“Nobody wants to admit something doesn’t work so we can learn from mistakes and move on,” said Spielvogel. “At ASHRAE, we used to share our war stories and publish them. That stopped about 20 years ago because of fears of getting sued.”

Maybe we need a Journal of Engineering Errology similar to what the bio-world has….

The Blood and Gore manifesto also wants firms to have to account for assets that might become “stranded” —worth much less—in the event of policy changes such as the imposition of a price on carbon emissions or higher charges for the use of water. This, the pair contend, would reveal many companies to be in much worse shape than they now appear, given plausible scenarios for how policy in these areas might one day develop.

This scenario-planning might seem like a lot of extra work about stuff that is only hypothetical, and thus a burdensome extra cost. But Mr Blood points out that many firms already apply a price of carbon internally, for example when evaluating significant investments, as they increasingly think it likely that governments will impose one. So perhaps it isn’t that much more work.

Emphasis mine. This is wildly speculative and the suggestions made by Blood and Gore are highly uncertain, but one can’t help but wonder how broadly these assertions apply? What types of firms are being referenced? Certainly some firms apply these sorts of internal costs, but how much does it impact decisions? On what assumptions (in terms of future legislation) are these analyses calculated? How broadly does this commentary apply to the industrial economy? Do these considerations have any positive effect relative to the counter-factual?

Peter Troast of Energy Circle makes the following observations:

The context for this story is the significant cutting back of funds for LIHEAP, the Low Income Heating Assistance Program. People all over Maine and other cold climates, particularly those reliant on oil for heat, have depended on a contribution from this program to pay for a portion of their oil. On average, people used to get around $800. With the cuts, that number is down to less than $500. It is not unusual for a leaky house in Maine (with our housing stock, most are) to use as much as $2000/year in oil. From a year ago, the price per gallon of oil is up about 18%. Two weeks ago, at my house, we paid $3.91/gallon.

And:

Without question, direct support to prevent people from freezing in their homes is the moral and right thing to do. But paying for people’s oil, a commodity virtually guaranteed to continue it’s annual 18% per year price march, is utterly unsustainable.

Only by addressing the underlying issue–buildings that use energy wastefully–can we bring under control a government expense that has no end in sight. Those of us who work in the home performance field, or have had energy retrofit work done on our own homes, know the extraordinary economics and benefits of efficiency.

What is the appropriate role for government here? Peter makes a very valid point: that improving the house itself, in the long run, is likely much more economical than doling out cash for fuel, right? This is likely very true of the Hartford residence, which apparently was (is still) ripe for improvement. When looking at the net social costs and benefits of performance upgrade programs, there is evidence they can be an effective policy decision. This is something I studied back in the day and reported on DSS a while back.

Anyway, let’s look first at the issue of fuel oil cost. Using data from the BLS, one can track fuel oil cost back to 1979 (here) and average annual costs. Those annual costs can then be calculated in 2011 dollars using the BLS CPI calculator (here). What do we see?

There is an upward trend, especially nominally. In real terms, it much more difficult to draw a conclusion over the range of data BLS has available. Regardless, over the last decade, the upward trend is evident, but one must question Peter’s statement that the “commodity (is) virtually guaranteed to continue it’s annual 18% per year price march”. I’m not much for forecasting, especially for energy costs (see Smil discussing energy forecasting here). Regardless, one can probably safely assume at least a nominal increase in fuel oil prices going forward and probably a small real increase as well at least in the near-term (the same probably cannot be said of natural gas).

One must consider the total cost of improving a house and the resultant savings to answer the question Peter implicitly asks: is it better to subsidize the fuel cost of the very poor rather than improve the quality of the assets they own?

From Schweitzer (pre-ARRA study where the total weatherization allowance moved to 6.5k from 3k), average natural gas fuel savings per dwelling from his metaevaluation of weatherization programs from 1993-2005 was ~23% for all end uses and ~32% for space heating. Assuming 20% savings and using Peter’s $2,000/yr fuel oil cost above and noting the average cost of a weatherization job from Schweitzer is ~$2,900, then a straight simple payback on fuel cost alone is ~7-8 years. Weatherization numbers from Eisenberg (here) show ~$430/year savings and a cost of average cost of $1,800/house. This payback is more attractive at ~4-5 years.

