We have been hearing a lot of talk, in both FirstEnergy’s and AEP’s coal plant dumping cases at the WV PSC, about energy efficiency. Let’s take a step back and look at exactly what energy efficiency as an electricity resource means.
Let’s start with the concept of electricity resources. Power companies must make sure that they can meet all the demand for electricity in areas that they serve. In fact, demand for electricity is actually what drives the operation of the electrical system. Electrical use, called “load” by engineers, increases as more and more people turn on lights or appliances, and power companies ramp up their power generation to meet that increased load.
But we have learned through decades of experience, that shifts in technologies or addition of insulation to limit heat loss, will allow us to be just as comfortable and get the same things done without using more electricity. Investment in these technologies or better building construction then becomes another electricity resource, just like electricity generation. Energy efficiency investments produce business and residential improvement and eliminate the need for more electrical generation from any source, renewable or fossil fuel.
In this way, efficiency investments represent a resource that power companies can use to make sure they can meet demand for electricity. Engineers now talk about electricity resources, instead of generation resources, because energy efficiency investments have proven to be a more cost effective resource than new generation of any kind.
Here’s what the WV Division of Energy said in its 2013 Energy Plan for WV:
Increasing generation capacity and transmission and distribution (T&D) capabilities has been the traditional approach for meeting increased energy demand. However, the resources utilized in building new power plants and expanding T&D are often more expensive than resources needed to fund efficiency measures. Americans spend approximately $215 billion/year on the production of electricity at a price of 6 to 12 cents per kilowatt hour. Investments in efficiency only amount to approximately $2.6 billion/year at a cost of around 3 cents per kilowatt hour saved. Furthermore, natural gas efficiency costs $1 to $2 per thousand cubic feet (Mcf) saved compared with $6 to $8 per Mcf supplied.
Many studies confirm the notion of efficiency as a least-cost resource. An Environment Northeast study on the economic impact of EE in New England shows the savings potential for investments in electric and natural gas efficiency at the program level. Their analysis concludes that for every dollar invested in electric energy efficiency, $4.70 in participant savings is generated, and for every dollar invested in natural gas energy efficiency $3.60 in participant savings is generated. Furthermore, in Ohio, a state where 86% of its electricity is generated from coal-fired power plants, research projects that the implementation of residential energy efficiency measures could result in a levelized cost of saved energy of $0.029 $/kWh during the period 2009-2025. Therefore, the cost to optimize Ohio’s energy usage in the future through dedicated EE initiatives is much lower than the state’s current average residential retail rate of $0.104/kWh. Similarly, energy efficiency was also identified as the most-cost effective resource for energy savings in terms of electricity generation in North Carolina. It is also important to note that over the next twenty years the Southern Region, of which WV is included, has the greatest potential for energy efficiency savings in absolute terms.
So as you can see from the facts that I bolded above, the levelized cost of current electricity generation in the US are two to four times as expensive as investments in energy efficiency to save the same amount of electricity. Levelized cost, by the way, is a way of reducing all the costs associated with a particular investment to a single current value that includes all long term capital investment costs as well as current operating costs.
So what are these energy efficiency investments that we hear so much about? From the power companies’ point of view, these investments are costs that the companies incur to provide programs to encourage their customers to invest in new ways of doing things. These costs include the companies’ marketing costs to convince customers to participate, costs of administering and tracking the programs, as well as the cash incentives, services and discounts that companies offer to customers to encourage them to make individual investment decisions.
Many customers think that energy efficiency is a free lunch. After all, the power companies aren’t selling more electricity, so we shouldn’t have to pay for their efficiency programs.
Actually, that’s not right. In order to get the impacts of energy efficiencies, power companies have to market their programs and provide incentives, and prove exactly how much power is being replaced. This costs money. Also, power companies have capital investments in plants that still have to be paid for, even if companies sell more power.
Even with all these costs shifted to rate payers, the total is still, as shown above, only 1/4 to 1/2 the cost of investment in new power plant capacity. That’s the point. Power companies need to be reimbursed for their legitimate costs, and energy efficiency is STILL the cheapest way to go.
And now for the bonus – Rate payers do pay for efficiency programs, BUT we get a bonus when we participate in the programs. When we buy the discounted Energy Star appliances or the CFL light bulbs, our electric bills go down, often more than the cost of the programs in our electric bills. The more you participate, the bigger your bonus.
In WV, our power companies whine about offering energy efficiency programs. AEP has claimed that their programs cost 9 cents per kwh and are therefore very expensive. Except that this is the annual cost of the programs which result in customer investments in appliances and light bulbs that will last for years. As we can see from the levelized cost comparisons, which are the accurate comparisons, comparing the long term investment in efficiency with the long term investment in new power plants, efficiency investments are much less expensive. Power company claims about short term rate impacts are misleading, and, in the end, deceitful.
Recently, FirstEnergy has been arguing, in their publicity about the Harrison case, that energy efficiency is a decision that each customer can already make, and that power companies don’t have to do anything. This is another deceit. When we are talking about energy efficiency investments, we are comparing investments by power companies in energy efficiency programs as opposed to investments in power plants. Countless studies have demonstrated that energy efficiency program investments yield higher returns than do investments in new power plants.
This has nothing to do with individual choices by individual consumers. Naive and ignorant reporters are often taken in by this deceitful shift from power company policy to individual behavior. Don’t be taken in by this propaganda ploy.
In addition to consumers’ bonus from falling electricity bills, energy efficiency provides a couple of extra bonuses. Because investment in efficiency doesn’t involve fuel costs, rate payers are protected from rising prices for coal and gas. Because investment in efficiency won’t fail in a power blackout or cause voltage instability, load reduction also contributes to system reliability.