Energy efficiency and calling in the dogs

By Elisa Wood

January 26, 2011

My dogs came in immediately when I called them tonight. The cookies I’ve recently begun serving up upon their return seem be making an impression. At last they see a reason to leave behind all the fun things to chase in the woods.

Yes, I’ve been slow to understand – or at least enact – the basic principle of reward as incentive. The same problem exists in the utility industry when it comes to energy efficiency. For years investor-owned utilities have resisted energy efficiency, seeing themselves as dragged into it for no good reason, at least no good reason from the perspective of an entity charged with earning a return for shareholders.

Utilities earn profit based on energy sales. Efficiency reduces sales. Why come when called?

Policymakers, however, in many states are recognizing this inherent disincentive to utility investment in energy efficiency. They are beginning to institute “decoupling” programs, which delink revenue from sales. Regulators in these state set up mechanisms to ensure the utilities earn fair revenue despite decreased energy sales.http://www.pewclimate.org/what_s_being_done/in_the_states/decoupling_detail

But this is not enough to really get the dogs to come running home, according to a recent report issued by the American Council for an Energy Efficiency Economy, called “Carrots for utilities: Providing financial returns for utility investments in energy efficiency.”

Decoupling only takes away the disincentive to energy efficiency; it does not create incentives, according to the report.

“This arguably leaves an IOU agnostic or neutral to energy efficiency as a resource option; while it will no longer lose revenues from improved customer energy efficiency, it also will not earn a positive return,” the report says.

When utilities build power plants or transmission, they receive a return on their investment. This encourages them to build more power plants and transmission. Efficiency needs the same type of reward, according to ACEEE.

To that end, the organization recently looked at experiments in 18 states where utilities can earn financial rewards for shareholders by saving energy. While ACEEE says more research is necessary, the initial findings indicate a strong willingness by utilities to invest in efficiency, if they can earn a return on that investment.

In interviews with utilities, the organization found that the “ability to assign a dollar value to efficiency investments significantly contributed to ‘buy in’ by corporate management” and “levelled the playing field between efficiency investments and investment in new energy supply capacity.”

Even more striking, ACEEE found the pace of utility investment in energy efficiency grew twice as fast in states with shareholder incentives than those that used other types of policies to encourage efficiency. As of 2009, utilities with shareholder incentives spent $14.63/person on efficiency, while utilities with other incentive policies spent $8.48.

That’s not to say shareholder incentives are not without their problems; nor are they the Holy Grail of energy efficiency (or the only kind of cookie). But they appear to work, based on the ACEEE findings, which are detailed here:http://www.aceee.org/research-report/u111.

Visit Elisa Wood at www.realenergywriters.com and pick up her free weekly newsletter and podcast.

How to make energy efficiency affordable

By Elisa Wood

January 19, 2011

Energy efficiency is a tortoise in the green energy race. Not glamorous like solar, wind or smart grid, it tends to plod along in the back of the pack, attracting little media attention. But being last can be a good thing; you learn from the frontrunners.

Such is the case when it comes to financing. EE is beginning to borrow from strategies that have spurred tremendous growth for solar and other energy resources. These include customer aggregation and a kind of power purchase agreement with a twist. The idea is to make it easier for businesses to install efficient motors, chillers, pumps, lighting, windows and other improvements in today’s tough economic climate.

Consider the transaction that Metrus Energy http://metrusenergy.com, an EE developer and financer, announced in December with defense manufacturer BAE Systems, Siemens Industry and Bank of America. Under the deal, BAE Systems’ facility in Greenlawn, New York will install $2 million in energy efficiency with no upfront payment or capital investment.

This may sound like a traditional energy service performance contract, which also spares the customer from an upfront capital investment. But Bob Hinkle, Metrus Energy CEO, explained that the deal is quite different. Called an energy services agreement, or ESA, it is more akin to a solar power purchase agreement (SPPA), except there is no power to be purchased. What’s monetized is energy saved.

“Customers do not have to use their own capital. It is like a power purchase agreement where the customer is charged only for the output,” Hinkle said. “But in energy efficiency, the output is not a kilowatt-hour generated; it is a kilowatt-hour saved, or a therm saved.”

When it was introduced in the last decade, the SPPA helped spur a dramatic increase in solar installations, particularly among businesses and institutions, in part because it took away the need by the customer to make the hefty upfront payment for solar panels. Also called third-party contracts, such deals typically have three main parties: the customer who receives the solar panel, the energy company that installs and maintains it, and the investor that finances the deal.http://www.californiasolarcenter.org/sppa.html.

