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.

Efficiency left out of cap and trade

By Elisa Wood

October 15, 2009

Waxman/Markey’s climate change bill is about 1,400 pages. Its length and complexity, alone, provides fuel for its opponents. Would it stand a better chance of enactment if it encompassed less?

For example, would it have been wiser if Congress pursued cap and trade one year and a renewable energy standard another? I’ve asked this question a lot during interviews the past few weeks, and received a range of responses. But what I found most enlightening, at least from an energy efficiency perspective, was a webinar offered by Bill Prindle, vice president at ICF International. http://www.icfi.com/markets/energy/webinar/webinar-archive.asp.

Here’s what I took away: Energy efficiency helps the carbon reduction cause. But the carbon reduction cause doesn’t do much for efficiency.

Most versions of cap and trade programs now on the table do not recognize the value of demand-side resources in reducing emissions. Credit goes to emissions reductions at the power plant level, not at the retail customer level. So while my new, efficient heat pump will cut my energy use and therefore carbon emissions, this action is not acknowledged anywhere in a cap and trade system. Cap and trade offers no financial reward to the consumer or business that invests in energy efficiency measures.

In a perfect world, lawmakers would rethink cap and trade to encompass demand-side efficiency. But it appears that political and technical obstructions make that difficult. This is bad news – and downright odd – given that energy efficiency is widely acknowledged to be the cheapest way to cut carbon dioxide emissions.

So what’s to be done?

Prindle describes the need to enact polices that complement cap and trade. This is where a national renewable energy standard comes into play. Within Waxman/Markey, the standard requires not only a certain percentage of renewables in a state’s energy mix, but also certain amount of efficiency – a so-called energy efficiency portfolio standard. With a standard in place, efficiency increases, energy use declines, and fewer greenhouse gases are emitted – without any cap and trade influence. As is often the case, the states have already jumped out in front of federal policy: 19 now have such energy efficiency portfolio standards.

A bill with just a cap and trade scheme, one without a portfolio standard, eliminates a powerful way to reduce carbon emissions. So perhaps the 1,400 pages of Waxman/Market are justified. The verdict, of course, is out on whether or not Congress will pass an energy bill this year. Much has been made of the complexity and length of health care reform legislation. Expect the same when, and if, the energy bill comes under public scrutiny. We’ll see what pages make it beyond the cutting room floor.

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

Energy Tax Credits and the Devil in Congress

By Elisa Wood

October 2, 2008

It is difficult to get beyond the hyperbole of the election season to uncover a candidate’s true position. The non-partisan Pew Center on Global Climate Change performed a service with a recently released just-the-facts guide on the energy platforms of the presidential contenders http://www.pewclimate.org/voter-guide.

What is remarkable about this year’s election, Pew says, is that “both major party candidates for the presidency are deeply concerned about global climate change and publicly support a mandatory, economy-wide cap-and-trade system for reducing the U.S. greenhouse gas (GHG) emissions.”

What does this mean in a practical sense for energy efficiency markets? “Both candidates recognize that improving energy efficiency across the economy can be a powerful tool for reducing GHG emissions,” Pew says.

Sen. John McCain says he would create higher efficiency standards for new or retrofitted buildings leased or purchased by the federal government, the largest energy consumer in the world. McCain also promotes investments to upgrade and smarten the national electricity grid.

Sen. Barrack Obama would set national standards to reduce demand by 15%; make new buildings carbon-neutral or zero-emission by 2030; improve new building efficiency by 50% and existing building efficiency by 25%; improve efficiency in all new federal buildings by 40%; and make federal buildings zero-emitting by 2025.

The policies of both candidates sound positive. Of course, the devil is always in the details.

The devil also appears to be in Congress. One wonders if these policies would make it through Congress, given lawmakers’ treatment this year of the all-important tax incentives for efficiency and clean energy. Most lawmakers claim to support the tax credits, many of which expire at the end of this year or already have expired. Yet Congress wrangled all year over the incentives without extending them, mostly for reasons that had little to do with the credits and their merits. Now, at the 11th hour, just before recessing, the Senate has approved the ‘tax-extenders bill’ as part of the credit-crisis bail-out package. The House reportedly will take up the bill Friday, Oct. 3.

Long-time energy lobbyist Scott Sklar has watched Congress’ shenanigans from a front row seat and explains why he is “hopping mad” about treatment of the tax incentives in an insightful Renewable Energy Weekly column, “Fuming in D.C.” http://www.renewableenergyworld.com/rea/news/recolumnists/story?id=53711

Why is the tax-extender bill important to energy efficiency markets? The Senate bill includes tax incentives for consumers and building owners who install energy-efficient products, builders of energy-efficient new homes and commercial buildings, and manufacturers of certain energy-efficient appliances, according to the Alliance to Save Energy. The bill also includes incentives for combined heat and power.

