Getting Past Rate Fixation to the Benefits of the Clean Power Plan

Wednesday, July 1, 2015

Making use of energy efficiency can help contain the cost of complying with the EPA’s Clean Power Plan and reduce electricity bills. Yet as climate policy discussions try to balance the urgent demand for quick action with upfront capital investments, energy efficiency isn’t without its skeptics. As efficiency programs are being ramped up by utilities with an over-capacity of power plants, rates may also rise for a few years before they fall. Policymakers and stakeholders need to get past “rate fixation” to see the long-term value of energy efficiency. With the strong “nudge” of the Clean Power Plan, we have an opportunity to cut future electricity costs while addressing climate change.

The Clean Power Plan allows states to implement their goals through “building blocks”, including energy efficiency. By placing a value on reducing the CO2 intensity of electricity, more energy efficiency measures become cost-competitive. Policy discussions increasingly suggest the need to capture low-cost energy savings and avoid the “lock-in” of long-lived infrastructure that wastes energy. As energy is used more efficiently, non-competitive plants can be retired, new plants can be deferred, and transmission and distribution infrastructure investments can be delayed, all of which can lower long-term costs.

The payback may be delayed because of the lag between reduced demand and savings from deferred expenditures on future supply-side capital expenditures, like new natural gas combined cycle plants, transmission and distribution. During this period, the stigma associated with rising rates needs to be contained. Particular attention should be paid to ensuring that efficiency programs include low-income households as a means to defuse concerns over short term cost increases. Our electric system was built by taking a long term approach and the Clean Power Plan affords us a chance to capitalize on efficiency investments that can pay long term-dividends.

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