Getting More for Less: The Growing Role of Negawatts

The potential of negawatts is more than theoretical. Given the right motivation, energy conservation has already demonstrated the ability to free up significant generating capacity. Since the 1970s, California, through the California Public Utilities Commission (CPUC), has worked with utilities to encourage conservation rather than consumption. As a result, Californians now use about half as much electricity as other Americans.

Demand response is one way to unlock the power of negawatts, enrolling large energy users to curtail power consumption when needed in exchange for compensation. Boston-based EnerNOC Inc. has enrolled hundreds of power users in demand response networks such as the Negawatt Network in California. Businesses in these networks curtail non-essential power use when needed, helping utilities deal with peak power demand, avoiding blackouts and expensive energy from peaker plants. EnerNOC has established over 1000 MW worth of negawatts in its demand response networks, a significant contribution to the grid when needed. Demonstrating their ability to rapidly and reliably supply power to the grid, EnerNOC and other demand response players like Comverge and Gridpoint are continuing to gain acceptance with a growing list of utilities and network members.

Another mechanism to encourage energy efficiency is a market-based approach using energy efficiency certificates, also called white certificates or "White Tags." If a business saves energy by implementing efficiency measures, it can get the savings certified and receive white tags for the negawatts it sends back into the grid. These White Tags can in turn be sold in either mandatory compliance markets or voluntary markets.

Originating in Europe, energy efficiency certificates have been implemented in the U.K., Italy and France, and are spreading to the U.S. starting with Connecticut, Pennsylvania and Nevada. The details of the plans for white certificates in these different regions vary, although the overall concept of using market mechanisms to encourage conservation is the same. All three of these states allow trading of White Tags, but the way the programs have been established affects the impact of White Tags.

Pennsylvania's program puts White Tags in competition with other forms of energy to meet the state's "advanced energy portfolio standard," making it difficult for White Tags to compete at this early stage with the other cheap and abundant forms of energy with which they are grouped. Trading of white certificates is most advanced in Connecticut, where the trading program began in 2007. The state requires that utilities ramp up the contribution of efficiency projects to 4% of their energy portfolio over a period of three years. White Tags in Connecticut are grouped in a separate tier in the renewable energy standard, allowing the market for white tags to develop on its own.

As trading grows and the utility of White Tags is demonstrated, more states are likely to incorporate them as part of their energy portfolio and a national market for negawatts may eventually result, removing state to state inconsistencies.

Although the concept of negawatts has been around for awhile, getting a viable market going has taken some time and effort with companies like Sterling Planet helping to create markets for white tags. According to Kelly Bennett, Vice President of White Tags at Sterling Planet, "We serve as an intermediary in the market place, a retailer. We buy White Tags from owners of efficiency projects, and match them up with buyers such as utilities that are required to purchase energy efficiency certificates."

The growth of the White Tag market does not depend entirely on regulatory pressure for mandatory measures, but is also increasing as a voluntary measure taken by those who want to do the right thing for the environment. "No matter what happens on the compliance market," Bennett says, "with the rules in place there is an appetite in the voluntary market to use White Tags in the same way as renewable energy certificates." Buyers include individuals who want to buy offsets or corporations or colleges that have set greenhouse gas reduction targets and want to use market tools to meet them.

There are a variety of ways in which energy-efficiency certificates can be used to encourage energy efficiency. One use being advanced by IBM is to bundle energy-efficiency certificates with sales of energy-efficient mainframes. The customer can then resell the certificates or hold on to them to demonstrate their contribution to reducing greenhouse gas emissions through increased energy efficiency.

It's still early in the game for white tags in the U.S., with many opportunities open for entrepreneurs and businesses to help White Tags release the power of negawatts. The opportunities include:

• Working as aggregators of efficiency projects

• Implementing efficiency projects as an ESCO (Energy Services Company)

• Certifying efficiency projects and White Tags

• Verifying transactions

• Expanding the voluntary market for White Tags

White Tags and negawatts are helping to unlock the potential of energy conservation as a resource, but so far they are only scratching the surface of what can be done. "Carbon regulation will bring a great boost to energy efficiency and White Tags markets as emissions reductions from efficiency continue to be the low hanging fruit," says Peter Fusaro, Chairman, Global Change Associates. As experience grows and the market for negawatts proves sound, White Tags and negawatts should make a sizable contribution to our energy portfolio.

Glenn Croston is a biologist, father and author fighting climate change and working toward a greener world at home and at work.  He is the author of 75 Green Businesses You Can Start to Make Money and Make a Difference, a book that describes businesses for innovative eco-entrepreneurs to join the booming green economy in renewable energy, green buildings, food, water, services, transportation, farms, and other areas, scheduled to come out with Entrepreneur Press in August 2008. Glenn is also developing Starting Up Green as a support resource for green entrepreneurs and holds a PhD in biology from the University of California, San Diego.