Energy Efficiency 2.0: New Questions, Same Answer
One of RAP’s longtime mantras is: “Efficiency is the answer. What’s the question?” We’ve demonstrated that energy efficiency provides a “layer cake” of multiple benefits, that it could help us meet almost a third of power system demand over the next decade, and that “Efficiency First” should be the primary guidepost for prioritizing energy system development.
The foundation of these efforts is the principle that the cheapest kilowatt-hour of electricity is the one you don’t use. But as the cost of renewables falls precipitously—with utility-scale solar under 2 cents per kWh and onshore wind at 2 cents—that principle is being called into question. Will efficiency always be the cheapest resource? How does efficiency pair with renewables—and increasingly electrified energy end uses—in this new environment of plummeting prices? Do we need to consider “Energy Efficiency 2.0” and if so, what does it look like?
I put these questions to my colleagues at RAP recently, and a lively discussion ensued. The short answer is that no one is sure what Efficiency 2.0 should look like. But the long answer begins with the sober realization that things haven’t changed that much yet. As they do, efficiency and renewables can’t be thought of as opposing forces, but rather tools that go hand in hand toward a lower-cost, lower-risk, and lower-carbon future.
Efficiency is still the cheapest zero-emissions resource in many—if not most—cases. It’s true that efficiency and mature renewables are fast approaching parity as we look ahead to our next choice of resource. But it’s also important to remember Economics 101: Price pressures don’t always go in one direction. The European Climate Foundation’s Roadmap 2050 study and other sources note that we still face limitations in ramping up vast amounts of renewables at a reasonable cost over the longer term, including hard limits on materials supply and manufacturing. So reaching very high levels of renewables penetration will likely require the tapping of resources that are more costly than those in use today. Efficiency likely will beat those costlier renewables investments for many years to come.
We are still in the early stages of retiring fossil fuels, and the variable output of renewables means this is likely to be a long process, especially for natural gas. The cost of energy storage to provide grid support for renewables is declining rapidly, so the combination of renewables and storage may soon edge out natural gas and efficiency as the cheapest clean resource. But to meet the ambitious scope and pace of global climate goals, we need every tool in our tool belt. And these tools work together. The International Renewable Energy Agency recently published a study showing that efficiency operates in tandem with renewables to achieve higher penetrations of clean energy, lowering system costs and emissions over time. As our colleagues in RAP’s European program cautioned recently, “Efficiency First” is not merely a slogan. To the contrary, they said, “wasting valuable renewable resources on inefficient end-use consumption makes little economic sense and slows the pace of decarbonization.” If we think of decarbonization as a marathon we need to run, we can move the finish line closer (with efficiency) even as we accelerate the pace of our run (by adding renewables to the grid).
Further, no renewable resource is actually emissions-free when the full supply chain is considered, and all forms of generation have environmental impacts. Maximizing efficiency as a resource (even if it has some supply chain issues of its own) can help minimize those impacts. And efficiency, in the context of an integrated resource plan, remains an effective tool by which utilities can save money and reduce risk for their customers.
Efficiency 2.0 won’t be as simple as just using fewer kWh. RAP’s work on beneficial electrification has been weighing how best to reconcile electrification and efficiency, and one of our guiding principles is that electrification cannot be considered beneficial unless end uses are as efficient as possible. As Steve Specker, former CEO of the Electric Power Research Institute, wisely said, we must use less electricity where we can, so we can use more electricity where we should.
Efficiency is still the answer, even as we are compelled to ask new questions.