California utilities invest in efficiency instead of new power plants

Three investor owned utilities will spend over 3 billion dollars in the next three years to save enough energy to not have to build 1,500MW of generation capacity. It might sound like a ton of money, but when you look at all the factors they’re actually saving anywhere between 800 million and 2 billion dollars.

This efficency push is estimated to abate the need for three 500MW generation facilities that would otherwise be needed.

If we look at the cost of what it takes to build a new power plant, for coal (which would probably never be built in CA), its about $3.2B (based on NV Energy’s attempt in Nevada to build 1,500MW of coal-fired generation – $3.8B – 0.6B for the transmission line). This doesn’t include a transmission line from where ever they would build this plant and then bring the energy in. It also doesn’t include the ongoing operational and fuel costs associated with running the coal plant.

Three 500MW natural gas combined cycle turbine power plants would be less expensive – about $1500/kW in California (mostly due to permitting and environmental red tape), for a total cost of $2.25B. This is cheaper than the money spent on energy efficiency, but again it does not include maintenance as well as volatile fuel costs – consider that natural gas cost about three times its current value just 12 months ago. Utilities have to raise rates, but they never quite seem to go back down to where they were when the price of fuel goes down.

The other side of the equation is will the investment actually pay off. It might be difficult to quantify beforehand how much money will translate into reduced energy consumption. Replacing windows and putting more insulation will help, but by how much? The other issue is whether or not the savings “stick” – does someone who sees their power bill drop by 20% start to care less about saving energy because they don’t care if it goes back up to where it was before? Does their energy use slowly creep back up to where it was before?

Still it seems like a great investment – for the initial capital costs, they could prevent the need to build more power plants and not have to worry about buying fuel and maintenance.