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Money Talks, Thermal Plants Walk

Why it pays for utilities to be more efficient.

Fortnightly Magazine - June 2007


Here’s an indicator of where the juicy potential is. From 1975 to 2006, primary energy use per dollar of real GDP in the United States fell by 48 percent, but within that, oil intensity fell 54 percent despite stagnant light-vehicle efficiency; direct natural-gas intensity fell 64 percent, but electric intensity fell only 17 percent.

Why did electric efficiency lag, even though it’s the most expensive form of energy and therefore the most lucrative kind to save? Because, I suggest, it’s the kind of energy most often priced at embedded historic average costs, not on the margin; it’s by far the most heavily subsidized form of energy. It has the most split incentives between builders and buyers, landlord and tenants, etc. It has particularly opaque bills. And most of all, in 48 states, we reward distribution utilities for selling you more electricity and penalize them for cutting your bill. This is just as dumb as a possum and it’s got to stop. It puts utilities cross-wise with their customers’ interests, as well as their own. The reintroduction of decoupling and shared savings will be huge benefit to both the industry and its customers. Then we will start to catch up to that huge overhang of unbought efficiency.

We have technology now that can save three-quarters of the electricity we use, at an average cost of around 1 cent a kilowatt-hour—obviously cheaper than just running a thermal plant, even if building it costs nothing. Anyone who builds costly power plants, betting that efficiency won’t get bought, risks serious disappointment.