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Irrational Inefficiency By Choice or Inertia?
Extreme lighting inefficiency in a restaurant or other commercial
setting raises some serious questions about the usual explanations for
inefficiency. For example, The Economist magazine recently described
the rationale for end-use inefficiency in general as one of
apparent irrationality:
Economists trying to explain this apparent irrationality suggest that the savings are too small and the effort involved to change too large. People find their electricity bills boring to think about; within companies, those responsible for keeping bills down may not have the authority to spend the necessary capital. Another explanation is the agency problem: that the developer who would have to pay higher costs up front will not be forking out for the electricity bills. Besides, people buy houses not because they have good insulation but because they have pretty views.(1)
In a recent major report on energy use and energy efficiency, McKinsey & Co. made the following observations about commercial customers:
First, individuals who do not benefit from the savings from lower energy consumption are often those who make the decisions that determine energy productivity. For instance, landlords are not inclined to make investments that benefit their tenants. Conversely, tenants may not want to invest in technology or appliances with higher energy productivity when this would benefit their landlords. Second, commercial buildings have a high turnover rate and this reduces the payback time that many businesses consider acceptable when making energy-saving investments…In the U.S. 73% of commercial energy users require a payback within less than two years…Third, more than 25% of commercial sector energy demand comes from municipalities, universities, schools, and hospitals and they operate under stringent capital constraints.(2)
The well-known arguments for apparent irrationality are generally valid. A close reading of these arguments, however, shows that they really have to be stretched to apply in the case of lighting inefficiency in restaurants. Certainly, some combination of limited knowledge, misperceptions of technology cost and performance, low priority of energy expenses, split incentives, split responsibility, capital constraints, etc. can be used to justify almost any apparent or real irrationality. From a strict dollars-and-cents perspective, however, the obviousness of lighting as a major energy and economic issue, the simplicity of changing a light bulb or turning off a light during the day, and the overwhelming economic advantage of CFLs raises doubts about the usual explanations. The real question is whether the individuals operating these profit-based companies – the individual outlet, the parent corporation, or the building owner – are even paying attention.
Technical objections are also dubious. One recent study compared the widely used Sylvania Double Life Soft White incandescent bulb to seven different CFLs. The incandescent received the lowest overall scores in the group for color, perceived brightness, and other user preferences. Fluorescents are sometimes rejected as being “cold,” and indeed that is true for “cool-white” fluorescents with a high color temperature, e.g., 4,0000K, versus a typical halogen in the 3,4000K range. However, there are fluorescents with color temperatures much deeper into the “warm” range than standard halogens (e.g., 2,7000K for CFLs and 3,0000K for the tubes) and CFL/halogen combinations would eliminate any possible color quality issues.
Another dubious claim is that halogen spots and floods are required for purposes that CFLs are ill-suited. In many of the casual dining restaurants the halogen bulbs were located in places, at distances, and for functions that could not possibly benefit from halogen bulbs. For example, the use of a halogen spot in a narrow, open-ended shroud is common and pointless versus a CFL with similar color qualities. In other cases, the potential usefulness of incandescents for their superior dimming capability is rejected both because there was little or no evidence of dimming in any restaurant and because daylight-sensing fixtures and dimmable fluorescent bulbs are commercially available. Even in a dimmed-incandescent scenario, a large base of non-dimmed lights would be required and there is no reason for these to be incandescent. Arguments for operating exterior spot lights or exterior swag lights in broad daylight in July obviously have no merit.
(Environmental issues over mercury, proper fluorescent bulb disposal, and manufacturing may or may not have merit but they do not directly affect the individual consumer purchase decision.)
The Cost of Inefficiency
As a first approximation, assume that the average number of restaurant
fixtures that can be converted from 75W incandescent to
lumen-equivalent 19W CFL is 10 per fast-food restaurant (the balance
already being CFL or fluorescent tube) and 50 per casual dining
restaurant (reflecting the many restaurants much smaller than the
stand-alone suburban outlets reviewed in this article and the many
halogen-only fixtures in use at these larger restaurants). Part I of
this article estimated that each conversion is worth 242 kWh per year.
There are about 215,000 full-service and about 250,000 limited service
(i.e., fast-food) restaurants in the U.S. At 242 kWh per fixture per
year (and assuming the casual dining restaurants reviewed here are
representative of the “full-service” group), the cost of inefficiency
is (250,000 * 10 fixtures * 242 kWh/yr) + (215,000 * 50 fixtures * 242
kWh/yr) = 3.2 billion kWh/yr, or about the same as the annual output
from one standard 500 MW baseload coal-fired powerplant. At average
U.S. commercial electric rates, which are higher than the Dominion
Power rates, 3.2 billion kWh/yr equates to more than 200 million
dollars per year. This is the amount that could be saved with an
incremental investment of less than $15 million and a payback measured
in weeks. Additional savings from reduced space cooling, reduced
operations and maintenance for replacements, and credits for reduced
carbon emissions, are an extra bonus. These savings also exclude the
net benefits from interior daylight dimming and exterior daylight
sensing.
