By Rebecca Smith
From The Wall Street Journal Online
America is facing a crisis when it comes to electricity. But also a tremendous opportunity.
The forces that put us here look grim. Energy prices are high, supplies are increasingly tight, and anxiety is growing about climate change. But that dark outlook is driving consumers, utilities and public officials to finally take advantage of innovations that could radically reshape the nation’s power consumption without lowering the standard of living.
Some are technological fixes, from more-efficient light bulbs to variable-speed motors that use less energy when the load on them isn’t as heavy. Others involve public policy. States are rewriting their building codes with an eye on conservation, and Washington is trying to lay down efficiency standards for more household appliances and electronic goods. Utilities are joining the effort as well, offering consumers rebates for buying efficient appliances and urging customers to use electricity more wisely.
The good news is, "we haven’t found a major use of electricity for which there aren’t great opportunities for savings," says David B. Goldstein, director of energy programs at the Natural Resources Defense Council and a recipient of a MacArthur Foundation award for his work on appliance-efficiency standards.
Of course, we’ve all heard revolutionary promises like these before. But the promises seem to fade as each crisis recedes. So what makes this time different? Forces are converging to make the prospect of big change much more achievable.
Most urgent, of course, is the skyrocketing demand for electricity — and the tightening supply. Many parts of the country set new records for electricity use in July and August, which sent a warning signal to officials that they have little time to act. Conservation seems a much more feasible solution than quickly building dozens of new power plants to add generating capacity — especially if reducing emissions is a goal. The fact that the nation’s energy bill totaled $296 billion last year, up nearly 50% from 1993, also provides impetus.
We’ve also gotten smarter about saving energy. New technology makes it possible to build more-efficient hardware without breaking the bank. And public officials now have much better data to draw on when they plan conservation efforts. They know what’s worked in the past and can build on that success.
Some experts expect a transformation more profound than any since the 1973-74 Arab oil embargo. As a result of that six-month crisis, U.S. electric utilities largely weaned themselves off oil and shifted to coal and nuclear fuel for their power plants. The federal government set efficiency standards for automobiles and appliances, and building codes were revised. But much is left to be done. After all, 80% of U.S. buildings were built before 1980.
At the very least, the current push should produce considerable savings for consumers and unmistakable environmental benefits. "If you consume a lot less energy, it solves a lot of other problems," says Peter Darbee, chief executive of PG&E Corp., the San Francisco utility that serves one in 20 Americans.
Indeed, James E. Rogers Jr., chief executive of Duke Energy Corp. and president of the utility industry’s leading trade group, the Edison Electric Institute, calls energy efficiency the "fifth fuel." By that he means that it’s an alternative to coal, natural gas, hydropower and nuclear fuel.
Here’s a look at 10 innovations capable of making a big difference immediately and in coming years:
1. Let the Light Shine
Lighting was the first market for electricity, and it’s still one of the costliest. But because lighting is ubiquitous, it tends to get less attention than other big power burners like air conditioners. And that means some tremendous improvements in lighting have gotten overlooked.
Technology has improved conventional lighting systems, making them much more efficient. Take compact fluorescent bulbs, which have bases so small they can fit inside a standard screw socket. These bulbs can often cut lighting costs by 75%, and they last at least eight times as long as regular incandescent bulbs. Many even offer a soft white light that mimics incandescent light.
The bulbs are readily available in stores, and prices have dropped substantially recently. Sales volume has increased, and many utilities are offering rebates that cut the cost of 24-watt fluorescent bulbs that produce as much light as 100-watt incandescent bulbs to $1 or $2 apiece.
If each U.S. household replaced one regular bulb with a compact fluorescent, according to the Environmental Protection Agency, consumers would collectively save more than $600 million a year. The energy saved, meanwhile, would be enough to light seven million homes, and the greenhouse-gas reductions from power plants would be equivalent to taking one million cars off the road.
Then there’s LED, or light-emitting-diode, technology, which is based on semiconductors. This method already has slashed power use dramatically for many cities as a replacement for conventional traffic lights. Typically, an 11-watt LED unit in a traffic light replaces a 140-watt incandescent unit, producing a 92% energy saving.
Now LEDs are poised to sweep into more industrial applications, such as supermarket refrigeration cases. For now, white LED light is more difficult to make, and thus far more costly, than colored LEDs. But lighting experts say they expect the price to drop enough in the next couple of years to permit broader use of white LEDs.
Meanwhile, a host of new methods are being adopted by consumers and companies, such as systems that "harvest" daylight, concentrating it and shooting it indoors so that buildings don’t need to use as much artificial light. Nature’s Lighting, of Park City, Utah, manufactures solar dishes, lined with mirrors, that sit on flat roofs and project sunlight through skylights into buildings. Diffusers distribute the bright light.
