Spring 2002 Issue

 News    Council Quarterly    Spring 2002 

 Articles

Energy Trust will pursue conservation, renewables in Oregon

Council decisions for 2001 and 2002

New technologies in lighting

Council seeking comment on Fifth Power Plan

Self-powered: is distributed generation in our energy future?

Federal agencies propose to boost spending on salmon recovery

Conservation investments today could moderate economic impacts of volatile power prices tomorrow

Subbasin Planning update

John Hines appointed new Montana Council member

Success stories: Pend Oreille River

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Conservation Investments Today Could Moderate Economic Impacts of Volatile Power Prices Tomorrow

Volatile electricity prices had the Northwest economy reeling in 2001, but a modest regional investment in energy conservation could help smooth the peaks and valleys of the wholesale power market if another energy crisis develops.

that's not a new message from the Council.

Through the 1990s, wholesale power prices were low enough to discourage new investments in power plants and conservation. When the drought hit in 2000 and 2001, the power supply dipped dramatically, power prices rose substantially and new power plants were rushed to construction. Then the drought ended, new power plants came online, demand for power dropped (primarily this was in response to the economic recession), and wholesale power prices fell back to 1998 levels.

Investments in energy conservation several years ago would have smoothed the peaks and valleys of the wholesale power market's wild ride in 2001. Today, like four years ago, the region faces the possibility that investments in new generation and conservation will wane in response to low wholesale prices. And once again, the Council is touting the importance of energy conservation investments as a hedge against future price shock.

Late last year, a Council analysis demonstrated that some 300 megawatts of energy conservation could be developed in the Northwest for a cost that is less than the cost of building a new natural gas-fired plant of the same size. Not only would the conservation investment help meet the region's growing demand for electricity by using it more efficiently, a "conservation power plant" should contribute directly to making the economy of the Northwest more efficient and more risk resistant.

that's because more than 60 percent of the conservation potential identified in the December 2001 Council analysis is in industrial and commercial businesses. In those sectors of the economy, the energy savings are primarily in replacing old lights and electric motors with more efficient ones, improving the efficiency of heating and air conditioning systems, reducing compressed air leaks so that electric pumps don't work as hard and, where possible, improving the efficiency of electric furnaces. Other commercial and industrial processes also offer significant potential for energy savings, including water heating, building insulation, windows, laundry equipment, exit signs, pumps, fans, transformers, refrigeration equipment, dehumidifiers, heat recovery and thermal storage equipment, cooling towers and water recycling equipment.

According to the U.S. Energy Information Administration, there are 636,002 commercial and industrial electricity customers in the four Northwest states, with Washington (272,983) having the most. Those customers purchased just over 23 million megawatt-hours of electricity in 1999, the most recent year for which the federal agency has figures. In Oregon, the 203,161 commercial and industrial customers purchased 14.9 million megawatt-hours; in Idaho, the 90,798 commercial and industrial customers bought 6.5 million megawatt-hours, and in Montana the 69,060 customers purchased just over 3 million megawatt-hours.

Pacific Northwest Commercial and Industrial Energy Consumption by State in 1999
47.4 million megawatts total

While individual businesses can pursue savings on their own, it is more likely they will do so through their utilities. The Energy Trust of Oregon, a non-profit organization created by Oregon's Legislature to invest in conservation and renewable energy, will coordinate conservation activities in the service territories of Portland General Electric and PacifiCorp. The Bonneville Power Administration is offering a discount on its wholesale rates to its utility customers that operate qualifying conservation and renewables programs. To support that discount and calculate the savings from individual conservation actions, Bonneville and the Council analyzed more than 3,000 actions and made the analysis available to Bonneville's customers.

Even though the 300 megawatts of conservation is available and cost-effective, it is not certain it will be acquired. While it is true that the Northwest is capable of developing conservation resources at a significant rate ? conservation acquisition peaked in 1993 at almost 140 average megawatts ? the rate of acquisition fell dramatically in the latter years of the decade when wholesale power prices dropped to near or below the cost of conservation measures. This discouraged investment. Ironically, today's wholesale price again is low ? lower by a factor of 10 than the price just a year ago.

The boom and bust cycle of wholesale power prices is not new, and an important issue for the region is how to ensure a steady rate of investment in new power plants and conservation ? particularly conservation ? in the face of declining wholesale power prices. In its Fourth Northwest Power Plan, completed in 1998, the Council identified approximately 1,535 average megawatts of conservation opportunities that could be cost-effective to develop over a 20-year period. The Council's analysis estimated that by developing these resources, rather than relying on new gas-fired generation, the region could save $2.3 billion in avoided electricity costs and reduce carbon dioxide emissions that could be expected from fossil-fuel power plants by approximately 80 million tons. The plan estimated that electricity costs would stay low ? 2 cents to a little over 3 cents per kilowatt-hour over 20 years. Of course, prices jumped up substantially in 2000 and 2001 and were back to about 2.5 cents in early 2002. But even with low electricity prices in 1998 and a forecast for more of the same, actual conservation acquisitions were only about half as much as the plan estimated was available. The Council plans to address the issue of ensuring ongoing conservation investments in its Fifth Northwest Power Plan, which will be developed in 2002 and 2003.

According to the Council's December analysis, over the next three to four years the region could acquire about 100 megawatts per year at 3 to 4 cents per kilowatt hour, and most of that at about 3 cents. that's $30-$40 per megawatt-hour, and that is the approximate cost of building a new power plant fueled by natural gas. The total investment would be $220 million to $250 million per year, which is less than was spent on energy conservation, per year, in the Northwest in the late 1990s.

These costs would not be solely the responsibility of the utility system, but likely would be split between participating customers and the rest of a utility's ratepayers. Customers would benefit directly from reduced power bills and the potential for increased productivity, greater comfort, reduced maintenance costs and reduced emissions. And much of the expenditure already is planned. The Council estimates that at least half of the regionwide investment already is incorporated in utility commitments to the Northwest Energy Efficiency Alliance, Bonneville's Conservation and Renewables Discount and Conservation Augmentation budget, and the Oregon Energy Trust.

Acquiring 300 megawatts of conservation also makes sense in terms of the region's total energy supply. Demand for power continues to grow in the Northwest. More than 1,600 megawatts of new, natural gas-fired generation were completed in the region in 2000 and 2001, and 3,500 more megawatts were under construction in early 2002. While hydropower still dominates the region's power supply, augmenting it with 300 megawatts of new energy efficiency measures is a prudent diversification of the region's portfolio of power system investments. In fact, it would be a buffer against the impact of future price volatility. If, for example, over the next 15 years the region experiences even one year when the average price of wholesale electricity is half what it was in the energy-crisis year of 2001, the value of the energy savings from the 300 megawatts of conservation would equal more than 40 percent of the cost to install it.

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