Electricity End-Use Efficiency: Experience with Technologies, Markets and Policies Throughout the World
Report Number	I921
Author Info	Mark Levine, Howard Geller, Jonathan Koomey, Steven Nadel, and Lynn Price
Details	Executive Summary 1.0 Importance Of Electricity End-Use Efficiency 2.0 Technologies To Increase Electricity End-Use Efficiency 3.0 Factors Limiting Acceptance Of Efficient Technologies 4.0 Experience With Policies 5.0 Summary Findings 1.0 Importance Of Electricity End-Use Efficiency Electricity generation is responsible for more than 30% of energy-related global carbon dioxide emissions to the atmosphere. Significantly, more than 50% of all increases in carbon dioxide emissions due to increased energy use during the past twenty years are from electricity. There is strong reason to believe that the factors that have led to electricity increasing its share of total energy demand will continue. A large fraction of growth in electricity generation will take place in the developing world. There are three ways of reducing the growth of these emissions from electricity that avoid cutting the growth of electricity services: (1) increasing the efficiency of electricity use, (2) using less carbon-intensive fuels to generate electricity, and (3) improving the thermal efficiency of converting fossil energy to electricity. This paper addresses the first of these three approaches. More specifically, the paper provides an in-depth review of three topics: status of available technologies for increasing electricity end-use efficiency, factors that limit the application and widespread development of these technologies, and policies that have been implemented to increase the efficiency of electricity use. 2.0 Technologies To Increase Electricity End-Use Efficiency Worldwide, industry uses about 50% of all electricity and buildings consume almost as much (45%). Technologies to significantly improve electricity efficiency exist for virtually all buildings and industrial end-uses. For industry, the greatest savings in electricity can often be achieved by process changes that require less energy input to produce a final product rather than by retrofits of existing processes. Examples of some technologies for buildings include efficiency improvements for residential appliances, lighting, air conditioners, heating systems, and thermal integrity of building envelopes. In the United States, the average new refrigerator consumes half as much electricity as a comparable refrigerator purchased twenty years ago. In Japan, the efficiency improvement has been even greater (fourfold), primarily because the older refrigerators were much less efficient that U.S. models. The doubling of refrigerator efficiency in the United States (using foam instead of fiberglass insulation, thicker insulation, more efficient motors and compressors, and larger heat exchangers) has been highly cost-effective, typically paying back the added first cost in about one year. Compact fluorescent lamps are presently available and have been selling briskly throughout the world in the past few years. Compared with incandescents, these lamps consume 25 to 40% as much electricity per lumen output. The compact fluorescent lamps, if used an average of four hours per day, typically pay back their higher cost in about three years, at an average electricity price of $0.08 to $0.10 per kilowatt hour. A typical central air conditioner in the United States purchased in 1990 was 36% more efficient than a 1976 model. Heat pumps, installed in 25% of U.S. houses, consume on average half as much electricity as electric resistance heating. The major electricity-using appliance that has not seen large increases in electricity end-use efficiency in the United States is the electric water heater. However, heat pump water heaters are commercially available and can reduce electricity use for water heating by 50 to 70%. The largest users of electricity in commercial buildings are air conditioners and lighting. Compared with standard fluorescent lamps, energy-saving fluorescent lamps typically save 15% of electricity for lighting, and have captured an estimated 30 to 40% of the U.S. market. Efficient lamps with electronic ballasts consume about 35% less electricity than a standard fluorescent. The addition of a specular reflector is estimated to cut electricity use by an additional 40%. All of these measures pay back to the purchaser in one to three years, if the lamp is used 3000 hours per year or more. The typical air conditioning system for commercial buildings purchased today is 10 to 30% more energy efficient than the system purchased ten to twenty years ago. efficient air conditioning systems for commercial buildings presently consume from 25 to 38% less electricity than this typical system, with a payback to the purchaser of 1.5 to 5 years in the United States. In addition, control systems for air conditioners (e.g., energy management systems and, where applicable, economizers) and for lighting systems (e.g., motion detectors) can reduce electricity requirements 10 to 20% in many buildings. The largest portion of industrial electricity is used by motors to power pumps, fans, compressors, and machine tools. In the United States, 60% of industrial electricity use is by motors; in many developing nations, the percentage is even higher. The largest other uses are industrial buildings (lighting and air conditioning), primary metals processing and fabrication, and chemicals. Improvements applied to motor systems in the United States could yield savings