Utilities invest in watt-saving projects through rebates to business
Chicago — Businesses in the United States stand to reap large economic and competitive benefits by using less electricity, as utilities offer - and help pay for - innovative energy efficiency programs. For the utilities, the aim of these programs is to put off construction of new, expensive power plants. Industrial customers in Wisconsin Power & Light Company's service area, for example, can have electricity-saving systems - primarily high-efficiency lighting - put into their plants and receive a rebate from the utility to cover part of the cost. For the utility, this investment is paid back (usually in three to five years) out of the company's energy savings.
Letting utilities help pay for the work encourages many energy-efficiency projects that otherwise might not be made, says Paul Koeppe, WP&L's director of electric marketing.
Typically, utilities make their money through returns on investments in new power plants. In this case, however, WP&L earns its authorized rate of return (11.75 percent after taxes) by investing in industrial efficiency programs.
The program, called ``Bright Ideas for Business,'' began last year, and expenditures are now approaching $1 million. Because most of the paybacks are expected to come in three to five years, these spending levels are likely to result in the installation of nearly $83 million in industrial electricity conservation measures through 1998.
The money for these energy-saving measures comes from the utility's shareholders, who appear to support the approach as long as they receive the rate of return authorized by the state Public Service Commission.
``This is characterized as a win-win situation,'' says Nathan Partain, a financial analyst who monitors WP&L at Duff & Phelps, a Chicago brokerage. As the industrial company becomes more efficient, he notes, it also becomes more competitive and stands to increase profits. Similarly, WP&L benefits by keeping companies in its service territory that might otherwise be forced to close down. Later, as these companies show more profits, they may actually increase their electricity use.
Koeppe calculates that the $83 million in efficiency investments over the next decade will save WP&L 110 megawatts of capacity. It costs the utility $750 to purchase a kilowatt through increased efficiency, while a kilowatt from a new coal-fired power plant costs about $1,100, he notes. In the short term, this investment will help stabilize the rates all customers pay for electricity, he adds.
Northeast Utilities Sevices Company in Hartford, Conn., has a program to subsidize commercial facilities such as schools and office buildings that install energy efficiency measures. The subsidy is aimed at giving full paybacks to commercial conservation investments in three years.
A school that installs $50,000 in new lighting, for example, might see energy savings of $10,000 a year, indicating a five-year payback. If the school needs to recover its investment in three years, it could qualify for a $20,000 grant from Connecticut Light & Power or Western Massachusetts Electric, two Northeast Utilities companies that have adopted an ``Energy Action Program.''
The Northeast Utilities program is designed to reduce energy use by encouraging approved conservation projects that have long-term paybacks, says Jan Sayko, Northeast's senior administrator for conservation programs. The longer the payback period, the more money the commercial customer can expect to receive from the utility, Mr. Sayko said.
Over the past decade, these industrial efficiencies have helped reduce electricity intensity by slightly more than 9 percent, says Oliver Yu of the Electric Power Research Institute. Intensity is the ratio of electricity use to industrial output.
Some of the savings from energy conservation tend to be offset by the use of new ``electrotechnologies'' that consume more electricity, Dr. Yu says. Without that, he points out, electricity intensity would have dropped by nearly twice as much over the decade.
If the goal of these programs is to increase productivity and decrease overall energy use, rather than simply reduce electricity consumption, then ``we have done quite admirably in the US,'' Yu says.
But while the US is still adopting new electrotechnologies to improve production, notes energy consultant Amory Lovins, the Japanese are well into refining these technologies for even greater energy returns.
How fast these processes are developed in each country ``will largely determine our competitiveness in terms of how many dollars go into each product we produce,'' Mr. Lovins says.