Federal, State and Local Policy in Renewable Energy Development

Federal, State and local energy policy has a significant role to play in development renewable energy resources. The unique legal framework in the US provides sufficient separation of power between these three levels to achieve range of energy policy scenarios.

Federal: Federal level energy policy is overseen by the Department of Energy that deals with national energy policy design, manages the nuclear infrastructure and various national laboratories. Federal Energy Regulatory Commission (FERC) is also major player in federal energy policy through its role to regulate the interstate transmission of electricity, natural gas and oil. Energy Policy Act of 2005, PURPA (1978), Energy Independence and Security Act (2007) and American Recovery and Reinvestment Act (2009) are some of the major legislation that deal with renewable energy development in the federal level. There are also numbers of environmental regulations that have been indirectly helping the growth of renewables. The Clean Air Act has been phenomenal limiting the growth of coal fired plants and pushing the utilities towards renewable energy sources.

Incentives for renewable energy development come in 3 types – as direct grants, tax breaks and technical assistance. Two major federal programs that have been very successful for renewable energy development are Renewable Electricity Production Tax Credit (PTC) and Business Energy Investment Tax Credit (ITC). PTC provides a tax credit for each KWh of electricity generated by a qualifying energy resource. This program has been very popular with wind resource which obtained 2.3c/kWh for each KWh produced. This program however expired in 2013.[1] ITC provides tax credit upto 30% of the expenditures for eligible projects.[2] This program has been popular with solar projects for which the total maximum credit is not capped. ITC is set to expire at 2016, at which it is the tax break is set to decrease at 10%. As both of the programs have been designed as tax credit rather than direct rebate, they are more attractive to investors with large tax appetite. Some of the solar developers have come up with innovative market schemes to transfer the tax subsidy to third party by directly subsidizing the project cost for customers. ARRA act played a major role in renewable energy development by providing more than $2 billion dollars in funding to modernize the grid which has increased the feasibility of integration of renewables into the grid.

The current federal energy goal of “all of the above” is a serious impediment for renewable energy development. The federal energy policy goal is targeted toward energy security, job creation and environmental benefits.  Conflict between these diverse objectives which often contradict each other, the federal energy policy can be best described as betting on all the horses. It provides generous subsidies to nuclear and provides substantial amount of subsidies for fossil fuel companies, which in turn decreases the cost competitiveness of renewable energy. The federal level policy needs to strongly affirm the direction for policy that focus on promoting renewable energy.

            State: The state energy policies are varied as the number of states itself. The 10^th amendment to the US constitution delegates police power to the State allowing them to creates laws for safety, health, welfare of their communities. The states also have the power to regulate the retail sale of electric rates and siting of facilities in their states. These allow the States for sufficient rights to create their energy policy. Each of the states has their own unique energy policy that has been influenced by different factors. There is a wide spectrum of state energy policy from California which has been a leader in renewable energy development to states like Oklahoma[3] whose energy policy seems to be designed to suppress renewable energy growth. Renewable Portfolio Standards (RPS), Net Metering and Feed in Tarriff are the three major policy programs popular in state level that has been targeted for renewable energy development. RPS is a requirement that usually requires the electric retail suppliers to meet certain amount of electricity load through renewable energy. RPS does not provide direct subsidy to the renewable energy but they benefit from selling Renewable Energy Credit (REC) in the market. Around 30 states in the US have some form of RPS with different variation on structure, enforcement, size and application.[4] For instance CA has an RPS to derive 33% of their retail load by renewables by 2020 while Virginia has voluntary RPS goal to meet 15% of load by renewables by 2025.[5] Unlike RPS, net meting and FIT provide direct credit to the renewable energy generation. Various states have enacted policies that either allow customers to offset their electric bill by producing their energy through net meting or provide guaranteed pricing per kWh for a period of time form a qualifying resource through FIT. An example of variation of FIT is used in Minnesota as “Value of Solar Tariff” where customers get a specified amount of credit per KWh. Similarly in Vermont has policy of feed in tariff of 20c/kWh for solar projects. Some of the states however have instituted programs that counter renewable energy development. For instance Oklahoma includes  a law that charges resident extra amount to produce their own energy through solar panels.[6] Similarly Ohio has froze its RPS requirement creating a severe blow to renewable energy development in the State. 

