Money and Reduced Emissions Don’t Sell Energy Efficiency, but Comfort and Health Do

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    As an expert witness in an energy efficiency ("Demand Side Management" or DSM in utility-speak) docket before the Colorado Public Utilities Commission, I have been making the case that non-energy benefits of energy efficiency measures such as the increased safety and comfort of an efficiently operating home need to be included in evaluating the cost-effectiveness of energy efficiency programs.  There has been much resistance to the inclusion of these benefits, mainly because they can be difficult to quantify.  Yet we omit them at our peril.

Why Energy Efficiency and Health Matter

    Last summer, I explored why the economic benefits of energy efficiency measures had little relation to their actual market acceptance.  I concluded that businesses need strategies beyond touting financial savings to overcome barriers to acceptance.  One strategy I highlighted was making energy efficiency measures an emblem of social status (something I believe is behind the success of the Toyota Prius.)

    In this docket, I have been working with the Energy Efficiency Business Coalition, which brings together manufacturers, distributors, and Retail providers of energy efficiency products and services in order to support energy efficiency-friendly legislation and regulation.  For those who sell to the retail public, their primary messages have little to do with either financial rewards or social status.  Their marketing emphasizes the increased health, safety, and comfort of energy efficient homes.

    A home with properly sealed ducts will not only use much less energy, but it will not pull toxins from the garage or crawlspace into the living area of the home.  Properly functioning furnaces and water heaters save energy, but they also do not emit carbon monoxide.  A well insulated house lacks hot and cold spots, allowing the occupants to be comfortable everywhere in the home.  

    All of these facts are effective marketing tools for energy efficiency.  They’re so effective, that a Google search for "insulation comfort" returns 597,000 hits, of which the first six are companies with something to sell.  In contrast, a search for "insulation savings" returns a slightly lower 540,000 hits, but of the first 10, only one (#6) has anything to sell.  The rest are information sites from government, nonprofits, or for DIY’ers.  

Survival of The Fittest (In Competitive Markets Only)

    Those businesses which stay in business by successfully selling insulation do so by selling the comfort benefits, not the energy savings.  The energy savings are instead pushed by organizations (such as government) which will remain in business regardless of who buys what they are selling.  

    I find it quite telling that Xcel Energy (NYSE:XEL), the utility we have been dealing with in the DSM docket, markets their energy efficiency programs almost entirely on financial savings.  But then, Xcel is not going to go out of business if they don’t sell as much energy efficiency as possible: their main business is selling energy, not energy savings.  I don’t mean this as a condemnation of Xcel; the company is quite progressive, as public utilities go.

    Because public utilities are regulated, it falls on the regulator to ensure that the utilities incentive includes those factors which will actually increase the adoption of energy efficiency.  Normal businesses have found that the factors to emphasize are non energy benefits such as comfort, health, and safety.  These factors are out of favor in regulatory circles, because they are difficult to value in dollars and cents.  

    Difficult to value does not mean without value.  People buy things they value, and when it comes to home energy efficiency, they are buying health and comfort, with a dash of energy savings… not the other way around.  DSM programs which take this into account are likely to be much more successful than those which do not.

    Regulators take note.

DISCLOSURE: Tom Konrad and/or his clients have positions in
all the stocks mentioned here: XEL.

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