Tuesday 8 May 2018

We know that there is a massive potential for cost effective energy efficiency in nearly all, well all in fact, sectors and situations. Study after study in many countries and many regions have repeatedly shown this as has case study after case study. We know the efficiency resource is available, now we have to turn it into reserves and use it – we need to get it out of the buildings, out of the factories, out of the power systems and out of transportation.  To use the oil and gas resource analogy we are in the position of a small exploration company who have found massive reserves of oil but lack the means or the know-how to exploit it.


So what do we need to really scale up utilisation of the efficiency resource, the cheapest, cleanest and fastest to deploy energy resource we have?


Well here are (six) things that we need in any country, situation or sector.


  1. First of all we need to see that the resource is there. Wallace Everett Pratt, a pioneer petroleum geologist said; “where oil fields are really found is in the minds of men” and it is the same for efficiency. It is only there when you recognise it as being there.  The scale of the resource, as in oil and gas, can also be limited by imagination or technical know-how.  Applying integrated design will generally lead to a larger, more economic reserve than using conventional incremental engineering. It opens up bigger reserves in the same way that conceiving of and then implementing horizontal drilling increased oil reserves.
  2. Someone, and preferably someone with some authority and power needs to believe that it is a) viable and b) economic to spend the time and money needed to identify and then access the reserves. Viability is in the eyes of the beholder and there is a need for entrepreneurs (in both the private and public sectors) to lead. Such people are often “unreasonable”.  An example is the Empire State Building renovation that used integrated design and reduced energy use by 38%.  Without a forceful, informed client in the shape of Tony Malkin that project would not have happened in the way that it did and at best there would have been smaller, less financially attractive savings, and at worst no efficiency at all.
  3. There needs to be a good business case. Traditionally energy efficiency business cases have been of the form, invest £x and save £y on energy costs.  The world is more complex than that and it has never really been that attractive because just saving money is rarely strategic.  That is why there are so many stories of frustrated energy managers or consultants with dozens of “two year payback projects” that have been turned down by CFOs.  In the last few years we have started to recognise the multiple non-energy benefits that efficiency improvements can bring, including greater productivity, better health, better learning outcomes and many more. These tend to be much more interesting and strategic to decision makers and with strategic investments there is much less focus on the payback.  Energy efficiency advocates need to learn to make better business cases that identify and value all the benefits. It is not easy to value them but then again it is not easy to value the effect of advertising and PR spend.
  4. There is a need to spend some money developing the opportunity, taking it from an idea to an investable proposition and that is risk money. Development requires some level of engineering work, which can be very simple adaptation work for a simple measure based on a single product like high efficiency motors where you can almost replace like for like, (although that may not be the optimum solution of course) through to complex engineering to modify existing systems or structures and calculate interactions between them.  As in oil and gas exploration advanced software tools can be useful here but we have to recognise that there is often still a performance gap between what models say and what actually happens. We need better, and standardised tools.  Development of all kinds can be complex and iterative but at the end of the day there is no certainty that a real project will happen as a result of development work.  The development process is one that combines engineering, financial work, legal work, and what I call contextual work, looking at how the proposed development interacts with other factors inside and outside the host organisation.  It is essentially a process of risk reduction but at the end of the day all development work, whether it is for energy efficiency, a new building, a new product or a new rocket, is high risk, the kind of risk that has to be taken by equity or equity type funding, aided where possible by grants.  Equity funding is very different than debt type funding typically used for project implementation.  One of the issues in the market is confusion between development and contracting, particularly around Energy Service Companies (ESCOs) and Energy Performance Contracts (EPCs).  ESCos are typically contractors and not developers, they respond to Request for Quotations from clients and don’t go out and develop pipelines at risk.  So called super-ESCos such as the Etihad Super ESCo do this kind of multiple project development which is essential for scaling up the market.
  5. There is a need for project implementation finance. This can come from inside the host organisation or outside.  There is much focus on external funding but the reality is for something like 90-95% of energy efficiency projects the funding is internal.  There is little point developing a project if there is no project implementation finance available.  External finance will usually be some form of debt.
  6. The ability to procure, contract and manage the safe, on-time and on-budget implementation of projects. Although there is much focus on Energy Performance Contracts they are only one way of contracting for energy efficiency projects and are best suited to large, high value capital projects involving infrastructure upgrades.  Most projects are implemented through industry standard contracts used for all kinds of mechanical, electrical and building works or through standard procurement terms.


