A brief history of energy efficiency

In 2001 I wrote a brief history of energy management with a UK focus which Vilnis Vesma published on his website. I thought I would try to bring it up to date. For comparison you can find the original here.

Introduction

The management of energy and improving energy efficiency has long been important for industry and commerce. In the 1790s Boulton and Watt’s steam engines produced competitive advantage because they were more fuel efficient – and indeed they charged a share of the fuel cost savings in a way similar to today’s energy performance contracts. In World War 2 fuel efficiency became vital to the war effort and the National Industrial Fuel Efficiency Service was set up to provide advice to industry on energy saving measures as fuel shortages continued in the post-war years. Energy management as a separate discipline, however, began to evolve after the first oil crisis of 1973 and really came into effect after the second oil crisis of 1979 when real energy prices rose dramatically.

After more than forty years it seems appropriate to look back at the evolution of modern energy management and energy efficiency. In looking back four distinct phases can be identified:

• Phase 1: 1973 – 1981 – “energy conservation phase”
• Phase 2: 1981 – 1993 – “energy management phase”
• Phase 3: 1993 – 2000 – “energy procurement phase”
• Phase 4: 2000 – 2010 – “carbon reduction phase”

In looking at the present time and projecting forward two additional phases are identifiable or foreseen.

• Phase 5: 2010 –2020 – “energy efficiency phase”
• Phase 6: 2020 – 2030 – “efficiency as a resource phase”

Each of these will be described in turn. All dates are approximate and of course there has been a natural evolution of techniques and approaches, rather than a sudden transition between phases.

Phase 1: Energy conservation focus – 1973 – 1981

Phase 1, between 1973 and 1981, was characterised by the “save it” mentality and a crisis response to sudden increases in energy prices and problems with energy supplies caused by the oil shocks, a result of geopolitical drivers. Energy conservation was the usual description of the activity. In this phase there was usually a shallow approach with wide variation in approach between practitioners and few common techniques. Much effort was put into exhorting staff to “switch off” through the use of stickers over light switches and posters – probably with limited effect. Many companies appointed Energy Managers who typically were engineers, often an engineering manager took on the energy role in addition to their normal job. A few organizations appointed accountants or purchasing staff as energy managers but this was unusual.

Few organizations had any form of energy Monitoring and Targeting and when they did there was no commonality of approach. Most systems were manual and did not take into account variances due to factors such as weather, production output or product mix.

Engineering based energy managers started to invest in energy saving technologies but with little in the way of investment analysis beyond simple payback period. There was generally a gulf of understanding between energy mangers seeking investment funds and financial managers in charge of capital budgeting and many seminars and courses sought to fill the gap. On the technical front new technologies emerged and were often adopted before they were fully developed e.g. industrial heat pumps – leading to sub-optimal investment and many failures. There was also a number of “black boxes” introduced that purported to save energy but which were of dubious value (some of which resurface every now and again).

Energy supplies were almost totally from the nationalised utilities, British Gas, British Coal and the Electricity Supply Industry in the form of the CEGB and the tweve regional distribution companies. There was little or no scope to negotiate prices even for large users. A few large, sophisticated users, generated their own electricity in Combined Heat and Power schemes with no export of power.

Government activity in this phase concentrated on “propaganda” and exhortation in the form of TV advertisements, posters, and “Switch off” stickers, and subsidising energy surveys which led to the rise of energy consultancy, much of it carried out by people with little or no experience. Towards the end of the period the UK Government started the Energy Conservation Demonstration Projects Scheme which subsidised early adopters of new technologies in return for the right to disseminate information about the results. In an early work the author observed that the scheme was not market orientated and ignored the fundamentals of successful innovation and diffusion.

1973 – 1981: Major energy events and headlines:

• 1973: OPEC quadruples price of oil
• 1979: Iranian revolution leads to second oil price rise

Phase 2: Energy management focus – 1981-1993

This period saw the development of energy management as a separate recognised discipline and the rise of full time Energy Managers. The UK Government through the Department of Energy supported regional Energy Managers groups which were an excellent way of spreading information, sharing resources and improving standards. The term energy management started to replace energy conservation. Models of effective energy management were developed and widely implemented. A consensus on what energy management was started to emerge.

In this period Monitoring and Targeting (M&T) began to be used much more widely. This was aided by the introduction of personal computers (then called “micro-computers”) in the early 1980s and the beginnings of the PC or IT as we know it today, (albeit with floppy disks, state of the art 10Mb hard drives and very noisy dot matrix printers). Monitoring and Targeting software was introduced and linked to bill analysis software derived from the discipline of utility bill analysis. Computerised M&T systems could take into account relevant factors such as Degree Days for space heating and production levels. M&T was subsidised and promoted by the Government with good effect through sector Trade Associations.

