In a recent article on energyefficiencymarkets.com, Elisa Wood reminds us of the fact that the cheapest way to meet our climate goals is through energy efficiency. The conservation and efficient use of energy has long been understood to have the lowest Levelized Cost of Energy (LCOE) when compared to both traditional and emerging forms of power generation.
According to the American Council for an Energy Efficient Economy (ACEEE), energy efficiency programs typically cost utilities about 3 cents per kWh where coal fired generation can run from 6 cents to 14 cents per kWh or even solar generation at 8 cents to 10 cents per kWh. It seems to make sense that investing in projects that will reduce energy consumption is far less complex and costly then creating new generation. And yet, energy efficiency remains largely untapped in today's environment.
Efficiency projects will always carry with them a return on investment. In many cases, the simple paybacks are in the 3 to 5 year range making these projects attractive from an internal rate of return perspective. Utilities have been providing incentives through managing rate payer based programs to encourage adoption for certain projects. However, these programs aren't always able to deliver. Funds can be oversubscribed and the use of certain technologies that can reduce consumption is not always accepted by the utility managing the program.
Despite the drawbacks to the utility rebates system, many projects will make sound financial sense without the incentives. Lighting retrofits have proven to be a quick win in reducing base load consumption (lighting generally accounts for 25% of a buildings energy load) and with the advances in LED technology, can be implemented quickly and reduce lighting loads by up to 80% with better light. Larger projects such as chiller optimization may be more complex to implement, but the paybacks are more significant for the building owner.
Large building and portfolio owners have a greater opportunity to drive energy efficiency. Competition for capital (energy is rarely seen as core) and other projects tend to bump energy related projects to the bottom of the list but very few other project types can compete with the returns seen from efficiency projects. There is an emerging financial market to finance these types of projects. If it makes sense for the largest banks and investment houses, surely it must make sense to building owners.
On a macro level, there continues to be a need for more power as our economy grows. How we ultimately meet that need remains to be seen. More power plants and electrical infrastructure? More distributed generation? Or perhaps an investment in projects that reduce demand and show a strong return? My money is on efficiency.