We’ve asked this question before: Is it better to encourage energy efficiency though incentives and benefits, or are we better served by mandating use reduction through regulations, fees, and penalties? In light of the rebound effect and other obstacles, it’s certainly tempting to say “play or pay” and force the hand of energy users big and small, especially when dealing with the post early-adopter: Because once those willing to cash in on the benefits are on board, we must find new ways to motivate the uninspired consumer.
But what about the energy supplier?
A report released this week by the American Council for an Energy-Efficient Economy (ACEEE) concludes that, in fact, the ability of utilities to earn a profit from energy efficiency programs results in a greater likelihood that those programs will be continued and expanded. Entitled "Carrots for Utilities: Providing Financial Returns for Utility Investments in Energy Efficiency," the report gathers information gleaned from 18 states that have adopted “shareholder incentive policies” to spur increased energy efficiency at the supplier—rather than user—level.
Unlike traditional utility business models (supported in many states) that discourage utility investments in customer-centric energy efficiency programs, an incentivized approach has helped private utility companies—who are often beholden to shareholders and thus focused on profit margins and return on investment—increase efficiency and fortify their bottom line.
As a result of these findings, the authors of the study believe that more and more states will abandon their current policies in favor of those shareholder incentive policies that involve financial rewards earned as a result of successful energy efficiency programs.
Specifically, the report highlights the following findings:
* When states have set energy-savings goals for utilities under a shareholder incentive structure, the utilities have thus far consistently met or exceeded them.
* There is widespread agreement among industry experts that shareholder incentives are making efficiency programs a more attractive investment opportunity for utility decision makers.
* States are rewarding utility programs that are cost effectively producing energy savings.
So what do you think? Does it make sense to switch our focus from end user to beholden supplier via incentive policies designed to increase earnings and placate shareholders? Do you think that a similar type of program aimed at distributed energy and onsite power would produce similar results? And does it make sense to depend upon states to create these incentives, or is private industry—the innovators, creators, and supports of onsite power and renewable energy—better suited to capitalize on investments and increased profit margins?