With the publication of the report by the Global Commission for Urgent Action on Energy Efficiency, coinciding with the IEA’s 5th annual energy efficiency conference and European Sustainable Energy Week’s session on attracting investment into energy efficiency, it seemed appropriate to comment on the Commission’s report and the state of the efficiency market. First of all it is important to say that I really welcome the work of the Commission and the report touches on several themes I laid out in my input. There is a lot to like about it.

Firstly it helps focus high-level attention on energy efficiency – something that we still need to do at every opportunity as despite lip service paid by some politicians, efficiency usually comes last in their thinking on energy.

Secondly it is global – the energy efficiency potential is global and what is more it is everywhere in every sector of the economy, in every building, every industrial facility, every device and every process when you look with the right mindset. Untapped energy efficiency is like an oil and gas reserve, it is sitting there untapped but unlike oil and gas it is super-abundant, clean and quick to exploit.

Thirdly it is about urgent action.  Now is the time for urgent and radical action rather than just incremental change.  We can’t sit around talking about it any longer, we know how to implement policies and programmes that lead to greater efficiency levels, we just need more leadership and real commitment.

Several points in the report are ones we have long argued for, including:

• design programmes to take advantage of, and overcome barriers faced during specific renovation ‘triggers’, such as change of use, of ownership or a reconfiguration/renovation project.
• using government procurement to lead the way and create scale. India’s Energy Efficiency Services Ltd (EESL) is the world leader in this approach and all countries need to learn from India and EESL. Government procurement programmes by focusing on least cost first generally don’t drive energy efficiency measures.  The scale of government demand can also drive down costs as dramatically shown by EESL.
• shifting away from direct grants and loans by offering derisking support to attract private capital into energy efficiency. The work of the Energy Efficiency Financial Institutions Group (EEFIG) is a good example of this.

On a personal and professional note it was good to see reference in the report to two of the projects we have been very closely involved in over the last five years or so. The work of EEFIG and the Investor Confidence Project both get a mention in the finance section. Both projects are helping to scale up investment into energy efficiency which is the purpose of EnergyPro. Also of course we work closely with EESL through our JV with them, EPAL, which has deployed more than £60m into UK energy efficiency companies.

The frustrating thing, not with the Commission so much but with the field in general, is that in some ways little of this is new. We have known that the cost-effective potential for improved efficiency, the equivalent of an oil and gas reserve just waiting to be drilled, is probably 20-30% of current energy consumption for a very long time, and that with proven design techniques the cost-effective potential could be much higher. The uneconomic but technically possible, the equivalent of an oil and gas resource, is even larger – probably 75% of total energy consumption. Many analysts including Amory Lovins, Skip Laitner and the author included, have written about this potential for decades. (My PhD was titled ‘the potential for energy conserving capital equipment in UK industries’). On the policy and programme side we have many, many examples from around the world of effective policies on energy efficiency, we just need to increase the rate of adoption of these models and not try to re-invent the wheel.  We also need to give regulations more bite, for instance, through tightening building regulations and minimum energy efficiency standards for buildings, despite the lobbying efforts of developers and construction owners.

So what else would we have liked to see in the report that needs to be picked up in future work?

First of all there was little mention of the importance of flexibility and the grid edge. The grid edge is the new frontier, and energy efficiency needs to be viewed as a major distributed energy resource just like generation or demand response options. We need to use data to understand the effect of various efficiency measures on load curves so that they can be properly valued in the electricity distribution system. The old fixed border between supplier and user, the energy meter, is becoming semi-permeable, as users can also produce and sell energy and ancillary services to the grid. The grid is shifting from a Command and Control centralised system to a highly decentralised system which will use data, AI and machine learning to react locally in real-time.

Data from smart meters coupled with standardised ways of defining what is, and what is not an energy saving, has made it possible for the first time to create a true market for energy efficiency. There is a lot of talk about ‘the market for energy efficiency’ but the truth is there is not, and never has been, a market for energy efficiency, there are just a lot of intersecting markets for stuff and services that may, or may not, deliver energy savings. With metered savings we can create contract forms equivalent to Power Purchase Agreements that can be financed and we can value savings in time and location.