That is pretty much it.  Other things to note;


  • We need developers who can aggregate demand such as Etihad Super ESCo, EESL, the Saudi Super ESCo and the Carbon & Energy Fund. The super ESCos (or super developers as I prefer to call them) contract the work to ESCos.
  • We do need performance measurement and verification.
  • We do need project development standardisation as provided by the Investor Confidence Project’s Investor Ready Energy Efficiency™.
  • What legal or organisational form is chosen for the super ESCo / super developer is completely irrelevant – there is no right and wrong here – as long as the activities are taken care of. We see successful examples from the public and private sectors.
  • Developers seem to perform best when they focus on a sector or segment of the market. A developer of hospital projects is not likely to fare well in the residential sector or even the commercial office sector – the norms, the customers, the experience and the skill sets are too different.
  • Where you fund the projects from, and how you fund them i.e. what mechanism is used to recover the investment is irrelevant, different situations will demand different solutions such as simple loans, on-bill recovery or property tax supplements.
  • The hard part of funding is the development piece.


That is all for today.  More to follow on this – but in the meantime “just do it”.

Wednesday 18 April 2018

Fifty years ago, on 2nd April 1968, Stanley Kubrick’s film “2001 A Space Odyssey” was released in cinemas. Although I didn’t get to see the movie for another 5 years or so I first heard about it at about that time from my primary school teacher Mrs. Wright who told our class all about it, (she was an unusual and exceptional teacher).  A year later I purchased an Arrow paperback edition from our schools paperback book club, a copy I still have, and was hooked.


As regular readers will know one of my great interests is space exploration and “2001” helped cement that interest which was originally sparked by the regular space flights of the late sixties culminating in the moon landings between 1969 and 1972.  The screenplay of “2001” was developed by Arthur C. Clarke and based on one of his short stories called “The Sentinel”.  It explores powerful themes of exploration, evolution, human existence, life in the universe, and the rise of artificial intelligence. It remains for me the ultimate science fiction film (and book).


Deeply controversial on release, “2001” broke with convention with little dialogue. It shows a future where space travel is routine and run by familiar corporations such as Pan Am, (a once successful and pioneering US airline for younger readers), and Hilton – a future we may yet get to through the efforts of Elon Musk, Jeff Bezos and other space tourism pioneers. It is often said that HAL 9000, the AI running the Discovery spaceship on its mission to Jupiter, is the most human character. HAL is programmed with incompatible objectives and finally commits an insane act of murder to resolve his inner conflict.  Although talked about as a warning of the dangers of AI, HAL also represents the danger of contradictory programming in the human brain.


Astronaut Dave Bowman’s journey through the star gate is a wild trip, apparently often enjoyed under the effect of hallucinogenic drugs in the 1960s & 70s, and ends with his intelligence effectively being downloaded into the universe itself.


The visual effects required new technologies to be developed and of course all were shot on film without any aid of computers. The sets and the spacecraft are amazing and the use of classical music, particularly Richard Strauss’s “Thus Spake Zarathusa” is awe inspiring. “2001” which truly is the master piece of two geniuses, Stanley Kubrick and Arthur C. Clarke, remains as inspiring and relevant as it was fifty years ago.



Normal energy related service will be resumed soon.

Monday 5 March 2018

The application of the Investor Confidence Project (ICP) continues to grow across the USA, Europe and Canada, with growing interest from India, China, the Middle East and Africa.   It is easy to get carried away with thinking the ICP is the answer to the problem of how do we significantly accelerate investment into energy efficiency but, as I have always said, it is just one piece – albeit a very important piece – of solving that problem.  I have summarized my thinking in the “jigsaw of energy efficiency financing” which has four pieces which need to be in place in the same market at the same time for investment to flow – standardization (ICP), pipelines of projects, finance (development finance as well as project finance), and capacity building for end-users, the energy efficiency industry and the finance industry.


ICP is at its heart just about helping project developers to develop better projects, higher quality projects with a higher probability of delivering the savings that are predicted.  Within ICP we always said that by doing that it would bring reduced transaction costs and reduced performance risk.  That hypothesis has been validated by MunichRe HSB who as part of their energy efficiency performance insurance offer ICP certified projects lower costs through both removing the need for clients to pay for a separate engineering assessment, and through lower insurance premiums.  The use of energy efficiency performance insurance from a global player like MunichRe HSB can help make projects more bankable through taking on performance risks.


Another element of improving the flow of investment into energy efficiency is building better business cases.  Better business cases come about through better underlying projects and better appraisal of value and risks.  Business cases that just say this is the capex and this is the projected energy cost savings are not good enough anymore and just result in projects not proceeding and frustrated project developers.  This is where the EEFIG Underwriting Toolkit comes in.  The Toolkit is a framework that encourages financiers assessing projects to identify all sources of value including the non-energy benefits such as health, well-being and better productivity – many of which are both more valuable and more strategic than just simple energy cost savings.  The Toolkit also explore the risks of energy efficiency projects which for too long have been ignored.  We need to move from the uncertainty of not knowing the real risks of projects to fully understanding and quantifying the risks – just like the financial industry does for other asset classes.  Pretending there is no risk, or just living with uncertainty is not good enough as uncertainty is a major barrier to investment flowing at scale.


