Energy Update

Some surprising developments in power supply and demand

One of the articles in Sustainable Habitat (IC#14)
Originally published in Autumn 1986 on page 27
Copyright (c)1986, 1997 by Context Institute

What’s happened to our energy problems? The present oil glut seems to have made the energy crisis a thing of the past, but anyone who looks at the fossil fuel situation for the coming decades will see that we had better not be complacent. (See, for example, Beyond Oil, by John Gever et. al., available from CARRYING CAPACITY, INC., 1325 G St, NW, Suite 1003, Washington, DC 20005 for $14.95 postpaid.) There is, however, much genuine, longterm, good news about rapid advances that are being made in energy efficiency and renewable sources of energy, as this interview illustrates. As with so many of the issues around sustainable habitat, we have the technical means. The question is, will we use them?

Amory Lovins has one of the more remarkable minds of our era. He has been working as an energy consultant for the past 15 years and during that time has probably done more than anyone else to accurately diagnose, and then chart a sustainable solution for, the energy crisis. His books include Soft Energy Paths, Brittle Power, and most recently Energy Unbound (with L. Hunter Lovins and Seth Zuckerman, Sierra Club Books, 1986, $17.95). He is presently the director of research for Rocky Mountain Institute, Drawer 248, Old Snowmass, CO 81654. RMI has its home in the building shown on the back cover.

I’d like to start looking fairly broadly at the energy situation. During the ’70s there was a tremendous amount of excitement and research going on, and by the end of the ’70s and the early ’80s people had pretty well documented the usefulness of solar and renewables. Yet with that success has come, at least at a popular level, a loss of steam and interest and sex appeal around energy issues of various sorts, such as solar energy. I’m curious about your perspective on this shift. How has the situation changed? What are the needs at this point? What are the cutting edge places that need to be pushed in order to continue to get good progress on switching to softer energy paths?

Amory: What you describe as a loss of popular momentum is easily misinterpreted. You’ll find in Canada, for example, that every poll since ’77 shows the steady decline in public concern with the energy crisis. At the same time, people have spent more and more money every year weatherizing their houses; it’s now over a thousand Canadian dollars per household. I think we see the same thing in this country. People are clearly less concerned with the energy crisis, although many of them are rightly more concerned than they used to be about their utility bills, which are emerging as a major issue in about a third of the country. But in the past couple of years, despite falling energy prices, the rate of improvement of national energy efficiency has actually spurted ahead.

I think this means that what people at first did in a panic because the government exhorted them to, they have now largely internalized as part of everyday rational economic behavior, and that’s just what should have happened. Similarly, renewable energy which we were told was unripe to do anything in this century is now a tenth of the total national energy supply and the fastest growing part, outpaced only by efficiency. In fact there’s a profound energy revolution going on in so many millions of little pieces that hardly anyone notices, and it is happening from the bottom up, not from the top down. Washington D.C. will be the last to know. Since ’79, the U.S. has gotten more than a hundred times as much new energy from savings as from all net expansions of energy supply combined, and of those expansions, more new energy from sun, wind, water, and wood than from oil, gas, coal, and uranium.

Perhaps the most surprising piece of that puzzle is in the electric utility business because, broadly speaking, renewable sources of electricity, other than conventional hydropower, are less economically mature than renewable sources of heat and liquid fuels, and many utilities have been historically resistant to change. And yet, since ’79, the U.S. has ordered more new generating capacity from small hydro and wind power than from coal or nuclear plants or both, not counting their cancellations. From 1981 through ’84, the U.S. cancelled 65 gigawatts, 65,000 megawatts more than it ordered in central power plants, but about 2/3 of that loss of ordered capacity was made up in new orders and from letters of intent for decentralized sources. That is, as we had minus 65 gigawatts of net orders for central plants, we gained about 25 gigawatts of new orders for co-generation (electrical production as a by-product of industrial heating) and another 20 or more for small hydro, wind and other renewables. The difference between minus 65 and plus 45 was far more than made up by savings.

However, an even more astonishing development is on the supply side. A few years ago the three big California private utilities started offering a fair price and low-hassle standard-form contracts for independent small power producers who would put up their own money to make and sell power to the grid cheaper than the utilities could do it themselves. By the end of March ’85, those entrepreneurs had offered more than 20 gigawatts of small power production, most of it renewable, and new offers were coming in at a rate of nine gigawatts per year. If that had kept up for the rest of ’85, they would have displaced every power plant in California. It didn’t keep up the rest of the year, because on April 17th the Public Utility Commission said, "Wait a minute, we can hardly open the envelopes fast enough, and anyway, maybe we are buying more of this supply than we need. So let’s suspend the process while we think about it." Nonetheless, at that time over 13 gigawatts was already built or being built in small power production, most of it renewable. So within about two years, California went from a scarcity of electricity to a glut as far as the eye can see.

Well, this tells us several important things. First of all, there are alternative technologies for generating power that are very rapidly maturing and, in fact, the latest wind machine coming on the market this year can compete without subsidies, which is more than you can say for a standard power plant. Secondly, it shows the enormous dynamism of an entrepreneurial economy when you give it a chance to work. Thirdly, just during 1984 alone, cogeneration went from about 5% to about 7% of national electric output. And similarly windpower has lately shown the fastest growth of any new electric source since nuclear power was getting started in the early ’50s.

Now, I think a more important lesson is that we’re seeing the emergence of a highly competitive energy service marketplace. What I mean by energy service is the tasks that people want energy for: comfort, light, mobility, baking bread, making steel, running sewing machines. All ways to provide those services are now having to compete with each other so that power plants must compete, not just with each other or with natural gas, but also with greenhouses and weatherstripping. Weatherstripping is a very tough competitor. The result of this is that electric utilities are starting to discover that they, too, like the oil companies, can price themselves out of the market, and that if they raise their prices to pay for expensive power plants, they may end up losing so much on sales that they actually make less money. However, riding to the rescue is a host of very powerful and very cheap electricity saving technologies, most of the best of which didn’t even exist a year ago. We can now save about twice as much electricity at a third of the cost of five years ago.

Robert: Can you give me examples of some of those technologies?

Amory: Sure. Let’s take the overhead fluorescent light in your typical office. If you change to high frequency tunable (which means automatically dimmable) electronic ballasts, improved lamps, and specular reflectors which get twice as much light out into the room, you end up with more and better distributed light, and you’re using only 20% as much electricity as you started with. The cost of that saving is around half a cent per kilowatt hour.

There are about 10 things you can do to industrial motors and drivetrains, many of them involving electronic chip controls, which collectively can about double typical industrial drive power efficiency, again at about half a cent per kilowatt hour – a little bit less. Many of the measures in commercial lighting and industrial motors actually have a negative cost. You can replace a rubber v- belt with a toothed drive belt made of neoprene nylon and fiberglass which doesn’t slip because the teeth engage sprocket lugs and which doesn’t stretch, so it saves typically around 10 or 15% of the drive power. It turns out that because it lasts much longer than a regular belt, its installation and replacement costs have a lower present value than those of the less efficient v-belt.

Similarly, if you replace a 75-watt incandescent flood light in a ceiling can in a hotel lobby with a seven watt plus two watt ballast (total nine watt) compact fluorescent lamp, which lasts several times as long and whose reflector distributes the light much better, you actually get more and better light from nine watts than you did from 50 or 75. Again, because the fluorescent lasts longer and doesn’t cost all that much more, the net cost of the electrical saving is negative, which is, as Irwin Seltzer says, not a free lunch, but rather a lunch they pay you to eat. Lunches of negative cost are, I think, rather novel, and the more of these I look for, the more I’m discovering.

Now, to pick more mundane technologies, we’re sitting near a refrigerator that uses about 8% the usual amount of electricity. A freezer that uses 15%. Light bulbs that use a quarter as much as the norm. I’m trying to get hold of a new dishwasher that just went into mass production which is run entirely on water pressure. It has no electric hook up. This building we’re in has about a $5.00 a month electric bill for domestic lights and appliances, another $5 for the waterfall pump in the jungle, $18 for the office equipment. We end up all together using about 5 or 10% of the usual amount of electricity, and no heat at 7100 feet in the Rockies, with temperatures to about -47 °F. The extra cost of doing that pays back in ten months.

The best air conditioners on the market now use about half as much electricity as the norm and work better. The list goes on and on in every sector, and if you added it all up you’d find, say for Commonwealth Edison, the big Chicago utility, just by widespread retrofit with today’s best technology, especially in commercial lights and industrial motors, you can save about 44% or more of the electricity they sold last year, at a cost averaging 2/5 of a cent per kilowatt hour; they’re now charging households somewhat over 10 cents. Now 2/5 of a cent is typically 20% or less of what it costs to operate their cheapest-to-run power plants, the old nuclear plants. Even if building them were free, it would be cheaper not to operate them. And the enormous pot of money we’ve just discovered in the form of cheap electrical savings can be used for a variety of purposes.

