Thank you Meredith for this clear explanation. as someone who lives in the PJM area and has seen my electricity prices rise consistently, it is always good to hear there is some pushback. However, I think you summed up many of the concerns that people have with climate focused policies with the following lines:
"Capacity payments for efficiency can be easy to game. I doubt that capacity payments for efficiency are effective at saving energy."
As always, I'm smarter for reading your analysis, Merideth.
One related point that kept occurring to me as I read this is that enhanced energy efficiency doesn't necessarily lead to lower energy use, and often just the opposite. The 70 year old home I live in has a far more efficient range, furnace & refrigerator than it did 7 decades ago, and now has LED bulbs everywhere.
#EarthSaved!!!
Well, no. Now there's four televisions instead of one, three refrigerators, a microwave, and an incalcuable number of electronic devices that didn't exit even thirty years ago (cell phones, computers, the tablet I'm typing on, etc... ) that must be powered up.
Our life is far richer in material terms than was the world of the original owners of this house, but not because we're saving so much money on gas & electric. We may even be spending more.
Multiply my results by 350 million for best estimates of power savings (or likely not) from energy efficiency in America.
The same for subsidizing low cost heat pumps for low income Vermonters. With their heat pump also comes air conditioning, before which some oscillating fans might have sufficed. Also true for wealthier folks who install heat pumps for AC but continue to use their existing fossil heating systems for most of the winter because the heat pump does not provide enough heat (contrary to the sale pitch) when temperatures drop much below freezing. Overall energy consumption increases in both instances.
Electrification of everything is a trip down a cul-de-sac of energy poverty, or as Merle Haggard put it, "Are we rollin' down hill like a snowball headed for hell? Are the good times really over for good?".
Your comment about those Vermonters who now have access to air conditioning was very astute. Let me put in a good word for air source heat pumps though. We live in Minneapolis and have an ASHP. We could run it at -10F but it would be very inefficient so we have it turn off when it gets blow +15F. Between +15F and +30F the gas furnace and ASHP work together, so I guess you could call it a hybrid. Above +30F the ASHP does most of the heating. We’ve been pleased with ASHP/gas furnace system.
Good analysis about why greater energy efficiency isn’t leading to lower energy usage. However, assuming that you are not living in an unusually large home, it may be that your home’s energy usage is less than what it was 70 years ago. About 70 years ago the average refrigerator used probably 1700-1800 kWh a year. Today, many full-sized refrigerators use 650-700 kWH a year. Furnace efficiency has dramatically improved. It wouldn’t surprise me if your windows have been replaced and your insulation has been upgraded. When we upgraded the insulation in our 80 year old house, we found that the old insulation was newspaper! So, I agree that the expected decrease in energy usage from improved energy efficiency in your home has been negated by all the extra appliances and gadgets you own. But you’re probably better off than if you had bought a McMansion.
Thank you. This was illuminating (pun intended). I used to think "Catch-22" was satire. But I am coming to realize that Milo Minderbinder, who can buy eggs in Malta for seven cents a piece and sell them for five cents a piece and make a profit is actually metaphor for how many of our government arrangements with the private sector actually work. The trick is that some third party (the ratepayers/taxpayers) are the third party actually paying the costs. Getting paid for electricity not used is almost infinite in its potential , and having no proof of the efficiency added only adds to that potential grift. And if you like that idea, how about buying some carbon credits for oil left in the ground in old oil wells that are no longer profitable to operate (and would have been plugged anyway)? This is actually happening. Why sell bridges? We can't claim we are protecting a "commons" when we can't even define either the damage or the benefit to the "commons." This is simply Milo Minderbinder claiming "everyone has a share."
At least FERC applied common sense, but only by a vote of 2 to 1. The secret sauce of woke, DEI, ESG, energy transition, etc has been to declare new, undefined meanings for words like "capacity".
Well done, Meredith. This nonsense has been unsuccessfully going on since the 1970s. Like hydrogen it has enjoyed a resurgence since the people who also believe that men can give birth took over. None of these are possible and we should know that after 50 years of failure.
