I come back to my theme of how to massively scale up energy efficiency with the perspective of thrity years involvement in the field – during which I have worked at the operational level designing and deploying multi-premise programmes, the strategic level developing innovative energy outsourcing and financing deals, the policy level advising UK and other governments.  First of all the good news – I am positive that energy efficiency is finally being recognised for what it is, the cheapest, cleanest and fastest energy resource we have for providing essential services.  This is true in the UK and many countries around the world – in North America, Europe, Asia, Africa and the Middle East the importance of efficiency is now being recognised. The problem is however, to use the language of fossil fuels, recognising a resource, turning it into a usable reserve and then exploiting that reserve profitably are all very different things.

It is not widely recognised that over the last thirty to forty years, improved efficiency has provided more energy services than all other energy resources put together and we did that without really trying except for a period between roughly 1975 and 1985.  The rest of the time we forgot about energy efficiency and yet it still provided more energy services than any other resource.  Just imagine what we can do if we really put our mind to it.  We live in a global society which only manages to turn eleven per cent of all the primary energy resources we use, the coal, the oil, the gas, the nuclear, the solar, the hydro, the wind and the biomass, into usable energy services that we need and want, the warmth, the process heat, the cold, the motive power, the light and the sound.  Eight nine per cent is wasted.  Even allowing for the fundamental limits set by thermodynamics this is pretty pathetic for a so-called advanced technological society.

Everywhere we look we are seeing concerted efforts to improve energy efficiency in new products, in industry, in the home, in electrical devices, in cars, in IT, in lighting, in ships and in aeroplanes – as well as to develop retrofit solutions.  Whereas energy efficiency has never been a design criteria in the past it is increasingly so and all the millions of improvements in efficiency that come from devices as diverse as mobile phone chargers to giant ship engines will have an increasing effect on overall efficiency levels as they become adopted, normalised and regulated in to the economy.  I am sure that most long-run energy forecasts don’t take sufficient account of these developments which for the first time, in developed countries at least, are starting to decouple growth in income (GDP) and growth in energy use.

However, even now senior managements in many organisations (and most governments and political parties) are still not taking energy efficiency seriously enough and we are not making enough progress in the short-term.  The message needs to go out that investing in energy efficiency is a low risk, high return deal that brings with it numerous quantifiable benefits over and above just cost saving.  On a national level it could bring huge benefits in terms of increased security of supply – helping to reduce the UK’s £24 billion (and growing) trade deficit in energy.  The strategic importance of energy, and the risks associated with it in a world facing increasing supply constraints as demand rises from a larger and wealthier global population, need to be recognised and acted upon at board level in all organisations, big and small, whatever their energy intensity or energy spend as a proportion of total costs.  We know from decades of experience amongst the global leading organisations that when top management lead on this issue, and appropriate management systems are set up, the energy efficiency reserves can be profitably mined for year after year, decade after decade.  We know how to do this.

We are seeing increased interest and investment in energy efficiency but what we are not doing at the moment is making large-scale investments in energy efficiency across large portfolios of existing buildings and facilities – despite the fact that are massive economic opportunities.  Many organisations with hundreds or even thousands of sites and large energy bills are making pilot investments, saving twenty to twenty five per cent or more on their energy spend, rolling out the technologies to ten or twenty sites and then stopping.  This is down to several factors on the demand side including the fact that we don’t have enough senior leaders (private sector, public sector and national politicians) who are demanding – and I do mean demanding – large-scale programmes.  We need more informed leaders who understand the opportunity and can “bang the table” to demand mass roll-out, large scale programmes using integrated design techniques and state-of-the-art technologies to maximize savings.  To get there we need more and better communication and capacity building at the top level.  Energy – despite its strategic importance – is still often dealt with at an operational level and constrained by capital budgets which of course favour offensive spending on new products, processes or markets.  On the supply side there is a shortage of project developers that use state-of-the-art technologies and integrated design and perhaps more importantly, can develop large-scale multi-site, and even multi-customer projects.  There is both a skills gap and a serious equity gap in the project development stage of the process.