Another approach that emerged in this period was the use of Performance Indicators for focusing management attention. This was particularly effective in local authorities in the form of Normalised Performance Indicators (NPIs) developed by the Audit Commission and implemented as a national system, as well as being replicated in Scotland by the Accounts Commission.

In this period a key technology that emerged was Building Energy Management Systems (BEMS now more often called BMS). These were widely adopted by owners of large portfolios such as local authorities and undoubtedly bought benefits in terms of central alarm handling and control of building services. There is considerable evidence that the cost effectiveness of these investments was not always as expected. Early systems used mini computers as central stations and were extremely expensive to install but costs fell as PCs were introduced and more “intelligence” was added to outstations, thus reducing field wiring costs.

This period saw the peak of the energy management consultancy market with many large organizations bringing in consultancy teams to establish M&T systems, carry out audits, implement projects and deliver communication and awareness schemes. The latter became more sophisticated with greater user involvement and in some cases incentive payments (for local establishments or individual user groups).

Another major development in this period was the introduction of Contract Energy Management (CEM) which initially went under various names including “third party financing”, “performance contracting” and “Energy Service contracting”. Early schemes were extremely difficult and expensive to negotiate and implement, particularly in the public sector where external finance was most needed and where arcane Treasury guidelines on local authority expenditure meant that even capital expended by a CEM company counted against the authority’s capital budget, thus introducing a no-win situation. These rules were finally changed in 1986 following a concerted effort from the nascent CEM industry and potential customers (including the author).

1981 – 1993: Major energy events and headlines:

• 1981: first micro-CHP technology introduced
• 1984/85: Coal miners strike
• 1984: launch of EMSTAR, Shell’s energy efficiency subsidiary
• 1986: Energy Efficiency Year led by Secretary of State Peter Walker
• 1986: privatisation of British Gas
• 1990: privatisation of electricity supply industry, competition for > 1 MW users
• 1992: competition for > 2,500 therm gas users

Phase 3: Energy procurement focus – 1993 – 2000

In this period energy management as a discipline entered a decline which came about as a result of two factors, the reduction in real prices bought about by privatisation of the utilities, and general corporate down sizing. As energy prices declined in real terms, and opportunities for effective purchasing strategies were opened up by market liberalisation, most of the attention on energy shifted purely to purchasing. Greater savings with less risk could be made through more effective purchasing than through implementing energy efficiency projects. Many energy managers were made redundant or transferred into other jobs and many large organizations which had been pioneers of energy management started to lose ground.

In this period the energy consultancy market declined dramatically except in the area of purchasing. In Government activity there was a shift away from subsidies and towards encouraging management approaches through voluntary agreements and management tools such as the Making A Corporate Commitment and the energy management matrix.

The environment started to emerge as an issue in this period and many companies incorporated energy management into wider environmental initiatives. This did not, however, do as much for energy efficiency as some enthusiasts had hoped. Investments still had to meet the required Internal Rates of Return and often corporate downsizing meant that organizations did not have the staff to identify, evaluate and implement viable energy efficiency opportunities. Even at the reduced energy prices bought about by more effective purchasing much potential for improved efficiency remained untapped (and still does).

1993 – 2000: Major energy events and headlines:

• 1994: competition for < 100kW electricity market
• 1998: domestic gas liberalisation and competition for < 100 kW electricity market

Phase 4: Carbon reduction focus – 2000 – 2010

In this period in the UK the climate change agenda became a major focus for individuals and organizations. In the UK the Climate Change Levy (CCL) and the various Negotiated Agreements came into effect. CCL made energy a high level issue again as energy prices rose and many companies make clear commitments to reduce consumption, and faced penalties for failure to do so.

Government activity in energy efficiency was outsourced (or some would say given away) to programmes run by the Carbon Trust. The UK government introduced feed-in tariffs for renewable energy sources. In 2008, before the full effects of the financial crisis became clear and amidst a rash of concern about oil peaking and resource pressures, the oil price hit a record $147/barrel.

2000 – 2010: Major energy events and headlines:

• 2001: Climate Change Levy introduced
• 2001: New Electricity Trading Arrangements introduced
• 2001: Carbon Trust founded
• 2005: EU Emissions Trading Scheme introduced
• 2008: Department of Energy and Climate Change created
• 2008: Feed-in tariffs introduced
• 2008: Oil price exceeds $147/barrel

Phase 5: Energy efficiency focus – 2010 – 2020

From about 2010 policy interest in energy efficiency started to grow globally. There was increasing recognition of the role that energy efficiency could play in meeting climate targets as well as the scale of the economic opportunity efficiency presents. The IEA said that efficiency is the first fuel, whereas back in the 1980s it was the fifth fuel.