The rise in importance of the grid edge leads onto the problem of defining energy efficiency. Energy efficiency is about reducing the energy input for any given activity – improving energy productivity. The focus has mainly been on end users becoming more efficient and fundamentalists – myself included – like to use the term only for activities that reduce energy end use – but what we really care about is the overall energy efficiency or productivity of the entire economy. The meaning of the term ‘energy efficiency’ is now shifting to incorporate all demand side assets and projects, rather than just referring to pure energy saving projects. It now covers a wide range of technologies and business models including: demand response, distributed generation, behind-the-meter energy storage, virtual power plants, micro-grids, building-to-grid, industry-to-grid, vehicle-to-grid, as well as local generation and utilisation of heat in efficient and flexible systems. All of these contribute to system wide efficiency gains, and in talking about efficiency we need to recognise this convergence and recognise it as being positive. Doing so also helps move efficiency from its old emphasis on ‘savings’, ‘conservation’ and being a ‘cause’ to a revenue producing and profit making opportunity. What we are seeing is nothing less than a shift in the balance of energy system investment from the supply side to demand side.

On finance we need to recognise that there is growing interest from investors in energy efficiency as well as the barriers to investment and do more work to overcome them and help investors along the journey to deploying more capital into efficiency. There is still a need for ‘derisking’ strategies for consumers and investors, and the EEFIG work has implemented some of these, including the DEEP database and the Underwriting Toolkit. We should not forget that every day banks and investors are making decisions that impact on energy efficiency, normal decisions to support new buildings, renovations of buildings, new industrial facilities etc which often (nearly always) ignore even the cost-effective energy efficiency potential that if utilised would reduce costs for the end-user and reduce risks for the bank or investor.  We are missing thousands of cost-effective investment opportunities for better energy efficiency every day. Organisations like EBRD and ING recognise this and have built efficiency reviews into normal lending practices. The advent of the sustainable finance taxonomy regulations should drive more of this type of behaviour as financial institutions have to report the climate risks of their portfolios.

The Commission does talk about the need for a cross-cutting, all of government approach and the COVID-19 crisis has made that even more important. There needs to be a new emphasis on healthy buildings and efficiency is at the centre of this. The health impacts of greater levels of efficiency, both direct and indirect and both indoor and outdoor air quality, are clear. We have an opportunity now to re-design and re-evaluate renovation projects to address both health and energy issues.  When assessing programmes governments need to assess all the benefits including health impacts, as well as the many other non-energy benefits that efficiency brings. I often think that the energy efficiency industry misses this aspect because of its focus on the pure energy benefits, ‘the cause’. Even much of the talk of the COVID-19 recovery plans to invest in building renovation seem to miss this critical factor that can make building renovation a strategic necessity rather than just about energy saving.  

As the Commission points out there is a need to further strengthen international collaboration. We continue to work internationally, both with European partners and our JV partner EESL through EnergyPro Asset Management Ltd (EPAM). EPAM is now working with EESL and other partners to transfer UK technologies and know-how in areas such as trigeneration, e-mobility and cooling, to India and find opportunities for Indian businesses in Europe. International collaboration brings it with new insights and numerous benefits far outside the immediate energy benefits.     

To sum up, it is good to see the IEA further increase its focus on energy efficiency and the work of the Commission but there is always more to do. We need to continue to stress the size of the energy efficiency ‘reserves’ and highlight the results that efficiency has already produced, something that has long been neglected – particularly when supply options are being promoted. The process we are all engaged in is shifting the balance of energy investment from the supply side to the demand side. The IEA’s annual energy efficiency reports show that investment into efficiency has increased but it needs to quadruple by 2050 to bring it on a par with energy supply investment so there is much to do.

