A Free-Market Energy Blog

Energy Efficiency: Two Narratives (market sense versus regulation and political correctness)

By Jim Clarkson -- August 6, 2014

“Tell me, JJ, what’s this capital request all about?”

“Boss, this is for a heat exchanger that will use our cooling-tower water for meeting our air conditioning needs when it’s cold outside. I figure it will save 5% of the power we now use for operating our chiller. The project should come in at around $10,000 and have a payback of less than a year.”

“Saves energy, does it?  We can use this project to get greenie points towards obtaining Polar Bear level on our Politically Correct Building certification.”

“Maybe, but getting that certification takes a lot of paperwork and costs about $50,000.”

“Include a bicycle rack in this project, which gets points also.  And does this thing use electricity?”

“A little bit, for controls and automatic valves.”

“Good. Include a solar panel to power it and put it over the entrance to the building so it can be seen.  It’ll make a great picture.”

“Sir, the temperatures that make this equipment effective occur mostly at night; and the entrance to the building faces north. Further, a solar panel could cost $200,000 to ruin the payback.”

“Don’t get all technical on me. And we don’t use money for payback anymore. Just figure the equivalent trees planted and the amount of Greenland glaciers saved.”

“But, Boss…”

“You’ll also need to form a committee with representation from many departments.  We want our people to feel good about the company’s sustainability efforts.

Six months later …

“Boss, about the heat exchanger project…”

“It’s going great, JJ. We’ve had two news articles in the national press, an internal survey shows our employees are proud to work here, and we are up for a Gore Corporate Responsibility Award. Further, we have a great picture of the solar panel with the company logo in the foreground that we will use on the cover of our annual report.”

“I just came from the chiller room, and there’s no heat exchanger there.”

“Oh, that thing-a-ma-bob for the basement… We bought carbon offsets instead, got much better press. Besides, we’ve spent $450 thou so far on this project; we had to make some budget cuts somewhere. ”

Three months later …

“JJ, get in here!”

“What is it, Boss?”

“I’ve had accounting pull our power bills for the last few years.  Even after spending $2 million on getting our Politically Correct Building certification at the Polar Bear level, we are not saving any money on energy costs!”

“That’s right Boss.  Most of that “money was spent on things that have nothing to do with saving energy.  And what you don’t see by looking at power bills is the increased maintenance costs and all the time spent on filling out paperwork.”

“What about all those meters we put in?  Don’t meters save money?”

“No, Boss. Meters may provide information that can help make management decisions about operating practices and assess changes.  But we just use them for reporting on all the green programs we are involved in.”

“JJ, what can we do?  The company is losing money; we can’t afford any more green stuff that offers no savings.”

“Boss, this is very frank, but from now on let the engineers, not the public relations people, pick out the energy projects.”


DSM in Practice

“JJ, there is great new Demand Side Management program where the power company will help pay for new high efficiency equipment.”

“I know about it, Boss; but it won’t do us much good.”

“Why not? Look here; it says that they will pay us $5 per horsepower to get new efficient motors.”

“This facility is only 20 years old, and most of our motors are the high efficiency type. The motors for air conditioning fans run about $100 per horsepower, so $5 is hardly enough to justify changing them.  Besides, as our standard type motors burned out, we already replace them with high efficiency models based on the energy savings.”

“So we can’t really get much of this free money?”

“Right, but this program already adds about $500 a month to our bill and will increase to $1,000 per month over the next three years.”

“Sounds like there is no way we can come anywhere near getting our money back.”

“Even if a building is really energy inefficient there is no chance of coming close to breaking even. Such as the building of our competitors, ACME Gizmos, that has had sloppy maintenance for years. They are getting a sizable rebate from the power company.”

“What? JJ, does this mean we are paying for our competitor’s improvements after we spent our own money making those same improvements?”

“It gets worse, Boss. For every dollar the power company gives Acme, the power company gets to charge $5 to its other customers, including us.”

What to do ….

“JJ, our energy bill is high and getting higher. We have installed solar panels, purchased green power and obtained our Politically Correct Building certification all at considerable cost. Why aren’t our energy bills down?”

“Boss, we need to spend our money on things that really cut energy use and costs. Such as lighting upgrades. There are breakthroughs in lighting technologies about every two years. Also air conditioning equipment is getting better and better. If we properly assign the cost of peaks caused by air conditioning, we can justify change-outs to newer more efficient equipment. We need to improve our ventilation control. We should paint the roof white, over time retrofit to smart motors and drives, and use sophisticated controls.”

“Sounds like these things will save money. How about utility rebates?”

“If we are making a retrofit anyway then we might as well apply for such rebates. After all we paid a pretty penny into the fund for these efficiency upgrade programs.”

“But, JJ, how do we cut the costs of the power itself?”

“We must become cognizant of where our significant costs are, namely the cost of power during utility peak periods.  We must learn to control our demand as much as possible as well as employing risk management tools. Further, we must advocate time-sensitive pricing, rational rate designs, and market access.”


  1. Michael Lynch  

    Sadly, this reflects the difference between the capitalist mindset and the environmentalists mindset, where the latter is focused on lesson goals than rules. Not sure how to transform their attitudes.


  2. rbradley  

    Businesses too often work for the outside in rather than the inside out regarding matters of energy and the environment. Political correctness squanders resources. Companies with green imaging in energy have often been the laggards. Enron and the old BP come to mind.


  3. Power Engineer  

    I sat through a review of energy efficiency projects at a state agency that was subsidizing and funding them. 25 year payback was often seen ( versus 10 years being the rational norm).
    Limited resources of society being used in the wrong place. Tax payer and rate payer dollars being squandered.


  4. Mark  

    Apparently, it’s worse than you thought:

    LEED Buildings May Be Exempt from Property Taxes


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