Energy Efficiency Markets

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

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.

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By Elisa Wood

You’re about to buy a computer, and you see that newer models are more energy efficient than your old one. That’s great news! Now you can leave it on all night, saving the bother of powering it up in the morning. Maybe you’ll end up using a few more watts, but who’s counting?

Maybe no one – but perhaps someone should.

This phenomenon – the idea that it’s okay to use an appliance more if it is efficient – is known as the rebound effect. And it’s worrying economists and clean energy advocates.

The rebound effect can take many forms. When I shop for a new refrigerator, I may find that the newer, more efficient models are much cheaper to operate than my old unit. So I decide to buy a bigger model. Or perhaps I insulate my house and use the money saved on home heating to take a vacation. I gobble up any energy I saved – and even more - by taking a plane ride.

Critics of efficiency programs point to the rebound effect to argue that efficiency does not get the bang for the buck claimed.

But how great is the rebound effect? We asked the Alliance to Save Energy. Steve Capanna, senior research associate, directed us to a 2005 International Energy Association paper that says about 10% to 20% of the energy saved by an efficiency measure is lost due to increased consumption.

Does this mean efficiency is not worth pursuing? No, ASE points out you still have achieved an energy savings of 80% to 90%. So the glass is not half-empty, but in fact more than half full.

Still, the rebound effect cannot be ignored, particularly since energy companies increasingly convert their energy savings into carbon dioxide emissions reductions. If they do not calculate the efficiency savings accurately, carbon emissions reductions figures will be askew.

This is a serious worry, particularly since the rebound effect may be more deeply imbedded in the economy than we think. For example, Chris Goodall, author of the book, How to Live a Low Carbon Life, says that “better economy-wide energy efficiency (through, say, improvements in steel-making technologies) may encourage more rapid economic growth, which in turn raises energy use.” (http://www.carboncommentary.com/2007/11/11/51)

While critics may overstate the rebound effect, clearly the efficiency industry cannot ignore it. The US begins its first carbon emissions cap- and-trade program in 10 states next year, and a national carbon restriction program is likely to soon follow. Carbon reduction claims will undergo increasing scrutiny. Data must be highly accurate.

The credibility of the energy efficiency industry depends upon it keeping as much bounce as possible out of the rebound effect – or, at the very least, remembering to consider the effect when declaring energy savings.

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

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.

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.

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.

By Lisa Cohn

Rhode Island is often the butt of jokes about its size, a lot of them having to do with an inability among residents to screw in electric light bulbs. But when it comes to energy policy, the state has often loomed large, even if few people notice.

For example, it was Rhode Island that led the way with electric industry restructuring in the 1990s. California and Massachusetts usually get the credit.

And more recently, the smallest state in the nation became a big innovator in energy efficiency policy. Rhode Island in 2006 passed a law that requires National Grid https://www.nationalgridus.com/narragansett/, its major electric utility, to eke out all cost-effective energy efficiency before turning to power plants for generation.

The law was slow to ramp up, but is now getting under way. The state Public Utilities Commission is putting together rules to make it work. http://www.ripuc.org/eventsactions/docket/3931page.html

A few other states have made similar attempts, but eventually “settled” for less efficiency than was available, according to Andrew Dzykewicz, state energy czar, in a recent letter updating state regulators on the plan. Rhode Island, on the other hand, intends to go after energy, capacity and system cost savings to assist all customers: residents, institutions and commercial & industrial operations.

Rhode Island also is unusual in that it links the need for efficiency with the requirement to maintain a reliable electricity delivery system. Along with coming up with a comprehensive efficiency plan, National Grid must seek out ways it can integrate into its transmission and distribution system alternative technologies, like combined heat & power, distributed generation, renewable energy, demand response and efficiency.

State regulators continue to work out details, but look to July 15, 2008 as a major milestone. On that date the Rhode Island Energy Efficiency and Resource Management Council will file an energy efficiency “opportunity report “ with the Public Utilities Commission. The report will help determine how National Grid proceeds.

Once the program gets going, maybe the jokes will be more flattering, as in: How many Rhode Islanders does it take to screw in a light bulb? Not very many, since they hardly ever need to change their light bulbs, given how highly efficient they are.

Visit writer Lisa Cohn at www.realenergywriters.com, pick up her free Energy Efficiency Markets newsletter and listen to her Energy Efficiency Markets podcast.

By Elisa Wood

Political leaders push energy efficiency when electricity rates spike, then drop it like a hot potato when prices fall. So how long will the current interest last?

Three reports out this week indicate power prices will not ease any time soon. Indeed, forces are in place to only push costs higher.

