The Energy-Efficiency Option

When Virginians contemplate their energy future, they have two broad options for accommodating a growing population and economy: generate more electricity (increase supply) and conserve electricity (reduce demand). The debate over the supply side of the equation gets most of the attention — what’s the best mix of nuclear, gas, coal and renewable energy sources? Energy efficiency gets less ink. But  investments in energy efficiency, say environmentalists, can not only reduce the pollution and carbon-dioxide emissions associated with electricity generation, they can effectively pay for themselves by obviating the need to build expensive power plants in the future.

That’s a great theory. How’s it working out?

From a public policy perspective, Virginia has lots of leeway to become more energy efficient. The American Council for an Energy-Efficient Economy ranks Virginia only 29th nationally in an energy policy scorecard that takes into account utility programs and policies, transportation policies, building energy codes, Combined Heat and Power (CHP) policies, state-led energy-efficiency initiatives, and appliance and equipment standards. (Virginia did move up three notches in 2017, however, by adopting the 2015 IECC building energy code and partnering in an initiative to conduct a residential energy code field study.)

The McAuliffe administration has set a goal of reducing electricity consumption by 10% by 2020, according to the Richmond Times-Dispatch. The main tools for achieving that reduction are programs managed by Dominion Energy and Appalachian Power to foster conservation by businesses and homeowners. Trouble is, those programs don’t always pass muster with the State Corporation Commission.

“Utility programs make up about 90 percent of the progress toward our 10 percent reduction,” says Chelsea Harnish, executive director of the Virginia Energy Efficiency Council.

Here’s the hitch. When Dominion subsidizes, say, weatherization of a poor person’s house or a homeowner’s purchase of a new, energy-efficient heat pump, all Dominion payers chip in for a program that benefits only those customers who get the new heat pumps or the insulation in their attics. “A lot of utility programs are not passing, not able to get approval from the State Corporation Commission, says Harnish. The SCC, she explains, is “concerned about nonparticipant costs.”

Writes the Times-Dispatch:

In an order this year that rejected Dominion home-energy assessment and residential heat-pump upgrade programs, the commissioners said they could not find that the so-called demand-side management programs were in the public interest.

“We are sensitive to the impact of the proposed DSM (demand-side management) programs on customers’ bills, particularly the bills of customers not participating in the programs,” they wrote.

Part of the problem, Harnish said, is the challenge of calculating the value of such programs.

“What we hear from the SCC time and time again is they’re skeptical of deemed savings,” said Harnish, referring to industry-standard formulas that predict a certain benefit, such as the amount of energy use cut by installing LED light bulbs, for example. The SCC is currently receiving input on uniform standards for what the energy-efficiency industry calls evaluation, measurement and verification should look like, she said.

Another barrier to energy conservation is a price of electricity in Virginia that is below the national average. Explains Dominion spokesman David Botkins: “The costs of energy avoided for a given program is less than would be avoided in some other parts of the country, due to the higher cost of electricity elsewhere. This causes the economic value and cost-effectiveness of energy-efficiency programs in Virginia to be lower than in some other regions.”

By most peoples’ standards, lower electric rates are a good thing. Likewise, many electricity customers undoubtedly are pleased that the SCC is protecting their interests as rate payers from programs generating an uncertain payback. But there may be ways to promote energy efficiency that don’t go through the SCC. The Virginia Energy Efficiency Council is pushing stricter building codes  and performance-based contracting for state-owned buildings. Under performance-based contracting, government agencies repay energy service companies out of the savings generated through lower utility bills.

Bacon’s bottom line: In my observation, the biggest obstacle to energy-efficiency is that the state and local government budgets have time horizons too short to allow investing in conservation. A high-return energy-efficiency project might pay itself back in three to four years — a handsome return. But the Commonwealth operates on two-year budgets, while most local governments go year-to-year. If a project doesn’t recover its costs within the current fiscal year, it can’t be justified. That’s just crazy. Surely there is a work-around.

