On the 17th March I was on a panel at a meeting of PRAESEG (Parliamentary Renewable and Sustainable Energy Group). The question being addressed was “Ahead of the Election in May, what should incoming government’s priorities be for energy efficiency?”. The other speakers were Dr. Nick Eyre, Dr. Joanne Wade, Simon Roberts and Catrin Maby, all of whom made great contributions with a lot of cross-over. Here are the notes for my remarks – which of course probably ended up somewhat different in practice.

First of all I should start by saying that we should never say or believe that energy efficiency is not working – the evidence is now firmly in and what it shows is that we have decoupled energy use from GDP and that over the last 30 years improved energy efficiency has provided more energy services than any other source of energy. We need to say that loudly and often so that decision makers really get it and move away from the near total domination of the energy debate by the energy supply network. The thing is, however, is that we have achieved all that without really trying and now we need to start trying harder.

What we need to talk about now is how to accelerate the improvement in energy efficiency – at the risk of using an inappropriate analogy it is like we are still in 2nd gear doing 10 mph on a B road and now we need to get into top gear and get moving on the motorway. The end result we want is an acceleration in the reduction in energy intensity (energy/GDP) as we all want a growing economy – having that growing economy with falling energy use is starting to happen and accelerating that decoupling of energy and GDP would help us achieve our energy goals of increased security, reducing environmental impact and having lower energy costs. And as we now know – but has not yet been widely recognized – improving energy efficiency brings with it many valuable co-benefits such as improved health, productivity or customer satisfaction. In fact the co-benefits are often worth more than the energy benefits – they just don’t get recognized, measured or recorded. As well as standing up and shouting that energy efficiency is working we should always talk about co-benefits whenever anyone mentions energy efficiency. Indeed, in many situations the co-benefits will be more attractive to the decision maker than the energy and cost savings.

Governments over the past 40 years have been conducting a grand experiment with the energy efficiency industry in the belief that energy efficiency is something special that needs government action and that it can only be helped by public expenditure, some kind of grant or some kind of government designed programmme. We have had government exhortation campaigns, additional taxes, cumbersome reporting schemes, energy company obligations and clumsily government designed programmes like the Green Deal. These approaches smack of 1970s – or even 1950s – state intervention and just impose a cost – they don’t create a real market for energy efficiency. They are all top down approaches and they will always be limited in their effectiveness.

At this point, we can say that the programme-centric approach to energy efficiency does not appear to be working fast enough, nor can it scale sufficiently. Furthermore, it is highly vulnerable to cyclical political changes, as we saw with the knee-jerk changes to ECO in response to Ed Milliband’s announcement on freezing energy prices and the “green crap” comment. Even if the top down approach worked effectively it can never scale to the level needed given limits on public expenditure and sensitivity to energy price supplements. Even moderately successful scenarios will require an investment in energy efficiency that that vastly exceeds even the most optimistic assessment of available public funds but is easily within the bounds of the debt capital markets. The BPIE estimate that for Europe the required capital just to renovate buildings is €3.5 trillion across Europe, €90 billion per year. We have to design things to mobilize private capital. It is time to move away from the top down programme approach and try something different.

Energy efficiency is a resource just like any other energy resource. It delivers clear public benefits (in addition to enormous private benefits such as improved comfort and lower bills). It creates local jobs, reduces the need for new power plants, improves health, and moves us closer to meeting our emissions goals. We need to think about efficiency just like any resource. Getting paid for the value that efficiency resource creates is not charity; instead, monetizing these unrealized benefits simply aligns interests and pays for this distributed negawatt power plant by rewarding the homeowners and companies making the actual investments energy efficiency — just as if they were building new generation capacity.

Energy efficiency is the cheapest way of meeting energy services but in most cases – if not all cases – there is not a market for energy efficiency in the way that there is a market for energy. Energy generators can forward sell their projected output to get project finance – we need to make a market for efficiency that works like the market for energy. By creating a more transparent marketplace for energy efficiency, we can increase private funding, increase flexibility in delivery, and truly add efficiency to the pool of resources that will make up the future more dynamic energy system.

We have the elements now in terms of smart metering, low cost communications, low cost sensors and M&V protocols, to have energy efficiency meters. Energy efficiency meters are in development and we need to get these regulated just like energy meters and turn them into fiscal meters.

An essential part of building the market for energy efficiency is to standardize the process of developing and documenting energy efficiency projects – at the moment every developer does it differently – this is the aim of the Investor Confidence Project Europe which I chair. As well as project development we need to develop tools for measuring performance of efficiency projects – we have the basics – we need to measure the performance of projects in a standardized way and keep open data so that investors can see the results. At the moment there is an act of faith that it works.