The financing of energy services, energy performance contracts (EPC) and shared savings is often seen as the holy grail of energy efficiency.  This area is witnessing a boom but it is more a boom of interest rather than deals. As a speaker said at an energy efficiency financing conference, the ratio of conferences to deals is getting better but it is too high.  Many new entrants to the energy efficiency arena have suddenly discovered “shared savings” as a panacea without really understanding the issues.  Why should this apparent win-win proposition be so hard to make happen?  Firstly there is a lack of demand which is caused by a combination of ignorance, fear that savings won’t be produced, very high transaction costs and the fundamental truth that the traditional EPC is not that good a deal, and not even viable in much of the private sector.  A lot of complexity, a long-term deal and a small slice of savings over many years is not that attractive.  Furthermore EPCs don’t really work in the private sector – particularly commercial offices.  Secondly there are supply issues, many project developers (Energy Service Companies – ESCOs) are still developing projects in the old way with relatively small savings instead of holistic, high savings projects.  We need more innovation on the supply side.

On the supply of money, most of the money trying to finance these deals at the moment is high cost money seeking almost private equity returns.  Massively scaling up energy efficiency investment won’t be done by the kind of funding that is currently available.  We need to get the right structures to provide customers with real up-front benefits and secure cash flow streams that can provide sufficient scale and be attractive to the debt capital markets.  Traditional EPCs are not the answer to every problem.  Appropriate investors are keen to move into energy efficiency but their confidence in the processes and savings need to be built, something that is being helped by the wider adoption of Measurement and Verification (M&V) through the International Performance Measurement and Verification Protocol (IPMVP), standards such as ISO50001, and standardized protocols through the Investor Confidence Project (ICP) in the United States.  All of these need to be encouraged in the UK and indeed in all markets.

At the policy level energy efficiency is still the poor cousin, the Cinderella of energy policy.  This is true in the UK despite sterling efforts from some individual ministers. In February we had David Cameron launching the “energy efficiency mission” and extolling the virtues of improved efficiency (in a speech that in an Orwellian manoeuvre never made it to the Number 10 or DECC websites) and in December we have seen the ECO programme disrupted – effectively at the behest of the energy suppliers – and most of this short-term, politically driven change is occurring because another politician made an undeliverable, economically illiterate promise for his short-term gain.  Energy is an industry that demands long-term vision and leadership to find it’s way through the massive, structural changes it is facing.  In all the noise about energy prices the real potential of the energy efficiency resource, and how we move it from a resource to a reserve to exploitation, has scarcely been mentioned.  The furore over prices was (and still is) an opportunity to reform the energy supply market, make it more transparent, recognise the huge impacts of distributed generation, and once and for all put efficiency at the centre of policy.

We need a regulatory regime that fosters innovation in the energy supply and services models rather than just encourages more investment in energy supply, both in generation and distribution.  We also need to move energy efficiency out of the regulation, compliance mentality where it has always sat.  We need to radically overhaul the plethora of programmes such as CRC, EU ETS, DECs, EPCs and the forthcoming ESOS (Energy Savings Opportunity Scheme – a.k.a. mandatory surveys) to ensure that energy managers can spend their time really developing and implementing projects and not just reporting on their energy use in several different formats.  We need to make energy efficiency a market commodity just like coal, oil or gas by standardising procedures, measurement of savings and financing structures.  Again, we know how to do this through programmes like ISO50001, IPMVP and the Investor Confidence Project.  We just need to apply them and this needs leadership.

If we can develop and finance the large scale energy efficiency programmes we know are possible, and sort out the policy mess, we can move efficiency from being a resource – the equivalent of the resources of the North Sea of the early 1960s – into an energy reserve that can be exploited to provide massive economic benefits on the scale of the North Sea and larger – only unlike the North Sea the benefits from massive investment in energy efficiency will be permanent.

This post also appears on 2Degrees Network

You don’t have to spend much time looking into the energy scene, particularly around renewables, to find a statement to the effect that “energy storage is the key”.   Of course, what is actually meant is that the increasing use of renewables such as wind power, will make storage of electricity more important as a way of counteracting the fact that renewables are intermittent in output and may not produce electricity when it is needed.  This has become one of those energy truisms that gets trotted out regularly along with “you can’t store electricity”, which is rather odd when we all use a plethora of electricity storage devices (batteries) everyday.  What we really mean is that you can’t store electricity as electricity, it has to be stored in some other way – in the chemistry of a battery, the potential energy of a pumped hydro power station, the kinetic energy of a fly wheel, compressed air in a tank, or some other medium.  In fact even that statement isn’t correct as we can store electricity directly in a super-conducting coil which has no electrical resistance, commercial superconducting machines are available and find niche applications.

