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Financing the Fifth Fuel
20 Jan, 2009 11:20 am
if energy efficiency is so great, why isn't it more widely pursued? Certainly, one of the key reasons is that energy efficiency seems so, well, boring. Compared to the sizzle of solar panels or wind turbines, or even the old-school industrial aesthetic of oil rigs and coal mines, efficiency is invisible: you can't see what you don't consume...
As many analyses have shown again and again, such as the very prominent 2008 work of the McKinsey Global Institute, the most cost-effective approach for reducing emissions is afforded by increased emphasis on energy efficiency. Indeed, the impressive legacy of the Rocky Mountain Institute is based largely on the now 30-year-old observation by its founder Amory Lovins that energy efficiency is often less costly than supplying an additional increment of energy -- irrespective of any mandate to reduce emissions.
So, if energy efficiency is so great, why isn't it more widely pursued? This is the central question posed by the January 12 issue of Time, with a lengthy cover story exploring why energy efficiency is so underexploited.
Certainly, one of the key reasons is that energy efficiency seems so, well, boring. Compared to the sizzle of solar panels or wind turbines, or even the old-school industrial aesthetic of oil rigs and coal mines, efficiency is invisible: you can't see what you don't consume. It's hard for most of us to get passionate about the lack of something. Weak public enthusiasm for energy efficiency is no doubt a major factor in coining the phrase "fifth fuel", to put it on par with energy forms that people can relate to.
Beyond psychology and semantics, though, the bigger impediment to energy efficiency has often been finance. Economically-prudent energy efficiency options often don't get implemented either because the benefits (in the form of cash savings on energy bills) don't accrue to those who pay the costs for building upgrades, or because the savings take a few years to pay off -- and clients either won't or can't afford to make such an investment.
Creative financing mechanisms are necessary to close these gaps. Thankfully, new financing approaches are increasingly emerging that aim to bridge the market failures that have heretofore thwarted full capture of the potential offered by energy efficiency.
For instance, the City of Berkeley has implemented its FIRST (Financing Initiative for Renewable and Solar Technology) program, which enables property owners to finance energy efficiency (and solar) installations via a 20-year surcharge on the building's property tax bills. In Milwaukee, the Center on Wisconsin Strategy is similarly organizing a 2009 pilot launch of the ME2 (Milwaukee Energy Efficiency) Initiative, which involves charging for energy efficiency retrofits on energy bills via a rider that is linked to the building's utility service meter.
In both cases, energy efficiency adoption should become much more compelling to many more clients, because the cost associated with the energy efficiency investment is amortized over 20 years at lower interest rates than most customers would be able to obtain on their own. This will create only a very small periodic payment, while leading to immediate and substantial monthly savings on energy expenditures.
I would expect that these models, and others, for financing the fifth fuel will become more commonplace in the coming years, as the imperative for more aggressive pursuit of energy efficiency becomes stronger with each passing day.
We should begin anticipating that eventually the biggest problem with these approaches will be answering the "too good to be true" perception. After all, who in their right mind would turn down the opportunity to save money instantly, without any cash outlay?
Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director at Early Stage Partners.
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