A few things came together for me in the last week or so including; reading an article about the continued low returns from fossil fuel investments; the continued extreme high temperatures in the UK and much of Europe and the USA; the passing of Trump’s ‘Big Beautiful Bill’, (‘BBB’); and a text conversation with a pioneer of sustainable finance who categorised his work as ‘early skirmishes’. His phrase inspired me to continue my military inspired theme from my blog of 2 June, ‘Are energy engineers fighting the last war?’ in today’s title.
The energy transition, (and the wider drive towards net zero), like all economic and social transitions, can be characterised as a war – a war between the incumbents who will fight tooth and nail, using all their resources and powers, to protect their existing business, and the disruptors. It is a familiar story from the innovation literature as well as history. The early skirmishes have been things like the work on sustainable finance and the adoption of renewables using various forms of subsidies in the early days. Now we are in a situation where economics, the really powerful driver – the big guns if you like, are widely, (if not universally yet), in favour of electrification, renewables, batteries and flexibility and against fossil fuel driven systems. The relative economics makes capital flow but of course changes in the direction of capital are not instant and there is considerable inertia in the system caused by several factors, including the long life time of many assets and investors wanting to maintain at least the illusion of financial performance by not publicly admitting losses.
The incumbents are clearly facing a rising tide that in time will wash them away – but until that happens they will build every barrier they can. We see that in the ‘PR’ (actually propaganda) against EVs and heat pumps, and we see it very clearly in the ‘BBB’ which will end tax credits for renewables as well as open up Federal lands for oil and gas drilling and coal mining. In the words of the President of the American Petroleum Institute, ‘It includes almost all of our priorities’ so they have won that battle in the US but it doesn’t mean they have won the war.
Meanwhile the Institute for Energy Economic and Financial Analysis reports that:
Fossil fuel stocks reported a 5.72% return in 2024, barely one-fifth of the S&P 500’s return of 25.02%
The fossil fuel sector has under-performed the S&P 500 in seven of the last 10 years, delivering the lowest returns and highest volatility of any of the S&P’s sectors over the period.
At the end of 2024 the energy sector made up only 3.2% of the S&P’s total value, compared to 30% in 1980.
Fossil fuel investments are now an implicit bet on geopolitical disruption and near-term destabilisation.
The sector’s free cash flow remained weak.
The shift of capital away from fossil fuels continued as more major pension funds divested.
This shift was also reflected in the IEA’s 2024 World Energy Investment report which showed that the investment into clean energy of $2 trillion is almost twice that into fossil fuels.
Investors consider returns and risks – low returns and high volatility are bad, higher and stable returns which can be generated by electrification and renewables are inherently more attractive. The big guns of economics and the shifting capital flows are just getting started. The battle ahead will not be easy and will not be without its losses, but the outcome is clear.
Note The quote in the title is from Winston Churchill’s speech on the Battle of Egypt in the Mansion House, 10 November 1942.
On the 17th June I was at ZPN Energy’s #INEED event in my role as Chair of ZPN. This is the text of what I had intended to say but in the interests of time I didn’t say it all. It was an attempt to give some historical context for the scale of the energy transition over the last 40 years and look forward to the next 40 years. It contains themes familiar to regular readers.
I want to give you some historical perspective on the energy transition and the changes that we are going through, and also give some grounds for optimism at a time when it is sometimes hard to be optimistic. I have been around long enough that I can now give you a historical perspective from my own life-time experience.
I first started studying what we now call the energy transition in 1977 and it was a very different world back then. We had just had the Arab Israeli war of 1973 which led to quadrupling in the price of oil and that is what really started ‘energy’ as a subject, and it kick-started the changes we now call the energy transition that we are living through now. In 1979 we had the second oil crisis caused by the Iranian revolution – and my Iranian friends are hoping that given what’s going on now we may soon see the 2nd Iranian revolution and they will be able to go back to Tehran very soon.
From a UK perspective – and I will use 1980 as a benchmark, more than 70% of electricity was generated by coal, and the energy industry perspective was that the future would be what they called CoNucCo – coal, nuclear and conservation or what we now call efficiency. The first North Sea gas had only come on stream in 1968 and the last homes were converted to natural gas from towns gas only in 1976. Much of industry still used coal or oil boilers. What I call the energy establishment, the CEGB, the Department of Energy as it was then, British Gas, the National Coal Board, were all monolithic, public entities and they decided, or at least they thought they decided, what the energy future was going to be. Back then the official forecasts has energy use growing in line with the economy and a relentless expansion of big, centralized energy.
At the same time a few ‘crazy people’ suggested that the future could be different and there was much talk of ‘alternative energy’ like wind and solar.
In the late 1970s in the US Amory Lovins wrote a very famous paper called ‘Soft Energy Paths’ which promoted renewables and efficiency and said that US energy use may not grow at all in the time period up to 2025 if we went down the ‘soft’ path. Here in the UK Gerald Leach and his team wrote ‘A low energy future for the UK’ which basically said the same for the UK. Leach’s low energy strategy for the UK said that by 2025 the UK economy could grow by 300%, which by the way it did, but energy use could go down. Bear in mind the official forecast said energy use would nearly double and fairly soon after that there was a plan to build 83 GW of new nuclear power stations, more than the current capacity of the grid.
Leach’s study was widely rubbished and the most polite thing that the energy establishment experts said about it was that it was ‘optimistic’. Amory Lovins was also pilloried by the US energy establishment.