The ESA is similar except it runs about 10 years, while the SPPA typically extends to 20 years. The three parties are the customer, the energy services company and the ESA provider. The energy services company installs and maintains the efficiency equipment, which is owned and financed by the ESA provider. The customer pays the ESA a regularly scheduled bill, much like it does its electric or gas utility. But the payment is based on the cost of avoided energy ($/avoided cost of kWh) or share of energy savings.

And like an energy services performance contract (a financial mechanism that has been around since the 1970s), an ESA spares the customer from coming up with money to pay for the new equipment. The two types of contracts, however, differ significantly from there.

The performance contract works under a shared, guaranteed savings model. The energy services company guarantees a certain amount of savings from the system. If the savings do not materialize, the energy service company pays the difference.http://www.energyservicescoalition.org/. But the customer must still secure financing (although the energy services company may help them do this). In contrast, financing is an integral part of an ESA.

In addition, performance contracts are used heavily by government. Metrus Energy sees the ESA as a contract more likely to appeal to commercial and industrial energy users.

BAE Systems expects to achieve $300,000 in savings annually through its ESA. The company will install a range of energy efficiency measures to reduce electric and natural gas consumption, including heating and cooling system upgrades, high-efficiency pumps, motors and controls.

The California Clean Energy Fund (CalCEF), a $30 million venture fund that invests in clean technology http://www.calcef.org/, is pursuing a sophisticated use of the ESA model that involves aggregating customers into a kind of purchasing pool. Other segments of the energy industry have used the aggregation model for quite some time. For example, retail energy suppliers often pool customers to create advantage of scale. Pooled, the customers have more clout in the marketplace to achieve favorable price and terms for their power and natural gas.

Recently, a major foundation approached CalCEF because it had received an application for funds from a business chamber of commerce, the kind of group that often joins forces to purchase energy. But this time they were looking to purchase efficiency installations as a group. The foundation liked the proposal but was unable to provide funds to the chamber because it is prohibited from directly serving for-profit entities. It asked CalCEF for help.

“The solution we’ve come up with is to use our nonprofit investment to hold capital and deploy the capital with the [chamber] members,” said Paul Frankel, CalCEF managing director. “A company like Metrus can manage the project on our behalf. This is a nice way to channel a lot of foundation money into the world of private industry.”

The non-profit fund could serve as the third-party owner of the energy efficiency installations, collecting payment from the shared savings achieved by the businesses. The fund could then recycle the profits to pay for other clean technology projects.

Frankel sees the model working, not only for chambers of commerce, but also other types of business trade associations.

“Energy efficiency is where we would like to spend a lot more time and effort and money. It is highly cost effective,” he said.

However, energy efficiency suffers a handicap not shouldered by renewable energy. It is unclear if efficiency projects can take the kind of federal tax deductions that make third-party contracts particularly attractive for solar investors. In addition, efficiency is denied an accelerated depreciation schedule available to solar projects under the federal tax code.

CalCEF and others are working on persuading the federal government to rethink these policies and put efficiency on equal footing with solar energy. If that happens, watch out hare, the tortoise is coming.

Electric vehicles: A win for Detroit and EE

By Reid Smith

At this week’s Detroit Auto Show, electric vehicles are on top. Two of the year’s highest-rated cars are electric. The plug-in hybrid electric Chevy Volt was awarded this year’s “Car of the Year,” just beating out the all-electric Nissan LEAF.

But regardless of which car wins, the message is clear: electric cars are generating a lot of excitement.

It’s not just the auto industry that will benefit. The EV industry offers growth to other industries as well, including the energy efficiency sector.

Utilities win because a growing electric auto fleet means more use of electricity to replace gasoline. GM sold between 250 and 350 Chevy Volts in December and Nissan has sold fewer than 10 LEAF sedans in the past two weeks, which means utilities need to begin thinking about how they will manage growing demand as more EVs hit the market. One way utilities can manage additional load is through energy efficiency programs, special energy pricing rates, and demand response.

Both GM and Nissan are selling their electric vehicles in selected test markets. The utilities in these test markets have been preparing energy management strategies and are now starting to collect the first real electric vehicle energy data. “Our role is to do everything we can to make EV’s successful,” said Chris Chen, market development manager for San Diego Gas and Electric, a test market for the Nissan LEAF. http://www.intelligentutility.com/resource/demand-webcast/electric-vehicles-tale-three-cities

The new data will tell utilities when consumers are charging their electric cars and how much their use will affect the grid. Because less energy is generally used at night, the existing electric infrastructure and power load can accommodate the extra energy required from electric vehicles, at least for a few years, if customers charge at night as expected. Utilities plan to encourage customers to charge their cars at night and to manage energy use to maximize the current grid’s potential.

