I was struck by a recent on-line headline; “utilities facing 50% reduction in demand”.  The origin of this was an excellent piece of research from Citi called “Energy Darwinism” which covers all forms of energy but the most eye-catching conclusions were about electricity.  The report notes how there is still a link between electricity demand and economic growth and population but in developed markets this link is weaker than it has been historically.  In addition, and to quote the report: “it is rapidly becoming evident that the potential for demand reduction is substantial and overall electricity demand could decline by more than 20% across Europe through energy efficiency” (my emphasis).  The combination of energy efficiency and distributed generation could reduce the addressable market for electricity by 50% over the next two decades.  This may be a surprising conclusion to some but it must be one that must be worrying utility CEOs everywhere.

 Here in the UK the energy suppliers are under attack from all sides and although I would never feel sorry for them (the pay and conditions are pretty good) being a utility CEO at the moment is a difficult job – those that are in charge in the next five to ten years have to face a massive set of interlocking challenges.   

 Firstly they are being asked by governments to invest massive amounts in decarbonizing the electricity system.  At the same time the effect of intermittent wind power makes it more difficult (impossible) to justify investment in flexible new gas-fired generating plant.  If we had cheap shale gas that might change but the availability and price of shale gas in the UK is far from assured – I don’t think we will really know how that story is going to play out for at least five years.   

Secondly, energy prices have gone up faster than inflation and continue to do so, leading to consumer complaints and the threat of direct political action to freeze prices from Ed Milliband.  The drive to decarbonization and the need to invest works against the political ideal of low energy prices.  In the UK at least, the existing main utility companies have completely lost the trust of consumers – a loss that will be near impossible to recover from. 

Thirdly, the organization of the UK electricity market is changing fundamentally and Electricity Market Reform (EMR) is finally coming.  EMR itself however, makes the investment environment even more uncertain – working against the basic idea which was to put in place the conditions that would allow the much needed investment to flow into new generating plant.  EMR also effectively gives the government the choice of technology.

 Fourthly, we have a technology revolution starting in energy efficiency, distributed generation, storage and new downstream markets.  I say starting because we still have a long way to go but new efficiency, solar, combined heat and power and storage technologies, possibly coupled with an increase in electric vehicles, all wrapped in a world of connectivity and big data, are all working together to increase the pressures on utilities.  This revolution is rendering their old business model obsolete by cutting the addressable market in half.

 Given all these forces the utility companies are looking more and more like wide-eyed dinosaurs looking up at the giant meteor or asteroid impact that sparked the Cretaceous-Paleogene extinction that killed them off – doomed to extinction. 

 Of course, the key to survival at a time of change is to evolve and evolve quickly – in business terms to innovate.  However, utilities are not traditionally good at innovation or moving quickly.  Even if the need for change is accepted, and the recent PwC utility industry survey suggests that 94% of executives surveyed predict “complete transformation or important changes to the power utility model”, the problem of how to get there from here is very real.  The fundamental issue is the age-old problem of changing the direction and culture of large organizations.  Since the advent of the large-scale electricity industry (starting in the 1930s) the organization of utilities, their systems and their skills sets have been based on building large centralized generating plants coupled with retail organizations with customer service and billing functions.

 The generation side of all utilities has a very high level of technical and project management skills based around the particular type or types of generating assets in the portfolio, be it coal, nuclear, gas turbines or renewables.  The people on the generating side are used to the problems of designing, building, commissioning, operating and maintaining large-scale generating plant which are very different skills to those required in energy efficiency or distributed generation work.  On the retail side energy suppliers have a mix of skills including, marketing, advertising, billing, customer service and meter reading – where this falls within their remit.  For energy suppliers the missing skill sets are those which are required to go beyond the meter and into the consumers’ premises to identify, implement and where appropriate finance energy efficiency and distributed generation projects.  These are skills that either need to be built in-house, bought in through corporate acquisition, acquired through appropriate partnering or outsourced to third parties. 

 Senior management in utilities has grown up in the old world of utilities which were stable and the objective was to maximize supply volumes. They are not so familiar with the technologies, techniques, contracts and risks concerning demand-side projects.  Senior managers of publicly quoted utilities also have to consider the opinions of their major investors and the impact of any change of strategy on shareholder value.  Utility investors are traditionally interested in relatively low but safe returns and, whatever the facts, they may not consider a switch into different services with different issues and risk profiles as something they want to see.  Any proposed change has to carry major shareholders with it. 

