Why is Austin Energy paying customers to use less energy?
Austin Energy has been running an extensive rebate campaign for quite some time to help Austin residents save money on their utility bills. The rebates are designed to make it more affordable for people in Austin to improve the energy efficiency of their homes. It seems odd for a power company to be encouraging and even paying people to reduce the amount of energy they use. After all, how much the power company gets paid is dependent on how much power is used, so why would they pay people to reduce their monthly bills, thereby decreasing Austin Energy’s revenue?
There are several answers that explain this seemingly odd behavior on the part of Austin Energy. First off is that they want Austin to be considered a green city and they feel good giving rebates to Austin residents to make our city greener. This explanation would be all that is needed if Austin Energy was simply encouraging people to be more energy efficient, but sense they are laying money on the line, there has to be another explanation. Assuming that the people who run Austin Energy are smart business people they would not pay company money for energy efficiency improvements unless there was some real or expected economic gain they could recognize. So we have to look at these Austin Energy rebates as an investment that the Austin Energy execs hope will pay off.
Why then does Austin Energy think that helping Austin residents reduce their energy usage will result in them making more money? First off their motivation could be a desire to control the high peak power demand we have here in Austin and the costs associated with meeting that demand. Currently high peak demand in the US and in Austin is met by what are known as “peaker” plants. These plants only fire up to meet peak demand and sit idle for much of the year. Reducing our energy usage through better efficiency could potentially get rid of the need for these plants. This would help Austin Energy make money because “peaker” plants are costly to maintain and don’t do anything for much of the year. Also these plants are always the least efficient plants available to the utility, meaning their operating margins are smaller than those of other plants. Austin Energy currently can’t charge more for the energy created during peak demand by these less efficient plants, and therefore not having to run them during peak time could help them increase their bottom line.
Another reason Austin Energy is offering to pay for energy efficiency improvement for Austin residents has to do with cost comparisons. If Austin Energy can offset enough demand through energy efficiency that they don’t have to build a new power plant they could potentially save money. Austin Energy has compared the costs of building a new power plant verses the costs associated with offsetting demand through increasing energy efficiency and decided that it is cheaper to pay for energy efficiency improvements. Austin Energy officials estimate that energy efficiency improvements will save the same amount of energy as a 700 megawatt power plant would create annually. The costs associated with building a large power plant like this are huge and far exceed the money they are spending through the rebate programs here in Austin.
The final reason Austin Energy is paying for Austin residents to improve their homes has a more long term and speculative thought process behind it. For a while now energy and environmental experts have been pushing for a carbon cap and trade program. The basic principle behind this program is that each power utility is issued a set amount of pollution credits. These credits are used up when pollutants are emitted. However, assuming you are a low polluting utility that doesn’t use all its credits, you could sell your excess credits to other utilities that need extra credits to continue operating. Part of Austin Energies motivation in offering these rebates then could be in preparation for this proposed system; hoping that enough people in Austin will increase their energy efficiency allowing Austin Energy to have extra carbon credits to sell in the market created by the cap and trade system. In light of the climate bill passed by the House of Representatives on June 26th the cap and trade system may not be far off and no doubt Austin Energy officials are hoping their rebate program will pay off when it is put in place.