Last week, we learned about lost revenue adjustment mechanisms, also known as LRAM. I said, “Many people don’t seem to be that interested in the right answer in many jurisdictions.” This week, I investigated another paper posted to the University of Chicago’s website, authored by two University of California-Berkeley economics professors and one University of Chicago professor. Collectively, these flunkies have PhDs in economics from MIT, UC-Berkeley, and Princeton. The paper drew hellfire from some in our industry, because, uh, they don’t like anyone messing with the Kool Aid punch bowl.
The paper investigates the claimed savings for the Federal Government’s Weatherization Assistance Program (WAP). The most common measures for the WAP include furnace replacement, attic and wall insulation, and infiltration reduction. The average spent on a project was just over $5,000 with zero dollars out of pocket for participant! The study was confined to Michigan only, to obtain a large but quite uniform (weather) sample.
The paper’s punchline is that claimed savings are 2.5 times actual savings with a negative rate of return; the benefit/cost ratio is less than 1.0.
When I analyze studies, internal or external, I look for key indicators and whether or not they make sense. In particular, is the energy saved per square foot congruent with the energy use per square foot? In the case of the U-Chicago study, with thousands of homes in the analysis, the baseline use is reliably average home energy consumption.
The study indicates the projected savings are roughly 450 therms and 1200 kWh per year. It states actual energy savings are about 8-10%, or 17.2 MMBtu[1]. This does not sound unreasonable to me, at all.
The average home energy consumption per the Energy Information Administration gold standard for East North Central Midwest (MI, OH, IN, IL, WI) homes is 10,000 kWh and 900 therms of natural gas[2]. Some homes are larger. Some are smaller. Some are older and some are newer. Considering low income ones are likely smaller, less efficient/more wasteful, with occupants tending to be home more often, these average EIA data are good to assume for the pool used in the study – ballpark.
Prior to reading this article, I would say the most one could possibly expect to save on average would be 20%, with the best case scenarios being 30%. As the paper says, the program projects 2.5 times this, my guesstimates. Twenty to thirty percent savings is about $200-$250 depending on natural gas prices; a 20-year simple payback. Cost effective? No.
We at Michaels have a rule of thumb that is more like the law of gravity: system replacements never pay for themselves with energy savings. One has to assume really aggressive non-energy benefits (NEBs) like high maintenance costs. My furnace and central air conditioning have never been “tuned” in 15 years. One time our AC didn’t work during the first hot blast of the season. That was because Jeff had the great idea to open the breaker for the winter to avoid any possible crankcase heater or other vampire loads. De-energizing the unit de-energized the mouse’s sharp teeth that chewed through the wires. Simple payback on that O&M measure was minus 4 billion years.
Marty Kushler from ACEEE, with whom I have always agreed, rips into the study because it didn’t account for enough fluffy NEBs like comfort, health, safety, and reduced non-payment of energy bills. It was a tiny study in one state. He does not challenge, at all, that I see, the study’s findings regarding energy savings.
About the NEBs: I buy the comfort argument in the workplace where people can bill $150 per hour for their time; not in the home. The increased property value due to an EE project is a peanut. The only way it increases value is if it increases rent. Otherwise, the minute a mostly-permanent measure is installed, its value plummets. Paint is a much better investment for these customers.
About the “extremely limited sample”: The study’s sample size including (there were 7000 home visits for the study!) funding isn’t infinite, and Michigan is well suited for good results for these programs.
Did I mention the ring leader for this study, Michael Greenstone, is a former chief economist in the Obama administration’s Council of Economic Advisers? Where is the motive?
Rather than blasting the results of this study, I have two points. First, it is a bloated federal-government program. The study states the cost of acquiring participants to install free stuff in their home is $1000. Really? Fraud alert! The federal government is terrible at policing itself. When utilities are responsible for programs, they take care of the money for two reasons: first, it is their ratepayer’s money and second – regulators. The feds get scrutinized once in a while when some lacky PhD’s scrape up enough money for a study like this.
Second, we need to better police our own. That is what this blog attempts to do. Too many in our industry don’t accept criticism, let alone embrace it. The dirt gets swept under the smiley face rug.
As an example, programmable thermostats woefully underperform compared to expectations. Two studies proved it here and here. The realizations rates, which is actual measured savings divided by initially-claimed savings, run 10-40% – woeful. Sounds like the subject study! What are we doing about it?
Look, we either fess up to programmatic underachievement and fix it, or we needlessly expose ourselves to the risk of being outed and destroyed in the political public arenas. Quit obfuscating. If it were easy, it wouldn’t be any fun.
[1] Like so many others, they mix site electric Btu with site fossil Btu, which drives me crazy. However, in this case, heating represents over 90% of the impacts, so one could consider that to be roughly 160 therms.
[2] Only homes that use natural gas. Others had comparable heating energy for propane and fuel oil.
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