What price motivates customers to save energy?

By Elisa Wood

May 29, 2008

“Are we there yet?” We’ve heard that refrain often over the last couple of years. No, not from our kids in the backseat of the car, but from energy observers wondering exactly how much price pain the consumer will take before cutting back significantly on use.

Two reports circulating this week indicate that we have arrived – or at least we are close.

Americans drove their cars 4.3% fewer miles in March 2008 than they did a year earlier, according to the Federal Highway Administration. This is the first time since 1979 that we took to the road less in March. While a 4.3% drop may not sound like much, it amounts to 11 billion miles, and represents the largest decline since the FHWA began reporting monthly statistics in 1942. http://www.fhwa.dot.gov/pressroom/fhwa0811.htm

It appears the specter of $4/gallon keeps the key out of the ignition. AAA reports that average unleaded gasoline prices hit $3.952/gallon on May 29, up from $3.197 a year ago. Prices already have topped $4 in several states, among them California, Connecticut, District of Columbia, Hawaii, Illinois, Michigan, Rhode Island, Washington, Wisconsin and West Virginia. http://www.fuelgaugereport.com/sbsavg.asp

Meanwhile, on the electricity front, a recent study by Carnegie Mellon University researchers found that charging power generators even a modest price for carbon dioxide emissions would motivate changes in consumer behavior and power plant operations. The study comes as several states in the Mid-Atlantic and Northeast prepare for a carbon cap-and-trade program set to begin next year. Congress is eying similar national rules.

The report, published by Environmental Science & Technology, says that consumers would likely reduce consumption of electricity at a price as low as $35 per metric ton for CO2. This is lower than prices posted by Point Carbon for European trading May 28, which was €26.20 per metric ton or about $40. http://int.pointcarbon.com/Home/Market%20prices/Methodology/category745.html).

In addition, at $35 per ton for carbon, we may see changes in the way that grid operators dispatch power plants. They may start giving preference to lower emissions generators. While power prices would rise, “consumers would pay more attention to their energy consumption or switch to more energy efficient appliances,” said M. Granger Morgan, Lord Chair Professor in Engineering in the Department of Engineering and Public Policy at Carnegie Mellon. http://www.tepper.cmu.edu/news-multimedia/tepper-multimedia/tepper-stories/co2-pricing-study-reveals-consumption-efficiencies/index.aspx

No one wants to see high energy prices – the economic ramifications are enormous. But the good news is consumers appear to finally be saying “Ouch,” opening more doors for plug-in hybrids, energy efficient appliances, green construction and other energy savings approaches.

Visit energy writer Elisa Wood at www.realenergywriters.com and subscribe to her free Energy Efficiency Markets Newsletter and podcast.

Report Reveals Unusual EE Market Pattern

By Elisa Wood

“Big dogs eat first” is a phrase often used to describe energy markets. That is, expect large energy consumers – usually manufacturers -- to be the first at the plate to take advantage of any economic benefits. But a recent report suggests that when it comes to energy efficiency, householders may nudge the Mastiffs out of the way.

The American Council for an Energy-Efficient Economy found that in divvying up EE investment dollars, the US home makes up a disproportionate share. Specifically, appliances and electronics made up 48% of the $178 billion spent on buildings in 2004. Yet these devices represented only 8% of the energy consumed by buildings. Meanwhile, the industrial sector received only 25% of EE investment dollars even though these businesses use up 34% of our energy.

The report “The Size of the U.S. Energy Efficiency Market: Generating a More Complete Picture,” noted that this phenomenon is curious. We agreed, and contacted the authors for their insight into the cause.

Karen Ehrhardt-Martinez, co-author with John A. “Skip” Laitner, attributed the unusual pattern to the fact that homeowners now change out their appliances and electronics more frequently. They are not necessarily looking for greater efficiency, but more likely better performance or aesthetics. She cited computers as an example. Large advancements occurred in a relatively short period of time, resulting in out-of-date equipment over the short-run that people seek to replace. New appliances and electronics also happen to be more efficient, in line with government and industry standards.

So without trying, the average person contributed significantly to EE, avoiding the need for about 40 mid-sized coal-fired power plants during the one year the report analyzed. This “invisible” nature of EE, discussed in the report, may be one of its largest benefits. Consumers can take advantage of EE with little effort on their part.