We must engage private capital to invest in this emerging new market that will value energy efficiency as a reliable resource, and we must pay for these investments in the same way we finance power plants — through project finance that monetizes cash flows from savings, rather than the balance sheets of the building owner.

It is also important to talk about demand generation – we hear all the time about “low hanging fruit” – it is time to drop that analogy. A better analogy used by my colleague Matt Golden in the Investor Confidence Project is that the potential is more like wild strawberries, or perhaps in the UK case blackberries – it takes lots of people on their hands and knees a long time to fill a basket. Just relying on the inherent cost-effectiveness of EE is not sufficient – it is not working – there is very low demand despite the fact that it energy efficiency is cost-effective. Just relying on programmes does not work either.

To help drive demand we need to reward people for what we want – reduction in energy use and increase in comfort in fuel poverty and not reward people for creating bureaucratic processes. These processes in top down programmes have to be defined centrally and end up imposing huge costs. In California for example the house retrofit business used to have a customer acquisition cost of a few hundred dollars, then when they introduced a Green Deal type of programme the average acquisition cost went to $14,000 while the average project capital expenditure was $14,000 – which is totally crazy.

The coming paradigm shift would not the eliminate the need for public and funding – particularly in the early days – and regulations to ensure a fair and transparent market, but it will require a different, simplified regulatory role – a role that looks essentially like the public sector involvement in every established market.

• Is the Government at risk of missing the full potential that energy efficiency can play in helping achieve its energy policy goals? There is a real danger around energy security at the moment. The UK’s (and Europe’s) energy dependency is getting worse which has geopolitical as well as economic costs. The UK government has been complacent on this issue, citing the fact that we don’t buy any gas from Russia while ignoring the Russian coal imports and Gazprom’s strategic investments in gas suppliers and pipelines. Energy security is another area where the use of traditional language limits our thinking on the subject. We don’t actually need energy security, security over the physical flow of energy, but we definitely do need security of energy services. Thinking about the subject in this language expands the options and helps to bring energy efficiency into the equation.

• Does Government need to set out a more ambitious, coherent strategy to make the UK more energy efficient? Yes – we need to put energy efficiency truly at the heart of energy policy and make sure efficiency is truly considered as an alternative. One issue here is the historical reality that DECC (and all equivalents like the US Department of Energy) have a very strong historical link to nuclear power (50% plus of DECC budget spent on nuclear issues) and of course are subject to very strong continuous lobbying from the energy supply industry. It was only last year that the demand-side industry managed to get one person seconded into DECC for the first time. Maybe the demand side and energy planning should be entirely separated from DECC or its equivalent in order that modelling and decision making can be made entirely based on demand side modelling rather than supply side modelling.

• Are sectoral energy efficiency targets needed? Yes – we need to have an overall energy per GDP target broken down into sectors, then bring in the sectors to ensure they own the targets and develop sector specific and appropriate plans. The overall targets should be driven by reducing energy dependency.

• Is there a need to link energy efficiency policy with other demand side action, such as decentralised energy, demand side response, smart grids etc? A few years ago, with the CHPA (now the ADE) we coined the term D3 which stood for Demand Management (EE), Demand Response (DR) and Distributed Generation (DG). They are all demand side resources which need to be encouraged. Smart grid is a widely mis-used term – smart distribution systems and end use are tools to enable demand side resources but unless D3 is encouraged then smart grid is just a piece of technology, or lots of technologies, without much application and therefore once public money disappears the initiatives will disappear.

• Does the Government need to set in place longer term energy efficiency strategies for the business and public sectors? Long term stable strategies are always good for investors and industry players. We need a 5 and 10 year target and frequent reporting against the target. Given the energy security situation in relation to Russia and the Middle East we may not have 5 to 10 years but we need to get on with it. Importing >50% of our energy limits our degrees of freedom and is building in problems down the track. We need to use this period of low oil prices to increase investment in energy efficiency. Relying on government programmes or supplier obligations means that they can’t be stable.

• What might a revamped Green Deal and supplier obligation look like? Just pay for what we want which is a) reduction in energy use b) reduction in fuel poverty c) whole house approach – let the market innovate and decide. Don’t favour any particular technology. On the supplier obligation just get rid of it altogether and replace it with payments for results. Charge a tax on energy suppliers, ring fence it and spend it on buying efficiency. Or require every supplier to always review demand side options ahead of supply side options.

