Every effective energy efficiency programme needs support from the top and at today’s launch of the “Energy Efficiency Mission” hosted by Greg Barker we certainly got top level support direct from the Prime Minister David Cameron. This marks a significant step forward for the energy efficiency agenda and has to be welcomed, whatever the cynicism about any government’s ability to deliver.

As I said in my recent “Energy World” article we have now laid the foundations of energy efficiency policy in the UK. The test now is what we can build upon those foundations. A critical corner stone will be incorporating the demand side into the Electricity Market Reform (EMR) process in some way. This has been the ambition of Greg Barker and others (including the author) for a long time but inertia and resistance in the civil service and industry alike has managed to hold it up. We are now at a critical time and there is only a limited window to get the wording into the Energy Bill. It will take the full support of the PM and the Minister to force through a mechanism, which is probably going to be something in the capacity mechanism rather than a premium payment (code for an efficiency Feed-in tariff).

Watch this space.

So the truth is out on nuclear decommissioning. The bill for cleaning up Sellafield alone (so that excludes the actual power stations themselves) is likely to hit £70 billion and every project is late so who knows what the final bill will be. And that is only Sellafield, it does not cover the cost of decommissioning the nuclear stations themselves or any other facilities.

So the interesting question is how much per MWh of power ever generated by nuclear does this represent. If we take the capacity of all the Magnox, AGRs and fast breeder reactors that ever put power into the grid and multiply by a load factor of 80% (which any study of the history of the UK nuclear power industry will quickly suggest is optimistic), we end up with about 3,500 TWh generated. Thus the Sellafield decommissioning cost is about £20/MWh compared to the wholesale price of electricity of about £45/MWh. This assumes all operating plants operate to the end of their currently declared lifetime. Note, the £20/MWh is a straight subsidy and does not affect the wholesale price. It also of course ignores the original subsidies in developing and building the plant in the first place.

Putting aside any argument about nuclear safety this really highlights the true cost of nuclear power. It is totally uneconomic and all the money spent on it (other than decommissioning which of course we are now locked into), should be spent on demand management and energy efficiency which is proven to have a much lower cost per MWh delivered.

Global new investment in renewable energy has risen from $22 billion in 2004 to $211 billion in 2010[1] driven almost entirely by subsidies. Subsidies have been justified by the perceived need to reduce carbon dioxide emissions to combat global warming and the need to support renewable generation technologies until they are cost-effective. Now the on-going support for renewable energy appears to be in doubt. In Germany Angela Merkel has commented on support for solar energy and noted that the relationship between the amount of electricity generated and the cost is “not a rational relationship”, despite effectively shutting down the country’s nuclear programme.

In the UK Chancellor George Osborne has attacked climate regulations at his recent party conference and PM David Cameron made only one passing reference to “green technology”. The Department of Energy and Climate Change has released its consultation on new levels for Renewable Obligation Certificates, which despite optimistic language, represents a shift away from supporting offshore wind deployment. In the USA the scandal over the Department of Energy’s $535m loan guarantee for Solyndra continues to develop and is likely to further damage support for subsidizing renewables. It seems clear that we are in the middle of a policy shift.

There is a parallel here between the development of the renewables market and the space programme. Both were driven by high-level political objectives; in the case of the space programme in the early 1960s it was the geopolitical aim of beating the Soviet Union, in the case of renewables it was the perceived need to combat global warming which was perceived as, and presented to the public as, an immediate and potentially catastrophic threat. It seems increasingly clear that this is not the case, but irrespective of the true situation, which by definition cannot be known for many years, public and political belief in the idea of catastrophic climate change appears to have waned rapidly in the face of recession and new evidence.

Both the early space programme and the renewable energy boom led enthusiasts to project splendid visions of the future, in the case of space a future where we had visited Mars and colonized the moon by the end of the twentieth century and in the case of the renewables, a future where renewables produce the majority, if not all, of humanity’s energy needs. Both these visions may well come true but the timescales were optimistic because they neglected to consider the economics – in both cases there was no true economic case without subsidies. Also in the words of Arthur C. Clarke, the science fiction writer and futurist, “we tend to over-estimate what we can do in the short-term and under-estimate what we can do in the long-term”.

After achieving the Apollo 11 landing on the moon, public support (and hence political support) for the space programme in the USA fell away rapidly, accelerated by increasing pressure on public expenditure from social programmes and the Vietnam war. Now we are seeing public support (and political support) for subsidizing renewables falling away as the public purse is under more and more pressure from the effects of dealing with the financial crisis and the perceived threat of global warming diminishes.
This doesn’t mean that exploring space or encouraging renewable energy are bad things for society, both are undoubtedly good things in my mind but there are lessons to be learnt here.

