June 21st, 2011

The Value of a Negawatt

Aaron Desatnik

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TOPICS: CleanTech Events, Local Events, NEW YORK, Resource Efficiency, Resources

CleanTech Events -

A few weeks ago a member of the Green Light Distrikt community, Sarah Jayanthi from Solar One, kindly invited me to a panel discuss on “The Value of a Negawatt.” Negawatt power “is a theoretical unit of power representing an amount of energy (measured in watts) saved. The energy saved is a direct result of energy conservation or increased efficiency” (Wikipedia). Read past the break for the full story and join the Green Light Distrikt Facebook group for updates on new events, blog posts and more.

Speakers from Think Eco, Joulle Assets, Lux Capital Management (representing Transphorm) and Con Edison spoke to the challenges of energy conservation and technologies and strategies that are starting to significantly reduce US energy consumption. Scroll to the bottom for resources mentioned during the discussion or watch the recorded video (90 minutes).

The panelists broke from standard environmentalist rhetoric (perhaps because they don’t identify as environmentalists) in emphasizing three philosophical approaches. What was interesting was the amount of consistency here regardless of the business (finance, venturing, consumer products, utilities) that the panelists came from.

  • The free market works; government should provide a level of guidance but should let the market solve the energy and climate challenge.
  • The most successful initiatives will not ask people to sacrifice, or if they do, they will make it effortless to do so. “Set it and forget it” was mentioned more than once.
  • There is a lot of waste in the system. Everyone advocated reducing energy consumption before offsetting that consumption with renewable energy supply.

Panelists identified a number of trends in the market, many of which are both cause for optimism and tainted with a cynicism about consumers’ willingness to change behavior (it reminded me of a keynote I had heard a few weeks prior from the behavioral psychologist Dan Ariely, author of “The Upside of Irrationality,” on the power of opt-in):

  • There is increasing VC and private investment in companies bringing new energy efficiency technology to market (projected double in deals in 2011 compared to 2010).
  • Companies aren’t betting on the willingness of consumers to change. This sentiment runs parallel to sentiment expressed at the Oppositions panel on June 16 and in Joel Makower’s article “Green Marketing is Over. Let’s Move On.” Per this sentiment, companies are betting on large-scale projects to have the real impact on energy consumption.
  • Given that natural gas prices have reduced by 50% over the past four years, there is not a major economic incentive for consumers to make changes to their energy consuming habits right now. For example, purchasing a more efficient HVAC system might not pay back for 10-20 years. If/when gas prices rise again (many companies see a reduction in supply in 2013/2014 and a resultant increase in price around the same period), this calculation will change significantly.
  • Everyone agree that demand response has been a strong indicator that market-driven solutions can reduce energy consumption. They emphasized that in order for such approaches to succeed, there needs to be alignment between various entities such as utilities, end-users, government, etc. There are other opportunities, such as energy efficiency portfolio certificates, which would significantly transform the market but lack such alignment. Other opportunities include: property assessed clean energy and energy infotech.
  • Lack of data continues to be a barrier. This is especially the case with bank that have difficult calculating the risk involved with energy efficiency loans or other financial instruments that would make capital available for energy efficiency projects.
  • The representative from Joulle Assets said that for energy efficiency projects to succeed, they need to be structured akin to more familiar systems. For example, he advocated for paying consumers that sign-up for demand response just for being available, regardless of whether or not that electricity is used. He sees this as an insurance policy for the utilities. Another example suggested by the Con Edison representative was to make our electricity usage so easy to access that we could check it as easily as we could check our stock prices, and with a high-enough cost of energy to justify this attention. By structuring new initiatives in the image of more familiar initiatives, these gentlemen argue, the learning curve is less steep and the risks less severe.

In closing, panelists described what they thought the market would look like in the future:

  • Massive consolidation Fewer companies with increased centralization will make the industry more profitable and easier to make large-scale changes in.
  • Data will drive decisions. Once we have the information, we will define what we need to achieve and measure ongoing performance.
  • Government needs to provide the instruments to make energy efficiency feasible (e.g. energy efficiency portfolio standard, public disclosure of energy consumption, etc) while not interfering with the market.

Here is my highlight reel of “comments of the night:”

  1. Electricity costs in New York are near the highest in the country; but in relation to income, they are near the lowest.” – Michael Gordon, Joulle Assets
  2. In Japan, my mother-in-law has a button that she pushes that turns off the electricity. I want to design products that are easy enough for my mother to use. – Jun Shibada, Think Eco
  3. When you get to the point when the pricing and impact of energy doesn’t impact the consumer, why would they do anything? – David Pospisil, Con Edison
  4. You have to ask the question, “why is efficiency important?” Regulators have to know the answer because they need to make a decision. To me, what’s really important is energy security and national security. When having that conversation, electricity because irrelevant, because electricity is almost entirely domestic. – Lux Capital Management

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Aaron Desatnik

About Aaron Desatnik

Aaron is a research analyst at Iridian Asset Management, an equity management firm in the New York City area. Part of his work is to investigate mid- and large-cap energy efficiency and renewable energy companies to evaluate their investment potential. Previously Aaron was the Director of Marketing at the Sustainable Performance Institute in Boston, MA. He is also active in the community and has organized campaigns to increase awareness about the benefits of purchasing local food in the Greater Boston Jewish community as well as to develop a growth strategy for the transportation advocacy group LivableStreets Alliance. Ping Aaron if you want to talk about strategy, investing, energy or cycling. hello@aarondesatnik.com @aarondesatnik www.aarondesatnik.com