In the last couple of years the value of non-energy benefits such as increased sales, increased health and well-being, as well as macro-benefits such as job creation have been recognized but have only just started to be valued. The value and importance of non-energy benefits need to be further recognized by energy efficiency professionals, as well as the added value they can bring to an investment things like increased sales or increased health and well being of employees and customers are far more strategic to organizations than just energy saving – and therefore far more likely to get a project approved than the payback on energy savings alone.

In the last few years interest in financing energy efficiency has been growing, and particularly the use of private finance. The market is still nascent in most countries but the signs are positive. There is increasing commitment to energy efficiency from institutional investors, even though most of the commitments have not yet been put into action. The necessary infrastructure of standardization through the Investor Confidence Project has been built. Projects are underway to build capacity within banks and financial institutions. The first attempts to put all the pieces of the energy efficiency financing jigsaw together rather than just establish specialized funds or use public funds are now being established.

In the UK, contrary to much of the rest of the world, government commitment to energy efficiency waned with changes to the ECO scheme and subsequent further budget cuts, along with cuts to feed-in tariffs for renewables.

2010 – 2020: Major energy events and headlines:

• 2012: Green Deal on bill financing scheme launched in the UK
• 2013: Regulatory Assistance Project in the US launches “Recognizing the full value of energy efficiency” report
• 2013: UK government makes changes to ECO in response to Labour leader’s promise to freeze energy prices
• 2014: Environmental Defense Fund launches the Investor Confidence Project in the US
• 2014: The International Energy Agency labels energy efficiency “first fuel”
• 2014: The IEA launches “Capturing the multiple benefits of energy efficiency”
• 2015: Energy Efficiency Financial Institutions Group report published
• 2015: First Buildings Day at a COP – focusing on energy efficiency in buildings
• 2015: End of the Green Deal
• 2016: Investor Confidence Project rolls out Investor Ready Energy Efficiency

Phase 6: Efficiency as a resource and energy productivity – 2020 – 2030

In this period efficiency will be seen increasingly as a reliable resource that can be both accessed by utilities and others, as well as valued and traded. This will be based on an increased acceptance of the idea of metered energy efficiency, as pioneered in California. It will also be a period where we learn to scale up energy efficiency activity and investment by putting together four elements; development and project finance, developing a robust pipeline of projects, building capacity amongst the energy efficiency community, building owners and the financial world, and standardization of project development, documentation, contracting and measurement and verification. The value of non-energy benefits of energy efficiency will be increasingly recognized and valued, both for their financial value but also their strategic value.

On the policy level there will be a switch more towards focusing on energy productivity, getting the most economic value out of each unit of energy, rather than “energy efficiency”. Productivity is hard to argue against and is the basis of a much more positive policy narrative. It is possible that this period will be a period of energy abundance globally, with oil, gas, renewables and efficiency all being available, rather than the 1970s dystopian view of energy shortage. Even if we move into energy abundance the advantages of improved efficiency in terms of costs, speed to deliver and lack of environmental impact, will help to make it the first choice rather than the last.

Forecasting is dangerous, especially about the future, but in this period there may well be major technological advances that change energy markets even more than we expect at the moment. There will undoubtedly be more intelligence applied to the energy system which will bring energy savings and greater flexibility. We may see storage becoming really cost-effective and a mass market, and we will see greater use of electric vehicles.

Conclusions

Our current ways of thinking about energy started to emerge in the 1970s in response to the oil crises. It is interesting to look at energy scenarios from back then and compare them to how the world really turned out. Almost all scenarios back then, apart from Amory Lovins’ “Soft energy paths” and Gerald Leach’s “A Low Energy Scenario for the UK”, assumed greatly increased energy demand – demand that has not materialized. Our current energy consumption in the UK and the US is at the low end of a range considered crazy by official energy forecasters in the 1970s – energy efficiency delivered and decoupling of energy use and GDP has happened and will continue to happen. Official forecasts back then also assumed:

• increasing centralization of power generation
• increased use of coal in power generation
• use of coal through synthetic fuel conversion technologies
• renewables would not be economically viable
• nuclear power would grow and we would utilize fast breeder rector technology, and even fusion by now
• “running out” of fossil fuels and ever increasing real prices.

Obviously the future turned out differently to the forecasts and scenarios, in the words of Arthur C Clarke – “the future isn’t what it used to be”. Geo-political or technological wild cards could radically change the energy scene at any time but what seems certain, however, is that there will be a continuing trend towards improved energy efficiency and the use of cleaner technologies.