The unfolding events since the Referendum result have been hard to comprehend and of course the real implications will only be visible in years to come. I was contemplating writing a piece summarizing my views on the Brexit vote but like with other major, world changing events, it is taking longer to work out what I really want to say. I was also trying to avoid the “Brexit means this for energy/environmental policy” type of piece which we have all been deluged with in the last week. I have given up reading most of these as I think the bottom line is we don’t actually know what it means and most of them are “click bait”. However the splurge of items on the demise of the Department of Energy and Climate Change (DECC) has pushed me into print.

Clearly, as with everything else, it is too early to tell what the implications are going to be but I actually think it could be a positive move because it may focus attention more on the energy demand side than the supply side. Let’s not forget, the real origin of DECC and in fact Departments of Energy in nearly all countries is the energy industry. In the UK and the USA more than 50% of the energy department’s budgets are tied up in nuclear issues. In fact according to one analysis 95% of DECC’s budget went on nuclear clean up.

Also DECC was always dominated by supply side thinking with little real appreciation of the demand side. Even to this day there has never been a real bottom-up demand side modeling exercise to work out what energy supply we need. All modeling is supply side dominated – usually based on selecting a set of favoured technologies. Also the energy industry has people in and out of DECC all the time, ranging from regular meetings to full-time secondments. The energy efficiency industry has never been able to get equal billing – it only had its first short-term secondee into DECC a few years back which was a novel experience for both the industry and DECC!

Also if you haven’t read the UK ACE report “Corruption of Governance” before read it to get a good idea of how things work.

We need to move from energy policy driven by what the supply industry wants (including the renewables industry) to an energy policy that starts from what the real demand for energy is (and could be) – what do we need and how do we manage demand through energy efficiency and distributed generation and storage. At least if energy is part of Business and Industry there is a hope, and it is only a hope at the moment, that the demand side may get better recognition.

I may come up with some specific recommendations soon but right now I am distracted by the terrible events unfolding in Nice. On energy policy at least I am always optimistic but delivery is everything.

On the 22nd June I was asked to speak at a high level meeting in Brussels on energy efficiency on the topic of growing the energy efficiency financing market and two specific projects I am heavily involved with, the Energy Efficiency Financial Institutions Group (EEFIG) derisking project and the Investor Confidence Project (ICP. Here is a cleaned up version of my speaking notes. Of course my shopping list for EU policy measures has been made somewhat redundant by recent events but they apply equally to the UK and elsewhere .

Before talking about growing the efficiency financing market and the two specific projects I am going to cover I would like to start with a status report on the energy efficiency financing market.

There is some good news:
– after many years the potential for investment into energy efficiency has been recognized. Different analysts have different numbers but there is general agreement that circa €70 to €100 billion a year could be profitably invested into energy efficiency in Europe. For comparison in 2015 $58 billion was invested into renewables, down sharply from $132 billion in 2011 and so we are dealing with a manageable amount here.
– The many non-energy benefits that come from improved energy efficiency – everything from increased sales and productivity through to health and well-being effects – have been recognized and are starting to be valued. This is really important because these non-energy benefits are much more strategic and attractive to decision makers than “mere” energy savings.
– Many institutional investors and banks are now really interested in energy efficiency – this is a major change over the last 3 to 5 years. Efficiency has real economic benefits, it has impact and it is not reliant on subsidies – some of us have known that for years but now the bankers have caught up. Because of this the efficiency industry can no longer rely on that old excuse……there is no money. There is plenty of money but a lack of investable deals.

The not-so-good news is that in Europe, and elsewhere, there is deep frustration that the energy efficiency finance market is going very slowly. As one banker said; “the problem with energy efficiency finance is that the ratio of conferences to deals is too high”. It is getting better but it is still a niche activity and far from being the dynamic, well developed market we need it to be.

So, given that we want to, and in fact need to, accelerate the rate of investment into energy efficiency what are the barriers and what should we be doing to overcome them? Firstly, we need to recognize that there are many barriers including:
– very small project sizes – especially compared to institutional investors’ typical deal size and the needs of the debt capital markets.
– efficiency is invisible.
– it is hard to measure – or at least it has been – that is starting to change with advanced metering, measurement and verification technologies.
– and one really important point is that efficiency is definitely not cool, not sexy or even photogenic.
We have to acknowledge that there is a fundamental lack of demand – because hardly anyone wakes up in the morning and says; “I want to buy some energy efficiency”.

An other major barrier identified by the Energy Efficiency Financial Institutions Group (EEFIG) and others is the lack of standardization in the way that projects are developed, documented and presented – this leads to higher risks, or perceived risks, and high transaction costs for financial institutions. So, how do we overcome these barriers and make the energy efficiency financing market rock?

I think there are four key elements which need to be brought together in what I call the jigsaw of energy efficiency finance:

1. finance – and by that I mean both project finance and development finance i.e. the risk capital to develop projects.
2. real demand and a robust project pipeline which requires several things – a new ecosystem of project developers, better development skills, but also better selling skills built around a focus on non-energy benefits which are much more strategic and attractive than “just” energy cost savings.
3. capacity building in financial institutions, the energy efficiency industry and project owners.
4. derisking through the standardization of processes, contracts and reporting of results.