“Congress is preparing to pass one of the largest pieces of legislation in a century to bail out Wall Street and, with that in mind, it is unthinkable that Congress would adjourn before providing critical tax incentives to ‘Main Street’ to help consumers facing a lagging economy and growing energy costs and the nascent clean energy industry, so that it can create new jobs and help to build a new ‘green’ economy,” said Kateri Callahan, ASE president.

Unthinkable, yes. Improbable? We’ll know after Friday.

Visit energy writer Lisa Wood and pick up her free Energy Efficiency Markets newsletter and podcast by clicking on www.realenergywriters.com.

Efficiency’s Role in Carbon Cap-and-Trade

By Elisa Wood

August 28, 2008

We hear a lot about how efficiency will play an increasingly important role as the United States undertakes efforts to reduce carbon dioxide emissions. But how does that play out in a practical sense under cap-and-trade programs?

The Offset Quality Initiative provides insight in a new white paper on greenhouse gas offsets:

http://www.pewclimate.org/docUploads/OQI-Ensuring-Offset-Quality-white-paper.pdf

A cap-and-trade program, like the Regional Greenhouse Gas Initiative (RGGI), caps emissions at a certain level in a geographic location, and then lets players use various trading mechanisms to operate within the cap. See Lisa Cohn’s blog in August 21 issue of Energy Efficiency Markets: http://energyefficiencymarkets.wordpress.com/2008/08/21/eastern-states-ready-for-big-ee-boost/

One of those mechanisms is an offset, which acts as a counterbalance to reduce overall greenhouse gases. More specifically, an offset represents emissions reduced at one site to make up for emissions produced elsewhere.

Offsets can be bought and sold in the form of credits. A commercial building owner might install efficiency improvements that reduce the amount of carbon dioxide the building produces. The owner then translates the emissions reductions into offsets under standards set by the cap-and-trade program. A power plant might buy the offsets to ‘reduce’ its emissions. The plant does not actually cut back on what it emits, but instead piggybacks on the building’s reductions. Overall emissions fall, so the cap-and-trade program achieves its goal.

RGGI, the nation’s first cap-and-trade program set to take effect next year in ten states, allows certain efficiency measures to qualify as offsets.

The program accepts offsets from efficiency measures that reduce or avoid carbon dioxide emissions created by natural gas, oil or propane in commercial or residential buildings. The building owner might improve equipment and systems for heat and hot water, install energy management systems, improve the building envelope or engage in certain other activities. (See RGGI’s model rule, page 132-145, http://www.rggi.org/modelrule.htm.)

Of course, offsets are just one way efficiency markets benefit from today’s focus on reducing carbon dioxide emissions. Even where no cap-and-trade programs exist, policymakers see energy efficiency as a key way to address climate change. The fewer electrons we use, the less power plants run; the less they run, the lower our emissions are. Thus, many cities and states are increasingly focused on larger policies and incentives that encourage businesses and homeowners to undertake efficiency measures.

Programs like RGGI help spur such thinking. Expect growing talk nationally about energy efficiency and its importance in the coming weeks as RGGI makes the news with its first market auction September 25.

Visit energy writer Elisa Wood at www.realenergywriters.com and subscribe to her free EE Markets newsletter and podcast.

CHP Gains Stature as Efficiency Measure

By Elisa Wood

June 19, 2008

Combined heat and power is a form of alternative energy that has been available for many decades. Yet it’s remained below the radar screen in policy discussion about our energy future.

However, it appears to be gaining new stature as lawmakers and regulators seek ways to make energy use more efficient.

Also called cogeneration, the technology creates both electricity and heat in one unit. Most power plants throw away two-thirds of the energy consumed in production. But CHP plants use the excess energy to heat, cool or humidify the building. As a result CHP reclaims one-third of the energy that would otherwise be lost.

In addition, CHP plants are usually built very close the factory, hospital, college or office building they serve. So electricity is not lost as it travels long distances over transmission lines, as is often the case with large, central power plants that serve many consumers and businesses.

Taking notice of CHP’s virtues, some states have created portfolio standards that encourage its development. The standards require that utilities use a certain amount of alternative energy to meet efficient or clean energy targets. This approach has been highly successful over the last several years in spurring development of wind, solar and other green energy sources in the US.

Now eight states allow part of the requirement to be met through installation of CHP. In Connecticut, for example, a factory, school other large energy user can install CHP to meet its heat and power needs and receive a kind of tradable credit for doing so. The energy user then can sell the credit to a utility that needs to meet state requirements.

In addition to Connecticut, the eight states are Colorado, Hawaii, Nevada, North Carolina, North Dakota, Pennsylvania, and Washington. These states should serve as interesting testing ground to see if portfolio standards accelerate use of CHP as they have wind and solar energy. We encourage those interested in CHP to check out the Environmental Protection Agency’s CHP partnership, an agency that is playing a strong role in encouraging use of the resource. See http://www.epa.gov/chp/