We look forward to future international collaboration and continuing to drive greater investment into energy efficiency.

EPAL, our JV with EESL, was recently named the fastest-growing Indian business in the UK which was a moment to enjoy our success and revisit our purpose and resolve.  EPAL was formed when EESL, the world leader in scaling up energy efficiency and the world’s largest publicly owned ESCO, approached us in 2016 for help entering the UK market with a dual objective of building a sustainable business in the UK and acquiring experience in systems and technologies which could impact in India.

The two sides of the JV are very different in nature, EESL is a large organisation under the Indian Ministry of Power and a JV of four of the largest power companies in India. EESL operates all over India and has deployed more than 350m LEDs, and more than 10m LED street lights, and is now scaling up many other energy efficiency projects, including efficient air conditioners, smart meters, and EVs and charging infrastructure.

EnergyPro is a UK SME, albeit with international experience dating back many years in various aspects of energy efficiency and energy services, and a senior team who developed and managed some of the largest cleantech funds and energy services companies in the UK.

What unites the two organisations is the common purpose of making a better world through increasing investment into energy efficiency.

To date EPAL has deployed more than £60m through EPAL, acquiring UK energy efficiency companies, a stake in a Canadian battery project and Manchester-based Edina, a leading CHP provider. These acquisitions represent more than just business opportunities – they can all help India achieve its ambitious energy efficiency objectives.

One of the huge problems that India faces, and one that will affect us all, is how to provide sustainable cooling solutions as demand for cooling grows as the country becomes wealthier. This global issue requires multiple solutions, one of which is trigeneration. Edina’s expertise in trigeneration is now being used in cooling projects for large buildings and industry in India.

Trigeneration and storage will also play a big part in providing much needed flexibility in the power system as India expands its renewable generation from the current level of c.86 GW to the targeted 225 GW by 2022 and beyond to more than 450 GW.

By bridging the Indian and UK energy transitions, EPAL is helping transfer knowledge and best practice in both directions. The UK can benefit from EESL’s experience in truly scaling up energy efficiency, experience that is now being applied in other countries around the world.

India has massive emerging markets, particularly in smart meters, sustainable cooling and electric vehicles, as well as storage and the market structures needed to enable rapid growth in flexibility services, all areas where the UK has technology and business model know-how.

EPAM is now working with a growing number of UK companies with technologies relevant to India, our partners, and key stakeholders such as the UKIBC, to facilitate access to India and investment. Likewise we see opportunities for other innovative Indian energy transition companies to enter the UK market.

The UK-India corridor has assumed even greater importance since Brexit but even without that factor we believe that by helping to forge India-UK collaborations we can accelerate the global energy transition and positively impact the energy sectors in both countries, emissions, job creation and international understanding.

The limits of my language mean the limits of my world.

Ludwig Wittgenstein

I have been in the energy efficiency business long enough to witness several waves of interest and activity around energy efficiency.  Right now we are definitely in an up-wave which is good for business and good for the environment.  As part of a recent assignment to research global energy efficiency as a service markets I found myself having a discussion about the definitions and language around energy efficiency – which is always a good start to improving thinking and communication. 

In 2015 I suggested that perhaps we should ditch the phrase energy efficiency and switch to using energy productivity.  That suggestion was mis-understood in some quarters as some people thought I meant stop doing energy efficiency. In fact it was quite the opposite – it was about using a different term to help increase activity and investment that would improve overall efficiency. I still think this is a good idea but perhaps the moment has passed and here’s why.

The meaning of energy efficiency is changing. In fundamental terms it is still about getting more from less i.e. reducing the input of energy, but increasingly it is being used to cover a whole range of technologies and business models including: demand response, distributed generation, behind-the-meter energy storage, virtual power plants, micro-grids, building-to-grid, industry-to-grid, vehicle-to-grid etc. At one level I object to this slippage in the meaning of the phrase, but I think we are stuck with it and I think it is positive for two reasons. 

