Part 1: Understanding ESG and How it Relates to Energy Efficiency:
Environmental (E): Impact of energy efficiency on carbon footprints and resource depletion.
Energy efficiency strongly aligns with the ‘E’ in ESG, prioritizing practices that directly reduce carbon footprints and minimize resource depletion, positively impacting a company’s environmental scorecard in ESG evaluations.
Social (S): Indirect benefits of energy efficiency on communities & the positive social perceptions for companies prioritizing energy efficiency.
While not directly related to social aspects, energy efficiency indirectly benefits communities by lowering energy consumption, reducing pollution, improving air quality, and potentially lowering energy costs for consumers. Companies focusing on energy efficiency often gain positive social perceptions that support recruiting and retainment efforts.
Governance (G): Role of energy efficiency in responsible resource management & the contribution to operational efficiency within the governance framework.
In governance, energy efficiency contributes to responsible resource management and operational efficiency. Effective energy management demonstrates prudent governance by optimizing resource utilization, reducing operational costs, and promoting long-term sustainability within the company’s governance framework.
Part 2: ESG and How it Relates to Energy Management:
Environmental (E): Alignment of energy management with environmental objectives.
Energy management aligns with environmental objectives by holistically reducing energy consumption and emissions. Robust energy management systems signal a commitment to minimizing environmental impact, highly valued in ESG evaluations.
Social (S): Indirect impacts of energy management on social aspects & the importance of transparent communication in fostering stakeholder trust.
Energy management indirectly impacts social aspects. By reducing energy consumption, companies can allocate savings to social initiatives or community development programs. Transparent communication about energy management fosters stakeholder trust, positively influencing social perceptions.
Governance (G): Integral role of energy management in effective governance & the strengthening of governance credentials through transparent reporting.
Energy management is integral to effective governance, demonstrated through comprehensive energy policies, adherence to regulatory frameworks, and ambitious energy efficiency goals. Transparent reporting on energy management performance strengthens a company’s governance credentials in ESG assessments.
In the context of ESG criteria, both energy efficiency and management are pivotal, showcasing a company’s commitment to sustainability, responsible resource utilization, and efficient operational practices, contributing positively to environmental, social, and governance performance evaluations.
Part 3: Comparing Energy Efficiency Measures vs. Energy Management
Now let’s explore how energy efficiency focuses on improving the efficiency of individual technologies or applications (what I refer to as measures), compared to energy management, which encompasses a broader spectrum, integrating behavioral changes, procurement strategies, and continuous improvement efforts within an organization’s energy-related practices.
- LED Lighting: LED technology is a prime example of energy efficiency in lighting. LEDs consume significantly less energy than traditional lighting sources while providing the same or better illumination levels. They convert a higher percentage of electricity into light, reducing wasted energy as heat.
- Smart Lighting Systems: Energy management extends to implementing smart lighting systems. These systems utilize sensors and automation to adjust lighting levels based on occupancy or natural light availability. They optimize energy use by ensuring lights are only active when necessary.
Mechanical Examples – Energy Efficiency
- HVAC Systems: Upgrading to energy-efficient HVAC (Heating, Ventilation, and Air Conditioning) systems showcases energy efficiency in mechanical systems. High-efficiency HVAC systems reduce energy consumption by optimizing heating and cooling processes while maintaining comfort levels.
- Efficient Motors and Machinery: Industrial sectors often upgrade to more energy-efficient motors and machinery. Advanced technology reduces energy loss during operations, improving overall efficiency.
Mechanical Examples – Energy Management
- Maintenance Practices: Energy management involves implementing proactive maintenance schedules for mechanical systems. Regular maintenance ensures optimal performance, reducing energy wastage due to inefficiencies or breakdowns.
- Energy Recovery Systems: Incorporating energy recovery systems within mechanical operations helps capture and reuse waste energy, further optimizing overall energy usage.
Solar Energy – Comparing Energy Efficiency vs. Energy Management
- Energy Efficiency: Installing solar panels exemplifies energy efficiency by directly harnessing renewable energy from the sun. Photovoltaic (PV) systems convert sunlight into electricity with minimal losses, emphasizing the efficiency of generating power from a sustainable source.