The electricity storage options most talked about are; pumped hydro power stations, (I remember visiting Ffestiniog pumped hydro scheme aged 10 or 11 – perhaps one of the sources of my interest in energy), flywheels, batteries of all types of course, compressed air, capacitors and super-capacitors, flow batteries and superconducting devices.   Each has a range of power rating – varying from kW to GW – discharge times (seconds to hours), efficiencies, capital costs, stage of technology development and ease of deployment.  But one of the most interesting energy storage technologies that until recently got very little attention is liquid air.  Highview Power (http://highview-power.com/wordpress/) have been running a grid-connected unit next to the SSE power station in Slough for more than 18 months.  As well as storage applications the technology can be used for waste heat to power (what I call WHP) applications and combined cold and power (CCP as opposed to CHP?).   WHP using various technologies is a major opportunity and a large resource that is currently largely being ignored.

As well as energy storage, liquid air technologies can also address two other important and valuable applications:

–       providing a fast-refueling and low-carbon transport fuel that is zero-emission at the point of use

–       harvesting low-grade waste heat.

In fact, just as people used to talk a lot about the “hydrogen economy”, it is possible to think about a liquid air economy.  Environmental and economic benefits can be increased by integrating liquid air technologies across the electricity, gas, transport and industrial sectors.  Unlike the hydrogen economy, which has been a dream since Jules Verne wrote about it in the 1870s – and in my opinion is likely to remain a dream, the technology required for a liquid air economy is a lot closer to existing (indeed much of it exists already), the engineering problems are easier to solve, and the new infrastructure deployment required is much less daunting.

Dearman Engines (http://www.dearmanengine.com), which is out of the same stable as Highview, is developing a liquid air engine and with partners including MIRA, Air Products and Loughborough University and has won a grant from the Technology Strategy Board to build and test an engine fitted into a commercial vehicle.  This will be a refrigerated truck with the Dearman engine providing cooling and power, it will be the world’s first liquid air commercial vehicle.

Although, as has been acknowledged by the Centre for Low Carbon Futures in an October 2013 report, “Liquid air technologies – a guide to the potential”, liquid air technologies are not a “silver bullet” they do have a number of advantages including utilizing existing components and supply chains.  This alone makes them worthy of further research – and it now seems as if that research is gearing up.  The University of Birmingham has won a £6m grant to create the Birmingham Centre for Cryogenic Energy Storage.  (Always good to see my Alma Mater doing pioneering work!).

Liquid air is one of those technologies that has long been neglected but thanks to the pioneering and world leading work of Dearman, Highview and their partners, is now starting to make real advances towards commerciality.  As well as the clear technical advantages it has a real appeal in its circularity and conceptual simplicity (although of course turning concepts into real engineering and economically viable products is never simple).  Although there can never be a single silver bullet solution to our energy problems it looks like liquid air has an important role to play.

For more on liquid air see the following:

http://liquidair.org.uk/about-liquid-air

http://liquidair.org.uk/full-report

http://liquidair.org.uk/raeng-clcf-conference/raeng-clcf-presentations

http://liquidair.org.uk/flipbook/files/inc/67c183d322.pdf

I have written before about the multiple benefits of energy efficiency beyond purely cost saving.  These can include:

• Reduced exposure to energy price volatility

• Reduced emissions of carbon dioxide

• Reduced emissions of pollutants resulting from combustion of fossil fuels such as mercury, other metals, nitrogen oxides and sulphur oxides

• Reduced need to invest in energy supply infrastructure e.g. electrical grid connections at the host level

• Reduced need to invest in energy supply infrastructure in the wider electricity generation, transmission and distribution system

• Reduced

• Improved quality of production in industrial processes

• Higher productivity, health and well-being of employees

• Improved comfort

• Improved health and reduced expenditure on health

• Increased property values

• Reduced local pollution

• Job creation

Now RAP – the Regulatory Assistance Project in the US, has coined a great phrase to cover this point about multiple benefits – “the layer cake of energy efficiency”.  The article can be found here: http://goo.gl/bV1bUv

We need to make sure decision makers in companies, the public sector and government appreciate and value all the layers of the energy efficiency cake.  Government and regulators need to put in place appropriate mechanisms to ensure that the value of the whole cake is counted in any assessment of demand side versus supply side decisions.  At the risk of taking baking analogies too far – we are currently only eating the icing but we need an energy efficiency version of the great British Bake Off in which we enjoy every layer of the cake!

Most corporate energy management programmes operate on an investment criteria of two to three years.  Yet energy supply investments typically are made on much longer payback periods, typically seven to ten years.  This fundamental mis-match is one of the reasons we have over investment in energy supply and under-investment in energy demand reduction.  If we could move towards rebalancing this differential we would reap huge benefits in terms of energy cost savings, emissions reduction, improved energy security, economic development and job creation.  So how do we get to exploit “the power of seven”?