of 16 to 40% with paybacks of one to three years. The measure that has the largest potential impact but the largest uncertainty is the variable speed drive (VSD). VSDs were commercialized in the early 1970s as a means of better matching the output of the motor to varying loads. Traditionally, varying loads are met either by cycling the motor on and off or mechanically adjusting the motor speed. The latter approach is very wasteful of electricity. VSDs modify the power going into the motor, allowing the speed to be varied in proportion to the amount of motor power needed. The overall penetration of efficient motors, including controls, into markets in industrialized or developing countries is relatively low. In the United States, about 20% of motor sales are high-efficiency motors. In India and Brazil, less than 1% of motor sales are high-efficiency. Variable speed drive sales have been steadily increasing in the United States, but many cost-effective applications remain untapped. Research and development (R&D) is expected to result in advanced technologies that will further improve efficiency of electricity use. For example, U.S.-sized refrigerators with evacuated panels and without CFCs are under development that are expected to consume 200 to 500 kilowatt hours per year, compared with an average of 900 kilowatt hours per year today. Similar technology applied to freezers would cut electricity use from 600 to between 200 and 300 kilowatt hours per year. Research on integrated appliances can lead to heat pumps for two or more applications, increasing the benefit of heat pumps to the consumer. More efficient lighting technologies, such as multiple photon phosphors, surface wave lamps, and diodes as a light source, are under development. These technologies, compared with the most efficient lighting systems available today, can cut lighting electricity requirements in half. Of particular importance in the industrial sector is R&D directed at substituting one process for another. Such substitutions, often sought for reasons other than energy, can lead to very significant reductions in energy use. Information on cost and performance of electricity-efficient technologies can be summarized in a conservation supply curve, in which potential electricity savings are plotted against cost of conserved electricity. The curves are generally applied to a future date, so that a sizeable portion of the existing stock of energy-using equipment are replaced. For our purposes, we refer to conservation supply curves for the time period 2005 to 2010. We have reviewed various conservation supply curves, and have chosen those that, in our view, represent mainstream estimates. These curves, evaluated at a social discount rate of 6 to 10% with costs of conserved electricity below current electricity prices, typically show potential savings of 30 to 40% for the United States in 2010, and 20 to 30% for developing nations. The lower savings in developing nations may be the result of the less detailed studies performed to date for these countries. These are savings relative to a baseline with efficiencies fixed at today's levels. A portion of the potential efficiency improvements will take place simply as a result of market forces, in the absence of policy reforms. 3.0 Factors Limiting Acceptance Of Efficient Technologies Many of these technologies have been accepted only slowly in the market, in spite of their apparent advantages. Some of the factors limiting market acceptance result from limitations of the technologies themselves or are intrinsic to the environment in which the technology is applied. Other factors are the result of market barriers or distortions. Policies designed to promote electricity end-use efficiency are generally most effective, and cause the least unwanted impacts, if they are designed to directly address the factors that distort the market and inhibit the acceptance of efficient technologies. Some of the factors relating to the technology and its environment include (1) attributes that affect performance or may be perceived by consumers as affecting performance (e.g, lower temperatures for clothes washing), (2) physical barriers that impede the introduction of the technology (e.g., difficulty in retrofitting insulation in the walls of existing houses), or (3) instances where lower than average usage of the product causes the economics of the investment to be unfavorable. To the extent possible, the estimates of potential savings described above attempt to keep amenity levels constant. Nonetheless, variations in usage and physical barriers to installation of a device will affect market acceptance. Numerous market factors limit the acceptance of efficient electricity end-use technologies. Probably the most important involves the fact that the investment in efficiency is usually made by the end-user, who typically requires a high return on investment (a short payback period), while the investment in electricity generation is made by the electric utility, which accepts a much lower return on investment (longer payback time). If a typical consumer required 25 to 50% return on an investment in efficiency but a utility required a 6% return on new supply (in constant dollars), then electricity will be produced at 7 cents per kilowatt hour but end-use investments producing savings at 2 cents per kilowatt hour will be rejected. This is an extremely important factor that strongly favors investments in supply over end-use efficiency. Other market factors inhibit the acceptance of energy-efficient