US power grid's US$2 trillion push needs European efficiency

[SAN FRANCISCO] A US$2 trillion push in the US to blend renewable energy into the power supply and fortify transmission lines against extreme weather means that Americans must act more like Europeans to keep their power costs down.

Even with electricity rates as much as three times higher than what the average American pays, French, Italian and German consumers still enjoy lower monthly bills. That's because they use less energy due in large part to new smart technology, smaller homes, denser populations and more efficient appliances.

The US government and the energy industry are now taking the first steps toward that goal, with smart thermostats, more efficient air conditioning and systems that better regulate power grid current. Still, the US ranks only 13th of 16 countries in energy efficiency among the world's major economies, according to the American Council for an Energy- Efficient Economy.

"We need to stop looking at rates and start looking at bills," Jon Wellinghoff, a former US Federal Energy Regulatory Commission chairman, said in an interview.

Increased efficiency in energy use would create "some level of savings" that could help fund system upgrades that "might require a whole hell of a lot of money up front," Mr Wellinghoff said.

"When efficiency is woven more and more into the fabric of our electricity system, more and more of our energy needs will be delivered by money-saving efficiencies, rather than by running old plants on peak-demand summer days," US Environmental Protection Agency Administrator Gina McCarthy said in remarks prepared for a speech Thursday at the IHS CERAWeek conference in Houston.

Boosting efficiency is a key piece of President Barack Obama's plan to combat climate change, which seeks a 30 percent reduction in carbon emissions from existing power plants by 2030. It also makes good business sense. Investments in energy conservation are cheaper than building expensive new power plants to meet electricity demand.

In the US, investments in the power grid lag Europe. Since 2000, the UK, Italy, Spain, France and Germany have spent a combined US$150.3 billion on energy-efficiency programs, compared with US$96.7 billion for the U.S, according to data compiled by Bloomberg New Energy Finance.

The US grid, described as the most complicated machine in the world, needs about US$2 trillion in upgrades by 2030, according to a report this month from the Rocky Mountain Institute, a Snowmass, Colorado-based energy consultant.

US power companies are beginning to step up. Power sellers in Texas and the US Northeast are offering smart thermostats such as Google Inc.'s Nest in exchange for signing long term contracts. The device, which memorises and automatically adjusts to users' preferences, can save customers as much as 15 percent on cooling bills, according to Google.

Houston-based Direct Energy, the largest competitive retail power supplier in North America, is encouraging customers to install smart water heaters and efficient air conditioning systems to help cut demand.

"Every kilowatt hour of electricity that is not consumed saves on fossil fuels and the construction of power plants and grids," said Philipp Ackermann, minister of the Embassy of the Federal Republic of Germany, in a statement last year.

Germany ranks first among the world's major economies in energy efficiency, according to the American Council for an Energy-Efficient Economy.

German households pay an average monthly electricity bill of US$96.36, at a rate of 33.88 cents a kilowatt-hour and usage of 284.42 kilowatts, according to 2012 data from the World Energy Council and International Energy Agency. US households pay an average of US$111.95 a month, at a rate of 11.88 cents per kilowatt-hour and usage of 942.33 kilowatts.

The contrast is starker in Italy where the average monthly bill is US$65.99 at a rate of 28.84 cents per kilowatt-hour. In France, the monthly power tab is only US$75.64, at an average rate of 17.51 cents per kilowatt-hour.

"Historically, the input costs for generating much of the electricity in Europe have been higher than in the United States, which in turn makes electricity prices on a per-unit basis higher," said Andrew Colman, a managing director of Black & Veatch, an infrastructure consulting and construction firm. "These higher prices spurred the development of energy efficiency measures."

Similar pressures may emerge in the US as a result of proposed EPA rules to combat climate change. The Electric Reliability Council of Texas Inc., the state's grid operator, said in November that the EPA plan will force the shutdown of 3,300 to 8,700 megawatts of coal-fired generating capacity, and cause consumer energy costs in Texas to rise by as much as 20 percent by 2020.

Some of the tools to offset price increases by boosting efficiency are already in place. In the US, 32 states either pay utilities for lost revenue from energy efficiency programs or have decoupled power company profits from the amount of electricity sold, according to the Edison Foundation Institute for Electric Innovation, a Washington-based industry group.

In California, decoupling profits from sales has helped per capita energy use remain unchanged since the 1970s. Power companies including PG&E Corp. and Edison International are paid to meet energy savings targets.

US grid operators can install systems that help transmission lines more efficiently regulate current, a move that may cut grid energy costs as much as 5 percent, said Wellinghoff, who represents smart grid and solar clients as a partner with Stoel Rives LLP in San Francisco.

The biggest bite of higher prices can be offset through changes in behavior, according to Jurgen Weiss, a principal in the climate change practice at the Brattle Group, a Cambridge, Massachusetts-based consulting firm.

"Some of them are fast, and some are longer term and perceived as more painful," Mr Weiss said of efficiency efforts.

BLOOMBERG