Mike Basch, a founder of Federal Express who’s now chief executive of Nature’s Lighting, says warehouses, auto makers and big-box retailers have been especially keen on the systems, which employees like because of the full-spectrum light.
At Wal-Mart Stores Inc., electricity is the leading expense after labor costs, exceeding $1 billion a year. So the retailer has been perfecting harvesting techniques to channel daylight into stores through prismatic skylights that concentrate the light without radiating heat. Sensors automatically adjust the store’s fluorescent lights up and down in response to the amount of natural illumination available.
Wal-Mart now uses the system at nearly all of its stores, representing 330 million square feet of floor space. The systems cost about $200,000 per location and pay for themselves in two to three years through reduced electricity and cooling costs. "It’s a pretty sophisticated setup," says Charles Zimmerman, Wal-Mart’s vice president in charge of the initiative, who adds that Wal-Mart will gladly share its equipment specifications with anyone who wants them.
2. More-Efficient Hardware
The past few years have seen tremendous advances in the energy efficiency of hardware. For instance, new developments in industrial motors promise huge savings for businesses. Currently, the motors represent 67% of industrial energy use, according to Clark Gellings, vice president of innovation at the Electric Power Research Institute in Palo Alto, Calif. But older motors waste lots of power because they constantly switch on and off.
Now many companies are turning to variable-frequency drives. Instead of constantly turning on and off, the drives "let motors change speed in response to the load on them," says Mr. Gellings.
MGM Mirage, the big casino and hotel operator, is installing 22 of the new variable-speed drives on refrigeration units at its Las Vegas properties. The $4 million retrofit will pay for itself through reduced energy costs in about 2½ years and thereafter will save the company about $1.6 million a year.
Big gains also are being realized in air conditioning. New federal efficiency standards took effect in January for central air-conditioning units used by homes and businesses; the least-efficient units sold must be at least 30% more efficient than last year’s least-efficient models. In industry parlance, that’s a 13 SEER, short for seasonal energy efficiency rating, versus a 10 SEER, the standard that had been in effect for 14 years.
According to the Department of Energy, the higher standard will save a total of 4.2 quadrillion British thermal units, or "quads," of energy from 2006 through 2030 — enough of a saving that utilities will be able to forgo building 40 new power plants nationally. Consumers, meanwhile, will save about $1 billion by 2020.
The saving might even be more pronounced than that. Many central-air units can achieve ratings in excess of 14 SEER at only slightly greater expense — and manufacturers say consumers are very interested. One reason may be utilities like Austin Energy, a city-owned utility in Austin, Texas, which is offering a 20% rebate on air conditioners with SEER ratings of 14 or greater.
3. Smarter Sensors
Manufacturers are designing their products to be more intelligent, using advanced sensors to better control energy use and drive down operating costs. Sensors selling for a few dollars can save thousands of dollars over the course of a few years. And more companies are taking advantage of the technology.
For example, custom-sensor maker Kavlico Corp., of Moorpark, Calif., is seeing robust sales for semiconductor-based controllers used in commercial refrigeration equipment. Sensors tell a controller when to begin the defrost cycle in the freezer case, replacing automatic timers that put equipment through unnecessary heat-up-and-cool-down cycles.
The new controllers "result in a 25% to 30% reduction in power use," says Scott Farrenkopf, general manager of Kavlico, a unit of Schneider Electric of France. He says auto makers and equipment makers are ordering more custom-tailored sensors for systems designed to improve fuel economy and energy efficiency.
4. Better Measures
Consumers, meanwhile, are getting better tools for tracking energy use around the house with tools that are inexpensive and readily available. Eric Bier, a retired group-home administrator in San Diego, got concerned about his rising home utility bill. So he bought a device called a Kill-A-Watt meter, made by P3 International Corp. of New York.
He plugs the gadget, which cost about $40, into a standard wall outlet. Then he plugs various other devices into the meter, and it tells him how much power they’re consuming. By multiplying this kilowatt-hour reading by his local utility’s rate, he can easily figure out the monthly cost of operating the device in question.
Mr. Bier was surprised at the results of a recent home test. He learned that his new computer and accessories were using 242 kilowatt-hours of electricity a month, costing $48.50, because he never turned them off. Once he began shutting them down at night, the monthly cost dropped to about $18.80 a month for 94 kilowatt-hours of energy. On the other hand, his Roomba vacuum cleaner, from iRobot Corp., provided a pleasant surprise, vacuuming 8,960 square feet of floor space automatically each month for a total of $1.17 in electricity. "Considering how much work it does, it’s a baby," he says.
