In October 2012 the US was battered by Hurricane Sandy which affected 24 states, led to serious flooding in New York and New Jersey, caused an estimated $65 billion economic impact, the cancellation of 5,000 flights, 286 deaths and over 8 million people experiencing power cuts – some of which lasted many days.  One important impact of Sandy was that it turned out to be a tipping point in terms of getting energy system resilience on the US political and utility regulator agenda.  Much investment in the US is now focused on hardening the infrastructure, improving its resistance to floods, smart grid systems, energy storage and distributed energy systems – all with the aim of improving resilience.

The strong storms in the UK over Christmas and subsequent large scale flooding have highlighted the same issue here – an ageing energy infrastructure is vulnerable to extreme weather events which are predicted to occur more often.  With the public and political reaction to the floods and resulting power cuts adding to the general high level of  noise about energy at the moment it is time to ensure improved resilience is on the policy agenda and built into investment programmes.  We should not forget that as well as grid technologies improving end-use efficiency can also contribute to improving resilience as well as reducing investment requirements in distribution systems.  Low energy houses stay warmer longer and use of low energy lighting and appliances will make local storage technologies easier and cheaper.

We have talked before about the multiple benefits of energy efficiency, improved resilience has to be on the list and we need to use improved efficiency, smart technologies, distributed energy and storage to improve energy system resilience.

Definition: Resilience – the capacity to recover quickly from difficulties.

Following my post on co-benefits  it seems as if the focus on this important topic is rapidly growing.  In the space of a week I have seen two reports that describe the co-benefits of energy efficiency investment.  Firstly there was the report from the Rocky Mountain Institute, “How to calculate and present deep retrofit value” which sets out nine “value elements” for deep retrofits:

Property costs and risks

–       retrofit development costs

–       non-energy property operating costs

–       retrofit risk mitigation

Enterprise costs

–       health costs

–       employee costs

–       promotions and marketing costs

Enterprise revenues

–       customer access and sales

–       property derived revenues

Enterprise risks

–       enterprise risk management/mitigation

The report sets out a framework for considering these costs, benefits and risks and presenting them.

The second report – “The economic impacts of EE investments in the South East” –  comes from the South East Energy Alliance, a regional energy efficiency organization working in 11 US states and focuses more on the benefits outside the end-user’s system boundary.  It is an independent report from Cadmus that looks at the wider economic impact of energy efficiency programmes covering direct benefits, indirect benefits and induced benefits.  As well as demonstrating actual costs per avoided MWh for power and gas the report looks at avoided capacity costs, jobs created, labour income and total value added.

The overall conclusions are that the $20.2 million invested by the US Department of Energy in the programmes studied led to economic value of $78.3m, a return on investment of 387% and created 347 new jobs.

Whatever we call them, co-benefits, non-energy benefits, secondary benefits or strategic benefits, the recognition of these important benefits is clearly growing.   We need to ensure we understand them properly and evaluate them at the point of making investment decisions.

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.

The acquisition of Nest by Google for $3.2 billion only three years after being founded made the specialist cleantech press and even the mainstream press last week.  Nest, is the developer of the Nest thermostat, a product that changed the thermostat market by being the first thermostat to be “cool” and one of the products on my Energy Efficiency cool wall.

The Google Nest deal is interesting for several reasons.

Firstly it is a Trojan horse product for the smart home. Smart homes have been talked about as long as I can remember but to date three things have been missing, the technology hasn’t really been there, the infrastructure hasn’t been there and there hasn’t been a cool product that excites people enough to make them buy it.  Nest changed that with a thermostat that looked cool and does some clever things as well as being connected with the internet. The fact that a $249 thermostat sold out and created a public buzz in its early days is amazing, a cool thermostat. Take a look at your thermostat or heating control at home, it is almost certainly anything other than cool and probably isn’t even very effective.  How often do you touch it? Do you know how to programme it?  Is it attractive?  Nest changed all that and effectively created a new market.

Nest also enables demand response and in the US various utilities are using Nest at the centre of demand response programmes, see this for example. Google brings its massive IT infrastructure to Nest.  Its skill and resources in big data processing will certainly enable new ways of understanding energy demand in much more detail and the aggregation of demand side (both demand response and demand management) measures into significant scale – allowing new business models that will further threaten energy suppliers.

Another aspect of the Google Nest deal, which made a lot of money for the original VC investors, was its likely influence on the wider cleantech investing market.  The irony was that it happened in a week when the influential TV programme in the US, “60 Minutes”, ran a piece talking about the “death” of clean tech.  As always life is more complicated than the media portray.  Cleantech is alive and well, albeit in a different form to how it used to be seen, with a focus on resource efficiency and capital light innovations (including business model innovations) rather than capital heavy and very long-term energy generation technology innovations.  The theme of energy and resource efficiency has to be a great investment theme for the next couple of decades, whatever happens in energy supply.  The nature of innovation and venture investing of course is that there will be failures – think about how many failures there have been around the internet – particularly in the internet bubble of the 1990s.  And as for “60 minutes” comment on the arrogance of silicon valley VCs – what can you say, they do tend toward arrogance but they changed the world.