            It is unfortunate that the issue of renewable energy in the US has been a partisan issue. While the Democrats seem to be in favor or renewable energy, the majority of the Republicans have undermined them. This uncertainty in the policy in State and Federal level has been a severe impediment for renewable energy development.

            Local: Despite overarching Federal and State energy policy, local communities have sufficient discretion to develop their energy policy. Local governments and form electric cooperatives, set local ordinances and make land use decision that can directly affect energy policy in the grassroot level. There are more than 800 electric cooperatives in the US that provide electricity to around 12% of the population. The cooperatives are managed and owned by the local people and have direct voice and reflect the values of the community. For instance,  the Washington Electric Coop in Vermont is committed to provide electricity to its residents through clean and renewable sources where the residents have agreed to pay higher rates for renewable energy.[7] Community aggregation model are another example of how communities have been able to affect energy policy in local level. Community aggregation allows the communities to directly buy power at wholesale rates from their selected renewable suppliers and pay the utilities for distribution service. Marin Clean Energy in CA is an example of such community aggregation model which provides its customers choice of consuming 50%-100% electricity from renewable sources.[8] Local ordinances can also have significant impact for renewable energy development. The ordinance enacted in Sebastopol, CA requires the new and improved buildings to include solar PV. Inaddition to fostering renewable energy development, locals can also play big role in inhibiting the growth of fossil fuels. The residents of Oakland blocked the construction of new coal exporting terminal in Oakland, CA.[9] There have also been several local ordinances banning hydro-fracking in several States.

            The legal framework structure in the US has especially designed in a way to encourage wide variety of policies across the nation. The policies for growth of renewable energy vary from each towns, cities and state. The policies range strong programs in place for the growth of renewables others to policies placed to act as barriers for the growth of renewables.  

---

[1] http://dsireusa.org/incentives/incentive.cfm?Incentive_Code=US13F

[2] http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F

[3] http://thinkprogress.org/climate/2014/04/16/3427392/oklahoma-fee-solar-wind/

[5] www.dsireusa.org

[6] http://thinkprogress.org/climate/2014/04/16/3427392/oklahoma-fee-solar-wind/

[7] http://www.washingtonelectric.coop/about-wec/bylaws/

[8] http://marincleanenergy.org/

[9] http://www.the-american-interest.com/blog/2014/05/14/new-green-motto-not-in-your-backyard/

FITs, RPS and Net-Metering

Feed-in-Tariff (FIT), Net Metering and Renewable Portfolio Standard (RPS) are all policy designs to accelerate the investments in renewable energy. Although they all have same objective goals, there are significant differences in terms of targeted groups, economic incentives and effectiveness of the programs.

FIT’s are generally fixed term contractual agreement that guarantees a fixed price for per unit of electricity produced from a qualified renewable source. The contract also guarantees grid access for the producer. There are different variations in FIT design based on types of generation source, size of the plant, geographic location. FITs were first introduced in the US in the 1978 under PURPA, they are now much more popular in European countries especially Germany and Spain. 

RPS is a requirement generally on the retail electric suppliers to meet a certain amount to their load through eligible sources of renewable energy. RPS usually do not provide direct subsidy to the renewable generation but the policy creates a secondary renewable energy credit (REC) market where the retail utilities can trade the RECs to meet their mandatory requirement. The high demand for RECs provides incentive to produces to invest in renewable energy. RPS programs are popular in the US where around 30 states have some form of their RPS with different variations on structure, enforcement, size and application.

Net metering is similar to FIT programs but instead of guaranteed tariff, it only allows the meter to “run backwards” when you produce electricity thus offsetting the electric bill. There is not much incentive to generate more than current use since you do not paid for the extra generation. Also, since the bill is net metered, the price paid for renewable generation is same as the current retail price which do not provide enough economic incentive for producers to invest. The physical and geographical location of your property is a barrier for installing renewable generation for net metering.

Among the three programs, FIT’s is much stronger policy to promote renewable energy. The long term guaranteed pricing offered by the FITs shelters the investors from the market volatility and risks involved in renewable energy generation. Although RPS and REC trading is market based mechanism allowing flexibility for utilities, the volatility in the price of RECs may inhibit investors in financing renewable projects. FITs provide simplest and transparent policy that provides stable conditions for growth in renewable energy generation. Properly designed FIT with a balanced cost-based tariff can be the best way to increase investments in renewable energy.