- Energy Management: Beyond the installation itself, effective energy management involves optimizing solar power usage. This includes implementing energy storage solutions (like batteries) to store surplus solar energy for use during periods of low sunlight. Additionally, smart grid integration allows for better management and distribution of solar-generated power within a local energy ecosystem.
EV Charging – Comparing Energy Efficiency vs. Energy Management
- Energy Efficiency: EV charging technologies focus on efficiency by improving the energy transfer process. For instance, advancements in fast-charging technologies aim to minimize charging times and maximize the amount of energy transferred to the EV battery per unit of time, optimizing the charging process.
- Energy Management: Energy management in the context of EV charging involves strategies beyond mere charging efficiency. It encompasses intelligent charging scheduling that considers the grid.
Effective energy management not only demonstrates responsible resource management but also fosters long-term sustainability within a company’s governance framework. Energy efficiency, a crucial aspect of energy management, directly enhances governance practices by optimizing resource utilization and reducing operational costs, showcasing prudent governance.
In conclusion, prioritizing energy efficiency and effective energy management is pivotal for companies aiming to meet ESG criteria, and it can have its challenges. However, integration of these practices into corporate strategies signals a firm commitment to sustainability, responsible resource utilization, and efficient operations, ultimately contributing positively to environmental, social, and governance performance evaluations. Emphasizing this commitment is crucial for companies seeking alignment with ESG criteria and enhancing their overall performance.
At Eco Engineering, offers a range of services that can help companies meet ESG criteria by improving energy efficiency and energy management. Their team of nationwide experts can design, engineer, and manage turnkey projects from concept to construction. They provide innovative solutions tailored to match specific energy goals, ensuring projects are completed on time and within budget. With their expertise in sustainable energy systems and resiliency, Eco Engineering can assist with large-scale solar installations, behind-the-meter solar solutions, electric vehicle charging station installation, and more. For over 30 years, Eco Engineering has been completing energy-saving LED lighting retrofits and lighting control projects for commercial & industrial customers and ESCO partners. Learn more about our services and how we can provide guidance to achieve commercial energy efficiency with our proven and consistent processes for centralized project management or contact us now.
About Jenifer Parke. Based in New York, Jen has over 20 years of experience as a leader in the energy & services industry and is recognized for driving energy reduction focusing on sustainability, standardization, cost analysis, and the customer experience. At Eco Engineering, Ms. Parke is specifically responsible for identifying and deploying performance-based contracts, Energy Efficiency as a Service, single & multi-site program management, Electric Vehicle (EV) charging, and Renewable Energy Generation platforms across North America. Read more of her expert blog articles here.
Some companies dive straight into prominent sustainability projects like installing solar panels. While these initiatives have a role in the process, embracing energy efficiency projects, particularly LED lighting upgrades, as a foundational step toward achieving ESG goals holds immense strategic value. Here’s why:
Strategic Benefits of Prioritizing LED Lighting Projects Before Sustainability Projects
1. Minimizing Electrical Load to Maximize Solar Potential
Before considering solar installations, it’s critical to reduce the existing electrical load. Upgrading lighting systems to energy efficient LED technology slashes energy consumption significantly. This reduction not only minimizes energy wastage but also optimizes the potential output of subsequent solar projects. By beginning with an investment grade lighting audit and lowering the overall demand, EPCs can help optimally engineer the kW requirement of the solar PV system; hence reducing the project cost.
2. Speedy Returns with Faster Payback Periods
One of the remarkable benefits of lighting retrofit upgrades is their rapid payback periods. Unlike solar projects, which often involve substantial upfront costs and the potential need for financing support through Energy as a Service or PPAs, LED lighting upgrades demonstrate quicker returns on investment. This faster payback allows firms to swiftly reinvest the savings generated from these projects into other sustainability initiatives.
