Energy 2.0

There is a new wave of energy emerging that should accelerate in the next 24 months. It's called efficiency. The really good news is that it produces a higher IRR for the entire value chain. Each element of the value chain (consumer, producer, distributor, regulator) makes more money while cleaning the environment.

Decoupling and loading order priority will start to grow efficiency faster than the need for more energy, based on IRRs that will be higher than other equity, infrastructure or product investments. When this happens, efficiency will explode because there won't be a financially more productive alternative for companies (it will be higher than their ROIC).

Banning the incandescent is just the beginning. All conventional forms of lighting are next.

From the WSJ :

States are considering two major regulatory remedies. The first is "decoupling," in which utilities receive a predetermined profit each year -- thereby separating their earnings from the volume of electricity they deliver.

Here's how it works. A utility and state regulators hammer out how much profit the company will be allowed to earn. At the end of the year, if the utility's actual profit is lower than that amount, the company charges customers to make up the difference. If the actual profit is higher, customers get a rebate.

All of which means a utility's profits won't suffer if it decreases the amount of electricity it delivers through increased efficiency....

Regulators allow utilities to earn a return on their infrastructure spending by raising rates. So, utilities can earn money by investing in power plants, transmission and distribution infrastructure.

But under current rules in most states, utilities can't earn a return on their efficiency spending -- they can only recover the cost. A proposal being considered in California, Texas and several other states would change that.