Denmark's enlightened efficiency approach

Utility companies in the US sometimes don’t like energy efficiency efforts.

Simply put, the more power they sell to consumers, the more money they make. Energy conservation means slowing the increase in energy demand or even reversing it. But although you’d think utilities would then act like iTunes, trying to sell as many songs as they can at once, spikes in demand can seriously tax the electricity system and lead utilities to pay more. So there’s potential for them to like any initiatives that could smooth that demand curve.

States try to encourage this in a few ways. Some require utilities to invest a certain amount in conservation programs. Others are implementing programs to alter incentives, paying utilities on a percentage basis for the amount they conserve, in an attempt to make conservation profitable. Utility conservation programs have been in place and expanding since the 1980s, becoming an integral part of the utility system.

Denmark does things very differently, as Midwest Energy News’ Dan Haugen writes. Regulation often takes place through negotiations between government and industry, with a mutually agreed-upon consensus as a result. The 2012 agreement is expected to cut 2020 energy use to 12 per cent below 2006 levels.

But a key difference is that Denmark’s agreement simply sets conservation requirements and lets companies determine the most cost-effective way to reach them, whether it’s handing out energy-efficient light bulbs or helping with insulation installation. And these efforts are cost-neutral for the companies. They have to meet efficiency requirements, and whatever they spend making it happen can be recovered by passing on the costs to consumers.

To be clear, there are major differences between the US utility environment and Denmark’s. Energy consumption in Denmark has been pretty much flat since 1970, while in the US, consumption has increased about 70 per cent. US utilities have counted on revenue growth from climbing consumption, making them more likely to resist a slowdown or reversal of that trend.

And the very structure of Danish utilities makes things easier. Distribution companies, the ones that are required to promote efficiency, are separate from production companies, the ones that stand to lose out the most if efficiency increases. That also results in distribution companies forming “sister companies” that profit from providing energy savings services.

The Danish utility system is likely not replicable in the US, but it does have some lessons on how efficiency requirements that are revenue-neutral could make companies produce less energy and not even hate it.

Originally published on Climate Progress. Republished with permission.