Energy efficient air conditioners save electricity exactly when the grid is most strained.
Summer is around the corner in the Northern Hemisphere and air conditioning will soon be ramping up. Most U.S. electricity markets are summer peaking which means that the highest levels of electricity demand occur in the summer. Particularly with growing amounts of renewable energy on the grid, these hot summer days can be a serious challenge.
Take California, for example. Extreme temperatures last summer throughout the western United States led electricity demand to outstrip supply, leading to rolling outages on August 14th and 15th. For the summer of 2021, CAISO “continues to see potential challenges in meeting demand during extreme heat waves” and grid managers across the west are bracing for a “white knuckle summer”.
Today I want to ask whether energy-efficiency can help. Energy Institute alum Judson Boomhower and I published a paper last year called “Do Energy Efficiency Investments Deliver at the Right Time?” We find that Southern California Edison’s air conditioner rebate program saves a lot of energy. But, more importantly, we find that the program saves energy exactly at the right time, when savings are most valuable and the electric grid is stressed.
Our research was made possible because of rich household-level hourly data on electricity consumption generously shared by SCE (though they had no role in the study). During our sample period, 6,000 households received a rebate for installing a new energy-efficient central air conditioner. We compare the change in their usage on hot days to changes for similar non-participating customers — a difference-in-differences analysis — to measure energy savings.
The figure below shows estimates from a standard “event study”. We use hourly data from July and August, and control for weather and other variables. This figure allows us to see how electricity consumption changed on average when a household installed a new energy-efficient air conditioner through the program.
Electricity consumption is essentially flat during the three years leading up to air conditioner replacement. Then, in the year that a household installs a new air conditioner — normalized to zero in the figure above — electricity consumption falls by 0.2 kilowatt hours per hour. Electricity consumption is then again essentially flat during the subsequent three years after replacement.
Bottom line: When a household installs a new air conditioner, their electricity consumption during July and August decreases by 0.2 kilowatt hours per hour. A typical LED lightbulb uses 8 watts, so this is equivalent to turning off 25 LEDs. These households use an average of 1.5 kilowatt hours per hour during July and August, so this is approximately a 13% decrease in total household electricity consumption.
Larger Savings on Hot Days
These are significant energy savings. But what’s especially exciting is that the savings are largest on hot days. The figure below plots estimated electricity savings against daily mean temperatures.
On cold and mild days there are essentially no energy savings. This makes sense because households don’t use air conditioning on those days. However, between 70 and 100 degrees, there is a steep, approximately linear relationship between temperature and energy savings. As expected, air conditioners work harder on hot days, so there are greater savings from a more energy-efficient unit. On the very hottest days, energy savings exceed 0.4 kilowatt hours per hour.
This is enough energy savings to matter. Replacing 500,000 air conditioners, for example, could reduce California’s peak demand by 200MW (i.e. 500,000 * 0.4 kW). In terms of balancing the grid, this has approximately the same impact as 200MW of battery storage or a 200MW natural gas peaker plant.
Implications for the Grid
Thus we find that energy savings from energy-efficient air conditioners are particularly large on hot days. This is, of course, exactly when the grid is stressed and energy savings are most valuable. We show in the paper that wholesale electricity prices and capacity prices are significantly higher during summer months.
Overall, we find that the “timing premium” for air conditioning in California is 40%. That is, we find that energy-efficient air conditioning is 40% more valuable than an investment that saves the same amount of energy in all hours of the year. In contrast, we find that timing premiums for energy-efficient lighting, clothes washers, and refrigerators are all near 0%, so these investments do not disproportionately deliver during times when energy is most valuable.
Do it With Demand
Which brings us back to the hot summer days around the corner. The California Independent System Operator is working hard to prepare the California market for this summer’s peak demand conditions. There are plans to increase supply-side capacity, bring battery storage projects online, and improve communication protocols to ensure that last summer’s outages aren’t repeated.
My colleagues Severin, Meredith, and Catherine have all written about the potential during peak conditions for the demand-side of the market to do more (here, here, and here). Severin asks “Why Don’t We Do it With Demand?” and last summer even took to twitter to beseech Californians to use less air conditioning.
I agree with them. How could I not? But in addition to more demand response, we should also be optimizing our energy-efficiency programs. California electric utilities spend $600+ million annually on energy efficiency programs. We need to make sure we are prioritizing investments that create the most economic value and help prevent blackouts.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Davis, Lucas. “Can Energy Efficiency Help Avoid Blackouts?” Energy Institute Blog, UC Berkeley, May 24, 2021, https://energyathaas.wordpress.com/2021/05/24/can-energy-efficiency-help-avoid-blackouts/
For more details see Boomhower, Judson and Lucas Davis, “Do Energy Efficiency Investments Deliver at the Right Time?” American Economic Journal: Applied Economics, 2020, 12(1), 115-139.
Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Faculty Research Fellow at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. Prior to joining Haas in 2009, he was an assistant professor of Economics at the University of Michigan. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.