OFGEM (the energy regulator) is getting a lot of press today as once again it has highlighted the impending power crunch as the ‘supply margin’, the excess of available electricity supply over peak demand, continues to fall as large coal fired power plants come off-line due to the EU Large Combustion Plant Directive and older nuclear plant are taken off-line. This really has been a crisis that has developed in slow motion as seasoned energy analysts were warning the government of the day about it many years ago. With decent leadership we wouldn’t have got into this situation but we here we are.

The situation is:

• the electricity supply margin will hit a low somewhere between 2015-2017 and at that point there is an increased risk of power cuts.
• no nuclear capacity will come on line until about 2023 (and that assumes everything goes well which looking at the track record of new nuclear build programmes is highly unlikely).
• nuclear will only get built with a massive subsidy (even if it is not called a subsidy).
• we will have to use more gas which in the short-term at least will be imported (expensive) Liqueified Natural Gas (LNG).
• there may or may not be extensive reserves of shale gas under the UK. The evidence is that the reserves are there, the issue now is how to exploit it (some would say whether to exploit it).
• If the economy does start to recover the pressures will be increased as energy demand increases.
• Off shore wind and other renewables are intermittent and expensive – they all need subsidies.
• Energy prices have risen much faster than inflation and an increasing number of people are now in fuel poverty – having difficulty paying their energy bills and maintaining comfort conditions which has a huge hidden cost in health and benefits.

There is no one answer to this crisis, we definitely need more gas fired power station, we need to exploit shale gas in a sensible way and we need far more energy efficiency. The government has put in place some good foundations and raised efficiency up the energy agenda but now we need large scale programmes that deliver significant quantities of power savings, something like the 155 TWh (c.40% of demand) that was identified in McKinsey’s Electricity Demand Reduction project for DECC. One vital part of this is to ensure that the demand side (efficiency) can play in the electricity capacity market in exactly the same way as supply options. There is a limited window of opportunity to make sure this option is included in the Energy Bill. If we do that properly we can create a market for large scale electricity efficiency programmes, for example, lighting upgrades for a whole city or region. As well as energy savings these kinds of programmes would produce large numbers of jobs.

There are other things we can and must do but getting demand side properly into the Energy Bill is vital.

We know that buildings use about (40)% of all energy use and we also know that the energy efficiency of buildings can be greatly improved, often just by better monitoring and controls with low capex and fast paybacks. Savings of 20% or more can often be achieved by better control strategies and recommissioning. New design techniques such as integrative design of whole building retrofits can produce much larger savings. The UK spent about £42 billion on energy in buildings in 2011, about £29 billion in the domestic sector and the rest in non-domestic buildings. Assuming we can save 20% in non-domestic buildings, which is an achievable target, the value opportunity on offer is about £8 billion per annum, potential savings that could produce an investment return and reduce operating costs for businesses and householders alike.

So what needs to happen before we can really exploit this huge opportunity? Lots of it can be achieved with simple, well proven techniques of energy management and application of existing well proven technology. We do need, however, some innovation in process, finance and technology – all of which is highly doable with the right kind of leadership from government, industry and the finance community – and all of which is emerging now.

Let’s start with process. Most importantly we need to standardise the evaluation of energy efficiency measures, the documentation of projects, the measurement and verification (M&V) of savings and commissioning processes. All too often different energy assessors end up with different results. Standardisation will help build confidence amongst energy users considering making investments as well as outside investors. A good example of standardisation happening elsewhere is the Investor Confidence Project (ICP) in the USA.

We also need to get transparency of building energy consumption in the non-domestic sector. This has been proven to be very powerful in places like New York and Charlotte. Companies like Energy Deck and Honest Buildings are offering on-line transparency of energy use and retrofit project opportunities.

The ideal structure for a large scale retrofit programme would be to combine transparency of energy consumption, some upfront technical assistance to help clients go through the retrofit process, standardised processes from survey to commissioning to Measurement and Verification, and access to finance.

