Moving energy efficiency from a public good to a market commodity

Improving energy efficiency suffers from being “worthy” and one of those things we should do for our own good, as well as being desperately dull to most people. We pass regulations to enforce efficiency standards and we put complex regulatory schemes in place to make companies, and individuals, do things they don’t do without the regulation. Essentially we put energy efficiency into the position of an extra we can do without, a mere cost cutting measure, and/or a bureaucratic set of compliance actions we have to do to stay within the law – all of which make it less attractive and probably less likely to flourish – rather than more. In many countries there is also an unspoken assumption that enhancing energy efficiency requires public support, (read money), in some form whether it be grants, soft loans, or other interventions.

What we really need to do is create a market for energy efficiency. This is often presented as a market for negawatts (which of course should really be negawatt hours if we are talking about energy, negawatts being power or capacity) and this ideal may soon be possible in the UK. The Electricity Market Reform (EMR) embodied in the Energy Bill, which is due to go through Parliament before Christmas, has – after considerable effort on the parts of several active demand side groups and the Minister Greg Barker – the potential for demand side projects – both short-term demand side reduction (DR) and permanent demand management (DM or Electricity Demand Reduction (EDR) in DECC speak) – to enter into the electricity market. We will have to wait to see how the specific rules turn out and whether or not they can really create a market that brings forward more demand side projects, particularly through aggregators of projects but it is, I believe, a very significant step forward in UK (and European) energy efficiency. In the US we have the much talked about PJM example where demand side projects can bid into the forward capacity market, if we can create a similar market in the UK and elsewhere, we should advance energy efficiency significantly.

We should focus more on creating markets for energy efficiency and energy services rather than relying solely on regulation and compliance.