Well let me tell what happened to those crazy, impossible scenarios. In the UK the economy did grow by almost exactly the amount forecast but energy use did not increase, it went down by 12%. In the US total energy use in 2023 was less than Amory Lovins estimated in his soft energy path!
So it may surprise you but we are actually living in what was regarded as a totally impossible, optimistic, crazy, it will never happen, low energy future. Now some of that it is true is due to changes in the mix of the economy, more services and less manufacturing, but when you factor those variables in we are still in a low energy future.
1980 was a landmark year for the solar industry – it was the year when US company ARCO was the largest producer of solar panels and they made 1 MW in a year, 1 MW in a year. There is 50 MW of solar plants within a 15 mile radius of here so 1 MW is nothing by today’s standards. Today the largest manufacturer, Tongwei Solar, has a capacity of 150 GW of cells and 90 GW of modules – 100,000x bigger than the biggest manufacturer in 1980.
Even by 1990/91, when I helped catalyse some of the earliest wind farms in the UK, the wind industry was tiny – you couldn’t really call it an industry, more a collection of enthusiasts. We held meetings of the whole industry in very small rooms and the largest wind turbine was 400 kW and most were 250 kW. Today the wind industry has 450 companies and employs 45,000 people and the largest off-shore turbines are 15 MW, and now we are seeing 25 MW turbines coming out – 60x bigger than those early turbines. If you had shown us those numbers in 1990/91 even the most visionary of us would not have believed them – and the energy establishment would have laughed at them.
What does this historical perspective tell you and what can it teach us about our views of the future today? It tells me that official forecasts and naysayers are usually wrong.
Today we hear a lot of people say ‘net zero is impossible’, we hear a lot of people say ‘EVs don’t work’ or ‘sales have faltered’, and we hear a lot of people – including the government – say that the future is building more nuclear reactors including that mythical beast the Small Modular Reactor. We also still hear some people say ‘the sun doesn’t shine all the time’ – like nobody knew that before.
We also hear a lot of people say ‘despite all the investment in renewables they only represent a small percentage of energy use’. This is what is known as the primary energy myth – we are comparing generation by renewables to primary energy and completely ignoring that in thermal power stations we throw away 2/3rd of the fuel energy that goes in, and in internal combustion engine cars we throw 80% of the fuel away as heat. Once we electrify you eliminate all of that waste – all of that gas, oil and coal being burnt for nothing and polluting the air, as well emitting carbon dioxide.
Yes – of course there are problems and challenges – not enough electric vehicle chargers, grid connection problems etc – but remember this is a transition. There are bound to be problems as we change out our entire infrastructure and change our electricity markets. Also we should also remember that energy transitions do take a long time – this one may be quicker than any previous energy transition but I think 40 years into it we are about half-way through.
People forget about the power of incumbents in trying to stop or delay change – nearly every day when we see stories in the press criticizing net zero or EVs. Remember incumbents always do everything they can do, legal and sometimes illegal, to stop the disruptive innovators and most of those negative stories are made up by the fossil fuel incumbents.
Of course incumbents resisting change is nothing new. In the mid-19th century, the stagecoach and particularly locomotive industries found themselves facing the looming spectre of the automobile’s disruptive potential. They were afraid the car would replace them. So, they worked hard to convince the government to make strict laws, like the 1865 Red Flag Act. This restricted the speed of horse-less vehicles to 2 mph in towns & 4 mph in the country. The Act also required three drivers for each vehicle – two to travel in the vehicle and one to walk ahead carrying a red flag. There were similar laws passed in the US as well.
Here in the UK the Red Flag Act was finally repealed on 14 November 1896, when the Locomotives on Highways Act scrapped the flag requirement and raised the speed limit to 14 mph. The London to Brighton run of veteran cars is held every year to commemorate the repeal of the law and is always held in November.
Now we are seeing a lot of lobbying from fossil fuel incumbents. In the US several states have passed or are trying to pass anti-renewable energy laws while Trump rants on about ‘windmills’. Meanwhile one of those states, Texas, has installed more renewables and batteries than any other state and it doesn’t look that is going to stop anytime soon – so we are seeing the old energy money and their paid-for politicians fighting the new energy money and their paid-for politicians.
Incumbents can delay change – but they never stop it in the end. The drivers of change are too strong and there are three drivers of the energy transition:
– Sustainability: which is not sustainable because people won’t pay more for green – Economics: now we are in a phase where solar is the cheapest form of electricity – Energy security: at a macro level and a micro-level
At different times some drivers have been more powerful than others, and some like economics have been negative, but right now for the first time all three forces are pulling in the same direction, and on-top of that the finance industry is being proactive and shifting capital towards the energy transition and decarbonization. The drivers, particularly economics, are unstoppable.
When thinking about the future people also forget about the power of S-curves. S-curves are incredible – things seem to change really slowly and then suddenly they take off. The diffusion of all technologies follow S-curves and now finally we are seeing that with solar, and batteries are not far behind. S-curves are in five phases:
– Solution search – Proof of concept – Early adopters – System integration – Market expansion
We are just moving out of early adopters into system integration which means you haven’t seen anything yet, rapid growth – particularly of solar and batteries – is only really getting going. In the words of the classic 1974 Bachman Turner Overdrive song – ‘You ain’t seen nothing yet’. The trends are clear.