These remarks were significantly based on a series of articles by Matt Golden.
Let’s Get Real: The Energy Efficiency Industry Can Do Better
Why Top-Down Efficiency Programs Are So Expensive and What We Can Do About it

Gwyneth Paltrow made the term “conscious uncoupling” famous when she split from Coldplay’s Chris Martin (ed. who he?) but now perhaps the time has come to adopt it in the energy world. I have written before about the decoupling of energy use and GDP (see here). When I was first learning about energy and economics in the late 1970s it was an article of faith that the link between energy use and GDP was fixed and therefore that as economies grew wealthier they would use ever more energy. This fed into (and still feeds into) all official projections of energy use (see here for example), as well as the technical fantasies of the government of the day and bodies such as the old CEGB. The Department of Energy, for example in 1976 estimated energy demand by 2000 would be up 43%, instead it rose by 3%. More recently the decision to proceed with Electricity Market Reform was primarily driven by unrealistic scenarios of greatly increased electricity use – for details see “A Corruption of Governance” by ACE and Unlock Democracy here.

Over the last few years there has been mounting evidence that the link between GDP and energy use has been broken in mature economies including the UK, Europe and the USA. The latest figures from DECC (see here), released on the 26 February, just add to this evidence base. To quote: “Primary energy consumption on a fuel input basis decreased by 7.0 per cent, and on a temperature adjusted basis, was down 3.1 per cent continuing the downward trend of the last nine years.” About 1 per cent of this change (both temperature adjusted and unadjusted) is accounted for by a switch from coal generation to wind as wind and solar are measured as energy output, while losses are recorded in transforming coal to electricity.

UK GDP grew 2.6 per cent in 2014 and so the energy ratio (energy consumption per unit of economic output) has fallen by around 5.6 per cent, above the average of 3 per cent per annum since 2000. UK GDP grew 67 per cent between 2000 and 2014 while primary energy consumption (temperature adjusted) fell by 18 per cent.

In Europe there is a similar story. According to Eurostat Europe’s total gross energy consumption is down 9 per cent from its historical peak in 2006 and is currently at a level last seen in the early 1990s (see here).

This is a great result but I probably should have titled the piece “unconscious uncoupling” because I don’t think we have been very conscious about accelerating energy efficiency over that period. There is an underlying “natural” rate of improvement in energy efficiency that comes about through the introduction of more efficient products and buildings as capital stock turns over – that has been going on over centuries of technological progress. Then overlaying that is the “accelerated” rate of energy efficiency improvement that comes about from active policies and programmes to encourage further gains. I am starting to believe that we have actually improved both of these over the last few years as entrepreneurial talent and investment has increasingly moved into energy efficiency technologies and regulations have forced underlying assets like cars to be inherently more efficient. Having said that we have not yet aggressively set out to accelerate the rate of improvement.

Having sounded a positive note, it is clear from surveying the current energy and energy efficiency scene that there is still a massive potential to improve overall energy efficiency and that there is still too much focus on energy supply side solutions. Efforts like the Investor Confidence Project and new contract structures are helping to make energy efficiency more investable, making it look more like any other source of energy services, and if we can deliver these solutions at scale then we will see further significant improvements in energy per GDP, probably at a level that will greatly surprise the energy supply establishment and governments.

There were some other interesting numbers in the DECC statistical release. Fossil fuel dependency has fallen to 83 per cent, a record low. More alarmingly, given the long-term prospects for the global energy market, and the more immediate geopolitical concerns around Russia and the Middle East, is that import dependency once again increased, reaching 48.7 per cent in Q3 2014, up 5.7 percentage points from Q2 2014 – despite the growth in renewables. Our import dependency, driven by rapidly declining UK Continental Shelf oil and gas production, is a big concern as it leaves us vulnerable to supply disruptions and limits our degrees of freedom on the global stage – a particularly important point at this time. In Europe the energy security situation is even worse with import dependency of 53 per cent and an expenditure on energy imports of more than €500 billion in 2013, that is €1.3 billion a day that was shipped out of Europe. Even with the fall in oil prices this is a major security and economic issue.

It is increasingly clear that our best solution to import dependency and the associated energy supply risks, as well as other energy supply related problems, is to reduce energy demand by aggressively targeting even larger rates of reduction in energy per GDP through accelerating energy efficiency across the economy. Doing so would bring multiple benefits at individual, local, national and global levels.

To learn more about conscious uncoupling see here and here.

I attended a smart cities seminar at Osborne Clarke on the 27th January. I have to say that I regard much of the talk about smart cities as simply that, talk with a lot of hype and not much reality (see my previous posts on the problems of hype here (http://www.onlyelevenpercent.com/innovation-hype-confusion-perfect-illustration/). Firstly as Alan Kell, a long term smart building and smart city pioneer says, we are really talking about smarter cities. “Smart” isn’t a point in time or a single fixed state. Secondly many of the technologies talked about in the smart cities conversation like energy storage, are either only in their infancy, not yet deployable at scale or depend on some regulatory changes that have yet to happen.
 