One force is the renewable portfolio standard, according to Standard & Poor’s Ratings Services in “The Race for the Green: How Renewable Portfolio Standards Could Affect U.S. Utility Credit Quality.”  Half of the states, representing 40% of electric load, now require that a percentage of power come from green energy. S&P warns that the requirement is moving “squarely away from least-cost procurement and toward acquiring often above-market renewable generation in unprecedented quantities.”  The standards are in their infancy, so the price impact is still to come in most states, says S&P.

Meanwhile, the Natural Gas Council sent a report to Congress warning that expected restrictions on carbon emissions are likely to drive up demand for clean-burning natural gas by 20%. This is not good news for electricity prices. Most new power plants in the US are built to burn gas. Higher demand for gas could easily mean higher prices for electricity. http://www.ngsa.org

And finally, Oak Ridge National Laboratory found in a study that plug-in hybrid cars may put more pressure on the electric grid than previously thought. The nation may have to build as many as 160 new power plants – a costly endeavor – if everyone plugs in their cars for recharge right when they get home from work. http://www.ornl.gov/info/press_releases/get_press_release.cfm?ReleaseNumber=mr20080312-02

These price pressures, combined with the growing treatment of efficiency as a market commodity–not a subsidy-driven service — indicate efficiency may have finally found a solid foothold. It may be a blip no more.

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

By Lisa Cohn

Energy efficiency advocates have argued for years that a negawatt is cheaper than a megawatt. That is, it is less costly to install energy efficiency equipment and reduce consumption than to build new power plants.

In New England, the premise was recently tested, and the results should hearten anyone in the efficiency business.

ISO New England invited demand-side resources, like energy efficiency or demand response projects, to compete on equal terms against power generation projects to fill the region’s need for electric capacity in 2010/2011. The test took place during the wholesale market manager’s first forward capacity auction. After three days of bidding, demand-resources stood up handily to generation. In fact, ISO-NE announced at the close of bidding in mid-February that it had selected new efficiency-related measures that will create 1,188 MW of energy savings, but only 626 MW of proposed power generation.

What does this mean for the efficiency industry? First, it says that ISO-NE, charged with keeping the lights on in the six-state region, trusts demand-side resources to help with the job. Second, efficiency measures can compete on price with generation. (Both will receive the minimum bid price of $4.50 per kW-month for serving the grid.) Third, the auction created a new status for efficiency in the region. For years, efficiency has been treated as a subsidy-driven pubic service. In the ISO-NE auction it became a commodity.

Of course, an electric grid cannot run on efficiency alone. Power plants must be built at some point. But how many power plants can efficiency supplant? The Alliance to Save Energy says that efficiency could cut growth in energy demand by half over the next 15 years. To accomplish that goal, other regions need to follow New England’s lead and give efficiency the same financial status as power supply. Only then can the negawatt prove its true worth against the megawatt.

Lisa Cohn is a freelance writer who specializes in energy. Subscribe to her free Energy Efficiency Markets Newsletter by visiting www.realenergywriters.com

By Lisa Cohn

By news accounts Barack Obama is all the rage on college campuses these days. But there is another less reported campus movement that could considerably boost the energy efficiency industry.

College students nationwide have mounted a serious campaign to clean up the nation’s energy supply. And they are starting in their own backyards – or rather dorm rooms. Nudged by these students, college administrations are installing co-generation, switching to more efficient lighting, and undertaking other initiatives to reduce energy use.

Students are not just organizing on their own college campuses, but are forming coalitions of several schools to improve their clout. One of the most interesting organizations is the Energy Action Coalition, comprised of 50 student groups.

Energy Action brings some fun to the otherwise staid energy industry. For example, on Valentine’s Day, group members in Michigan sent love notes to legislators to push a green energy agenda. Among other things, the students sought a 2% annual increase in energy efficiency through 2015.

Next the group plans to revamp the sometimes decadent spring-break-at-the-beach tradition. Energy Action is organizing trips to coal states where members will learn more about the industry, help in river clean-up and engage in some good-old fashion college fun – protests. In particular, they plan to take on planned coal-fired projects.

College administrators at several schools say that student action is influencing their energy decisions. Indeed, college presidents themselves are becoming a force in the climate change movement. About one-quarter of the nation’s colleges have signed on to the American College & University Presidents Cli­mate Commitment. The program requires that campuses create a plan to become carbon neutral within a specified time.

Many are finding that efficiency is the cheapest and quickest way to reach the goal.

The Association for the Advancement of Sustainability in Higher Education has set up a rating system to judge college green achievements. This time it is the colleges who are being graded – and the students are watching just how well they will do.

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