Energy Efficiency Markets LLC

Utilities: friend or foe of energy efficiency?

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Courtesy of Courtesy of Energy Efficiency Markets LLC

With oil prices so high, talk again has turned to making the U.S. more energy efficient. In the power industry, utilities have been typically charged with this mission. Or to more aptly describe it, they have gotten dragged, kicking and screaming, into helping their customers use less electricity.

You can’t blame them for resisting. An electric utility is a business that makes its money selling power. If too many customers dim the lights, utility profits fall.

But something odd is going on now. Lately, when government has ordered utilities to help customers use energy more wisely, they have been more than willing to comply. Some utilities are even volunteering before asked.

So what’s up?

All of a sudden, there is money to be made by cutting back on power use in many parts of the country. State governments are creating a range of market-based incentives to spur development of an energy efficiency market – largely as a way to reduce electricity rates and cut back on greenhouse gas emissions. The incentives come in many forms. But at their base is the idea that energy efficiency is a kind of virtual power plant. You can build a 100-MW power plant and earn money selling its power, or you can cut back on use by 100 MW and earn money through these incentive programs.

Utilities are taking advantage of these incentives. And in a lot of ways that’s a good thing. Utilities have the financial wherewithal to make sure a lot of highly efficient light bulbs make their way into homes and offices.

But there is a down side too. If a true energy efficiency market is to form, it needs lots of competitors to drive down costs and stimulate product innovation. Utilities are monopolies, and they tend to stamp out competition. Turf battles over efficiency are already brewing around the county. For example, in New Hampshire, Wal-mart recently found itself up against the local utility when it tried pursuing payments offered for energy reductions by New England’s grid operator. Wal-mart lost the fight. The utility made the store sign away its rights to the payments, and state regulators backed the utility.

Now say what you want about Wal-mart, but the company has figured out how to sell tube socks at an absurdly low price. If we discourage the Wal-marts of the world from competing in newly emerging energy efficiency markets – and let the old guard, the utilities, control the purses – are we ever going to get energy prices down?

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