Efficiency gains, if not properly managed, can quietly take away most of the present market for electricity. But they also offer alert utilities an unprecedented opportunity to control risk,...
Saving Gigabucks with Negawatts (1985)
In an age of costly electricity and cheap efficiency, smart utilities will sell less electricity and more efficiency.
incorporation into the article as it appeared in the March 21 edition of this magazine, but we willingly publish it here.– Lucien Smartt, Editor (1985)
An economic and institutional revolution is sweeping electric utilities. Behind it is a quieter technological revolution: an astonishingly powerful, diverse, and rapidly emerging array of devices to wring more work from a kilowatt-hour. This article will outline the dimensions of these changes; how they are transforming utilities’ strategic planning imperatives; and how they can make the utility regulatory task more productive, consensual, and pleasant. It will by necessity be general and omit many details. But it will explain the consequences which flow from one premise: that people want, seek, and will eventually find the amount, type, and source of energy that will deliver each desired energy service (such as comfort, light, shaft power, and electrolysis) in the cheapest possible way consistent with reliability and convenience. Such a neo-classical competitive marketplace for energy services, in which electricity will be bought only where it is the best buy — the option with lowest private internal cost — is of course a theoretical construct. The actual market is a highly imperfect fuel bazaar, satisfying no condition of the ideal free market. Yet, as I shall show, it is beginning to behave remarkably like a free market, profoundly altering the prospects for electrical demand. Let me start with the bottom line:
- Full use of the best electricity saving measures now on the market could quadruple the efficiency of using electricity in the United States – using measures whose average cost is less than about two cents (1984 dollars) per kilowatt-hour saved.
- Since such savings cost less than just operating existing fossil-fueled or nuclear plants, such plants — even if just completed — cost less to write off (and displace with efficiency) than to run.
- Of all power now generated, at least 80 percent at today’s average price, and nearer 90 percent at marginal price — that is, the output of every thermal plant in the country — cannot compete with efficiency improvements now newly on the market.
- As that “overhang” of efficiency is purchased over the next few decades, making the plants’ uncompetitiveness manifest, some $100 to $200 billion worth of unamortized thermal power stations may have to be written off.
- By grossly underestimating the power of “technical fixes” to use electricity more productively, a $300,000 million industry is continuing to liquidate itself to build hundreds of plants it cannot afford, will not need, and will not be able to pay for — playing “You Bet Your Company” that its customers will take half a century to discover better buys.
- Future demand — that is, how long it will actually take the customers to discover least-cost options — is not a fate to be prophesied by examining the entrails of forecasters; it depends on customers’ access to information, capital, and freedom of choice. It is a variable to be influenced according to policy goals. Utility experience now shows that implementation of efficiency is or can be made faster and more