3. Using Energy Savings as a Catalyst for Further Sustainability
The annual energy savings achieved through LED lighting initiatives act as a financial catalyst for broader sustainability initiatives. Proficiently managing Energy Efficiency projects establishes a strong foundation, gaining leadership support for subsequent Sustainable Energy projects. An EE initiative functions as a valuable “proof of concept” for future reporting, funding, and the comprehensive design of SE programs. These savings directly offset expenses in larger-scale sustainability projects, like solar installations, ensuring a strategic and sustainable allocation of resources. Explore further insights on prioritizing energy projects in our blog post, A Guide To Prioritizing Energy Conservation Projects.
4. Leveraging Advanced Controls for Enhanced Efficiency
Integrating smart or networked lighting controls amplifies the efficiency gains achieved through LED upgrades. Features like daylight harvesting and peak load shedding further curtail electrical demand, maximizing energy savings. The DesignLights Consortium’s 2023 study emphasizes the immense energy-saving potential of networked lighting controls, especially when integrating HVAC controls via lighting system-based occupancy sensors. Demonstrating a 50+% reduction in LED energy consumption, these controls offer up to 5-10% total commercial building energy reduction. Arizona and Connecticut stand to gain $217 million and $1.2 billion respectively by 2030 through adopting these systems. Such integrated systems not only enhance efficiency but also demonstrate a commitment to harnessing cutting-edge technology for sustainability efforts and substantial energy savings.
5. Maximizing Utility and Tax Incentives
Embarking on energy efficiency projects allows a company to leverage a myriad of utility and tax incentives. These incentives serve as invaluable support in funding subsequent sustainability initiatives like solar projects, battery storage, and EV Charging Stations to amplify their financial viability and overall impact.
In essence, starting the ESG journey can have its challenges, but beginning with energy efficiency projects is key to laying a strong foundation for a sustainable future. These projects serve as precursors, not inhibitors, to larger sustainability endeavors. By strategically managing electrical load, maximizing efficiency gains, and leveraging financial incentives, companies can pave a smoother, more financially viable path toward achieving holistic ESG goals.
At Eco Engineering, we understand the pivotal role of commercial energy efficiency in driving sustainable transformations for commercial and industrial entities. Our 30 years of expertise lies in guiding organizations through the strategic implementation of LED lighting upgrades and facilitating the seamless integration of sustainable solutions like solar projects. Together, let’s illuminate the path to a greener and more sustainable future.
Learn more about our services and how we can provide guidance to achieve commercial energy efficiency with our proven and consistent processes for centralized project management or contact us now.
In the pursuit of environmental sustainability and commercial energy efficiency within any organization, it is essential to establish commitments, set goals, develop a strategic approach, and create a practical operational roadmap. As a result, companies have focused on adding specialized sustainability roles, teams, and task forces. However, some may face a significant challenge – a lack of awareness and expertise in strategically prioritizing Energy Conservation Measure (ECM) projects for effective energy-saving initiatives. This knowledge gap can be reduced when companies consider guidance and expertise from an Engineering, Procurement, and Construction (EPC) firm in the energy sector. This approach not only streamlines the process but also makes the sustainability program more appealing and accessible to internal teams.
EPC contractors can play a crucial role in helping companies prioritize energy conservation projects to achieve their climate goals as part of their overall Environmental, Social, and Governance (ESG) and sustainability objectives. Here’s a step-by-step guide outlining on how EPC firms can assist to prioritize energy conservation projects:
Step-by-Step Process Guide to Prioritizing Energy Conservation Projects
1. Baseline Assessment: Eco Engineering suggests starting the journey toward greater energy efficiency with a thorough baseline assessment. This assessment involves conducting a comprehensive energy audit, including an investment-grade lighting audit assessment of your facilities and operations. This audit can cover various aspects, such as analyzing your current energy consumption, assessing utility costs, and evaluating the potential for utility rebates. The initial focus of this assessment is on upgrading to LED lighting, marking the initial step towards achieving commercial energy efficiency.
2. Commercial Energy Efficiency Goals: Our approach can include close collaboration with sustainability leaders and stakeholders within your organization. We work together to gain insights into your current energy goals, assess any progress already made, and identify potential opportunities for improvement. Our goal is to help you establish clear and measurable energy objectives, along with the key performance indicators (KPIs) that align with these objectives.