Much hoopla is made about windmills and solar panels these days. While they are clearly a valuable part of the energy supply, they have not met 75% of our new energy demand since 1970, as EE has. Given its silent clout, EE may deserve its own new energy market catch-phrase: Big dog barks quietest.

Visit energy writer Elisa Wood and pick up her free Energy Efficiency Markets newsletter and podcast at www.realenergywriters.com

Big Energy Efficiency Vote Due From Small Commission

By Reid Smith

The European Union (EU) isn’t shy about implementing aggressive energy policy. In January, for example, the EU passed a proposal for Climate Action that includes an overall binding target of 20% renewable energy by 2020, according to the European Commission.

The US, on the other hand continues to shy away from aggressive energy policy. However, one of the more influential energy votes of the year will be decided by a small council in Minnesota, the International Codes Council (ICC). The ICC will vote in September on an energy efficiency policy that could influence energy in the US over the next 20 years, according to the ICC.

What is the International Codes Council and why is it that it has such an influence over national energy use? The ICC is a membership association that develops the codes used to construct residential and commercial buildings. Most U.S. cities, counties and states adopt codes that follow the standards developed by the ICC. For more information, see http://www.iccsafe.org/.

One non-profit, the Energy Efficiency Codes Coalition (EECC) has developed a comprehensive proposal called the "30% Solution," which is estimated to achieve a 30% overall improvement in energy efficiency for all US homes. It mandates more aggressive standards in space heating and cooling, thermal envelope, air sealing, hot water heating and lighting. See http://ase.org/extensions/eecc/ for more information on the EECC and its proposal.

According to the National Association of Home Builders, half of the homes that the US will need in 2030 have yet to be constructed. Homes and other buildings use 75% of US electricity and 40% of its energy, and are big emitters of greenhouse gases. If buildings are built more efficiently today, they’ll have an important impact before 2030. By that time, world market energy consumption is expected to increase by 57% according to the US Department of Energy.

As energy costs continue to spike, energy efficiency is becoming increasingly important, especially for low-income homebuyers. According to Global Green, a non-profit focusing on low-income homeowners, homeowners’ inability to pay utility bills is the number two reason for foreclosure of first homes. Because it costs much more to renovate an existing structure, it is critical to build all new homes with a strict energy efficiency code.

Given the potential for the ICC to dramatically cut energy use, it’s a good idea to keep an eye on this proposal.

Visit Reid Smith and pick up his free Energy Efficiency Markets Newsletter at www.realenergywriters.com

Think Gas Prices Are High? Electricity is Next.

By Elisa Wood

Today’s interest in energy efficiency may be nothing compared to tomorrow’s, if power prices rise as much as expected.

One of the biggest price drivers, at this point, appears to be greenhouse gas restrictions, which Congress is expected to enact. It’s not clear yet exactly what the rules will be. But a federal analysis of a leading proposal shows electricity prices rising 5% to 27% by 2020 and as much as 64% by 2030. http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html

And greenhouse gas restrictions are only one factor pushing up electricity prices. Industry insiders cite additional pressure from rising fuel costs, higher component costs, and new transmission investments.

And then there is demand for power. Many of us think the US finished its electrification when the country finally connected all of rural America to the grid during the 1950s. http://www.greatachievements.org/?id=2990. But in some sense, it appears that was only the beginning of electrification. We did not anticipate the kind of second round, now occurring, as many everyday tools become electricity-driven, most notably the pen and paper’s transformation into the computer. Another major step in electrification is likely as the plug-in hybrid car becomes available to consumers in just two years. By 2030, these cars – which we fuel by plugging into a typical household electrical outlet – are expected to make up 30% of car sales, according to the Electric Power Research Institute.

