Energy efficiency? Quite secondary. Generation first!

“Declare the main effort,” goes a common exhortation to CEOs managing dramatic change. “Focus on only a few critical issues,” else you may fail, distracted. In the realm of public policy, many divergent issues with respective stakeholders clamor for attention. There is no CEO equivalent with unilateral command. Establishing an agenda itself – let alone a prioritized one – is difficult. I believe this situation obtains in energy policy.

The stakes are high: What is the main effort? Should we focus on a) climate change, b) energy efficiency, c) distributed generation – solar, wind, batteries, d) sustainability, e) carbon capture and storage, f) microgrids, g) electric transport, h) next generation fuels…. and more? Can we create a coherent mosaic out of these topics, and identify the core themes? Thus far, our collective answer has been: All of the above. In other words, we do not have a parsimonious list of critical, weighted criteria for focus. Have we abdicated responsibility?

Yet it is possible to parse among the themes. Since carbon emissions are the principal source of climate change, and the greatest threat to the earth’s well-being, we should use pre- and post-emissions activities, as the touchstone or the main discrimination criterion. Pre-emission activities deserve the highest attention – coal burning for electricity, petroleum products for transport.

In this perspective, energy efficiency, which is post electricity generation, may be regarded as a secondary activity.

Energy Efficiency – Good, but Relatively Unimportant

People speak with religious zeal about the importance of energy efficiency (EE). The U.S. Department of Energy (DoE) website notes: “Energy efficiency is one of the easiest and most cost effective ways to combat climate change, clean the air we breathe, improve the competitiveness of our businesses and reduce energy costs for consumers.” But, is it? The Indian Power Ministry site notes: “The mission of the Bureau of Energy Efficiency is to assist in developing policies and strategies with a thrust on self-regulation and market principles … with the primary objective of reducing energy intensity of the Indian economy.” Again, is energy efficiency the best way to reduce energy intensity of an economy?

When I view where energy efficiency belongs, that is, locate it in the value chain starting from fossil fuels to electricity in the home, office, or factory, I see it making a moderate contribution toward saving money for a customer on his electricity bill. In the overall scheme of things, energy efficiency, at the customer location, is the last step in an elaborate and long process. Why should we not optimize and seek efficiency for the entire value chain, instead of only the last part? When we consider emissions in such a total system view, the real culprit stands out: Electricity generation.

After electricity generation and transport, together contributing ~ 80% of all emissions, energy efficiency is the third and relatively minor component. As the U.S. Environmental Protection Agency notes, “Coal combustion … accounts for about 77 percent of CO2 emissions from the [electricity] sector, it represents about 39 percent of the electricity generated in the United States.” In the same report, “Commercial and Residential” sector represents only 12 percent of emissions. In India, coal represents greater than 60 percent of installed electricity generation capacity. Should we conclude that the debate and advocacy surrounding energy efficiency refers to this small fraction?

Energy Efficiency as Conspiracy

Even though energy efficiency associated with both appliances – fans, refrigerators, light bulbs, TVs – and customer behavior enjoys an enormous mindshare, its role from an emissions perspective, appears as tinkering at the margins, compared to the negative contribution from coal-based generation.

Turning off the lights when leaving a room, setting the thermostat to one level higher than desired while cooling, or one degree lower while heating, or using LED bulbs, … represents a small fraction of efficiency gains in the overall waste built into electricity generation, transmission, distribution, and use.

In running a thundering, smoke belching coal-based thermal power plant at its maximum capacity, electricity plants damage the environment to their maximum extent. How to shut down such plants should be public policy priority number one. In emphasizing energy efficiency on customer premises instead, is there a tacit conspiracy to divert focus from what we ought to emphasize?

Electricity’s Utility, Measured Wrongly

Walt Patterson has eloquently written about our archaic way of measuring electricity, as consumption in kWh. But is consumption by hour the best way to measure and bill for electricity use? Another way to value electricity might be for the function it performs. Does electricity do what I want it to do? Illuminate, heat – air or food; cool or refrigerate – air or food; and permit me movement as transport, or delivers utility through rotation – mixers, grinders, washing machines and dryers, shaving machines, etc. When electricity delivers such functions, we pay for it. Then the question: How much?

Consider: Coffee grinder use for three minutes? $0.05. Hair dryer for 10 minutes? $0.75. Refrigeration for a month? $7. No kWh need be measured and charged for. This is illustrative; we may go flat rate based on utility delivered, too. For instance, all lighting in a home for $20/month, all refrigeration for $30/month. Having such bundle-based pricing – as in “all you can eat”, or flat rate – eliminates the hourly consumption view of electricity. Since this already happens in telecom, why not with electricity?

In voice telecom, and unlike in the past, minutes of use matter less as individual minutes and more as buckets of minutes. We still track call origination and call ending times, but that is almost vestigial, for account keeping. With end-to-end Skype-like services, only minute bundles matter. With smartphones, we have GB buckets. The bucket view may be applied to electricity – we may purchase illumination, heating, and cooling for a flat monthly charge.

When we do, the onus of efficiency and optimization shifts to where it ought to in the first place – on the supply side, on the generation side, on the transmission side. The supplier has incentive to improve margins through efficiency, independent of end user billing. Lighting and home electronics use can be on a parallel DC network in the home, offering “all you can eat” service, and powered by solar plus battery systems, independent of the grid.

Consumer Blame

In emphasizing consumption in kWh, the blame for emissions shifts to the consumer.  The end user is made to feel guilty for lights not turned off, or the air-conditioner kept running in an empty room, and so forth. This is unfair, since end user efficiency efforts amount to a small fraction of the total emissions, and also unnecessary, for we have technological fixes for these problems – motion sensing-based illumination or air-conditioning; LED/LCD TVs as compared to CRT monitors; compact fluorescent (CFL) or LED bulbs instead of incandescent bulbs; white painted roofs; and ever more efficient fans and clothes dryers.

In electricity-constrained environments, however, such as in Africa and India, the focus on end user conservation and efficiency makes sense, since the benefits of energy efficiency are more than money savings. They also permit us equitable distribution of the available electricity. The saved power may be supplied to other customers or for different uses. A given amount of emissions is thus spread thinly, over a larger number of users. For the rest of the world with 100 percent electrification, and relatively stable and even falling demand – except during times of peak load – the efficiency of consequence is that of generation.

Given the importance of eliminating traditional coal-based generation, above all else, what should we do? Deploy solar panels everywhere – distributed generation. Bit by bit, as demand drops, coal-based power plants will begin to shut down. The efficiency gains when that happens likely surpass any gains from customer premises based energy efficiency. Encouraging distributed generation, including solar, wind, and batteries, is precisely what pioneering initiatives such as NY State’s Reforming the Energy Vision (REV) seek to do.

Already, an increasingly respectable yet meaningless term “sustainability” diverts us from what is actionable. Why belabor “energy efficiency” of individual behaviors, or at component and sub-system levels – a distraction – when “generation” in the overall system is the principal source of emissions, the main “contributor” to climate change?

Mahesh P. Bhave is visiting professor, strategy, at IIM Kozhikode. In collaboration with Renewable Energy World, Bhave developed and teaches a comprehensive, data-driven business course on microgrid project development for professionals. Click Here to learn more about the course.

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