If you’ve encountered challenges in gaining internal buy-in from various teams with differing priorities, we can assist in supporting a strategic business plan to effectively convey your message (read more about the Top 10 Challenges in our blog). By identifying both the goals you want to achieve and the obstacles in your path, we often find it beneficial to plan in reverse, crafting a robust business plan that appeals to cross-functional teams with diverse objectives. This approach ensures that your energy efficiency initiatives are appealing and align with the interests of different internal stakeholders.
3. Identify Energy Conservation Opportunities: Our approach can help you evaluate the potential of an overall building retrofit and prioritizing energy conservation measures that can contribute to achieving energy goals. These may include:
• Lighting Retrofits: Assess the feasibility and benefits of upgrading to energy-efficient LED lighting systems and controls.
• Building Envelope Optimization: Examine opportunities to enhance insulation, windows, and roofing for better energy efficiency.
• Renewable Energy: Consider the integration of solar pv as renewable energy sources.
• HVAC Upgrades: Evaluate improvements in heating, ventilation, and air conditioning systems.
• Energy Management Systems (EMS): Explore the implementation of EMS for better control and monitoring of energy usage.
• Electric Vehicle (EV) Charging Infrastructure: Assess the potential for EV charging stations to meet the needs of your customers and employees.
4. Prioritization Criteria: To develop a set of criteria for prioritizing projects, consider factors such as:
• Cost-Benefit Analysis
• Expected energy savings, operational savings, and emissions reductions.
• Alignment with ESG and sustainability goals.
• Regulatory compliance and reporting requirements.
• Ease of implementation and disruption to operations.
• Risk Assessment – Check out this infographic from Climate Group RE100 to mitigate common myths about renewable electricity.
5. Project Sequencing: Develop a roadmap for project implementation, taking into account the prioritization criteria, available budget, and timelines. Financing is one of the top challenges in the energy transition but there are options such as Energy-as-a-Service (Eaas) that can be considered. Determine which projects should be initiated first and create a phased plan for execution. This can be the most difficult part if sustainability leaders have limited knowledge and need the expertise of an EPC as a guide to strategically prioritizing Energy Conservation projects.
6. Monitoring and Reporting: Implement robust monitoring and reporting mechanisms with controls and metering to track the progress of each project. Measuring energy savings, carbon emissions reductions, and other relevant KPIs can demonstrate the ongoing impact on ESG goals.
By following these recommended steps, an EPC contractor can assist companies in identifying, prioritizing, and implementing energy conservation projects that align with their ESG and sustainability objectives. This collaborative effort helps organizations make informed decisions, maximize the impact of their investments, and demonstrate their commitment to sustainable practices and responsible governance.
For the past 30 years, Eco Engineering has been dedicated to prioritizing our customers’ specific goals and providing customized energy service solutions aimed at maximizing both energy and cost savings.
Learn more about our services and how we can provide guidance to achieve commercial energy efficiency with our proven and consistent processes for centralized project management or contact us now.
In an era where companies are increasingly vocal about their commitment to improve sustainability and commercial energy efficiency, setting ambitious climate goals has become common practice. As companies strive to make progress toward their climate objectives, there is a notable surge in the demand for sustainability-focused roles within organizations. Nonetheless, numerous businesses find themselves grappling with common obstacles when it comes to formulating and executing their sustainability transition strategies.
In this blog, we will explore 10 key challenges faced by companies in their pursuit of sustainability goals. Moreover, we will help uncover the pivotal role that Engineering, Procurement, and Construction (EPC) contractors can play in navigating these challenges while becoming a trusted ally in the journey to retrofit and optimize through Energy Conservation Measures (ECM).
Top 10 Challenges
- Cost Constraints and Financial Options: When it comes to shifting toward cleaner, more efficient, and sustainable energy sources, the road is often paved with significant upfront costs. These expenses encompass investments in renewable energy infrastructure, energy-efficient technologies, and operational adjustments. Businesses, regardless of their size, frequently encounter financial hurdles that make these investments seem daunting. Moreover, many are unaware of innovative financial solutions like Energy-as-a-Service (EaaS) and other alternatives such as a Power Purchase Agreement (PPA).
