Energy Efficiency Markets

By Elisa Wood

July 17, 2008

T. Boone Pickens deserves kudos for his attention-grabbing television campaign aimed at helping America kick the oil habit. The billionaire energy fund manager can stop the most dedicated channel surfer mid-click when he proclaims that our spending on foreign oil could soon become the largest transfer of wealth in human history.

Pickens’ plan has two parts www.pickensplan.com. The first calls for more use of wind power. No surprise there. Few forward-thinking energy plans do not put wind generation front and center.

But we’re stumped by the second part of his plan, which is that we use the wind power to replace natural gas-fired power plants and then use the left over natural gas for cars. On the surface the equation seems to make sense: it cuts back on our use of gasoline. But scratch a little, and Pickens’ idea doesn’t seem to add up.

Consider what has happened to the power generation industry this decade. We have seen a proliferation of new natural gas-fired plants because gas is a relatively clean fuel, and the plants can be built quickly and easily. As the nation moves toward regulating carbon dioxide emissions, public policy (intentionally or not) encourages even more of their construction. This is because gas-fired plants do not emit as much carbon dioxide as the coal-fired plants that provide about half of our electric power.

Unfortunately, as we’ve built more gas-fired plants, demand for natural gas has increased and its costs have skyrocketed. Gas prices are largely blamed for the tripling of electricity rates over the last eight years in places like New England.

The Pickens plan wants to replace one expensive fuel with another to power our cars.

Given this reality, wouldn’t the Pickens plan make more sense if it pushed plug-in hybrid electric cars? www.pluginpartners.org Plug-in cars appear to be a natural companion to wind power. Presumably car owners would plug their vehicles in at night to recharge. Evening is typically a windy time, so turbines would whir, pushing power into the grid to feed the cars. We won’t run out of wind as we could natural gas, and it is essentially a free fuel. On top of that, plug-ins are nearing commercial operation and do not require massive building of fueling stations, as natural gas-fired vehicles do.

Obviously, our electric grid will never be powered only by wind. But it seems we could avoid much of the massive transfer of wealth Mr. Pickens warns about by trying to push the wind/plug-in car relationship. So, Mr. Pickens, what about the plug-in hybrid?

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

By Elisa Wood
July 10, 2008

With energy demand high and supply tight, the only thing in abundance these days is uncertainty. So says a recent Standard & Poor’s report: “The Credit Impact of Rising Energy Costs on Industry Sectors.”

“Whether energy production can keep up with demand growth is a major question,” says the credit rating agency. “Where the energy will go is easy to estimate. The harder question is where will it come from?” Even if oil prices dip in the short-term, S&P says they are “cycling around a rising trend.”

High energy prices and uncertainty cripple business growth. The auto industry is expected to end 2008 with the lowest sales in 15 years, says the report. The airline industry is squeezed between consumers demanding cut-rate fares and fuel prices that now gobble up as much as 40% of operating expenses. Meanwhile, stores and other retail businesses find customers lack discretionary cash for merchandise.

But buried deeper in the report is some good news, and it is about capital goods aimed at improving efficiency. Specifically, S&P tells the tale of Sweden-based Alfa Laval www.alfalaval.com, a leading global supplier of heat exchanges, pumps, valves and other equipment aimed at improving efficiency in industrial processes.  Company sales are up 50% since 2005. The company’s credit rating has improved because of the demand for energy efficiency products — Alfa Laval saw a one-notch upgrade in April.  S&P says prospects are good for the company because it is stepping up product development and increasing capacity to capitalize on the strong market in the efficiency sector.

For companies like Alfa Laval, the challenge is to “maintain and improve market share, while at the same time keeping control of costs and avoiding over-expansion,” S&P says. The credit-rating agency doesn’t say this, but inherent in this strategy is attracting workers to support expansion.

We’ve heard from industry insiders who say a shortage of workers is becoming a very real problem in the energy efficiency arena. We suspect we’ll hear more talk about this need in the near future as states and utilities ramp up spending on efficiency programs.

Compared with much of today’s bad economic news, worker demand is a good problem to have. But it is a problem nonetheless, and one that requires immediate attention if the industry is to fulfill its mandate as the near-term solution to our energy supply and demand woes.

The solar industry has made clear its need for installers, and policymakers have responded with training programs at community colleges.  What does the efficiency industry need to do to attract the same attention? And will policymakers listen? We welcome your thoughts.

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

By Patrick Costello

Plasma televisions, video game consoles, and cable set-top boxes find their way into more and more American homes thanks to lower prices and aggressive marketing. While this trend makes for better home entertainment, it strikes a blow to energy conservation efforts.

For example, even when just in standby mode, a plasma television consumes nearly $160 of energy/year and a game console over $25/year, says an article in Good magazine. A study by Australian consumer group Choice found that plasma televisions use four times more energy than older cathode ray tube televisions. An Xbox 360 game console could cost $200/year to operate, and its competitor Playstation 3 as much as $250/year. (Meanwhile, Nintendo Wii fans can take heart that their box costs only $25/year.)

The two studies make various assumptions about usage, some more credible than others. No one, for example, would leave a game console on 24/7/365. And energy costs were on the high side in the Choice study at 15 cents/kWh. Still the studies make it very clear that both plasma televisions and game consoles are power hungry.