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16 responses to “The Energy-Efficiency Option

  1. So here’s an example of how demand-side “works”

    ” The small scottish isle leading the world in electricity”

    ” The Scottish island of Eigg has a precarious connection to the outside world has learned how to be self-sufficient. Remarkably, even in terms of energy.

    Eigg became the world’s first community to launch an off-grid electric system powered by wind, water and solar – and this group of residents largely taught themselves how to do it. Before that, without access to a national grid, residents relied on noisy, expensive diesel generators that only ran for a few hours a day. The electrification scheme made 24-hour power available to residents for the first time.”

    While Eigg is not Virginia and their electricity is not provided by DOM – it does well illustrate how demand side “fits” into any relevant electricity grid.

    What Eigg illustrates is just how hard it is to deploy a 24/7 grid – without native fossil fuel resources – which if you think about it is what we here in Virginia are actually trying to accomplish also… longer term.

    On the Isle Eigg – it is ALL about demand-side… because anything on the supply side is limited and precious.

    In the end – in Va… no matter whether we have “cheap” power or not – people who use that “cheap” power ….. WILL try to use less … not necessarily as a eco “green” but simply as a dollar “green” idea.

    The SCC has trouble convincing itself that LEDs use less electricity? Really? Do they not believe science or even industry? How about more efficient heat pumps? The SCC is a “skeptic”… geeze… no wonder ordinary consumers might have doubts, eh?

    • I saw the 60 Minutes piece on Eigg and found it very interesting. Just remember, though. That electric grid was paid for with European Union grants. Hopefully, something useful can be learned from the experience. But I am dubious that Eigg will show the world how to build an economically feasible energy solution.

      • Apparently one of the few islands that transitioned from a primary diesel generation to diesel as a backup… I presume the actual operational costs are paid for by the users not the EU.

        and of course – what’s REALLY missing is offshore wind… that ought to be well feasible… except for those up-front costs.

        so … you’d think that islands would be places where demand-side is actually a big component of their grid… and on Eigg it is.. and on many other islands that primarily use diesel.. you’d think they would also and that would seem to include the rebuild of Puerto Rico also.

    • The SCC has no problem understanding that LED lights use less electricity than conventional bulbs. Nor does it have trouble understanding that LED bulbs cost upfront many multiples of what a conventional bulb does.

      What it is skeptical of are utility proposed plans that may propose to disseminate such bulbs to certain customers but collect the costs of doing so from the remaining customers who will not get any bulbs.

      Ms. Harnish’s group favors any measure to cut usage no matter who pays. It’s that simple, Larry.

  2. Years ago Dominion had a program, on a pilot basis I think, that allowed me to go to WalMart and buy a box of CFL bulbs at a deep discount. Like with my income I needed a subsidy, but darn tooting I went and got me a box of CFL bulbs – now replaced in in some cases by LEDs (no subsidy – they just save plenty on the power bill.) Thank you to the chumps who paid more on your bills to buy me those CFL lamps…I cam out several bucks ahead.

    I do not doubt an enormous amount of energy could be saved, perhaps (perhaps) enough to change the generation requirements. Businesses and motivated homeowners are taking full advantage but the real untapped benefits are in places where the payback is slow, the retrofitting costs high, and the beneficiaries cannot find the dough. But I do remain skeptical (sharing the POV of the SCC) that it is my job to pay for their investments in lowering their own energy bills, and I remain skeptical that the utility should earn a profit on electricity it does not sell. I think with all the efforts at conservation and efficiency, demand will remain healthy and may yet grow.

    Time of day pricing – demand pricing – is something worth talking about. Industrial demand management is now a fact of life. A pool of money for small low-income homeowner projects or rental projects, and stronger efficiency standards in building codes – also all good. I’d like to see a bill that prohibits any local architectural or historical standards from being used to prevent renovations that save energy (such a prohibitions on replacing old windows or prohibiting solar panels).

