Layer cakes and icebergs

I recently attended a very thought provoking meeting at the International Energy Agency looking at the multiple benefits of industrial energy efficiency, a topic that I have written about before both in the blog and in my book.  Interest in making sure all the benefits from energy efficiency are evaluated at the investment decision point is growing and the IEA is helping that process by preparing a report setting out what the benefits can be and some policy options to ensure they are included.  Several interesting points came out the meeting.

What is clear is that when they are properly evaluated, the multiple benefits of energy efficiency investments – (“co-benefits” or “non-energy benefits”) – can be much larger than the energy cost savings.  Co-benefits include things like; increased production capacity, increased productivity, increased quality, reduced maintenance costs, reduced waste disposal costs and increased employee engagement and satisfaction.  All too often, however, the evaluation of energy efficiency considers energy savings in isolation.

The issue of language and the need to ensure we are all speaking the same language when it comes to energy efficiency and project evaluation came out several times in the meeting, and that is a topic I am going to return to in a later post.

Another critical realisation, prompted by the excellent research of Catherine Cooremans of the Université de Genève (see for example here and here) was that energy efficiency investments need to be viewed as strategic, value creating investments rather then mere cost saving measures.  This emphasis on strategic value creation can help those promoting energy efficiency to get the attention and commitment of senior decision makers.  In my view, energy managers and energy efficiency professionals have never been good at this, believing that energy cost saving measures are somehow special.  Moving from, in my language, a “defensive” cost-cutting approach, to an “offensive”, strategic value creation approach can really help move the energy efficiency agenda “from the boiler room to the board room”.  As I said at the IEA meeting CEOs don’t generally get to the top by cost-cutting but by creating strategic shareholder value.  Also there is something inherently dull about saving money, however worthy it is, and something inherently exciting about creating value.  I think the excessive focus over the years on energy efficiency as just a cost-cutting exercise, rather than emphasising the co-benefits and strategic value is a major cause of under-investment as well as energy manager frustration!

Another important point made at the meeting was that energy efficiency improvements come in two ways, firstly through investments made specifically for energy efficiency, and secondly through investments that are undertaken for other reasons such as increased production, increased productivity or the introduction of new products or processes.  For the former, specific energy efficiency investments, it is critical to ensure that all co-benefits are identified, valued and included in the investment decision analysi.  For the latter, investments for other purposes, it is critical to ensure energy efficiency is properly considered at the design stage.  The value that can come from proper integrated design at the design stage, as shown by work by Rocky Mountain Institute  and the Sustainable Energy Authority of Ireland can be very significant – bringing greater benefits and reduced capex costs leading to greatly improved return on investment.  Corporate and government policies should recognise these two critical “touch points” to improve efficiency and focus on ensuring more of the opportunities are taken.

One of the issues I identified is that EU countries are now mandating energy surveys or audits as part of the Energy Efficiency Directive and national standards organisations are implementing standards for audits such as BS EN 16247-1 Energy Audits. If these don’t include guidance on assessing co-benefits we are missing a vital opportunity.  My view is that the standards, all of which have been prepared by excellent energy efficiency experts, probably don’t emphasise valuing co-benefits.  This may lead us into a situation where mandatory audits are paid for and undertaken but remain on the shelf because they just focus on cost savings.  We have been there before several times before – in fact this has been a problem as long as I can remember.  Energy surveys or audits are only useful as part of an energy management system that identifies opportunities and implements them but they do have to identify and value co-benefits and demonstrate value creation from proposed measures.

Finally of course many of the co-benefits are outside the system boundary of the project host.  They fall into the energy supply industry – such as reduced need to invest in energy supply, or society at large – through reduced import bills or reduced emissions.  We need to recognise these and where possible, through energy supply system regulation for instance, ensure the benefits are properly valued and those making the investment – and not just the supply companies – benefit.

The US work I mentioned in a previous blog post coined the phrase the “layer cake” of energy efficiency benefits.  One of the contributors at the IEA meeting used the analogy of the iceberg where the energy cost savings are the 10% of the iceberg above the surface and the 90% are co-benefits below the surface.  Whichever language we use to describe them this work by the IEA and others is important and I look forward to contributing to it further.