Even if the companies are ready to innovate, the question still remains – how should they innovate?  New business models are required that integrate; improvements in energy efficiency (building and industrial retrofits), distributed generation, storage, access to grid electricity, connectivity and financing.  All of these need to be wrapped up into propositions that are attractive to customers – relying purely on cost savings is not enough.  Despite the fuss about energy bills for most people saving money on energy is desperately dull – it is not “cool” – the new energy services have to be cool to attract a mass market.

 The ultimate model held out by energy efficiency enthusiasts is the true energy service company, a company that only provides services such as set standards of illumination or thermal comfort and is not selling energy in the form of electricity, gas or oil.   Such a company would be motivated to invest in the most efficient methods of delivering energy services.   To date there have been no real examples of true energy services companies and it represents a massive leap from where most energy suppliers are and a real departure from their core skills.  However, it does represent a more radical alternative than just bolting-on energy efficiency services to an existing energy supply model, but reaching this ideal – or any other new model – raises a number of questions for a utility such as:

•  Should it start new businesses, or acquire existing businesses? 

•   Should the new business models be within existing organizational structures or outside in some kind of incubator?

• If it acquires existing businesses, in which sub-sectors of energy efficiency markets and distributed generation should these be?

•   How should these different businesses be integrated into a holistic customer offering?

We have seen examples of utilities going on spending sprees to acquire companies in different areas of energy efficiency such as Building Management Systems and home automation, possibly without any coherent plan for how these can be knitted together.  As well as the questions above there are the normal business acquisition problems such as how do you integrate dynamic, entrepreneurial small to medium sized companies with the typical, safe, slow, bureaucratic structures and systems found in utilities?  Initiatives such as community energy companies can raise even more difficulties as they often require a transition from a mind-set of “we have all the answer” to facilitating other groups to find multiple and diverse solutions.

 Of course the existing energy companies may not be left to choose whether or not to innovate – the industry is ripe for disruption from new entrants.  Personally I wonder if the existing companies can innovate in time before new entrants come in and disrupt the market entirely.  New entrants could include well-known brands that do still have customer trust, multiple “touch points” with the customer and advanced technology around the internet and communications – without all the technological and social baggage of the existing companies.  New ownership models including community ownership may also be disrupters.

 In the next few years we will see utilities split into two groups – the majority run by CEOs who basically, whatever their public relations utterances, try to defend the existing model – the followers  – and the real leaders, those that have CEOs who having recognized the need to radically change the business model have the courage and skills to actually try to implement those changes.  Changing the existing companies will require strong leadership from the top or the existing companies will disappear, disrupted out of business by exciting new entrants who, unburdened by history, seize the massive opportunities of efficiency, distributed generation and energy services.

As I have mentioned a few times over the last year I have written a new book, “Energy Efficiency, the Definitive Guide to the Cheapest, Cleanest, Fastest Source of Energy”, published by Gower.  Well I am glad to announce that the book has now been released for sale and so it is now available in hard copy and e-book (possibly with a few weeks delay).  The link to the Author’s Network form, which gives a 35% discount on the sale price is here.

The book is a wide-ranging introduction to the subject of energy efficiency covering;

• What do we mean by energy efficiency?

• The global energy system, stresses and strains

• A systematic view of the benefits of energy efficiency

• The Jevons paradox

• Managing for energy efficiency

• Technologies for energy efficiency

• Designing for energy efficiency

• Financing energy efficiency

• Energy efficiency policies

• Energy efficiency and energy suppliers

It designed for professionals and policy makers with an interest in the subject who perhaps are coming at it for the first time, as well as those already active in the field who want to move beyond a single dimension approach to the problem.  There are many fine texts which go deeper into some of the individual aspects of energy efficiency but very few, if any, which give the wide overview.

One of the main messages of the book is that we have a choice over how efficient our organisations and our societies are, it is not pre-ordained.

Thank you to all those that have been involved in the long process of book writing, especially all those who wrote endorsements, and to Greg Barker, Minister of State at DECC, who wrote the foreword.  Also a big thank you to all the energy efficiency and finance professionals around the world with whom I have interacted over the last couple of years.  They have all contributed to the book in some way.

I hope that you find it interesting and useful and if you do that you spread the word about it.   If you can write a review for a journal, magazine or website let me know as we can get review copies sent out.  I am always happy to receive feedback on it and discuss ideas for the next one.