In space exploration real innovation towards reusable and lower cost means of getting into earth orbit, based on aircraft like vehicles, was effectively stopped in the early 1960s as the need to beat the Soviets became the overall goal and reliance was put on using modified Intercontinental Ballistic Missiles (ICBMs) as manned launchers, (and ultimately of course the civilian developed, but ICBM derived launch vehicles such as the Saturn 1B and Saturn V). Once the route was chosen true innovation was discouraged as the aerospace companies followed the money from government contracts and had no incentive to innovate.. However, once political support fell away the programme was unsustainable. Now, finally in the space sector, forty plus years after the triumph of Apollo 11, we are finally seeing innovation as a number of private sector companies are developing innovative launch concepts including; The Spaceship Company, (the JV between Burt Rutan’s Scaled Composites and Richard Branson’s Virgin), the Amazon founder Jeff Bezos’ Blue Origin, and Elon Musk’s (the founder of PayPal) Space-X. These companies see a commercial market for space travel developing driven by space tourism and other market demands.

In renewables we have seen a similar story. Subsidies have led to a boom in investment from investors seeking long-term, government backed returns, but they have also prevented significant innovation as developers use existing mature technology to deploy projects that qualify for the subsidies such as wind power and solar power using photovoltaic systems. In many markets, the subsidies themselves support the price of equipment above the level it is in other, less subsidized markets. At the same time the high cost of subsidizing these technologies, as well as the difficulties of integrating intermittent supplies into the electricity system at scale, are increasingly being recognized.

Innovation, both within existing technologies, such as solar photovoltaics, and in completely new technologies such as liquid ink-jet applied solar materials, will drive down the cost of renewables, possibly to levels below existing, conventional fossil fuel energy supplies. At that point there will be a real market and competition. This should be bought about, however, by encouraging innovation, not the deployment of uneconomic technologies.

In my job I still hear the question: If energy efficiency is so profitable, why isn’t it happening?

Every time I hear it I think it’s completely the wrong question! It’s the question asked by people who aren’t out there in the market. Energy efficiency is happening. And it’s happening in a big and rapidly growing way.

So what are the right questions? The first one is: How do we accelerate the uptake of energy efficiency? The second one is: How can we embed it into our systems and processes so that it is a permanent and normal part of management and everyday life?

These questions should be the concern of governments, as well as industry and commerce, householders and NGOs. Accelerating the uptake has been proven to provide multiple benefits in terms of reduced costs, reduced impact of energy price volatility, less need to invest in energy supply infrastructure, increased energy security, job creation and reduced global and local environmental impact. Governments, working with each industry sector and sub-sector, need to work out what are the enabling conditions that will lead to an increase in demand for energy efficiency. They need to find out how to increase the supply of energy efficiency goods and services and the flow of investment into energy efficiency.

Embedding energy efficiency processes is essential so that the current wave of activity is maintained and built upon. This will be vital if we do have lower prices as a result of shale gas. Note, however, that most energy efficiency investments can still be very profitable even at energy prices that are lower than we have today. McKinsey’s 2008 global study (The Case for Investing in Energy Productivity) showed the effect of investing $170 billion per annum with an average IRR of 17% at an oil price of $50 per barrel. At today’s c.$100 per barrel the average IRR will be much higher than 17% and the frontier of the potential is now also so much bigger. We don’t want to build up lots of productive energy management capacity and then lose it all just because energy prices come off a bit for a few years. Improving energy efficiency needs to be a long-term activity. That is why standards such as the ISO50001 Energy Management standard and The International Performance & Measurement Protocol are so very important.

Personally, having lived through the 1980s boom in energy efficiency, or ‘conservation’ as it was incorrectly called back then, I am optimistic that this time it is different and that we are embedding efficiency into the energy mix to a greater extent than ever before. My optimism is based on the following five factors:

• Growing interest in energy efficiency within the investor community
• The realisation that this efficiency is a huge and valuable opportunity
• The VC and PE investments in EE that have been made over the last five years
• The growing range of cost-effective efficiency technologies in all sectors
• Environmental and sustainable development pressures

I know that every time someone says ‘this time it’s different’ it turns out not to be – witness the dot com boom of the 1990s and the debt bubble of the 2000s. Of course, only time will tell. Personally I am optimistic that this time energy efficiency will become recognised as the cheap, clean and fast energy resource it really is and we will achieve levels of efficiency far greater than our current official energy scenarios show. As Winston Churchill said: ‘For myself I am an optimist – it does not seem to be much use to be anything else.’