So, generally speaking, weatherization jobs pay back roughly between 4 and 8 years on energy savings alone (to speak nothing of the indirect benefits such as improved comfort and reduced health risks). A positive, real increase the the cost of fuel oil makes these numbers even better. Simple payback is not the best metric for this analysis, but it’s quick and dirty and tells the story that improving very poor performing houses is likely better policy than cash transfers for fuel costs. (NOTE: This assumes the answer to the question “the social safety net should include helping the very poor who cannot afford to heat their homes” in your mind is “yes”.) However, there are risks to weatherization programs: costly overhead, quality control, rebound from savings, etc… The question enlightened policy types need to answer is: are those risks worth the added value from weatherization opposed to a potentially lower risk system of cash transfers that might have longer-term liabilities?

Note: I haven’t really answered any questions here or laid out personal positions. I’ve also avoided the comparison of weatherization to natural gas, whose price is much more volatile.

]]> http://www.demandsidesolutions.com/2012/02/energy-policy-for-low-income-homeowners/feed/ 3 http://www.demandsidesolutions.com/2012/02/good-news-bad-news/ http://www.demandsidesolutions.com/2012/02/good-news-bad-news/#comments Thu, 09 Feb 2012 05:49:50 +0000 mike http://www.demandsidesolutions.com/?p=470 First, the good news:

US technology firm the Joseph Company International has unveiled an energy drink in what it claims is the worlds first self-chilling can, featuring a heat exchanger and cooled using carbon dioxide. West Coast Chill is a new drink devised to be sold in a can which uses Joseph’s ChillCan technology, whereby a refrigerant is released from a separate compartment in the can at the press of a button.

And then, the bad:

Honeywell has accused Nest Labs, the fancy new smart thermostat startup, of infringing on Honeywell patents that cover a huge range of energy-smart home functions — and it’s asking a federal judge to force Nest and partner Best Buy to stop selling the devices.

Unfortunately, the bad news is more bad than the good news is good. It has serious implications for the emerging field of automated home energy management. Devices like the Nest have potential because they are easy to use (i.e., idiot-proof), unlike many other home energy management products on the market. They currently have a very protected market share, as evidenced by this lawsuit, so we’ll see if the costs come down to earth or not. At $250 the Nest may be cost-effective; I have yet to see an independent study verify this but I wouldn’t be surprised. Regardless, my gut tells me it needs to come down quite a bit more to convince the average consumer. Until it does, most will probably spend their money on instantly chilled beers….

The big question is, what will happen to the home performance industy as incentives go away? It will probably fare better in regions with high energy costs, where paybacks are faster. Where energy audits or HERS ratings are required at the time of sale, there may be some more demand.

My fear, however, is that in many markets, demand will start to wither, homes will go unimproved, and many of the thousands of trained professionals, many of whom entered the industry after their old careers dried up, will, once again, be looking for new lines of work.

• Exempt external building insulation from floor area requirements, allowing existing buildings to add insulation within their property lines;
• Eliminate penalties for high-performance envelopes in the way floor area is measured, by exempting a portion of thicker, better insulated walls from floor area calculations when buildings substantially exceed the New York City Energy Conservation Code;

Under what circumstances does these rules incent exterior foam insulation?

TODAY I find myself in the unusual position of disagreeing with something Kevin Drum wrote on the grounds that it’s too harsh on industry. Our topic is the regulated shift of the lighting industry to high-efficiency bulbs. Last week the GOP managed to kill funding for enforcement of new energy-efficiency standards mandating that from January 1, consumers could buy only LEDs or a new breed of incandescent light bulbs that are far more efficient than the old-fashioned kind. As Mr Drum writes, the PR campaign for the new law has been abysmal; most Americans who know anything about these regulations remain under the impression that they ban incandescent bulbs, when in fact they do not. But the main point, as Politico reports, is that the lighting industry is up in arms about the regulatory chaos. GE, Philips, and Osram have invested huge sums of money in developing new energy-efficient incandescent bulbs on the understanding that the old ones would be barred as of January 1. Now they’ll still have to compete with low-cost old-fashioned bulbs, and will have a harder time recouping their investment.