Anyway the seminar was based on some research by Osborne Clarke looking at barriers to smart cities. The report seemed to to conclude that finance was a barrier and that we needed some innovative finance. This reminded me of much of the discussion on energy efficiency finance and to my mind is misguided.
 
Simple availability of finance is not a problem in energy efficiency (EE) or smart cities, the problem is the lack of well developed bankable projects at the scale necessary to attract serious levels of investment and cheaper capital. In both EE and smart cities we don’t yet have the capacity (the know-how) to be able to develop large multi-building, city wide projects at scale. That lack of capacity sits on both sides, on the demand side the customers (cities) don’t have enough capacity to know what they want and how to get it (they need to become smarter customers). They are inundated with offers from suppliers, all with their own agenda of selling kit and services. On the supply side there is a lack of capacity to develop large projects, and a shortage of development funding to take concepts through to fully worked-up bankable projects. There is also a lack of clarity over business models for a lot of the smart city concepts.
 
We need capacity building for both the demand and the supply side of the equation. We also need development finance which may have to be public or soft money in the first instance abut ultimately can be paid back out of the implemented projects. We also need standardized ways of developing and documenting processes as well as gaining standardised performance data, something that in EE we are addressing through the Investor Confidence Europe (www.eeperformance.org/europe).
 
Interesting, unattributed comments I liked included the following:

• The DNOs are clear that the Low Carbon Networks programme has demonstrated that demand side activity can be more cost-effective than network upgrading. The issue here is that regulation still only encourages capital going into network upgrading. From the early days of the Electricity Market Reform some of us argued that we needed to change the regulations to incentivize DNOs to invest in demand side activities. Even though the RIIO (Revenues = Incentives + Innovation + Outputs) approach is an improvement it still isn’t sufficient.
• Very few elections change anything but the one in May will in the way that 1945 and 1979 brought in revolutionary changes, the welfare state in 1945 and Thatcherism in1979.
• The EU defines a smart city as a city that has done one smart city project. Smart is not a destination but a continuum.
• Smart city developments require new models of collaboration between cities, government and the private sector.
• The real barrier is the need for new business models. There is plenty of money around for well developed projects.

Thanks to Osborne Clarke for the research and hosting the event. More information can be found at: http://www.smartcities.osborneclarke.com.

In one of my presentations on the barriers to accelerating energy efficiency I talked about “the ribbon problem”, the fact that one of the barriers to energy efficiency is that it is invisible and not very photogenic, unlike renewables or conventional power stations, making it hard for politicians to be photographed cutting a ribbon or standing in front of some dramatic installation. Try searching for energy efficiency in any online photo library and there are very few images for energy efficiency, mostly there are low energy light bulbs, a box of some description or some kind of naff logo often including a hand grasping a lightning flash. Efficiency is also invisible because it is not metered. This invisibility problem also extends to the long-term effects of energy efficiency in the economy – despite the huge scale of the effects they can’t easily be seen and people rarely talk about them. Because of this energy efficiency is under-valued at all levels from policy makers down.
 
The latest excellent report from the Association of Decentralised Energy (ADE), formerly the CHPA, (http://goo.gl/h3Yg6x) is entitled “Invisible Energy” and does an excellent job of highlighting some of the benefits of energy demand side activities, what we christened a few years back D3, Demand Management (permanent reduction of demand), Demand Response (short term shifting of demand) and Distributed Generation. The rationale for the report was to clearly demonstrate and explain the multiple benefits of improving efficiency and related demand side activities, to celebrate the achievements and help to change the language around the demand side. (It was tempting to say shine a light on the benefits – an LED light of course).
 
I have written before about how the impact of improved efficiency was completely overlooked by the energy industry and policy makers in the 1980s (see Surprise! You are living in a low energy future…. (almost) http://goo.gl/16dJWL) The ADE report shows how the UK’s GDP has doubled since 1980 while energy use has remained largely flat or declined. If the economy had the same overall level of energy intensity as in 1980 the UK would be using twice as much energy as it actually does. The ADE report that this would require an additional 14 power stations and importing twice as much gas as we currently do. Consumers would be spending an additional £37 billion on energy compared to what they are currently spending.
 
Critics will say that some of this change is due to the change in industrial structure and offshoring and these are real factors – but a significant proportion was down to fundamental improvements in efficiency – a result that was achieved without, it can be argued, any real policy commitment to improving energy efficiency for much of the period, except for the decade or so between the mid-1970s and the mid- to late 1980s. As I have said before, just imagine what we could do with a real sustained and comprehensive policy commitment.
 