Renewable energy sources offer numerous benefits to our environment, energy security and economic benefits. FITs, RPS and net-metering essentially try to include the positive externalities that the renewables offer in its market price. It is not required than that policymakers have to choose between the three programs. Well designed policy in an informed population can include all of the policies to expedite renewable energy transition. However the policies can only take you so much if the public is not well informed and do have willpower to move forward. 

Settlement Patterns, Energy, and the Environment (Vermont Case Study)

By Anonymous Guest Writer (VLS student)

Vermont’s distributed settlement pattern significantly impacts energy consumption and the environment by requiring a significant amount of travel. Vermonters consume 20% more gasoline per capita than the national average and transportation is Vermont’s largest source of greenhouse gas emissions.[1] [2] In order to meet its statutory greenhouse gas reduction goals and reduce energy use in the transportation sector, Vermont should strengthen its land use laws and planning requirements to prevent further sprawl and channel new development to downtown areas.[3] In the process, Vermont can reduce the security and economic risks associated with petroleum dependence while preserving its rural character and creating vibrant, walkable communities.

Current state law does little to slow single-family residential development in the countryside. Act 250 limits individuals from dividing land into six or more lots within five years in towns without zoning bylaws, or ten or more lots within a five-mile radius within five years, without a permit.[4] This, however, is weak as it neither corrects the market incentive to subdivide nor provides a real constraint to doing so on a small-scale or long-term basis, the cumulative impacts of which are meaningful. Additionally, no state permit is required for residential development unless it involves ten or more units within five years or the site is above 2500 feet in elevation.[5] Thus, restrictions on single-family residential development largely rely on municipal subdivision and zoning ordinances, which many towns do not have (including Royalton).

Vermont enacted Act 183 in 2006 which allows municipalities to designate defined areas for development known as “growth centers.” The law streamlines Act 250 permitting within growth centers and targets state infrastructure funding and spending within them.[6] While this legislation is a step toward encouraging smart growth, it does little to control the continued subdivision and homebuilding in the countryside. Moreover, state-level planning is “essentially limited to reactive review of local initiatives.” [7]

Vermont’s laws should be strengthened in several ways to reduce sprawl and improve smart growth planning. Firstly, the legislature should provide for coordinated state-wide land use planning, which can be accomplished by creating a state-level planning group and providing it with adequate resources. The function of this group would be to create a state-wide land use plan that binds the regional plans together and provides policy guidance on the best methods for reenergizing Vermont town centers and containing growth.[8] This group should measure and periodically report on the proportion of growth that is occurring within growth centers and should be authorized to enact appropriate policies that are required to meet long-term targets set by the legislature.

Secondly, the State of Vermont should require that all towns create growth zone boundaries and enact a meaningful tax on land that is subdivided outside designated growth boundaries. This would serve to counteract the financial incentive to subdivide land with the proceeds distributed to towns and regional planning commissions to strengthen planning and incentivize compact development. Permitting requirements should be phased in for all new construction of residences outside the growth zones to ensure building occurs at a scale and in locations that preserve the ability to conduct agriculture and maintain forest habitat. A tax on construction of new residences outside the growth zone could be levied proportionally to the distance from the growth zone with proceeds earmarked to support municipal infrastructure projects within the growth zone.

Thirdly, planning inside designated growth boundaries must be smart so that available land is not used inefficiently and depleted. Growth area development should be safe, walkable, and an attractive place to reside with options for car-sharing or public transportation. It is possible to build an auto-dependent, suburban layout within growth centers (as pictured in appendix), which must be avoided. To accomplish this, Vermont’s law should require that towns conduct smart growth planning within their growth zones and adequate resources should be made available to them to do so, including the guidance of the state and regional planning commissions. Permitting requirements should be strengthened to require permitting of new stand-alone residential structures within the growth area to ensure they are in conformance with the town plan and principles of smart growth.

Fourthly, living in town should be made more affordable so that it presents a financially attractive alternative that is accessible. This can be accomplished through good planning that removes the need to own a vehicle and provides a diverse housing stock. Vermont can enact laws that direct funding for its rental assistance programs to growth areas and require that major employers establish themselves within growth areas.