Yes, demand side management is different because, without real time pricing you don't get the actual benefit of reducing the amount of electricity you use in peak times when real time prices are high. But it is easily gamed. Agreeing to turn off your air conditioners when asked doesn't help if you increase some other use of electricity at the same time. And if you have to reduce your total use of electricity in order to get the demand side management payments, what is the baseline use of electricity used to determine if you actually reduced your use? A paper mill gamed the system by turning off a gas-fired generator when its baseline use was determined, and then turning it back on to claim the payments. I also don't like giving capacity payments for demand side management, since operators are reluctant to call for their use except in emergencies, so it is like getting paid for doing nothing.
That is the huge question for both demand response and efficiency: what is the baseline? It is indeed too easy to game. Money for nothing (but not chicks for free).
Thanks Meredith. Although we don't agree on everything, I am wholeheartedly on your side on this one. Reducing your electric bill by reducing your use of energy should be incentive enough to install more efficient devices, and increase the insulation in your house, office building, factory, or other building. If a lower electric bill is not enough of an incentive, that means the benefit of the efficiency you added is not worth the cost. I think that the idea of paying for efficiency was the inevitable follow-up to the equally wrong approach of paying for demand side management.
I think we agree here! Which is not the only place that we agree. :-)
I am not so sure about whether paying for demand side management is always a bad thing. For example, I did a short magazine piece about Dartmouth College. (Maybe 15 years ago.) Dartmouth has air conditioners and also gas-fired chillers. They were getting a discount on their electric bills by helping the grid operator. They promised to turn off some of the AC and run their chillers when the operator informed them that the grid was stressed. At the time, this seemed to be a reasonable thing. It was clear what would Dartmouth would do, when they would do it, and how much discount they would get.
In other words, unlike energy efficiency, there was clear accountability about the chillers.
Thank you very much, Grandma! Another cookie for us to enjoy.
Lately, there have been several bloggers comment about the need for regulatory reform, particularly NEPA. FERC's actions here point to a broader need. In commenting on those other blogs, I've pointed out the words of the late Edward McGaffigan, a long-time NRC commissioner, who said regulations should "provide reasonable assurance of adequate protection, not absolute assurance of perfect protection.”
Efficiency payments are not a measure of protection or assurance, but in some sense they are an effort to account for all aspects of power, in essence a measure striving for perfection. PJMs and FERC action indicate a swing away from perfection and back towards reasonable.
All of the players in the electricity game need to re-examine and purge their fluff and stuff. Efficiency isn't necessarily measured in amps or volts; it can be measured in terms of time saved, administrative bullshit costs avoided, and general rate of growth.
My two cents, adjusted for inflation.
Thanks again for keeping us informed and guided. It is greatly appreciated.
If we relied solely on reliable, dispatchable generation that was the lowest bidder there would be no need for capacity payments other than for a small amount of spinning reserves to backup the unexpected loss of an active generator. It is only the presence of highly subsidized unreliables that can bid below cost (even below zero) that creates the need for dispatchable generating sources to promise capacity for those often times when the wind is not blowing, the sun is not shining, the batteries are drained, and we are in a drought.
Capacity payments for efficiency is an absurdity. Efficiency, as you say, should be its own reward. Efficiency, and the resulting conservation, is also the most cost effective way to reduce carbon, if that is your goal. Nothing else provides a positive return on the "cost per ton of carbon removed" investment.
We should pay for performance, not for illusory promises of "saving the planet". It is maddening to see subsidy seeking billionaires raping ratepayers while their 10,000 hp mega-yachts lie at anchor in secluded tropical island coves, metaphorically speaking but you get the idea.
I suppose capacity systems should be tech neutral and allow EE to bid in? But it's probably better to do away with them in favor of something like the ORDC. There is some discussion of tech neutrality in this conversation about Kleit and Aagaard's book: https://www.youtube.com/watch?v=szCxpFjYb-4&t=1s Most of the conversation revolves around if capacity systems should serve environmental goals too (bad idea, imo, and seemed to be the consensus of the panel).
...and then, there is Jevons Paradox, which frequently offsets the expected consumption reductions from efficiency improvements. (https://quickonomics.com/terms/jevons-paradox/)
Thank you Meredith for this clear explanation. as someone who lives in the PJM area and has seen my electricity prices rise consistently, it is always good to hear there is some pushback. However, I think you summed up many of the concerns that people have with climate focused policies with the following lines:
"Capacity payments for efficiency can be easy to game. I doubt that capacity payments for efficiency are effective at saving energy."