    • re: ” Thank you to the chumps who paid more on your bills to buy me those CFL lamps…I cam out several bucks ahead.”

      maybe could say the same thing about refundable tax credits for energy efficient equipment including solar and geothermal?

      So.. the “logic” is sort of along the lines that the adopted use of such things – lowers the demand for electricity – which in theory – benefits all consumers and thus is an acceptable practice for some folks who CHOOSE to voluntary participate?

      That logic is actually used for other things that supposedly “benefit” society :

      Lifetime Learning Credit
      American Opportunity Tax Credit
      Premium Tax Credit (Affordable Care Act)
      Health Coverage Tax Credit
      Mortgage Interest Credit
      Residential Energy Efficient Property Credit
      Nonbusiness Energy Property Credit
      Low-Income Housing Credit (for Owners)
      Earned Income Tax Credit
      Saver’s Credit
      Foreign Tax Credit
      Excess Social Security and RRTA Tax Withheld
      Credit for Tax on Undistributed Capital Gain
      Nonrefundable Credit for Prior Year Minimum Tax
      Credit to Holders of Tax Credit Bonds
      Earned Income Tax Credit
      Child and Dependent Care Credit
      Adoption Credit
      Child Tax Credit
      Credit for the Elderly or Disabled

      All of these combined add up to a reduction of tax revenue to the tune of well over a trillion dollars that is then recovered from all taxpayers including those who do not claim the credits:


  3. I also remember a lobbyist for the Other Power Company reporting on a program they had years ago helping homeowners buy Energy Star fridges. They followed up and in some cases found the old inefficient fridge out in the garage filled with beer….People are rather hard to control…:)

  4. The workaround surely isn’t keeping people in office longer. LOL. Like a light that is left on, they eventually stop working for you.

  5. demand side where electricity is plentiful and cheap – is a harder sell.. with less payback… yes… even though the generation has harmful impacts.

    irony ….

    clearly where electricity is expensive – usually not because of time-of-day pricing but because the actual cost of generating it is expensive -demand side can have a bigger effect.

  6. CoGen is a great idea, to provide a energy-using (eg; manufacturing) partner with waste heat and increase the energy recovery of a nat gas plant to very high levels. But utilities don’t usually like that idea too much, as it implies a smaller nat gas plant (otherwise there is too much waste heat to recover). Utilities tend to like a little bit of “Co” and whole lot more of “GEN”. But CoGen properly implemented could help create jobs by giving new businesses a cheaper source of energy.

  7. re: “co-gen”.. it’s really outside the core duty of the utility… they’ll do it as an discretionary add-on that can go away if it doesn’t work out.

    We had such a thing with the Birchwood Power Plant just east of Fredericksburg which is a merchant dispatch coal-fired plant that started with a co-located greenhouse operation that ultimately failed – I think, in part, because the plant did not run 24/7 but rather on dispatch and not enough for the greenhouse operation which was using propane when the coal plant was not running.

    But in checking for a webpage for Birchwood.. I found a recent one that talks about converting that plant : “… converted into the Global Steam Plant Innovation Center, a showcase for the company’s digital technologies and what they can bring to coal power plant efficiency.”

    Still reading and not totally clear on what they are converting “to” except that it sounds like they are going to be able to more quickly fire up and ramp down the plant – as a coal plant ….. which if it “works” could change the game for coal plants.. in that even though they are still “dirtier” than other fuels.. the ability to use them opposite renewables – like we currently use gas…. may allow further expansion of renewables.

    so coal would then join gas as a more flexible fuel that could more quickly ramp up and down in response to the varying nature of renewables.