technologies. high costs of credible information on efficient technologies, and uncertainty about the actual savings, are important factors. The difficulty of measuring electricity savings (which are obscured in utility bills) plays a role in consumers' reluctance to invest. The difficulty of finding efficient products, and the time necessary to evaluate the information about the products, often discourages purchases of efficient technology. Unavailability of capital, or its high cost, renders otherwise sound investments in efficiency (and other products) unaffordable. Different parties being the beneficiary or the investor (as when a landlord pays for the efficiency measure but the tenant profits) results in rejecting of energy-efficient technologies. There are additional factors that operate especially in developing countries. Not only do many developing countries lack the trained people and industrial infrastructure for significant investments in efficiency, but the international institutions that could assist (with training or capital) have traditionally directed their efforts at electricity supply. There are often no institutions in developing countries for formulating or implementing policies to promote energy efficiency; if they do exist, they generally have little authority. Moreover, efficient products may not be available in developing countries. Assistance from industrialized countries that includes training programs can play a significant role in supporting developing countries to design and implement electricity end-use efficiency programs. Because a very large portion of future electricity growth is expected to take place in developing countries, attention to factors limiting the introduction of efficient technologies using electricity in these countries is important. 4.0 Experience With Policies With rising electricity prices and problems associated with building new power plants in many power plants in many areas, some industrialized countries have in recent years begun to implement policies to promote electricity conservation. The United States has been particularly active in implementing many of these policies. Appliance efficiency standards have been established for refrigerators, freezers, room air conditioners, water heaters, clothes washers and dryers, dishwashers, and fluorescent lighting ballasts. These standards, which address end-uses that presently consume 35% of U.S. electricity, are estimated to save 21 quadrillion Btus of resource energy (more than 90% electricity) from 1990 to 2015. These savings result in estimated reductions in the growth of residential energy demand in the United States of 20 to 40% over this time period. These estimated savings include standards for refrigerators and freezers that will take effect in 1993, but do not include the mandated updates for all products that take place roughly every five to ten years. The appliance standards in the United States have been based on technical/economic studies showing an average payback of five years or shorter on the incremental first cost of the more efficient appliance. While standards can eliminate inefficient products or raise the efficiency of an average unit, they do not directly encourage the development and introduction of new, more efficient technologies. An innovative approach to this problem is being tried in Sweden and the United States. This involves offering manufacturers incentives, often called "golden carrots," for bringing to market more efficient products than are currently available. Sweden has done this for more efficient refrigerators. An effort is underway to establish a similar program in the United States, first for refrigerators and later for other products. Efficiency standards for commercial buildings, aimed at reducing electricity used for lighting and air conditioning, are in place in a large number of countries, including Sweden, Germany, France, the United Kingdom, the United States, Singapore, and Japan among the industrialized countries and Jamaica, the Philippines, Pakistan, and Kuwait. These standards can be mandatory (such as Singapore), voluntary (e.g, Pakistan) or intermediate (e.g, the United States with standards established by a consensus process within industry and then adopted by many states). Using Singapore and the United States as examples, it is likely that the standards can reduce electricity consumption in new commercial buildings by 25 to 50%. Integrated Resource Planning (IRP) addresses a basic factor limiting the choice of efficient technology discussed earlier, namely that the lower cost of capital to the utility favors supply investments that have much longer payback periods than are acceptable to the end-user, the investor in efficiency. Many electric utilities in the United States, with the encouragement of their state regulatory agencies, are now investing directly in end-use efficiency measures that will be installed by their customers. The investments that utilities have made in DSM have been typically well below the cost of equivalent supply investments per unit of electricity saved or supplied. The utilities are often assured a profit on these investments and recovery of earnings from lost sales. In some locations utilities also receive an incentive payment for aggressive DSM programs. As a result of these policy reforms, a number of utilities are investing in end-use efficiency technologies for their customers and these utilities anticipate the majority of projected demand to be met by these investments. The leading