On finance we need access to long term, low cost debt – something that is hard to source from banks at the moment. When there is sufficient volume and standardisation the kind of long term income thrown off by energy efficiency projects will be of interest to income and bond investors. As well as the issue of standardisation referred to above we have to have scale to reach the income and bond investors, they typically can’t invest in amounts under £100m and as we know energy efficiency projects are usually quite small on this scale. We need to find ways to rapidly build volume by aggregating and warehousing projects. Another US example is in Pennsylvania where the state government is putting together a warehouse for energy efficiency loans and when there is sufficient scale they will issue bonds. In the UK Birmingham City Council is working on something similar.

On the technology front we need innovation around better modelling of retrofit options as well as tools for rapidly assessing buildings. We are beginning to see these technologies emerge in companies like Sefaira and kWHOURS. We also need new technologies including, super thin insulation, adaptive materials such as low cost electrochromic glass – such as being developed by companies like Soladigm – and the application of sensors and communications to all building systems as being developed by companies like Enlighted.

The energy efficiency policy framework in the UK is becoming more positive and it appears that the value of efficiency has finally been recognised. If we can ensure that the demand side if fully recognised in the Electricity Market Reform we will see even larger opportunities for energy efficiency project developers to pull together large-scale projects covering cities or regions. We either have, or can see on the near-horizon, the techniques, processes and technologies we need to radically improve energy efficiency in buildings. Now we just need to get on with it – at scale – by thinking big.

The internet and the ubiquity of high volume, low cost communications and information processing has introduced us to the power of ‘big data’ and data transparency in many fields and now is the time to apply it to building energy use. In September New York City published the 2011 energy benchmarking results for large commercial properties. Data on 2,065 buildings covering more than 530 million square feet of space was released including the energy use intensity (EUI), energy per square foot, and a weather corrected energy use intensity, greenhouse gas emissions, water user per square foot and the Energy Star rating where applicable.

 
http://www.environmentalleader.com/2012/09/12/new-york-is-first-city-to-publish-energy-data-for-private-buildings

The benchmarking report found that if all the inefficient large buildings were brought up to the median EUI the energy consumption in the city’s large buildings would be reduced by 18% and greenhouse gas emissions by 20%. Other cities are now following New York’s lead.

Although benchmarking has its issues, if done properly it can be a powerful tool, especially if the results are put in the public domain – for both individuals and companies. Evidence from modern psychology shows the power of reporting performance publicly (see Willpower by Roy F. Baumeister & John Tierney, Penguin 2011 for a discussion of this applied to individuals). Benchmarking alone may lead to energy savings as building owners of poorly performing buildings compare their poor performance to their peers and take action, either through better management or investment. For the city or region benchmarking, if done on a consistent, long-term basis, can demonstrate progress towards a goal.

We know for sure that large savings can be achieved by better building management. FirstFuel, a US based energy analytics company this week released data that shows that operational improvements are a bigger part of potential energy savings in commercial real estate than is commonly realized and in many cases requires little or no cost.

 
http://bostinno.com/2013/02/06/what-if-energy-efficiency-is-even-easier-than-we-thought-infographic

 
Evidence from UK companies like Matrix Sustainable Energy show time and time again that managing energy through the better use of Building Management Systems produces savings, often with paybacks in weeks or months.

 
http://www.matrixsee.co.uk/index.php

 
Building technologies, everything from HVAC through to lighting to adaptive materials, are increasingly equipped with sensors and communication capabilities. The innovators of Silicon Valley and elsewhere are adding sensors and communications to everything, even down to individual light fittings and thermostats. Buildings are beginning to join ‘the internet of things’.

 
We need to ensure we can use all the data that will be emerging from buildings to benchmark, drive action and measure progress against goals as well as the actual performance of efficiency investments, as well as ultimately link to a smarter distribution grid, ideally with dynamic pricing. That will take new policies and leadership from building owners and utilities, as well as government agencies to take a new look at energy data and make it widely available.

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.