FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
Beyond Green Hype
Getting realistic about energy efficiency.
failures of the stimulus bill’s residential energy efficiency program where a fraction of 1 percent of planned homes have been addressed due in part to numerous inhibiting regulations. For example, higher-potential older homes are possibly subject to preservation codes, while governement prevailing wage rules raise costs to less attractive levels.
Barriers to adoption in the commercial, industrial, and residential communities will limit our nation’s ability to achieve the technical potential for efficiency savings that have received substantial hype. Within the commercial and industrial market (C&I), proportionally high energy costs historically have led to more energy efficiency activity relative to the residential market. Several barriers to further adoption still exist.
The first barrier is awareness. While C&I customers are more sophisticated in their understanding of efficiency opportunities than are their residential counterparts, many still believe that serious savings requires serious investment, and consequently take little action (addressed by Lesson#1 below) . Second is site diversity. Energy use, energy pricing, and efficiency opportunities differ based on the characteristics and geography of a building. Consequently, the most cost-effective efficiency measures change site by site ( addressed by Lesson #3 ).
Third, debt financing, often required to make energy efficiency improvements financially attractive, has become increasingly difficult to obtain in the current credit-constrained environment. The fourth issue involves alignment with business priorities. Given the number of priorities on companies’ agendas at any given time, efficiency upgrades often need to align with existing priorities and the net energy contribution to the cost of goods sold to gain traction.
Additionally, split incentives can impede efficiency efforts. Within the commercial real estate market, tenants often reap the benefits of investments the owner makes, creating a disincentive for owners to take action. Fourth, the economics of efficiency upgrades are highly dependent on energy prices, which can fluctuate considerably based on commodity prices, supply/demand balance, and state or federal policies. And fifth, behavioral change can be a low- or no-cost way to reduce energy consumption, but has historically been difficult to realize, and even harder to sustain (addressed by Lesson #2) .
While historically not a focal point of efficiency efforts, the residential market will be critical to realizing the full potential of the nation’s energy savings. A few of the key barriers are similar to those affecting C&I customers. Awareness, for example, presents a major issue. While many consumers know that energy efficiency can provide energy and cost savings, few are aware of where these opportunities lie and how to take advantage of them. Also, competing priorities reduce the effect of efficiency programs. Even if the opportunities are understood, on a single household basis, the opportunity is relatively marginal and often takes a backseat to other priorities. And as with the C&I market, behavioral change is the logical no- or low-cost alternative, but it can be difficult to realize and sustain (addressed by Lesson #2) .
Other issues are more peculiar to the residential market. For example, many consumers are unwilling to sacrifice individual preferences for more efficient products ( e.g., incandescent or LED lighting). And while energy efficient