The Natural Gas Revolution: Good or Bad for Energy Efficiency?

If there were an equivalent in the energy industry to Time Magazine’s Person of the Year, natural gas would be this year’s winner.

The dramatic rise in natural gas supply, and fall in price, has reconfigured the energy scene in the United States, suddenly creating a bounty of domestic energy, driving down wholesale power prices and speeding retirement of polluting coal-fired plants.

Veteran energy insiders have told me in recent interviews that they never expected in their lifetime to see this kind of rapid market shift.

So what does the natural gas bonanza mean to energy efficiency — another resource creating surprising changes in the electric grid?

Typically, when energy gets cheap consumers stop thinking about efficiency. But the American Council for an Energy-Efficient Economy sees a different scenario emerging this time, according to two reports released by the Washington, DC-based organization in September.

First, it’s important to note that energy efficiency is not just something done in the household or office. It’s managed on a large scale by utilities and grid planners and often now competes head-to-head with power plants as a means to keep the lights on. So when an area of the country needs more power, it might build a new gas-fired power plant, install wind turbines or solar, or some other kind of power generator. Or it might inject more energy efficiency into the system by way of energy saving technologies, programs or incentives.

Many factors go into deciding which will be selected, but price ranks high. And despite the fall in natural gas prices, energy efficiency remains the lowest cost resource on the electric grid — it’s still cheaper to save energy than to build new power plants, according to the ACEEE white paper “Saving Money and Reducing Risk: How Energy Efficiency Enhances the Benefits of the Natural Gas Boom.”

Natural gas and energy efficiency tend to be in competition with each other – because they are the cheapest resources — but the two also can foster each other, according to the white paper.

Here’s why.

Historically natural gas has been prone to sudden supply disruptions and price spikes. ACEEE quotes Jim Rogers, chairman, president and CEO of Duke Energy famously saying: “There are three things in life you can depend on: death, taxes and the volatility of natural gas markets.”

The sudden price spikes wreak economic havoc for homeowners who heat with natural gas, as well as manufacturers that use it in industrial processes, and utilities that generate electricity with it.

But energy efficiency helps smooth the sudden peaks and valleys of natural gas pricing. Energy efficiency reduces demand for natural gas and therefore elongates its supply, says ACEEE. In fact, energy efficiency could reduce energy demand 42 to 59 percent by 2050, according to a separate ACEEE study.

That’s one way the marriage of natural gas and energy efficiency work.

Another involves combined heat and power plants, which are highly efficient generating plants that recycle the waste heat created in power production for useful purposes. Also known as CHP, it is considered an underutilized resource in the US and is often championed by energy efficiency advocates.

President Barack Obama recently set a goal to increase CHP use about 50 percent by 2020. Low natural gas prices should help achieve this goal, since many CHP plants — more than half installed since 1990 — use natural gas as fuel. Cheap natural gas makes CHP more economical.

ACEEE sees CHP plants as good replacement for the large number of coal-fired plants now retiring. In fact, the organization says that CHP could replace all of the retiring plants at a highly competitive cost, about 6 cents/kWh. By comparison a new conventional power plant cost 6.9 cents/kWh to 11.3 cents/kWh.

“Our report suggests that instead of investing in new centralized power plants, utilities should invest in new CHP plants to keep costs down for their customers and generate much cleaner electricity,” said Anna Chittum, the report’s lead author. “Utilities around the country have expressed concern about the amount of coal-fired capacity they believe they will need to retire in the near future. Many are asking for substantial increases in customer rates to pay for new investments in traditional power plants when they could be investing in CHP instead.”

The two ACEEE reports can be found here.

Elisa Wood is a long-time energy writer. Subscribe to her free newsletter at RealEnergyWriters.com.

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