It is important to get land use right. Once land has been subdivided, it is difficult to piece it back together, and once land has been developed, it is difficult to undo without significant economic costs. Current law does little to control sprawling residential development in the countryside, the continuation of which has the effect of imposing an energy-intensive travel requirement that works against Vermont’s goal to reduce its greenhouse gas emissions. By strengthening planning requirements, imposing taxes and offering incentives that strategically induce market behavior to align more closely with societal objectives as enumerated in town, regional, and state plans, and strengthening the requirements of Act 250, Vermont can channel future growth strategically to create vibrant downtowns that reduce energy requirements and environmental impact.

---

[1] Energy Consumption by Transportation Fuel in Vermont, U.S. Department of Energy EERE. Available at: http://apps1.eere.energy.gov/states/transportation.cfm/state=VT

[2] Vermont Greenhouse Gas  Emissions Inventory Update 1990 – 2009. April, 2013. Vermont Agency of Natural Resources Department of Environmental Conservation Air Pollution Control Division

[3] Vermont’s GHG Reduction Goals are enumerated in 10 VSA § 578

[4] 10 VSA § 6001-19

[5] 10 VSA § 6001-3A

[6] 24 V.S.A. § 2793c

[7] Jack Kraichnan, Vermont’s Act 183: Smart Growth Takes Root in the Green Mountain State. P. 605. Vermont Law Review. Available at http://lawreview.vermontlaw.edu/files/2012/02/kraichnan.pdf.

[8] Ibid.

Energy subsidies on fossil fuels and its impact on climate change

International Monetary Fund (IMF) recently published a study titled ‘Energy Subsidy Reform: Lessons and Implications’. The study revealed that in the year 2011, governments worldwide spend $1.9 trillion dollars in energy subsidies. They also calculated that removing these subsidies would lead to 13% decrease in the CO2 emissions. The study is highly pertinent to climate change discussions as 57 % of carbon emissions come from burning fossil fuels (2). The study shows that ending subsidies to fossil fuels could act as a powerful wedge to reduce our carbon emissions and combat climate change.

Subsidies are an important economic tool that governments and policymakers use to manipulate the market for a desired outcome. Subsides depress the price, thus increasing the demand for that product. Governments subsidize the price of energy, especially fossil fuels since most of the economy depends on these fuels for transportation, electricity and other vital functions. However, these subsidies come at huge social costs. Subsidies give wrong price signal to the economy, as energy gets cheaper the demand increases, which inextricably lead to more Green House Gas (GHG) emissions. Low prices also decreases the value of energy, which means that people can now afford to use energy in wasteful manner as there is no incentive to energy conservation and efficiency.

In the year 2011, US spend $409 billion towards energy subsidies. While 13% of the total went towards renewable sources, rest of it was spent towards subsidizing fossil fuels. These large amounts of subsidies on fossil fuels make it harder for renewable energy to compete in the market. Generally new renewable energy technologies such as wind and solar tend to be more expensive than fossil fuels. As the fossil fuels are subsidized it becomes uneconomical to switch into renewable energy sources thus impeding its growth.

It is important to understand that the fuel subsides are not free, they have to be funded by the government through either taxes or debt. This massive amount of money spend has great opportunity cost, this could have been spend instead on education, healthcare or other important measures.

In summary, implementing subsidies generally have a perverse effect on the market. Historically it has been seen that the bigger industries who have more powerful lobby ends up getting larger subsidies. Proving long term subsides to the industries such as the oil industries have enjoyed is not sustainable. Subsidies should only spend towards research and development and not towards subsidizing every drop of fuel or kWh sold.

IPCC 5^th assessment report affirmed that the climate change is unequivocal and that limiting climate change will require our drastic and sustained actions. Based on our current trends, our CO2 emissions continue to rise well beyond the threshold limit to prevent catastrophic consequences. The CO2 concentration for the first time reached the record high of 400ppm on May 9th 2013 (3) and continues to increase at the rate of 2 ppm per year. It is critical to work towards stabilizing GHG emissions with all tools we have. Economic incentives such as taxes and subsides are no doubt have strong potential, however we first need to make sure that these economic tools are not working against us with detrimental and  extraneous subsides going to wrong sources. In the future, Peruvian carbon tax could also be considered however, right now let’s make sure that we at least pay the real price for energy without subsidies. Let’s let the market prevail and give renewables a fair chance to fight.

2) IPCC Fourth Assessment Report

3) http://climate.nasa.gov/news/916

Threshold level of energy consumption to sustain economic growth and high quality of life.