So, if you want to increase the flow of capital into energy efficiency develop better projects and build better business cases.

Tuesday 27 February 2018

Growing up I loved anything to do with the future – particularly the 21st century. TV21 was the comic to read and it was full of stories about life in the 21st century, Thunderbirds, space travel etc.  In some respects reality has not lived up to those dreams, although Elon Musk is doing his best to make them come true , but in other ways we already live in a world long described by science fiction – universal communicators for all (mobile phones), and a giant computer that can answer any question (the internet).


When I started to really think about and practice energy management, it was back in the 20th century and it seems as if some of the ways of thinking about energy management remain stuck in the 20th century.  Now we are nearly 20% of the way through the 21st century, (hard to believe I know), we need to refresh our thinking and bring energy management into the 21st century.


Let’s consider some aspects of energy management and efficiency and compare 20th century thinking and 21st century thinking.


Aspect 20th century thinking 21st century thinking
Energy audits Energy audits lead to projects being implemented.

Energy audits should be mandatory.

Energy audits on their own don’t lead to anything – there needs to be top level commitment & energy audits are just a tool to use when you are committed to addressing energy efficiency.

Energy audits need to feed into better business cases that identify, value and risk appraise all sources of value, i.e. all the energy and non-energy benefits.

The benefits of improving energy efficiency The benefits are energy cost savings. The direct environmental benefits e.g. tonnes of CO2 avoided may be a social benefit for CSR reporting. There are multiple non-energy benefits – many of which are far more strategic and interesting to decision makers than mere energy cost reduction.

Energy savings may be the least attractive benefit of a project that improves energy efficiency and should be sold last – as a co-benefit to the non-energy benefits.

Monitoring and Targeting (M&T) and Measurement and Verification (M&V) There should be enterprise level M&T with some project specific M&V on large projects. Anything else beyond that, sub-metering etc., is expensive. M&T, M&V, data collection and analysis is cheap. The advent of big data analytics can identify savings opportunities even in systems that are believed to be close to optimum.

Monitoring is a part of ISO 50001’s Plan, Do, Check, Act cycle and is embedded into every Energy Management System.

Energy Service Companies (ESCOs) & Energy Performance Contracts (EPCs) ESCOs and EPCs are the answer to all our problems. ESCOs and EPCs are applicable in some limited circumstances, mainly in the public sector. They are not the only answer and they definitely don’t work at all in most sectors. ESCOs and EPCs are only one of many ways to bring finance to energy efficiency projects.
Measurement of energy saving It is hard to measure because it is a counter-factual and is invisible. It can’t be metered. Units of energy saved can be metered and calculated just like units of energy delivered.
Energy efficiency is somehow special It is a stand alone activity. It is a “crusade”. It should have a higher priority than everything else. Energy efficiency is part of an integrated energy (& resource) solution including self-generation, demand response etc. Good energy management is one aspect of good management.
Project development Project development is non-standardised and every project is developed and documented in a different way. Every project developer has some “secret sauce” in developing projects even when the technologies are well known and standard. Project development and documentation can be standardised using systems such as Investor Confidence Project’s Investor Ready Energy EfficiencyTM.

Standardization of project development and documentation is essential for aggregation and growing the finance market. Project developers don’t really have “secret sauce”.

Making the business case The business case is purely about capital expenditure versus the value of the energy savings over the life of the project. The business case is about the capex versus the value of multiple energy and non-energy benefits over the life of the project, of which energy savings is just one. The non-energy benefits may be more strategic and attractive to decision makers than just energy savings.
Risk and uncertainty Energy efficiency projects have low, or even “zero risk”. This was often stated even though we had no data and in fact outcomes were uncertain. Recognition that energy efficiency projects do have risk although we often can’t quantify the risk at the moment. Risk is generally low across portfolios of projects & becoming better known and understood but for individual projects actual risks are less well known.
Energy management A practice that is hard to systematise and is highly dependent on individuals. A practice that can be systematised and embedded into the operation of an enterprise through the application of ISO 50001.
The value of a kWh saved Is the same at all times and in all locations. Is highly time and location specific.
Project development Optimise the components. Optimise systems e.g. integrated design (which is still not very common at all).
Energy prices Always go up. Go up and down.
The availability of investment There is no money for energy efficiency. There is a lot of money for energy efficiency – just a shortage of well developed, bankable projects
Chief Financial Officers (CFOs) and Finance Directors Chief Financial Officers are stupid for not investing in these “no brainer” projects with very rapid payback periods. CFOs may be rational in not investing i.e. they may have more strategic things to invest in, or they may consider the benefits uncertain because they have not seen the evidence or they don’t believe the assessment.
Low hanging fruit There are a lot of no-cost and low-cost projects that can be implemented easily – “low hanging fruit”. There still are many no-cost and low-cost measures that could be implemented through better energy management (EnMS) and applying ISO 50001. We should however ban the phrase as even no-cost and low-cost measures require effort.
Energy efficiency Comes about through specific retro-fit projects with the aim of reducing energy costs. Comes about through retro-fit investments, investment into plant and building refurbishments carried out for other, non-energy, reasons, and through investment in new plant and buildings that improve the average efficiency of the sector.
Renewables One day they may be viable. They are cost effective in many situations.
Energy storage “Electricity cannot be stored”.

