The on-going, evolving dynamic between supply and demand has created a continually shifting energy landscape, but these changes can be harnessed for greater efficiency with a new utility compensation model, according to Richard Kauffman, the designer of New York State’s innovative Reforming the Energy Vision (REV) program, during an interview with Forbes this past March.
With solar panels and other technologies, customers don’t merely use power, but can contribute back to the power grid. Recognizing this increasing trend, New York’s REV developed business models that benefit both the customers and utilities. With REV, utilities are compensated for value to customer and efficiency instead of being paid for infrastructure or amount of electrons pushed through lines, according to Kauffman, who is also the Chairman of Energy & Finance for New York and the Chair of the New York State Energy Research and Development Authority (NYSERDA) Board.
The REV program began about three years ago and pilot programs are just now starting. While developing the program, Kauffman noticed three vital trends:
- The cost of distribution is decreasing while electricity load is flat or negative because of energy-efficient technologies.
- Customer demand for environmentally friendly energy and more control over energy choices is increasing.
- There continues to be a need to reduce pollution and decrease carbon emissions.
“The current system is not energy efficient and it was never designed to be energy efficient,” Kauffman said during the interview. “Half the energy content of a big fossil plant goes up the chimney. Utility compensation is based not on the efficiency of capital deployed, but the quantity of capital deployed, with costs passed on to customers.”
In fact, utilities pass through 93 percent to 94 percent of their costs to customers. Kauffman believes that this high level of pass-through costs creates an opportunity for utilities to improve value for customers, reduce costs, and thereby increasing profits. For utilities to adapt to the evolving energy landscape, they should change from viewing energy efficiency as a regulatory mandate and instead think of energy efficiency as a way to earn a share of savings, according to Kauffman.