You see, it’s okay for a utility to sell less electricity, to sell efficiency instead, and have its sales and its revenues go down, because its cost will go down more. Revenues minus costs equals earnings, to the extent that the Utility Commission lets them keep it. And that saved operating cost from saving electricity cheaper than making it could be used, for example, to repay investors for money they wasted on an abandoned power plant, or it could be used to clean up dirty power plants, so that you abate acid rain while lowering the rates. In effect we’ve just discovered a gold mine which can be used to make lots of people whole, and so I spend a lot of time helping utilities to capture these opportunities.

Now, it seems to me the continuing revolution that will have the biggest economic impact is on the efficiency side, with electricity and everything else. We made our economy about a quarter more energy efficient in the past decade than it was before, and that’s reduced our energy bills by $150 billion a year, and we’ve barely scratched the surface of how much efficiency is available and worth buying, because we’ve done most of the savings with mundane methods like caulk guns and duct tape. We haven’t yet used significantly the sophisticated new technologies, especially for saving electricity.

Robert: Like micro chip controllers for motors.

Amory: Sure. Those are still relatively rare. Their performance and reliability have improved enormously and their costs have fallen by half in two years, and they’re about to take another big tumble.

Now if we were as efficient today as western Europe is, our energy bills, which were about $420 billion last year, would drop by another $200 billion. That’s about enough to balance the federal budget. And if we just chose the best buys from now until 2000, we would accumulate enough net savings by the turn of the century to more than pay off the national debt, if Mr. Weinberger didn’t get his hands on it first. It would be several trillion of today’s dollars, so we are playing for very large stakes. It seems to me that people have gotten the idea that efficiency can save money, increase security, improve quality of life.

Robert: I understand what you are describing, and it certainly has been moving along in a great grassroots/diverse way, but within the process are there places that you see could be moving more rapidly? What are some of the key bottlenecks in this movement towards more efficient energy use?

Amory: Well, there are a lot of little messy ones, like split incentives. Why should you fix up your landlord’s house? Why should your landlord fix up the house if you pay utilities? And there are 3000 obsolete building codes, obsolete zoning and lending regulations, restrictive union and utility practices. It’s a long list of silly rules or customs left over from the cheap oil era which are not allowing people to use energy in a way that saves money.

But I think that if I had to pick two of the biggest obstacles, they’d be lack of current information and lack of fair access to capital. You can’t do anything without information. You need to know what the best buys are, where to get them, how to shop for them, and when the technologies are changing so fast that you need a loose leaf mind to keep up with them, even the conventional information channels break down. We spend a lot of our time trying to get the word out on what the best buys are. We’re still not doing it very well. And there’s a lot that goes on that we can’t even keep up with.

Robert: Is there anywhere that people can turn to get that kind of information?

Amory: The American Council for an Energy Efficient Economy in Washington D.C. puts out twice a year, a nice little pamphlet for $2 called The Most Energy Efficient Appliances. I think it’s 1001 Connecticut Ave. N.W., Suite 530, 20036. And that gives the best energy efficient mass-produced appliances on the U.S. market. It does not, of course, show foreign products not formally marketed here, nor does it show prototypes, but it’s a very good guide to what you can get at your local white goods store. Other than that, there’s not much. We are seeing an explosion of compact fluorescent quadrupled-efficiency light bulbs from six or eight major manufacturers, and those are starting to enter the mainstream pretty fast. If you’re a commercial or industrial customer, you’re much better off. You can subscribe to journals like Energy User’s News which keep you reasonably current, probably within six months or a year, on the best mass produced technologies.

There isn’t any central clearinghouse. We’re trying to do that in electricity saving technologies. We keep up moderately well with heat and liquid savers as well, but so far we’re better at developing the information than at getting it out to all the diverse groups who need it. We’re trying to improve that. In fact, we’re just starting a subscription service where the neat stuff that crosses my desk will get written up and sent out in batches to people periodically. [Contact RMI for more details.]

The capital barrier is crumbling much more rapidly. There are at least a dozen ways now in which electric utilities in particular can finance savings in a way that makes everyone better off, and some of them are fairly widespread. Over half the utility customers in the country now can get low or no interest loans to fix up their houses or rebates for buying more efficient appliances.