Energy is the intricately related to social and economic development of a country. Most of the infrastructures of development including transport, communication, industries all require energy and the availability of energy plays an fundamental role in determining the level of access general population have to these amenities. Advanced countries use much as 5 to 6 times the average per capita energy than in the developing nations. Many poorer nations suffer from ‘Energy Poverty’ where they lack access to energy required to sustain a proper quality of human life. Providing higher amount of energy in the poorer nations has a huge potential to raise their living standards. Building on this proven correlation between energy use and development, we seek to answer if there is an optimum level of energy use that is enough to sustain a high level of quality of life and economic growth.

Human Development Index (HDI) provides a comprehensive measure of quality of human life in a particular country. It is a composite measure of health, education, income and other components that provides an index for standard of living. HDI for each country is plotted for its energy use (per kg of oil equivalent per capita)[1]. This metric gives an estimate of the amount of energy consumed per person. The relationship is potted in the figure 1 below for each country for the year 2011.

Figure 1: HDI vs. Energy Use (kg of oe per capita)[2] for the year 2011

Figure 1 shows an ‘S’ shaped relationship between the HDI and the per capita energy use of a country. It starts with group of countries that use less than 1500 kg oe per capita with HDI less than 0.75. The group mainly includes developing countries and emerging economies such as Algeria, China, Brazil, Panama, Ecuador. As the energy use increase from 1500 to 2500 there is a linear growth in the HDI up to 0.90 which can be seen with countries such as Chile, Greece, Hungary. However after around 2500-3000 kg of oe per capita energy use the HDI index starts to flat off. The countries that use more than 3000 kg of oe are the more developed and industrialized economies such as Germany, Denmark and others. All of these countries have HDI greater than 0.9 however, their energy use ranges from 3000 to 8000. This shows that there isn’t much correlation between energy use and HDI after 3000 kg oe per capita of energy use.

This has a great significance to both the developing and the developed world. As the developing countries increase their energy use, it is helpful to consider that there is an optimum level of energy resource required to achieve growth. Policy makers can plan for per capita energy use around from 2500 to 3000 kg oe which is enough to sustain growth as shown in the figure. For energy intensive economies, especially that are far right to the chart with countries such as Canada, Luxemburg and US, it is important to realize that their economies might be using more energy than required, and that there is big potential for energy efficiency and energy reduction where the policy makers could focus on.

In addition to HDI and energy use relationship, we could also consider the relationship between energy use per capita and per capita Gross Domestic Product (GDP) based on purchasing power parity (PPP). GDP PPP is more informative than GDP while comparing different economies as it considers the purchasing power parity in each country.

Figure 2: GPD PPP per capita vs. Energy use (kg of oil equivalent per capita)[3] for the year 2011

Figure 2 shows the relationship between GDP PPP per capita and per capita energy use. Similar to figure 1, it appears as a moderately ‘S’ shaped curve. There are significant numbers of low income and developing nations clustered together who use less than 2500 kg oe and have less than 15,000 GDP PPP. These countries include same countries that appeared in figure 1. As the energy use increases from 2000 to 3500, we see an increasing linear relationship between energy use and increase in GDP PPP. Within this particular range, the GDP increases from 20,000 for Hungary to 40,000 for Switzerland. However the GDP PPP stays flat for any amount of increase in energy use after 3500 of energy use per capita.

This follows on the conclusion that we derived from figure 1, that higher energy use after 3000 per capita has very little relation on the human development or economic growth. According to the figure 2, per capita energy use of US stands around 7000 per capita, which enables it to achieve GDP PPP of $45,000, but there is ample evidence from other countries like Switzerland, Germany, Austria that US could get the same level of GDP with energy use around 3500 per capita.

To better understand the relationship between GDP PPP and energy use, one could take the ratio of the two quantities. This ‘new’ metric tells you the amount of GDP PPP the country achieved for each unit of energy spend. It is closely related to the concept of energy efficiency, where the maximum benefit is achieved per unit of energy. The comparisons between the countries are shown in Figure 3.

