When looking at our national energy resource mix, energy efficiency usually comes last to mind. Yet it’s the most immediate tactic we can use to move toward the energy trifecta — energy that is cleaner, cheaper and American.
To get there, energy efficiency needs to be widely thought of as a resource, like shale gas or solar. It’s an unnatural concept, as a resource is something we consume, whereas energy efficiency is something we don’t consume.
Last month the Federal Energy Regulatory Commission took an important step to granting full “resource” status for energy non-consumption when it ruled that a megawatt not consumed (a “negawatt”) should be priced equally to a megawatt generated on wholesale energy markets.
This win for demand response applies largely to demand-response companies such as EnerNOC and Comverge that deal primarily with large commercial and industrial users. These end users are paid to cut consumption when demand peaks in a fairly straightforward behavioral transaction.
Given that small end users account for a huge chunk of energy use, however, energy efficiency must also be mined at the homeowner and small business levels to maximize the resource.
But this is where incentives undermine resource development. The economics are simple: when something becomes more efficient, the price goes down and the demand goes up.
Consider one scenario — a homeowner installs a new super energy efficient air conditioning system that cuts the household electric bill by 30 percent. But now the homeowner is is saving so much money that the air conditioning runs all day, eating into total energy non-consumption.
Miners of energy efficiency differ from other energy resource providers in that they depend on the end user for effective resource development. With solar, for instance, Mother Nature provides the resource in the form of sunlight. Install a photovoltaic system, and the resource is exploited. For energy efficiency resource producers, a specific consumer behavior is required to produce the resource.
To meet this challenge, the behavior of small energy end users must be incorporated into the business models of energy efficiency resource developers. Three tools can influence behavior: education, incentives and mandates.
Education alone never seems to work. How many more oil shocks will it take to get drivers to stop idling their cars? Incentives have proven effective — the New Jersey solar market is a great example. But budgetary pressures are cutting into the resources available for incentive programs such as tax credits. Ultimately, it will be a combination of education and mandates that creates a sustainable market for energy efficiency resource development. Government will mandate a green building code, but end users must know how to exploit the resource for it to be effective.
Despite current challenges, now is the time for non-consumption players to strengthen their market shares. Energy efficiency resource developers currently engaged in consumer education will be well positioned when a green mandate regime matures. When national and state decision-makers fully recognize energy efficiency as a matter of public policy, they will look to engage those best able to exploit it.