McKinsey and & Company released a report in May titled Curbing Global Energy Demand Growth: The Energy Productivity Opportunity. The report documented how we could reduce the world wide annual energy demand growth rate between now and 2020 from about 2% to around 1%, simply by improving energy productivity.
Not surprisingly, the report states that the “… most substantial productivity improvement opportunity is in the global residential sector, which is also the world’s largest consumer of energy with 25 percent of global end-use demand. By implementing available technologies such as high-insulation building shells, compact fluorescent lighting, and high efficiency water heating, the sector’s energy demand growth would more than halve, from 2.4% a year to only 1.0% a year.”
The report also states that:
“Consumers lack the information and capital they need to become more energy productive, and tend to make [decisions based on] comfort, safety, and convenience priorities. In addition, a range of policies dampen price signals and reduce incentives for end users to adopt energy productivity improvements.”
The report argues that policy changes will be necessary before consumers will take significant action to improve the energy efficiency of their homes. In other words, nothing will happen without leadership from our policy makers
In an example of enlightened leadership, Duke Energy filed a request (also in May) with the North Carolina Utility Commission proposing regulatory authorization to be rewarded for investments in energy efficiency much like they would for a new coal fired electrical plant. I don’t often use enlightened and Duke Energy in the same sentence, but their Save-a-Watt program represents an exciting new business paradigm and addresses the some of the policy issues outlined in the McKinsey report. This is a promising new development that could help pave the way to a more sustainable future.
The following bullets are a summary of benefits Duke sees is this new business model for consumers, themselves, and by extension other electric utilities
- Allows for the treatment of energy efficiency as a “Fifth Fuel”
- It would displace a portion of the electricity otherwise needed to meet it customers’ energy requirements with zero air emission conservation, and also reduce the amount of new generation that would otherwise be required
- It would lower costs for customers, when compared to the costs that result would from the addition of new electrical generation resources.
- It would offer the potential to substantially lower costs for customers who participate in energy efficiency programs (PV, solar hot water etc.).
- Would provide customers the opportunity to lower their environmental footprint through direct participation in energy efficiency.
- The program would provide more choices and options that help customers manage their energy costs in an environment of rising energy prices
- The program would create new energy efficiency service jobs in order to implement energy efficiency programs.
- The program would provide the Company with an incentive to make significant, sustainable investments in energy efficiency and rewards the Company for the results produced and the risks taken.
The filing by Duke explains this new “energy efficiency” business model as follows:
“The Save-a-Watt approach will encourage and compensate the ultility for investments in energy efficiency at 90% of the avoided supply-side costs. Under traditional regulation, a utility is allowed to recover the depreciation and operation costs for a new plant and also earn a return on the un-depreciated plant. Under the save-a-watt regulatory approach, the utility would be allowed to recover 90% of the depreciation and operating costs avoided by not building the new plant and also earn a return.”
“The Company assumes some risk in the proposed save-a-watt approach. Revenues collected through the proposed energy efficiency rider are intended to cover program costs and the financial impact of lost sales, but will be based on actual results achieved. Lost sales occur when energy efficiency programs reduce energy consumption, thus reducing the revenues available to cover fixed costs between rate cases (e.g. investments in utility infrastructure).”
In perfect accord with the McKinsey report, Duke goes on to say that:
“…customers are unlikely to sacrifice comfort and convenience to participate in energy efficiency. In addition, the initial capital outlay associated with some programs could be a significant barrier to customer participation.”
In addition to addressing capital outlay hurdle for consumers, some of the elements of proposed Save-a-Watt program include:
- discounted or free Compact Fluorescent Lamps
- discounted energy efficient air conditioning and heat pump units
- remote power management of air conditioning and heat pump units
- PV and solar hot water systems free to the consumer (pilot program)
- energy efficiency capital cost financing through Duke (pilot program)
- monthly billing statements correlated with historical usage and weather data to facilitate ongoing improvement