First of all we do need to include all the benefits of energy efficiency in our analysis.  All too often we just look at energy savings, even the famous Marginal Abatement Cost curve analysis just looks at energy saved or carbon abated – not at all the benefits.  By using this analysis tool we are doing down the benefits of energy efficiency.  As well as pure energy and hence cost savings, energy efficiency projects can bring many different types of benefits, all of which can have monetary value.  These include:

Reduced exposure to energy price volatility

By reducing energy spend through energy efficiency, organisations and individuals reduce their exposure to the effects of energy price volatility on profits or budgets.

Reduced emissions of carbon dioxide

Reducing energy use reduces carbon emissions. The value of this benefit depends on the local regulatory regime, for example the applicability of schemes such as the EU Emissions Trading Scheme, but even in jurisdictions where reducing carbon emissions carries no direct financial benefit some organizations will still value this benefit because of perceived reputational benefit.

Reduced need to invest in energy supply infrastructure e.g. electrical grid connections  

An example would be a situation where increasing production in a factory requires investing in a larger grid connection due to increased peak electricity demand.  Implementing energy efficiency measures can reduce, or even totally remove the need for this investment.

Improved quality of production

Improving energy efficiency can also bring with it improved quality control.  Examples include:

• better temperature control of furnaces and ovens

• better temperature controls in refrigeration in brewing and other processes

• better control of compressed air pressure leading to less down-time and the associated loss of quality due to plant stoppages as well as reduced equipment lifetime

• new welding techniques that reduce sputter and improve weld quality

• air drying of paper compared to infra-red drying.

Higher productivity, health and well-being of employees

Many studies have shown that lighting upgrades, which bring with them an improvement in energy efficiency, also result in higher employee productivity. Improved control of space temperatures have also been shown to bring higher productivity.  A number of studies have shown that energy efficient offices are more productive, perhaps by as much as 15 to 25 per cent, and that they can also improve worker morale, reduce sickness, reduce employee turn-over and ease recruitment.   Other studies have shown that green, energy efficient schools can reduce levels of asthma, colds, flu and absenteeism.

Improved comfort and associated health effects

Improving energy efficiency, notably through the application of additional insulation to buildings in cold climates, brings with it improved comfort for the occupants. Improved comfort conditions can bring with it improved health, particularly in the case of the very young and the elderly.

Increased property values  

There is evidence that in some markets at least, energy efficient offices and homes can command a higher value and sell faster than equivalent, less efficient properties, although this has not yet been widely accepted – particularly in the UK. Building occupiers assign value to many different characteristics of buildings including location, a sense of well-being, health, and employee productivity.  Energy is very low on the priority list when organizations are looking to move to a new building, and in many cases is not on the list at all but it should be.

Regulations around building energy performance can clearly drive value that needs to be accounted for in investment decisions.  In the UK, the Energy Act of 2011 prohibits selling or leasing a residential or commercial building with an energy rating of less than ‘F’ after 2018.  This kind of regulation will clearly affect property values directly if fully implemented and enforced.

Reduced local pollution

An improvement in energy efficiency can reduce local air pollution, both indoors and outdoors.   Although the value of this effect is hard to quantify there is a benefit which may come through improved local perceptions, improved health and well-being and being a “good neighbour”.

Benefits outside the system boundary of the host

Energy efficiency investments also bring benefits to the energy supply system such as the electricity distribution and transmission infrastructure.  Experience in the USA has demonstrated that investment in energy efficiency measures can result in avoiding the need to invest in the distribution system.  Regulators need to design systems that ensure these choices are examined and where viable the investment is made in efficiency rather than supply upgrades.  This also requires the sharing of some of the benefits with the host.

At the wider level, outside the domain of individual energy users, improving energy efficiency helps us address the stresses and strains on the global energy system.  The International Energy Agency’s World Energy Outlook 2012 feature on energy efficiency highlighted the huge macro benefits that could result from improved efficiency.  It’s Efficient World Scenario, in which all economic efficiency measures are realised would, when compared to its central New Policies Scenario:

• reduce world primary energy demand in 2035 by 14 per cent

• reduce the rate of demand growth from 1.2 per cent to 0.6 per cent per annum

• increase the rate of reduction of energy intensity from 0.8 percent per annum to 2.4 per cent per annum

• boost global GDP by $18 trillion in the period up to 2035

• result in global carbon dioxide emissions peaking in 2020 at 32.4 gigatonnes with a reduction to 30.5 gigatonnes by 2035

• this reduction in carbon dioxide emissions is consistent with stabilising atmospheric carbon dioxide at 550 ppm, which is consistent with a fifty per cent probability of staying below a temperature increase of 3oC.

