I’ve written several times (here, here, and here) about energy efficiency and how important it is for us to conserve our use of energy resources. At risk of sounding preachy, not only is it good for the planet, but it also provides consumers the opportunity to lower their utility bills. Investments in energy efficiency measures simply make good sense, and regulators appear willing to ensure the proper incentives are in place to reach their aggressive EE targets. That’s why I’ve supported the ACC’s aggressive EE requirements for utility companies.
A few weeks ago I wrote about how my experience with compact fluorescent light bulbs didn’t live up to expectations. The impetus for my ruminations on this topic was a Wall Street Journal article commenting on how energy efficiency reviews in California indicated that the “actual” energy savings from CFLs for California utilities fell short of expectations. The California study cited several reasons for this underperformance, one of which was the unit energy savings were lower than expected due to shorter, actual life of the CFLs.
Well interestingly, my blog generated a few comments, e-mails, and a telephone call defending CFLs, energy efficiency, and the energy efficiency standards for electric companies recently adopted by the Arizona Corporation Commission.
The discussion has been great.
No, I’m not backsliding on support for CFLs, EE, or the ACC’s EE rules. But, hitting the sweet spot will require much more than subsidies on appliances like CFLs. It will also require a change in mind-set for many consumers and proper incentives for utility companies to sell less and still remain profitable. Advancement and market saturation of ever-improving EE technologies will also be an essential element in meeting our goals. These are conditions even the most ardent advocates of energy efficiency acknowledge are necessary and essential.
Just today, I received an e-newsletter from a subscribed publication, which pointed out a few examples of “green” products in need of improvement to meet consumer expectations. One was an overnight battery charger for smart phones. The charger turned-off after a phone was fully charged (i.e. 4 hours) saving energy. The trade-off for energy-efficient-minded consumers was that once the charger turned off, the phone remained on, draining the battery and preventing a full charge. For some folks glued to their cell phone (including certain members of my family), beginning the day with less than a full charge is like forgetting to set the alarm clock to catch an early morning flight. Not a good start to the day. Product improvement, in the case of the green cell phone charger, will lead to better consumer acceptance and energy savings.
A recent paper by ASU economist, Matthew Croucher, points out that there is a likely tendency for consumers to upgrade their use of energy to achieve greater levels of comfort after gaining bill savings from conservation. Termed the “rebound effect,” it arises, for example, when thermostats are set at more comfortable settings following installation of energy-efficient space heating/cooling systems. More comfort; less sacrifice.
For utility companies, like most businesses, the ability to earn a reasonable return for investors has meant selling more – not less of its product. A mandate for selling less electricity, like the aggressive EE targets imposed by the ACC, is contrary to the standard business model and a potential recipe for financial distress. Why? Since a portion of the power companies’ fixed costs for infrastructure (like power plants, transformers, distribution and transmission lines) is embedded in volumetric charges (i.e. the kwh price), selling fewer kwh means the company and its investors will be unable to recover all fixed costs, and investor returns will fall short. This makes it difficult and expensive to attract capital for investment in essential infrastructure to meet the needs of Arizona families and businesses today and in the future.
The utility companies will rightly resist the notion of selling fewer kwh without an opportunity to generate fair and reasonable earnings. The ACC has acknowledged this dilemma and has signaled its intent to implement rate mechanisms to reduce or eliminate the disincentives for the companies to aggressively pursue EE programs. One way to make the companies indifferent toward selling fewer kwh is through a revenue decoupling mechanism, which breaks the linkage between sales of electricity and company earnings.
Bottom line -- if we can get consumers, technology innovators, energy providers, policymakers and regulators in sync, energy efficiency can be a win-win proposition for all. All it takes is some effort and an open mind.
