Switching to Energy Efficiency Services, Can NZ Power Companies Evolve?

Article by

Lewis Verduyn
October, 2011

Clutha River Forum PO Box 124, Lake Wanaka 9343, New Zealand cluthariverforum@gmail.com

Power companies in New Zealand operate under a business model that is rapidly becoming outdated, while in other countries utilities are restructuring in light of new technologies, policy changes and more demanding consumers, all driven by a global hunger for energy efficiency in our resource limited world. But can New Zealand power companies adapt? And will they, eventually, jump or be pushed?

Governments worldwide are focusing enormous attention on energy efficiency and renewable generation, attempting to meet goals related to climate change, energy security, and energy intensity and job growth. Change in the electricity sector is being driven by a combination of crucial factors: The costs of generation from fossil fuels are spiralling upward, as are the capital costs of building new generation particularly large-scale plants of every kind. Rising electricity prices are impacting negatively on domestic, commercial and industrial consumers, who are motivated to reduce their bills. Smart demand management technologies are enabling major efficiency gains, but deployment is slow among utilities wary of selling less electricity. Legislators under pressure are resorting to electricity market mechanisms to build-in efficiency incentives. And above all, climate change is presenting an unprecedented challenge to how we produce, sell, and use energy, compelling us to reduce and innovate and rethink our way of life. Energy efficiency has been identified by governments throughout the world as the key to tackling climate change. But according to the International Energy Authority (IEA), energy efficiency policies are failing to contribute the 50% plus CO2 emission savings required to meet 2030 international climate targets.1 The problem is so large that the IEA estimates there will be a shortfall in emission savings that will require an investment of US$16.6 trillion in clean energy infrastructure to address.2 This dire scenario is contributing to the worlds new hunger for efficiency. So why are efficiency policies, in the majority of cases, failing to deliver? Market structures have long been identified as the primary barrier to efficiency.3 This is hardly surprising, given that the electricity network, and market, was developed under a grow-and-build model that depended (and still does in New Zealand) upon selling more electricity, not less. But governments have disagreed over appropriate electricity market mechanisms to provide utilities with financial incentives to pursue energy efficiency. Overcoming the market barrier was always going to be difficult. After all, our entire society is dominated by unsustainable growth-based economics.4 The rise and fall of grow-and-build electricity In New Zealand, as in most other countries, electricity generation and supply was originally carried out by small power companies with plants close to consumers. From the 1880s, electricity was generated for street lighting, public buildings, shops and small factories, but the early industry was very fragmented. After the turn of the century, developments in high-voltage transmission enabled progressively larger generation plants to deliver power over long distances.