One utility, San Diego Gas and Electric, is trying out three rate-incentive pricing schemes in different areas of its service territory. “We are trying to see if lower off-peak rates will encourage different charging patterns,” said Chen.

Another utility, DTE Energy in Michigan, is educating consumers about energy use and time-of-day rates through special energy workshops and sessions for businesses, partners, and consumers, said Jeff LeBrun, principal marketing analyst at DTE Energy. Michigan is also the headquarters to several battery manufacturers, which are growing along with the electric vehicle industry. LG Chem, one Michigan battery company, is the chosen manufacturer for both the Chevy Volt and Ford’s electric Focus, set to be released later in 2011.

Utilities such as San Diego Gas and Electric are also looking at demand response programs designed specifically for electric vehicles. As more and more vehicle charging stations are installed, demand response programs can help manage surging energy loads and peak loads. It’s likely the demand response market will develop with the electric car market.

But how fast will the electric market grow? Will your next car likely be electric?

Right now, utilities project that electric vehicles will develop slowly because car companies are limiting the number of units sold and are gradually ramping up production. A slow-growing industry is good for utilities, which have time to test different electric vehicle adoption and energy management strategies. Limited expansion is good as long as consumer demand continues. About 50,000 people are on waiting lists for electric vehicles.

Consumers will adopt electric vehicles as long as utilities make the transition to ownership a positive experience. In many ways the success of the electric vehicle industry ultimately depends on the utility’s ability to manage energy and promote energy efficiency, thus being able to provide electric vehicle owners with the proper energy infrastructure and simplicity that they demand.

Visit Reid Smith at www.realenergywriters.com and pick up his free weekly newsletter and podcast.

Energy efficiency: The unsung hero of our times

Guest blog

By Steve Cowell

January 5, 2010

As our economy continues to sputter, one little-noticed industry has been booming for a while now: energy efficiency. The sector is hiring like crazy — a fact that speaks volumes about the close relationship between clean energy and the economic recovery that we’re all waiting for. Energy efficiency could save us all.

My firm works with utilities, government agencies, housing authorities, and other groups to help increase energy efficiency. We started in 1984 with three employees and one office. Today, we have nearly two dozen offices nationwide and employ 700 staffers from coast to coast. Most strikingly, we’ve added more than 250 people and 12 offices in just the last two years. The reason is crystal clear: Energy-efficiency services are in great demand. We are continuing to expand rapidly as more groups turn to us for help.

But energy-services firms are not the only ones that can benefit from the demand for energy-efficiency services. With the right programs in place, reducing power consumption can improve the bottom line for many other types of companies. Case in point: The building infrastructure in this country is old and inefficient. Retrofitting these buildings requires an army of workers. These include heating/air conditioning installers, insulators, and building inspectors. Many of these trades people are out of work and these retrofitting jobs can get them back on their feet. Products like insulation, caulk, triple-paned windows and doors, and high-efficiency heating and cooling systems will also get a boost. And that’s not all. The goods need to be made, inspected, shipped, and sold, widening the circle of employment opportunities for manufacturers, retailers, and distributors. This expanded workforce means people will have more money to spend.

Now that’s what I call a “trickle down economy”!

Most importantly, jobs created to support energy efficiency are America’s jobs. More than 90 percent of products and 100 percent of the labor used in residential energy work are American. If Home Star becomes law, weatherization products and equipment will fly off store shelves faster than you can say “retrofit.” Most of these supplies are made domestically, so our factories will need to step up production. Home Star is expected to increase demand for retrofitting by a factor of 15, benefiting those hardest hit by this recession — manufacturing and construction workers. An estimated 168,000 jobs would be generated to carry out the program. Consumers who take advantage of Home Star would save our country an estimated $10 billion in energy costs by 2020. The program would jolt our economy by pumping in $6 billion over two years and cut down on carbon emissions. Supported by Republicans and Democrats, environmentalists and businesses, the bill was introduced exactly one year ago. Home Star has been stalled in the U.S. Senate for months after having passed the House last May. We hope the new Congress will put Home Star on the front burner.

New economic analysis shows that clean energy legislation will create up to 1.9 million new jobs, increase annual household income by up to $1,175, and boost the GDP by up to $111 billion. Over the years, study after study, from groups like the Center for American Progress and the American Council for an Energy-Efficient Economy, have supported the direct correlation between green industry growth and jobs. Eighteen months ago, findings from a study by the Pew Charitable Trust found that green jobs are growing at a national rate of 9.1 percent, while traditional jobs are growing by only 3.7 percent.