Additionally, we frequently encounter a common predicament in corporate sustainability efforts: Environmental, Social, and Governance (ESG) Key Performance Indicators (KPIs) fall under the purview of the CEO, while budgetary decisions rest with the CFO. This misalignment is precisely where a solution like EaaS can step in as a strategic fit.
- Lack of Awareness and Expertise for ECM: In today’s corporate landscape, the pursuit of sustainability goals has led to the creation of specialized roles. However, some companies may find themselves grappling with a critical challenge – a lack of awareness and expertise in strategically prioritizing ECMs for effective sutainable and energy-saving initiatives such LED Lighting Retrofits, Building Envelope Optimization, Solar PV, Battery Storage, EV Charging Stations and more. This knowledge gap extends to comprehending intricate energy markets, navigating regulatory requirements, and staying abreast of emerging technologies and resources that can bolster the engineering, procurement, and construction of energy projects.
For businesses without a seasoned sustainability manager or team, or a dedicated advocate, progress in this realm can be slow and cumbersome, potentially taking years to gain traction internally. Nevertheless, there’s a viable solution: starting with a well-defined baseline and crafting a user-friendly roadmap that outlines the prioritization of ECM and expectations for project management. With the guidance and experience of an EPC contractor in the energy space, this approach not only streamlines the process but also makes the sustainability program more enticing and accessible to internal teams. Check out our blog featuring a step-by-step guide outlining how EPC contractors can help you strategically prioritize energy conservation projects.
- Competing Priorities: Companies often have multiple ESG goals, including those related to social and governance aspects. Balancing energy-related goals with these other priorities can be a complex task. Check out this article from the Climate Group to learn more about how to categorize the highest-impact climate solutions and begin creating a transformation plan.
- Short-Term Focus: Businesses often prioritize short-term financial goals over long-term sustainability objectives. This can lead to underinvestment in energy efficiency measures and renewable energy adoption, as the benefits may not be realized immediately.
- Regulatory and Policy Barriers: Companies operating in different regions or countries may face varying regulatory environments and policies related to energy use and emissions. These differences can create compliance challenges and affect the feasibility of certain sustainability initiatives. Eco Engineering can help you navigate the complexities of these regulatory barriers including policy related to the new Inflation Reduction Act (IRA) and legacy policy related to EPAct 179D.
- Supply Chain Complexities: When it comes to achieving ESG (Environmental, Social, and Governance) goals related to energy, successful implementation often necessitates seamless collaboration and alignment throughout the entire supply chain. However, many companies are unaware that EPC partners like Eco Engineering can offer comprehensive solutions in this realm. By doing so, these partners effectively alleviate the corporate team’s burden of managing and navigating the intricate process of engaging suppliers, verifying their adherence to sustainability criteria, and monitoring their energy consumption.
- Technological Uncertainty: Rapid advancements in renewable energy and energy-efficient technologies can create uncertainty about which solutions to adopt. Companies may be concerned about investing in technology that could become obsolete quickly.
- Legacy Infrastructure: Older facilities and equipment may be energy-intensive and expensive to upgrade. Companies with extensive legacy infrastructure may face difficulties in transitioning to cleaner energy sources.
- Risk Aversion: Some companies may be hesitant to make substantial changes to their energy practices due to perceived risks associated with modern technologies or operational disruptions during the transition.
- Data Challenges: Accurate and comprehensive data on energy usage and emissions can be difficult to obtain, especially for multinational companies with diverse operations, but there are predictions that reporting may become a requirement for companies. Without reliable data and reporting, it can be challenging to set meaningful ESG targets and track progress, however, there are solutions available to make this more manageable.
Transitioning to cleaner energy and optimizing commercial energy efficiency is a task that demands careful consideration, financial planning, and expertise. With the right strategies and partnerships in place, companies can navigate these obstacles and take meaningful steps toward a greener, more sustainable future.
To discuss your commercial and industrial energy efficiency projects, or learn more about Energy as a Service, please contact us.