The ADE report also looks at the potential for improving the demand side up to 2020. It is clear from this and many studies in many countries and regions that the economic potential for improving efficiency remains large (even massive), even in a world with $50 (or less) a barrel oil. By valuing the energy savings and the co-benefits properly, investing to improve efficiency at a national and organizational level is a “no-brainer” and a much better (higher return, lower risk) option than investing in increasing energy supply. Improvements in efficiency will continue to occur, as they have done for decades, even without improved policy interventions and irrespective of the price of energy. The challenge for policy makers, and leaders in all organizations, is how to accelerate the rate of that improvement to address the serious challenges of energy security, costs and the environment.
 
Congratulations to ADE on the report and their new name.
 
PS I subsequently discovered a previous use of the title Invisible Energy – a book by David B. Goldstein of the Natural Resources Defense Council.

On the 15th January I chaired the 3rd annual Energy Institute conference “Accelerating energy efficiency”. I believe that we have now got to the point where the huge economic potential for improved energy efficiency is broadly recognized although the true value of the multiple co-benefits is only just being identified. What we haven’t yet achieved is the “main streaming” of improving energy efficiency. To resolve our energy cost, energy security and environmental problems we need to, and should, work to accelerate the rate of improvement of energy efficiency – hence the title of the event.

To accelerate energy efficiency we need to increase the demand for energy efficiency, increase the supply of energy efficiency products and services, and increase the flow of finance into energy efficiency investment, both internal and external investment. To do this requires a systematic approach and this year the Energy Institute conference covered more parts of the jigsaw than ever before. Lord Deben kicked off the event with a brilliant keynote in which he stressed four words; vulgarity, centrality, urgency and difference. I understood vulgarity to mean moving energy efficiency away from the deeply technical language only understood by experts to a more commonly understood language – a theme I have pushed for a while having come to the realization that energy efficiency is deeply boring and uncool (see the energy efficiency cool wall: http://goo.gl/TQZiQp). Centrality meant central to the energy and environmental issues, urgency meant in relation to climate change but I would also add urgency in terms of economic and geo-political energy security issues such as dependence on imported gas and oil. By difference I think Lord Deben meant diversity of solutions.

Following Lord Deben’s keynote there were presentations covering an update on ESOS from David Purdy of DECC and presentations on the different routes to ESOS compliance, ISO50001 and energy surveys. Bert Lunenborg, Production Manager at major energy user British Gypsum made the point that ISO50001 was powerful as it produced a system that is not dependent on individuals, and has a life beyond surveys. This cemented (no pun intended) my belief that government and other stakeholders concerned with improving energy efficiency should be promoting and adopting ISO50001. Wider adoption will better embed effective energy management into organizations which should improve the rate of improvement in energy efficiency and investment into energy efficiency measures. I would like to see a more positive commitment to ISO50001 from government, large organizations and industry associations alike to build capacity and capabilities. The public sector could accelerate its behavior by insisting on suppliers having it, just as they often do with quality and environmental ISOs.

A welcome addition to the programme compared to previous years, was the focus on behavior with several presentations on the theme including “Applying behavioural science to improve energy efficiency” by Phillipa Coan and “Energy management through people: the missing ingredient?” by James Brittain. James reported on an effective approach using low cost real time sensors and employee engagement to reduce energy use. The results from the Heathrow Terminal 2 building project where James’ company worked with restaurants and retail units to reduce installed capacity and energy use were particularly impressive.

In the afternoon the themes were finance and data. I introduced the Investor Confidence Project Europe (http://goo.gl/glbj5S) and then Nick Paget from Energy Works plc described the fully financed lighting as a service model Energy Works is providing to the SME market. Rajvant Nijjhar of i-VEES gave a great practical demonstration of the issues of measurement by getting six volunteers on stage to measure a piece of string. The range of answers was amazing. It was a great reminder of the fundamentals of measurement and the reality that every single measurement or data point concerning any parameter has a range of error attached to it – something we often forget in the digital age. Luke Nicholson of Carbon Culture described his work based on big data and open collaboration.
All the presentations are available at: http://goo.gl/AJSsZm

In conclusion, if we are to accelerate energy efficiency we need to work on all the pieces of the jigsaw simultaneously – not just the technology. Some of the pieces are well developed and understood such as Measurement and Verification (although they all need to be applied more), in others – particularly in the behavior and financial spaces – we are only just learning what to do. We need to continue to build the jigsaw and gather, maintain, improve and spread best practice in all these areas.