Fragmented networks were progressively connected, becoming a grid. This integrated grid system was successfully deployed and replicated globally, revolutionizing electricity supply. The emerging integrated industry was regarded as a natural monopoly in terms of its high capital costs and public benefits, so governments in most countries obtained and maintained control of this vital infrastructure. The result was a nationalized or government-regulated model that shaped the industry as it continued to expand. Throughout the rise of the integrated electricity monopoly, from the early years until the mid-to-late 1960s, governments and power companies conducted an aggressive grow-and-build strategy central to their operating model.5 Driven by economies of scale, the development of new technology and ever larger power plants, the industry followed a cycle of expansion that was self-sustaining for many years. Demand growth for electricity was strong in the 1920s (10% on average per annum in New Zealand), and the desire to maintain this growth was evident by the 1940s and 1950s in advertisements urging people to improve their lives by using more electrical appliances. As growth continued, electricity prices fell dramatically. For example, in the United States from 1920 to the mid 1960s (excluding the Great Depression), demand increased at 7 percent annually, and by 1967 consumers were paying 95 percent less for electricity than they had paid at the turn of the century.6 The New Zealand experience was similar, with demand during the 1950s averaging 8.1 percent per annum,7 and slowing in the 1960s to an average of 5 percent per annum, with prices falling until the 1970s.8 Economies of scale plateaued in the 1970s as generating units reached a practical optimum size. The electricity infrastructure in the developed world had finally matured. Productivity growth in the industry waned, electricity demand continued to decline, and electricity prices began to rise. A long period of technological stagnation, combined with slower demand, impacted on revenue, and as a result the general stock market began to highly outperform the electricity industry. The Dow Jones Industrial Average outperformed the Dow Jones Utility Average by more than five times between 1965 and 2008.9 Since the grow-and-build years, there has also been substantial stagnation in business models. Expansion and sales-driven practices remain deeply embedded in the industry. In reality, todays business models in most countries differ little from the business models of the grow-and-build era, even though the imperatives are vastly different. The growth of integrated grids has been synonymous with that of society, but a new era of distributed generation promises to slowly reduce societal dependency on grids, suggesting that they will inevitably devolve into smaller and smaller self-sufficient networks, in effect, going full cycle. Electricity reforms and the deregulation gamble In the rush to build the grid system, efficiency was a casualty. The grid has been designed to deliver reliable electricity to as many consumers as possible, as a priority. Selling that electricity has always been more important to the
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bottom line than reducing throughput. While the grid has delivered inestimable benefits, it is perhaps ironic that such a valued commodity electricity, has been so wantonly wasted. It is safe to say that enormous amounts of electricity are wasted worldwide. In 1987, the World Commission on Environment and Development, stated Within the next 50 years, nations have the opportunity to produce the same level of energy services with as little as half the primary energy supply currently consumed. 10 The total amount of electricity wasted in New Zealand was estimated to be as high as 57 percent in 1989.11 A major study in 2007 put the figure at 23 percent,12 but that figure was peer reviewed and judged to be conservative.13 As electricity prices crept upward through the 1980s and 1990s, and efficiency became an issue, there were calls for reform. Capital costs were also rising, so market oriented governments increasingly sought to both divest themselves of the capital burden of new generation, and to stem rising prices, by introducing free market competition though there was no evidence that this would work.14 Partial and full privatization reforms followed in many developed countries. New Zealands electricity system was corporatized in 1987 when the New Zealand Electricity Department (NZED) was restructured into the Electricity Corporation of New Zealand (ECNZ). In 1994, the ECNZs transmission business was split off as Transpower. The wholesale electricity market was opened in 1996, when ECNZ was split into two generators, ECNZ and Contact Energy. Predictably, this duopoly failed to establish market competition. Further reforms occurred in 1998 when separate ownership of line and energy businesses was mandated.15 In 1999, Contact Energy was fully privatized, whilst ECNZ was further split into Genesis Energy, Meridian Energy, and Mighty River Power. However, the market was self-regulating and electricity prices soared. The Electricity Commission was formed in 2003 to manage the market, and governance rules were prescribed in 2004, but prices continued to climb. In 2010, the Electricity Industry Participation Code was introduced, overseen by the Electricity Authority.16 Although the New Zealand market attempts to supply the most efficient generation at the least cost, it remains a grow-and-build model, discouraging energy efficiency because profits are linked to the volume of sales. In hindsight, the New Zealand governments that have reformed our electricity sector have gambled and lost. Instead of competition, successive legislation has given rise to a monopolistic cartel of companies bent on profit-maximisation by constantly pushing up residential power prices. A Commerce Commission study found that consumers had been overcharged by $4.3 billion between 2001 and 2007.17 Profiteering effectively became legal, waste continued, and the perpetual growth business model was never addressed. The overseas experience has been similar. The European Commission first issued an energy efficiency directive in 2006. Unfortunately, Member States have failed to meet their targets. The Commission has concluded that utilities havent been suitably incentivized to act, and that consumers can not be expected to pay up-front costs. The Commissions 2006 Directive on energy end-use efficiency and services suggested that utilities should provide energy services as well as energy supply.18 But in 2010, the Commission described progress on National Energy Efficiency Action Plans to improve energy efficiency by 20 percent by 2020, as disappointing, leaving vast potential untapped, such that the European Union wont even hit 10 percent
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efficiency savings. Consequently, the Energy Efficiency Plan in March 2011 provided much stronger direction for the 27-country bloc, intending to double energy efficiency gains.19 The Efficiency Plan has identified the crucial importance of linking utilities profits to energy efficiency rather than volume supplied. 20 In other words, they have recognized that the throughput incentive - the foundation of the grow-and-build model, is counterintuitive to efficiency. By linking profits to efficiency (i.e. with the decoupling mechanism), profits would be more closely related to selling energy services to as many customers as possible, rather than selling as much energy as possible to each customer. 21 The Commissions new targets, to be assessed in 2013, come with a clear warning: Member countries must introduce incentives and funding mechanisms that show marked improvements in the next two years, or targets will become legally binding.22 The energy services business model - jump or be pushed? Business model changes are inevitable given that: Governments will come under more pressure to meet goals related to climate change, energy security and intensity. Smart grid technologies are providing new business tools. Consumers are demanding more control over their electricity usage, to save money, for more convenience, and because of concerns over environmental issues. Growth-based economics is unsustainable in our finite world. The traditional electricity value chain flows in one direction, and all but the largest customers play a passive role. Smart technologies are enabling power and information to flow in multiple directions, creating opportunities for new participants, reciprocal energy management, and smart energy services.

