has set the goal of reducing the rate of energy consumption per capita in Virginia by 40 percent from current projections, in effect stabilizing per capita consumption, not reducing it. Total energy use would continue to grow along with the population.
While praising many aspects of the plan, the Southern Environmental Law Center criticized the report for its modest conservation goal. Write Trip Pollard and Cale Jaffe in a prepared statement:
The plan also deserves praise for recognizing the importance of energy efficiency as the “least costly and most readily deployable energy resource.” However, it recommends a target of reducing electricity use in Virginia by only 3900 MW by 2022. A recent analysis shows Virginia ranks dead last in the U.S. on per capita investments on energy efficiency, meaning far greater energy savings should be achieved.
How much conservation is it reasonable to expect Virginia to achieve? Virginia has one of the more electricity-intensive economies in the 50 states, and there are abundant opportunities for conservation and energy efficiency. But we cannot write a blank check. With many competing uses for our resources, we cannot afford to squander funds on any old program with a political constituency.
Earlier this year the General Assembly set a goal of reducing retail electric consumption by the year 2022 by 10 percent of 2006 levels through conservation and energy efficiency. That would defer or postpone the need for about 3,900 megawatts of electric genration capacity, equivalent to four or five large power-generating stations.
That does not strike me as especially ambitious, but I don’t have the data to say one way or another. Here’s the question I always come back to: What’s the Return on Investment? The Energy Plan does not say explicitly, but it does provide some numbers to work with. The report assumes that electric companies and consumers would invest about $300 million a year over the fifteen-year life of the program. Annual savings would amount to between $15 million to $50 million per year, depending on the assumptions made.
Let’s see, if we invest $300 million and generate $15 million a year in savings, that’s a 5.0 percent Return on Investment, equivalent to investing in a money market fund. Not terribly attractive. Saving $50 million a year would yield 17 percent, which is very competitive, the kind of return that the private sector looks for.
Presumably, those numbers mask a wide range of returns on individual projects. Rather than commit to a specific statewide number, I would suggest, consumers and power companies should be allowed to make investments in line with their personal expectations. And instead of setting artificial statewide goals, the state should focus on (a) creating the legal and regulatory conditions where the marketplace rewards investments in conservation and energy efficiency, and (b) fixing energy-inefficient human settlement patterns that result in unnecessary expenditure of energy for driving and home heating/cooling. Then the state should step aside and let individual households and businesses figure out how to maximize their own good through conservation and energy efficiency.
As a practical matter, what does that mean? I hope to elaborate in future posts.