The electricity industry is wrestling with how to restructure its business model to account for efforts to convince consumers to reduce their energy use while being paid for promoting this efficiency. Historically, utilities have experienced demand growth with the annual pace of growth dictated by the health of the economy. As a result, the focus of utility company managements has always been on how much generating capacity it needs, when it will need that additional capacity, and how the capacity additions can be achieved at the lowest possible cost. The constant need for investment in new generating capacity and the high cost of these additional facilities contributed to the granting of municipal monopolies in return for regulation on profitability.

For decades this industry model has worked, and worked well. Now, with the focus shifting to the nation’s need to reduce its carbon (and other) emissions, energy conservation has become a prime focus of utility company managements as a way to satisfy the emissions goal. If you are successful in convincing customers to use less energy, how is the utility rewarded for selling less of its product? As Jim Rodgers, CEO of Duke Energy says, the best investment his company can make is the power plant he doesn’t have to build to meet growing demand. Not all executives see it the same.

Recently, two studies are casting doubt on how to make electricity conservation work and whether new lighting mandates will actually stimulate rather than reduce electricity demand. One study was performed by Shahzeen Attari of Columbia University with some colleagues. The results were published in the Proceedings of the National Academy of Sciences.

They used Craigslist to recruit 505 volunteers from across the United States to estimate the energy consumption of nine household devices as well as predict the energy savings from performing six green actions. What the researchers found was that on average, the participants underestimated both energy use and energy savings by a factor of 2.8. The explanation for this underestimation is that the volunteers undervalued the requirements of large machines such as heaters and clothes dryers. This meant that they failed to recognize the large energy savings that can come from improving the efficiency of these large machines. Participants had a tendency to endorse actions with small savings such as turning off lights, while ignoring large savings from modest changes with large machines. For example, by switching the washing machine setting from “hot” to “warm” a consumer could save 4,000 watt-hours with each load of laundry done.

Some critics of the study contend that by presenting a measure of energy use for the standard 100-watt light bulb, participants may have responded to questions by anchoring their estimates to this value. Attari believes this may have happened, but he also believes that this is what the general public does. If you think about it, all the fluorescent light bulb packages show the energy savings as a measure of a number of standard light bulbs. To overcome the conclusions of the study and make people more aware of the proper energy-saving actions, more information needs to be presented to people and/or we need to employ devices that constantly monitor household appliances. This conclusion argues for the early adoption of “smart” electric meters.

Offsetting the Columbia University study conclusions are the results from a study conducted by Jeff Tsao of Sandia National Laboratories that was published in the Journal of Physics D: Applied Physics. He predicts that the introduction of solid-state lighting, one of the hot new topics for lighting, could actually increase electricity demand. Since lighting consumes about 6.5% of the world’s energy supply, the idea that mandating a switch to solid-state lighting to save on energy and reduce carbon emissions should be an obvious conclusion. Tsao believes that it could actually lead to the opposite result.

Solid-state lighting refers to a type of lighting that uses semiconductor light-emitting diodes (LED), organic light-emitting diodes (OLED), or polymer light-emitting diodes (PLED) as the sources of illumination rather than electrical filaments, plasma or gas such as used in incandescent and fluorescent light bulbs. Compared to incandescent lighting, solid-state lighting creates visible light with reduced heat generation. Most common white LEDs convert blue light from a solid-state device to an approximate white light spectrum using photoluminescence, the same principle used in conventional fluorescent light bulbs.

In 1700, a typical Briton consumed 580 lumen-hours (the measure of light perceived by the human eye) per year. At that time, the light came from burning candles, wood and oil. Today, by using electric lights, the average Briton uses about 46 megalumen-hours a year, or nearly 100,000 times more than his earlier counterpart. Improved technology has stimulated demand and, in turn, the consumption of energy.

Tsao believes this same historical pattern will happen with LEDs and other solid-state lighting. He assumes that by 2030, solid-state lights will be about three times more efficient than fluorescent light bulbs and that the price of electricity stays flat in real terms, so his model predicts that the number of megalumen-hours consumed by the average person will rise tenfold from 20 to 202. The amount of electricity needed to generate that light would more than double. In his model, Tsao determined that only if the price of electricity triples would the amount consumed start to fall by 2030.

In an interesting twist, when gas lights replaced candles and oil lamps in England, the criticism was that they were “glaring” or “dazzling white.” The reality is that these gas lamps gave off about as much light as a 25-watt incandescent light bulb. Today, our eyes would say that amount of light would be dim. So maybe the answer to energy consumption is not to brighten the world but to dim it. That would argue we should cancel the programs to ban incandescent light bulbs if we really want to save energy. What a radical thought!

Allen Brooks, a managing director at the Houston-based investment banking firm Parks Paton Hoepfl & Brown, writes “Musings From the Oil Patch,” a newsletter where this article was initially published.