What if energy suppliers could be incentivized to sell efficiency rather than kilowatt-hours? To be rewarded financially for the efforts they make to maximise the efficiency with which they turn fuel into useful energy, rather than for each unit of energy they sell to their customers?
Well, it’s already happening. Familiar to European users of on-site CHP/cogeneration is a business model under which the CHP technology supplier, or an intermediary, installs its plant at the user’s site for free, owns and maintains the plant, buys the fuel (usually natural gas) and sells the electrical and thermal output of the plant to the customer. The energy sales rate is set at a level low enough to undercut the price the customer had previously bought energy for, yet high enough for the equipment supplier to make a profit on the overall deal.
Where high efficiency CHP replaces low efficiency alternatives, there is financial room to make the model work – in Europe, business have been built on just this approach. Customers get a shiny new CHP plant in the plant room that they can largely ignore, plus lower energy bills. Not as low as they could achieve by buying their own CHP unit, it’s true, but maybe they didn’t have the capital available for the machine anyway, or don’t want to use management time on energy matters. The supplier gets to manufacture and sell product at a profit, and the warm glow that comes with selling more efficient technology and the ensuing carbon emission reductions. (Note that no-one is being paid to cut carbon emissions, but that’s another story)
Variously named an ‘energy services’, ‘no-capital’, or ‘contract energy’ approach, the model also incentivizes the energy plant supplier/operator to operate the plant at maximum efficiency – it makes more money if it uses less fuel to supply the energy required by the customer.
It’s not only in Europe that on-site cogeneration uses this approach. In the US, American DG Energy has coined its own term: the ‘on-site utility’ and the company has recently expanded into Europe with EuroSite Power. But I also noticed a couple of weeks ago that the US-based supplier of on-site energy plants based on fuel cell technology, FuelCell Energy, has signed an agreement to sell its products via ‘no-capital’ deals with NRG Energy.
So, on-site CHP can and is being delivered in a way that rewards plant operators for maximizing energy conversion efficiency, not selling units. Now let’s see how this could be extended to other parts of the energy market.