We are seeing record installations of solar and batteries and increasing sales of EVs. Not just in China but globally and in the UK. In 2024 the world installed nearly 600 GW of solar installed in the world – 600,000x the output of the biggest PV factory in 1980 and equivalent to the peak output of 600 nuclear power stations. For comparison the global nuclear industry added 7 GW in 2024, about 1% of the capacity. In 2023 battery energy storage systems tripled and are expected to grow at 21% a year up to 2030.
In 2024 EV sales globally grew by 25%. At the end of 2024, the electric car fleet had reached almost 58 million, about 4% of the total passenger car fleet and more than triple the total electric car fleet in 2021. Notably, the global stock of electric cars saved over 1 million barrels per day of oil consumption in 2024. In countries with a high percentage of EVs like Norway and China we are already seeing oil consumption drop.
The transition is accelerating as solar and battery prices continue to fall. In the next stage of the transition the focus will be on electrification and distributed energy, small scale, close to the point of use energy systems.
The famous science fiction writer, Arthur C Clarke once said that ideas go through 3 phases:
– it will never work – It might work – I told you it would work all along
With solar we are now in phase 3 with only a few holdouts still saying things like ‘the sun doesn’t always shine’.
The future will be abundant, cheap solar and batteries everywhere in a distributed and flexible energy system, with more power in the hands of the consumer, or rather prosumer as they will be both producers and consumers, than ever before.
So what will some of the consequences of these changes be? Well they certainly include cleaner air, reduced emissions, reduced oil consumption and lower energy prices. But there will also be political changes, globally and locally. Energy, particularly electricity is associated with big centralized power – there are always close links between energy and power, and political power.
Back in the 1980s we talked a lot about ‘petrostates’ – those countries whose economies depended heavily on the production of oil such as Saudi Arabia and others in the Middle East. Now we are seeing the emergence of the first ‘electrostate’ – China. With the shift in power and energy flows there is a shift of political power. The shift towards all consumers, buildings and industry and even cars, becoming both producers as well as consumers of power and ancillary services will shake up politics in ways that haven’t really been thought about yet. Abundant, clean and cheap power will allow us to do new things, to create new industries, clean up the environment, and produce more high-quality lower cost food.
I am planning on sticking around to see the rest of this transition, it is just getting really interesting.
Damage caused to a warehouse belonging to our Ukrainian partner by a Russian air raid. Luckily in this case no-one was killed or injured.
The incredible Ukrainian attacks on Russian military forces deep inside Russia reminded me of the old axiom that Armies prepare to fight their last war, rather than their next war. Ukraine is clearly fighting the current and next war, rather than the last one and drones are the weapon of choice.
Designers and engineers of energy systems for buildings and industry could also be said to be fighting the last war rather than the current or next one. In recent months we have seen several examples of this. Some of this behaviour is for understandable reasons such as the effect of standards which have been put in place for good reasons, particularly human safety; some of it is due to incumbents using their market position and marketing muscle to continue to sell their solution, even when it is no longer the right solution for the customer; some is due to silo thinking rather than system thinking; and some is due to human nature, people tend to carry on doing what they have done before.
Many organisations are genuinely committed to decarbonising their energy system by replacing gas used for heating and/or process by electricity. With our rapidly decarbonising electricity system the carbon emission reduction benefits are clear, and electrification brings other benefits such as reduced maintenance, improved safety, and reduced local air pollution. What it often doesn’t do though, at least in the UK, is bring a financial benefit, or at least a sufficient financial benefit to make it investable given normal corporate investment criteria for non-core business. With heat pumps being one of the preferred solutions for electrifying heating systems the ratio of the cost of electricity to that of gas – the ‘spark spread’ – is critical, and with electricity prices being 3 or 4 times gas prices, even with heat pumps running at an assumed Seasonal Coefficient of Performance of 3 to 4, means investing in them will lead to increased, or at best similar, energy costs. In addition there is the increase in power capacity needed which can lead to a need to upgrade the connections, resulting in yet more capital cost. This lack of financial viability and capacity constraints often stops investment.
The problem we see here is there is still too much thinking about the sub-system of heating as opposed to the whole energy system. We know that the electricity system is rapidly decarbonising, the UK government’s ambition to have ‘clean power by 2030’ is, according to the National Energy System Operator, challenging but achievable. Even if it is not quite achieved by 2030 the direction of travel is clear. Alongside the decarbonisation we are also seeing decentralisation and digitisation of the electricity system and much higher need for flexibility, flexibility that can come from batteries and smart control of loads of all sorts including heat pumps.
Given the evolving nature of the electricity grid it is necessary now for anyone designing, engineering or procuring a new electrical system or an upgrade to an existing system, or decarbonisation of heat by replacing gas, needs to design an electrical system that is fit for purpose and can interact with the grid itself to reduce costs and maximise revenue from sales of power and grid services – that is the grid as it will be in 2030 and not the old, uni-directional grid. The old hard, fixed border between the grid and internal power systems of a building or an industrial facility – a border that traditionally only allows one-way traffic – is now porous and open; power, grid services, information and money must be able to flow in both directions between the grid and the ‘prosumer’.