Figure 3: Ratio of GDP PPP per capita and Energy use per capita

Figure 3 differs in that it shows how much capable the country is to turn each amount of energy into GDP. According to the figure, Columbia ranks the top with the ratio of 13.23 which means that for each unit of energy use, Columbia was able to make $13.23 on its GDP PPP. Other high ranking countries include Peru, Ireland, Switzerland, Botswana, Panama with their ratio around 12. US ranks pretty low with its ratio of 6.03 which is close to Czech Republic, New Zealand and Malaysia. China scores pretty low at 3.65 along with South Africa and Iraq. Turkmenistan is the lowest with the ratio of 1.7.

The figures above shows any country that has energy access around 2500-3000 kg oe per capita increases its chances of achieving high HDI and GDP PPP. That task however is monumental, especially when 19% of the population does not have access to electricity and 38% depend on traditional biomass for energy[4]. Finding the right balance between energy use and growth is a challenge set for both developing and developed economies and this data provides a valuable tool for both to work with.

---

[1] 1 kg of oil equivalent (oe) = 11.63 kWh

[2] Data visualization created through raw data available through UNDP and World Bank data.worldbank.org

[3] Data visualization created through data available through World Bank data.worldbank.org

[4] International Energy Agency http://www.worldenergyoutlook.org/resources/energydevelopment/globalstatusofmodernenergyaccess/

Short Commentary: Vermont’s Renewable Energy SPEED program and its issue with RECs

Vermont’s renewable energy program- ‘Sustainably Priced Energy Development Program’ (SPEED) was enacted by the Vermont legislature in 2005 in pursuant to the long term energy policy goals of Vermont as provided in 30 VSA §202a. The SPEED program is created in 30 VSA §8005 with the goal to ‘maximize the benefit to ratepayers from the sale of tradable renewable energy credits that may be developed in the future’. The Vermont legislature amended the statute in 2012 that no longer contained required the Vermont utilities to retain the renewable energy credits[1]. This allowed for the Vermont utilities to sell their renewable energy credits (REC’s) to out of state utilities. There is where a number of environmentalists and professionals have cried foul[2].

Critics have argued to go far as to call the Vermont’s SPEED system a ‘sham’[3]. They point that this system essentially allows for the REC’s to be counted twice, first when the utilities in Vermont sign contracts with the renewable energy developers and additionally when they sell those RECs to out of state utilities. By selling the credits to other states, the ‘green power’ produced from the renewable companies is effectively counted as ‘brown power’ thus increasing the carbon footprint of the state. This system also sends wrong price signal to the other states, which discourages the development of renewable projects in these states, which is contrary to the whole idea of establishing programs such as SPEED and RECs.

This program however has been able to provide significant benefits in Vermont. The SPEED program has been successful in incentivizing investments in renewable energy. The revenues from the sale of RECs have been instrumental in providing significant savings to the ratepayers in Vermont.

The question raised is if Vermont is gaming the system for its own good. In simple terms it does not appear to, RECs are essentially an economic good that the Vermont utilities sell in the free market to the buyer at a fair price. Vermont gets to build more renewable energy plants while at the same time help fulfill the needs of other state’s goals to achieve their level of renewable energy standard. This however is morally and economically unsound, the whole system of RECs works with the credits being scarce goods, if the units are being traded for more than once then it automatically multiplies the amounts of RECs produced for nothing. This will make it look in that there is twice as much as renewable energy projects than there actually is. This also undermines the need of others states to develop their own renewable energy projects.

The state of Connecticut recently passed a legislation that restricted the trade of RECs from Vermont. This a step in the right direction which provides strong message for VT to align its policies accordance to the spirit of the statute than defrauding the system for its short term gain.

---

[1] http://vtdigger.org/2012/05/03/renewable-energy-bill-gets-last-minute-overhaul/

[2] http://www.timesargus.com/apps/pbcs.dll/article?AID=/20130210/THISJUSTIN/702109926?template=printart

[3] http://vtdigger.org/2012/01/09/critic-says-utilities-sell-renewable-energy-credits-out-of-state-double-count-value-of-green-electricity/

Energy Efficiency as an Energy Resource for Nepal

It goes unsaid that Nepal is undergoing a drastic energy crisis. More than 40% of the Nepalese population is not connected to the electric grid. For the rest of Nepalese citizens who do have access to electricity, they face upto 16 hours of daily blackouts. Energy conditions are even worse due to periodic shortages of petroleum products and natural gas. Energy shortages are anything but new to Nepal, and the issue continues to appear dire. While the population and economy grows, the demand for electrical energy continues to skyrocket.

