Energy efficiency service companies missed the memo

By Elisa Wood

June 24, 2010

The folks who install insulated windows, efficient factory motors and energy saving lights apparently missed the memo about the economic meltdown.

As US gross domestic product slipped to under 1% in 2008, the $4.1 billion energy service industry grew 7%. Jealous? Just wait. That was nothing compared to the expansion predicted over the next couple of years, according to a new report by the Lawrence Berkeley National Laboratory. http://eetd.lbl.gov/ea/emp/ee-pubs.html.

Energy service companies, or ESCOs, will see 26% annual growth from 2009-2011 with revenue reaching $7.1 to $7.3 billion, the report estimates. ESCOs are private companies that typically offer energy savings improvements under long-term performance contracts.

How are they getting so much business in this depressed real estate market? A lot of it – nearly 70% — comes from what the industry fondly calls its MUSH market — municipal and state governments, universities, schools and hospitals. These institutions do not experience the boom and bust of private business, so were less hard hit by the economic downturn. Equally important, they have federal stimulus dollars to spend on energy efficiency.

Efficiency also has begun to catch the attention of the hard-to-persuade homeowner. The residential market in 2008 accounted for 6% of ESCO business, still small, but double what it was two years earlier. It helped that electric utilities increased their efficiency spending and subcontracted some of this work out to the private ESCOs.

State clean energy policies also aid the boom in ESCO activity. Massachusetts, Connecticut and Rhode Island, for example, have made energy efficiency a ‘first fuel,’ meaning utilities must secure all cost-effective energy savings before buying or building electric power. In addition, 18 states have created energy efficiency portfolio standards. They require that utilities achieve annual energy savings targets.

Not all of the news is good. Interest in energy efficiency ebbed among big businesses, not surprising given the economy. They accounted for 15% of market share in 2006, but only 7% in 2008. Uncertainty about the future makes them hesitant to commit to long-term performance contracts, according to the report.

“The traditional ESCO business model based on long-term performance contracts has always been a tough sell to private sector customers and the economic downturn further crimped its attractiveness,” the report said.

Where is the ESCO business heading? It appears the MUSH market will remain strong for quite some time. The report identified about $35 billion in potential business remaining from MUSH. The federal building market, which accounted for 15% of ESCO business in 2008, also continues to offer promise. The US Department of Energy invested $440 million in federal efficiency projects in 2009 and $498 million in 2010.

LNBL prepared the study with the help of the National Association of Energy Services Companies, whose news release on the study is here:http://www.naesco.org/ The US Environmental Protection Agency provides an explanation of energy performance contracting here:http://www.energystar.gov/ia/partners/spp_res/Introduction_to_Performance_Contracting.pdf

Visit www.realenergywriters.com to pick up a free Energy Efficiency Markets podcast and newsletter.

What will rising electricity rates mean to clean energy?

By Elisa Wood

June 17, 2010

A political consultant once told me that Americans only vote for the environmental candidate if the economy is thriving. The nation’s financial house needs to be in order before voters will tend the garden.

Green energy advocates appear to have circumvented this tendency in recent years by promoting green jobs. The political formula is no longer the environment or the economy, but the environment and the economy.

But the strength of that link may soon be tested.

The Deloitte Center for Energy Solutions published a recent survey that found 85% of utility regulators expect electricity rates to rise this year, and they worry that consumers will revolt.

“Our survey demonstrates that state utility regulators are increasingly cognizant of electricity costs and the burden they represent on the average consumer,” says Branko Terzic, Deloitte’s energy and resources regulatory policy leader and a former commissioner with the Federal Energy Regulatory Commission.

Conducted in the spring 2010, the survey showed some poignant shifts in the thinking of regulators over the last year. More than a third of the regulators now feel that consumers will not accept any rate increases, up from less than a quarter surveyed a year ago.

Moreover, 67% fear that it is environmental measures that will drive up electricity rates. They are especially wary of the price tag carried by renewable energy.

Regulators already have shown strong reticence to grant utility rate increases in many states this year. As they search for ways to reduce utility spending, we will see how strongly embedded the ‘economy-and-environment’ message in the national consciousness.

It’s hard to say if green energy will become the victim of budget slashing. One thing is for certain. Cutting green energy spending creates a bizarre chicken-and-egg for energy efficiency, a resource that ‘takes money to save money.’ Energy efficiency requires an initial investment in equipment and building upgrades to reduce electricity consumption and therefore lower consumer bills.

The survey hints that innovation may come to the rescue. State regulators appear increasingly drawn to the idea of time-of-use (TOU) rates, where customers pay prices closer to the actual cost of electricity, which changes throughout the day. This approach can lead to significant savings since consumers can put off energy intense household activities until a time when prices drop. Sixty percent of regulators surveyed said they were considering TOU rates for consumers. And when asked ‘whether they believed that time-of-day should be considered,’ 82.9 percent said yes. 
 
”Clearly regulators are interested in time-of-day rates as way for the public to benefit from cheaper access to energy, especially in light of the current economic downturn,” Terzic said.

No one wants to see electricity rates rise, but if they must, the best reason is to bring consumer bills down. With the economy still weak, it may be time to expand the clean energy argument to: environment and economy and lower household bills.

Visit www.realenergywriters.com to pick up a free Energy Efficiency Markets podcast and newsletter.

Time to come clean on energy subsidies?

By Elisa Wood

What you don’t know will hurt you. That’s the message in Michael Lewis’ new book, “The Big Short,” which traces today’s worldwide economic downturn to a single problem: the secretive nature of prices in the subprime mortgage bond markets.

