The growing power of energy efficiency
Dr Steven Fawkes, Founder & Principal at EnergyPro, will be speaking on "Energy Efficiency" at Flame in May 2017. In the lead up to the event, Steven gives us insight on his perspective on energy efficiency. Read on.
For many years energy efficiency has been the poor cousin of energy policy. It has largely been seen as an afterthought, something that politicians mention at the end of their energy speeches, usually saying something like “and we should not forget efficiency”, and then it is promptly forgotten. The ultimate potential for improved energy efficiency has been recognized for a long time, many studies and projects in many sectors and geographies have confirmed the huge economic potential. The problem has been that unlike energy supply options efficiency has not been a reliable and investable resource. Usually it is driven by government mandates and regulations and the outcomes are not that predictable, and often are not even measured.
All this is beginning to change. Firstly climate goals and energy security goals have brought energy efficiency up the policy agenda – Europe now talks about “efficiency first” whereas it used to be that efficiency was the “fifth fuel”. Several other developments are starting to drive efficiency forward. Firstly institutional capital has taken an interest - driven by the size of the potential market, the hunt for yield, a desire to reduce risks from regulations stranding assets, and of course CSR motivations. Furthermore, although it is less talked about than say solar, the price of delivering efficiency is falling as shown by LED lighting and data driven solutions. These factors have led to a growth in demand for energy efficiency. Another factor that has helped make efficiency more investable in recent years is the emergence of standards for developing and documenting projects in the form of the Investor Confidence Project which standardized processes and provides independent verification of projects through its Investor Ready Energy EfficiencySM certification system. Without these kinds of standards, which are analogous to techniques like P90 analysis in wind power and the Petroleum Resource Management System for valuation in oil and gas, it is hard to invest without undue due diligence costs and it is even harder to build teams and aggregate projects. Aggregation is vital as energy efficiency projects are always small compared to the needs of institutional capital. The rise of data solutions and standard Measurement and Verification techniques have also helped make efficiency more investable.
Developments in standardization, data and measurement have enabled the possibility of metering efficiency, pay for performance models, and turning efficiency into a reliable resource that can be procured by utilities just like any conventional energy vector. This development, being driven by California but rapidly spreading, could really change energy markets – finally allowing efficiency to compete with energy supply options.
Even though efficiency has not really been investable until recently, we see its effect on gas demand in developed countries. Europe’s gas demand peaked in 2010 and in 2014 was as low as it was in 1995. This is mainly due to improved efficiency in heating, processes and power generation. Once we really make efficiency investable, and a standardized and reliable resource, we can expect further erosion of gas demand. For suppliers the choice may be to fight this trend or run with it and invest in efficiency solutions.
Learn more about Flame 2017 here.