In an age of cheap solar, does efficiency still matter? | RenewEconomy

In an age of cheap solar, does efficiency still matter?

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What is the real tipping point where forgoing efficiency in favour of solar pays off?

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RMI

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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 favour 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 HVACand 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 workhouse 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 favour 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.

Source: RMI. Reproduced with permission.

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12 Comments
  1. RobS 5 years ago

    The headlines don’t seem to match the text. The text correctly details that as solar costs plummet more and more of the more expensive ways of increasing energy efficiency become economically unjustified and we can get way more value for money by adding additional solar to a project than with expensive deep efficiency.
    Yet the headlines;
    Are companies turning to cheap solar too hastily?
    Efficiency remains cost competitive
    Efficiency still key to leaving fossil fuels
    seem to completely contradict the analysis in the article without any justification.

    • Diego Matter 5 years ago

      Rob, I fear you’re wrong on this one.

      The analysis is very accurate. As the author writes – only very few efficiency measures are more expensive than solar generated electricity. With adding an additional window pane they mean a third window pane. And daylighting basement spaces when you can use LEDs that cost you $5 per year to run is financially not very sensible.

      As the author writes – “In essence, more PVs were lower cost than a full maximization of efficiency.” A “full maximization of efficiency” in the Australian context means, going from an eight star home to a ten star one. That leaves still most energy efficiency measures as the better option.

      And there is another factor to efficiency solar PV and air conditioning can never solve, and that is the COMFORT to live in an efficient home.

      Instead of waking up in a cold house and have to wait with cold feat for it to heat up when turning on the air conditioning system is just not very comfortable, as are temperature swings from one extreme to the other, or cold air blowing around the house. The same goes for drafts – in a very tight house envelope you can tell when somewhere only one window was left open a bit, because it is changing the environment around you and that is an experience of the past for somebody living in an efficient house. If you feel a draft you will automatically turn the heater 2 degrees celsius higher. I reckon not many Australians know the feeling of such a comfort level. I think they are just used to crappy homes and building standards.

      Heating and cooling an inefficient house (not upgraded with efficiency measures) around the clock with PV & batteries to reach a similar level of comfort and to become fossil fuel free on the other hand is just a waste of money and economically just not sensible. But as I read your comment, that is what you are suggesting by saying adding more solar panels is the better and (soon) the better option.

      An efficient home has a stable temperature and is far superior in comfort. You have to live and experience it to believe it. You really can’t put the weight of gold against the feeling of a comfortable house. Just ask my wife!

      I think that in general we were educated that you need ACTIVE technology like heaters and air conditioners to be comfortable instead of PASSIVE measures to reach the same result. Examples all over the world show that the passive pathway works perfectly.

      But, energy efficiency will never be sexy…

      • RobS 5 years ago

        No one is arguing against energy efficient lights and insulation. They are no brainers, you can insulate a roof for ~$300 and save yourself $1,000 a year in power. The issue is that deep efficiency often adds tens and sometimes hundreds of thousands to the cost of some builds. Some people spend tens of thousands of dollars to save an equivalent amount of power to that produced by $2,000 worth of solar panels. The issue is that the solar industry grew out of a fledgling industry where the paradigm held that you first did EVERYTHING you possibly could to save power, then you sized a solar system to supply the rest. That paradigm is breaking down and gradually more and more deep efficiency measures simply don’t stack up on a cost basis per unit of energy saved with the cost of solar per unit of energy produced.

        I agree that if you are discussing off grid and are looking at the cost of solar AND storage to supply your needs then the balance swings back in favor of many of the efficiency measures that cant be justified in an on grid solar scenario, however it still holds true that as battery costs fall a similar process will occur.

        I agree that a stable comfortable house has value, but I don’t think you need to spend inordinate amounts to achieve that, moderate levels of insulation plus some form of baseline heating whether that be heat pump hydronics or just an air sourced heat pump, particularly with smart control thermostats that allow you to program it to allow the house to cool slightly overnight whilst maintaining a baseline of comfort then rise back to higher setting in time for the morning rise.

        Aiming for passive measures is all well and good, the point is that spending $30,000 on passive measures to save the power produced by an additional $2,000 worth of solar panels is a fools game.

        • MaxG 5 years ago

          For example: in my calculations, the cost for a heat pump never added up; it was cheaper to install a $600 electric storage tank and use PV to heat it.

      • MaxG 5 years ago

        I am building a close to 10 star house… it needs 10kWh of heating on the coldest day (for 180m2). Using / installing a few more panels for an electric HWS was the better/cheaper option, compared to installing a heat pump.

  2. Finn Peacock 5 years ago

    Funny thing is, if you offer a company 40% of their current electricity bill at $0.02 per kWh they’ll bite your hand off. If you offer to reduce their consumption though efficiency by 40% at an effective cost of $0.02 per kWh it is often a really hard sell.

    • Jacob 5 years ago

      Right. Because we do not know the quality of the products.

      Consider in Victoria, poor quality Chinese cladding is banned in high rises but is illegally installed anyway to cut costs and we get apartment blocks going up in flames in Victoria and Dubai.

      http://www.abc.net.au/7.30/content/2015/s4243787.htm

  3. David Osmond 5 years ago

    Of course if one has limited roof-space, then you may not have the room for extra solar panels.

    • Diego Matter 5 years ago

      Every residential roof in Australia is big enough to power a household that is modestly efficient. They will only need 2.5 kWp of solar (=10kWh production per day on average), and that equates to 10 solar panels. As an example our 5.5 kWp solar system in Queensland is producing three times our electricity needs for our three person household – including a pool.

      The point of the article is that most efficiency measures are still way cheaper than more solar panels (efficiency $0.00–0.02 per kWh versus solar-generated electricity $0.07–0.15 per kWh).

      So not pursuing energy efficiency will make the transformation to a sustainable housing and commercial sector three to seven times more expensive.

      • RobS 5 years ago

        I think you are misrepresenting the article;

        “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.”

        The point of the article is that an ever increasing number of efficiency measures that are being marketed are simply more expensive then the cost of the equivalent number of solar panels to produce the power they would have saved. It’s not to say that all efficiency measures should be abandoned but that as solar costs fall many of the deep efficiency measures of the past when solar was $20+/watt are simply not justifiable in a world with installed solar costing <$1.50/watt

        • MaxG 5 years ago

          Spot on; this is how it is written… and how I have determined solutions around my house as well.

  4. Rikaishi Rikashi 5 years ago

    More money for solar is never a bad thing. We need the industry to grow quickly. Additionally, efficiency may actually hurt the utility-scale solar industry by reducing demand for its product. (so does installing rooftop solar, but at least it’s helping reduce the cost of panels)

    On the other hand, efficiency could help discourage any new-build coal plants while utility solar is still maturing, so it’s probably a good thing overall.

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