Traditional one-directional model, and emerging multi-directional model

End-to-end connectivity in the system will provide enormous operational benefits in respect of demand response, load profile flexibility, and access to distributed power and storage flowing back into the grid. Real-time information allows for optimization of electricity in the network, and for the maximum utilization of assets. Smart Grid systems can dramatically reduce the impact of peak time loads and pricing, benefitting both the producer and consumer.23

Traditional and emerging business models in the electricity sector

The reduction in wasted energy and variable costs shows up in revenue. However, those providers who continue their business as usual focus on volumetric sales, will fail to be competitive, irrespective of smart technology roll-outs, because the usual grow-and-build-mode is at cross purposes to the new smart-efficiency-mode. They simply can not pursue more, and less, electricity sales at the same time. Most energy companies understand the new technologies, but few appear to grasp the dramatic shift that will be required away from their traditional one-way business model. Timely decisions must be made on how best to adapt revenue structures, and those who delay will be overtaken by those who would rather lead than follow. Overseas, the transformation from energy supply to energy services has begun, and utilities with an eye to the future are looking to their regulators for opportunities. However, others are poised at the crossroads - waiting. Ultimately, many will be compelled to restructure by legislation. Those who successfully transform their business models will rise to become market leaders by the end of this decade, as we transition to the green energy era. Selling energy services, not just kilowatts Internationally, the most innovative energy companies are adapting quickly to the changing realities of the energy sector, positioning their businesses to take advantage of the rapidly expanding demand for smart energy services. Such energy companies are deploying smart meters and in-home displays, and are developing web-based tools that provide their customers with real-time information on their consumption. Customers can monitor usage and reduce their monthly bills, and are encouraged to use programmable thermostats, smart appliances and other energy management technologies.24 In almost every case, managing energy demand to capture additional capacity is cheaper than building new power stations.25 Companies run and promote various electricity savings programmes for their customers, before expanding into selling a range of on-site efficiency services. Duke Energy, one of the largest US utilities, faced with both rising demand and capital costs for new plant construction, has made energy efficiency a top priority. Duke supplies four million customers in five states, and runs programmes according to the regulatory environment in each state. In the Carolinas and Ohio, they run a Save-A-Watt programme using an avoided cost model meeting demand through electricity savings to avoid more costly new plants. Meanwhile, in Kentucky they run a cost-plus model - where the regulator allows Duke to recover agreed costs and earn a return on investments in energy efficiency.26 In Connecticut, energy utilities run an innovative on-bill financing program that helps consumers to identify energy efficient improvements in their homes and businesses, and offers rebates to lower the cost of the improvements, plus a zero percent interest loan. Consumers dont pay any money up front, and simply pay a little extra assessed on their monthly bills over a fixed period. Since they save electricity, their usage bills are lower and the payback is easy.27 By becoming energy advisors who understand the particular requirements of their customers, utilities can design and sell efficiency solutions, and transform from being the provider of a commodity to the provider of complete energy services.

