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.
The latest in a series of pieces derived from my 1985 PhD.
We often talk about adopting technology, but for all but the simplest of technologies the process is usually one of adaptation. Adaptation requires site specific engineering, the kind of engineering that is unspectacular but essential. Numerous site specific factors drive costs as well as savings, and therefore the economic viability, of any proposed measure. Therefore you cannot assume that a technology that works in one site will work in another site that is in the same sector, or even another site that is ostensibly similar.
The technologies referred to have moved on, (the original did not refer to LEDs but rather compact fluorescents so I have updated that), and the innovation literature references have probably been superceded but the principles remain the same. The fact that a company has not adopted an energy efficiency measure, does not indicate ‘sloth, bias or stupidity’ – even when the technology is regarded as a ‘no brainer’ or ‘low hanging fruit’. In addition, of course, different companies may have different financial criteria for their investments driven by factors such as differing economic performance, financial structure, strategy, shareholder preferences or management approach.
Adoption versus adaptation
In many studies the purchase of technology is often presented as a simple adoption process. In most, if not all, energy efficiency investments, (as well as other areas of technology), the process is more one of adaptation. Even when a concept is well proven and the basic hardware exists some adaptation work is necessary for all but the simplest technologies, to make a viable system in the particular site in question. This requires original, though not dramatic, engineering design work. The basic hardware may well be standard and simple but the system must be engineered to meet the technical conditions and the required economic return at each specific site. The difficulties this can present, and the effect of site specific technical factors on economic viability, have been neglected in the adoption literature.
There is a great variety of energy efficiency technologies available, ranging from LED lamps to sophisticated process heat recovery and electronic energy management systems. Each technique has a degree of adaptability, the inverse of which can be labelled specificity. At one end of the scale, with a high adaptability, would be LEDs which can plug straight into existing fittings. In more complex relighting situations, such as a warehouse where high pressure sodium lamps are to replace fluorescent tubes, considerable adaptation of the existing lighting circuits may be necessary.
A technique with a lower adaptability than low energy lighting would be heat recovery from boiler stacks using economisers. Ostensibly this mature technology (first patented in 1845) looks very adaptable as it can, in principle, i.e. technically, be applied to any gas fired boiler, or dual fuel boiler if a bypass is used during oil firing. Numerous site specific factors affect the financial viability of proposals for boiler economisers, including:
physical space for the hardware
load bearing supports
quantity and quality of demand for hot water
flue gas temperature and-composition
boiler utilisation
boiler load pattern
time spent burning gas (for dual fuel boilers).
Total system cost, as in other heat recovery projects, is often three times the cost of the economiser or heat exchanger. At two brewery and one dairy sites visited during the research, economisers were not financially viable because of lack of space in the boiler house. Obviously it would have been technically feasible to extend the boiler house but the cost would have been prohibitive. Consequently, the technical potential for energy saving through the use of economisers at these sites is unlikely to be exploited at current prices until a new boiler installation is necessary for other reasons. Applications of commercially available hardware are rarely prevented by purely technical problems but by failure to meet economic criteria.
Specificity
Towards the higher end of the specificity scale, i. e. the least adaptable, would be a process heat recovery system. The number of technical factors affecting financial viability will be substantially higher than a simple boiler economiser. The determinants of the adaptability are the sensitivities of capital costs and savings to variations in specific technical factors inherent in the technique and the site. The technique of heat recovery from malting kilns using air-to-air heat exchangers has a higher adaptability than say brewery effluent heat recovery systems because the technical factors that affect capital cost and savings, notably physical dimensions, air flow rates, temperatures, tend to be similar between sites. There are only a few basic designs of malting kilns.
On the other hand brewery effluent heat recovery systems have a low adaptability into other brewery sites because their viability is very sensitive to site specific factors such as plant layout and quantities and qualities of effluent (determined by the type and operating conditions of existing plant, as well as production levels and mix).
The importance of specificity is supported by several writers on innovation. Rosenberg (1982) stresses the importance of adaptation and the role of “unspectacular design and engineering activities“. He also notes that in the literature there is frequent preoccupation with what is technically spectacular rather than what is economically significant. Rosenberg also emphasises the importance of studies at the level of the individual firm. Rogers (1962) in discussing the adoption of innovations divides the “antecedents” to the innovation decision into two categories:
(1) perceived attributes of the innovation, and
(2) characteristics of the adopters.
Five attributes can be summarised for the first category:
Relative advantage
Compatability
Complexity
Trialability
Observability.
Compatability, “the degree of fit of the innovation with existing norms and needs of potential users“, (Rogers, 1962), subsumes adaptability as well as other factors.
The importance of adaptability, or its inverse specificity (in connection with innovations) is also supported by Boylan (1977), who states:
“The number of firms in an industry which are potential adopters of an innovation, and the proportion of their output to which it might be applied, depends on the functional specificity of the innovation at successive stages of development as well as the range of relevant processes and products in individual plants. Hence, adoption rates cannot properly be compared with the total number of firms in, or the total output of, their common “industry” classification. Rather the progressively changing characteristics of the innovation in its various forms must be accompanied by changing measures of the array of economically feasible applications.”
