The next green thing — energy efficiency

WASHINGTON, USA: Dr. Paul MacGregor, Senior Vice President, Clean Energy Markets for Nexant Inc., has examined key provisions of pending federal energy legislation that would set the stage for the creation of a national energy efficiency market. Here, he outlines the context for this initiative and comments on its significance.

The greenest source of energy available to power our economy is energy efficiency. From an application perspective, energy efficiency provides constant “generation” for better utility system operation, has no geographical limits, and is already competitive from a capital cost standpoint.

From an environmental perspective, energy efficiency requires no additional resources such as land and water—whereas even renewable energy requires the construction of generation facilities and transmission lines.

In fact, since energy efficiency displaces generation over the entire day and not just during the daylight hours as is the case with solar, its environmental benefits are greater—replacing not just cleaner peaking generation, such as gas turbines, but also “dirtier” baseload generation, such as coal plants.

The most cost-effective and efficient method of accelerating the adoption of any new product or service is the market. This is also true for energy, where a market has been established for renewable energy in about 30 states. These states have adopted Renewable Portfolio Standards (RPS) that require the utilities in their states to meet renewable energy mandates by purchasing credits that represent the environmental benefits from cleaner energy production.

These credits (known as Renewable Energy Certificates or RECs) may be bought and sold separately from the electricity itself. As a result, due to federal incentives and these credits, renewable energy has increased dramatically in the US, with capacity more than doubling from 16.5 gigawatts to 41.9 gigawatts between 2000 and 2008.

Yet, despite this dramatic increase in capacity, renewable energy still only comprises about 2.5% of the electrical generation mix—just slightly higher than the 2.1 percent recorded in the year 2000.

In fact, the demand for electricity is growing almost as fast as the increase in renewable energy. This is due to several factors, including the intermittent nature of renewable generation such as wind and solar, geographical limitations on plant locations, and capital cost premiums.

The key to expanding the clean energy contribution to our generation mix is to accelerate and expand the adoption of the greenest form of energy, energy efficiency. The potential impact of energy efficiency was quantified by a recent report by the American Council for an Energy-Efficient Economy (ACEEE) indicating that the US can cost-effectively reduce energy consumption by at least 25-30 percent over the course of the next 20 to 25 years.

Unfortunately, most states do not have energy efficiency markets. As a result, energy efficiency has not made significant contributions to the country’s generation mix, providing only about half the capacity that renewable energy is providing to the grid.

However, a few states have implemented an energy efficiency market as part of their state RPS for renewable energy. These states have shown tremendous increases in the levels of energy efficiency. For example, Connecticut—the first state to incorporate energy efficiency in its RPS—has seen an increase of over 800 percent in energy savings from energy efficiency since its market’s first year in 2007.

As a consequence, Connecticut has avoided the need to develop hundreds of megawatts of new power plants or purchase millions of megawatt-hours of wholesale electricity—both at a cost that is several times greater than the cost of the credits.

Transitioning these successful state energy efficiency markets to a national market would create tremendous environmental benefits for the country and save significant costs by avoiding the construction of new power plants and transmission lines.

A national market would also stimulate local economies and job growth due to the site-specific nature of energy efficiency projects. A bill pending in the US Senate aims to accomplish those goals. The Energy and Natural Resources Committee, chaired by Senator Bingaman of New Mexico, has passed a national RPS this year that includes tradable credits for energy efficiency as part of an overall national mandate for renewable energy. Signing this bill into law will help transition the country to a greener and more energy-efficient economy.