On as lighter note I did enjoy Greentechs “top twitter reactions to Google buying Nest”.  My particular favourites are shown below.  Inclusion of the tweets here does not constitute agreement with the opinions expressed.

Ryan Block (@ryan): Oh PS with Nest’s built-in sensors now Google knows when you’re home, what rooms you’re in, and when you’re out. Just FYI.

Michael Nagy (@thenagman): Nest also changing name to NSAest

Lawson Kight (@lawsonkight): Ad Agency Buys Thermostat Manufacturer

Chris Nelder (@nelderini): They know when you are sleeping. They know when you’re awake. They know if you’ve been bad or good, so be good for goodness’ sake!

Annie (@bloodlesscoup): #GlennBeck predicted that the Feds would control/know your thermostat 5 yrs ago. Not so stupid now huh?

Esquire Magazine (@esquiremagazine): Google’s Nest purchase means it probably wants to take over your home. But wait, wasn’t it already doing that?

Sam Faulkner Biddle (@samfbiddle): If your house is burning down you’ll now get gmail ads for fire extinguishers.

PS – My Nest, which I have had for two years thanks to John Picard, sits on my desk – the consequences of living in a 1900s apartment block where the heating is communal and the controls consist of radiator valves and windows.  It is cool though.

On Monday we had the “big announcement” from David Cameron on shale gas incentives for local councils.  I ended up on Sky News and BBC News 24 talking about the potential and risks of shale gas.  So just for the record here is a short version of my opinions on the great shale gas debate.

Firstly we need to get real on energy policy as we facing three big crises.  First of all the electricity supply crisis which is due to years of under investment in new generating capacity and the effect of the EU Large Combustion Plant Directive closing down coal plant and the ageing nuclear fleet having to close.  Secondly we are also facing a balance of payments problem in that importing energy makes up about 50% of the balance of payments deficit and in 2012 we shipped £24bn a year out of the country to energy producing countries.  (Europe paid out some €500 billion euros for energy).  Thirdly we have a fuel poverty crisis in which many people have trouble paying their energy bills and there is a big human and social cost resulting from early deaths and cold related illness.  To address these problems we need to do two things, increase domestic production of energy and accelerate our efforts to improve energy efficiency in all sectors.  Exploiting shale gas won’t solve the one to five year time-scale problems but it certainly has the potential to contribute to solving the five to ten year time-scale problems.  Exploiting it will give us an indigenous resource at a relatively low price just as has happened in the US but until we actually start exploring it we won’t really know the size of the resource or the actual production costs here in the UK.

We certainly have a large shale gas resource in the UK and most of what is happening now is exploring that resource.  We need to explore and then we need to use appropriate technologies to exploit it – and that means hydraulic fracturing.  Although we should always be aware of environmental issues in all things many of the concerns are over played. We do need strong regulation and we need to enforce that regulation.  We should not allow “self regulation” and we do need to ensure that the enforcement agency – the Environment Agency – is equipped and resourced to ensure regulations are followed.  At a time when the EA is being cut in some areas, at least according to recent reports in relation to the flooding problems, this is a concern.  We also need to make sure the industry is transparent in the materials and processes it uses and make sure it uses the most advanced technologies which reduce water use and improve efficiency.

One of the problems with all governments is that they like to talk about a particular technology as if it is the only answer.  Now shale gas is in that role – it is being presented as the answer to everything – but there isn’t a single answer, we actually need to use all our indigenous resources, shale, unconventional oil and renewables.  On renewables, however, we can’t continue to subsidise technologies forever and neither should we subsidize nuclear or unconventional oil and gas.  Even if, or when, we achieve more economic renewable technologies we still need to deal with the intermittency issue, and that means we will need rapid response gas fired power plants and ultimately of course more energy storage, but large scale storage isn’t there yet.

We definitely need to ensure the benefits from shale gas are shared with local communities. On the whole the renewable industry largely has not done that.  We need to engage the population with energy realities and that that can happen in many ways, including sharing in benefits, and as some communities are now doing, establishing local community owned energy companies.  Some of these local energy companies could utilise locally produced shale gas in high efficiency combined heat and power plants proving district heating for example.

So to sum up, shale gas could be a “new North Sea” but we won’t know until we really start.  We do know that improved efficiency is also another potential “new North Sea” and we need to exploit that resource with as much gusto and high-level government support as is currently being given to shale gas.  Our official energy forecasting has always been, and continues to be poor, but I think the UK energy future will have more shale gas and more efficiency – as well as renewables and no doubt some stuff we haven’t even thought about yet.

You can watch the Sky News piece here.