Firstly, all of these areas do increase overall energy efficiency somewhere in the system.  Generating power locally through CHP reduces primary energy use, using solar eliminates it altogether. Transmission and distribution losses are also reduced. They all contribute to reducing the input of primary energy to produce a given level of services or output.  

Secondly, the term ‘energy efficiency’ is now being adopted by investors to mean all the things mentioned above, even if many are still coming to grips with the subject.  A decade or so ago some of us started talking about how to make energy efficiency an asset class, thinking it was about pure efficiency. Now it is an emerging asset class with growing interest from investors looking for investments that have a positive impact on the environment. That is something to celebrate.

Now all we need to do is ensure there is a flow of high quality projects at scale to satisfy investor demand.

“Phaedrus, however, because of his training in logic, was aware that every dilemma affords not two but three classic refutations, and he also knew of a few that weren’t so classic, so he smiled back.” Zen and the Art of Motorcycle Maintenance

For the last few years there has been a lot of discussion about how to decarbonize heat in the UK. The argument is presented as: do we go down the heat pump route or the hydrogen in the gas network route. These two choices are presented as an either/or and both have their issues – they are the horns of a dilemma.  In a blog last year I came out in favour of ‘electrify everything’ – which caused a surprising amount of reaction and even amusement from followers and friends. It just seems clear to me that electrifying everything is the right way to go. Rather than just ‘reinventing fire’ we should be eliminating it. As my friend and veteran energy guru Walt Patterson said, leaving fire behind may determine our future on earth. 

I first started studying hydrogen and the promise of the hydrogen economy in the late 1970s, and researched hydrogen as an aviation fuel as an undergraduate dissertation in 1980. Much as I like the idea of the ubiquitous hydrogen economy, probably inspired by my interest in space exploration and the use of liquid hydrogen as rocket fuel, hydrogen has some serious technical issues. Using it for domestic heating frankly makes no sense for several reasons including those set out by David Toke. Using hydrogen in the gas grid is an understandable effort by the gas industry to maintain their position, typical behaviour of proponents of the status quo when the tectonic plates of a paradigm shift are in motion.  Having said that the possible roles of hydrogen for transport and industrial use such as steel production are developing and a number of demonstration projects show real promise. Use of green hydrogen generated from off-shore wind with storage in salt caverns is also being actively developed in Denmark and elsewhere. Some of these projects will probably form part of Europe’s green response to the COVID-19 crisis and we are pleased to be associated with some of them.  However, the hydrogen economy will be more specialised and fragmented than the technological dreams of previous decades when electricity generation was still high carbon and electricity storage was ‘not possible’ other than through pumped hydro-electric stations. 

But on the other side of the dilemma heat pumps are unlikely to suit all situations, particularly in retrofit situations, and the overall seasonal performance is still not necessarily as good as advertised. Changing over to heat pumps in all buildings is just not going to be possible.   

But as Phaedrus, the alter ego of the protagonist in Robert Pirsig’s excellent ‘inquiry into values’, ‘Zen and the Art of Motor Cycle Maintenance’ pointed out, every dilemma affords not two but three ways out.  You don’t have to choose to impale yourself on one of the horns.

In heating the third option that has been overlooked, and one that is looking increasingly interesting, is localised power to heat transfer with thermal storage.  Using electricity to provide heat with thermal storage allows low and zero carbon heating and can provide the large amounts of flexibility to the power system that an increasingly renewable power system needs – a double win. Examples include storage technologies from SunAmp, and Pumped Heat and on a larger scale there are examples in Danish district heating schemes.

These ‘cross vector’ technologies are starting to enable new services such as Virtual Power Plants and managed energy services for households and businesses of all types.  It is very unlikely that the energy system of the (near) future will be an either/or type of system – it is more likely to be a patchwork quilt of local solutions that make economic sense by providing multiple sources of value.

When confronted with the horns of a dilemma be sure to look around the bull to see a way out!

Stay safe, social distance and wash hands frequently.

