24 May U.S. manufacturing benefits if utilities can assist them with energy efficiency efforts
As is so often the case with any form of legislation, each individual law represents a compromise built around a coalition of diverse forces. In the case of energy and electricity, one needs to look no further than the way most states reward regulated utilities for providing electricity. Each utility is allowed to make a return on its fixed-cost investments, for each unit of electricity sold, which in most cases is somewhere between 10% and 13.9% per annum. Like any other business, the utility’s objective is to maximize profits in order to meet its obligation to shareholders. In the case of the utility, that means selling as many kilowatts of electricity to its customer as possible. As one of the largest users of electricity in U.S., manufacturing has the most to gain or lose, because lower electrical costs could make the difference between job creation and job destruction, between profitability and losses.
But why, the still recovering manufacturing sector might ask, do we reward consumption and generation in an era when energy sources including renewables are expensive and a new cycle of power plant and transmission line construction looms ahead? Given the fact that the cleanest, least expensive kWh is the one not used and saved for the next customers, why don’t we devise a regimen whereby utilities receive the same return on investment for provable energy efficiencies as they receive for new or existing sources of electricity?
First, we should break apart the old law to identify the reasons for its current form. In most cases, the Public Service Commissions for the states usually accepted the notion that the utilities should not be allowed to administer and implement conservation efforts, usually for the “fox watching the henhouse” reason. Then, there is the whole notion of measuring and verifying results, which has vexed regulators and electrical engineers forever.
Energy Efficiency Management Comes of Age
The fact is that utilities and regulators need to be able to treat energy efficiency as a supply side option. Then, we can allow utilities to create and manage a portfolio of energy efficiencies not unlike what we have done with renewables. In Vermont, they call this concept an “Efficiency Utility” or others call it a “virtual power plant” or “negawatts.”
In the case of the California energy crisis, the state was able to reduce demand by 5% within the first year of the crisis, with as much as a reduction 10% in overall electrical consumption possible for California over the next decade. New evidence is emerging that California could cost-effectvely reduce its electricity needs by at least 5,900 MW–the equivalent of 12 large power plants– over the next decade. The net benefits to California would be an estimated $12 billion and the environmental benefit is equally as large. Imagine the economic and environmental benefits nationally if we coordinate efforts throughout the U.S.
Frankly, any aggressive goal that states set as it relates to renewable resource provisioning– California mandated 20% by 2018 recently—will be more practically and cost effectively achieved with a combined approach using energy efficiency and renewable energy. We could call it “alternative energy.” Also, this combined approach of energy efficiency and renewable energy will provide a friendly competitive atmosphere between the two.
Construction of new power plants and transmission lines may be inevitable, but appropriate deployment of energy efficiency could have an impact, and perhaps even a significant impact, on how many and how soon. With all that is at stake from an electric rate and environmental perspective, we simply cannot afford to allow current barriers to using our most cost-effective and cleanest solution—energy efficiency—to persist.
The other benefits of energy efficiency management are as follows:
Reduced energy bills for business and residential customers
Reduced demand for power plants, transmission lines and distribution centers
Reduced costs will stimulate economic development
Increased competitiveness of U.S. enterprises
Reduced emissions that contribute to national and international environmental problems
Creates opportunities for long-term jobs in general and energy efficiency industries in specific
Improves national security by easing energy dependence
Efficient new technologies that also improve work place environs and thereby productivity
Creates a marketplace that can be transformed by documenting long-term results
There are many program and policy alternatives in existence that can be used for implementing energy efficiency measures, such as: utility-operated and government-operated Energy Efficiency Management programs, portfolio standards, and public service commission regulations. The key to any solution or solutions must be measurement and verification, without which any energy efficiency effort will fail.
Ultimately, what makes the idea of utility programs for energy efficiency so compelling is that it establishes practical rules, whereby large energy efficiencies could be achieved. The potential for such an approach is enormous, because: (1) it is not being done to any extent now; (2) utility programs can help increase market penetration, because they know their industrial customers best; (3) in a recent Public Service Commission of Wisconsin study, the average Wisconsin industrial customer spend between $40,000 to $60,000 per month, which means each industrial company can potentially save large amounts of electricity; (4) with the opportunity for profit, utilities can now provide the necessary personnel and capital to test new and existing technologies, because they would receive a return on investment for them; and finally, (5) they can provide their business and industrial customers with objective advice about the array of energy efficiencies, helping them identify the most appropriate for each customer.
This important change in energy policy would make the prime creator of electricity, i.e. U.S. utilities, an expert on its consumption. Then, utilities could really assist their manufacturing customers control costs in a time when global competitiveness is essential for U.S. industries.
Stephen Heins is Vice President of Corporate Communication at Orion Energy Systems. He can be contacted at
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of the Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.