The U.S. electric utility industry has long encouraged its customers to get more value from their electricity dollar. Today, the industry—facing volatile costs and mounting concerns about the environment—is coming together to create a new role for energy efficiency—one that enables technology to deliver more value to customers and electric utilities alike.
For example, "smart" meters, two-way communication, and automation are rapidly improving information exchange between utilities and their customers. These technologies can provide intelligence about outages, help improve power quality, support real-time pricing and billing, and open the door to many other value-added services that could improve both customer value and utility business operations. And in the not-too-distant future, smart technologies and appliances—what the Electric Power Research Institute calls dynamic systems—promise to learn how to best combine efficiency, comfort, and convenience for their users.
The past generation of efficiency efforts
The electric utility industry’s efforts to encourage energy efficiency date back to the 1970s. These early programs focused on providing general information to customers. During the early 1980s, many states directed their utilities to begin using conservation and load management programs to offset rising fuel costs, increasing construction costs, and growing public concerns about the environmental impacts of fossil-fired and nuclear generation. These efficiency measures educated and motivated customers to buy energy-efficient appliances, and many programs also included incentives for customers to allow their utility to cycle or shut off their large appliances for short periods during periods of peak demand.
Most utility efficiency programs were scaled back in the mid-1990s as retail prices declined (in real terms) and states implemented or considered retail competition. According to the U.S. Energy Information Administration (EIA), 1993 was the top year for utility spending on efficiency efforts, with total nationwide expenditures of more than $2.7 billion (including both direct and indirect program costs). By 1996, total utility efficiency spending had fallen to $1.9 billion, and by 1999 it had fallen to less than $1.5 billion. In many restructured states, however, authority for spending to promote efficiency shifted from utilities to state or nonprofit entities (through the collection of system benefit charges or public benefit funds), expenditures that are not reflected in these figures.
The next generation of efficiency efforts
Now, in the face of volatile fuel prices and rising construction costs—and the EIA projecting a 45% increase in electricity demand by 2030—the industry is taking a fresh look at the role that energy efficiency and demand response can play in addressing these issues. Over the past year, the EEI and its members, led by a CEO-level task force, have developed principles for guiding the industry in working with regulators, lawmakers, customers, and other stakeholders to define a new role for energy efficiency.
Broadly, these principles concentrate on:
- Establishing an industry vision, with stakeholder input, of a sustainable role for energy efficiency in the electricity industry.
- Identifying and creating business models for offering energy-efficiency and other new services to customers.
- Engaging federal and state regulators to proactively promote policies that support sustainable energy efficiency.
- Working with codes and standards organizations to develop cost-effective efficiency standards for appliances and buildings.
In the short term, the EEI and the industry are pursuing a wide range of opportunities to expand the benefits of energy efficiency. They focus on five key areas:
- Encouraging the construction of energy-efficient buildings.
- Promoting the development and deployment of more energy-efficient electric appliances, consumer electronics, and other electric technologies in those buildings.
- Accelerating the development and use of smart (time-of-use) electric meters.
- Supporting the development of innovative electric ratemaking and rate design that promote efficiency and gives customers more control over their electricity bills.
- Helping to commercialize plug-in hybrid electric vehicles that will improve transportation efficiency, reduce fuel costs, improve the environment, and help reduce dependence on foreign oil.
A vision for the not-too-distant future to expand the benefits of energy efficiency and demand response is a communications infrastructure that enables two-way information exchange between utilities and customers. Using this grid, network-addressable devices—including air conditioners, major appliances, motors, pumps, and lighting systems—could receive and respond to electricity price information. This would enable users to run appliances at minimum cost. And it would help to reduce demand during peak periods, deferring the need to build generating capacity.
Energy efficiency has been and will remain a crucial vehicle for giving and getting more value from every kilowatt-hour of electricity generated. Now, the EEI and its member electric utilities believe that by applying advanced technologies and taking new approaches to doing business, energy efficiency can become an even more powerful tool for creating economic and environmental value.
—Rick Tempchin is director of retail distribution policy for the environment of the Edison Electric Institute, the association of U.S. investor-owned electric utilities and their worldwide affiliates and industry associates (www.eei.org). He can be reached at 202-508-5000 or email@example.com.