This is a guest post by Kevin Wilhelm, the president of Innovative Strategies, a consulting firm that makes the business case for sustainability.

Many of us are familiar with utilities’ conservation programs—you know, the ones that offer a rebate to customers who buy a super-efficient washing machine or refrigerator. Right now, there’s a big political debate in Washington state, and even a ballot measure coming this fall, about whether the state should require utilities to make even greater investments in energy efficiency.

This has, somewhat understandably, caused some waves within the business community. The fear among many businesses is that a state mandate for utilities to increase energy efficiency programs could increase energy costs in the short-term. And that, in turn, could put the state’s businesses at a competitive disadvantage.

I believe that this fear—while understandable—is actually misguided.

First of all, energy efficiency is the absolute cheapest source of new power. The best available analysis finds that conservation costs about 2.4 cents per kilowatt-hour, which is a full cent cheaper than the next closest source—natural gas.

In other words, paying for efficiency saves about 30 percent, compared with paying for new power plants. So if you are pro-business, and care about power prices, then you should be for energy efficiency.

Second, WA State’s competitive advantage over the last 40 years afforded to it by low-cost energy is eroding. And conservation offers our best shot at keeping that advantage from eroding even further.

  • Since 1999 average energy rates have increased 50% for industrial and 30% for commercial businesses (see, e.g., this big pdf.) As a result, our energy is still cheaper than the national average—but far, far more expensive than it used to be, even just a few years ago. Take a look at the change in our rankings for electricity costs for business, just from 1999 through 2003:

    WASHINGTON STATE ENERGY COSTS – RANKING AMONG U.S. STATES

    YEAR     Commercial       Industrial
    Electricity Electricity
    1999 49th 50th
    2003 38th 32nd

    (Source: CTED 2005 Biennial Energy Report, (pdf warning), section 4 page 9).

    With regional energy demand expected to increase by 25% or roughly 5,000 megawatts by 2025 (the equivalent to 5 million new homes), where is this power going to come from? What is this going to do to prices and how is this going to impact business? Will our competitive advantage on power prices erode even further?

    Fortunately, energy efficiency is a huge step in the right direction. Close to 50% of estimated demand growth by 2025 can be met through investments in energy efficiency. (NPCC 5th Power and Conservation Plan).

    Moreover, the State has a positive track record in this regard already, as it met over 25% of its annual energy demand increase through energy efficiency conservation measures during the 1990s.

    Investment in energy efficiency is not only about obtaining the cheapest source of new power for businesses, but it is a proactive way to maintain the State’s competitiveness through clean, secure, domestic sources of energy which already exist and don’t involve the construction of any new power plants. In short, ramping up efficiency is, from a business viewpoint, the smartest move the state can make.

    And in this case, what’s good for business also happens to be good for the climate.