By Elisa Wood
February 25, 2010
Last week’s announcement of $8.3 billion – and possibly as much as $54.5 billion – in US federal loan guarantees for nuclear power plants sparked debate about risk of default on loans. What are the chances the plants will be built?
Critics unearthed a Congressional Budget Office report citing a 50% risk the projects will fail. The Department of Energy countered that the report is seven years old and not germane. http://motherjones.com/blue-marble/2010/02/chu-not-aware-nuclear-default-rates
The truth is that all power projects entail significant risk. In some regions of the country, up to 60% of the plants proposed are never built. http://www.lowellsun.com/ci_14331942?source=most_emailed Projects fall by the wayside as they try to win government approvals, contract with suppliers and buyers, and secure financing. And even if all of this is accomplished, the bizarre can occur. Witness the explosion in February that killed six people at a nearly complete gas-fired plant in Connecticut — temporarily and possibly permanently shutting down construction.
Considering the risks associated with power plant development, energy efficiency looks like a good alternative. But efficiency installations – whether for lighting, heating, cooling, refrigeration, industrial processes or home weatherization — carry uncertainty too.
What are these risks? For one, promised energy savings might not materialize. Or results may not continue as long as expected over time. So an appliance or installation may not produce its promised bang for the buck. This is why it is crucial that the efficiency industry ensure its credibility with accurate data collection, measurement and verification. Unfortunately, baseline data is not always accurate. As the Alliance to Save Energy points out, states cannot even agree on how much energy is saved from a single compact fluorescent light bulb http://ase.org/content/article/detail/5976.
The efficiency industry also, at times, faces the problem of ‘if-we-build-it-will-they-come?’ A government agency or utility may offer generous financial incentives, but find it cannot meet its efficiency goals because customers ignore the offer. For example, the Center for an Urban Future recently found such missed opportunities in New York City where small businesses often ignore generous city and state conservation subsidies. http://www.nycfuture.org/
Burned by our current risk-induced financial crisis, the public is increasingly wary of investment failures. Thus, it is important for the efficiency industry to address risk factors with honesty, especially as the US undertakes an unprecedented ramp up in efficiency funding. The nation’s utilities increased their spending on energy efficiency by 43% in 2009, according to the Consortium for Energy Efficiency. In all, utilities spent $4.4 billion for electric energy efficiency and $930 million for natural gas programs. In addition, CEE found that 46 states offered energy efficiency programs last year, up from 37 states in 2008. http://www.cee1.org/files/2009CEEAnnualReport.pdf.
The federal government has heightened the stakes by offering about $25 billion in energy efficiency programs through federal stimulus funds. The money represents the biggest boon – and biggest risk — ever faced by the energy efficiency industry. The public needs accurate information about return on this investment. As ASE says, “This is the windfall efficiency advocates have long waited for – should we prove unable to realize energy savings commensurate with the funding, we may never again have a chance to do so.”
Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.