In 1984 was not like 1984, I talked about greeting change with gusto to win the future but with few specifics. This post will cover one such “innovative” way for all stakeholders to benefit from energy efficiency.
The typical utility-sponsored energy efficiency portfolio works like this:
- A small percentage of billed energy consumption, aka a rider is paid by customers to fund EE programs.
- Programs provide incentives for energy efficient equipment and in some cases services such as studies.
- Evaluators determine impacts attributable to programs and make recommendations for improvement.
- Regulators oversee it all to help ensure consumers aren’t being ripped off – a primary role of government.
- Consumer advocacy groups, some of which are in business solely to bash utilities and add no constructive value whatsoever, object to everything. Other advocacy groups can be great as they understand the utility business and that it is not a charity like The Salvation Army.
Many utilities have, at some point, added financing to their portfolios with dismal results and no wonder. Customers can typically get lower interest rates on the market or with banks and other lending institutions. Why waste time with the utility or program?
The chair of New Jersey’s Board of Public Utilities wants to “look into cutting the subsidized rebates, saving the average residential customer more than $2 a month”. (don’t spend that all on one place) He wants to look at creating a revolving loan program over time, rather than collecting money from everyone on their energy bills and paying it out to some customers in the form of rebates or other services described above.
Of course, as described in the 1984 post, this was met with angst and resistance by a variety of stakeholders. A chump from the Sierra Club says residential customers won’t use the program for purchasing an efficient furnace, for example. And this is based on???? It would probably take care of some free riders for people like me who would buy the efficient thing anyway and why not take the $100 rebate from the program I have been paying into? I wouldn’t do the financing because I hate monthly payments and it’s more hassle than the 39 cents saved. Other people, it seems, will finance a new 16 oz claw hammer from The Home Depot if given a chance. They are probably the same people who write a check at the convenience store for a soda and two hot dogs.
The American Council for an Energy Efficient Economy declares finance programs are used by only 1% of consumers and that for one program, when given the choice between financing and incentives, 90% of respondents choose incentives. This is grapes and cantaloupes. The time-strapped reader like me would read 1% of respondents like financing and 90% like incentives. Nice try.
What’s the problem with financing programs and lousy participation? They suck. They generally offer nothing a person can’t get from the bank or selling bonds for large end users. They provide no other services, such as cost/benefit analysis for customers. How to make financing attractive: lose the rigidness, forget the no-benefit program that ran for five years with three participants, and break with the status quo that most utilities cling to at all cost.
Stakeholders need to change their mindset and actually consider EE as a resource – a replacement for power plants and infrastructure. From the customer perspective it is a replacement for paying for therms and kWh. Combine this with the usual demand side management funds and utilities could create a vibrant and active financing program. It could be marketed by something jazzy like TGTBT – to good to be true. Looks like a bridge doesn’t it? I can see it now.
Gimmicks aside, the first thing that would help a ton is adding the payments to the monthly bill. Energy efficiency is a resource delivered to customers so why not pay for it rather than paying for kWh and therms? I have heard from more than one utility that their software, SAP or similar, cannot handle on-bill financing. You have got to be kidding me. That’s like saying a smart phone can’t make phone calls. The answer to any question involving ability for computation on a computer is, yes it can.
On-bill financing makes it easier for customers to make projects happen. Depending on the corporate bean counter, this may allow for treating the project as a lease rather than a capital purchase that requires approval from God. Once the credit risk has been cleared, customers with more than one facility can implement projects in multiple facilities.
From a utility perspective, why not earn the same return on capital as is used for power plants and infrastructure? This is blasphemous to some regulators but especially consumer advocacy groups because this means utilities would make profit on EE projects. Egad. Well heeyaah!
Having watched utilities for years, I have to wonder whether some really want to reduce their customers’ energy consumption through EE programs. Many, for sure those running programs, do but it seems some are given instructions from the board room to just make it look good. Thoughtful executives and boards know what is good for their customers is good for the utility because prosperity results in expansion and … more consumption! And vibrant programs are good for public relations making it easier get what is wanted through rate cases, and they surely are good for the Eco Devo department for luring new big customers.
Returning from that digression, wouldn’t it be a good thing to grant the same profit on selling EE as utilities make selling energy? This should make the executives and the board much happier than collecting money from their customers and distributing it to others driving down consumption, presumably. Regulatory and consumer advocacy agencies need to get on board with profit driven EE programs. As long as the program is as cost effective for the customer, what’s wrong with making money on it?
Another pillar in TGTBT is a savings or cash flow guarantee. This typically triggers a stampede for the exits among utility folks. I have not seen a study on this but guarantees are definitely a critical piece of doing an EE project for some customers. Transparency is something desirable for these contracts as well. Customers see how much the project actually costs and what the finance charges and fees are. They could even competitively bid the project to help ensure good pricing. This all allows for a much more desirable proposition than the typical performance contract which essentially is a contract that says, “trust us, we are not ripping you off.”
Putting all these elements together isn’t absent challenges, including credit ratings of customers. Such a program may not work well for residential customers, particularly those who don’t own their residence. The administrative costs may be prohibitive. Default rates would be higher among residential customers because people move from residence to residence, and out of utility territory, much more easily than businesses, schools, factories, and institutional buildings can. Indeed, for C&I customers such programs have been very successful with negligible savings challenges and puny default rates.
Recapping, key elements include: granting normal return on capital for utilities, very low finance rates for customers, and guaranteed performance. On-bill financing makes things easier for customers but isn’t absolutely essential. The other three pieces are.
I read more hype regarding the Fukushima nuclear plants last week in The Wall Street Journal. It was a bit like the ACEEE statement above. Paraphrasing, “trace amounts of dangerous plutonium was found within a 30 mile radius of the plant.” I’m sure I have trace amounts of some fried cheese balls I ate in high school – plated out on an artery somewhere too. They also detect strontium, iodine, cesium, this, that and the other – some with half lives of 30 to 90 years. OMG! We’re all going to die.
I would say that 99% of the population has no idea what a half life even is. It is the point at which half a particular isotope has decayed to a lower energy state – I.e. half the gammas, alphas, neutrons have been puked out. So all else equal, the longer the half life, the less intense the radiation, but 99% probably think it will be lethal for that long.
How many people have died from the reactor accidents? I haven’t heard of any yet. Zero.
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