David Reynolds, ERS, for Zondits
Seriously.
The point of this article is to challenge those who believe in energy efficiency and all of the benefits it provides to society and to the environment – and to our continued employment in a noble field. It is time to rethink, reevaluate, and restate the benefits of energy efficiency, because if that doesn’t happen the commitment to efficiency as we know it will no longer exist.
The regulatory landscape for energy is shifting. REV, anyone? California recently enacted new energy policies that most certainly will change how energy efficiency is valued. I have overheard many energy efficiency-minded folks speak of these changes with excitement: new policies could expand our energy efficiency efforts. However, these same folks appear to be blind to the downside, that energy efficiency’s position as first in the loading order to meet our energy resource needs is under threat.
How, you ask? Well, I have a story to share with you about a fictitious event in the not-too-distant future.
The region’s energy policies have been successfully changed with an eye to the future. Outdated policy is gone; in its place is policy that promotes an integrated and flexible approach to meeting the region’s clean energy needs. The time has come to develop the resource plan in which financial commitments will be made for the integrated portfolio of distributed energy, renewable energy, demand response, and energy efficiency as a resource.
Now you step in. You represent energy efficiency and are about to enter the region’s master resource-planning board room, where financial commitments will be made that determine the balance of the integrated resource portfolio. You are confident that you will obtain more funding for efficiency because the facts are on your side, and the most important is this: energy efficiency is the least-cost resource at 3 cents a kWh. It’s better than traditional polluting resources and far more cost-effective than DER or renewables. It’s a no-brainer. You walk into the board room confident, prepared.
The meeting begins with a focus on the demand side, where the total resource needs for the next 10 years are determined. Next on the agenda: determine the portfolio of resources.
You rise.
Esteemed colleagues, let’s discuss energy efficiency. As we all know, energy efficiency is the least expensive resource and should be funded first before we divvy up the rest of the proceeds.
Then it happens. The person seated next to you stands up and says, “Dear colleagues, I represent a coalition of interested stakeholders, and I am afraid that I have to disagree with Ms. Efficiency. Her presumption that energy efficiency is the least expensive resource simply isn’t true. In fact, it’s as old and outdated as the policies we just abolished. First, it’s based on unproven assumptions about the persistence of savings.”
This is followed by a ten-slide presentation that concludes that persistence is roughly half of what is traditionally assumed. “Second, the cost of energy efficiency does not account for the real-world behavior phenomenon of take-back, or as it is known to Ms. Efficiency and her friends, the rebound effect.” A presentation of twenty slides concludes that a rebound factor must be applied to assess the true cost of efficiency. “Last, Ms. Efficiency’s evaluations of her own programs over the last several years have concluded that the claimed savings from efficiency are never realized. In fact, in places like California, the efficiency program’s realization rates are disturbingly low.” The next five slides show a detailed accounting of the cost of energy efficiency with the real-world effects of persistence, rebound, and realization rates. “You see, as I have clearly demonstrated, the actual cost of energy efficiency is closer to 10 cents a kWh.”
You stand throughout the presentation, flat-footed and frozen, as it is decided by the group that funding for energy efficiency is slashed in favor of other resources. You pleaded your case, you strenuously objected, but you did not come prepared to defend what you believed to be fact. You think back to your preparation in meetings with other energy efficiency experts, where everyone agreed that energy efficiency was the least expensive resource. No one raised concerns; we just all believed. But this coalition twisted the facts and did not present a fair picture of the benefits and value of efficiency. You know that you can present energy efficiency as the best solution for meeting resource needs, but you need time. Unfortunately, the die has been cast, and efficiency has paid the price.
Is this really a sign of things to come? Or things that could be? I believe the future is in your hands.
Energy Efficiency is the least cost source of emissions reduction – so says the Economist and many others (albeit not nearly enough). The Australian state of New South Wales has just released a policy platform that directly recognizes this close and inextricable relationship. The other Australian States will follow as our federal government obfuscates.
Good on California. Now investigate the high impact of refrigeration and air conditioning. “R&AC will add more to global warming than all other sources of carbon emissions combined if we do not stop using HFC refrigerants and fail to embrace efficient engineering” Let me know if you want an explanation.
Given the relative dearth of energy supply options available at below 10 cents a kWh, my bet is in this scenarion Ms Efficiency will end up with a larger rather than a smaller share of the pie.
Great challenge.
I’ve argued the persistence/rebounds/Jevons issues many times, while at ACEEE and elsewhere. But I think this is just one of the challenges EE faces in the policy arena and in the marketplace today. Equal or larger challenges run like this:
1. Energy is abundant and cheap now, compared to the last decade or the 70s. We don’t need EE anymore.
2. Markets will deliver EE, and we don’t need all these programs. In today’s improved IT/smart tech/connected device world, individuals and markets have all the info they need to see and act on energy savings opportunities.
3. EE represents a tax in the form of rate surcharges. Sure, maybe average bills will be lower down the line, but you guys are raising rates today, and free markets want low rates, period.
4. The EE well is drying up. We’ve been running these programs for years, and so there’s not much left. And, (see #3) the rate impacts are rising, and we think the returns are diminishing. Time to declare victory and move on.
I lived through the rise and fall of EE in the late 70s, and the early 90s, and we may be headed for another wave of retrenchment. There are answers to all these questions, but advocates and the industry as a whole need to heed the wakeup call and think outside the box.
So you’re carting these out as new issues? This is classic straw man argument. You set up a straw man “weak old” efficiency argument to beat it down. But the straw man is a poor depiction of the real world. It’s true that not everyone doing efficiency speaks fluent economics. But rebound has had it’s decades in court- about every ten years some prestigious economist with no fluency in the extensive evaluation research in the efficiency field discovers it, publishes a “revelatory” article based on theory or anecdotes in some academic journal that has high prestige but low standards for background research, and we’re off for another round. Rebound is not nothing, it’s not that much for most programs- but it has been thoroughly considered by people who get into the weeds of regulatory economics and that’s been extensively published (search ACEEE’s publication list).
There are certainly people who ignore market effects and efficiency. But, many of the state commissions who charter programs do consider them. The pros and cons are extensively discussed among regulatory folk.
I think there are threats to the primacy of efficiency, coming from our successes, from new, different technology (e.g., IOT controls), from our attachment to old supply chains and lack of integration with the new supply chains forming to deliver them (e.g.,internet retail, software as a service firms), from technology diversification, and from the struggle of many program deliverers to adapt their model as the energy using world changes. In particular, the focus in some states (not all, fewer as time goes by) on “bucks for boxes” as the only regulatory paradigm for efficiency is limiting what program deliverers can do. The discussion of how to survive and thrive is best framed in the real-world market problems. Once these are considered, then the question of if and how economic concepts like rebound and market effects apply becomes interesting. But the broader issues of how we can deliver savings, and what attribution means in these new worlds, taken more broadly, are a better place to start thinking about how these programs are justified.