Friday 26 June 2020

With the publication of the report by the Global Commission for Urgent Action on Energy Efficiency, coinciding with the IEA’s 5th annual energy efficiency conference and European Sustainable Energy Week’s session on attracting investment into energy efficiency, it seemed appropriate to comment on the Commission’s report and the state of the efficiency market. First of all it is important to say that I really welcome the work of the Commission and the report touches on several themes I laid out in my input. There is a lot to like about it.

Firstly it helps focus high-level attention on energy efficiency – something that we still need to do at every opportunity as despite lip service paid by some politicians, efficiency usually comes last in their thinking on energy.

Secondly it is global – the energy efficiency potential is global and what is more it is everywhere in every sector of the economy, in every building, every industrial facility, every device and every process when you look with the right mindset. Untapped energy efficiency is like an oil and gas reserve, it is sitting there untapped but unlike oil and gas it is super-abundant, clean and quick to exploit.

Thirdly it is about urgent action.  Now is the time for urgent and radical action rather than just incremental change.  We can’t sit around talking about it any longer, we know how to implement policies and programmes that lead to greater efficiency levels, we just need more leadership and real commitment.

Several points in the report are ones we have long argued for, including:

  • design programmes to take advantage of, and overcome barriers faced during specific renovation ‘triggers’, such as change of use, of ownership or a reconfiguration/renovation project.
  • using government procurement to lead the way and create scale. India’s Energy Efficiency Services Ltd (EESL) is the world leader in this approach and all countries need to learn from India and EESL. Government procurement programmes by focusing on least cost first generally don’t drive energy efficiency measures.  The scale of government demand can also drive down costs as dramatically shown by EESL.
  • shifting away from direct grants and loans by offering derisking support to attract private capital into energy efficiency. The work of the Energy Efficiency Financial Institutions Group (EEFIG) is a good example of this.

On a personal and professional note it was good to see reference in the report to two of the projects we have been very closely involved in over the last five years or so. The work of EEFIG and the Investor Confidence Project both get a mention in the finance section. Both projects are helping to scale up investment into energy efficiency which is the purpose of EnergyPro. Also of course we work closely with EESL through our JV with them, EPAL, which has deployed more than £60m into UK energy efficiency companies.

The frustrating thing, not with the Commission so much but with the field in general, is that in some ways little of this is new. We have known that the cost-effective potential for improved efficiency, the equivalent of an oil and gas reserve just waiting to be drilled, is probably 20-30% of current energy consumption for a very long time, and that with proven design techniques the cost-effective potential could be much higher. The uneconomic but technically possible, the equivalent of an oil and gas resource, is even larger – probably 75% of total energy consumption. Many analysts including Amory Lovins, Skip Laitner and the author included, have written about this potential for decades. (My PhD was titled ‘the potential for energy conserving capital equipment in UK industries’). On the policy and programme side we have many, many examples from around the world of effective policies on energy efficiency, we just need to increase the rate of adoption of these models and not try to re-invent the wheel.  We also need to give regulations more bite, for instance, through tightening building regulations and minimum energy efficiency standards for buildings, despite the lobbying efforts of developers and construction owners.

So what else would we have liked to see in the report that needs to be picked up in future work?

First of all there was little mention of the importance of flexibility and the grid edge. The grid edge is the new frontier, and energy efficiency needs to be viewed as a major distributed energy resource just like generation or demand response options. We need to use data to understand the effect of various efficiency measures on load curves so that they can be properly valued in the electricity distribution system. The old fixed border between supplier and user, the energy meter, is becoming semi-permeable, as users can also produce and sell energy and ancillary services to the grid. The grid is shifting from a Command and Control centralised system to a highly decentralised system which will use data, AI and machine learning to react locally in real-time.

Data from smart meters coupled with standardised ways of defining what is, and what is not an energy saving, has made it possible for the first time to create a true market for energy efficiency. There is a lot of talk about ‘the market for energy efficiency’ but the truth is there is not, and never has been, a market for energy efficiency, there are just a lot of intersecting markets for stuff and services that may, or may not, deliver energy savings. With metered savings we can create contract forms equivalent to Power Purchase Agreements that can be financed and we can value savings in time and location.

