Opinion: Why Energy Efficiency Isn’t Always Green

window efficiencyBy Rogier Fentener van Vlissingen

What’s holding up the show in green energy is not technology, there is more and better every moment, but what’s holding things up is the failure to do proper financial planning, and like everywhere else, failing to plan is planning to fail. Too often, well-intended incentives, and seemingly beneficial financing options end up steering property owners in the wrong direction. Perhaps the single biggest obfuscation in green finance is the co-optation of energy efficiency by the carbon-based energy sector, which is the biggest greenwash of all time. It muddies the water for sound financial options, and it is high time that this get sorted out.

Operational distinctions for energy efficiency: green or light brown.

It should be clear once and for all that:

  • Energy efficiency of a carbon-based energy system is not green at all, but very brown, and in fact it competes against renewable energy. Therefore all government or industry programs, incentives, etc., which take energy efficiency as their primary objective are an indirect subsidy to the fossil fuel industry and tend to crowd out investment in renewable energy, as I’ve demonstrated elsewhere, about New York’s NYSERDA MPP program. Comparable programs exist in many if not most states around the country, for the confusion is pretty widespread, from the federal level on down.
  • Energy Efficiency as pertains to renewable technologies is very green, and pays off immediately in reducing the need for installed generating capacity, so there is an immediate effect of compound returns, on an investment in renewable generating capacity.
  • Disclaimer: none of the above should be mistaken to say that energy efficiency of a fossil fuel system is not better than inefficiency, but that’s about as far as we should go. It is never “green,” at most it is a lighter shade of brown.

How various incentive programs obfuscate decisions

There are numerous ways that incentive programs, and even the Energy Star program confuse matter more than we care to know. The biggest example is the damage that is being done by disproportionate incentives for solar photovoltaics (PV), when solar thermal is 5-7 times more efficient. First, the raw efficiency of  PV is around 15 percent while solar thermal is up to 98 percent efficient. Additionally, solar thermal can easily and cheaply store process heat, certainly for same-day usage. Since square footage is hard to come by, it is clear to any engineer that solar thermal should win in most buildings, except for the accountants who come screaming about the latest tax incentive.

The old nostrum is always: financial incentives can never make a bad project good, they can only make a good project better. Making decisions piecemeal is dangerous, because engineering interdependencies between the heating, cooling and lighting of the home make it difficult to do a clear cost/benefit analysis. Just think of the smart-ass who got himself a solar PPA, and saves a few shekels on his electric bill, and afterwards discovers that he could have done a whole house HVAC with solar thermal.

Financial consequences of treating energy efficiency and renewable energy as interchangeable

Financially, energy efficiency in an existing carbon-based energy system is a proposition with diminishing returns. After you saved the first 10 percent, your base is now 90, and the next 10 percent savings only saves you 9 percent, etc. You quickly run into a solid wall of diminishing returns. It is a lousy investment.

Therefore, it is imperative that for any property we first do a 30-year energy plan and set up an appropriate cash flow model. That also allows you quickly to see what kind of an investment you can afford, and what sort of financing you might be able to pursue. Again, engineering interdependencies mean that you have to look at the whole project all at once. Once you understand the cash flows, long term financing like PACE bonds will also start to make sense, for you are raising the value of your property. In short, renewable energy options are a better investment, because they move energy from liabilities to assets, and compound over time.

All popular incentive programs, not to mention all equipment vendors, try to sell you on the basis of high marginal return on the equipment. By prioritizing that way, you are committing to an energy efficiency path, and you are marginalizing renewable energy as an energy efficiency option. You are committing yourself to an investment program that has no future. The thing to do, instead, is to figure out first how much energy the property can generate, and what are the most compelling technologies. Be sure to look at all the options, including passive ones, such as high-performance triple-glazing or walls that can hold heat. All methods of possible energy harvest should be looked at first, before you turn to energy efficiency. But energy efficiency, from better insulation, to various other options can definitely help close the gap of feasibility.

In short, do not listen to traveling salesmen who come in armed with the latest tax incentive or some other deal, tell them all you’ll get back to them, but you have to do your homework first. The biggest problems with renewable energy is that we are not doing our economic modeling right. The right sequence is to first do the engineering and economics, and look at the finance only after you understand the dynamics of the model.

[Image credit: United States Navy, Wikimedia]

Rogier Fentener van Vlissingen is President DaBx Demandside Solutions, and focuses on the economics and engineering of renewable energy retrofits, for existing buildings.

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