As always, I'm smarter for reading your analysis, Merideth.
One related point that kept occurring to me as I read this is that enhanced energy efficiency doesn't necessarily lead to lower energy use, and often just the opposite. The 70 year old home I live in has a far more efficient range, furnace & refrigerator than it did 7 decades ago, and now has LED bulbs everywhere.
#EarthSaved!!!
Well, no. Now there's four televisions instead of one, three refrigerators, a microwave, and an incalcuable number of electronic devices that didn't exit even thirty years ago (cell phones, computers, the tablet I'm typing on, etc... ) that must be powered up.
Our life is far richer in material terms than was the world of the original owners of this house, but not because we're saving so much money on gas & electric. We may even be spending more.
Multiply my results by 350 million for best estimates of power savings (or likely not) from energy efficiency in America.
An excellent example of Jevon's paradox!
The same for subsidizing low cost heat pumps for low income Vermonters. With their heat pump also comes air conditioning, before which some oscillating fans might have sufficed. Also true for wealthier folks who install heat pumps for AC but continue to use their existing fossil heating systems for most of the winter because the heat pump does not provide enough heat (contrary to the sale pitch) when temperatures drop much below freezing. Overall energy consumption increases in both instances.
Electrification of everything is a trip down a cul-de-sac of energy poverty, or as Merle Haggard put it, "Are we rollin' down hill like a snowball headed for hell? Are the good times really over for good?".
Your comment about those Vermonters who now have access to air conditioning was very astute. Let me put in a good word for air source heat pumps though. We live in Minneapolis and have an ASHP. We could run it at -10F but it would be very inefficient so we have it turn off when it gets blow +15F. Between +15F and +30F the gas furnace and ASHP work together, so I guess you could call it a hybrid. Above +30F the ASHP does most of the heating. We’ve been pleased with ASHP/gas furnace system.
Good analysis about why greater energy efficiency isn’t leading to lower energy usage. However, assuming that you are not living in an unusually large home, it may be that your home’s energy usage is less than what it was 70 years ago. About 70 years ago the average refrigerator used probably 1700-1800 kWh a year. Today, many full-sized refrigerators use 650-700 kWH a year. Furnace efficiency has dramatically improved. It wouldn’t surprise me if your windows have been replaced and your insulation has been upgraded. When we upgraded the insulation in our 80 year old house, we found that the old insulation was newspaper! So, I agree that the expected decrease in energy usage from improved energy efficiency in your home has been negated by all the extra appliances and gadgets you own. But you’re probably better off than if you had bought a McMansion.
Thank you. This was illuminating (pun intended). I used to think "Catch-22" was satire. But I am coming to realize that Milo Minderbinder, who can buy eggs in Malta for seven cents a piece and sell them for five cents a piece and make a profit is actually metaphor for how many of our government arrangements with the private sector actually work. The trick is that some third party (the ratepayers/taxpayers) are the third party actually paying the costs. Getting paid for electricity not used is almost infinite in its potential , and having no proof of the efficiency added only adds to that potential grift. And if you like that idea, how about buying some carbon credits for oil left in the ground in old oil wells that are no longer profitable to operate (and would have been plugged anyway)? This is actually happening. Why sell bridges? We can't claim we are protecting a "commons" when we can't even define either the damage or the benefit to the "commons." This is simply Milo Minderbinder claiming "everyone has a share."
At least FERC applied common sense, but only by a vote of 2 to 1. The secret sauce of woke, DEI, ESG, energy transition, etc has been to declare new, undefined meanings for words like "capacity".
Well done, Meredith. This nonsense has been unsuccessfully going on since the 1970s. Like hydrogen it has enjoyed a resurgence since the people who also believe that men can give birth took over. None of these are possible and we should know that after 50 years of failure.
Yes, demand side management is different because, without real time pricing you don't get the actual benefit of reducing the amount of electricity you use in peak times when real time prices are high. But it is easily gamed. Agreeing to turn off your air conditioners when asked doesn't help if you increase some other use of electricity at the same time. And if you have to reduce your total use of electricity in order to get the demand side management payments, what is the baseline use of electricity used to determine if you actually reduced your use? A paper mill gamed the system by turning off a gas-fired generator when its baseline use was determined, and then turning it back on to claim the payments. I also don't like giving capacity payments for demand side management, since operators are reluctant to call for their use except in emergencies, so it is like getting paid for doing nothing.
