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An efficiency portfolio standard is as important as a renewable standard — and should come first

[A guest post by a federal employee with over 30 years experience in energy and the environment (see “Utility decoupling on steroids”).]

Renewable Portfolio Standards (RPS) are the darling of energy and climate policy. Simple in concept, an RPS requires that a certain percentage of electricity supply come from renewable resources. Twenty-six states plus the district of Columbia have RPS requirements of one kind or another, and when it comes to federal energy and climate legislation, the one thing nearly everyone agrees on is the need for an RPS.

As usual, California is leading the pack with a goal getting 33% of their supply from renewables by 2020. Congress is considering a federal RPS between 10% and 15% by as early as 2015.

All fine and good, except for one thing — from a policy perspective, an RPS is the cart before the horse. The sizzle without the steak. The bark without the bite. The sound of one hand clapping. It’s the … oh you get the idea. It’s zen policy. Sexy, even necessary, but not sufficient, and certainly not the kind of coherent and systematic approach we need if we’re to avoid atmospheric levels of GHG in excess of 450 ppm and the hell on earth such a catastrophe would create.

What’s not to like about requiring that a certain percentage of our power come from clean, renewable energy?

Well, for starters, it’s only half a solution, and it’s the expensive half at that. If we push renewable portfolio standards without also pushing even more aggressive efficiency portfolio standards (EEPS), we’ll end up chasing a goal that gets more difficult catch and more expensive to achieve with each passing year.

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As Stuart Hemphill, a VP at Southern California Edison noted in a recent article in the New York Times, without EEPS, RPS targets grow as demand grows. The same article noted that since 2002 when California first established an RPS, there has been 16 times as much capacity installed using natural gas as there has been capacity from renewable energy.

On the other hand, if we establish an aggressive federal EEPS that must be met in the short term, we’ll make RPSs easier and cheaper to achieve; we’ll avoid the need for some transmission upgrades (but not all, by any means); we’ll lower the cost to consumers; and best of all, we’ll cut a heck of a lot more carbon, much sooner, and at a much lower cost.

And yet, EEPS are all but ignored in the drive to establish portfolio standards. A few states have incorporated anemic EEPS into their RPS legislation (Illinois, at 2% is one of the more aggressive) and federal legislation has been similarly weak in this regard.

In fact, it may well be that the best thing the Feds could do when it comes to an RPS is to let the states take the lead, and focus on an aggressive EEPS instead. The case is strong. States have different renewable resources and different reasons for enacting RPSs, and they have a substantial lead in many cases over what a federal RPS would add.

But the economically achievable energy efficiency potential is universal, substantial, and cheap. As ACEEE’s analyses have shown, states can avoid building new, centralized generation for a decade or more by taking advantage of cost-effective opportunities to meet capacity needs through efficiency, demand response and on-site generation.

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If the federal government were to formulate an aggressive, escalating EEP, it would compliment state RPSs by making them easier and cheaper to achieve. It would also put teeth in the drive to decouple utility profits from generation, as well as the myriad other efforts to increase the efficiency of energy markets, which — with the exception of codes and standards — remain largely hortatory, voluntary, and ineffective.

The advantages of an EEPs strategy can be seen by looking at how it would effect the energy bill at an individual home. As the EEPs took effect, the grid would become more efficient, and the homeowner would use less energy; meanwhile, as RPSs took effect, the cost of a unit of energy would go up. With an EEPs-based policy, although the homeowner would be paying more for each kW, she’d be using fewer kWs overall, keeping monthly costs for energy relatively stable. What’s true for Joe and Jane homeowner would be true for the nation.

There are any number of ways to structure an EEPS. The most straightforward way would be to simply require that the nation get some per cent — say 50% — of new capacity from efficiency by a date certain. This could be a blunt instrument with a lot of hidden implementation issues.

A more precise method that allowed for variations within each state could work as follows. Congress would provide grants and require each state to identify the potential for cost-effective energy efficiency, demand response and on-site generation to displace the need for new centralized capacity.

The results of this analysis would be reviewed and certified by an expert team established by the Secretary of Energy. Once this was established, states would be required to take advantage of all demand side capacity before building any new capacity. If any state chose to allow construction of new generation before exploiting demand-side capacity, electricity from that source would charged a tariff to access the wholesale grid, equivalent to the difference in price between a negawatt and a watt.

Alternatively, Congress could simply ban construction of any new centralized generation from fossil fuels until all demand-side capacity was used up. Under either scenario, new capacity from renewable energy or fossil fuels with proven carbon capture and storage could be allowed.

[JR: We should ban all new coal without CCS in any event. We should not ban combined cycle natural gas.]

There are probably other and better ways of implementing a federal EEPS. But we’d better get busy and find them, or we’ll be chasing a retreating goal with our RPSs and losing the battle to cut carbon as we do.

There is, lurking beneath a federal RPS and EEPS policy, a rather giant elephant no one seems to want to acknowledge.

We’re trying to run a 21st Century national grid, with a 20th Century state-based regulatory system, and it won’t work. It’s tantamount to driving a Model T onto the bricks at the Indianapolis 500 and expecting to win. Increasingly, the opportunities to make our electrical system cleaner and more efficient require capacity to act and regulate at the regional and national scale, rather than at the state level.

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A critical part of any successful climate and energy strategy requires us to reinvent the Federal Energy Regulatory Commission, and redefine the relationship between the states, regions and the federal government with regard to energy generation and distribution.

An intelligently designed federal EEPS could be the vehicle to begin that process.

[I would add that a McKinsey Global Institute report found that “Improving energy efficiency [could] offset some 85% of the projected incremental demand for electricity in 2030, largely negating the need for the incremental coal-fired power plants assumed in the government reference case” (see McKinsey: Fighting climate change is affordable).]Related Posts: