Editor’s Note: EarthTechling is proud to present this article which is part 2 of a series being run by Natural Resources Defense Council. Author credit goes to Peter Miller and you can read part 1 here.
III. Bringing the Market to the Product
At the same time the CFL was being developed into a marketable product, the energy efficiency industry was developing into a formidable market force. Many states had adopted legislative and regulatory policies mandating the treatment of energy efficiency as a resource for utility investment on par with, or ahead of, traditional supply-side investments. As a result, utility investments in energy efficiency were large and growing rapidly with utility and third-party programs mobilizing hundreds of millions or even billions of dollars to invest in efficiency programs annually. These efforts included mail-in rebates for CFLs to lower their cost and attract the attention of reluctant consumers. While the programs helped drive increased CFL purchases, the administrative cost of these retail-level efforts was relatively high, making it difficult to scale up to a much larger endeavor.
Against this backdrop of growing strength, the innovative ‘‘Golden Carrot’’ program to increase the energy efficiency of refrigerators provided a key lesson. Up to that point, utility efficiency programs were largely run at the retail level, making incremental improvements by offering incentives and information to individual consumers. In contrast, the Natural Resources Defense Council initiated the Super Efficient Refrigerator Program (SERP) in the early 1990s, working in coordination with a coalition of utilities and government agencies to transform the residential refrigerator market by offering a $30 million incentive – the Golden Carrot – to the manufacturer that could build and sell at least 250,000 refrigerators with annual energy consumption of a minimum of 25 percent below the then-current federal minimum efficiency standard and do so without the use of ozone-depleting refrigerants.5
Whirlpool won the bid and successfully designed, built, and sold a new model that exceeded the program requirements. This allowed utilities to dramatically increase the level of efficiency required to get a rebate and led to a substantial leap forward in the next round of federal standards even as other refrigerator manufacturers scrambled to compete by offering their own energy-efficient models. The Golden Carrot program demonstrated that an ambitious and focused investment targeted at the ‘‘wholesale’’ level could transform markets for energy efficiency.
With this success fresh in their minds, utility lighting program managers developed the Upstream Lighting Program (ULP).6 Instead of offering consumer rebates, the utilities provided reimbursement for more efficient lightbulbs at the wholesale level.
The ULP was superior to a retail rebate program in several ways. By reducing the wholesale cost, retailers could pass the savings down to every CFL sold in stores. This meant a customer only saw the already-rebated price, saving them the inconvenience of applying for the rebate. Administrative costs were also reduced because utilities no longer had to shoulder the burden of processing individual rebates. The upstream rebates multiplied into larger savings for consumers, which helped reduce the price differential with incandescents and convince previously reluctant consumers to eagerly purchase CFLs.
Taken as a whole, the ULP allowed for a much larger and more effective effort. Utilities across the country jumped on the bandwagon, as did retailers – notably including Wal-Mart, which pledged to sell 100 million CFLs in 20077 – and federal and state agencies. Manufacturers got a clear market signal that CFLs were going to be sold in much larger quantities and joined the bandwagon, as well, expanding their manufacturing capacity. Volume and competition increased, resulting in even lower prices.
The Upstream Lighting Program was a massive success. In California, utilities provided upstream rebates on nearly 100 million CFLs between 2006 and 2008, surpassing anticipated goals by 150 percent. By 2008, almost 8 out of 10 households in California used at least one CFL, and the average household had over 10 CFLs installed.8 In three years, CFLs had more than tripled their market share. Program requirements and improvements to manufacturing drove continued innovation and made the CFLs more consumer-friendly – in a 2009 survey, Californians gave an overall satisfaction rating of 8.3 out of 10 for the new bulbs, compared to a rating of 6.3 prior to 2004.9 The ULP marketing campaign and increased sales paid off in customer awareness, too. In 1998, only 58 percent of Californians knew what a CFL was but by 2008, that number was up to 96 percent.10
There were enormous benefits to California utility customers from the installation of all these CFLs. Because a CFL uses roughly a quarter of the electricity consumed by an incandescent lightbulb, each CFL that replaces an incandescent saves about $35–50 in energy costs over its 10,000-hour lifetime.11 The nearly 100 million bulbs promoted through the ULP reduced electricity bills by billions of dollars for California utility customers.
A remarkable aspect of the ULP is that the upstream rebates multiplied into even larger savings for consumers. In addition to the lower administrative costs of the upstream rebate, retailers and manufacturers added their own discounts to further reduce the retail price of the bulbs. In California, each dollar a utility spent on an upstream rebate reduced the price of a CFL bulb by $1.50.12 The leverage from the upstream rebate resulted in a reduction in the price of the typical program bulb to only $1.30. As a result, the net cost of the much more efficient CFL (including the rebate) was below the cost of the less-efficient incandescent bulbs that would otherwise have been purchased.13 As a result, California utility customers saved about $1 per bulb just by buying a CFL from the ULP program and collectively they saved over $200 million just from the reduced cost of CFLs achieved by this massive bulk purchase program.
Today there are more than 100 energy efficiency programs spending approximately $252 million on CFL promotion efforts nationwide, a five-fold increase. Spending on CFL efficiency programs is expected to continue to increase as more states demand that before utilities invest in new capacity, they must first achieve all cost-effective energy efficiency measures.14