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Saving Gigabucks with Negawatts (1985)

In an age of costly electricity and cheap efficiency, smart utilities will sell less electricity and more efficiency.

Fortnightly Magazine - March 21, 1985

and some of the latest wind machines look profitable even without tax credits (which can hardly be said for thermal power plants). Some 7 to 10 percent of all 1984 housing starts use passive solar design. About a million solar buildings have been put up in the past five years, most of them passive and many built by people with extremely low incomes.

Among technologies coming fast over the horizon, photovoltaic costs in particular continue to drop and worldwide technological breakthroughs are frequent, although federal funding cuts have greatly reduced U.S. market dominance. Pacific Gas and Electric Company’s director of photovoltaics thinks it will be fairly common by 1990 for houses in her service area to be net exporters of electricity from solar cells on the roof. One vendor already offers turnkey photovoltaic installations for $2,500 per kilowatt peak – about 10 to 15 cents per kilowatt-hour — if anyone will buy 100 MW peak, and is selling 2-MW-peak arrays which appear to be a fine industrial investment. Third-party financing is now available for wind, small hydro, solar water and process heat, cogeneration (from Roger Sant’s firm, among others) some photovoltaic systems, and many efficiency improvements; it is the fastest growing financial vehicle in the energy industry.

So rapid, in short, is the progress in not just developing but actually installing practical, cost-effective renewable sources that it now appears that far from there being too few such sources to run an advanced industrial economy, there will probably be too many. That is, there will probably be attractive renewable sources which will not ultimately find a big market niche, simply because there will not be enough demand to support them all: Efficiency will beat all forms of supply. Despite many rearguard attempts to frustrate its intent, the Public Utility Regulatory Policies Act, where given a chance, has succeeded beyond its proponents’ dreams — so far, indeed, that the avoided cost has nowhere to go but down.

As efficiency cuts electrical demand, renewables’ share of supply will become dominant. Quadrupled efficiency, other things being equal, would make the old, cheap hydro capacity already on-line supply not an eighth (as now) but half of all electricity used. The remainder could easily be filled, indeed will probably be overfilled, by a combination of small hydro, cogeneration, wind, and photovoltaics. The power they provide will be firmer than that which we get now from big thermal plants, which will have become uneconomic and unnecessary. Utilities in the 2030s will probably not be manufacturers of a bulk commodity, but rather dispatching and bookkeeping operations mediating between many dispersed sources and many dispersed users. The giant plants which dominate the grid today, by the time they retire, will have become mere historical curiosities.

Responding to Uncertainty

What does this imply for utility strategy? Because of competition from efficiency and alternative supply, and because of exogenous economic uncertainties, it is common ground that long-term demand for grid electricity is uncertain. The greater the scope for saving electricity, the greater the uncertainty: For example, a 5,000-sector least-cost analysis for Britain, based

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