Anecdotally, the same easily observed commercial lighting inefficiencies go well beyond restaurants. Modern shopping malls, for example, often have a glass atrium with daylight-level incandescent illumination on top of daylight-level natural illumination. Hotels sometimes advertise their commitment to energy efficiency, water conservation, and recycling with a neatly printed card placed in front of an incandescent table lamp in a room full of incandescent lamps, near a lobby and check-in counter filled with incandescent table and ceiling lights. Small offices, waiting rooms, retail stores, apartment or condominium lobbies, conference center / resort facilities and so on, have the same incandescent-by-inertia approach. Modern commercial office buildings often incorporate advanced design for lighting levels, lighting placement, and lighting source (including fluorescents) but no daylight dimming or occupancy sensors, providing technically correct and utterly unnecessary illumination of already well-lit or empty spaces. Adding in the lighting inefficiencies in other commercial end-uses probably generates a grand total of tens of billions of kWh per year, thousands of megawatts of generating capacity, and billions of dollars per year.
And then there’s everything else. Report after report has shown that residential, commercial, industrial, and government consumers ignore simple, proven, and highly cost-effective investments in all areas of end-use energy efficiency, including lighting, motors, HVAC, windows, appliances, power supplies, and so on. , , ,(5)(6)(7)(8) In the aggregate, estimates of economically avoidable waste in the electricity markets are as much as hundreds of billions of kWh per year, tens of thousands of megawatts of generating capacity, and tens of billions of dollars per year. Tens of billions of dollars per year is not the cost to remedy these inefficiencies, it is the net savings from remedying these inefficiencies, all at a modest incremental capital investment and a short payback period. That is the cost of electrical end-use inefficiency, inertia, and irrationality in the U.S.
A Concluding Comment on Corporate and Government Policies
A great deal of media and political attention is focused on government
policies that may or may not have a material impact on end-use
electrical efficiency. A review of these policies is far beyond the
scope of the present article. Meanwhile, relatively little attention
is focused on corporate end-use efficiency policies, where the profit
motive ought to make a much bigger difference than it apparently does.
There is nothing unique about the extreme and broad-based energy- and economic-inefficiency observed in the restaurant sample described in Part I of this article. What is unusual is the extraordinary degree of inertia and irrationality that must exist in the corporate sector to continue a form of inefficiency that is so expensive, so obvious, and yet so easily remedied. It is not as if Federal government actions like tax incentives and large-scale RD&D programs are critically needed to develop and subsidize innovative methods to change a light bulb. Similarly, it is not as if state programs like mandatory efficiency standards, real-time marginal cost pricing, and intelligent metering will create a new awareness of the costs and benefits of turning off outdoor lighting in broad daylight in July.
Maybe the negative publicity in an article such as the present one may engender a modest degree of action. Maybe some national publication can institute an energy inefficiency Hall of Shame award, along the lines of the legendary Golden Fleece awards of a few decades past. Maybe an energy service company or a fully decoupled gas or electric local distribution company can step into the void that is end-use inefficiency.
Failing this, any state feeling the strain of higher electricity costs, dwindling reserve margins, increasing transmission congestion, demands for new capacity and the like needs to take a very hard look at forcing a change in economically avoidable end-use inefficiency before forcing taxpayers and ratepayers to pay for new and expanded power supplies. It is an absolute fact that there are no incremental power supply options – fossil, nuclear, or renewable – that can remotely match the economics of increased end-use efficiency at today’s cost and performance characteristics.
End-use efficiency would save the U.S. the need to build tens of thousands of megawatts of generating capacity, relieve pressure on the transmission & distribution system, and improve the environment – all at a net savings on the order of tens of billions of dollars per year. The savings would come with a payback or no more than two or sometimes three years, far exceeding the returns available on an existing or upcoming power generating, transmission, or distribution technology. A large part of it, but certainly not all, can be accomplished by corporations acting in their intelligent self-interest without any new government actions. All it takes is for a light bulb – an efficient light bulb – to turn on.
(1) “Irrational Incandescence,” The Economist, June 2, 2007, A Special Report on Business and Climate Change, p. 9
(2) “Curbing Global Energy Demand Growth: The Energy Productivity Opportunity,” McKinsey & Co., May, 2007, p. 42. http://www.mckinsey.com/mgi/publications/Curbing_Global_Energy/index.asp
(3) “Compact Fluorescent Bulbs,” Popular Mechanics, May 2007, pp. 91-93.
(4) http://en.wikipedia.org/wiki/Restaurant
(5) McKinsey, supra.
(6) “California Statewide Commercial Energy Efficiency Potential Study,” Pacific Gas & Electric Co., July 9, 2002. http://www.sfenvironment.com/aboutus/energy/eff_potential.pdf
(7) “Energy Efficiency Potential Assessments,” American Council for an Energy Efficient Economy,“ http://www.aceee.org/energy/eeassess.htm
(8) “Potential for Energy Efficiency and Renewable Energy to Meet Florida’s Growing Energy Demands,” American Council for An Energy Efficient Economy, Washington, DC, June 2007. http://aceee.org/pubs/e072.pdf?CFID=3011358&CFTOKEN=69278777
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