The energy consumption of another common home entertainment device, the cable set-top box also often goes unnoticed. A 2007 Natural Resources Defense Council (NRDC) study found that even the most basic box consumes more energy annually than a washing machine. And more and more households are likely to install such cable boxes very soon. Analog broadcasting will be cut off in 2009, rendering obsolete any television without a built-in digital tuner. Thus, millions of Americans will soon need to buy or rent digital-to-analog converter boxes. This is expected to spur the purchase of nearly 22 million cable set-top boxes. Many households are likely to upgrade to models offering integrated digital video recorders and high definition capabilities. The study found that advanced models offering both options consume more than 25% more energy than desktop computers and cost more than $30/year to operate. Interestingly, the study also said that the set-top boxes consume pretty much the same amount of energy whether they are on or off.

It is important to acknowledge the energy consumption of these home entertainment electronics and identify how they will affect household efforts to become more efficient. The set-top box is the least energy intensive of the three types of electronics addressed here, and the EPA estimates that these devices alone will consume more than 3 billion kWh/year and add $270 million/year to American electric bills.

While entertainment systems may not be as energy intensive as heating and cooling, we cannot ignore their impact as more and more of these devices make their way into our homes.

Visit www.realenergywriters.com to pick up the free Energy Efficiency Markets newsletter and podcast.

By Elisa Wood
June 26, 2008

Energy efficiency creates an odd sort of market. Nothing (lack of energy use) competes for customers against something (energy generation).

There is no free lunch and even nothing, energy efficiency, costs something. But for now it is cheaper than its main competitor, the power plant.

In fact, it is often three times less costly to install efficient light bulbs, better insulate buildings or pursue other forms of efficiency than to buy power. Specifically, energy efficiency costs about 3 cents/kWh compared with the 9 cents/kWh it takes just to cover fuel costs from a baseload gas-fired generator, according to a June 19 presentation on power prices by the staff of the Federal Energy Regulatory Commission http://www.ferc.gov/legal/staff-reports/06-19-08-cost-electric.pdf.

Given its cost competitiveness, efficiency is increasingly called upon as a “first fuel.” A growing number of states require that utilities use as much efficiency as possible – reduce consumption as much as possible — before building new plants or signing power deals.

As a result, the energy efficiency business is booming.  And it is beating power plants as the favored alternative not just because it is cheaper; it also is cleaner, and consumers like it better. As Suedeen Kelly, FERC commissioner, said: “There is decreasing enthusiasm for building and an increased enthusiasm for demand-side resources.”

Indeed, since January 2007, 50 coal plants have been canceled or postponed; only 26 remain under construction. Meanwhile, state after state revamps energy policy to make efficiency a priority. The potential exists for the US to have an economy by 2030 that is 70% larger than today’s, but uses no more energy than it did in the mid-1990s, according to the American Council for an Energy-Efficient Economy http://www.aceee.org/tstimony/Laitner%20Senate%20Testimony%20June%2025%202008.pdf.

Of course, at some point the nation must build new power plants to meet growing demand. Nothing cannot replace something forever.  A growing economy needs energy.

So, how long will the efficiency industry boom? How long will efficiency hold this favored position in the marketplace? That’s not easy to answer. But one thing seems apparent. Energy prices are not going down any time soon. The FERC report warned that we appear to be at “the beginning of significantly higher power prices that will last for years.”  If this proves true, energy efficiency’s run as the favored fuel has just begun.

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/

By Elisa Wood

June 12, 2008

A dirty secret of clean energy is that being green can be an expensive pursuit. The cost of solar panels and hybrid cars is declining, but they remain too expensive for many people. As a result, the green energy movement is often viewed as an upper-income trend in the United States.

But a recent survey indicates energy efficiency may be a more egalitarian product.

The intent of “The 2008 Energy Costs Survey,” released this week by the Energy Programs Consortium and the National Energy Assistance Directors’ Association, is to show the sacrifices made by low, moderate, and middle-income households because of rising energy costs. Households are cutting back on food, medicine, clothing, heating and cooling, education and eating out. And they are paying their bills later, according to survey of more than 500 households in May. http://www.neada.org/

But, the data also reveals an interesting phenomenon about energy efficiency. Even low-income earners invest in appliances and home improvements that reduce energy costs.

In fact, those in the lowest income bracket were most likely to purchase an efficient air conditioner. Eighteen percent of the lowest income households made such purchases compared to 13-14% of those with middle and moderate incomes. Poor households edged close to wealthier ones when it came to installing efficient heating (11% compared with 15% of those richer). In purchasing efficiency appliances, 15% of low-income households reported doing so.

Having 11% to 18% of low-income households invest in EE may not sound like a lot. But compare it to how much solar energy we consume. Only 1% of the electric power used last year in the United States came from solar energy, according to the federal Energy Information Administration — and that includes business use http://www.eia.doe.gov/fuelrenewable.html.

If 11% of households installed solar panels, renewable energy advocates would be ecstatic and many of our energy woes would ease. Clean energy advocates often lament how hard it is to bring renewable energy to the mass market. This is a problem efficiency products do not appear to face. It is easy and not overly expensive to become an EE consumer. This is one reason why EE advocates may be right when they say the efficiency explosion ramping up in the US will easily dwarf any other energy trend.

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

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.

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

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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