Thursday, 31 July 2014

Evaluating energy efficiency programs

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Energy efficiency and government programs run by bureaucracies. Mutually exclusive concepts? It would seem so. 

Recent times have been tough for those interested in government supported action in energy efficiency. The large and successful Energy Efficiency Opportunities (EEO) program was finally euthanised in the recent federal budget and the Victorian government have dropped their ‘white certificate scheme’, the VEET, after a review found the scheme imposed more costs than savings on Victorian taxpayers.

Energy efficiency is a tricky problem for government to fix, with program success linked to the amount of energy saving targets. There is a fixed cost in any energy efficiency project, the cost of analysis is largely fixed, and for the project to be worthwhile this fixed cost must be recouped through savings. This is easier for larger energy users, where a 0.5% saving might represent $100,000, compared to a household where a similar effort might save $50 a year. I have been in a meeting with a big user where we told them their carbon tax liability would increase their costs by $20m a year, and they replied “that is below our threshold of concern”.

Knowing this, governments have come at the problem from two different directions; from the top-down, teaching the big energy users to manage their energy better, and from the bottom-up, making it hard for consumers to buy inefficient appliances. The VEET and similar schemes in the ACT and NSW attempt a third way, essentially creating a market to trade saved energy. It is a complex and bureaucratic solution and I expect it will be largely unsuccessful because it doesn’t engage with the core problem.

Energy efficiency in economic language is considered an information barrier problem. There are projects out there that, if implemented, would recoup the initial investment in an attractive period, but they are not pursued because we don’t know how what they are or how to go about implementing and evaluating them.

The EEO program worked on this barrier with a great deal of success. It taught corporations the fundamentals of managing energy use, with benchmarks for leadership, record keeping, data analysis and decision making. It led the proverbial corporate horse to water, some of them drank freely and others denied that the water even existed. Statistics gathered by the program suggest that it still has access to energy saving opportunities, but these are blocked by corporations still unwilling to put in the time and effort. Those who are going to succeed probably already have, those who are not might be beyond help. For either case the program ended on the 30th of June 2014.

The bottom-up methods use regulation to sidestep the information barrier. Customers are unable to compare the energy use of appliances at the time of purchase, so the appliance manufacturers are compelled to test their energy use and either meet benchmarks or report their performance. The benchmarking is covered by the Minimum Energy Performance Standards program, energy use reporting is captured by the Energy Rating labels that have been used for more than 20 years. This information is intended to give consumers a way to make informed decisions, and it is successful to that end. Other barriers remain, like customers buying purely on price and not considering operating costs, or where their decision is limited by other criteria, like matching the colour of other appliances.

The white certificate schemes represent a third way, and attempts to solve a different problem. One of the barriers identified in business surveys was that the savings from an energy efficiency project are in the future. Money is spent, then recouped over time. Raising the initial capital was often a barrier. The white certificates then become a way of receiving those savings before they occur. It is conceptually similar to the Renewable Energy Target, where energy retailers are compelled to purchase enough units of renewable energy to cover a percentage of all the electricity they sell each period. White certificates create a market for future-saved-energy, lowering the barrier to implementing the project in the first place.

It is an astonishingly bureaucratic solution and mostly shifts the risk of energy efficiency from consumers to retailers, without creating any lasting impact on energy use. Because consumers, households in particular, don’t know how to calculate the energy saved by a project, there are factors already prepared for common opportunities like changing a lightbulb or draught sealing doors. Because the risk is placed on the retailers, they generally do the work as well. Many people many will have experienced these visits by a energy retailer - a van rolls up, you get some lightbulbs changed, a draught sealer across the bottom of the front door, you sign some paperwork and the van goes again. Your house has just implemented energy efficiency projects and the retailer has generated their required certificates. The householder generally learns as much about energy efficiency as a trip to the dentist teaches us about dentistry.

The root cause, which which EEO was established to address, is not touched. Your capacity to make informed decisions that improve your energy use is not improved even slightly. This will not generate lasting savings or a ‘culture of energy efficiency’ as is the goal of EEO. Mostly it generates some positive public relations for the retailer and easily quantifiable metrics for government to assess their performance against.

And this is the root problem of energy efficiency and government. Success or failure is determined by performance against easily determined metrics. “We made 100,000 pieces of paper in the last financial year at a cost of $1 million dollars therefore the program was a success”.

But we know from experience with big energy users that this sort of prescriptive problem solving doesn’t work. Lasting change comes from teaching people how to make their own decisions and giving them the confidence to do so. The remaining challenge in energy efficiency is teaching a lot of people how to make their own choices, and this is hard and deeply unfashionable for government to engage with. How do you quantify Household Understanding of Energy Use? What metric fully captures a household that has learnt to open and close windows and curtains strategically?

This is not what is shown in the review of the VEET, but reading between the lines you can see it. The program didn’t deliver the savings anticipated for the amount spent and was likely to cost more the longer the program ran. Changing lightbulbs teaches us nothing, but generates easily understood metrics. For government of any stripe to have a lasting impact on the remaining energy efficiency challenges will require a different way of designing and assessing programs to what we have tried in the past. And given that the root cause is that we don’t understand energy, I can’t see that happening any time soon.



Evan Beaver

Evan Beaver is an ex-public servant, now a consulting engineer.

Evan provides pro bono advice to SolarShare, a community solar energy project in the ACT.

Follow him on twitter: @evcricket