That is the huge question for both demand response and efficiency: what is the baseline? It is indeed too easy to game. Money for nothing (but not chicks for free).
Thanks Meredith. Although we don't agree on everything, I am wholeheartedly on your side on this one. Reducing your electric bill by reducing your use of energy should be incentive enough to install more efficient devices, and increase the insulation in your house, office building, factory, or other building. If a lower electric bill is not enough of an incentive, that means the benefit of the efficiency you added is not worth the cost. I think that the idea of paying for efficiency was the inevitable follow-up to the equally wrong approach of paying for demand side management.
I think we agree here! Which is not the only place that we agree. :-)
I am not so sure about whether paying for demand side management is always a bad thing. For example, I did a short magazine piece about Dartmouth College. (Maybe 15 years ago.) Dartmouth has air conditioners and also gas-fired chillers. They were getting a discount on their electric bills by helping the grid operator. They promised to turn off some of the AC and run their chillers when the operator informed them that the grid was stressed. At the time, this seemed to be a reasonable thing. It was clear what would Dartmouth would do, when they would do it, and how much discount they would get.
In other words, unlike energy efficiency, there was clear accountability about the chillers.
Thank you very much, Grandma! Another cookie for us to enjoy.
Lately, there have been several bloggers comment about the need for regulatory reform, particularly NEPA. FERC's actions here point to a broader need. In commenting on those other blogs, I've pointed out the words of the late Edward McGaffigan, a long-time NRC commissioner, who said regulations should "provide reasonable assurance of adequate protection, not absolute assurance of perfect protection.”
Efficiency payments are not a measure of protection or assurance, but in some sense they are an effort to account for all aspects of power, in essence a measure striving for perfection. PJMs and FERC action indicate a swing away from perfection and back towards reasonable.
All of the players in the electricity game need to re-examine and purge their fluff and stuff. Efficiency isn't necessarily measured in amps or volts; it can be measured in terms of time saved, administrative bullshit costs avoided, and general rate of growth.
My two cents, adjusted for inflation.
Thanks again for keeping us informed and guided. It is greatly appreciated.
As you say, a small amount in the scheme of things, but a significant signal that PJM has started digging in the sanity mine!
If we relied solely on reliable, dispatchable generation that was the lowest bidder there would be no need for capacity payments other than for a small amount of spinning reserves to backup the unexpected loss of an active generator. It is only the presence of highly subsidized unreliables that can bid below cost (even below zero) that creates the need for dispatchable generating sources to promise capacity for those often times when the wind is not blowing, the sun is not shining, the batteries are drained, and we are in a drought.
Capacity payments for efficiency is an absurdity. Efficiency, as you say, should be its own reward. Efficiency, and the resulting conservation, is also the most cost effective way to reduce carbon, if that is your goal. Nothing else provides a positive return on the "cost per ton of carbon removed" investment.
We should pay for performance, not for illusory promises of "saving the planet". It is maddening to see subsidy seeking billionaires raping ratepayers while their 10,000 hp mega-yachts lie at anchor in secluded tropical island coves, metaphorically speaking but you get the idea.
I suppose capacity systems should be tech neutral and allow EE to bid in? But it's probably better to do away with them in favor of something like the ORDC. There is some discussion of tech neutrality in this conversation about Kleit and Aagaard's book: https://www.youtube.com/watch?v=szCxpFjYb-4&t=1s Most of the conversation revolves around if capacity systems should serve environmental goals too (bad idea, imo, and seemed to be the consensus of the panel).
FWIW, there are improving energy efficiency validation methods: https://www.canarymedia.com/articles/energy-efficiency/california-sees-success-tying-energy-efficiency-rebates-to-real-results
I summarized here: https://poweringspaceshipearth.substack.com/p/just-pay-for-performance
Your summary is excellent. Thank you!
Thank you Meredith,we can finally put this to bed. It was pretty frustrating all the way around.
I prefer the poetry in "Alice". At least that was entertaining gibberish. As always thanks for peeling back the layers of the onion!
Well done, Meredith! Follow the money!