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How to Rescue Us from High Energy Bills? Energy Efficiency!

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High energy bills and repeated debate over retiring old fossil-fuel plants are reminders that the market has failed to make the most profitable investments, and the regulators have failed to direct utilities to deliver the lowest cost energy supplies. The market is missing “more than $1 trillion in value through 2020.” That is the conclusion of international consulting firm McKinsey & Co. in Dec 2013. The choice is NOT burn coal or freeze in the dark.

Prices in the red when efficiency is ignored. Source: PJM

Prices in the red when efficiency is ignored. Source: PJM

McKinsey’s 2009 full report said “Energy efficiency offers a vast, low-cost energy resource for the U.S. economy – but only if the nation can craft a comprehensive and innovative approach to unlock it.” It calculated energy efficiency investments will return earnings double the cost and lower projected demand 23%. These “Net-present-value-positive” opportunities do not require a price on carbon emissions.

With this great resource available, and evident market failures with building owners not seeking these investments, the utilities’ regulators should step in. Regulators are missing this lowest cost energy supply for consumers, and the route to lower energy bills. The direction to utilities to make energy efficiency investments is so uneven, and the information on savings and revenues so incomplete, that no consensus on best practices exists. Ohio is improving. Ohio Public Utility Commission ordered First Energy to seek revenue from its energy efficiency in the wholesale capacity market, while Ohio utility AEP did this on their own.

What’s the problem?

Whether it is incomplete information, or bias, utilities and their regulators should not bypass their best investment option. If regulators can’t trust utilities to run these programs, allow market participants to sell energy savings to the utility with power purchase agreements, PPAs. This is how most residential rooftop solar is being financed.

Posted in: Energy

About the author: Michael Jacobs is a senior energy analyst with expertise in electricity markets, transmission and renewables integration work. See Mike's full bio.

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  • Jim Stack

    The problem is that regulators push for the cheapest power that is dirty and subsidized but most don’t understand that. You wrote= regulators have failed to direct utilities to deliver the lowest cost energy supplies.

    In most states COAL is still subsidized even after 50 years. It pollutes which doesn’t get regulated or paid for so the US uses a lot of COAL. Now that Fracking has been pushed into high gear many think Natural Gas is better and lower in cost. It’s just different pollution but still bad and if Fracking gets stopped it will cost twice as much.

    Almost no one looks at being more efficient. Passive Solar is the best ROI ,return on investment but isn’t fancy or glamorous so it gets skipped by most. I did efficient and solar so I save a bundle as well as the earth. No water used or wasted, no pollution and I help the Utility two major ways each day. Lowering loads during the day and giving them clean energy and at night using their excess they can’t store.

    • http://www.ucsusa.org/about/staff/staff/michael-b-jacobs.html Mike Jacobs

      Jim- Thank you for the comment. I agree with the points you make about information being skipped and leading to poor decisions. You are right that most utility regulators do not include the environmental damages, or externalities, when considering the costs of alternatives. That categorization of costs by the utility regulator overlooks the actual costs to society. There is a similar mistake made when efficiency and solar are left out. When the utility and the regulator have one set of evaluations for investments that improve the use of energy on the customer or demand side and a different set of evaluations for investments on the utility supply side, good investments are skipped. Use of solar energy for thermal applications, which I assume is what you mean is delivered in your mention of passive solar, is another category where utility and regulatory categorization gets in the way. I have been wrestling with these definitions and expanding energy options recognized by the regulators my whole career. I am glad to hear from people that see this issue, and like you, have made some choices that push the envelope.

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