The Electricity Journal 33 (2020) 106827
Total Page：16
File Type：pdf, Size：1020Kb
The Electricity Journal 33 (2020) 106827 Contents lists available at ScienceDirect The Electricity Journal journal homepage: www.elsevier.com/locate/tej The coming transformation of the electricity sector: A conversation with T Amory Lovins Ahmad Faruqui The Brattle Group, San Francisco, CA United States ABSTRACT The US electricity sector is undergoing a major transformation toward clean energy. In this article, I discuss several key enabling steps with Amory Lovins, whose 1976 article about the “soft energy path” was instrumental in changing public policy not only in the US but throughout the globe. I first came to know of Amory Lovins when I was a graduate student Senate hearing record. at the University of California at Davis interning at the California Once the supply-side industries’ initial pique abated somewhat, and Energy Commission. His article on “Energy Strategy: The Road Not their surrogates proved unable to rebut the analysis, many thoughtful Taken?” had appeared in Foreign Affairs. It caught my eye because the industry leaders started to realize I’d suggested how they could make proposition it put forward seemed to reverse the conventional way of more money with less risk. As the dust settled about a year into the fray, thinking about energy strategy. Sometime in the early 1980s, Amory Arco’s Chief Economist, Dr. David Sternlight, reset the tone by writing visited EPRI where I was working and we had a lively discussion about that he for one didn’t care if I were only half right—that’d be better the future of electric utilities. In the decades that followed, I have fol- performance than he’d seen from the rest of them. Within the next few lowed his writings carefully and benefited from the occasional con- years, many initially critical organizations were engaging me to explore ference. We don’t always agree on everything we discuss, of course, but how they could capture the advantages. Competition ensued.2 I always learn something new from our conversation. Now only the most irretrievably unreflective firms don’t pay at- I recently caught up with him in a discussion about electrification. I tention to the end-use / least-cost approach of asking first, “What do we decided to put a few questions to him and this article evolved out of want this energy for? How much energy, of what kind or quality, at those discussions. In the article that follows, the questions are mine and what scale, from what source, will do that task in the cheapest way?” the answers are exclusively his. They do not necessarily represent my Novel concepts like comparing or competing all demand- and supply- viewpoint. side resources, and rewarding utilities for cutting customers’ bills rather 1. In 1976, you wrote a groundbreaking article on energy than for selling them more energy, began to appeal to regulators, strategy, “Energy Strategy: The Road Not Taken?”1 You made the spurred by allies like Ralph Cavanagh and Art Rosenfeld. States and case for pursuing a soft path in energy policy. You were met with utilities that adopted those reforms did better. The word began to much criticism, some of which bordered on ridicule. Yet you held spread. your ground. How did that sea change in thinking come about 2. If I recall correctly, decades ago you took on much of the among regulators and utilities? economics profession by opposing the RIM test for evaluating Time, place, message, and tenacity. Then as now, it was obvious to energy efficiency programs. Many economists considered it the most dispassionate observers that business-as-usual didn’t work—too No-Losers test. You called it the Hardly-Any-Winners test. That costly, slow, insecure, and disagreeable—but nobody had yet articu- was a sophisticated repositioning of the debate. Some others fol- lated a coherent alternative. Publishing a fundamentally new approach lowed your coinage and called the RIM test the No Winners Test. at that moment in an influential place (Foreign Affairs, thanks to Editor Today, only one state uses the RIM test. How did that change in Bill Bundy and his wife Mary) was like dropping a seed crystal into a thinking come about? supersaturated solution: suddenly there’s a crackling noise and the I contributed rather briefly to that campaign, which many others substance transforms. Then followed a year of three dozen critiques and ran to ground at the state level. Regulators, many of whom I’d helped responses, all assembled by Ray Watts into a four-inch-thick fine-print teach for a decade at Camp NARUC, realized that the RIM test E-mail address: [email protected]. 1 https://www.foreignaffairs.com/articles/united-states/1976-10-01/energy-strategy-road-not-taken. 