This role encompasses working with architects, engineers and developers on building design, advising on load reduction, micro-generation, storage, and regulatory incentives, for domestic, commercial and industrial customers. If utilities dont step up to provide this increasingly needed expertise, new competitors will. NZ regulators and utilities at a turning point two decades late? It could be argued that New Zealanders have paid dearly for failed electricity reforms, based on economic theories untested in the energy market.28 In the 1990s, just when rising prices were starting to bite and the government needed to curb the growth-based practices of the industry, the doors were opened to private owners keen to garnish every advantage from sales at the expense of consumers, in effect setting in motion a cycle of price rises that has never ended. But frustratingly, our policy-makers and regulators were not without good advice. In 1992, a parliamentary report on sustainable energy management and policies, stated that The necessary improvements in energy efficiency will not happen through market forces alone, and it recommended that policy instruments (including market mechanisms where they can be effective) be urgently developed to remove barriers to energy efficiency. The report included a prophetic and sensible warning A free market would give energy suppliers the incentive to maximize sales, not to encourage customers to buy less energy. 29 Nearly twenty years later, the European Commission has come to the same conclusion. In many ways, New Zealand has squandered an enormous opportunity and foregone numerous benefits, only to arrive back where it was two decades ago, but much worse off. How did we get it so wrong? Simply, we perpetuated the market myths that growth is a cure, and that the free market is a natural regulator a chimera that has brought us to our global knees. Volume before values, quantity before quality, will exhaust a finite world. The question now is: How long will it take us to kick the grow-and-build habit? We can, of course, hope that our power companies will adapt their revenue streams toward efficiency services, but even if some are trying to do so, the market still drives their core practices, so to a large extent they are locked into business as usual. Market structures that tie profits to the volume of sales are not only a disincentive to energy efficiency, they can not hope to outlive finite resources. Legislators and regulators around the world are realizing that markets will have to change so that utilities are able to earn a return from efficiency.30 Governments hold the policy keys to robust energy efficiency incentives and revenue decoupling mechanisms, without which little will change. Will we continue to waste our time, energy and future? Can New Zealand policy-makers, and power companies, make the switch?

