Energy Efficiency Markets LLC

Negawatts beat megawatts in New England

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Courtesy of Courtesy of Energy Efficiency Markets LLC

Energy efficiency advocates have argued for years that a negawatt is cheaper than a megawatt. That is, it is less costly to install energy efficiency equipment and reduce consumption than to build new power plants.

In New England, the premise was recently tested, and the results should hearten anyone in the efficiency business.

ISO New England invited demand-side resources, like energy efficiency or demand response projects, to compete on equal terms against power generation projects to fill the region’s need for electric capacity in 2010/2011. The test took place during the wholesale market manager’s first forward capacity auction. After three days of bidding, demand-resources stood up handily to generation. In fact, ISO-NE announced at the close of bidding in mid-February that it had selected new efficiency-related measures that will create 1,188 MW of energy savings, but only 626 MW of proposed power generation.

What does this mean for the efficiency industry? First, it says that ISO-NE, charged with keeping the lights on in the six-state region, trusts demand-side resources to help with the job. Second, efficiency measures can compete on price with generation. (Both will receive the minimum bid price of $4.50 per kW-month for serving the grid.) Third, the auction created a new status for efficiency in the region. For years, efficiency has been treated as a subsidy-driven pubic service. In the ISO-NE auction it became a commodity.

Of course, an electric grid cannot run on efficiency alone. Power plants must be built at some point. But how many power plants can efficiency supplant? The Alliance to Save Energy says that efficiency could cut growth in energy demand by half over the next 15 years. To accomplish that goal, other regions need to follow New England’s lead and give efficiency the same financial status as power supply. Only then can the negawatt prove its true worth against the megawatt.

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