Tom Lynch, director of sales and marketing for P3 International, says sales of the meters took off last winter. Sales in the first quarter of 2006 exceeded sales for all of 2005, he says, lifted by consumer worries about high utility bills.
5. Setting Standards
The federal government sets minimum standards for energy efficiency on more than a dozen products, including dishwashers, refrigerators, water heaters, room air conditioners and electric motors. From 1990 to 2000, these standards saved consumers approximately $50 billion in energy costs, according to one federal estimate.
The EPA, meanwhile, puts its own Energy Star labels on about 40 products, generally identifying the 25% of products in each category that are the most energy-efficient. In 2005, consumers with Energy Star products saved an estimated $12 billion, as well as enough electricity to power 11 million homes, according to the EPA.
But there are some glaring omissions in the EPA standards, and closing those gaps will bring more savings in coming years. For instance, television sets. The government doesn’t impose an efficiency standard on TVs, and the Energy Star label identifies only TVs with low power consumption in "standby" mode — in other words, not turned on. (Any device with a remote control is never really shut off, unless you unplug it.)
The call for a standard has grown louder as electricity use by televisions has boomed in recent years. Television screens have exploded in size, and add-on devices have proliferated, from satellite dishes to programmable set-top boxes. Some families now spend more money powering home-entertainment systems than they do refrigerating their food.
The International Electrotechnical Commission, which prepares standards for electrical and electronic technologies that often are adopted by governments, is working on common metrics to measure TV electricity consumption. After the IEC concludes its work, some efficiency information may begin appearing on sets in early 2008, the government says. Meanwhile, the EPA says it’s considering Energy Star labels that would look at total power consumption by TVs instead of just power use in standby mode to give consumers a valuable tool to use when buying a new television.
The push for better disclosure is receiving some resistance from the electronics industry. The Consumer Electronics Association encourages voluntary labeling, but opposes mandatory efficiency standards for goods like TVs because "the industry has so many products and they change so fast," says Brian Markwalter, the group’s vice president of technology standards.
Activists argue that the speedy evolution of products makes new standards more urgent. "Energy use has changed, and it’s time for labeling to catch up," says Chris Calwell, principal in Ecos Consulting in Portland, Ore., a firm that specializes in energy issues.
6. New Building Codes
All states have building codes for health, fire and safety. But 40 also have codes for energy efficiency. The rules require, for example, at least minimal amounts of insulation in new buildings. The Department of Energy estimates code changes saved consumers $4.7 billion in lower electric bills between 1991 and 2005.
Now some of the 10 states that don’t have statewide energy-efficiency codes, including Mississippi and Alabama, are considering adopting them, in part because they’re facing lots of hurricane-related rebuilding. Meanwhile, several states that already have efficiency codes are considering adopting the latest version of a model code, released last winter by the International Code Council, a membership organization that creates the building codes often adopted by governments.
Experts say the latest version is shorter and less complex than the previous one; for instance, it divides the nation into eight climate zones instead of 19. At the same time, the new rules set more-ambitious goals for energy savings. The code hasn’t yet been certified by the Department of Energy, but many states are moving ahead to consider it anyway. Energy-efficient building codes are expected to reduce primary energy use in the U.S. enough to save consumers $10 billion annually by 2010.
7. Incentives for Utilities
Most utilities earn higher profits as energy use rises; that’s the way their rates are structured. So conservation efforts undermine their ability to make money and get reimbursed for their costs.
But many states have changed that pricing scheme to remove the disincentive for utilities to sponsor energy-reduction programs. California and some other states assess a larger proportion of a utility’s costs in basic service fees, not volumetric charges based on the number of kilowatt-hours of power consumed.
In July, dozens of utilities, big energy users and regulators pledged to attack the rate-structure problem in states where it still exists and promote energy efficiency through resource planning, giving conservation more attention. Rather than build a new 500-megawatt power plant, for example, states would see if they could cut demand by 500 megawatts more cheaply and without environmental harm.
Utility regulators from more than half of these states have endorsed this National Action Plan for Energy Efficiency. The industry is engaged because most state regulators are confronted by "new plant proposals and rising rates" that they would prefer to avoid, says Diane Munns, a utility commissioner from Iowa and a leader of the effort. If the plan were adopted nationally, U.S. energy bills could be reduced by $20 billion annually, according to the EPA, a proponent of the effort.
