Saving energy in the Czech Republic

One of the biggest problems in the transition was cheap energy, which USAID confronted with two projects. The Emergency Energy project began in 1990 and was followed 6 months later by the Regional Energy Efficiency project. The projects provided consultants, training, energy audits, and equipment in support of energy conservation at five industrial plants, as well as support for a nongovernmental energy conservation organization known by the acronym "SEVEn." The rationale for Agency assistance was economic: if the Czech economy could use energy more efficiently, it could maintain economic momentum, advance economic restructuring, and deal with pollution problems. The projects demonstrated that energy conservation works. Companies that made energy investments saw very high financial rates of return, averaging 122%. This represents financial costs and benefits directly related to the company and the energy it saves. It excludes benefits flowing to the economy as a whole (reduced pollution, increased taxes) and costs to the economy and USAID for project management. Including these costs and benefits yields an economic rate of return for the economy as a whole of 50% -- still a very good rate. SEVEn has played a major role in energy conservation. Being separate from the government and special interests, it has been able to press the government for policy reforms while bringing together industry and energy service providers. In most other countries USAID has had only fair to poor results working with government energy organizations. Working with a nongovernmental organization might provide a model worth following elsewhere. Energy conservation is more than a technical or engineering issue of making energy-efficient equipment available. Business decisionmaking is influenced by prices, markets, and incentives. Under communism, Czech industry directed all attention at meeting production targets, not reducing costs. Even now, with communism gone and with nearly free markets, the old business culture survives in many firms. Moreover, it has taken the government several years to shift most energy prices to international levels. The government has stressed pollution control rather than energy conservation. Stiff regulations and fines have forced factories to switch to cleaner fuels and improved burner combustion. Pollution control has done more than cut down on pollution -- it has discouraged wasteful and inefficient energy consumption. A factor impeding widespread success of the USAID project was limited dissemination. The project succeeded at the five demonstration factories and with SEVEn, but the energy conservation message has been slow to spread throughout the country. The following lessons were learned. (1) When firms are not oriented toward cost reduction, energy conservation measures are difficult to promote. (2) Good energy conservation technology is not enough; effective dissemination through multiple channels is critical. (3) Although energy conservation efforts are important, stressing pollution control through regulation may be the most effective way to cut harmful emissions and improve energy efficiency. (4) USAID needs to decide on a clear strategy for test-marketing and dissemination. The sample might be a small number of major energy users or a large number of firms that are not energy-intensive, but not a small number of low energy users. (5) An uncertain economic climate will deter most investments, including those in energy conservation. (6) Long-term energy conservation requires an independent regulatory body (a public utility commission) that supports economic prices, minimizes cross subsidization, has a framework for public participation, and develops rate structures that support conservation. (Author abstract, modified)