Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Energy Efficiency: 15 percent by 2020?
Efficiency pessimists contend that energy efficiency (inclusive of demand response) is unlikely to make much of a dent on energy consumption and peak demand in the year 2020 since all the low-hanging fruit has been harvested. Ergo, the solution to meeting the nation’s future energy needs in a carbon-constrained future is to build more power plants (preferably those that don’t burn coal), transmission lines and distribution systems.
Efficiency optimists, on the other hand, contend that energy efficiency is essentially an inexhaustible well and we have a long ways to go before the bottom is reached. Their viewpoint suggests that enhancements in energy efficiency may eliminate the need to make investments in the power supply system, except for routine maintenance and upgrades.
Optimists say energy efficiency is an inexhaustible well. Pessimists argue that the low-hanging fruit has been harvested. Realists believe the truth is somewhere in the middle.
The question of how much energy efficiency is available continues to come up, since we in the United States have been encouraging it in one form or another ever since the first oil shock of 1973. The first wave of programs involved moral exhortations (as in the famous call to put on a sweater by President Jimmy Carter), information dissemination and energy audits. The actors were government agencies and community organizations and the slogan was “energy conservation.” Federal legislation was passed in 1978 to give an impetus to conservation. National efforts at cutting back use were redoubled when the second oil shock hit in 1979.
The second wave was led by the utilities and gifted the somewhat clunky term demand-side management (DSM) to future generations. The focus of DSM was on improving energy efficiency and not on asking consumers to make do with less, i.e., energy conservation. Conservation was frowned upon because it meant that consumers would have to change their behavior, which might be perceived as an unwelcome intrusion into their lives and even considered un-American by some. Incentives in the form of rebates and low-interest financing were used to encourage consumers to buy more efficient equipment and buildings. No attempt was made to change rate design. Utility spending on DSM programs peaked in 1993 as the industry prepared for restructuring, which arrived in the mid-to-late 1990s.
The energy crisis that plagued California’s energy markets in the years 2000 and 2001 set in motion a third wave of programs that revolved around the concept of Demand Response. Customers would be provided incentives either through dynamic pricing (a radical change from past practices) or cash payments to curtail their usage during times when the power system was stressed, either because of a shortage of capacity or because of a peak in demand caused by extremely hot weather. Some of these programs could be instituted with existing meters while others required the deployment of smart meters. As of this writing, some 22 smart meters have been deployed in the US and there is an evolving consensus that the number will rise three-fold in