Only viable in massive hydro-electric schemes.

The holy grail of energy studies.

Available in several forms.

Rapidly becoming cheaper.

Economically viable in many situations behind the meter and in the grid.



Wednesday 14 February 2018

My eye was recently drawn to an interesting headline; “How to do business with doughnuts”, which was the title of a thought provoking article by Kate Raworth of the Environmental Change Institute at Oxford University.  Kate’s work on “doughnut economics”, which I had not found before, is really worth exploring.  Soon after I saw a piece about Brian Chesky’s, the Co-founder and CEO of AirBnB, letter to stakeholders about what a 21st century company should look like. There seemed to be a connection but let’s deal with the doughnuts first.


In Kate Raworth’s model the doughnut is a ring that sets out to define boundaries set by ecology and by social conditions.  In many areas such as climate change and biodiversity we are clearly exceeding the ecological limits. On the social factors we have massive deficits as billions of people still fall short on even basic essentials.  The challenge is how to meet the social needs without exceeding the ecological limits i.e. how to live within the doughnut.


Kate Raworth lists five reactions to the diagram she has had when talking to a range of corporates about this idea over the last six years.  They are characterised as:

  1. Do nothing
  2. Do what pays
  3. Do your fair share
  4. Do mission zero
  5. Be generative

Brian Chesky’s letter to stakeholders talks about building a company for the 21st century and even the 22nd century ie a long-term focus rather than a focus on short-term results.  For AirBnB this means:

  1. we will have an infinite time horizon
  2. we will serve all of our stakeholders

Both Kate Raworth’s work and Brian Chesky’s letter address some fundamental questions we should all to be concerned with – what are businesses for, (both on an individual enterprise level and a social level), and how should they be organized and operate to best serve their purpose?


This caused me to consider what does this kind of thinking mean in an energy context, specifically for energy consuming (i.e. all?) businesses?  Using Kate Raworth’s five responses as a guide:


Do nothing means simply that – don’t bother about energy consumption and costs at all. In the corporate world this is unusual, at least in larger companies in the developed world.  In other markets and SMEs it is still common.


Do what pays means reduce energy costs by investing in cost-effective projects.  This could be characterised as “standard energy management” which most corporates have.  Even where there is energy management many very cost-effective projects are not implemented for a number of reasons including; uncertainty about the outcomes and competing and more strategic demands on capital.  A lot of work on energy management, including my own, has been about improving the do what pays model to maximize the uptake of the huge economic potential that we know exists, and maximizing the returns.


Do your fair share means committing to science based targets for reducing emissions.  Adopting science based targets appears to be growing, at least amongst large corporates. A recent example is TH Real Estate, one of the largest real estate investment managers in the world, with equity investments in nearly 900 office, retail, industrial and residential assets globally.


Do mission zero means committing to a goal like net zero energy or net zero emissions. A net zero energy building or facility would put back as much energy as it uses into the system or grid.  Of course there are deeper questions here, generating on-site energy in a way that has higher emissions per kWh than the grid may be net zero energy but not net zero emissions. IKEA has committed to use 100% renewables by 2020.


Be generative means going beyond zero energy or zero emissions and building a business that is net positive in energy and emissions.  This may include supporting energy production in excess of usage, something that Unilever is targeting for 2030, or a business that removes carbon dioxide from the environment, either through a production process making something, such as cement production that absorbs CO2, or whose main revenue generating activity is removing CO2 from the atmosphere, (which of course would require a value to be ascribed to a tonne of CO2).


To build a 21st century enterprise (or for that matter a 22nd century enterprise), we need to consider many factors – both technical, financial, social and human.  It seems, however, that such an enterprise would at least be working to improve its position on the doughnut in relation to energy and the environment.  That means moving energy management beyond the “do what pays” model – what we may call a 20th century model – into at the very least a “do your fair share” model, and ultimately into a “mission zero” and “generative” model.  The doughnut gives us a new model for categorising the response of companies to energy problems.

Dr Steven Fawkes

Welcome to my blog on energy efficiency and energy efficiency financing. The first question people ask is why my blog is called 'only eleven percent' - the answer is here. I look forward to engaging with you!

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