Job creation

An additional benefit to the economy of improving energy efficiency is job creation.  Some controversy about the impact of energy efficiency programmes on job creation still lingers on but on the whole the case seems to have been proven. Given the urgent need to create growth and jobs, particularly in developed countries affected by the global financial crisis, this aspect of energy efficiency policy still has not received the attention it deserves in most countries.

So, In any decision on investments affecting energy use, it is critical that all of the system benefits, (and of course costs), need to be identified, valued and included in the investment case.

Having ensured we value all the benefits of energy efficiency what else do we need to do?

Most importantly we need to develop new structures of energy services supply that make it viable for third parties, who can accept a longer payback period than the hosts, participate in the benefits.  Here the model for exploiting shale gas, or indeed any other physical energy resource, contains an important lesson.

In the case of shale gas (at least in the US regulatory regime), a land owner who may have shale gas deposits under their land does not have the technical knowledge or the capital needed to access the resource.  A third party, typically a specialized exploration and production company, pays an access fee to the land owner for the right to tap the asset.  The third party uses its capital and technical resources to develop the project and unlock the value of the resource.  Typically the third party pays a royalty payment or profit share over an extended period of time.

Businesses need to think of energy efficiency in these terms.  In all of their buildings and facilities there is a level of available energy efficiency which is largely untapped but which has potential value – this is the energy efficiency resource.  The building owner or host typically does not have the capital or the technical skills needed to exploit this resource.  They would rather, and should of course, allocate their capital to their core business whether it is selling groceries or making widgets.  Building owners need to license their energy efficiency resource to third parties for mutual benefits.  Large and high profile hosts could auction their efficiency resource to the highest bidder.

Taking this approach, coupled with emerging energy services models, would increase the investment in energy efficiency – help bring the benefit of scale to specialist third party investors, and benefit the hosts and society at large.

This week, subject to court approval, Enron Europe moves out of administration – and presumably into history – twelve years after its collapse.  Even after this length of time Enron is still a by-word for corporate malfeasance but its legacy – both good and bad – is extensive.  Enron was nothing if not innovative.  Amongst other achievements Enron:

• drove deregulation of energy markets

• drove standardization of commodity contracts

• combined energy supply and energy efficiency deals

• pioneered online trading of energy

• introduced weather trading.

The Enron organizational culture was one of hard work and high energy as well as open-ness (at least at the operational level), with a big focus on creativity, education and training.  The Enron diaspora has gone on to inhabit significant positions in the energy markets in many energy companies and banks but most of us who worked there would agree that there was nowhere quite like Enron as a place to work.

Enron Energy Services used tools and worked on ideas that were ahead of the their time – many of which are only now starting to become better known – including:

• data driven design to right size plant and equipment, reducing both energy use and capex spend

• risk assessment of energy efficiency projects using statistical analysis and portfolio management tools

• big data (albeit small by today’s standards)

• measurement and verification of savings

• automated distributed demand response across large portfolios of properties

• conversion of traffic and street lights to LEDs.

The two deals I was involved in at Enron and then RWE – Diageo and Sainbury’s -were both very different but truly ground breaking.  The multi-utility outsourcing deal that Enron pioneered with Diageo led to very large energy savings (40% in the case of the Park Royal brewery) and was taken over and then replicated by the team at RWE Solutions (later part of RWE npower) in Diageo’s Dundalk and Dublin breweries.  The RWE – Diageo deal at St. James Gate in Dublin, (the home of Guinness), is still in place ten years after it started so it must have worked for both parties.   The Sainsbury’s deal which combined energy supply and energy efficiency (also originally sold by Enron but implemented by RWE Solutions), installed many hundreds (even thousands) of efficiency projects across the Sainsbury’s portfolio over five or more years, helping them to significantly reduce energy use and carbon emissions.

Right now in the UK (and Europe) we need a lot more innovation in the energy markets to disrupt the Big 6 – particularly around:

• transparency

• combining energy supply, energy efficiency, demand response, data and finance

• real customer focus.

We need an organization as innovative and as bold as Enron to disrupt the energy markets and to take market share from the Big 6  – but definitely one without the dodgy accounting!