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
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.