Any facility operator contemplating an energy efficient lighting project will justifiably ask questions concerning the project’s viability. From projected demand reduction to energy cost savings and payback, plus everything in between, the operator seeks to mitigate risk, maximize returns and improve the overall lighting environment for associates and customers.
It all starts with a good audit -The single most important element to ensure that a lighting project is properly planned and executed is the facility audit. The landscape is littered with unsuccessful re-lighting projects whose roots can be traced to a poor audit.
A properly executed audit not only insures accuracy in projecting demand reduction, it serves as the critical foundation for all subsequent financial analysis associated with return on investment. When equipped with an accurate audit, the engineering team can optimize a design specific to that facility. Professional, engineering-grade audits also offer a complete road map for installation, insuring proper quantities of materials, manpower and the resulting time to complete the project. Changes to any of these elements due to a less than stellar auditing effort will produce project delays and cost overruns which ultimately impact the financial analysis. Audits are a pre-requisite for all facility types – manufacturing, warehouses and distribution centers, office buildings, retail establishments and institutional facilities like schools and hospitals. Each of these environments carry unique requirements and lighting variables that only an engineering grade audit will reveal.
Auditors are made, not born. A properly trained lighting practitioner will be steeped in knowledge of the latest lighting and control technologies, will have served as a “shadow” to a senior auditor, will have been involved in prior audit and mapping exercises and will have received detailed instruction on the steps associated with a proven auditing process. The auditor’s ability to work with the engineering team post audit is a critical skill set. In my experience, a minimum of ten prior engagements as a shadow touching all elements of the audit process would be required.
Pre-audit activities are extensive. Information gathering with the client includes a detailed assessment of project objectives, including facility usage nuances and the overall quality of lighting desired. On site personnel may be resistant, or simply busy, perhaps uninformed about the project, the process and the projected outcomes. It is essential that the auditor acts as ombudsman, serving as both project advocate and recorder of any complaints or issues raised by on site personnel. As a representative of the lighting services company, the auditor needs to dress and act in a professional manner, cognizant of his environment, any safety issues and the overall culture unique to every facility.
Using a form comprised of standard questions is the most effective way to interview facility personnel on site. The survey tool seeks to understand the environment and all criteria which may affect the type of lighting to be proposed. Items such as; hours of use for the site and the lighting, areas with too much light, areas needing more light, areas with lots of dirt, areas with wash down, hazardous locations, areas with high or low heat temperatures should all be covered by a standard pre-audit survey tool.
Other questions will affect the implementation and labor installation costs for the project. These items are time of day to work in the various locations, a place to receive and store materials, methods in place to dispose and recycle the old lighting system and other refuse, equipment on-hand that may be required to access the lighting.
Pre-audit activities serve as the foundation to the audit process and insure the project is being planned to meet all goals of the client. In addition to the completed survey tool, if you can’t answer the following questions, pre-audit activities are incomplete:
- Does the facility require improved quality of lighting?
- Are there corporate lighting standards to follow?
- Are the corporate lighting standards up to date with current industry standards?
- Is there a realistic set of payback criteria?
- Is there a realistic budget allocated with a confirmed approval process?
The Audit Process – Best Practices
Many companies think the key to a successful lighting audit is an accurate fixture count. While this is important, a quality audit begins with a comprehensive review of all appicable lighting standards and an auditor trained to insure the proposed design delivers the proper light levels for the space, including dimming or turning lights off when space is unoccupied or daylight is present. Today, in many of our projects, more than half of the projected energy savings is derived from advanced lighting control solutions.
Accurate audits enable the engineering team to have the necessary raw data for examining potential lighting scenarios. Using advanced modeling software different options can be configured and alternative proposals can be generated which address project objectives, cost scenarios and potential return on investment. Fifteen years ago the landscape was still dominated by old lighting technologies and 80% of the projects undertaken were simple lamp and ballast replacements. These projects were considered “low hanging fruit” as costs were mitigated and sufficient energy savings materialized to produce acceptable ROIs. Today, 80% of the projects involve re-design elements including advanced controls, substantial lighting upgrades and system/technology enhancements. While costs are higher for these more comprehensive projects, the energy savings opportunities are substantially higher. Many payback periods fall into the 2 to 4 year range, however, the application of utility and governmental incentives can dramatically reduce the payback time frame.