As someone who’s been working in the industry for more than 30 years, I’m not surprised at all. Clean energy is job creation, hands down. Our time has come!

So what are we waiting for?

Stephen L. Cowell is chairman and chief executive officer of Conservation Services Group, based in Westborough, Mass. Mr. Cowell also co-founded Efficiency First, the Home Star Coalition and serves as president of the Northeast Energy Efficiency Council.

Energy heads home in 2011

By Elisa Wood

December 15, 2010

I have three predictions for 2011.

1. When it comes to energy policy, austerity will be in.
2. Therefore, energy efficiency will become a favored choice among mayors, governors, state lawmakers and Congress, as government becomes increasingly edgy about the cost of renewable energy.
3. The infamous leaky home will finally get some plugging.

My first two predictions are no-brainers. Governments are broke. They will look askance at anything that costs money, no matter how valuable, meaning that some renewable energy technologies will face tough going. Energy efficiency, on the other hand, offers a way to go green while lowering bills, a very appealing proposition at time of heightened economic and environmental concern.

Maybe not so obvious is why 2011 will be the year of the home. Here is my thinking.

Because of smart grid, the home is the new frontier in an energy revolution that shifts attention from the energy producer to the energy consumer. As Phil Harris, CEO of Tres Amigas, pointed out in a recent presentation, the electric grid is a huge machine, half of it devoted to making power and half to consuming it. While we’ve focused heavily over the years on improving production, we’ve barely considered energy use. http://www.youtube.com/watch?v=vyLuXgo4c74.

“Think about that. It’s a single machine, but for 100 years we’ve devoted all of our attention to generation, production and distribution. And how much science have we produced on the other half of the machine, the things that actually use electricity? That is what we have created on planet Earth. Very large systems with a lot of tension on half of the equation and almost none on the other,’ he said.

Smart grid – the integration of information technology into the grid — will shift the balance, giving consumers greater control over the flow of electrons into their homes much the way the Internet has given them control over information flow. This elevates the household from a passive to an active player on the grid. “I truly believe we are going from a utility-controlled environment to a customer-controlled environment,” Harris said.

Attention to household energy use is big ticket item. For example, retrofitting US homes could cut annual energy bills by $21 billion annually, according to the December 2010 report from the National Home Performance Council, “Residential Energy Efficiency Retrofit Programs in the US.” http://www.nhpci.org/

This isn’t lost on energy policymakers, and they are looking at far more than just caulking windows to achieve these savings. The movement is toward the “whole house retrofit,” which looks at a home as a total system.

“It looks not only at many different elements within the home that result in excessive consumption or waste of energy, but also considers the ways that these elements interact,” the NHPC report said. “Whole home retrofit approaches also review at health and safety issues within a home as a crucial feature of a retrofit job, with a commitment to do no harm.”

The report identifies 126 such programs now underway nationwide, many of which offer rebates to homeowners. The New York State Energy Research & Development Authority, for example, recently announced $5,125 incentives for single family homes and higher amounts for multi-family homes when they add “technologies that lower energy costs, reduce waste and water use, and improve indoor air quality.”

Home builders are paying attention. America’s 10 largest publicly traded homebuilders have started to improve their policies and practices relating to the environment and resources, according to a new study by Calvert Asset Management Company. “Green Recovery for America’s Homebuilders? A Survey of Sustainable Practices by the Homebuilding Industry,” evaluates how well major builders are doing when it comes to sustainable practices. The green building market, estimated at $36-49 billion, is expected to increase twofold between 2009 and 2013, according the report. Calvert found that among green initiatives, energy efficiency is the first choice among builders.

“Our survey of the 10 largest publicly traded U.S. homebuilders finds an evolving landscape. Whereas two years ago the industry had not yet begun to embrace sustainability as a core part of building design and construction, companies today have taken many meaningful steps toward developing greener and cleaner homes,” said Rebecca Henson, sustainability analyst at Calvert Asset Management Co. and co-author of the report.

Making predictions about energy is tricky. It’s an industry that can shift direction quickly because of unexpected events – hurricanes, wars, gas and oil supply shifts. But right now it looks pretty clear that the direction energy’s heading is home.

Time to export energy efficiency?

By Elisa Wood

December 8, 2010

We keep hearing that China is going to become a really big deal in world energy markets. But it wasn’t until I read this statement by Jane Henley, CEO of the World Green Building Council, that I grasped the scope of its coming influence:

“China is projected to build the equivalent of 10 New York Cities over the next decade.”