What does this mean in practice? With solar PV now being the cheapest source of power, and so cheap that the old considerations of orientation and angle are less important as economic drivers, the starting point is to maximise self-generation. That means use roofs, walls, car ports, fences and even balconies as solar generators. Then use batteries to store energy and maximise use of solar. Get the biggest connection possible for import and export. Sign up with an aggregator who can maximise revenues from selling power in the wholesale market, as well as revenue from the Balancing Market, the Capacity Market and other ancillary services markets. Also look to see whether your system can be extended to other near-by users in a micro-grid, either through private wires or sleeving arrangements.
Our experience is that when you look outside the immediate problem of replacing gas, and start to consider the whole system and the benefits of being fully integrated into the flexible electricity market of the future, investment returns look much better. Smart capital is starting to realise that this approach will design and build the infrastructure of the future, and fund integrated distributed energy infrastructure in energy or net zero as a service.
ep is working with clients, technology providers and sources of capital to design, deliver and finance infrastructure fit for the future. We can help you prepare to fight the next war rather than waste time and resources fighting the last war.
One of the major things that is missing from modern society, and possibly the cause of the plight we find ourselves, both environmentally and politically, is the lack of a compelling and positive vision for the future. This absence is particularly notable in the current geo-political environment. This new book provides such a vision for a positive global future based on abundant and cheap energy from solar, wind and batteries. It is very different, however, to other books on energy futures.
The book starts with a historical survey that sets out the impacts of the transition from a hunter gather society to an agricultural society. At that point we changed to an extractive model of the world which over generations has shaped our mentality, our laws, our institutions and even our bodies. It is that extractive model that is the root cause of many of our problems.
The argument in the book is that we will soon have cheap, effectively free, and abundant energy from solar, wind and batteries – a ‘stellar’ energy system that doesn’t need extractive inputs to operate. The emergence of a stellar energy system produces results that cannot be predicted from the sum of the parts – what the authors call ‘radiance’ which is a super abundance, i.e. over supply, of energy that will enable us to restore the damage caused by the extractive economy on a massive scale. With abundant clean energy anything become possible.
Moving beyond the energy system itself the book looks at the effects of this super abundance on various systems including food production, water and transport, as well as issues of ownership and the wider economy and politics. The need for systems thinking is stressed throughout. The effects of embedding stellar technologies into an extractive system, which is where much of the energy system is now, is described as a chimera. The authors argue that this approach leaves us in danger of ‘snatching defeat from the jaws of victory’. The book finishes with eight guiding principles for the journey towards a stellar economy.
This book is a highly recommended tour de force based on real ‘outside the box’ thinking. As the basis of a positive vision of the future it deserves a wide audience amongst energy professionals, economists, policy makers, and indeed anyone interested in building a better future for the world. My optimist side believes in this vision, my realist side remembers the quote from Arthur C. Clarke, ‘we tend to over-estimate what we can achieve in the short-term, and under-estimate what we can achieve in the long-term’. My practicality says, ‘what can we do today to build this future?’.
In recent years I have joked in presentations that if I had £5 for every report or article I have read on the barriers to improving energy efficiency I could retire. It is a topic that has received a lot of attention, with some good and some not so good analyses. As part of my series of extracts / blogs inspired by my 1985 PhD this one reproduces what I wrote about barriers back then. As with the other PhD blogs you have to translate ‘energy conservation’ as ‘energy efficiency’, but other than that many of the same issues still appear in organisations. Key take aways include: failures of information and communication; failures to make energy efficiency options explicit; failures to think strategically and link energy efficiency decisions to wider corporate investment decisions, the importance of putting responsibility for energy efficiency in the hands of operational management and not just relying on engineering or technical teams, failure of senior management to understand technology, the power of paradigms and belief structures based on previous experience, and the importance of ‘champions’ questioning decisions.
The piece has had light editing from the 1985 original.
BARRIERS TO INVESTMENT IN ENERGY CONSERVATION
The barriers to energy conservation investment can be divided into two categories:
(a) techno-economic (b) managerial
The term techno-economic is used as there are rarely purely technical barriers to applying existing equipment, the problems come when technical factors cause failure to meet the required economic return, hence preventing investment. Managerial barriers include all aspects of management that prevent investment in profitable opportunities.
It was stressed earlier that the profitability of energy conservation techniques is sensitive to site specific factors, and the importance of site specific factors should not be discounted.
The majority of this section is concerned with managerial barriers because of the site specificness of profitability. Without some form of energy management activity the profitability of techniques will not even be evaluated and so it is considered that managerial barriers are more important than economic barriers. The soft systems model of management activities necessary in energy management (also referred to here) is used to explore examples of different categories of management problems discovered in the sampled companies and in the literature.
TECHO-ECONOMIC BARRIERS
The 1985 discussion of techno-economic barriers focused on the economics of various measures including: industrial heat pumps, (which were having a resurgence in the early 1980s), Combined Heat and Power, sub-metering, energy management systems, and low energy lighting, amongst others. Given the changes in technology availability and prices this section remains just of historical interest and so is not reproduced here.
MANAGERIAL BARRIERS
Introduction
The following sections explore managerial barriers to energy conservation. Many reports on the barriers to energy conservation cite management problems but do not explore them in detail. Here the soft systems model of the activities necessary in energy management is used to examine barriers to energy conservation. The examples used are drawn mainly from the interviewed companies with some from the literature. Three types of managerial barriers can be distinguished: informational, strategic, and organisational and human. Each is now discussed in turn and the interactions between the three types described.