Improving energy efficiency suffers from being “worthy” and one of those things we should do for our own good, as well as being desperately dull to most people. We pass regulations to enforce efficiency standards and we put complex regulatory schemes in place to make companies, and individuals, do things they don’t do without the regulation. Essentially we put energy efficiency into the position of an extra we can do without, a mere cost cutting measure, and/or a bureaucratic set of compliance actions we have to do to stay within the law – all of which make it less attractive and probably less likely to flourish – rather than more. In many countries there is also an unspoken assumption that enhancing energy efficiency requires public support, (read money), in some form whether it be grants, soft loans, or other interventions.

What we really need to do is create a market for energy efficiency. This is often presented as a market for negawatts (which of course should really be negawatt hours if we are talking about energy, negawatts being power or capacity) and this ideal may soon be possible in the UK. The Electricity Market Reform (EMR) embodied in the Energy Bill, which is due to go through Parliament before Christmas, has – after considerable effort on the parts of several active demand side groups and the Minister Greg Barker – the potential for demand side projects – both short-term demand side reduction (DR) and permanent demand management (DM or Electricity Demand Reduction (EDR) in DECC speak) – to enter into the electricity market. We will have to wait to see how the specific rules turn out and whether or not they can really create a market that brings forward more demand side projects, particularly through aggregators of projects but it is, I believe, a very significant step forward in UK (and European) energy efficiency. In the US we have the much talked about PJM example where demand side projects can bid into the forward capacity market, if we can create a similar market in the UK and elsewhere, we should advance energy efficiency significantly.

We should focus more on creating markets for energy efficiency and energy services rather than relying solely on regulation and compliance.

My latest guest blog on the 2 Degrees can be found here:

http://www.2degreesnetwork.com/groups/energy-carbon-management/resources/whats-missing-energy-efficiency-ecosystem/

In it I discuss the things we need to evolve if the energy efficiency market, and particularly the third party financed energy efficiency market, is to really take-off and achieve its large economic potential.  These include:

• the capacity in the energy efficiency supply chain to develop large-scale, multi-site, multi-customer projects

• capacity amongst customers to host such projects

• project developers with risk equity to develop such projects

• standardization of approach and methodology driven by the needs of investors

• possibly some form of front-end technical assistance funds to help developers shape projects to the needs of long-term investors and hence to be able to access capital at the right cost of capital.

In the words of the immortal Monty Python – “and now for something completely different” – some energy related thoughts on the amazing Voyager 1 spacecraft which it was recently reported has now “left the solar system”.

Voyager 1 was launched on 5th September 1977 with the aim of flying by Jupiter and Saturn, which it did so in 1979 and 1980 respectively.  The photographs of the two gas giant planets were stunning and much better quality than those from the earlier Pioneer 10 and 11 probes.

I remember the great excitement of first seeing these photos. Voyager 1’s sister ship, Voyager 2 also flew by Jupiter and Saturn and then went on to fly past Uranus and Neptune.  Pluto is the only planet we haven’t visited yet but all being well the New Horizons probe will get there in July 2015.  As was widely reported it has now been confirmed that Voyager 1 passed through the heliopause and entered interstellar space in August 2012 although it turns out that defining the real edge of the solar system is harder than you would think.  So far Voyager 1 has travelled about 125 Astronomical Units, i.e. 125 times the average distance from the Earth to the sun, or about 18,699,733,875 kilometres.

One fascinating energy aspect of the Voyager mission was the “gravity assist” technique used to accelerate the vehicle and change course and accelerate by using the gravity of Jupiter and then Saturn.  Essentially the course selected ensured that the vehicle would be accelerated by the planet’s angular momentum.  Without this technique it would have been impossible to get to Saturn.  The fly by at Jupiter resulted in Voyager 1 being accelerated by roughly 35,700 miles per hour, an energy boost of about 25 MWh by my calculations.  (Usually kinetic energy is measured in Joules but I have converted it to MWh as we can relate to MWh better than Joules).  Of course we know that energy is always conserved so Jupiter lost the same amount of rotational energy but of course the planet is so massive, 317 times the mass of the Earth, that any effect on Jupiter won’t ever be noticed.

