system.

The full report is available at http://electrificationcoalition.org/.

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

Wanted: GOLD for smart grid

By Elisa Wood

April 8, 2010

As John McDonald tells it, smart grid needs GOLD. And he’s not talking money.

GOLD stands for Graduates of the Last Decade, the technology savvy, risk-taking engineers and technicians who may be among the greatest benefactors of the new smart grid movement. While most recent college graduates face dismal employment prospects, for the GOLD kids, the job market is, well, golden.

“I’ve never seen electric utilities and suppliers outbidding each other for a bachelor’s degree,” said McDonald, who has had 35 years in the energy business and now serves as an IEEE Fellow and general manager of marketing for GE Energy T&D.

GOLDs benefit from two converging trends. The first is the sizeable technical task that utilities face in integrating smart grid technologies. The second is the wave of retirements expected to hit the utility industry in the next five to seven years.

These young recruits will invigorate the utility industry, which is notorious for being risk adverse, a trait that has kept the lights on but also hinders adoption of new and more effective technologies.

Two utility cultures tend to dominate today, according to McDonald. One approaches smart grid with an “over my dead body” attitude. The second is about three retirements away from embracing smart grid.

“The older folks say we’ve been doing this for 20 years. I’ve got three years to retirement, and I’m not going to do anything new that might cause a problem,” he said. “That will go away with the GOLD folks. These are folks who went to Block Buster and rented a game and learned how to use it in a matter of minutes.”

Not only will GOLD engineers find it easy to get jobs in the electric power industry, but they also are likely to advance quickly in the ranks, McDonald said. Utilities have done little hiring in the last 15 years. Thus, the middle group – those in between upper management and new recruits – tends to be thin. So the way is clear for GOLDs to enter management early in their careers.

Demand for GOLDS is already strong, but it is likely to get even more intense. Smart grid is still new, only in the design/engineering phase, still to take on manufacturing and field deployment. More jobs will open as these stages occur.

What can engineering students do to position themselves for the plum jobs? McDonald advises that they pursue internships in the power and energy industry with electric utilities, testing labs and suppliers or snag research positions with professors. IEEE also has set up a website where job seekers can post resumes: http://www.ieee-pes.org/workforce/pes-careers.

“It is exciting for me because my son is in that [GOLD] space. The potential for him is much greater than it is for me,” McDonald said. “I’m 58. Most of us who have been in the industry for a long time will be more than willing to give decision-making to this group.”

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

The utility of the future? Think shopping mall

By Elisa Wood

April 1, 2010

The energy world is about to turn upside down. With the coming of smart grid, the electricity consumer becomes the electricity seller; the passive home appliance becomes the active energy manager; the grid repairman becomes the grid itself.

Such an upheaval means that the energy world needs to start thinking about a new business model, says a recent report by IBM Global Business Services Energy and Utilities.

The fact that IBM is advising the energy industry is itself a point of interest, yet another signal of the new market opportunity emerging within the energy arena for information technology. This opportunity has drawn the attention of not only IBM, but also CISCO, Google and many others.

So how does IBM see the energy business model changing? First consider what it has been for the last century: a grow-and-build model. This model brought universal electrification to the United States. Utilities encouraged more and more consumption, and they built power plants and transmission to the far corners of the nation to serve the growing demand.

“The success of this strategy was remarkable. In the United States for example, from 1920 to the mid 1960s (excepting the period of the Great Depression), usage increased at seven percent annually – about five times the rate of usage of all forms of energy combined and three times the rate of economic expansion in general,” says the IBM report, “Switching perspectives: Creating new business models for a changing world of energy.”

But today we no longer need such expansion. The grow-and-build model is obsolete, yet continues to be used by utilities. As a result, utility stocks, which in the 1940s-1960s significantly outperformed the Dow Jones Industrial Average, now lag well behind.

Instead of expanding their territory, utilities are being called upon to change their product — to offer energy that is more efficient and clean and service that is more consumer-friendly.

Smart grid technology can help utilities meet today’s imperative. But it brings with it a new and complex relationship between customer and utility. This is because smart grid allows consumers to control energy usage via a home computer. Heck, their appliances can control energy usage without the consumer doing anything. And with increased use of solar energy and other distributed technologies, the home also becomes power plant and storage facility for the electric utility.

“Companies willing to tackle industry model innovation and sit at the nexus of new complex relationships among business partners and customers will be well positioned to create and capture new demand for emerging products and services. Strong growth in revenues and profits – albeit accompanied by some risks – is achievable in multisided business models because of the embedded network economies of scale (i.e., margins increase with network size),” says the report.

IBM calls this new business model “a multisided platform.” What does it look like? Think shopping mall.

“Manufacturers, retailers and shoppers all benefit from having a single location where they can meet and transact business. A wider variety of stores and services brings more shoppers; more shoppers bring higher sales volumes for manufacturers and lower costs for retailers (and, in theory, also lower prices for shoppers). Thus, some element of network economy is bundled into the shopping mall value proposition. The platform owner (the mall operator) extracts some of this value in the form of rent to store owners and, in some cases, service fees to shoppers,” says the report.

If indeed this is the future, it won’t be embraced quickly or easily by utilities, which are notorious for their caution. For those who do move forward, here is some of what IBM advises.

Be sure your current customer base is sizable enough to ensure that you get a meaningful head start.

But don’t hurry. History has shown that later movers may actually benefit from standing back from the first wave.

Time the announcement of your new business model carefully to avoid shocking long-time constituencies or alerting rivals too soon.

Consider corporate culture changes that will ensue.

What might this new model mean to the utility business? A new kind of grow-and-build. Except this time the industry will not conquer the frontier with power plants and transmission, but information technology. See the full report here: http://www-935.ibm.com/services/us/gbs/bus/html/ibv-electric-utility-innovation.html?ca=rss_bcs

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