Everything old is new again in the world of energy supply and demand.
aving worked in economic and community development for many years, I have seen some trends come full circle and some that cycle on and cycle off intermittently. One of them is the notion that individuals and businesses should use energy more efficiently because it is good for the environment and will save them money.
When I say "energy efficiency," I am talking about using less energy to provide the same level of energy service. When politicians get involved in something, they tend to stretch its definition to meet their agenda or throw everything under one umbrella phrase like "green." Therefore, I want to be clear that I am not going to talk about solar and wind power, biomass, or other types of renewable energy, though it is also a big part of the stimulus strategy and part of "being green" (apologies to Kermit the Frog).
Policy-makers have correctly determined that energy efficiency is an important component of the stimulus needed to resuscitate the economy, one that can produce immediate results. This is especially true when programs are aimed at buildings, because that is where 60 percent of the consumption is. Done correctly, energy efficiency measures funded by federal and state governments and utility ratepayers should produce short-term results like job retention, job creation and wealth generation. Energy efficiency also produces long-term results, such as technology development and environmental benefits.
Fixing a Hole
In regions where the cost of energy is high, there is a natural incentive for individuals and businesses to be efficient. However, when there is a national imperative to conserve, the government must provide financial incentives, in addition to education, to achieve the desired objectives. As this newsletter is being prepared, billions of dollars are being transferred from the federal government to the states and, ultimately, to businesses and consumers for weatherization and energy efficiency.
This is not the first time that the government has acted boldly to increase efficiency and reduce the consumption of energy. The energy crisis of the 1970s (1973 and 1979) spawned the energy efficiency "movement" of the early 1980s. At that time, I was in charge of a grassroots, not-for-profit development group whose job it was to revitalize the near northeast side neighborhood of Syracuse, N.Y. Like most not-for-profits, we were constantly looking for funds to run our operations and get projects done, so energy efficiency and weatherization programs were easy to access. Federal and state policy had created a variety of grant programs and tax credits, so we used them to build homes that featured open floor plans, passive solar water walls, added insulation in the walls and ceilings and wood stoves for heating.
|These energy-efficient homes, featuring such attributes as passive solar water walls, additional insulation and the then-novel idea of exterior sheathing, were built during the energy crisis of the 1970s in a neighborhood on the near northeast side of Syracuse, N.Y.
Attention not previously paid to the building envelope was becoming the norm in construction. Exterior walls were built with two-by-six-inch studs, 24 inches on center to accommodate six inches of insulation to help achieve an R-19 rating, which was only found in attics previously. The recommended level of attic insulation was increased to R-30 or greater for colder climates. This new method was not widely used prior to the "energy crisis." Neither was wrapping buildings' exterior sheathing in Tyvek™, a relatively new method for creating a waterproof skin and air-infiltration barrier on buildings.
We sold the homes for between $50,000 and $60,000, which was market value in the neighborhood at that time. I am sure that we would not have built them without the grants, and people would not have purchased them without the tax credits.
The blower-door test is now a proven and widely used technology that did not exist prior to the energy crisis of the 1970s.
Remember that mortgage rates were in double digits, and lending institutions were redlining neighborhoods like ours during that period.
We also received financial assistance to educate residents about the benefits of weatherization and to weatherize existing homes and businesses in our neighborhood. In addition, our utility, Niagara Mohawk, provided a grant that allowed us to test a new technology called the blower-door. This device created a pressure difference between inside and outside, forcing air through all the holes and penetrations in a building enclosure, allowing air leaks to be identified and sealed. Like the energy-efficient construction methods previously mentioned, the blower-door test is now a proven and widely used technology that did not exist prior to the energy crisis of the 1970s.
The grants, tax credits, rebates and other forms of financial assistance disappeared by the late 1980s. Though energy efficiency proved effective in saving money and a little bit of Earth at the same time, it was not consistently and widely applied during the late 1980s, the 1990s and earlier in this century. Many factors contributed to this, but essentially most of the country enjoyed relatively low electricity costs, which is a deterrent to energy-efficient behavior.