What’s this got to do with energy? Our industry has its own opaque corners that can cause widespread damage. This week the International Energy Agency (IEA) is attempting to focus light on a big one: energy subsides for fossil fuels.

It’s pretty easy to find out about incentives for clean energy, but not so simple to untangle how much government money supports coal, gas and oil, as they move from research & development through delivery to the consumer.

I suspect we hear so much about clean energy subsidies because they offer good PR for politicians. Government news releases tout new energy efficiency or renewable energy programs. But how often do you hear an elected official brag about offering subsidies to the fossil fuel industry? Is there a Database of State Incentives for Renewables & Efficiency (DSIRE) for fossil fuels?http://www.dsireusa.org/about/ I suspect not.

This creates a public image problem for clean energy. People think renewable energy gets government support and fossil fuels do not. I often hear the question: If green is so good, why can’t it stand on its own two feet? Green advocates counter that the competition – fossil fuels – receives incentives too and that green just wants a level playing field.

That leads to the next question: What will it take to create a level playing? Just how much do governments spend on fossil fuels anyway? Thanks to a new report by IEA,http://www.iea.org/files/energy_subsidies.pdf , we now know the number is $557 billion worldwide as of 2008.

The number comes from IEA’s survey of the 37 countries that represent 95% of global subsidization of fossil fuels. IEA hopes to identify how subsidies artificially dampen fossil fuel pricing and encourage people to use more energy.

IEA says that phasing out fossil fuel subsides between 2011 and 2020 would:

• Cut primary global energy demand by 5.8% by 2020. This is equivalent to the current energy consumption of Japan, Korea, Australia and New Zealand combined.
• Cut global oil demand by 6.5 mb/d in 2020 – the equivalent of one third of current US oil demand.
• Reduce carbon dioxide emissions by 6.9% by 2020, equal to current emissions of France, Germany, Italy, Spain, and the UK combined.

IEA intends to set up an online database of fossil‐fuel subsidies by country, by fuel, and by year. A next good step would be a side-by-side comparison of fossil fuel and clean energy subsidies.

Many would argue that energy subsidies are required because energy is a basic need. This may be true, but incentives skew true price. Not knowing true price at best leads to poor decisions by consumers, business and government and at worst opens the door for market manipulation, as we saw with the subprime mortgage markets. Better to have transparency on all energy incentives, so that we can steer ahead with open eyes, and avoid the kind of crash we’ve seen in the financial markets.

Visit www.realenergywriters.com to pick up a free Energy Efficiency Markets podcast and newsletter.

EnergyStar shakes-up enforcement: Announcement of new measures to increase energy efficiency compliance

By Christopher Wold

*Guest Blogger

Most Americans are familiar with the blue-and-white EnergyStar logo, which has an almost 20-year history of helping consumers “save money and protect the environment through energy efficient products and practices.” Jointly managed by the Environmental Protection Agency and the Department of Energy, the EnergyStar program encompasses more than 60 different products from refrigerators to computers. In the past year and a half, EnergyStar’s ability to ensure that products bearing the EnergyStar logo provide the intended energy savings has come under increased scrutiny. As a result, EnergyStar has announced new measures to strengthen the trusted EnergyStar symbol.

In May of this year, EnergyStar proposed what it describes as a new plan for “enhanced testing and verification” designed to “ensure that EnergyStar remains a trusted symbol for environmental protection through superior efficiency.” New measures include requirements that:

• Energy efficiency test results are submitted to and approved by EnergyStar prior to labeling a product with the EnergyStar logo
• Testing of energy efficiency must be conducted at a certified laboratory. In addition, certain products must be tested at a laboratory independent from the manufacturer
• All products are subject to additional ongoing testing in order to verify that products sold on the market are energy efficient; when possible, products for testing will be obtained directly from stores.

This move by EnergyStar is timely — a provision in the American Recovery and Reinvestment Act of 2009 granted nearly $300 million in rebates for the purchase of EnergyStar-labeled products. The sweeping changes planned for the EnergyStar program are in part intended to ensure that US taxpayer dollars are being spent on truly energy efficient products.

The speed and comprehensiveness of Energy Star’s proposed changes were prompted by a series of government audits and a number of news articles that questioned the ability of EnergyStar to guarantee the energy efficiency of EnergyStar-labeled products. For example, a 2008 Consumer Reports articleshowed that some models of EnergyStar-endorsed refrigerators did not meet the EnergyStar requirements. A 2009 Office of the Inspector General audit found that EnergyStar had not developed a “formal quality assurance program” in order to ensure the energy efficiency of EnergyStar-labeled products. Most recently, a U.S. Government Accountability Office (GAO) audit indicated that Energy Star is susceptible to fraud. During the course of the audit, a number of fictitious products from nonexistent manufacturers were registered with the EnergyStar program and gained approval to use the logo. EnergyStar has responded by proposing these measures in order to ensure the integrity of the EnergyStar label.

The response from the energy efficiency community has been positive. The Natural Resources Defense Council (NRDC) stated, in comments submitted to EnergyStar, that they were “very supportive of the direction EnergyStar is taking to increase the effectiveness of its program.” EnergyStar has already implemented the requirement to pre-register products. A final version of the plan will be released in July or August and should include a timeline for implementation of the other measures.

For more information on EnergyStar’s plan for “enhanced testing and verification” visit EnergyStar’s website.

Christopher Wold, Collaborative Labeling and Appliance Standards Program (CLASP)

*Guest blogs do not necessarily reflect the views of Energy Efficiency Markets.

Visit www.realenergywriters.com to pick up a free Energy Efficiency Markets podcast and newsletter.