Computers, plug-in cars, and other electric devices will boost our electricity needs dramatically. The US Energy Information Administration, often conservative in its forecasts, expects demand for electricity to grow 40% by 2030. To meet that need, the US must construct 250 to 500 new power plants – and power plants are not cheap. The EIA estimates the cost will be $412 billion. http://www.eei.org/industry_issues/electricity_policy/state_and_local_policies/rising_electricity_costs/causes.htm

This week the Long Island Power Authority said it plans to offer customers $924 million in efficiency products and services over the next 10 years. It is a lot of money, but cheaper, says LIPA, than building new power plants. Customers will pay about $40 per year to cover the cost. But they can recoup the charge – and more – by taking advantage of efficiency products offered through the program. A typical residential customer can recoup the money in a few months and save $90 annually on electricity costs by replacing six incandescent bulbs with compact florescent bulbs, tuning up a household air conditioner and sealing ducts, according to LIPA.

Because of such savings, hardly a week goes by now without a governor, mayor or utility in the US announcing a new efficiency goal. They are bracing for higher electricity prices and looking to energy efficiency as the only sure-fire, short-term way to ease consumer costs.

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

Efficiency Guru: The Behind-the-Scenes EE Revolution

By Reid Smith & Elisa Wood

When consumers open their electric bills and see rates going up and up, it’s natural for them to ask, “Why isn’t anything being done?” Truth is, an enormous behind-the-scenes revolution is taking place when it comes to energy efficiency.

To get an inside look, we recently spoke with one of the industry’s long-time gurus, Steve Cowell, chairman and CEO of Conservation Services Group in Boston.

Much of the action is happening on the state level where industry players are hammering out ways to lower costs by reducing energy consumption. In most cases, the goals are aggressive and could increase efficiency investments by 2.5 to 3 times what we have today, says Cowell.

Industry insiders often talk about efficiency as the invisible power plant. If you need 50 MW of new power, you can build a new generating facility. Or you can find ways to reduce energy use by 50 MW. That’s like building a virtual power plant. The virtual power plant saves ratepayers money because a 1% reduction in load during high peak periods can reduce wholesale electricity prices by 10%, according to the Electric Power Research Institute.

Cowell sees three ground-breaking efforts in the works to increase the use of efficiency: portfolio standards, procurement, and demand resources in forward-capacity markets.

Energy efficient portfolio standards require electricity providers to meet a set amount of their annual demand through efficiency measures. In other words, the state decides to cut back on energy use by say 15% by 2015 -- the goal set by New York. State officials then work out a regulatory or legislative strategy to reach the goal. This isn’t always easy. What programs should the state push to encourage more use of efficient light bulbs by homeowners, better refrigeration in supermarkets, smart meters by businesses? And who should be in charge of the programs: utilities, a state authority, cities?

A second way to implement energy efficiency is to use the so-called procurement approach. Some people describe this as making energy efficiency the “first fuel.” When a utility needs more power, it must look first at increasing efficiency. “If there’s something cheaper on the efficiency side, you’d have to buy that first,” Cowell explains.

The third approach involves using energy efficiency—such as demand resources—in a forward capacity market. The objective of the forward capacity market is to purchase sufficient capacity to operate a reliable system for the next year at competitive prices. Traditionally, only power generators were allowed to bid in such markets. But ISO New England recently allowed demand resources to compete head-to-head in its auction. Two-thirds of the selected resources were demand resources. This was a huge “win” for energy efficiency in New England, says Cowell. (See our March 6 newsletter, Blog: “Negawatts beat megawatts in New England,” March 6, www.realenergywriters.com)

Whatever method states choose to bring more efficiency to the power grid, the goal is the same. “At the end of the day, when a customer is looking for help to lower their energy use, they will see a unified plan, easy to use, with known technologies,” Cowell says.

For businesses and consumers who are seeing their electric bills skyrocket, we hope that day will come sooner rather than later.

Visit Reid Smith and Elisa Wood at www.realenergywriters.com and subscribe to their free Energy Efficiency Markets newsletter.

Energy Efficiency: Not a Sound Bite Business

By Elisa Wood

I’m a star at the neighborhood playground because I write about energy. Let me explain. I have a young son, and often find myself next to the swings talking with other parents. Inevitably we talk about work. Inevitably it comes up that I know a little about energy. And inevitably I'm surrounded by a crowd that wants to know-- demands to know--why the US doesn’t use more green energy.

They are looking for a sound bite answer, like “It is Bush’s fault” or “Exxon is evil.” Instead, I find myself grasping for an answer, even though I’ve been following this business for 20 years -- or more accurately – because I’ve been following this business for 20 years.

