Home Energy March April 2013 : Page 2

EDITORIAL Home Energy and the Fracking Dividend M ost of us will agree that it’s technically feasible to build homes that U.S. Price of Natural Gas Delivered to Residential Consumers consume dramatically less en-ergy than today’s typical home. And in most locations we can build a home that draws net zero energy from the utility. But it’s economics that makes us hesi-tate. Specifi cally, it’s the value of those energy savings. Can the additional investment be offset by anticipated reductions in en-ergy costs? It’s the same thing for retrofi ts of existing homes: Do the lower energy bills justify the costs? That’s where fracking enters into the equation. With dramatically lower natural-gas prices, some effi ciency measures will take longer to pay for themselves in bill sav-ings. Or at least that’s the claim. We aren’t aware of a downturn in those key indicators of effi ciency activity—sales of insulation, efficient windows, condensing fur-naces, and the like—but reduced demand could YASUSHI KATO Figure 1. Will cheap gas from fracking spell doom for energy effi ciency in the United States? The answer lies in how we defi ne “cheap.” First, most of our home energy bill goes to electricity. The average electric bill is about three times higher than the average gas bill. Cheap natural gas is displacing coal in some regions. That coal was already relatively cheap, so instead of getting cheaper energy, we are mostly getting cleaner energy. Also, the price of natural gas doesn’t affect the other costs that determine electricity rates—that is, the costs of building and operating the power plants and transmission lines. Utilities may invest some of the savings they may realize from fracking to update the embarrassingly obsolete—and sometimes dangerous—infra-structure. That might be a good thing. How will fracking affect the price of natu-ral gas paid by residential customers? That’s not altogether clear. The Energy Information Administration (EIA) data shown in Figure 1 capture the price trends from 1980 into 2012. Prices have fallen in recent years, but only to 2004 levels. (They seemed high then!) Further price reductions are likely, though. The EIA data also tell us that seasonal fl uctuations in residential gas prices can be Senior Executive Editor almost as large as the fracking dividend. It will take attentive consumers to tease out the actual cost reductions amid these fl uctuations. The last reason that fracking will depress natural-gas prices less than some had hoped is that new, large gas customers are lining up. Increased demand by power plants is already taking up some of the surplus. Industry is also retooling to fi nd new uses for the gas, and some companies are moving their energy-intensive operations back to the United States. Remember those expensive facilities we built to import liquefi ed natural gas from elsewhere? Well, now the oil companies are repurposing the terminals to export American natural gas! No doubt about it—low energy prices are bad for the energy effi ciency business—so there’s some sour grapes here. But that sour taste isn’t likely to be that sour, or to last that long. easily be camoufl aged by the recent upswing in the housing market. And what about the homes that already use natural gas for combinations of space heating, water heat-ing, cooking, clothes drying, pool heating, and (increasingly) fi replaces? (That’s about half of American homes.) Should they expect a frack-ing windfall of lower utility bills or increased consumption? I’m going to go out on a limb and guess “Not much.” Why? 2 Alan Meier Home Energy | March /April 2013

EDITORIAL

Alan Meier

<br /> Most of us will agree that it’s technically feasible to build homes that consume dramatically less energy than today’s typical home. And in most locations we can build a home that draws net zero energy from the utility. But it’s economics that makes us hesitate. Specifically, it’s the value of those energy savings. Can the additional investment be offset by anticipated reductions in energy costs? It’s the same thing for retrofits of existing homes: Do the lower energy bills justify the costs?<br /> <br /> That’s where fracking enters into the equation. With dramatically lower naturalgas prices, some efficiency measures will take longer to pay for themselves in bill savings. Or at least that’s the claim. We aren’t aware of a downturn in those key indicators of efficiency activity—sales of insulation, efficient windows, condensing furnaces, and the like—but reduced demand could easily be camouflaged by the recent upswing in the housing market. And what about the homes that already use natural gas for combinations of space heating, water heating, cooking, clothes drying, pool heating, and (increasingly) fireplaces? (That’s about half of American homes.) Should they expect a fracking windfall of lower utility bills or increased consumption? I’m going to go out on a limb and guess “Not much.” Why?<br /> <br /> First, most of our home energy bill goes to electricity. The average electric bill is about three times higher than the average gas bill. Cheap natural gas is displacing coal in some regions. That coal was already relatively cheap, so instead of getting cheaper energy, we are mostly getting cleaner energy. Also, the price of natural gas doesn’t affect the other costs that determine electricity rates—that is, the costs of building and operating the power plants and transmission lines. Utilities may invest some of the savings they may realize from fracking to update the embarrassingly obsolete—and sometimes dangerous—infrastructure. That might be a good thing.<br /> <br /> How will fracking affect the price of natural gas paid by residential customers? That’s not altogether clear. The Energy Information Administration (EIA) data shown in Figure 1 capture the price trends from 1980 into 2012. Prices have fallen in recent years, but only to 2004 levels. (They seemed high then!) Further price reductions are likely, though.<br /> <br /> The EIA data also tell us that seasonal fluctuations in residential gas prices can be almost as large as the fracking dividend. It will take attentive consumers to tease out the actual cost reductions amid these fluctuations.<br /> <br /> The last reason that fracking will depress natural-gas prices less than some had hoped is that new, large gas customers are lining up. Increased demand by power plants is already taking up some of the surplus. Industry is also retooling to find new uses for the gas, and some companies are moving their energy intensive operations back to the United States. Remember those expensive facilities we built to import liquefied natural gas from elsewhere? Well, now the oil companies are repurposing the terminals to export American natural gas!<br /> <br /> No doubt about it—low energy prices are bad for the energy efficiency business—so there’s some sour grapes here. But that sour taste isn’t likely to be that sour, or to last that long.

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