Impact of Energy Efficiency on the System

by Jigar Shah, Founder SunEdison and CEO of the Carbon War Room

I was looking at the new Homestar program on the Efficiency First website here: http://www.efficiencyfirst.org/home-star/
To start, it would be an amazing effort on the part of the Federal government. This comes on the heels of a huge effort on the part of the government to weatherize homes across this country. As many of you who know me, this is right up my alley. The problem with this program is that Homestar doesn’t really fundamentally shift our priorities as a nation. Assuming there is $23B of money available over 2 years available, here are some options:
1) PACE – property tax financing. This money could be used as a first loss guarantee available to the first $230B of non-recourse financing by cities. This would NOT be a Federal loan guarantee. As many of you know I find the Federal loan guarantee generally allows banks to be lazy and cuts out small contractors that can’t afford to do the paperwork
2) Utility on bill payment mechanisms – with the threat of PACE above, you might finally see utilities offer this program in a large enough quantity to offset the need for new generation facilities period. The beauty of this method is that it protects utility profits with decoupling or other half measures that really do not scale fully. The utility can use this method to carefully roll out energy efficiency in the best interests of its shareholders. Physical equipment like ice storage: http://www.greentechmedia.com/articles/read/coming-to-so-cal-53-megawatts-of-ice would be my first choice. It shift peak power to off-peak power and reduces overall air conditioning by making ice at night when it is cooler. This technology by itself could reduce demand charges for customers by over 30% while make the utility more profitable by smoothing out generation usage. In this case the $23B would be used as a 20% subsidy to be matched by 80% utility money for energy efficiency. The 20% would pay for the “utility profits” and usher in a new way of thinking.
The reason this is better than Homestar can be best summed up by the article below. When the utility sells less electricity, it needs to raise rates to cover its fixed costs. The Federal government would spend its $23B in energy efficiency only to see almost 50% of that be charged back to rate payers in bill increases . . not catalytic.
http://www.miamiherald.com/news/florida/story/1325051.html

“It’s a balance,” said Mayco Villafana, FPL spokesman. “If you do too much energy efficiency, a la what the conservationists are asking for, you are going to increase electric rates. You are reducing consumption but you still have to pay for existing power plants, transmission lines plus any new
construction.”

It’s a classic chicken-and-egg dilemma for the utility regulators. They’ve let the companies start charging customers for new nuclear power and natural
gas-powered generators based on the companies’ predictions that Florida needs to double it electricity capacity by 2050. But if conservation reduces demand, will existing customers be forced to pay more?

“How outrageous is that?” asked Kristin Jacobs, a Broward County commissioner and chairman of the county’s Climate Change Task Force. “We should just continue to stumble along in our wasteful excessive ways?”


You can find out more about Jigar Shah and how the Carbon War Room is fixing market failures to create Climate Wealth at www.carbonwarroom.com
3 replies
  1. Jon BPI Accredited
    Jon BPI Accredited says:

    On your point about less energy usage would actually result in higher rates. That is exactly what happened in Charlotte North Carolina two years ago during the big Southeast drought. Charlotte water customers were asked to conserve water, well, water demand fell so much that the utility had to raise fees to cover its capital and operating budgets. What's worse is that they raised the fixed fee rather than the actual water rates. Since users pay the fixed fee no matter how much or how little water they use, no one has any incentive to save additional water.I wonder thought how long it would take for the utilities to revamp their long range capital investments if efficient energy usage actually became the norm.

  2. JHGphoto
    JHGphoto says:

    Anything about reducing electricity consumption should be clearly discussed more seriously. I do believe manufacturer of electric products are the key decision maker and the recent consummer interest in more environemental friendly products is a good news to make them change the way they design product.

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