America's Untapped Energy Resource: Boosting Efficiency

We don't need new drilling or new power plants. We need to get efficient

By Michael Grunwald Wednesday, Dec. 31, 2008
    • Jeff Jacobson / Redux for TIME

    Lightbulbs in integrating spheres at the Electric Power Research Institute are tested for energy consumption and longevity

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    But Duke isn't rolling yet — because it would shaft its shareholders if it really helped customers save energy. In most states, utilities reap more profits if they sell more power; also, they are guaranteed generous returns on their investments in new generating plants. But not on their investments in efficiency, which is why Duke is mostly limiting its efforts to demonstration projects until state regulators agree to change the rules. "If there's no return on investment, it's not much of an investment," Schultz says.

    The best evidence that these disincentives matter is the record of California and the Pacific Northwest, where they don't exist. In that part of the country, utilities have been aggressive promoters of efficiency, and per-capita electricity use has been stable for three decades — while soaring 50% in the rest of the country. Now utilities expect to make another $2 trillion in capital investments over the next two decades to meet rising demand, and most of them have no incentive to invest in efficiency.

    There are also disincentives on the demand side. Most efficiency investments pay for themselves within three years, but all require at least some up-front costs. So developers are less likely to install smart heating and cooling systems controlled by cutting-edge optimization software when they're not going to get stuck with a building's energy bills, just as landlords are less motivated to splurge on Energy Star washer-dryers when their tenants enjoy the savings. Even home and business owners who do reap the benefits of efficiency are often reluctant to shell out for top-of-the-line furnaces, thicker windows, reflective roofs or front-loading washers in a brutal economy. "People want cheap," says Honeywell's Cote. Those $3 twisty bulbs are a classic example: they last eight times as long as regular bulbs, and their payback period is a few months, but after several years of impressive growth, their sales dropped 28% last quarter. "I'm afraid cash is king," says Kaj den Daas of Philips Lighting. "If you live paycheck to paycheck, a few cents up front makes a difference."

    But it's becoming clear that when incentives are properly aligned, efficiency happens, and innovation does too. Companies like DuPont, Dow, Cisco and Wal-Mart have all saved big bucks by greening buildings, vehicles and operations, and a burgeoning industry of high-tech energy-services companies is helping businesses reduce their energy bills in exchange for a slice of the verifiable savings. At Honeywell, a $36.6 billion company, half its portfolio is now related to efficiency. And even utilities that lack incentives to reduce overall demand are trying to reduce peak demand so that they don't have to turn on costly plants or buy expensive power on the open market. That search for demand response has inspired smart meters and other gadgets that help customers monitor and control their energy consumption, as well as automated systems that use wireless sensors and smarter optimization software to maximize efficiency through a kind of energy-use cruise control. In one case, Duke helped a beer distributor precool his refrigerators overnight, saving him $150,000 a year while reducing Duke's peak loads. Utilities also outsource demand response to firms like Boston-based EnerNOC, which pays supermarkets, hotels and other large consumers to let it dim lights or adjust heat or shut down elevator banks at peak hours. EnerNOC can now reduce 1,800 megawatts' worth of consumption on command — the equivalent of two medium-size power plants. "Saving energy can be lucrative," says CEO Tim Healy. "We just need to get the incentives right."

    The Silver Bullet
    Unfortunately, money has also created a political disincentive. Thanks to furious lobbying by the Detroit Three, fuel-efficiency standards have stagnated, while Big Oil, King Coal and utilities have wired Washington and state capitals for policies promoting more electricity supply. There hasn't been a big-business counterweight pushing for less demand for fuel and power. So while everyone pays lip service to efficiency, the political world has focused on expanding drilling for oil and gas, relaxing pollution rules for coal and showering subsidies on nuclear and biofuels as well as less controversial renewables like wind and solar. The Washington consensus has been that we need to do all of the above to solve all our problems — and increase efficiency too — because there's no silver bullet. ( See the world's most polluted places. )

    But as we enter a new age of economic and environmental limits, not all solutions are created equal. Coal and oil are too dirty. Nuclear and solar are too costly. Wind is our fastest-growing source of new energy, but it's still only some 1% of our supply. Efficiency is the only cost-effective energy source that addresses global warming, energy dependence and volatile prices. It may not be a silver bullet, but it's the best bullet we've got; we shouldn't spend billions on evidently inferior bullets until we've really given this one a shot. Here's how:

    Set tough standards. History has shown that when the government mandates efficiency, the market figures out how to achieve it. Fuel-efficiency standards were a hit in the 1970s, but the Big Three have fought off upgrades ever since by claiming that federal meddling would ruin their businesses, which they apparently preferred to do themselves. Obama has proposed annual 4% increases, a clearly achievable goal with lighter cars, more hybrids and gradual adoption of plug-ins. Similarly, California's strict building codes have promoted airtight shells, orientation that exploits natural heat and light, and efficient windows and appliances.

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