efforts to date have been in New England and California, where utilities typically invest 2 to 4% of operating revenues, receive financial incentives for the pursuit of DSM, and expect to reduce electricity growth considerably. For the United States as a whole, utilities spend about $2 billion per year (1% of total operating revenues) on DSM programs. It should also be noted that there are complex issues involved in the design and implementation of these programs, including fairness in allocation of costs and benefits among different ratepayer classes and the potential for some of these programs to lead to economically inefficient investments in conservation. Numerous other important policy approaches have been tried to increase electricity end- use efficiency. Information programs, in which highly credible data are presented to consumers (e.g, appliance efficiency labeling; energy-rating systems for houses) or persuasion has been applied (e.g., programs to induce large companies to set good examples by installing highly efficient lighting systems, have been instituted in many countries. these programs have served an educational value. Often they are most effective in achieving savings when combined with complementary policies and programs, such as technical assistance and financial incentives. There have been efforts to involve private firms more actively in the delivery of electricity efficiency. The development of energy service companies (ESCOs) in several industrialized countries is an example. They have been most active to date when utilities, through the development of DSM programs, create a substantial market for the services of ESCOs. Research and development, supported by governments, has been used to assure the continued development of new, efficient technologies. Several developing nations actively promote more efficient electricity use. Brazil and Pakistan were among the first to focus on electricity conservation. Brazil has the most extensive set of electricity conservation programs, organized through a national program (PROCEL) based at the federally-owned utility. PROCEL has carried out specific programs (e.g., a major effort to improve efficiency of public street lights), technology R&D and demonstrations (e.g., efficient appliances), education about energy saving and promotion of efficient technologies, and development of standards. To date, PROCEl has invested about $20 million in electricity conservation. The PROCEL programs has spurred investments by manufacturers and consumers that have achieved savings equivalent to the output of 280 to 650 MW of generating capacity. Pakistan has been active in retrofits of industrial facilities and agricultural pumps to save electricity. A pilot program to improve the power factor in five industrial plants has led to a new effort to implement the program nationwide. A five million dollar (U.S.) loan from the Asian Development Bank will support this program. Mexico and Thailand are two developing countries that have recently become involved in electricity conservation programs. Mexico has set up an entity at the national utility to carry out end-use efficiency programs. The activity is funded by a tax on electricity, and has an initial budget of about $7 million per year. Thailand has recently (November 1991) decided to invest $183 million (U.S.) over five years to purchase 225 Megawatts of new capacity through utility DSM programs. These examples, in both industrialized and developing countries, indicate that policy efforts can be successful in promoting more efficient use of electricity. Many of these policies have been initiated in recent years, however, and only early results are known. These policies and others have the potential to increase significantly the market acceptance of technologies that provide a given end-use service with lower input of electricity. 5.0 Summary Findings In very brief summary form, the basic conclusions of this review of electricity end-use efficiency are: Half of the increases in energy-related carbon dioxide emissions in the last two decades came from electricity production. Increases in electricity end-use efficiency beyond those expected to occur under current policies can cut the growth of electricity use and associated carbon emissions significantly. There has been sufficient experience among industrialized countries in both technologies and policies to have confidence that significant increases in electricity end-use efficiency are possible. Many end-use efficiency investments are more cost-effective than new electricity supply investments when evaluated using common criteria (e.g., using the same discount rate). Policies such as utility DSM programs, information and labeling programs, voluntary and mandatory appliance and building standards, and "golden carrot" financial incentives have been successful in accelerating investments in end-use efficiency. Policies that remove market distortions serve to promote both economic and end-use efficiency. Policies that try to compensate for market distortions indirectly can sometimes promote economically inefficient investments as well as economically efficient ones. Making these efficient electricity end-use technologies widely available in developing countries could contribute in important ways to a global effort to increase electricity end-use efficiency, thus reducing growth in electricity supply and in greenhouse gas emissions.
Other Info	125 pp., 1992, I921
Publication Price	$ 25.00 each
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