Informational Problems
Probably the biggest barrier to energy conservation is lack of information, or poor information management of one kind or another. As shown in Section One, 26 companies out of 49 sampled in the brewing sector monitor energy consumption at greater than monthly intervals or not at all. Without regular management information, effective action is unlikely to occur as shown by the evidence of these companies, eleven of which reported no reduction in specific energy use over the last two or five years.
In the dairy sector sample, two out of twelve sites did not monitor energy use at all while in the malting and distilling sectors samples monitoring is nearly universal. The incidence of monitoring in the four sectors was higher than that reported by Hoare (1983) in a geographically localised but general in industry sector, survey in which only 50% of respondent companies practiced some form of energy monitoring. We have seen that most sites in the brewery and dairy sectors do not adjust their monitoring figures for variances such as production, production mix, season and climate. Corrections are more often made in the distilling and malting sectors. Only twelve out of 49 sites in the brewing sector divide energy use into cost centres and allocate responsibility for energy to line managers, while only two out of eight dairy sites do. In the other sites engineers are responsible for energy conservation.
In two distilling companies production managers are responsible for energy and all other resource uses, energy specialists provide a service to the production managers. In the other distilling companies and in malting sites, the energy manager, usually an engineer, is responsible for energy conservation. This allocation of responsibility is necessitated by a lack of information on energy use within the plant. Provision of this information requires sub-metering which generally does not exist. Giving responsibility for energy conservation to engineers can create organisational barriers to change which are discussed in more detail below.
Another informational problem, possibly caused by organisational and human problems, occurs when information is either not passed on to the relevant people or when people do not understand the significance of information. In one of the large breweries interviewed it was admitted that prior to a recent management “shake-up” information concerning energy use was collected but not distributed to any managers. Roberts (1983b) cites a similar case in a brewery in which after the information was circulated it quickly led to action that saved one-third-of the energy used in bottling.
In one distillery interviewed the chemistry laboratories were responsible for carrying out boiler blow-down water and stack gas analyses. When the readings were outside set limits (indicating low efficiency that can easily be corrected), the chemist often did not communicate the message to the chief engineer as he had neither been trained to understand their significance, nor to realise his own role in the communication chain of management.
Another major problem which is information related, is the existence and prevalence of paradigms. All too often decisions appear to be based on paradigms and views that may have been relevant in the past but have become out of date. One of the quickest and cheapest ways to save energy is simply to question all practices and assumptions. Roberts (1983b) cites the case of a brewery where the same product was being stored in three separate vessels at three different temperatures, 30°F, 38°F, and 44°F respectively. In each case, the product was bottled and delivered under the same name and tested against a common quality standard. A detailed investigation led to a more rational and lower overall consumption of energy, and revealed spare refrigeration capacity in each case.
In one brewery the author discovered that a heat exchanger was working in reverse most of the time, heating up effluent instead of recovering heat from it before dumping it to drain. Similar examples abound in companies with extensive energy management programmes. An interesting example of a paradigm concerns pumps, again in a brewery. The type of pump used was inefficient because of its impellor design but preferred by the brewers as it was “easier to clean” than the alternative, more efficient pump. Only after extensive tests and persuasive efforts did the brewers admit that it was just as easy to clean the more efficient impellor. Of course the threat of biological contamination in a brewery is serious but the brewers exhibited an almost fanatical unwillingness to even consider change. Belief in paradigms, and failure to question assumptions represents a failure to see the problem and available techniques as they exist now. Several viable techniques are prevented in some cases because engineers distrust a technique they experienced ten or twenty years before, ignoring any advances in knowledge and ability made in the intervening period.
Strategic Problems
These can be divided into two types: lack of strategic thinking in integrating energy conservation investments and other investments; and lack of strategy within the energy conservation investment sub-set of company activities. The need to integrate energy conservation investment plans both with non-energy investments and with other energy investments was stressed in the soft systems model.
Examples of failures of the first type are now illustrated:
A small brewery invested over £2,000 on replacing a burner system for heating a copper. Savings were estimated before the investment at £1,000 p. a. and these were being achieved. Within a year however, the copper was replaced as part of the normal capital investment cycle. This illustrates a failure to think strategically about the effect of planned or anticipated changes to process equipment (or possibly the underlying process itself in some cases) on energy conservation investments. The company did learn from its mistake and ensured that energy saving features, including a novel heating system, were incorporated into the new copper. These reduced the gas bill by 20% relative to the performance with the improved burner system.
A medium sized brewery installed a CO2 recovery unit on the understanding that the alternative method of beer pushing, using nitrogen, would not be installed. The engineering department had previously lobbied for a nitrogen system because of the energy saving potential. This occurs because with a nitrogen system, nitrogen blanketing can be used to de-aerate the water used for diluting high strength brews rather than using steam heating followed by refrigeration (de-aerated water is used as the presence of air in the water imparts an undesirable metallic flavour to the product). The brewers, however, had flatly refused to consider nitrogen pushing. Less than a year after the CO2 recovery system was installed the brewers changed their mind and announced a switch to nitrogen pushing. The capital and time invested in the CO2 recovery was largely wasted by this change in policy. Although some CO2 recovery will still be practiced after nitrogen pushing is installed, the system is now unable to achieve a satisfactory rate of return.
A brewery decided to open a “brew pub”, a public house which brews beer on the premises. The engineering department was instructed to complete the installation by a certain date. The engineers estimated that the design, build and installation would take twice as long as the available time. The time constraint left insufficient time to design in several energy saving measures. The sole objective of delivery by a fixed time over-rode all other concerns. Constraints in the building, notably space, meant that advance planning for later addition of energy conservation features was also not possible. Of course, in retrospect, if the entire project was successful it could be argued that this was an acceptable compromise.
