Energy Efficiency Efforts May Not Pay Off

In the run-up to the final rollout of its Clean Power Plan, U.S. EPA has consistently promoted energy efficiency efforts as a cheap, easy and financially advantageous way to meet the rule’s ambitious goal of reducing the power sector’s greenhouse gas emissions by 30 percent.

“When you look at energy efficiency, it is the best approach to actually address the challenge of carbon pollution in a way that is tremendously cost-effective,” EPA Administrator Gina McCarthy said in April at a panel hosted by the University of Chicago’s Energy Policy Institute. Efficiency efforts, she said, are “an extreme case of how you can get [to state carbon-reduction goals] at the lowest possible cost.”

In fact, EPA has predicted that efficiency improvements undertaken to meet state-level goals will ultimately lower monthly electricity bills for consumers, by lowering overall demand.

But now a released by that same institute appears to poke serious holes in EPA’s arguments. Examining a major Michigan weatherization program, the study found that while upgrades reduced consumption by about 10 to 20 percent, the total energy savings generated over a 16-year window amounted to less than half of the initial weatherization costs.

These savings were also much lower than initial predictions had estimated. And the study also found that, despite the promise of free weatherization upgrades and long-term savings on energy bills, program administrators had a difficult—and costly—experience convincing Michigan homeowners to participate in the program.

“Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits,” the report concluded.

“We were surprised, to be perfectly frank,” said co-author Catherine Wolfram, a professor at the University of California, Berkeley’s Haas School of Business. “The perception is that energy efficiency is not just the low-hanging fruit, but the fruit already fallen on the ground, waiting to be picked up. The free lunch you’re paid to eat.”

‘It’s not a good investment’

The tracking began in 2011, at a time when national funding for the weatherization program increased from $450 million to nearly $5 billion due to the American Reinvestment and Recovery Act. Each participating household received about $5,000 in audits and upgrades, without any out-of-pocket cost. Still, interest and eventual follow-through on the program was low. “We went to their house in person, explained the program to them, explained we’d be assisting them with the application process,” Wolfram said. “Only 12 percent accepted our offer to help ... and then only 6 percent, half of those, actually got the weatherization itself.”

That didn’t surprise Steven Nadel, the American Council for an Energy-Efficient Economy’s executive director. “It is tough to reach these people,” he said. “They’re working multiple jobs, they’re not sure they want to trust the government ... there are a lot of reasons people don’t participate.”

Nadel cautioned against drawing broad conclusions about energy efficiency’s cost and potential from the University of Chicago study. “They looked at one single program, and they’re trying to generalize,” he said, arguing that weatherization efforts like WAP are among the “least likely [efficiency programs] to be cost-effective.”

He said outreach efforts, installation costs and man-hours work against weatherization. “The benefits are just fractionally greater than the cost. You want to break even,” he said. “You do this for equity reasons and social service reasons as much as savings.”

But in the cases the study examined, the savings didn’t come anywhere near the upfront cost.

The authors projected their three years of electricity and heating bill data over a 16-year window. “We’re seeing on average $2,400 in avoided energy costs, whereas the cost was [on average] $5,000,” Wolfram said. “That’s really disappointing. You spend $5,000 and get $2,400 back—it’s not a good investment.”

EPA remains ‘confident’

Indeed, many other studies have come to much different conclusions about energy efficiency, including a released earlier this week by the Advanced Energy Economy Institute.

The AEEI report found that energy efficiency and renewable energy are already competitive resources on the energy market, making them viable compliance mechanisms for the Clean Power Plan. Authors also note that the U.S. Energy Information Administration has consistently underestimated the scale of the clean energy industry.

For example, EIA projected that solar capacity in the United States would double between 2014 and 2026, while the current deployment trajectory puts solar energy on track to double by 2016.

The AEEI report shows that energy efficiency, through utility-based programs and through performance contracting, is a booming sector, costing much less than meeting energy demand with new generation. Energy service companies that offer efficiency contracts grew their market from $2.5 billion in 2005 to $6 billion in 2013. The market is poised to reach $15 billion by 2020.

“It’s not that these are some projections of some crazy green group; these are the utilities’ own data,” said Malcolm Woolf, senior vice president of policy at Advanced Energy Economy, which runs AEEI as its educational affiliate.

Underestimating the renewable energy and energy efficiency sector makes it harder for projects to secure financing and investors, Woolf added. “I hope that investors take a second look at this industry. Many have not recognized how the energy world has changed,” he said. “It’s been a continuous story of progress year-in, year-out.”

Still, Wolfram said the Michigan weatherization program’s failure to make inroads or earn back initial costs in Michigan has left her worried about whether the Clean Power Plan relies too heavily on energy efficiency. “If it’s being sold as something that’s going to save people money, if it’s not cutting energy use as much as its cost, then yeah, that’s a problem,” she said.

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