Overhauling a nation’s energy infrastructure is no easy task and far more complex than people realize. And unfortunately, this lack of understanding, among politicians and the general public, is what gets us into trouble. Since the 1970s, we have swung back and forth from urgency to complacency about energy independence. We forget about the problems created by our over-dependence on fossil fuels once gasoline prices drop. We seem to operate under the false impression we can fix our energy problems near instantly should we really need to act.

A new World Bank book underscores the complexity of revamping energy infrastructure, in this case, energy efficiency in three countries where demand is growing rapidly. Called “Financing Energy Efficiency: Lessons from Brazil, China, India and Beyond,” the book finds enormous energy savings opportunities in these countries, which are among the top 10 energy consumers in the word. But to realize the savings, the countries must develop “large numbers of relatively small projects scattered among hundreds of thousands of industries and building complexes.”

Needless to say, the logistics are daunting. Moreover, efficiency projects tend to lose when competing for up-front capital against power plants because efficiency is about saving money – a more difficult concept to sell than making money.

But interestingly, it is not lack of capital in these countries that thwarts efficiency but “inadequate organizational and institutional systems for developing projects and accessing funds.” In other words, efficiency is not on the main agenda of business and government.

The challenge for governments is to influence the broad technology choice decisions of investors and encourage them to adopt energy efficiency solutions, according to the book. The problem, the authors say, needs to be fixed on the institutional level and must consider the unique local economies. The book attempts to provide a framework for creating financing systems.

With many case studies on ways efficiency has been financed in various countries, this nearly 300-page book makes it no easier to come up with a quick sound bite for why it is a struggle to green our energy supply. But the authors do give some valuable industry perspective on how to get there as the world prepares for a 53% increase in energy demand over the next two decades. It is worth a look. Written by Robert P. Taylor, Chandrasekar Govindarajalu, Jeremy Levin, Anke S. Meyer and William A. Ward, the publication is available at http://www.esmap.org/filez/pubs/211200830655_financing_energy_efficiency.pdf

Visit energy writer Elisa Wood at www.realenergywriters.com and pick up her free Energy Efficiency Markets newsletter.

How to Find “White Tag” Markets

By Elisa Wood

Doing business in the US can be a crazy venture if you’re an international company trying to make inroads. Europeans often say it’s like learning the rules of 50 different countries. This is because important energy policy decisions are often made by state governments.

It looks like the emerging “white tag” market for energy efficiency may be no different. So far, Congress has resisted the idea of a national energy efficiency portfolio standard, which would set uniform energy savings requirements for utilities nationwide. But several states are moving ahead with their own standards.

Often the standards allow trading of white tags, or energy efficiency certificates. The tags are proof that an entity reduced consumption through energy efficiency. A manufacturer might earn the tags by upgrading motors; a store might install more efficient refrigeration; a hospital could add cogeneration. The business or institution can then sell the tags to utilities who use them to show they (or a surrogate) met the state’s efficiency requirement.

Which states should you watch for white tag business?

A useful starting place is “Renewable Portfolio Standards in the United States: A Status Report with Data through 2007,” which can be found at http://eetd.lbl.gov/ea/ems/reports/lbnl-154e.pdf. Released in early April 2008 by the Lawrence Berkeley National Laboratory, the report focuses more on renewable energy, but includes an informative section on efficiency.

Connecticut has taken the lead in white tag trading. Pennsylvania and Nevada are not far behind. Other states that have created efficiency portfolio standards are Colorado, Illinois, Minnesota, New Jersey, New Mexico, and Texas. Meanwhile, Hawaii, Nevada, and North Carolina have melded efficiency requirements in with broader renewable energy goals, according to the report. Cogeneration developers might take a particularly close look at Colorado, Connecticut, Hawaii, Illinois, Maine, Nevada, North Carolina, since they specifically count the high efficiency plants toward their green goals.

Meanwhile, still more states are taking a hard look at creating efficiency portfolio standards. The New York Public Service Commission, for example, is well on its way.

The good news for energy efficiency companies is that portfolio standards are catching on. The bad news is there may be 50 different sets of rules to learn.

Elisa Wood is an energy writer. Visit www.realenergywriters.com and subscribe to her free Energy Efficiency Markets newsletter and podcast.