I want to talk about two projects that are addressing some of the key elements of the derisking piece; the EEFIG Derisking project and the Investor Confidence Project.

The EEFIG Derisking project is funded by DG ENER and is being steered by the circa 100 members of EEFIG. It has two linked parts:

1. building a database of project performance so that owners and investors can see how projects actually perform and over time we can build an actuarial database of actual performance – both energy and financial performance.
2. developing standardized underwriting procedures such that banks and financial institutions can better assess both the value and the risks of energy efficiency projects which will lead to better pricing, and help to build capacity.

We are currently building the database, which is called DEEP (Derisking Energy Efficiency Platform) and we are collecting data on several hundred projects. Individual projects will be anonymous and if anyone in the audience is able to provide project data the Commission, myself and the team will be very happy to talk to you in detail. The more projects of all sorts, across buildings and industry we can have in DEEP the more useful it will become, for investors, lenders, project developers and project owners.

We also welcome any input from financial institutions into developing the standardized underwriting framework that we believe can become a useful tool for those investors and banks keen to increase capital deployment into energy efficiency. It will help them to fully assess risks and value – from all sources –leading to better pricing, build capacity around standard processes, and better manage overall risk in portfolios of projects.

The second important project is the Investor Confidence Project (ICP) Europe. I brought the idea over from the USA and in Europe the ICP is supported by Horizon 2020. The ICP addresses the lack of standardization at a technical level by bringing together financiers and the energy efficiency industry to agree common Protocols for developing and documenting projects. We now have >150 Allies across Europe and have published six protocols which are now being used in a growing number of building renovation projects across the EU. The ICP has also introduced a project developer and quality assurance accreditation scheme that is called Investor Ready Energy Efficiency. Our investor network has over €1 bn they would like to deploy into energy efficiency and many of them offer lower fees or interest rates for standardized ICP accredited projects. We are now looking at expanding the suite of protocols to include industry and infrastructure.

When I think about what else do we need, particularly from Brussels, I have the following shopping list:

– ensure all EU funded projects have to provide performance data into the DEEP database and encourage all project developers, vendors and financiers to support DEEP and similar evidence platforms. It would be foolish to establish DEEP and then not require funded projects to contribute to it.
– ensure EU funded projects adopt standardization of the development and documentation of projects using the Investor Confidence Project protocols.
– focus on the project development piece and building demand. This needs to be done by:
o providing more technical assistance but very tightly focused assistance, don’t just give money out to municipalities who want to do “investment grade audits” and assume banks will lend on the back of those audits
o focus on selling non-energy benefits – I now say let’s not even mention the energy savings, sell the comfort, the health and welfare, the employment or whatever is most likely to push the buttons of the decision maker – and then say “by the way it also produces some energy cost reduction”.
o selling the benefits of financed energy solutions. This has to be done at local and regional level.
– use EU funds like Structural Funds to further derisk private capital – don’t crowd out private capital by lending to projects but rather create mechanisms like first loss loan reserves – you get much more bang for the euro that way.
– start working on enabling collection mechanisms such as On Bill Recovery (OBR) and Property Assessed Clean Energy (PACE) which is based on local property tax. In the US PACE funded retrofits have really started to accelerate and there has been more than $1 billion of securitization of PACE loans in the last 12 months. There is now a real secondary market which allows recycling of capital and proper risk allocation. I know that property tax systems are different across Europe but we need to work out how to use them in a mechanism like PACE in each member state.
– Insist on open energy data. US cities like New York and Chicago have pioneered the open publishing of normalized energy consumption data for commercial buildings above a certain floor area. If you can’t yet do it for commercial buildings (even though there is no reason not to other than a lack of leadership), then insist upon it for all EU buildings and member state government estates.
– Finally, really take a long hard look at what is happening in California where the latest regulations are moving towards requiring metered efficiency and pay for performance. We need to move out of the old energy efficiency paradigm which is mandate and public sector led into a market led paradigm where we pay for what we actually want – negawatt hours. Using this approach we can create a real market where efficiency is just as reliable and just as financeable as energy production. Let’s start actually paying for real performance i.e. energy savings rather than for stuff, boilers, insulation etc and praying for results.

So, on the day before the historic referendum on UK membership of the EU, that is my small shopping list for today.

I just want to say that I am more optimistic than ever that we are building the foundations of a vibrant energy efficiency financing market by bringing the four pieces; derisking. finance, demand and capacity building, together, but we still have a long way to go. If we build that market I think everyone will be surprised by how much efficiency is actually delivered.

Again, making reference to the referendum which is hard to avoid doing, I want to finish by saying that I think EC policy in this particular area is joined up, it is helping to build the jigsaw and is moving in the right direction – if anyone wants to tell the BREXIT campaign that is fine by me.

Thank you for listening!