European Council for an Energy Efficient Economy (eceee). (2010, August 31). Workshop Summary: Is Efficient Sufficient. Exploring Progressive Efficiency Specifications for Appliances and Buildings. http://www.eceee.org/eceee_events/Is_Efficient_Sufficient_/ According to the IEA, energy efficiency will have to contribute over 50% of the CO2 emission savings required to meet 2030 international climate targets. It is clear that energy efficiency policies as they are currently practiced will not deliver savings of this magnitude, indeed they may not deliver any overall savings at all.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf Based on current energy policies, global energy intensity (the amount of energy needed to generate each unit of gross domestic product) will only be reduced by 28% by 2035 compared with 2008. This falls far short of environmental policies designed to limit the average global temperature rise to 2 Celsius (450 Scenario). Even if we improve energy policies to reduce global energy intensity by 34%, the International Energy Authority (IEA) estimates there will be a shortfall that requires an investment of US$16.6 trillion in infrastructure to correct.
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Parliamentary Commissioner for the Environment. (1992, March). Report to the House of Representatives. Sustainable Energy Management in New Zealand: Improvements Required in Government Policy. http://pce.parliament.nz/assets/Uploads/Reports/pdf/Pre97-reports/Sustainable-Energy-Management-inNew-Zealand-Improvements-Required-in-Government-Policy-March-1992.pdf Due to existing barriers in the energy market, the environmental, social, and economic benefits of energy efficiency will not eventuate without improved policy guidance from Government Document unsearchable, see Page 48.
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Daly, Herman E. (1996) Beyond Growth http://books.google.co.nz/books?hl=en&lr=&id=EgI30Za9mvcC&oi=fnd&pg=PR7&dq=Daly,+Herman+E. +(1996),+Beyond+Growth,Boston: +Beacon+Press.&ots=BM9NzsJgiS&sig=dZXEkAfJG5l5CrjzZoW4dDI9JtA#v=onepage&q=Daly%2C %20Herman%20E.%20(1996)%2C%20Beyond%20Growth%2CBoston%3A%20Beacon%20Press.&f=false A world without growth has become politically unthinkable. growth is the dominant value around which our society is organised. Page 10.
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Executive Report. (2010, March) Switching Perspectives Creating New Business Models for a Changing World of Energy. IBM Institute for Business Value. http://public.dhe.ibm.com/common/ssi/ecm/en/gbe03289usen/GBE03289USEN.PDF From the early days of the integrated monopoly utility until the mid-to-late 1960s, electric utilities aggressively pursued a grow-and-build strategy as core to their operating model.
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Executive Report. (2010, March) Switching Perspectives Creating New Business Models for a Changing World of Energy. IBM Institute for Business Value. http://public.dhe.ibm.com/common/ssi/ecm/en/gbe03289usen/GBE03289USEN.PDF In the United States for example, from 1920 to the mid 1960s (excepting the period of the Great Depression), usage increased at 7 percent annually about five times the rate of usage of all forms of energy combined and three times the rate of economic expansion in general. Costs dropped precipitously; by 1967, end users were paying more than 95 percent less for power than they did at the turn of the century.
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Abbott, Malcolm (2010, April) The long term development of New Zealand's electricity supply industry. New Zealand Association of Economists. http://www.freepatentsonline.com/article/New-Zealand-Economic-Papers/226361907.html Strong growth of demand continued into the 1950s and the industry struggled to meet it with its prewar plant. Table 4 shows that the growth of electricity demand during the 1950s was stronger than growth of the economy in general (averaged 8.1% per annum compared with 4.4%).
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Abbott, Malcolm (2010, April) The long term development of New Zealand's electricity supply industry. New Zealand Association of Economists. http://www.freepatentsonline.com/article/New-Zealand-Economic-Papers/226361907.html Growth in demand was strong through the 1950s but finally began to slow down in the late 1960s (to 5% per annum). At this stage, industrial growth drove demand helped by the opening of the Tasman pulp and paper mill at Kaweru in 1955, the New Zealand Steel plant at Glenbrook in 1970, the Tiwai Point smelter in 1971 and expansion of the motorcar assembly plant. Real prices of electricity continued to fall through the 1960s.
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From 1967 through to 1976, the bulk supply tariff remained unchanged, which meant real prices fell substantially. Large increases then occurred. Executive Report. (2010, March) Switching Perspectives Creating New Business Models for a Changing World of Energy. IBM Institute for Business Value. http://public.dhe.ibm.com/common/ssi/ecm/en/gbe03289usen/GBE03289USEN.PDF Since the grow and build years, however, growth in the industry has waned, and the general stock market has vastly outperformed the utility industry (e.g., the Dow Jones Industrial Average outperformed the Dow Jones Utility Average by more than five times between the start of 1965 and the start of 2008).