Working together, the auditor and the engineering team can fully explore all lighting options, including the demand reduction requirements needed to qualify for available incentives.
With the average price for a KWH of electricity hitting a July 2020 record of 13.7 cents (BLS), electricity prices are up about 5.5 percent from a year ago. Energy efficient lighting projects are here to stay. A proven and verifiable process for conducting the audit will insure the success of these projects and contribute to a brighter future for all who follow.
As an 18-year resident of Houston and someone who moved here to escape the cold weather of the northeast, you can imagine my disappointment with having to endure sub-zero wind chills this past week in a city that rarely falls below freezing. Had that been the only thing unpleasant about this past week I would have been just fine with it however beginning at 6:37am on Monday 2/15, I became one of the 4 million plus electricity customers in Texas to be disconnected from the power grid. Hoping that ERCOT would get the situation under control quickly proved to be just that, hope. During my time in Houston, I have lived through a handful of hurricanes flooding events from non-hurricane rainstorms (eg. Tax Day 2015), and a few other bouts of abnormally cold weather. The aftermath from the cold temperatures this week rival the worst of any of those previous events.
Having spent my entire adult career in the energy business, a large chunk of that in the Texas deregulated market working for the largest power generator in the state, I became consumed with reading the articles that many were writing during the past week. Many lay out some key facts but fall short when they use their keyboard to further their political agenda. Spoiler alert – in the words that follow I am not going to blame the renewable energy sector and call for a roll back of our states’ leading position in renewable energy production, one I am actually very proud of. Also, I am not going to blame the thermal energy sector – nuclear, coal, natural gas, and oil fueled generation units. These power plants are necessary to maintain the outstanding grid reliability we all enjoy in TX and serve their purpose at keeping our electricity prices some of the lowest in the United States.
This storm created weather conditions that were not properly planned for and sent a train barreling down the tracks towards all out disaster. I have read many reports, and I believe their truthfulness, that ERCOT was literally minutes away from the entire power grid collapsing which could mean weeks or months until our power was restored. The only tool left in the toolbox for ERCOT at 1:25am on Monday 2/15/2021 was to order the transmission and distribution companies to immediately begin firm load shedding activities. The reason for this drastic measure, which is the absolute last step on the emergency response playbook, was not the cold weather. It was a fundamental flaw in the underlying design of our market. Incenting generators only when they produce electricity and not penalizing them when they do not.
Texas is an “energy-only” market meaning if you were a power plant owner you only collect revenue upon being dispatched by ERCOT and producing electrons that go onto the grid for consumption by customers. Given that under almost any modeled situation, weather or otherwise, Texas has more than enough generation to meet our demand obligations, there is no incentive for a power plant owner to make investment in their current infrastructure nor is there any incentive for someone to build a new power plant. Other deregulated markets such as PJM, operate as a “capacity market” meaning generators are paid to be available when dispatched and are penalized when they are not able to perform. It is sort of an insurance policy that is recovered through all customers in that particular ISO area.
I have read articles and had conversations with people in my network over the past week about what can be done for next time. The answer is very little unless we have a complete overhaul of the market to a capacity market. Power plant operators may make some investments to harden their infrastructure on their own following this event having missed out on a tremendous amount of money as the real-time price for electricity spiked to the limit of $9,000 per MWh when it usually averages around $30 per MWh. Those who were not able to produce only faced an opportunity cost loss not a real loss. The lost revenue opportunity for a typical 600MW natural gas plant at the height of the crisis was essentially $5,400,000 per hour = $9,000 per MWh * 600 MW. This same plant under normal conditions earns about $18,000 per hour. That lost revenue may be enough to entice some however if more units were online, it is unlikely prices would have spiked to the cap and stayed there for hours and hours thereby making it more difficult to recover the investment.
Without a carrot there can be no stick. The TX Legislature is in session now and I assume taking up legislation aimed at preventing a near systemwide collapse will be added to their agenda. I hope my elected officials take their time and do the right things long-term for Texas.