No Question: Energy Efficiency Investments Deliver Huge Benefits

June 26, 2015
You may have heard the negative hype surrounding a new working paper on energy efficiency investments for low-income residents. It’s a mistake to generalize from the Michigan study. NRDC’s Merrian Borgeson explains why.

You may have heard the negative hype surrounding a new working paper on energy efficiency investments for low-income residents. It’s a mistake to generalize from the Michigan study. NRDC’s Merrian Borgeson explains why.

Decades of experience and verification prove energy efficiency programs deliver huge benefits to consumers and the environment – and these benefits far exceed the costs. A new working paper about a single federal efficiency program for low-income residents in Michigan is generating a lot of hype, but does nothing to contradict these basic facts.

The paper, which has not been peer reviewed, examines the Weatherization Assistance Program funded by the Department of Energy in Michigan, but one of the authors cautions that it should not be generalized beyond that. “This is one study in one state looking at one subpopulation and one type of measure,” study co-author Meredith Fowlie, an associate professor of economics at the University of California, Berkeley, told the Washington Post. “I would not feel comfortable generalizing from our study in Michigan.”

So here are the facts:

  • Energy efficiency programs are continually tested and measured by state regulators – and the benefits generally far exceed the costs of the programs, or they wouldn’t go forward. Each dollar invested in energy efficiency measures yields $1.24 to $4 in benefits, according to a study by the American Council for an Energy-Efficient Economy.
  • In addition to bill savings, a new report  underscores that efficiency programs produce a host of other economic and environmental benefits, including avoiding the need to build new transmission lines and power plants while reducing public health impacts from air pollution.
  • The federal program examined in the new study also focuses on improving the health and safety of low-income residents and such steps as removing asbestos or upgrading wiring would not produce energy savings, per se.
  • A closer read of the study makes clear these weatherization programs provide vital support for Americans most in need of assistance at great value to society, and these results are not generalizable to most other efforts to reduce energy waste.
  • And nothing in the study contradicts the well-documented fact that energy efficiency is the cheapest, fastest, and cleanest way to reduce climate change emissions from power plants under the Clean Power Plan.

Regions, states, public and private utilities, and third parties across the country have over 30 years of experience investing in energy efficiency programs and have developed processes and protocols to evaluate, measure, and verify energy savings. And state utility regulators, publicly owned utility governing boards, and independent system operators (ISOs) are sufficiently confident in the results to use energy efficiency in resource planning and procurement.

What’s the study about?

In the program examined by researchers at the University of Chicago and UC Berkeley, participants received a range of energy efficiency improvements, as well as home repairs needed to do the work safely and effectively in often old and poorly-maintained buildings.

Despite all of the negative reports, the results of the program from the participants’ perspective are actually quite positive – they get a 10 to 20 percent bill savings, plus on average $1,000 of non-energy improvements such as asbestos removal and electric wiring updates, PLUS in many cases a new furnace or new windows – all at zero cost to them (remember, these are low-income Michigan residents who likely could not afford these improvements).

Substantial data shows that energy efficiency is well worth the investment

Lawrence Berkeley National Laboratory maintains a database of the measured and verified costs and savings from energy efficiency programs across the United States. Their most recent report found that the 2,100 program years they examined had a total cost of saved electricity, weighted by the energy saved, of 4.6 cents per kilowatt-hour (kWh) across all sectors. This includes both program costs and participant costs related to the energy efficiency measure. This is about half the cost of building a dirty coal power plant.

The chart shows that residential efficiency on average costs 3.3 cents per kWh, and commercial and industrial efficiency costs 5.5 cents per kWh. Not surprisingly, low-income programs cost more (14.2 cents per kWh) and have a smaller customer contribution due to the participants’ ability to pay. Given that these low-income programs provide more benefits than just energy savings, and that the average rate U.S. utilities charge residential customers is about 13 cents per kilowatt hour, this is still a good deal.

The costs used to calculate cost-effectiveness are not generalizable

Unfortunately, in calculating the cost-effectiveness of this program, the researchers included not only the costs of the non-energy related improvements, but the full cost of the efficient equipment installed, concluding that this efficiency program doesn’t deliver.The project costs included basic non-energy improvements like removing dangerous wiring and toxic asbestos, which increased costs by about 25 percent (about $1,000 on top of the $4,000 in improvements). The full cost of new furnaces and windows were also included (as opposed to the incremental cost of the more efficient model which is the standard measure of energy efficiency program cost-effectiveness) — no one gets a furnace solely for the energy-saving features (they mostly want to be warm in the winter!). This accounting makes a huge difference. For example, about 1/3 of all participants in the program got a new furnace at a cost of over $3,100 each. If you assume that the “incremental” efficiency premium on the furnace is about $400 (meaning the less efficient furnace option is $2,700), the cost of the efficiency portions these projects is far less – about $3,100 on average instead of $5,000.[1]

The social mission of these programs are met by providing these basic services to low-income residents, and we should continue making sure that low income residents’ home are safe, comfortable AND efficient. But in energy efficiency programs for non-low-income customers, the incentive or rebate would only pay for part of the cost of the improvements.

There are many reasons to invest in energy efficiency for low-income residents

If you read the study details, the authors are clear that these research finding are not widely applicable to energy efficiency, or even necessarily to other weatherization programs. However, the news release was not so careful and as a result, many news stories are reaching the wrong conclusion. In fact, low-income programs serve a much broader purpose than just maximizing energy savings per dollar spent or with the primary goal of reducing greenhouse gas emissions. They are focused on improving the health and well-being of low income residents, especially those most vulnerable, such as children and the elderly.

If you ignore the over-inflated hype, this paper has some valuable insights:

  • It is one of only a few attempts to measure a “rebound effect” (where supposedly people do things like keep their homes even warmer in the winter because efficiency makes it less expensive to do so) – the authors find no evidence of rebound.
  • It is important for more programs to do after-the-fact assessments of bill data and try to learn more about what efficient technologies and practices are best able to capture savings.
  • We need to make weatherization programs more accessible to low-income families. As the authors state, applying for the Michigan program was “highly onerous and time intensive” on multiple levels. Weatherization programs should be easier to access for those most in need.

In short, energy efficiency continues to be the way to go, both for customers’ pocketbooks and the environment.

[1] To get $3100, we subtract the $1000 in non-energy improvements and 1/3 of the cost (since only 1/3 of customers get furnaces) of the $2,700 estimated basic furnace cost, or $900 on average, from the approximately $5000 in average project costs assumed. This yeilds a far less dramatic result based on purely energy terms (not counting comfort, safety, etc).

Merrian Borgeson is a senior scientist, energy and transportation, San Francisco at the Natural Resources Defense Council. This blog originally appeared on Switchboard, NRDC’s staff blog.

About the Author

Kevin Normandeau | Publisher

Kevin is a veteran of the publishing industry having worked for brands like PC World, AOL, Network World, Data Center Knowledge and other business to business sites. He focuses on industry trends in the energy efficiency industry.