The rise in importance of the grid edge leads onto the problem of defining energy efficiency. Energy efficiency is about reducing the energy input for any given activity – improving energy productivity. The focus has mainly been on end users becoming more efficient and fundamentalists – myself included – like to use the term only for activities that reduce energy end use – but what we really care about is the overall energy efficiency or productivity of the entire economy. The meaning of the term ‘energy efficiency’ is now shifting to incorporate all demand side assets and projects, rather than just referring to pure energy saving projects. It now covers a wide range of technologies and business models including: demand response, distributed generation, behind-the-meter energy storage, virtual power plants, micro-grids, building-to-grid, industry-to-grid, vehicle-to-grid, as well as local generation and utilisation of heat in efficient and flexible systems. All of these contribute to system wide efficiency gains, and in talking about efficiency we need to recognise this convergence and recognise it as being positive. Doing so also helps move efficiency from its old emphasis on ‘savings’, ‘conservation’ and being a ‘cause’ to a revenue producing and profit making opportunity. What we are seeing is nothing less than a shift in the balance of energy system investment from the supply side to demand side.

On finance we need to recognise that there is growing interest from investors in energy efficiency as well as the barriers to investment and do more work to overcome them and help investors along the journey to deploying more capital into efficiency. There is still a need for ‘derisking’ strategies for consumers and investors, and the EEFIG work has implemented some of these, including the DEEP database and the Underwriting Toolkit. We should not forget that every day banks and investors are making decisions that impact on energy efficiency, normal decisions to support new buildings, renovations of buildings, new industrial facilities etc which often (nearly always) ignore even the cost-effective energy efficiency potential that if utilised would reduce costs for the end-user and reduce risks for the bank or investor.  We are missing thousands of cost-effective investment opportunities for better energy efficiency every day. Organisations like EBRD and ING recognise this and have built efficiency reviews into normal lending practices. The advent of the sustainable finance taxonomy regulations should drive more of this type of behaviour as financial institutions have to report the climate risks of their portfolios.

The Commission does talk about the need for a cross-cutting, all of government approach and the COVID-19 crisis has made that even more important. There needs to be a new emphasis on healthy buildings and efficiency is at the centre of this. The health impacts of greater levels of efficiency, both direct and indirect and both indoor and outdoor air quality, are clear. We have an opportunity now to re-design and re-evaluate renovation projects to address both health and energy issues.  When assessing programmes governments need to assess all the benefits including health impacts, as well as the many other non-energy benefits that efficiency brings. I often think that the energy efficiency industry misses this aspect because of its focus on the pure energy benefits, ‘the cause’. Even much of the talk of the COVID-19 recovery plans to invest in building renovation seem to miss this critical factor that can make building renovation a strategic necessity rather than just about energy saving.  

As the Commission points out there is a need to further strengthen international collaboration. We continue to work internationally, both with European partners and our JV partner EESL through EnergyPro Asset Management Ltd (EPAM). EPAM is now working with EESL and other partners to transfer UK technologies and know-how in areas such as trigeneration, e-mobility and cooling, to India and find opportunities for Indian businesses in Europe. International collaboration brings it with new insights and numerous benefits far outside the immediate energy benefits.     

To sum up, it is good to see the IEA further increase its focus on energy efficiency and the work of the Commission but there is always more to do. We need to continue to stress the size of the energy efficiency ‘reserves’ and highlight the results that efficiency has already produced, something that has long been neglected – particularly when supply options are being promoted. The process we are all engaged in is shifting the balance of energy investment from the supply side to the demand side. The IEA’s annual energy efficiency reports show that investment into efficiency has increased but it needs to quadruple by 2050 to bring it on a par with energy supply investment so there is much to do.

We look forward to future international collaboration and continuing to drive greater investment into energy efficiency.


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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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