Archive for June 2011
Today we launched our new site enterprisesmartgrid.org. Our idea to develop it came as we were conducting our initial customer research on the ESG market. As we tested the three functional areas, (Visibility, Control and Integration) with corporate energy, facility and sustainability managers, some began commenting that even the term “Enterprise Smart Grid” resonated with them.
So using Marketing 101 we knew that by developing a .org vendor neutral, collaborative blog, twitter, newslisting we could likely bring together an even broader group of interested people around the ESG concept.
As we learned when we launched the term “Enterprise Carbon Accounting” in 2009, sometimes a market’s name can take on a changed, broader meaning as more people begin using it, something no one person or organization can control – now we’ll get to see if that’s the case again with “Enterprise Smart Grid.”
Jim Rogers from Duke Energy famously promotes efficiency as the “5th Fuel” in the world-wide portfolio of energy production. He echoes the consensus that renewable energy requires massive incentives to make it financially viable, while energy efficiency does not, and hence these opportunities should be more actively addressed.
The dirty little secret is that energy efficiency regularly requires incentives as well.
Though it may seem counterintuitive, many companies look for a five to ten year payback on their renewable energy investments, while they continue to apply “it better be under a three year payback or it won’t get done” for more traditional energy efficiency projects. Consequently, while EE projects have better returns, incentives are often still critical to getting these projects inside this payback hurdle.
Over the last twelve months, 70% of the EE projects Groom Energy implemented have been supported by some kind of financial incentive. Whether it’s a traditional motor or lighting upgrade with a utility rebate or a CHP system gaining Massachusetts’ Alternative Energy Credits, our engineers spend a lot of time trying to identify and secure the best incentives available for each customer project.
Each utility, state, city, county or municipality may have it’s own specific program. In California alone there are over 200 different efficiency incentives. Providing a bit of help on the identification front, the folks at DSIRE are doing their best to keep up, with an on-line database tracking thousands of renewable and energy efficiency incentive programs across the entire US.
Determining how to sure our customers will get the incentives can be just as painful. Some authorities take a prescriptive approach, allocating a specific $ incentive figure for each measure deployed. Others take a custom approach, applying a $ figure for the total energy saved or produced. Some burden projects with small $ incentives with detailed energy modeling and pre and post project measurement and verification.
While the complexity provides a distinct competitive advantage for those who have the IQ and fortitude to understand and maximize the incentive benefits, customers perceive much of this as additional risk. And with risk comes hesitation.
Because of this, some groups are pushing for a national approach to energy efficiency and renewables, a National Efficiency Standard. The Energy Future Coalition, in partnership with American Council for an Energy Efficient Economy (ACEEE), Natural Resources Defense Council, the Environmental Law and Policy Center, Environment Northeast, and the Sierra Club, have proposed an EERS that sets a 15% electricity and 10% natural gas savings target by 2020. Other approaches would equally value the benefit of a megawatt saved or produced. This would be similar to a REC which establishes value based on the projected performance of a renewable asset, but on a national scope. Others, differentiate between production and efficiency, rewarding each with it’s own specific incentive.
What most of these folks do agree on is that reducing the complexity and risk of the puzzle of incentives would deliver more impact than most other energy or carbon reduction initiative in the que. The question remains, who will lead the effort to drive it? The Department of Energy? The White House?
Like a trendy social networking term, fracking has entered everyday conversation. For the sake of the US economy we should all hope the trend is not fleeting….
Based on the controversial horizontal drilling technique, the energy markets have already assumed new access to large US natural gas reserves, and consequently prices for natural gas are forecasted to stay low for the foreseeable future.
Of course investors are scrambling to participate, with the largest private equity firms getting ready to put down a large bet on the success of fracking. As one utility executive told me recently, “our electricity rate negotiation with the PUC is heavily based on fracking.” On the corporate front, Groom Energy customers have also priced in low expected inflation for their cost of electricity for the next few years. Which affects how they consider energy efficiency investments such as on-site generation with CHP, a gas to electricity arbitrage opportunity.
However, with uncertain, but potentially seriously negative environmental impact, the future of fracking remains unpredictable. Concerns range from polluting water supplies to causing earthquakes (which recently led to a temporary ban in the UK.) New interest groups are rallying to more closely regulate fracking or stop it completely. Investors are asking companies like Chevron and Exxon to report their activities. And after sitting on the sidelines, the EPA is finally considering how they’ll be involved.
The problem is that the outcome has the chance to be very binary.
Should the EPA come out with a policy which legislates more oversight and compliance, the markets would be largely unaffected.
But if they determine that the technique is environmentally unsound, and temporarily suspend it (like they did for offshore drilling after the Gulf disaster), stall it like nuclear post Japan or ban it (as France is already considering,) prices for short term and long term natural gas (and electricity) would spike immediately.
While we know over the long term financial markets are efficient and will price in either scenario, the latter outcome could be a body blow the US economy doesn’t need at this point.