Can energy efficiency brighten a dark economy?

Third in a three-part series. Click here for a look at the remarkably small renewable-energy stimulus or here for how efforts to build a speedy Internet may not be so speedy.

After a decade working in the lighting industry in Singapore and the United States, Govi Rao decided to strike out on his own. His idea? To turn LEDs, those funny glowing lights in video games and digital watches, into a mainstream, environmentally friendly alternative to traditional lighting.

In 2007, he bought four LED (light-emitting diode) manufacturers in quick succession and set up his new outfit, Lighting Science, with the help of California investors. But with the economy tumbling since, his timing looked awful.

So why is Mr. Rao smiling? Because he expects the energy-efficiency parts of the $819 billion stimulus package the House passed Wednesday to jump-start sales, which would bring down his costs and, he hopes, make Lighting Science a world leader in an emerging, energy-saving technology.

It may be a pipe dream. Of all the long-term, “new economy” investments envisioned in the House legislation, such as Internet modernization and renewable energy, the roughly $30 billion set aside for energy efficiency is the least likely to generate the kinds of secure high-tech jobs that President Obama has talked about. Manufacturing of lights and other energy-saving devices is likely to move offshore, analysts say.

But that’s not an argument for excluding energy-efficiency efforts from the stimulus plan. Efficiency, it turns out, could boost the American economy in a big way.

“Energy efficiency itself creates jobs, simply because of the household spending it takes out of the carbon-supply chain and puts into espresso drinks and haircuts,” says David Roland-Holst, a resource economist at the University of California at Berkeley. “Service jobs are bedrock jobs.”

How many jobs is hard to tell. California’s energy-reduction programs generated 1.5 million jobs, worth $45 billion in payroll, between 1972 and 2006, according to a study by Mr. Roland-Holst. That’s not a big yearly average, but Roland-Holst says the new federal investment, if followed through on, would create many more jobs over time.

Efficiency would also be a boon to taxpayers. The House legislation aims to retrofit 75 percent of all federal buildings with better insulation and energy-efficient lighting. It costs about $6 billion a year to heat, cool, and light federal buildings, says the US Government Accountability Office. The current plan is to cut that bill by 30 percent – a savings to taxpayers of almost $1.5 billion a year.

“Retrofitting a government building puts money into domestic construction,” says Ed Young, an associate at Cambridge Energy Research Associates, a consulting firm in Cambridge, Mass. “It’s not the [jobs] equivalent of building a rocket ship ... but it has lots of positive effects. The biggest thing to do for energy in the US is to save energy.”

Savings for homeowners could be even bigger. The House plan calls for subsidized loans or grants to help retrofit 2 million American homes. If those houses were brought in line with the most widely used efficiency standard in the US – the Leadership in Energy and Environmental Design (LEED) – they would use 30 percent less energy. With the average household spending about $3,500 a year on heating and electricity, the savings would translate into about $2.1 billion a year.

Because 2 million homes represent only about 2 percent of US households, many activists hope the effort will be expanded, perhaps as an antipoverty program.

“With all the foreclosure stuff that’s going on, anything you can do to help reduce month-to-month operating costs for homeowners is a big plus,” says Dan Karan, director of construction for Neighborhood Housing Services, a nonprofit group that builds and finances low-income housing in New York City. But few lower-income Americans have the up-front cash to make the switch, particularly in these tough times.

“Money is much tighter for us now,” he adds, “so we’ll certainly be looking to Washington” for energy-conservation programs.

The prospect that green building standards will be one of the few growth areas for the next few years has convinced Jay Gajjar, owner of Brooklyn-based Horizon Construction, to bring all of his work in line with LEED standards.

“I’m very optimistic that this is where the future of my business lies,” he says. Some 90 percent of his work is in subsidized and low-cost housing, and regulations increasingly require contractors to build energy-efficient homes.

“Once you know how to do it, you can build homes that use 33 percent less power but only cost about 8 percent more to build,” he adds. “The economics are there, and every indication is our business is going to keep growing.”

He’s currently gutting a building in Harlem using government money channeled through Mr. Karan to provide low-cost housing. How it’s done is pretty simple: An energy-saving boiler will be installed on the roof, extra care will be taken with caulking and sealing, and energy-saving windows will be installed.

Those projects generate construction jobs but not the long-term, high-tech positions envisioned in the stimulus package. Is that kind of job creation possible?

Lighting Science’s Rao thinks so.

“The stimulus package makes so much sense for companies like ours,” says the native of India, who has 70 patents. “It’s going to create a lot of infrastructure demand in general, and I’m also hoping it will help people like me bring innovation and manufacturing back to the US.”

For now, his business is tiny, with about $45 million in sales last year – including, most prominently, a contract to help build the new, high-tech ball that dropped over Times Square on New Year’s Eve. He’s also working on a $1 million pilot program for New York City to replace high-pressure sodium street lamps with his LEDs, which consume about 40 percent less electricity and last about three times longer then the existing lights.

LEDs save about as much energy as carbon fluorescent lights (CFLs), don’t use dangerous chemicals like mercury, and last for about 15 years, twice as long as CFLs, Rao says. But at $40 a bulb, compared with about $4 for a CFL, his product is out of reach for everybody but mall owners and municipalities, who have to factor in labor and maintenance costs.

“This is where the stimulus package can help significantly, because if it boosts my volume that will help me get to a price level where we can reach consumers,” he says. His market research shows that if he can get the price to about $25 a bulb, his product will start making financial sense for homeowners.

Even if Rao manages to get down to that price point, many analysts are skeptical that technologies like LEDs will create a domestic manufacturing boom.

“It’s nice to talk about reindustrialization, taking these old Rust Belt factories and turning them into green industries,” says Roland-Holst of the University of California. “But, I’m sorry, most of these jobs are going to go to China.”