Here’s the part of Mr Drum’s post I found off-target:

On the other hand, I confess that the unanimous support for these standards from the lighting industry gives me pause. Industries only support laws that will improve their profitability in one way or another, so I assume that this law does exactly that. This is, obviously, not inherently good for consumers.

I spend a fair amount of time reporting on Philips, and I have not a shred of doubt that the company’s anger over this move is legitimate. Philips, the last major electronics manufacturer left in Europe, is a company under severe stress from lower-cost Asian competitors. Their share price has been hammered, year after year. Their traditional business in consumer electronics will never recover the position it held in the 1980s and ’90s, and is basically being managed for decline; they spun off their TV division to a Hong Kong-based company earlier this year. They have growth opportunities in their two other main divisions: health-care equipment, and lighting, where they are the world leader. Theoretically, lighting should be providing solid revenue growth because of the ongoing global conversion to LED and other advanced technologies. But in a period of severe stress for the company, where they’ve been counting on lighting to make good for them, it has underperformed, basically because of prolonged stagnant global demand. A lot of that is due to the construction industry, which remains in a funk. And a lot is the general uncertainty about how the new light-bulb market is going to work, with bulbs that last much longer, cost much more, and have to be marketed on the basis of how much electricity they save. Getting the price points right and balancing higher per-unit costs against the concerns of low-confidence, value-conscious consumers has been very difficult.

In this environment, the last thing you need is yet another dose of uncertainty. It’s particularly infuriating to have uncertainty come along that’s completely unnecessary and is wilfully created by politicians for no conceivable economic or social reason. The regulatory programme for new efficiency standards was a deal between government and industry. The GOP broke government’s side of the deal. As a result, an industry in a fragile position due to the global economic tar-pit we’ve been stuck in for the past three years is going to take a completely unnecessary hit. I think their anger is entirely merited.

Agreed.

A few weeks ago a business consortium including Lockheed Martin and Barclays Capital announced the largest single private-sector investment to-date for commercial property energy efficiency retrofits. The business consortium, referred to as the PACE Commercial Consortium, was created by the Carbon War Room, a Washington, D.C based non-profit group set up by British entrepreneur Richard Branson. The consortium will provide up to $550 million in financing for city-led PACE projects in Miami and $100 million for projects in Sacramento. The consortium is led by Ygrene Energy Fund of Santa Rosa, California. Loans will be provided by Barclays Capital and Lockheed Martin will provide project management and engineering services. Energy savings guarantees will be insured by Energi Insurance Services of Peabody, MA with paper backed by global re-insurance giant Hannover Re.

Energy savings insurance was first offered approximately 15 years ago, but failed to make much headway in the emerging energy efficiency marketplace principally because most of the work was being performed in the public market by large energy service companies (ESCOs) who could back their guarantees with strong balance sheets. However, with energy efficiency now moving firmly into the hugh commercial market, hundreds of energy service companies are now playing in the game, many without the financial strength of the large ESCOs. Energy savings insurance can provide a backstop to the performance guarantees made by these smaller ESCOs.

It is good to see the insurance industry, beginning with Energi and Hannover Re, coming back to the market. There is definitely a need for the product. I believe it can do much to remove the uncertainty asssociated with energy savings projections and thereby avoid disputes between building owners and ESCOs. It should also reduce the risk associated with energy efficiency lending and lower the cost of financing. As in many other areas in our industry, insurance can once again act as the grease to make the deals move forward.

From Planet Money, the average household spends $3,660 a year on utility bills. That’s a pretty big number for many, but it is only ~8.6% of yearly expenditures. Is 8% enough of a burden to push people to investing significantly in their homes, even if those investments are cost effective in the long-run? I remain a skeptic.