A brewery that was investing £1.2 million in a new brew-house had the option of including copper vapour heat recovery (CVHR) using mechanical vapour recompression (MVR). This novel scheme would have added £O. 5 million to the capital cost (before a government grant of 25%) and had a 2.5 year payback period which was within the company’s normal criteria for retrofit investments. The MVR system would have reduced brew-house running costs by 80%. The option was rejected by senior management on grounds of shortage of capital. Leasing the MVR system, a possible way round the capital constraint, was not considered by the company. A secondary reason, which if it goes ahead within a medium timescale would make this an example of systematic thinking, was a Board directive to reduce boil-off from 10% to 5% within ten years. This would reduce the cost-effectiveness of the MVR system. In this example the engineer was being systematic in trying to incorporate a major energy saving technique into a new brew-house necessitated by the normal capital investment cycle. If the reduced boil-off decision is implemented it may well show strategic decision making by the Board. It appears however that the interactions between the projects, for example the effects of reduced boil-off on MVR system size and return, were not considered.
A large dairy was built for a group and reputed to be the most modern in Europe in terms of automation at that time, but had a very low energy efficiency. With prevailing energy prices numerous viable energy saving projects were feasible. These would have been relatively easy to include during the design stage but “no attention” was paid to energy. The dairy was over rapidly designed and built with no attention paid to reducing energy costs. Staff at the dairy are now attempting to rectify some of the failures to incorporate energy conservation projects. Some retrofit opportunities have been made difficult or non-viable because of constraints built into the dairy. Consequently the dairy is locked into a higher energy consumption and higher running costs than could have been achieved even with techniques economic at the time of design.
Examples of good strategic, total system thinking in which the synergy between general investment decisions and energy conservation investments was considered include the following:
A medium sized brewery, when building a cask-conditioned beer line, included drainage sumps that would enable an effluent heat recovery scheme to be added later, even though this project was not past the idea stage. Without the drainage sumps, easily incorporated at the construction stage, the costs of adapting the plant for effluent heat recovery at a later stage would have been prohibitive.
Two small breweries, neither of which could allocate capital to retrofit measures, ensured that all new plant was designed to be energy efficient. In one company the Head Brewer even included meters in new capital plant expenditure, “hiding” them from the cost-conscious Board. This example could represent one of two possible cases. Either top management were being systematic and conserving capital for other, higher return projects, e. g. marketing, and the production manager (Head Brewer) was wasting capital on meters; or he was being systematic in using the opportunity afforded by new plant purchase and doing what he could against higher opposition. The important point is that this issue was not made explicit. Discussions with management suggested that sufficient capital was available for metering and that top management had failed to appreciate the importance of metering in reducing energy costs. This lack of appreciation indicates an important communication failure between energy managers, meter suppliers, government agencies and senior management.
Examples of the more narrowly drawn sub-system approach within energy conservation investment are now given:
A company operating high temperature kilns (not in the food, drink and tobacco sector) decided to install a secondary recuperator on one kiln. During the system design it was also decided to install a microprocessor temperature control system which would save energy by keeping the kiln temperature within tighter limits. The secondary recuperator was installed followed by the control system. The tighter temperature control reduced the exhaust temperature such that the temperature in the secondary recuperator fell below the dew point, consequently acid condensed out of the exhaust and rapidly corroded the recuperator. Better strategic design would have delayed the recuperator until the control system was in place and working. Then the design of the recuperator could have taken the lower temperature into account.
A company installed insulation behind a false ceiling without realising that uninsulated heating ducts passed through the void space. Consequently the heating bills increased because of greater heat losses from the ducts and they had to be insulated. Total capital costs would have been much lower if both the ceiling and ducts had been insulated at the same time.
An example of the problem of deciding when to invest in new techniques is the case of a large brewery which invested £50,000 in a computerised data logging system for energy monitoring in 1981. When the system was installed the company had an energy management system in which the engineering department was totally responsible for energy conservation. Within two years the data logging system was found to be inflexible and have insufficient monitoring points even for the existing organisational form. it was decided to switch to an organisational system in which line managers were responsible for energy conservation, (generally proven to be the most effective option). The data logging system had to be replaced by a more flexible and extended system.
This example shows the relationship between informational systems and organisational form (to be explored below) as well as the problem of when to buy new technology. Although it failed to recoup the investment the original system did help to sell the value of metering and monitoring to senior management. As Rosenberg (1982) and Jacques (1981) have shown, there can be rational reasons for not investing in new technology now and waiting for a more advanced, possibly more proven, and possibly cheaper form of the technology. This decision, however, must be made explicit. Costs and capabilities of electronic energy management systems in particular, in common with other electronic equipment, have rapidly changed during recent years.
We have seen that examples of non-strategic thinking leading to wasteful investment occurred in a variety of companies, of all sizes. Some of the companies were noted for successes in energy conservation. Examples of both good and bad strategic thinking sometimes occurred in the same company. In all cases returns from investments were reduced, if not obviated. Several problems appear to be due to a lack of appreciation of technological problems by top management. Although working under pressure does have advantages the example of the brew-pub is extreme. Essentially the project had to be “crashed”. If the extra costs, capital, running and human costs, were considered explicitly and judged to be less than the benefits the decision would be defensible. If, as seems likely, they were not, it was a poor decision. In either case the impression gained is a lack of appreciation of technical problems. The example of the new dairy is similar and possibly reflects poor production facility planning at a higher level.
