This blog was written by John D. Wilson, former Deputy Director for Regulatory Policy at the Southern Alliance for Clean Energy.Guest Blog | May 20, 2015
Site Selection magazine’s annual rankings of top utilities for economic development routinely features the four large Southeastern utilities: Southern Company, Tennessee Valley Authority, Duke Energy and Florida Power & Light. But is there room for improvement?
YES! In the Southeast, utilities’ energy efficiency programs, and overall utility planning, fail to focus on critical manufacturing growth issues. The Southern Alliance for Clean Energy and our allies have worked for several years to try to persuade those utilities and their regulators to attend to these issues. However, while these large Southeastern utilities are known for their responsiveness to customer-identified concerns –such as Alabama Power’s Technology Application Center — they lack energy efficiency programs that seek out and actively encourage more “energy productive” manufacturing.
The Southeastern utilities are aware of the industrial energy efficiency opportunity, but don’t seem to be able to harness it. Georgia Power’s 2015 energy efficiency potential study estimate that 27% of the utility’s energy efficiency opportunity is with its industrial customers – but Georgia Power still hasn’t proposed an industrial efficiency program. After years of providing weak programs, Florida utilities find their industrial customers want to be exempted from their energy efficiency programs.
With respect to energy efficiency programs (one of the criteria considered by Site Selection), we thought we’d revisit a report from ACEEE that discusses great utility programs that help small and medium manufacturers cut costs and become more competitive. Unfortunately, neither ACEEE nor SACE are aware of any model energy efficiency programs targeting manufacturing businesses in the Southeast.
With respect to overall utility planning, only the Tennessee Valley Authority acknowledges any role for considering the impact of utility resource development plans on the regional economy. Southeastern utilities are eager to attract and assist customers, which certainly supports economic development. But when it comes to making decisions about which energy resources to invest in, they generally fail to pick plans that bolster regional economic development.
Why focus on small and medium manufacturing?
Two reasons: energy use and job growth prospects.
First, manufacturers use about a third of energy in the US, and small and medium manufacturers account for about half of that use – so about 15% of total energy use in the US is at these firms. Yet small and medium manufacturers don’t tend to focus on energy efficiency. There are some good reasons for this:
- Manufacturing energy use is more technically complex than the typical energy savings opportunities in commercial and residential sectors. Relatively simple projects involving lighting, heating/cooling, and hot water affect a relatively small part of a manufacturer’s energy use compared to the use in commercial and residential sectors.
- When manufacturers invest in energy efficiency, the projects need to be designed to match the production and business processes used by each firm. In contrast, projects in commercial facilities don’t need to.
- Large firms tend to overcome these barriers by hiring staff or even entire departments to focus on energy management, continually seeking ways to cut costs and improve productivity. As a result, the large firms tend to view energy efficiency as an in-house activity, and often argue against utility-led energy efficiency programs. Smaller firms, in contrast, generally depend on outside vendors or simply use standard practices to manage energy use, and are not only failing to focus on energy efficiency, but often don’t even know that they are falling short.
In order to eliminate energy waste at small and medium manufacturing firms, the best programs match technical expertise and appropriate financial solutions to the specific needs of each individual customer. While standardized program design and economy of scale works achieves efficiency at low cost for residential and commercial customers, for manufacturers it is customization that can achieve the best results.
Second, if small and medium manufacturers are left behind, it is a missed opportunity for growth of manufacturing jobs. Studies suggest that more long-term jobs are created by small firms, particularly new firms, than by large, mature firms. According to data in a paper published by the National Bureau of Economic Research, firms with 100-500 employees are net job creators regardless of firm age – suggesting these are a particularly good bet for state economic development prospects. Furthermore, a paper by the Federal Reserve showed that smaller firms proved to be more resilient during the Great Recession.