 Although, in a certain light, there is still reason to hope; Nepal is blessed with an abundance of natural resources. For instance, studies suggest that Nepal has tremendous potential for hydro power. In addition, Nepal also has significant potential for wind and solar energy. If we are able to tap into these natural resources, then there is no doubt that we shall be able to achieve energy independence and also to do so in an environmentally sustainable manner. While this should be our goal, and I am optimistic that we will be able to achieve in the future, it is imperative that we also try to seek immediate solutions to mitigate the energy shortage we face today.

  Solution to this maybe much closer to us then we think. Energy Efficiency is the single most resource that has the potential to help mitigate some our energy needs in significantly shorter period of time. Energy Efficiency essentially means meeting same or more of the electrical demand needs with less amount of energy without compromising the quality of service.

 Nepalese culture does not view energy efficiency as an energy resource. We generally perceive it as something secondary. An energy resource for most of us is tangible, like a hydropower station, generator or solar panels. Instead, if we look at energy resource as a mechanism that helps to manage our energy needs, then energy efficiency will be on the top of the list as one of the cheapest resources that can yield immediate effects.

 Typical examples of energy efficient practices would be replacing energy hungry incandescent lights with LED or CFL light, using higher voltage transmission lines to reduce losses, replacing or tuning up compressors and motors to work efficiently and many more. These simple-enough measures, if applied in our homes and factories, would add up quickly and result in large savings. This saved energy can be used to meet the extra load and thus decrease load shedding time.

 Although these techniques are straightforward, it is much harder to materialize in real life because they depend on individuals’ commitment and finances. Energy efficient products usually cost much more than their alternative. Although investing in them can be recouped many times over the products lifetime, people usually still opt for cheaper alternatives. Research has shown that human beings generally are more inclined to make their decisions based on short-term impacts. Thus, when one sees that energy efficient products are much expensive than alternative, they have very less incentive to buy them. This is where government and policymakers have an important role to play.

 Leaders in the field of energy efficiency in Nepal have already begun important discussions. The Nepal Energy Efficiency Program (NEEP) was established in 2009 with the support of German Development Cooperation (GTZ). This organization works independently to promote energy efficiency in different sectors of the Nepalese economy by launching different programs for both industrial and residential sectors. NEEP’s Energy Standards & Labels program provides energy efficient ratings for electrical products in order to better inform the customers about efficiency. In the industrial sector, NEEP advocates for energy audits and works closely with industries to identify custom energy efficiency measures. Meanwhile, Nepal Electrical Authority (NEA) also conducts a few of its own programs to support Energy Efficiency by promoting CFL and LED light bulbs.

 Unfortunately, these programs have been suffering through a lackluster performance because their creators have only conveyed Energy Efficiency as an alternative, rather than an immediate need. Rather than a mere suggestion, energy efficiency should be portrayed to policymakers as the direct means of fulfilling the electrical energy demand in Nepal. Most of the energy efficiency programs that exist today are supported by the INGO or foreign governments. Although this is a start, energy efficiency programs in Nepal are only scheduled to exist as long as they are supported by an external party. Relying on someone’s outside philanthropy is not a sustainable business model. We need to realize that energy efficiency practices are a lucrative investment opportunity for Nepalese customers as well as their energy providers. Together, we need to develop market-based business or policy opportunities that are self-sustaining and make a direct impact.

 One of the possible market-based options would be to have NEA ‘buy’ the energy saved from energy efficiency. For example, a contractor could pledge to save a certain measure of KWh at the market rate of electricity. The contractor would then go to households and industries to promote energy efficiency methods to the public. If the energy saving is realized in that period of time then the contractor gets the money from NEA. This ‘reverse auction’ is a proven technique that has been employed in different energy markets across the world.

 These energy efficiency methods could also be funded by a modest increase in the utility bill. This rate could be adjusted as a progressive tax, which minimizes the burden on families with low-incomes. Since energy efficiency programs help to keep the rate of electricity low over a long period of time, this ratepayer-funded model is often looked at as a viable solution to fund energy efficiency practices.

 The potential for energy efficiency in Nepal is not just limited to energy savings. Proper management of energy resources tremendously benefits the environment as well. There numerous spill-over benefits of energy efficiency help us to save our money and better our lifestyle. With these outstanding benefits, it is imperative that the more direct action would be taken towards energy efficiency in Nepal.