    And that would leave Nukes as the sole remaining fuel that could only be used for baseload.

    here’s the link :

  8. There are several misconceptions that need to be cleared up about energy efficiency. First, Dominion’s cost of electricity is not that cheap, just a bit under the national average. Because of our lack of energy efficiency, among other reasons, Virginia electricity bills are the 10th highest in the nation. When our electricity costs over 11 cents/kWh and good energy efficiency projects cost about 2-3 cents/kWh, it seems pretty clear that the economics are favorable.

    The issue of payback is still a mystery to me and why is it applied only to energy efficiency projects? Energy efficiency saves you money from the outset, even though you are paying off the initial investment. The savings are so great, usually the investment is returned in full in a few years. If we build new generation rather than using energy efficiency to meet the demand, the payback period is 35-40 years. Why the double standard?

    Trying to push energy efficiency through the utilities in a purely cost-of-service regulatory environment is difficult. That is why they provide the SCC with payback formulas that don’t look very good. In deregulated states, the utilities embrace energy efficiency because it lowers their costs and the costs to their customers. Utilities in these states save 15-20 times the amount of energy that Dominion does each year using energy efficiency.

    We could use something like the Green Banks other states have that pool public and private funds (that are repaid) to finance energy efficiency and renewable projects that benefit everyone (zero emissions, lower costs) without requiring ratepayers to pay for others.

    There is also the issue that lower income families pay a much higher percentage of their monthly income for energy than do higher income groups. Lowering their costs and usage through energy efficiency would reduce peaks and overall energy usage resulting in lower costs for everyone else (but lower revenues for the utilities). Programs could specify that old inefficient appliances be traded in for the new ones so inefficient uses would not continue. The difficulty here is that the substandard, inefficient housing is often not owned by the occupants.

    If we develop a modern regulatory structure, Virginia utilities could also participate much more actively in energy efficiency programs in ways that allow them to prosper doing things that benefit the rest of us.

  9. re: ” The savings are so great, usually the investment is returned in full in a few years. If we build new generation rather than using energy efficiency to meet the demand, the payback period is 35-40 years. Why the double standard?”

    well.. because people want someone else to pay the up-front capital cost so they can then benefit from the lower operational cost. It’s simply a game of
    not investing in more energy efficient stuff that is going to cost more – up front – unless there is no choice.

    Lower income folks face this all the time. They simply often don’t have the money to replace something – on a discretionary money-saving basis… Better to use a resistance heat heater than to buy a new heat pump, etc.

    I’ve run into this myself on a water heater. The “better” much more energy efficient units are 2, 3, 4 times as much as a basic unit.. and this comes form someone who has replaced virtually every light bulb with an LED and has put in a programmable thermostat, put more insulation .. and even new windows but could not convince myself to pay 3 times a much for a high efficiency water heater that I’m pretty sure the pay back time period would approach the life of the unit..

    “Trying to push energy efficiency through the utilities in a purely cost-of-service regulatory environment is difficult. That is why they provide the SCC with payback formulas that don’t look very good. ”

    I’ve suspected Dom of actually being opposed to energy efficiency but wanting to claim they favored it but the SCC stopped them… even when the very same things are common in other states. Dom is basically doing what any corporation would do – to preserve it’s business model -just as Kodak and other companies overcome by technology did. It’s basically a parlor game between Dom and SCC.. but in the marketplace…over time… technology is going to disrupt – no matter Doms reluctance to embrace it.

  10. Dom will never “embrace” energy efficiency – as long as doing so – hurts it’s bottom line – it will adopt it when not doing so hurts them worse than adopting.

    This is any Corporations basic fiduciary responsibility to it’s investors.

    To NOT do so – would actually harm Dom and in turn others who rely on them.

    Just one example… the better their credit rating.. the cheaper money is to borrow for capital expansions.

    The concept of a monopoly is not to benefit consumers in all aspects except one – the ability to receive electricity on a reliable basis… beyond that Dom has other responsibilities to investors and I’d claim that -in general , their behavior, including their dance with the SCC and the GA – reflects that.

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