The example of nitrogen pushing and the CO2 recovery unit suggests a lack of any consistent, explicit technology policy. The Head Brewer’s initial. rejection of nitrogen pushing was reversed within a year, suggesting that either the original decision, was ill-considered, or the degree of uncertainty in this “decision” was not correctly communicated to engineering staff and others. The policy was understood to be “no N2 pushing” whereas it seemed in retrospect to be “wait and see”. If this had been explicitly recognised by all parties the CO2 recovery system could have been delayed.
Several brewery engineers complain that top management, which is often dominated by marketing and accounting specialists, do not understand technology. It would be easy to dismiss this view but some of the examples do support it. Top management decisions with technological implications often appear to be made without recognition of these implications and without strategic technological planning. The need for such planning and general acknowledgement that senior management lack technological know-how is found in Pappas (1984) and Steele (1983).
Other examples also suggest that top management do not understand technology. One brewery engineer was asked whether he could use mild steel trunking instead of stainless steel on a boiler economiser to reduce capital costs. This would have been possible but the estimated lifetime of the ducting would be less than two years. The project had a payback period, with stainless steel trunking, of about two years. The engineer resisted and won the case. The need for systematic planning at all levels is again illustrated by this case. If senior management had alternative higher return projects in which to invest they were correct to try to reduce capital costs. Their lack of technological know-how led them, however, to do this in the wrong way. Delaying the economiser rather than trying to impose false economies would have been a better strategy. This attempt implicitly shows a lack of faith in the engineer’s ability to design or specify an appropriate system. If senior management did not have alternative projects they did not have a valid reason to reduce capital costs. The important point again is failure to make this issue explicit. Many brewery managements have problems understanding technology. In the words of one brewery engineer, “this place has gone through a technological revolution and no one has adjusted yet”. The revolution appears to have been more accidental than managed. The brewing industry in particular remains saddled with an unwarranted craft romanticism whereas the reality is a high technology, chemical engineering operation.
The nature of energy conservation activities, and technology in general, suggests that an explicit technology policy, if not an energy policy, is necessary. Only one example of an explicit energy policy was found within the four sectors examined. This contrasts with experience in the chemical industry (S R Graham, D Boland, personal communications).
Some examples of non-strategic thinking are a result of day-to-day pressures taking precedence. One brewery engineer said that the only time he had to work on projects was in the evenings and at weekends. Although such application is laudable it is a comment on the organisation in which such “moonlighting” is necessary. The day-to-day pressures seem to have three possible causes: poor management; pressure caused by projects being given priority by top management; and organisational designs and climates in which engineering staff are interrupted throughout the day on minor administrative matters (a case of confusing the urgent with the important). These causes reflect hierarchical structure problems of the firms’ management which have effects other than in energy management activities. These are specific examples of the general disease of bad management.
Organisational and Human problems
In most of the sites in the four sectors large enough to merit separate engineering departments responsibility for energy conservation was primarily with the engineering function. Engineers have technical expertise in energy related matters, (though not usually energy conservation per se), but only utility generation in boiler houses, and possibly energy distribution is under their direct control. Energy use, or mis-use, is under the control of the users and not the producers. This important principle is often ignored. Any attempt to make energy management at the good housekeeping level the responsibility of engineering staff is likely to lead to several problems. Firstly the engineer-energy manager is unlikely to have time to keep a close check on all energy users in all departments. Secondly, any attempt to change working habits in another manager’s department is likely to compromise that manager’s authority. Thirdly, without explicit responsibility the department manager is unlikely to have sufficient motivation to ensure good housekeeping is practiced.
One remedial approach encountered is to appoint energy wardens who are made responsible for ensuring good housekeeping in their particular areas. This may be good for spotting problems such as steam leaks but is unlikely to result in operational changes where appropriate because the energy wardens lack authority. In some brewing sites where the engineers are responsible for energy conservation a common attitude amongst line managers is that “energy is something the engineers look after”. These managers have no explicit responsibility for controlling energy costs and express their objectives as producing beer, not producing beer at a profit. In two sites where this occurs there are suggestion-schemes and energy committees but 80% of the input comes from the engineering departments.
It is likely that that line managers have insufficient expertise in energy conservation. Most managers, however, do have an in-depth knowledge of their own production equipment and operations that should be a good basis for energy conservation activity. It seems more likely that the lack of action is caused by a lack of motivation. Unless departments or areas are sub-metered and line managers given full explicit responsibility for reducing energy costs, in co-operation with engineers, there is no motivation. The effect that this problem can have is illustrated by the example of a production manager who had always scheduled steam cleaning of plant at weekends. This resulted in the boiler having to be fired up at weekends at an estimated cost of £600 per occasion. On one weekend when essential maintenance work necessitated a complete electrical and therefore steam shut-down, (the boilers cannot be run without electrical power), the cleaning operations were rescheduled to occur during the week.