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Parliamentary Commissioner for the Environment. (1992, March). Report to the House of Representatives. Sustainable Energy Management in New Zealand: Improvements Required in Government Policy. http://pce.parliament.nz/assets/Uploads/Reports/pdf/Pre97-reports/Sustainable-Energy-Management-inNew-Zealand-Improvements-Required-in-Government-Policy-March-1992.pdf Within the next 50 years, nations have the opportunity to produce the same level of energy services with as little as half the primary energy supply currently consumed. Quote from 1987 World Commission on Environment and Development, Our Common Future, Oxford University Press, Oxford. Document unsearchable, see Page 17.
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Parliamentary Commissioner for the Environment. (1992, March). Report to the House of Representatives. Sustainable Energy Management in New Zealand: Improvements Required in Government Policy. http://pce.parliament.nz/assets/Uploads/Reports/pdf/Pre97-reports/Sustainable-Energy-Management-inNew-Zealand-Improvements-Required-in-Government-Policy-March-1992.pdf An Electricorp analysis in 1989 estimated that it was technically feasible to save 57% of total electricity consumption without compromising levels of service and that easily achievable savings may be more like 20%. Document unsearchable, see Page 13.
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KEMA. (2007, September). New Zealand Electric Energy-Efficiency Potential, Electricity Commission, Wellington, New Zealand. http://www.eeca.govt.nz/sites/all/files/Volume%201%20-%20Main%20report.pdf The study estimates that by 2016 technical potential for electricity savings is around 11,179 GWh per year and that of this 6,437 GWh per year is economic (i.e. cost effective). This represents 23 and 14 percent of projected 2016 energy usage, respectively. Peak demand technical potential savings by 2016 are estimated at around 3,199 MW with 1,738 MW estimated as economic. This represents 39 and 21 percent of projected base 2016 peak demand respectively.
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NERI. (2007, 9 July) Peer Review: KEMA Report NZ Efficiency Potential Study, National Energy Institute. http://www.parliament.nz/NR/rdonlyres/FB75953A-A26B-4BB5-BE6916F0527582DB/81890/NERIReviewKEMAEPS090707_.pdf The reviewers have concerns about the appropriateness of some of the economic and demand data used in the KEMA analysis, and consider that the potential savings estimates are conservative as a result. Despite its shortcomings, the study findings are sufficient to indicate that it is more cost-effective to invest in certain electricity efficiency and demand management measures than to invest in new generation and transmission investment.
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Parliamentary Commissioner for the Environment. (1992, March). Report to the House of Representatives. Sustainable Energy Management in New Zealand: Improvements Required in Government Policy. http://pce.parliament.nz/assets/Uploads/Reports/pdf/Pre97-reports/Sustainable-Energy-Management-inNew-Zealand-Improvements-Required-in-Government-Policy-March-1992.pdf To date neither the Treasury nor the Ministry of Commerce have been able to show evidence of where in the world a more market approach and light handed regulation have provided gains in energy (as opposed to economic) efficiency or an orderly transition to greater reliance on renewable energy sources. Document unsearchable, see Page 23. This experimentation is still under way and there is no evidence that it will produce a superior (or indeed even adequate) result. Document unsearchable, see Page 21.
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Abbott, Malcolm (2010, April) The long term development of New Zealand's electricity supply industry. New Zealand Association of Economists. http://www.freepatentsonline.com/article/New-Zealand-Economic-Papers/226361907.html
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Electricity Authority. (2010, November). Electricity in New Zealand. New Zealand Electricity Authority, Wellington, New Zealand. http://www.ea.govt.nz/document/12098/download/...us/documents-publications/
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Molly Melhuish. (2011, March 18). Why power prices are rising and what to do about it. Domestic Energy Users Network (DEUN). http://issues.co.nz/fairelectricity/Blog/Why+power+prices+are+rising+and+what+to+do+about+it A Commerce Commission study by Professor Frank Wolak concluded that generator-retailers had overcharged
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consumers by $4.3 billion between 2001 and 2007.

