In an Age of Cheap Solar Does Efficiency Still Matter?

A Silicon Valley developer recently recruited my team to help him design a net-zero-energy construction trailer. This developer sees the trailers on his jobsite as a reflection of his buildings, which are designed to net-zero standards. Most developers consider construction trailers as disposable buildings and they are consequently among the most wasteful buildings in the commercial sector. The net-zero trailer turned out to be a microcosm of the larger building stock and economy where 100 percent renewable is a small but growing goal for companies, cities, utilities, and even countries.

In order to help our client reach his goal of net-zero energy, the design team determined we could apply 10 simple efficiency measures to the trailer. Then we determined the lowest cost for reaching net zero was actually to do only 7 of the 10 efficiency measures, and then add solar PV. Better windows, a better envelope, plus dimmable LED lighting reduced the required energy cost-effectively. Due to the better envelope, we only needed a small HVAC system. As our analysis progressed, we found the most-efficient HVAC unit was more expensive than adding more PVs to the roof. In essence, more PVs were lower cost than a full maximization of efficiency.

High-performance solar projects like this raise some interesting questions around the changing economic value of pursuing efficiency. What is the real tipping point where forgoing efficiency in favor of solar pays off? And even when solar seems more affordable than efficiency, does it still make sense to value deep efficiency measures?

The Tipping Point: Efficiency vs. Solar

“Efficiency first” is the mantra in green and net-zero buildings; you always do energy efficiency first and then cover the remaining balance of energy needs with renewables such as rooftop solar. This is almost a moral code for green buildings. But in today’s world of rapidly falling costs for renewables, the tipping point between cost-effective efficiency and solar is shifting.

The cost of saving energy through efficiency measures has typically been three to five times lower than any of the renewable sources of energy. Efficiency, as a bundle on a project, typically costs $0.00–0.02 per kWh. Solar-generated electricity has come from $0.20 or more per kWh down to $0.07–0.15 per kWh. And costs are expected to drop a further 25 to 50 percent in the coming few years. We have found that the most-expensive efficiency options—adding another pane of glazing to the windows in a mild climate, daylighting basement spaces, using complicated and sometimes unreliable control systems to harvest the last bit of energy—can’t compete with the new lower cost of solar. Inching incrementally toward deeper efficiency gets more expensive per kWh of energy saved. But is piling on more solar always the best solution?

Are Companies Turning to Cheap Solar too Hastily?

Many companies are forgoing efficiency for the easy solution of simply purchasing on-site renewables, and cost is not the only reason for their choice. When we put PV on our homes or businesses we are making a very visible statement. PV panels and even buying offsets are fashionable now as part of green marketing and corporate image branding. Microsoft, Kohl’s, and Starbucks, to name just a few, are among a growing group of companies that are purchasing renewable energy to offset their needs.

A handful of large renewable deals can easily offset all of the energy use of a large company. In a popular move, Apple is going for 100 percent renewables and to get there, the company is buying/co-investing in a 160 MW power plant, fully powered by solar. Apple’s new data center in Maiden, NC, is surrounded by 300 acres of PV fields, built to power Apple’s energy-intensive data center. These companies are finding that large-scale renewables cost the same as or less than grid power. Why wouldn’t they switch to renewables? (RMI recently established the Business Renewables Center to help companies make the switch.) This switch is indeed a milestone and they should be congratulated for their leadership. The perplexing thing is that many companies that embrace renewables have yet to fully tap efficiency opportunities, most of which are significantly cheaper than renewables and grid power.

While making great strides in renewables, these companies are leaving more-lucrative energy efficiency opportunities on the table. One of my clients, Infosys, India’s second-largest software company with 30 million square feet of buildings, has dedicated itself to pursuing efficiency on all its buildings long before pursuing renewables. Building by building it has retrofitted HVAC and lighting systems over the past 7 years and has lowered its energy use by 40 percent in a hot humid climate. For Infosys, the cost of saving energy was equivalent to purchasing energy at less than $0.03 per kWh or as much as one-third the cost of self-generated solar. Many of the U.S. companies have yet to tap the same efficiency opportunities that Infosys has. A recent study by Lawrence Berkeley National Laboratory (LBNL) found that 1,700 U.S. efficiency programs saved energy at an equivalent rate of $0.021 per kWh. The U.S. companies that rush towards purchasing renewable power are often leaving more-cost-effective solutions on the table. They do this because capturing efficiency for a large portfolio of buildings is a multi-year process whereas renewable energy purchases are relatively quick and don’t require much administrative overhead. Large organizations look for quick wins that make good headlines.

Efficiency Remains Cost Competitive

We’ve reached a point with costs where sometimes doing absolutely all the efficiency possible before buying PVs just doesn’t pencil out anymore. We like to think of efficiency in terms of a cost continuum. What is the equivalent cost of saved energy when we put it in terms such as $ per kWh that make it easily comparable to energy generation? From this perspective, almost all efficiency on the continuum is still well below renewable generated energy. But not all of it. And as renewable costs drop we might view adding more efficiency to be less competitive. Make no mistake, the vast majority of efficiency is still extremely cost competitive.

Efficiency will become a growing requirement through regulation not only on new buildings but also in existing buildings. Grid, utility, and government planners see the writing on the wall that without efficiency large renewable portfolios will be difficult. They also see the metrics that show efficiency as a lower-cost option to generation. This is why California has a plan in which the building codes require higher and higher levels of efficiency. Policymakers realize that the best way to hit the 2020 and 2030 net-zero targets for new buildings is to first make them very efficient. Their deep analysis of the options continues to show that pursuing most efficiency opportunities is the best and most-cost-effective path to making buildings renewably powered.

Efficiency Still Key to Leaving Fossil Fuels

As a fellow Stanford lecturer and former California Public Utilities Commissioner, Dian Grueneich, recently told me, “Solar is sexy and people don’t fall in love with efficiency.” Solar may be more glamorous, but efficiency, the old workhorse of green buildings, remains a winner, just not in all cases. In the future, the competition will not be between renewable energy and energy efficiency but it will be renewables together with efficiency vs. fossil fuels. Cheaper solar is once again making energy efficiency a “hidden fuel” that gets overlooked in favor of other options, but if we pay attention to it and combine it with more and more renewables, we will find efficiency helps us in achieving the goals of Reinventing Fire. Our rationale will change, but efficiency will continue to be the unsung hero of our transition to 100 percent renewables.

Peter Rumsey, PE is the founder of Point Energy Innovations and is internationally recognized for his innovation and leadership in the sustainability and energy efficiency fields. He has designed more LEED Platinum, Zero Energy, and radiant-cooled buildings than any engineer in the United States. Peter is an ASHRAE Fellow, a lecturer at Stanford University, and has served as a senior fellow of RMI. In 2012, the Association of Energy Engineers awarded him the International Renewable Energy Innovator of the Year. In 2013, he was honored by ASHRAE with the Engineering Award of Excellence, awarded only four times in ASHRAE’s 100-year history.

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