Meanwhile, the California Public Utilities Commission is considering creating special monetary incentives for utilities that promote conservation. Says Michael Peevey, president of the commission, "I want to see utilities get a return on energy efficiency comparable to what they’d get for putting steel in the ground."
8. Variable Pricing
One of the more ambitious conservation efforts utilities are trying out — both on their own and at the urging of regulators — is a new kind of metering. Sophisticated electric or gas meters monitor how much energy is consumed by individual customers, taking automatic soundings several times a day instead of monthly.
This makes it possible for utilities to charge different prices by time of day or season. Regulators might use higher rates when the electric system is stressed or when fuel prices are especially high to suppress demand so fewer power plants need to run. Mr. Peevey of the California Public Utilities Commission says some consumers balk at the idea, "but when people understand this is the more environmentally sensitive option, they are supportive."
Nationwide, about 6% of electric customers have the meters in place, according to a recent study by the Federal Energy Regulatory Commission. Pennsylvania, Wisconsin, Connecticut, Kansas, Idaho and Maine have the highest usage rates, ranging from 14% to 53%.
California soon will make the list with a massive remetering project expected to cost about $3 billion. Five million customers of Southern California Edison, a unit of Edison International, will receive new meters beginning in 2008, for example. The meters will be two-way communication devices, able to send the utility instantaneous readings as well as talk to other devices like smart thermostats, which allow remote control of temperature settings. This will let consumers better control energy use — for example, by cutting use at periods of grid stress or especially high prices.
9. Rebates
Many utilities also offer rebates on energy-efficient appliances and equipment, trying to permanently reduce demand by getting obsolete equipment retired. When New York offered a $75 bounty for old air conditioners in 2002, 160,000 units were turned in, saving enough juice over 10 years to equal a full year’s output from a large power plant.
California, where consumers pay about $20 billion a year in electricity charges, has committed to spend $2 billion of customer funds on energy-efficiency programs from 2006 through 2008, a record expenditure for any state. Elsewhere, states are considered aggressive if they get utilities to spend the equivalent of 1% to 2% of electricity revenue on energy-efficiency programs.
PG&E’s Pacific Gas & Electric utility will spend $974 million and expects to permanently cut demand by 600 megawatts, eliminating the need for one large power plant and 30 to 50 years of fuel. About 250 megawatts of reductions will come from lighting alone.
Some of these efficiency programs involve big rebates. GMH Capital Partners LP, a real-estate investment firm, bought a big apartment complex in Richmond, Calif., last year. It spent $327,428 rejuvenating the nearly 20-year-old structure, installing new lights, water heaters and heat-reflecting roofing materials. The expected annual energy savings: $112,000, most of which will be realized by renters at the 1,008-unit complex.
For its trouble, GMH got a rebate check for the full amount of the equipment and installation. The local utility, PG&E, made the move because most property owners won’t do expensive retrofits if renters reap the savings. "It’s a tough market to crack," says Beverly Alexander, vice president of customer energy at the utility.
10. Customer-response programs
Getting customers to trade up to energy-efficient equipment permanently reduces energy use. But there are ways to temporarily cut consumption, particularly among big energy users. These "demand response" programs will be more visible in coming years, especially in places like New England that are having trouble getting new plants built.
Early programs paid big energy users to reduce energy use, sometimes forcing them to curtail production. One current approach cuts consumption more painlessly, with the help of controls that dim lights or cycle air conditioners and pumps when requested by the utility.
In response to a directive from Congress, the Federal Energy Regulatory Commission recently surveyed the electric-power industry and found existing demand-response programs can cut consumption by 37,500 megawatts when activated, equivalent to the output of 75 big power plants.
In July and August, when U.S. electricity markets set new records for energy use, the outfit that runs the high-voltage electric grid in the mid-Atlantic region got big energy users to cut their usage in exchange for payments. This benefited all consumers by cutting wholesale power costs by about $650 million.
Many experts think that well-designed programs, backed by the right technology, can easily cut peak energy use by 5% to 10%. In fact, California did better than that in the 2000-01 energy crisis.
Jon Wellinghoff, a member of the Federal Energy Regulatory Commission, says consumers "easily could save billions of dollars annually" with only a modest expansion of existing programs and no impact on productivity. What you need, he says, is "a willingness to try new things."
Some utilities seem willing to go down that road. Rick Green, chief executive of Aquila Inc., a Kansas City, Mo., holding company that owns utilities in five Midwestern states, says utility executives gradually are becoming convinced they can’t build their way out of the current situation, as they did in the past.
He says one employee in Colorado recently told him that when he talks to conservationists, "I don’t say ‘no’ anymore. I say, ‘Yes, if…’ "
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