For some, such rapid economic expansion by China is cause for fear. Others see opportunity. The US green energy markets were nudged toward the opportunity-seeker category this week with word from the Department of Energy of the nation’s first export strategy for renewable energy and energy efficiency.

It’s a funny place for us to be. We tend to be known on the international stage for our energy consumption. We are the world’s largest oil importer, and its third largest producer. And when it comes to green energy, the last few years have been marked by more imports than exports. A flock of international companies have established themselves in the US to build wind and solar energy, sometimes by buying out US companies.

Many US’ green energy companies simply do not export, according to the report “Renewable Energy & Energy Efficiency Export Initiative,” issued December 7 by the DOE and several other government agencies. The report pegs US export of renewable energy goods at about $2 billion last year. This isn’t a very big number when you consider that worldwide $162 billion in private capital went toward renewables and energy efficiency technologies and $183 billion in government stimulus funds.

While the report quantifies current US renewable energy exports, it has a tougher time defining the energy efficiency market, not an unusual problem for an industry that encompasses everything from home improvements to combined heat and power plants. However, the export market potential for energy efficiency technologies is “likely substantial,” the report said.

So if you want to export energy efficiency, what countries should you look to?

If you manufacture industrial energy efficiency equipment, clearly economically developed countries offer best opportunities Markets also are likely to be ripe for US imports if they consume more energy than they produce (Germany), or if they have high energy prices (Japan), according to the report.

Canada offers the best market for US building materials. Canada already imports more building materials from the United States than the next 20 export markets combined. Other top export markets for building materials include Australia, China, Germany, Japan, Mexico, and the United Kingdom.

If you plan to export electronics, appliances, and information and communication technologies, look to Canada, China, Japan, Mexico, and Singapore, with Canada and Mexico representing the major importers, according to the report.

The full report, which explains specific strategies and supports the US will offer green exporters, can be found at http://export.gov/reee/eg_main_023036.asp.

Elisa Wood is co-author of “Energy Efficiency Incentives for Businesses 2010: Eastern States,” available at www.realenergywriters.com.

Smart Grid needs a Facebook

By Elisa Wood
We think we know how smart grid technology will change the utility industry. But do we really?

Take a look at this documentary made in 1969. It’s a view of how the world perceived the coming Internet (It’s also a pretty amusing look at how sexist our society still was at that point.) http://andrewsullivan.theatlantic.com/the_daily_dish/2010/04/before-the-internet.html.

While the film gets some concepts right, like online banking, it misses the Internet’s most world-changing benefit, the democratization of information — the production, distribution and consumption of data by everyday us, free from gatekeepers.

The film also misses the pizzazz and the fun of the coming Internet. There is no You Tube, no Google, no Wikipedia. And look at the kids. They are playing with physical toys. Why isn’t the Mom yelling at them for being on Facebook all day?

The Internet’s emergence – and our misunderstanding of what it would become – may provide hints about the future of smart grid. After all, many parallels exist between the two.
The Internet offered up democratization of information; smart grid promises democratization of electricity, giving consumers the ability to control at their fingertips power production, distribution and consumption. Indeed, if smart grid’s vision plays out to its fullest, you in essence become the power plant. Your in-home generators produce power that is stored by your plug-in electric vehicle, and your home computer controls the electricity distribution. The end game is energy savings and lower costs.

Some argue that the smart grid revolution will have a more profound impact on how we live than did the Internet. The megawatt, after all, is more powerful then the megabyte. Without the megawatt, the megabyte could not be.

Forty- years ago we had a pretty bland vision of the coming Internet. Had we been worried then about getting people to use the Internet – the way we now worry about getting them to use smart grid devices — we probably would have plumbed the depths of behavioral psychology for strategies. We would have asked: Can we get people to use the Internet if we show them that their neighbors do? How about if we demonstrate to them how much money the Internet will save them? Will they shop on the Internet if we explain to them it is better for the environment than driving to the store?

And, of course, all of that hand-wringing would have been a waste of time. What did it take to get people to use the Internet? Some really smart kids in dorm rooms with bright ideas: Bill Gates, Larry Page, Sergey Brin, Mark Zuckerberg and the like.

The electric power industry needs its own crop of dorm room geniuses that will find ways to make the smart grid irresistible to the consumer. If they emerge, maybe the next generation of parents will be lecturing their kids to get off the kilowatt zapper and go outside and play. After all, you can’t spend your whole day eking energy savings from the house.

Elisa Wood is co-author of “Energy Efficiency Incentives for Businesses 2010: Eastern States,” available at www.realenergywriters.com.