Efficiency is unquestionably the largest, cheapest, and cleanest wedge among the many we need decarbonize our energy economy. Energy efficiency tends to cost just 1 to 3 cents per kWh saved, far less than even coal-fired generation. Every renewable technology, from wind to solar, to biomass, has trade-offs. At the very least, we have to decide if the energy we are using for one purpose is not better used for something else.

Energy efficiency is the exception to this rule: you can not use a kilowatt-hour or a BTU over and over again. Given these advantages over generation, it’s amazing that energy efficiency is nevertheless so extremely cheap. Given an even moderately efficient [pun intended] market, you would expect that all the cheap energy efficiency measures would long ago have been taken until the marginal price of the next efficiency measure was above the marginal price of added electricity generation.

So why hasn’t it?

Why is TXU trying to build a half dozen coal fired power plants in the face of broad opposition from the community when, for a fraction of the cost, they could instead pay to help people insulate their homes, change to more efficient air conditioners, and replace energy efficient lighting and save as much power as they plan to generate with the coal plants without any cost for fuel and harm to the environment from mining and emissions?

For that matter, why don’t TXU’s customers (and the rest of us) take these steps ourselves, when the internal return on investment is many time what we can rationally hope to achieve in the financial markets, and in many cases is even higher than the interest borrowers with the worst credit ratings pay on their credit cards. (Like most financial advisors, I hate debt, especially credit card debt, but even if you’re drowning in $30,000 of credit card debt at 25% APR, it still makes sense for you to buy a pack of CFL’s at $3 each on that high-interest credit card, and replace every incandescent light bulb in your house that you use more than 2 hours a day.)

Here’s a blog which does a good job outlining the usual answers: lack of financing, perverse incentives, and disinterest on the part of people for whom energy is only a tiny part of the budget (all of which are true.) He goes on to outline perscriptions that will undoubtably help to break down the barriers to the adoption of many Energy Efficiency measures.

I see other barriers that lie behind these. Not just a failure of normal market forces, but conceptual problems. While energy in general is a fuzzy concept to most people, using less energy is even less tangible. You just can’t drop energy efficiency on your foot. You’re not even at risk of electricution from it.

The pernicious consequence of systems of measurement is always that things we can’t measure go unnoticed. If you have a hammer, everything looks like a nail, but even more insidiously, things that will never look like nails no matter how hard you squint dissappear from your vision altogether. It is this psychological quirk that makes energy efficiency go unnoticed.

What image comes to your mind when I say “wind power”? If you’re anything like me, you probably had a image of a forest of giant wind turbine blades turning gracefully on the horizon like ballet dancers. Or, you might be like my wife, who would also have an image of a wind farm, but thinks they are ugly (although not so ugly as the haze from a distant coal plant) despite recognizing their necessity. She wishes they were painted to camouflage them into the background. Whatever your attitude towards wind power, you probably saw an image.

Now try “energy efficiency.” It’s a lot trickier, isn’t it? I think about energy efficiency all the time, the way a teenage boy thinks about sex (okay, maybe not quite that much), and even I can’t settle on an image. My mind flashes from the act of replacing an incandescent bulb with a compact fluorescent lightbulb (CFL) to an industrial scale combined heat and power facility, to closing the blinds at night to keep the heat in.

Not only is energy efficiency hard to picture, it’s also hard to measure. To compute the energy savings from any activity, you have to establish a baseline: how much energy would you have used if you had not changed your methods. Even in the simplest case of replacing a CFL, we don’t really know that the bulb we replace would really have stayed in the socket until the CFL breaks: A CFL can easily last 10 years, and by that time, we may be replacing all our bulbs with LEDs. And that does not even begin to account for the effects on our HVAC systems.

Is your mind spinning? That’s my point. It can be so hard to get our minds around all the impacts of energy efficiency that, for most people, the most people, it may actually be rational to waste a little energy in order to avoid the headache that trying to get their mind around efficiency may entail.

The problem is, that decades of conserving brain power has left us as a society that wastes energy egregiously.

My prescriptions, designed to make thinking about efficiency easier:

Measure energy use at every opportunity. Many Prius drivers report that the real-time MPG gauge on the dash causes them to change their driving habits to grive more efficiently. Getting a Kill-a-Watt energy meter makes us think more about our next electronics purchase. Getting to know your electric meter can also motivate you to track down wasted energy. A radical idea: on new homes, the electric meter should be inside, along with the circuit breakers. New meters can be read (and even turned on and off) remotely, so there is no reason any longer to have them on the side of the house where we never see them. Another thing we need to measure is when we use our electricity, not just how much. Wholesale electricity prices can vary from a few cents per kWh to 30 cents or more during peak consumption. As we move to a grid based on renewable energy supplies, most of which are intermittent and non-dispatchable, we need to get used to paying the real-time price of the energy we’re using. Wide-spread adoption of time of use metering will drive the invention and adoption of appliances that can adapt themselves to changing prices. There are direct, immediate benefits to the system by shaving peak loads, but the real benefits will come when people adopt new ways of doing things and new devices that will cause our appliances to run and our devices to charge when electricity is plentiful, and runonly the most essential uses of electricity when it is scarce. Xcel is currently doing a pilot study on Time of Use Pricing in Colorado. The preliminary result are that the right pricing scheme encourages customers to change their energy use much more than they had anticipated… but it still would not be “economic” to change out meters for more sophitocated models capable of handling this sort of billing. Their definition of “economic” almost certainly does not include the benefits of the creativity which realistic pricing would unleash. Allowing utilities to profit from selling less rather than more. This concept, known as decoupling, is covered well here. It’s important to remove (or even reverse) the incentive of utilites to sell us more electrons when we really want them to help us use less.

Finally, I do call this blog EE/RE Investing, so here are the sectors that I see benefiting from these recommendations as they are adopted: