Asking the right questions

In my job I still hear the question: If energy efficiency is so profitable, why isn’t it happening?

Every time I hear it I think it’s completely the wrong question! It’s the question asked by people who aren’t out there in the market. Energy efficiency is happening. And it’s happening in a big and rapidly growing way.

So what are the right questions? The first one is: How do we accelerate the uptake of energy efficiency? The second one is: How can we embed it into our systems and processes so that it is a permanent and normal part of management and everyday life?

These questions should be the concern of governments, as well as industry and commerce, householders and NGOs. Accelerating the uptake has been proven to provide multiple benefits in terms of reduced costs, reduced impact of energy price volatility, less need to invest in energy supply infrastructure, increased energy security, job creation and reduced global and local environmental impact. Governments, working with each industry sector and sub-sector, need to work out what are the enabling conditions that will lead to an increase in demand for energy efficiency. They need to find out how to increase the supply of energy efficiency goods and services and the flow of investment into energy efficiency.

Embedding energy efficiency processes is essential so that the current wave of activity is maintained and built upon. This will be vital if we do have lower prices as a result of shale gas. Note, however, that most energy efficiency investments can still be very profitable even at energy prices that are lower than we have today. McKinsey’s 2008 global study (The Case for Investing in Energy Productivity) showed the effect of investing $170 billion per annum with an average IRR of 17% at an oil price of $50 per barrel. At today’s c.$100 per barrel the average IRR will be much higher than 17% and the frontier of the potential is now also so much bigger. We don’t want to build up lots of productive energy management capacity and then lose it all just because energy prices come off a bit for a few years. Improving energy efficiency needs to be a long-term activity. That is why standards such as the ISO50001 Energy Management standard and The International Performance & Measurement Protocol are so very important.

Personally, having lived through the 1980s boom in energy efficiency, or ‘conservation’ as it was incorrectly called back then, I am optimistic that this time it is different and that we are embedding efficiency into the energy mix to a greater extent than ever before. My optimism is based on the following five factors:

• Growing interest in energy efficiency within the investor community
• The realisation that this efficiency is a huge and valuable opportunity
• The VC and PE investments in EE that have been made over the last five years
• The growing range of cost-effective efficiency technologies in all sectors
• Environmental and sustainable development pressures

I know that every time someone says ‘this time it’s different’ it turns out not to be – witness the dot com boom of the 1990s and the debt bubble of the 2000s. Of course, only time will tell. Personally I am optimistic that this time energy efficiency will become recognised as the cheap, clean and fast energy resource it really is and we will achieve levels of efficiency far greater than our current official energy scenarios show. As Winston Churchill said: ‘For myself I am an optimist – it does not seem to be much use to be anything else.’