When the plant energy manager suggested that this could be done every week, saving about £30,000 per annum, the production manager refused. The energy manager subsequently arranged several notional electrical shut-downs at weekends to illustrate that rearranging the cleaning was possible and resulted in little, if any, extra cost. After several “shut-downs” and persistent persuasion by the energy manager, the practice was made permanent. The production managers stated reason for refusing to reschedule cleaning operations, extra cost. was not justified. If the costs had been real the energy manager would have been wrong to persist and this would have reflected unsystematic thinking on his part. In this case however, he did consider all other costs and decided upon action which was subsequently proved correct. The production manager did not regard energy conservation as part of his role. Presumably, he felt no motivation to do so because energy use in his area was not metered and he was not explicitly made responsible for energy use within the area.
The importance of allocating responsibility to line managers is supported by Roberts (1983b) and Boatfield (1982). The latter stresses that line managers must be totally responsible for all functions including engineering. In order to be responsible for a technical function, the non-specialist must make the engineering management accountable to him for the engineering function. The same applies to other specialist functions such as Health and Safety. This approach has had spectacular results, both in energy conservation and environmental pollution control (Boatfield, 1982; see also Financial Times, 29 August 1980).
One distillery company illustrates the difficulties in switching to a system in which line managers are given full responsibility. The group energy manager realised the problems inherent in having chief engineers responsible for controlling energy consumption. Despite having one supporter on the main board it took two years to change the system. Eventually, in 1981, the Assistant Manager at each site was appointed as an Energy Co-ordinator. Each had complete responsibility for energy conservation and engineering staff as a resource. Energy savings since 1981 have been about 25%. The central energy manager, a chemical engineer by training, believes that technical people are needed for energy work but they do not need to be energy engineers: “there is no problem in a technically aware-person acquiring the principles of energy conservation”.
Organisational problems can also occur at the level of new equipment purchase. In a large brewery where the manager responsible for energy use in public houses, an engineer, was establishing specifications for new buildings and renovations, encompassing lighting, heating and ventilating, cooking and dishwashing equipment. The purchasing department had traditionally been responsible for purchasing new equipment and its objective had often been to minimise capital outlay. The energy manager was trying to minimise running costs within a definition of profitable investment (i. e. the payback period criterion). There are, however, no formal links between purchasing and the energy management function. The energy manager is having to forge these links but is encountering resistance from the purchasing department, who see a takeover of some of their functions.
Another “human” problem, possibly exacerbated by organisational designs in which engineers are given responsibility for energy conservation, is excessive concentration on hardware and high cost solutions. Roberts (1983b) cites a case where high cost measures were instigated first and saved £250,000 a year on a site having an annual fuel bill of £4 million. The capital cost of the projects amounted to £250,000 and management were pleased with achieving a one year payback. Later, when the site was examined for no-cost and low-cost improvements, a further £250,000 per annum of energy was saved for a capital cost of only £25,000. All too often engineers concentrate on hardware instead of information and organisational software.
An organisation in which functions are rigidly separated can present barriers to effective energy management. In many companies interviewed, engineers produced proposals on a payback basis which were then handed to accountants for DCF analysis. If any sensitivity analysis is conducted it is done without access to engineering information necessary to assess technical risks. This rigid separation of functions lowers the usefulness of sensitivity analysis. In one case found the project had been rejected because of a low IRR but a check by an engineer trained in DCF techniques proved the analysis was incorrect. In one of the larger breweries engineers had recently acquired microcomputers and started to do their own DCF calculations and spreadsheet modelling. Only one company in the brewing sector sample had a separate energy conservation capital budget, expenditure being requested from a general capital budget. This means that projects can be accepted and rejected on a piecemeal basis, making integrated planning of projects more difficult. It also has two important consequences for companies supplying energy saving equipment. Firstly, as in all marketing, it is important to find out at an early stage in the contact who actually makes the decision. In most cases the engineer or energy manager decides what equipment or service he requires, but the finance department has the final say over what is bought through control over the capital budget as well as financial appraisal. In such cases it is important that the potential supplier finds out (a) what the capital expenditure criteria are; and (b) what the preferred methods of proposal presentation (i. e. IRR, NPV, with/without tax etc) are, so that it can either help the engineer prepare, or itself prepare, a proposal with a high probability of acceptance. These basic actions seem to be overlooked by many supplying companies.
The second and possibly more serious consequence is that engineers prepare proposals on the basis of quotes. Proposals are then passed on to finance departments. If they are accepted they are then put into the following year’s capital budget. This can result in long delays between acceptance and implementation with obvious consequences for suppliers’ cash flows. The establishment of a separate energy conservation capital budget aids the integration of projects through formation of a portfolio and can reduce the time lag between project acceptance and implementation.
SUMMARY
Managerial barriers to energy conservation investment have been categorised into three related types: informational, strategic and organisational and human. The most important informational barrier, and probably the most important barrier of all, is failure to monitor energy use and costs. Monitoring is linked to organisational barriers. Organisations in which energy managers are responsible for controlling energy costs often encounter problems of lack of coordination and lack of motivation for line managers. Giving full responsibility to line managers, and a coordinating and support role to energy “managers”, induces this motivation. To do this, however, requires a well developed monitoring system which breaks down energy costs and usages into cost centres and delivers relevant and timely information in a usable form to line managers.
Another informational problem is the existence and prevalence of paradigms both about existing production equipment and energy conservation techniques. These reflect a failure to understand available techniques as they exist now and unwillingness to experiment in a scientific manner. These managerial barriers conspire to prevent investment in energy conservation techniques, even where such investment would if properly evaluated, meet the company’s investment criteria.
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