2 “Soft Energy Paths: Lessons of the First 40 Years,” 19 Aug 2016, https://medium.com/solutions-journal-summer-2016/soft-energy-paths-f044e7b65443 https://doi.org/10.1016/j.tej.2020.106827 1040-6190/ © 2020 Elsevier Inc. All rights reserved. A. Faruqui The Electricity Journal 33 (2020) 106827 guaranteed misallocation of capital; it would raise everyone’s rates and energy efficiency by giving utilities a share of the societal benefits bills equitably but needlessly. I’m delighted that almost all created by their programs? Commissions now agree. Shared savings are a logical and powerful complement to decou- A few months ago, when I gave a talk for Florida regulators and pling profits from volumetric sales. Letting providers keep a small utilities, it seemed this concept was starting to gain traction there. I said fraction (classically about a tenth) of what their efficiency investments if I faced the same perverse incentives that the utility executive on the save their customers gets their attention. I remember around 1992, PG& panel did, I might find demand-side opportunities as small as he did—to E invested $192 million in efficiency (recovered from all customers over the deep competitive disadvantage of my company and the state’s many years) and thus saved customers several times that much. The economy. Folks seemed to be listening carefully. I hope regulators CPUC allocated those savings 11% to the utility and 89% to the cus- whose states have benefitted from replacing RIM with societal metrics tomers. The 11% reward was over $40 million that year—the utility’s will offer their Florida colleagues some friendly advice. second-big source of profit, earned at no cost or risk to the shareholders. 3. As we look at the future, what are the most effective levers Canadian civil engineer John C. Fox (later Chairman of RMI) was then for promoting energy efficiency? Utility programs, codes and leading PG&E’s demand-side efforts. He reported that if you produced standards, or market forces? that kind of financial performance, the CEO would call you every week All of the above, and more, activated by smart regulation wherever to ask, “Is there anything you need?,” and all the smartest people in the possible. Start with aligning utilities’ and customers’ interests, so company would want to come work on efficiency to advance their ca- whatever delivers the cheapest and best end-use services to customers is reer prospects. Such alignment of provider interests with customer in- the most profitable investment for the provider. Get and stay at the terests profoundly reshapes culture and behavior. forefront of codes and standards, but recognize they often lag state-of- Decoupling plus shared savings, or its functional equivalent in jur- the-shelf and get watered down by influential laggards, so reward cost- isdictions not using traditional regulation,is one of the two most im- effective overperformance and continuous improvement. Don’t assume portant policy innovations needed for the energy transition. (The other that saving more will cost more: integrative design (designing build- is strong feebates—which can be size- and revenue-neutral—for at least ings, factories, equipment, and vehicles as whole systems for multiple new light-duty vehicles, arbitraging the spread in discount rate between benefits) often makes severalfold bigger energy savings cost less than private buyers and society; buyers can choose whatever vehicle they small or no savings.3 Nurture and reward vibrant competition and want, but within that type and size class, they get rewarded for coopetition to engage many diverse actors and drive continuous in- choosing a more-efficient model. Otherwise, at typical consumer dis- novation. count rates, whether to get an efficient vehicle looks about as unim- 4. It has been said that the cleanest kWh is the one that is not portant as whether to buy floor mats; yet society has a vital interest in produced. Should energy efficiency precede renewable energy in an efficient choice.) the “loading order” of resources? 5. What’s your take on electrification and building dec- That’s the result you’ll usually get if you choose the best buys first, arbonization? require and allow all resources of all kinds to compete fully and fairly, It’s now really hard to make a business case for burning fossil fuels and—an important new item—foster integrative design, so efficiency in new or most existing buildings. Combustion is so 20th-Century—an can sustain the same radical cost reductions and increasing returns that ancient practice ripe for replacement, especially now that aging gas modern renewables now deliver. However, if you neglect some of these infrastructure could be advantageously phased out rather than ex- steps, some renewables in good sites may now outcompete the costlier pensively renovated. We have better choices today than digging up and kinds of efficiency that still use outmoded, dis-integrated, but still burning the rotted remains of primeval swamp goo.