Don’t ignore half of the clean energy equation: Reducing demand

Building more wind and solar is not enough to solve the climate crisis.

Technician Aaron Sinclair installs a heat pump at a home in Standish, Maine. (Brianna Soukup/Portland Press Herald via Getty Images)
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Andy Frank is founder and president of home wellness company Sealed. This guest essay represents the views of the author, not those of Canary Media.

All this year, we’ve seen how extreme weather events and natural disasters exacerbated by climate change can strain our energy system. In February, Winter Storm Uri left more than 4.5 million Texas utility customers without power for days. In June, the heat wave in the Pacific Northwest shattered temperature records and melted public infrastructure. New York City begged utility customers to conserve energy to avoid blackouts in June. In July, Oregon’s wildfires threatened the energy supply of its neighbor to the south; California Governor Gavin Newsom (D) issued an emergency call for additional energy resources. And Hurricane Ida knocked out transmission to New Orleans in August, leaving millions without power as the heat index rose to dangerous levels before the storm moved north to flood areas in and around New York City and cause more power outages. 

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On any given day, it seems, some part of America’s power system is on the brink. Even comedians like John Oliver know how badly our system needs an update. With each passing year, the problem only gets worse as the growing intensity of climate change overburdens grids and pipelines already stretched to the max. Everyone is scrambling to keep the lights on while also making the investments necessary to address climate change in the next 30 years and beyond. 

To meet these challenges, officials at the state and federal levels are adopting policies to decarbonize the economy with a focus on swapping out dirty capacity (fossil fuels) for clean capacity (renewable energy from solar and wind, plus energy storage via batteries and pumped hydropower).

We can and should continue to build up clean capacity: Investing in these resources will improve our quality of life and help America achieve its climate goals. But by focusing solely on clean energy supply, we are missing half of the clean-capacity equation: demand reductions. 

Don’t forget demand

The cheapest and cleanest kilowatt-hour is the one you don’t use. And yet, in the world of energy capacity planning, demand reductions are usually viewed merely as a nice-to-have energy resource” — the cherry on top of the cake, rather than the cake itself. Sometimes they’re ignored entirely, as by Oliver in his recent critique of America’s power grid on his weekly HBO show. 

But without demand reductions, the U.S. may have to triple the size of today’s energy system over the next 30 years to hit our decarbonization goals. 

It’s time to start thinking of demand reductions as a necessary part of operating America’s energy system. We cannot overhaul our overwhelmed energy grid and reliably meet our clean-capacity goals without reducing energy demand — and the best way to do that is by compensating energy reduction at the same rate as energy production. We also need to value demand reductions based on expected demand in the future, not just current demand.

Today, different approaches to valuing energy reductions are being tried out and assessed, including paying customers to reduce their energy consumption in California and replacing gas pipelines with targeted energy-efficiency improvements in New York. These new models are especially important given the pending Build Back Better legislation, which would allocate billions of dollars to demand-reduction incentives. 

In California, a new twist on paying customers” 

In 2020, a series of extended heat waves forced California to implement rolling blackouts for the first time since the state’s 2001 energy crisis. The threat of a repeat in 2021 has spurred Governor Newsom to issue emergency proclamations calling for quick action to shore up the grid. In response, state regulators tested a variety of new approaches to reduce demand during the summer months and extreme weather events. 

One of the approaches is a proposal to dedicate $150 million in funding for a new Market Access program that would scale up energy efficiency by creating a statewide marketplace for peak energy savings. This new program is based on the Peak FLEXmarket Program that was successfully implemented in a few Northern California communities earlier this year; it pays any prequalified market participants for the full value of energy reductions achieved during peak-time periods through energy efficiency or other demand-reduction strategies. 

The Market Access program would not only pay for peak-period energy savings, but also provide a larger kicker” payment for energy savings generated during peak hours in the summer. These energy-savings values are based on avoided costs” that include the value of not buying new clean-energy supply, not paying for new electricity infrastructure and not emitting greenhouse gases. 

Another proposal would expand eligibility for the Emergency Load Reduction Program to all residential customers in the state, beyond just commercial and industrial customers. This expansion would in effect turn the state’s voluntary and unpaid Flex Alert program — which asks customers to cut energy demand at times of grid stress — into a paid statewide program to reduce peak energy use. That would be an unprecedented change in managing demand. 

The California Public Utilities Commission will vote on December 2 on whether to adopt the proposed programs. Both would be monumental and overdue steps to improve California’s historically constrained demand-reduction marketplace. By paying market actors, both companies and individuals, the full value of demand reductions, California would level the clean-capacity playing field and change the way the state undertakes grid planning. It turns out that when the lights go out, the government tends to feel the heat. 

In New York, pipes of today gone tomorrow

Speaking of heat, in New York, many utilities are dealing with severe constraints on natural-gas capacity. When there is too much demand and not enough supply, the entire gas system can shut down, leaving millions without heat on the coldest days of the year. 

Traditionally, utilities have addressed capacity challenges by building more pipelines and pumping in more supply. But the old rules don’t apply anymore, as climate laws like those New York passed a few years ago mean that new pipelines are not an option. 

Utility National Grid is taking a new approach. In a recent proposal to the New York Public Service Commission, it laid out plans to make a historic investment in demand reductions instead of traditional pipeline and supply investments. National Grid wants to implement expanded energy efficiency and response programs — to meet customers’ energy needs and address a looming gas capacity shortfall on the companies’ systems in a manner that supports New York’s aggressive climate goals.”

Specifically, National Grid plans to invest more than $100 million in 2022 in energy efficiency, electrification and demand response, with much more expected in the future. As President Biden might say, this is a big freaking deal: replacing pipeline construction in your streets with pipe insulation in your basement. 

These investments are part of a broader push by New York regulators to create a better, more modern gas-planning process. The days of unfettered pipeline and supply investments are over. It is now time to value demand reductions. 

Will the feds step up?

While states including California and New York continue to innovate to meet clean energy and climate goals, the federal government is preparing to make its mark. The Build Back Better Act, recently passed by the House of Representatives and now under consideration by the Senate, includes billions of dollars for energy efficiency, including electrification technologies such as heat pumps that reduce reliance on natural gas and other fossil fuels. 

As drafted, the bill would give the U.S. Department of Energy the opportunity to set incentives for reducing energy use based on time, location, or greenhouse gas emissions.” This means the federal government could provide the right market signals to value the demand side of the clean-capacity equation at the same rates as clean-energy supply resources. 

The legislation would also finally create parity on tax-credit incentive levels both for renewable technologies, such as wind and solar, and energy-efficiency technologies, such as weatherization and heat pumps. However, unlike the tax credits for renewables, the ones for energy efficiency would be nonrefundable, which means you would have to wait to file your taxes to receive the benefit. So we’re making progress, but, alas, discrimination against demand reductions persists for now. 

No matter the mechanism, the important thing is that demand reductions are valued properly. Energy saved should be energy earned, and it should be compensated at the same rate as energy generated. By valuing energy reductions from weatherization, heat pumps and everything in between, we will reach full clean capacity: delivering the power people need when they need it most, achieving our decarbonization goals and withstanding the most extreme weather events brought on by climate change. 

Do that, and we can keep the lights on in a safe and healthy world. 

Andy Frank is the founder and president of home wellness company Sealed. He also serves on the boards of the Alliance for Clean Energy New York and the Energy Efficiency Alliance.