A new business plan for capturing big saving.
Steve Mitnick is a partner in the strategy consulting firm Oliver Wyman, a Marsh & McLennan company, and is based in the firm’s New York office. Email him at: steve.mitnick@oliverwyman.com. He acknowledges the assistance of Nadia Pierce, an associate in the New York office.
From the president on down, America expects a virtual revolution in energy efficiency. When investment in efficiency increases, people assume we’ll see dramatic cuts in electricity consumption growth, ultimately to zero or perhaps negative growth.
Is a letdown imminent? Legacy efficiency programs have accomplished admirable savings in recent years, yet increasing evidence suggests these kinds of programs might not easily scale up to the much higher rates of performance that are expected. Their cost-effectiveness (i.e., kilowatt-hours of consumption cut per dollar invested) might seriously suffer in the process.
Particularly troubling is the demand side of efficiency. The products and services to cut consumption are ample. But demand for efficiency, the desire of businesses and individual consumers en masse to spend their time and money to buy efficiency products and services, appears insufficiently robust.
Indeed, businesses and consumers can be remarkably blasé about efficiency, even when the prices of efficiency goods are heavily subsidized and discounted. For example, when Americans buy electrical devices every day, efficiency typically isn’t the decisive factor. Functionality, power, options and aesthetic appeal commonly drive purchases. Price also drives purchase decisions, but rarely is the efficient device the lowest priced.