Gold (1977) notes that it cannot be assumed that the expected benefits of an innovation are so clear that all potential adopters would assess them similarly or even that all potential adopters give serious consideration to the same innovations in any given period. Economic viability in one site does not automatically confer economic viability in a similar site because the costs of adopting the basic hardware into a system can make it not viable. This is true even assuming similar definitions of economic viability. Gold also suggests that:
“the criteria applied to the evaluation of available innovations may differ widely among firms, reflecting differences in their internal urgencies, resource availabilities and specialised expertise rather than deriving solely from the demonstrable benefits of the innovation itself.“
Gold goes on to state:
“Instead of assuming ignorance, sloth, bias or stupidity as the causes of (such) restrained rates of diffusion, it would be more helpful to make field studies of the actual considerations and evaluations responsible for the decisions made.”
Bradbury (1978) observed that technology:
“is not something that can be bought off the shelf or stored in a bank vault“.
Components of systems may be bought off the shelf but an input or knowledge – engineering – is necessary to design financially viable systems, even where the concept has been used elsewhere.
In conclusion
Understanding technological change and how we use and adopt technology is important for policy makers and practitioners. We should not forget the degree of ‘unspectacular’ engineering that is necessary to adapt technology to a specific situation, and we should not forget the importance of relatively small-scale, unspectacular (and often unseen), incremental technical change – particularly in an age where we tend to focus on large-scale, spectacular innovation. Over time the cumulative effect of incremental technical change can be greater than that of spectacular innovations.
BOYLAN, MG (1977) Reported economic effects of technological change in Research, technological change, and economic analysis. ed. B Gold, Lexington Books, Lexington Mass.
BRADBURY, FR (1978) The Leverhulme Project at Stirling in technology transfer: implications for the Scottish Economy. TERU Discussion Paper No. 14, Proceedings of Conference held at the University of Stirling, 17 and 18 October 1978.
ROGERS, EM (1962) Diffusion of innovations. Free Press, New York
ROSENBERG, N (1982) Inside the black box: technology and economics. Cambridge University Press
On the 29th January EP co-hosted the Net Zero Finance Leadership Summit. This unique event, held in the Guildhall, was supported Under our Innovate UK (IUK) funded ‘Shift to Net Zero’ project, and brought together senior people from local authorities, financiers, investors, lenders and other stakeholders focused on increasing investment into local, systemic, place-based net zero projects.
The Shift to Net Zero project consortium is made up of EP, Ibex Earth, Kent County Council, Surrey County Council, Essex County Council, and Brighton & Hove City Council. The ideas behind it are developed from EP’s work over many years reviewing, and in some cases working on, examples from around the world where energy efficiency financing had successfully scaled. The project also builds on the various tools we had developed and deployed to help derisk and enable energy efficiency and net zero investment decisions including: the Investor Confidence Project Europe; the Energy Efficiency Financial Institutions Group’s Underwriting Toolkit; ESCO-in-a-box®; the EU Horizon funded CREATORS project tools for developing community energy projects; and the UNESCWA Toolkit for Energy Efficiency Financing Instruments for Buildings in the Arab Region. The idea for a dedicated Net Zero Delivery Vehicle, the NZDV, started with a small piece of work EP did for IUK at the end of 2021. Through 2022/23 further work on the idea was funded through the Greater South East Net Zero Hub and in 2023 IUK funded phase 1 of the Shift to Net Zero project in which EP, Ibex Earth, and the four local authorities identified potential investments of £46 billion and further developed the concept. That work led to the current project which is about building capacity and advancing the NZDV concept.
The aims of the Summit were:
1. to bring together local authorities and private capital – 2 groups that rarely come together and speak different languages 2. to increase knowledge and understanding of the Shift to Net Zero project 3. to advance EP’s proposed NZDV, a public-private vehicle designed to overcome the barriers to bringing in private capital to local place based NZ projects
Key take aways from the meeting were as follows:
1. the barriers are non-technical and are based around lack of capacity on both sides 2. addressing the problem requires a systems based approach, both technically and organisationally 3. local authorities and financial institutions are both committed to solving the problems to ensure more capital flows into these kind of systemic projects. 4. there is huge gap between what is often called pipeline and well developed bankable projects – much of what is called ‘pipeline’ is more aspiration than real pipeline 5. there is lack of capacity in local authorities to develop projects and access private capital.
The audience of c.80 were highly engaged throughout a packed programme of presentations and panels.
The Net Zero Delivery Vehicle is designed to be an equitable public-private partnership that brings together local authority project opportunities and capabilities, with private sector development expertise and some initial seed capital for development. It’s structure meets the needs of private investors and lenders, ensures good governance, enables the ability to aggregate projects to a scale that is meaningful for institutional investors, and satisfies public sector procurement rules. The next stage is to get seed funding to structure the entity with the initial founder local authorities (and other interested authorities) and start operations.
The Shift to Net Zero project has also launched a knowledge sharing platform which can be found on nzdv.co.uk
Later in the year the project will host a second meeting to move the NZDV forward. Any local authorities interested in participating in the NZDV should contact Leo Bedford at ep – leo.bedford@epgroup.com
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