I have written and spoken before about the move towards metering energy efficiency and treating it like any other energy source in the energy supply system, a move no enshrined in Californian law. Matt Golden, one of the real pioneers in this movement, sent me a job description that PG&E, the largest utility in California, recently issued – a lead manager for procuring energy efficiency. This is significant and here is why.

Traditionally energy efficiency has been delivered through programmes that are centrally managed and with a highly variable outcome. The programmes entail some kind of mandate or incentive that leads to investment in the stuff that produces energy efficiency – new boilers, new air conditioning, new controls, insulation etc. There has been little or no measurement of results of this on a project by project basis, usually programmes are evaluated by taking samples and extrapolating. The cost of a kWh (really a negawatt hour) delivered by energy efficiency programmes is highly variable. In the US at least there is a whole mini-industry of programme evaluation.

Under the new Californian legislation incentives will be paid on measured energy efficiency – savings compared to a dynamic baseline. This offers the possibility of real markets for energy efficiency developing, instead of markets for stuff which we have now – stuff which we buy but rarely know how it performs. If we reward actual results the quality of results will improve, those that cannot produce them will go out of business. Utilities can also have more confidence in the results of energy efficiency, allowing them to procure it more like other energy sources, rather than somewhat begrudgingly having to implement programmes because they have to, and build it into capacity planning. Furthermore metered efficiency offers the prospect of a strip of negawatt hours being financeable through an equivalent to a Power Purchase Agreement (PPA) – maybe a Efficiency Purchase Agreement (EPA), Savings Purchase Agreement (SPA) or a Negapower Purchase Agreement (NPA).

Technologies like Open EE Meter (developed by Matt Golden) offer the prospect of a real market for efficiency developing – one that delivers reliable results just like power generation technologies. If we can get to that point I believe the level of energy use reduction that will be achieved will be very surprising.

Continuing my occasional series on interesting energy efficiency financing initiatives around the world…….. 
 
I have just returned from my first visit to Riga, the capital of Latvia, which is a very civilized city and well worth a visit.  Whilst there I continued a dialogue with a very interesting project to fund residential renovations in Soviet era panel buildings.  For anyone not familiar with these, all through the former Soviet republics in central and eastern Europe, through Russia, into central Asia and even China, the default method of building housing was highly systematized and standardized concrete panel blocks.  Even in the UK of course we experimented with this kind of technology during the sixties and seventies – usually with bad results.  The panel buildings in Latvia and throughout central and eastern Europe are extremely energy inefficient, in climates which get severe winter weather, and are often in danger of collapse through problems of “concrete cancer” and structural defects. 
 
In Latvia, Renesco (a private ESCO) has renovated 15 panel built apartment blocks with some impressive results.  Energy savings ranged from 45% to 65%,  more comfortable conditions were created, the lifetime of the blocks were extended and residents kept paying the same utility bills – all without additional subsidies.  The retrofits are deep retrofits incorporating insulation, windows and doors as well as other aspects such as structural repairs, roof repairs and upgrading elevators (with high energy savings due to the low efficiency of Soviet era elevators compared to modern high efficiency units).  The energy savings allow these other measures – which are essential to the building – to be paid for.  Residents buy into the increase in comfort.  The Renesco projects were a great example of entrepreneurial effort overcoming many social, economic and technical barriers.  Now the project is moving into a new larger and very exciting phase.  Renesco, like all Escos, was capital constrained and so now the Latvian Baltic Energy Efficiency Facility (LABEEF) – a forfaiting fund – has been established to refinance similar projects carried out by ESCOs once they have been in operation for a year.   
 
This arrangement allocates risks and rewards appropriately.  Residents take no risk and their homes increase in value 15 to 25%. Over the lifetime of the financing deal, they can expect over 30% lower costs than other financing models.  The ESCOs take the project implementation and performance risk, and the forfaiting fund takes the long-term payment risk.  (To date there have been no defaults on payment).  The ESCOs or their financing banks can recycle capital.  LABEEF has systematized the process, making application easy through an on-line portal, and completely standardized the process.  On the technical side it advocates the use of Investor Confidence Protocols as a way of ensuring best practice during project development, implementation and on-going monitoring.  Over time, once enough projects have been aggregated, the forfaiting fund should become an attractive investment for pension funds which in the Baltics currently invest mainly in the Nordics due to a shortage of investment opportunities at home.   
 
It is worth considering the potential impact of this project.  If applied to Latvia’s 50 million square metres of panel apartment blocks the reduction in gas imports – which all come from Russia – would be reduced by 50%.  This alone should mean the project should get a lot of attention on energy security grounds.  In addition there are huge non-energy benefits such as the effects on health and well-being, and improvements to the social fabric as residents become involved in the long-term future of their block and their neighborhood.  The latter kind of “soft” benefit is often forgotten but is very real.  When applied to the estimated 1 billion square meters of panel buildings across central and eastern Europe the potential gains are huge – a potential reduction in gas imports of over 10-15 billion cubic meters/year. 
 
The LABEEF forfaiting fund is a world-class example of energy efficiency financing in action and we look forward to following its development and working with it in future.

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.