In addition, the Public Utility Regulatory Policies Act (PURPA), a law passed by Congress in 1978 to promote greater use of renewable energy, created a market for non-utility power producers in the 1980s and early 1990s. It did so by forcing electric utilities to buy power from them at their "avoided cost" rate, or the cost the electric utility would incur were it to generate or purchase from another source, or essentially the fuel costs incurred in the operation of a traditional power plant. This led to the development of gas-fired, combined-cycle cogeneration plants, and much of the country fell in love with natural gas as a clean, efficient fuel.
When my career led me to Niagara Mohawk (now National Grid) in 1995, the company had a great deal of excess generating capacity. Naturally, our central economic development program provided deep discounts to commercial and industrial customers' incremental electric consumption. I had turned a full 180 degrees from my days as a champion of energy efficiency, but by then so had most people and institutions; only the true believers persisted, and thank goodness for them.
The irony is that PURPA, a 1970s energy crisis law designed to foster renewable energy, really had not done so in New York State. It did cause Niagara Mohawk to sign long-term purchase agreements with non-utility generators (they are now called independent power producers). When the state Public Service Commission set the rate at which the power was to be purchased at six cents per kilowatt-hour (creatively dubbed the "six-cent law"), it turned things upside down. The company's avoided-cost rate ended up at two cents per kilowatt-hour, but the cost of the contracts was six cents per kilowatt-hour, with some of them being front-loaded.
Because Niagara Mohawk's service area was home to many steam hosts, cogeneration plants proliferated, and the company shut some of its power plants and put others on cold stand-by. The cost of the high-priced contracts was passed on to customers, and electric rates soared to unprecedented levels. We continued to provide discounts on incremental electric consumption, even after restructuring (deregulation) narrowed it to the delivery portion of the bill. When we were called by our local and state allies to a business-retention meeting with a company considering closing or relocating, the high cost of electricity would always be one of the top causes of their troubles. I wished that I could have responded with programs and incentives for energy efficiency, but we had none. The demand-side-management programs of the early 1990s had faded away. We could provide advice, but not much else.
Here to Stay?
Fast forward 10 years, and we find National Grid about to embark on an incredibly ambitious energy-efficiency program in New York State, after having operated a successful program in Massachusetts for many years. Now the State of New York has adopted a plan to reduce electricity use by 15 percent from forecasted levels by the year 2015, through new energy-efficiency programs in industry and government.
National Grid responded by petitioning the Public Service Commission to create a suite of integrated electric and gas programs for residential, commercial and industrial customers that supplement and complement the work of state and local agencies, particularly the New York State Energy Research Development Authority (NYSERDA). The proposed budget is $219 million for a three-year plan period ($179 million for electric and $40 million for gas). The projected lifetime savings are 4.4 million mWh of electric, 8.5 million MMBtu of gas and $356 million in net benefits. Most of the programs are approved and are ready for implementation this spring. They will be added to the existing programs that NYSERDA operates, and to the potential $4.6 billion the State of New York may receive from the American Recovery and Reinvestment Act for energy efficiency and related programs.
Independence Station, a 1,042-MW gas combined cycle plant in Oswego, N.Y.
Last month, 450 commercial, industrial and municipal energy users attended National Grid's Regional Energy Efficiency Fair in central upstate New York. Participants received advice on energy use, specifically on how to reduce operating costs using electricity and natural gas. About 55 suppliers of a wide range of energy-saving products and services attended and showed off their wares. The last significant energy-efficiency fair held in upstate New York was Niagara Mohawk's "Gas Efficiency Expo" in 1993 at the height of its gas marketing campaign. As the economy squeezes individuals and businesses, and more consumers become aware of the effects of global climate change, demand for "green" options should increase. It looks as though energy efficiency is here to stay … for a while at least.
The New York Independent System Operator, which manages New York's electricity transmission grid and oversees wholesale electricity markets, recently issued its 2009 Power Trends report. It states that the "Energy Efficiency Portfolio Standard calls for drastic reductions in energy use and will infuse hundreds of millions of dollars into energy efficiency assistance for consumers. Implementation of the program bears close monitoring to determine its potentially far-reaching impact on the power supply and energy infrastructure investment."
As Yogi Berra said, "It's déjà vu
all over again."
Joe Russo is a Lead Economic Development Representative for National Grid in Syracuse, N.Y., and a member of the Utility Economic Development Association.
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