Some other concepts are starting to spread fairly fast, like instead of paying you a couple of hundred bucks to buy a better refrigerator, pay the person who sells it to you, say a 50 buck bonus, but nothing for selling you an inefficient one. The inefficient ones will quickly vanish from the stores because there’s no incentive to keep them in stock.

We’re working on some other innovative techniques, like a sliding scale hookup fee that’s positive or negative, depending on the efficiency of your building, or a Dutch auction in which utilities offer to buy electricity that anybody will make, save, or displace by any method at a series of increasing prices until they have all they want. Or ways for industrialists to finance energy saving and then buy back the power they save at an intermediate price so that they get cheap power without having to get cross-subsidized by anyone else.

The general scheme we’re trying to advance is to move from the first generation programs designed by engineers (to deliver technologies like wrapping water heaters and relamping fixtures) to generic marketing incentives which reward people for saving electricity, that is, which make a market in "negawatts," so that however much you save, however you do it, you’ll be paid for it, and preferably you’ll be paid in advance so you can use that payment to buy the device that produces the savings. That turns out to be an extraordinarily powerful technique, and we’re getting a lot of utilities turned on to it.

Obviously this sort of progress is patchy, because the utility industry is in profound conceptual and managerial change, and some managers are more alert than others and see efficiency as an opportunity rather than a threat. There are now enough good examples of win-win approaches to this problem that I think the change is starting to snowball, and there are some extraordinary examples.

In Southern California Edison Company’s territory, for example, which is 50 thousand square miles with 9 million people, just the actions that they and the state took in ’83 (and which the utility could have done alone) saved 81/2% of their long run peak load, at about one third of a cent per kilowatt hour. In ’84 they did the same thing at about the same price. Generally, the costs are coming down, because as fast as we exhaust cheap opportunities to save power, the technologies and program designs are improving faster.

Robert: Even cheaper ones come up on the horizon?

Amory: That’s right. Costs are coming down all the time. We’ve already had about a sixfold improvement in the general cost effectiveness of saving electricity in the past five years, and if anything it’s accelerating. That means that five years ago, efficiency would compete with building and running a new power plant but could not consistently compete with just running it, whereas now it’ll beat hands down just running any kind of a power plant.

Robert: You’ve been doing a fair bit of consulting with utilities, and that’s been going on now for about how long?

Amory: Yes. Several years, intensively for the past year and a half or so.

Robert: I seem to remember that, back when you were first talking about soft energy paths, you were certainly not looked at as a favorite source for consulting by the utility industries.

Amory: In fact, many thought (and a few still think) we have horns and cloven hooves.

Robert: I’m curious as to what you see as some of the key aspects of that turnaround What has enabled you to go from being on the outside to having a voice that’s being listened to on the inside?

Amory: First, it helps to have been right. For the past decade or so I’ve had a good track record in foreseeing the strategic developments in the industry, and generally the industry has not. That’s starting to be noticed. That doesn’t mean, of course, I’ll continue to be right, but it means they have to take notice.

Second, although there are still too many people in the industry who know what I’m saying only through rather inaccurate trade press accounts, there’s an increasing number that have actually been directly exposed and realize that I’m trying to help them. My efforts to improve their bottom line are not always taken in the gracious spirit in which they’re meant, but increasingly they are, and I’m also learning a lot in this process about how to speak to utility managers’ concerns in their language.

Aikido politics is essential to this process. I might say to a V.P. for finance, "Isn’t it terrible about your cash flow now? How can we work together to help you get out of this?" And I’d mean it. Or I might have a discussion like one I had recently with an executive of a major utility which is most of the way through building one of those nuclear plants that it wishes it had never heard of. And this man, being very astute, said, "If we finish the plant, we’ve gotta pay for it. If we don’t finish it, we’ve gotta pay for it. But either way we’d be real dumb to pay for it by raising rates, because then we price ourselves out of the market. Everyone will get more efficient, our major customers will go co-generate, and we may end up making less money. So what we ought to do is figure out how to pay for the plant out of savings so that we can cut costs, lower the rates, become more competitive, and get our market back."

When I hear someone in a senior utility position saying that, I’m enormously encouraged at the speed and scope of adaptation. Here is an industry that never needed imagination, that has never needed entrepreneurship, that hired the bottom quarter of the engineering class for 50 years because that’s all they needed. Suddenly it’s become a place that half the business school graduates want to go to, because there’s a challenge. It’s actually the hottest management seat in all American industry.

