Emerging Energy Efficiency
During my visit to Delhi to be a judge for the INSPIRE 2018 event I was privileged to be asked to speak to EESL managers on international developments in energy efficiency. I say privileged because talking to EESL about energy efficiency is like taking coals to Newcastle (as we used to say when there was a UK coal industry), or selling sand to the Middle East or snow to the Eskimos. EESL’s programmes such as UJALA, smart meters and EVs are massive in their scale, inspirational in their ambition and vitally important for Indian and global development. The rest of the world has a lot to learn from them.
Here are some brief thoughts that emerged from my presentation.
To achieve our energy and climate goals we need to greatly ramp up investment into energy efficiency. The recently published 2018 Energy Efficiency Market report highlighted that we need to double the current level of investment into energy efficiency (c.$260 bn) by 2025 and then double it again by 2040. Although this is ambitious when I look around the world I see a number of emerging trends that make me optimistic that energy efficiency can start to fulfil its huge economic and environmental potential. For forty years we have known the scale of that potential but also known that the uptake of cost-effective potential remains low.
Energy efficiency technology innovation
Energy efficiency technologies are being deployed across all sectors; buildings, industry, appliances, energy production, transport and information technology and new technologies are appearing. We don’t actually need new technology to achieve our ambitions, just increasing the rate of application of existing, well proven, cost-effective technology, however innovation is always happening and appears to be accelerating. The application of IT and big data in particular is an area that is rapidly evolving and has huge potential. The application of AI, as demonstrated by the use of Deep Mind in Google data centres that saved 40% on already efficient centres highlights the potential. Another end of the spectrum is the redesign of basic equipment such as process heaters such as those from ProHeat. Like much of our infrastructure the basic design of process heaters has not changed for decades (or even a century or more) and the technology was designed when energy usage or costs were not considered. Re-design of basic equipment like process heaters, using thermos-syphon heaters, can save 45% of energy use in very high energy using equipment.
Changing electricity markets
Electricity markets everywhere are changing rapidly with the deployment of renewables, decentralisation and the emergence of prosumers, as well as electrification of transport and heating. The emergence of the ‘duck curve’ is creating problems for network operators grappling with the need for greater quantities of, and faster responding flexibility. Distributed energy resources including localised solar, demand response, battery storage, and vehicle to grid solutions will all play large parts in future electricity markets. If energy efficiency is to exploit this change we need to rethink it and make it measurable, reliable and able to be contracted for. We also need to recognise that like other distributed energy resources energy efficiency will have different values at different times and in different locations – in highly constrained network areas and at constrained times energy efficiency will have more value. Technologies like OpenEE enable the measurement and valuation of efficiency as a distributed energy resource.
Changing customer requirements
Another change, or perhaps it is not a change at all, is that most consumers don’t really care about energy efficiency at all. They care about strategic issues like resilience, productivity, health and well being etc. We are only just recognising the importance and value of non-energy benefits which usually are more strategic and more interesting than cost savings. Non-energy benefits will become increasingly important in preparing better business cases, something that the energy efficiency industry has traditionally been bad at. Simply justifying efficiency on its payback from energy savings is not enough, we should emphasise the strategic non-energy benefits and sell energy cost savings almost as a side effect.
Growing interest from financial institutions
Over the last five to ten years financial institutions have become interested in energy efficiency and this has to be a good thing. Having said that efficiency presents many problems to institutional capital including lack of standardisation, lack of scale and lack of capacity within financial institutions. These factors are now being addressed through projects like the Investor Confidence Project and the EEFIG Underwriting Toolkit.
Growing recognition that energy efficiency projects do have risks
It was always said that energy efficiency was very low, or even zero risk. There is no such thing as a zero risk project anywhere – if you can find one invest in it. We are finally recognising, and more importantly gathering data on, the real performance of projects which shows, not surprisingly, that some projects over-perform and some under-perform, but in a portfolio the performance is usually good. This recognition and data will enable new financing solutions and insurance products that utilise the portfolio effect and can make financing easier.
Increased activity in financing efficiency
We have many mechanisms for financing efficiency and they can be used for different situations and market places, but there is no silver bullet or need for new ‘innovative financing methods’ (often code for subsidy or grant in some form). What seems to be true, however, is that to get finance to flow at scale it is necessary to bring together four elements: finance – both risky development finance and low risk project finance; a way of building pipelines of projects; standardisation in project development, documentation and underwriting, and capacity building in the demand side, the supply side and the finance industry. This is what I call the jigsaw of energy efficiency financing. There are different ways of organising but all successful examples such as EESL, the Etihad Super ESCO and the Carbon & Energy Fund in the UK, bring these four elements together.
As all the trends described above continue to emerge and grow, the huge global energy efficiency resource in all sectors will become easier to exploit and investment levels will grow, resulting in energy use and cost reductions beyond the standard, official forecasts, as well as bringing the many valuable non-energy benefits.