The energy to keep Voyager functioning comes from an three RTGs, radioisotope thermal  generators, each of which uses 4.5 kilogrammes of radioactive plutonium 238 (238Pu) in the form of plutonium oxide which originally emitted 2.4 kW of heat which was converted to about 157W electricity by thermocouples – no moving parts, very simple and still working after 36 years.  The output halves every 87 years as the radioactive material decays.  The original 470W electrical output of the three RTGs combined is about half the rating of a domestic toaster.  Interplanetary probes in the inner solar system, out to Mars, can use solar arrays but at Jupiter the sun is between 600 and 800 million kilometres away and the light level is only about 50W/m2 compared to 1,400W/m2 at Earth.  Solar arrays would have to be enormous to generate sufficient power to run the spacecraft.  As the radioactive plutonium in the RTGs decays so does the electrical power output.  NASA have a sequence of switching things off and estimate there will be enough power to run some instruments up to the mid-2020s – nearly fifty years after launch.  Although it is not widely known as an earth-bound energy generation technology several companies are developing thermocouples (not linked to using radioisotopes) to use different low temperature heat sources to generate power, for example O-flexx.  If they can make them cheap enough and they can operate at low enough temperatures there will be a market in utilising waste heat sources to generate power.

The fact that we are still receiving information from Voyager is a testament to the brilliance of radio engineering, an area of technology I always struggle with.  Here we have a probe that is 18 billion kilometres away, it’s radio transmitter emits radio waves with a power output of 23W, (compared to a mobile phone that typically emits c.3W), through a 3.7m parabolic dish antenna,.  By the time it gets to earth after a 17 hour trip the radio wave has a power of one tenth of a billion-billionth watt and somehow this tiny signal is picked up by the Deep Space Network’s giant receivers and turned into useful information – there is no other word for that than amazing.

At the other end of the scale when it comes to radio waves is the enormous amount of energy put out by Jupiter.  Strangely Jupiter emits more energy than it receives from the sun and the total emission in radio, near Infra-Red, Ultra Violet and X-ray is estimated at 100TW – about 100 times the total US electrical generating capacity.

In summary there are many amazing things about Voyager, its mission and the outer solar system.  The technology of Voyager by today’s standards is incredibly primitive, data is stored on a tape recorder of sorts with 69 kilobytes (yes – kilobytes) capacity.  The navigation required to thread accurately through to Jupiter, Saturn and beyond is incredible.  The mere fact that we have sent an emissary out that far speaks volumes for man’s vision, ingenuity and our innate drive to explore.

Finally, one of the most awesome photos taken by Voyager was the famous “pale blue dot” photo – a shot of Earth taken from 6 billion kilometres away which shows the Earth as simply that, a pale blue dot in the vastness of space.

Carl Sagan, the great astronomer, who had been instrumental in getting NASA to command Voyager 1 to take this photograph later wrote about it:

From this distant vantage point, the Earth might not seem of any particular interest. But for us, it’s different. Consider again that dot. That’s here. That’s home. That’s us. On it everyone you love, everyone you know, everyone you ever heard of, every human being who ever was, lived out their lives. The aggregate of our joy and suffering, thousands of confident religions, ideologies, and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilization, every king and peasant, every young couple in love, every mother and father, hopeful child, inventor and explorer, every teacher of morals, every corrupt politician, every “superstar,” every “supreme leader,” every saint and sinner in the history of our species lived there – on a mote of dust suspended in a sunbeam.

The Earth is a very small stage in a vast cosmic arena. Think of the rivers of blood spilled by all those generals and emperors so that in glory and triumph they could become the momentary masters of a fraction of a dot. Think of the endless cruelties visited by the inhabitants of one corner of this pixel on the scarcely distinguishable inhabitants of some other corner. How frequent their misunderstandings, how eager they are to kill one another, how fervent their hatreds. Our posturings, our imagined self-importance, the delusion that we have some privileged position in the universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity – in all this vastness – there is no hint that help will come from elsewhere to save us from ourselves.

The Earth is the only world known, so far, to harbor life. There is nowhere else, at least in the near future, to which our species could migrate. Visit, yes. Settle, not yet. Like it or not, for the moment, the Earth is where we make our stand. It has been said that astronomy is a humbling and character-building experience. There is perhaps no better demonstration of the folly of human conceits than this distant image of our tiny world. To me, it underscores our responsibility to deal more kindly with one another and to preserve and cherish the pale blue dot, the only home we’ve ever known.

– Carl Sagan, Pale Blue Dot: A Vision of the Human Future in Space, 1997 

It is worth taking the big picture view sometimes.

For those of you who don’t know my other great interest in life is space exploration and space travel. Normal service will be resumed on the next blog post.