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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf The EUs 2006 Directive on energy end-use efficiency and services suggested that utilities should provide energy services rather than (only) energy supply. The Directive said that energy distributors, distribution system operators and retail energy sales companies could improve energy efficiency if the energy services they marketed included efficient end use, such as indoor thermal comfort, domestic hot water, refrigeration, product manufacturing, illumination and motive power. Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf However, in November 2010, the Commission described progress on National Energy Efficiency Action Plans (to improve energy efficiency by 20% by 2020) as disappointing, leaving vast potential untapped. On its present course, the EU wont even hit 10% efficiency savings. Stronger direction on incentives has been provided in the Commissions Energy Efficiency Plan in March 2011. The 27-country bloc intends to double its efforts on energy efficiency in order to cut greenhouse gases, primarily by focusing on more efficient household appliances, renovating public and private buildings and driving improved cars.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf Efficiency Plan is very supportive of linking utilities profits to energy efficiency rather than volume supplied, and introduces an energy saving obligation on utilities.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf It also said that profit maximization would become more closely related to selling energy services to as many customers as possible, rather than selling as much energy as possible to each customer.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf Hard legislative control has been lacking in the past, but this time the Efficiency Plan comes with a warning: if countries do not show marked improvements in the next two years, targets will become legally binding. Progress against national targets will be assessed in 2013, at which point binding objectives will be set if needed.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf The need for education on the impact of smart, and the role that energy efficiency could play in reducing the impact of peak time pricing, is vast.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf
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A growing number of vendors are providing in-home displays for customers who are upgrading their homes with programmable thermostats, smart appliances and other energy management technologies. Utilities are also deploying smart meters and developing web-based tools that provide customers with virtually real-time information on their consumption, and identifying utility programs, technologies and other recommendations to help manage, or even lower, the monthly electricity bill. NERI. (2007, 9 July) Peer Review: KEMA Report NZ Efficiency Potential Study, National Energy Institute. http://www.parliament.nz/NR/rdonlyres/FB75953A-A26B-4BB5-BE6916F0527582DB/81890/NERIReviewKEMAEPS090707_.pdf the study findings are sufficient to indicate that it is more cost-effective to invest in certain electricity efficiency and demand management measures than to invest in new generation and transmission investment.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf Our Save-A-Watt program in the Carolinas and Ohio uses an avoided cost model. It is based on the idea that savings from reduced power use cost us less than earnings from a similar investment in a power plant. Meanwhile, our energy efficiency program in Kentucky runs on a cost-plus model: the regulator allows us to recover certain costs and add a small premium for investing in energy efficiency. The cost-plus approach brings clear performance-based incentives for us to invest. Susie C. Adams, Vice President of Marketing and Customer Experience.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf Connecticut utilities run an innovative on-bill financing program that helps consumers to identify how their homes or businesses can be more energy efficient, offers rebates to lower the cost of these improvements and provides a 0% interest loan. As a result, consumers dont need to pay any money up front for efficiency improvements; they pay an extra charge assessed on their energy bills.
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Parliamentary Commissioner for the Environment. (1992, March). Report to the House of Representatives. Sustainable Energy Management in New Zealand: Improvements Required in Government Policy. http://pce.parliament.nz/assets/Uploads/Reports/pdf/Pre97-reports/Sustainable-Energy-Management-inNew-Zealand-Improvements-Required-in-Government-Policy-March-1992.pdf Energy sector reforms under way in both New Zealand and the United Kingdom are based on economic theories untested in the energy market. Document unsearchable, see Page 23.
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Parliamentary Commissioner for the Environment. (1992, March). Report to the House of Representatives. Sustainable Energy Management in New Zealand: Improvements Required in Government Policy. http://pce.parliament.nz/assets/Uploads/Reports/pdf/Pre97-reports/Sustainable-Energy-Management-inNew-Zealand-Improvements-Required-in-Government-Policy-March-1992.pdf The necessary improvements in energy efficiency will not happen through market forces alone. Numerous structural, financial and attitudinal barriers against efficient energy use already exist and will not be removed by proposed market reforms. Little of New Zealands energy efficiency potential is likely to be realized without major improvements in information / education, price signals, investment incentives and policy direction from Government. Document unsearchable, see Page 14. Recommended: That policy instruments (including market mechanisms where they can be effective) be urgently developed to remove barriers to energy efficiency Document unsearchable, see Page 50.
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Ernst & Young. (2011, May). Utilities Unbundled. Issue 10. New Perspectives on the Power and Utilities Sector. http://www.ey.com/Publication/vwLUAssets/Utilities_Unbundled_-_Issue_10/$FILE/EY__Utilities_Unbundled_Issue_10.pdf Energy efficiency is a challenge that utilities can do something about - yet performance has been mixed. In many cases, we believe this is due to market structures where there has been a disincentive when revenues are still tied to energy sales, and a lack of incentive because many utilities havent been able to earn a return on energy efficiency. Legislators and regulators are realizing that specific incentives and regulations must be in place to achieve that end, and the markets - whether regulated or liberalized - will have to change in order to make it happen.
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