In an earlier blog I referred to leadership as the missing element in the drive towards net zero. Now we are seeing leadership on the issue emerging, both nationally – in some countries a lot more than in the UK I have to say – and in the corporate world. Real leadership however goes beyond setting the target, it has to include driving the development of realistic, deliverable plans to achieve the target, and then driving delivery.

Achieving ‘Net Zero’ is a very clear objective, as long as a timescale is incorporated, somewhat like “land a man on the moon by the end of the decade and return him safely to earth”. Clear objectives are always useful – they can’t be fudged – you either achieve them or you don’t and as someone once said; ‘objectives are optional, constraints are obligatory’. Once leadership sets, or even considers, a net zero target the organisation has to quickly move into formulating a realistic plan of action which sets out the path to overcome the constraints and achieve the objective, otherwise it is just an aspiration. John F. Kennedy provided the leadership to get to the moon by setting the clear target but NASA drove the plan to overcome the many constraints that existed back in 1961 and marshalled the resources to achieve the target.  So what are the elements of a coherent plan for achieving net zero?

Of course the first step is to ascertain the current situation, the base line.  Any plan should start with a sound baseline covering Scope 1, 2 and 3 emissions.  Clearly Scope 3 emissions are more difficult to quantify for many organisations and a degree of uncertainty is understandable in this area. For instance, how does a University measure travel of students?   Pragmatic judgements based on what is possible and what isn’t need to be made.

Then a range of possible projects or interventions need to identified. Here creativity techniques like brain storming and lateral thinking can be useful.  Techniques such as integrated design are critical for making major breakthroughs in energy performance and emissions rather than mere incremental gains. We need to think outside the box of conventional solutions. Once identified project concepts need to be assessed technically, economically and financially, and contextually. 

Technical assessments need to consider the state of technology development and evaluate the reality which is sometimes obscured by hype. It would be unusual for many organisations to take technological development risks, for those that do the decision must be explicit with a full understanding of the risks and not implicit. Technological development is always risky.

Financial and economic evaluation needs to consider all the benefits and not just energy cost savings or reductions in emissions. Benefits with strategic value can include market positioning, publicity, an increased ability to recruit the best employees etc. and can be far more valuable than cost savings. A systems thinking approach is needed to identify and value benefits. Ultimately any plan must be financeable which requires understanding both the organisation’s own resources and its ability to utilise external finance. If external finance is to be utilised the plan has to meet investor requirements.

Contextual analysis is a vital but often neglected stage in capital project development. It is necessary to check for interactions both between projects and with other internal and external factors, for instance the long-term future of a site or a product needs to be properly considered if there is a proposed project to reduce its energy use and emissions. Some combinations of projects are additive whilst some conflict. For complex long-range plans there may be many interactions with both internal and external factors to be considered at different levels.  Technical, economic and contextual evaluations themselves will often interact in an iterative process.

Any plan needs to consider risks. This should include the risks of inaction as well as the risks of action. It should start with the risks of climate change, the main parameters of which are well known at high level but as far as possible these should be localised to recognise actual risks on the organisation, physically and financially. The risks of action and inaction on all stakeholders including shareholders, employees, customers, and the supply chains should be considered.

Following concept creation and development with a sufficient degree of robust technical, economic and contextual evaluation, supported by risk analysis, a practical portfolio of projects and actions with costs and timings needs to be assembled, a process that may need many iterations. Then the plan should be stress tested before moving into delivery.

To achieve net zero definitely needs vision and leadership, but it also needs a realistic, well developed plan. Developing such a plan is far from trivial.  To then deliver the plan requires hard work and long-term commitment, effective delivery may require changes in remuneration structures to drive the right kind of behaviour throughout the organisation, a change that needs to be driven by strong leadership backed by shareholder pressure.  

As Dwight D. Eisenhower said; ‘Plans are nothing, planning is everything’. If your organisation needs assistance with developing a comprehensive net zero plan, and then implementing it, contact me or Alex Rathmell at EnergyPro.