The power system in the U.S. is amidst a major crisis. Some of the major challenges that our energy sector is facing include meeting the ever-increasing energy demand, maintaining old energy infrastructures and finding cheap sustainable energy sources. Although various renewable energy sources, smart grids and other technologies offer viable long-term solutions, Energy Efficiency (EE) measures offer the most cost-effective and immediate means to reduce our energy consumption.
EE is an attractive measure for both power utility companies (PUC) and consumers. Power companies’ major challenge is to fulfill the peak demand. If the peak demand increases beyond its supply capacity, power companies would need to invest in additional electric generators, which are often very expensive. Also, they would have to worry about increases in transmission costs due to increased congestion. Effective EE practices could smooth out the load, making it manageable for the utility companies. Consumers on the other hand, would be required to pay less in utility charge for reduced electric consumption.
Industries are one of the major consumers of electric power. Various manufacturing industries are often energy intensive and require large volumes of electricity to operate. As the cost of electricity directly affects the overall cost of the product, it is in the interest of the industries to keep the prices of electricity low. Also, even a few percentage savings in large energy bills would be a substantial amount of money, which would be a strong incentive for industries to implement EE measures. Research has shown that EE measures in manufacturing industries could decrease their energy consumption up to 25%. This incredible potential in savings should make EE measures extremely attractive to all parties.
Although EE is very cost-effective, it has been lacking in implementation. Split incentives, requirement of upfront capital costs, ignorance among PUC and consumers have been shown to block investments in this sector. To overcome this market failure, governments have created various policies that act as incentives for industries, as well as PUC, to invest in this sector.
There is a need to assesses the cost-effectiveness of such policies for industrial energy efficiency by demonstrating power companies’ savings from investments in EE measures. Such data could confirm that the existing policies are working as planned and could also illustrate potential models for other states and nations to emulate. If the results show that policies are costly and ineffective, the project would enable policymakers to assess their options and to take necessary steps toward other energy-saving possibilities.