And people three layers down within many utilities are coming out of the woodwork to save their companies. I’m meeting some very exciting people that I didn’t know were there. They probably didn’t know I was there either, and we are just having a ball. And that is largely because I’m honoring them as people and their positions and not trying to lay my position on them. I’m interested in process rather than outcome. I’m acutely aware that utility managers are having to redefine, not just their corporate missions, but their career goals and their peoples’ personal identities. It’s a very tough job, and I think they need to be approached with a good deal of sympathy. I sometimes imagine being in that position, having been a pillar of the community for 30 years, and suddenly I’m not popular anymore, and people think I’m a bad person. That would be very corrosive.

I think the industry does have enormous problems and opportunities, and many companies are already showing how you can come out in one piece, even some very small companies; maybe it’s easier for them in a way. There’s a little municipal utility in Osage, Iowa, population 3800, which has a good manager, Wes Bursall, who spent some years helping people weatherize their houses and doing basic load management, with three financial consequences for his little utility. First, he’s retired all his debt, and he had a bond burning party last January. Second, he’s had four rate cuts in 21/2 years in nominal terms, and his real rates have fallen by about half since ’76, not counting the fuel cost pass-throughs, which are out of his control. And, thirdly, he’s keeping in circulation locally in Osage upwards of $1.6 million a year which formerly left town. That’s something upwards of $1000 dollars per household per year, and when you go the full range of scale from Osage, Iowa to Southern California Edison and a lot in between, you start to realize the diversity of good ideas that are starting to be practiced. In fact, So. Cal. Ed. is even giving away three quadruple efficiency light bulbs to each of 100,000 low income households, not just for social reasons and PR, but because it’s cheaper than operating their power plants.

Utilities have a lot of leverage in many directions. They’re first of all a major capital flow. They invest about $35 billion a year building power plants that they don’t need, can’t afford, and won’t be able to pay for, and there are still many doing that. They’re spending about $1 per household per day in actually liquidating themselves. About a third of Americans are about to suffer from horrendous rate shock because their utilities have violated Miss Piggy’s fourth law, which is "Never try to eat more than you can lift." They need to be rescued, and I think electrical savings do indeed make it possible to pay off abandoned plants and lower the rates at the same time. Utilities can finance super efficient lights, motors and appliances. People will then need less electricity so the utilities can burn less coal and emit less sulfur, but mainly everyone will save pots of money because efficiency costs less than coal, and some of that saving can be used to clean up the dirty plants and the rest to lower the rates.

Also, nuclear power is dying of an incurable attack of market forces throughout the world’s market economies, and that offers an excellent economic and political opportunity to start unspreading nuclear bombs, which are currently being spread by nuclear technology, and it gives our country in particular a leadership opportunity to start treating non-nuclear means of acquiring both energy and security as first class rather than second class and thus set a proper example for other countries which don’t have our wealth, technical skills and fuel reserves. So there is a lot of direct leverage from addressing utility problems, and it goes in surprising directions, everything from local economic development and macro-economics to acid rain and nuclear proliferation.

The analogies and the power of the end use, least- cost analytic approach in all these areas seem to be more powerful all the time. What I’ve noticed is a wonderfully ironic role reversal over the past decade. A decade ago, folks like me were pointing out (and still are) all the things that markets can’t do or aren’t designed to do or don’t do very well, like being fair. If markets do something good for whales or wilderness or grandchildren, it’s purely coincidental. It’s not what they’re meant to do. They’re meant to be efficient in the short term.

Robert: For the current players.

Amory: Yep. And yet now we find ourselves, while still aware of these limitations, admiring the effectiveness of even the very imperfect markets we’ve got.

The bigger irony than that is the role reversal with the Cornucopians as we call them, the people who, a decade or more ago, were saying, "Don’t worry about environmental and resource problems. They will be solved by technology." In those days my colleagues and I were cast in the role of technological critics who said "Yeah, technology can do some powerful things, but there’s an awful lot it can’t do and shouldn’t be expected or relied on to do." Now we find ourselves, in energy and in an increasing number of other resource areas, but certainly not in all of them, cast in the role of the technological optimists who are saying, "Look at these incredibly powerful resource conserving technologies and all the problems they can solve. Energy no longer need be a constraint on global development. There are a lot of other constraints, but that’s not one of them, if we use what we know." It is the former Cornucopians who are now the technological pessimists, and they’re saying "But your technologies don’t work. The people won’t want them." It is one of the more delicious ironies.

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