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.

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.