Energy Efficiency-An Energy Source Not To Be Underestimated

Global energy efficiency investments are set to hit the trillion mark by 2030 and for good reason.
Published: Fri 19 Feb 2016

Energy efficiency will play a critical role in limiting world energy demand growth to one-third by 2040, while the global economy grows by 150%.

Since energy savings have the potential to increase employment, lower operating costs across industries, strengthen energy security and reduce carbon emissions, it comes as no surprise that global energy efficiency investment will reach the US$5.8 trillion mark by the year 2030, with an annual energy efficiency investment of US$385 billion, according to a report by the International Renewable Energy Agency (IRENA).

The report states that the surge in energy efficiency investment will be based mostly around applications in buildings, manufacturing and transportation.

Energy efficiency in buildings

Investment into energy efficient buildings is expected to hit US$125 billion a year by 2020. Energy efficiency investments in the buildings sector totalled between US$90 billion in 2014.

From urban high-rises to squat suburban malls, buildings are responsible for about 40% of global energy use and 30% of greenhouse gas emissions, according to the United Nations Environment Programme. Most of the average building's emissions come from daily needs such as heating, cooling and lighting. An increase in electrical appliances and technologies in the modern building is certainly adding to our consumption levels.

Officials say this high percentage can be significantly reduced by introducing relatively simple new practices and technologies.

The market for energy efficiency innovations for buildings is growing fast and startups like Israel-based Power Tags is snapping up the opportunities by creating gadgets that will help reduce energy waste. [Israeli Startup Responds to Energy Efficiency Goals With Its Innovative Solution.]

High profile events like European Utility Week are also recognizing the importance of energy efficiency and discussions around sustainable and energy efficient renovation of public buildings proved very popular with investors, vendors and utilities.

Germany, the EU’s biggest energy consumer, has also made a step in the right direction by realizing that its ambitious energy transition (energiewende) cannot be successful without improving the country’s energy efficiency. The government created a clear legal framework and tight regulation at national level which requires energy efficiency upgrades to buildings. Public policies aim to refurbish all homes and all public buildings in Germany by 2030. [Germany's Plans for an Energy Efficient Future]. Many other countries around the world are taking notice of the benefits and opportunities that energy efficient buildings have to offer. [Building Owners and Tenants Benefit From Energy Efficient Buildings].[ Energy Efficient Megacities Have A Large Role to Play in Curbing Emissions]

While energy efficient buildings are good news for manufacturers and the environment, utilities will need to prepare themselves for the drop in energy consumption levels by exploring new revenue streams. [Engerati-Utilities Could Miss The Growth in the Smart Building Sector.] Building owners are proactively seeking to tap into new revenue streams by connecting to the smart grid –these include demand response, as well as self generation and the sale of excess to utilities. Third parties are active in this space but to take full advantage of these opportunities commercial customers are likely to also want to partner with their utilities. It is therefore only a matter of time before commercial customers will expect their local utility to have a programme ready for them. [Gridding Buildings for Storage.]

Energy efficient manufacturing

The industrial sector uses more delivered energy than any other end-use sector, consuming about 50% of the world's total delivered energy, according to US Energy Information Administration (EIA).

The industrial sector comprises a diverse set of industries, including manufacturing (food, paper, chemicals, refining, iron and steel, nonferrous metals, nonmetallic minerals, etc.) and non-manufacturing (agriculture, mining and construction). The mix and intensity of fuels consumed in the industrial sector vary across regions and countries, depending on the level and mix of economic activity and technological development, among other factors.

Energy efficiency has the ability to save large manufacturers a fortune in energy costs. For instance, over the last five years, US manufacturing saved an estimated US$2.4 billion. There is a potential to generate over US$11 billion in annual energy savings by 2020.

These staggering figures come from the US Department of Energy’s Better Plants Programme, a multi-sector initiative to improve the energy efficiency of America’s commercial, residential and industrial buildings.

While the results to date are impressive, they come from facilities representing just 11.4% of America’s total manufacturing energy footprint. Basically, this means that US manufacturers have only scratched the surface of their energy management potential.

This is one country and scaled up there is massive global potential from both an energy efficiency and a carbon reduction perspective.

But what can this energy intensive sector do to curb consumption? Demand response is one way. The industrial sector is fast becoming a critical customer segment in demand response programmes. Analyst group Navigant Research estimates that globally, there are over 57,000 industrial firms participating in demand response programmes. It gives the sector a chance to earn extra income from incentives, reduce their energy bills, as well as damage to costly machinery due to utility-driven voltage fluctuations that often lead to brownouts. [Demand Response Participation-Good Business Sense for Industrial Facilities.]

Over the next decade, the Internet of Things (IoT) revolution is expected to have a major impact on manufacturing, amongst other sectors. The seamless integration of physical and digital worlds through networked sensors, machine learning and big data will help this sector run more efficiently. The explosion of connected products and physical systems is certainly presenting a growing market opportunity for various types of companies. [Why Utilities hit the M2M sweetspot.] and [IoT Heroes of the Year 2015.] and [Cisco Bets US$1bn on UK Internet of Things Market.]

It has also become clear that many industries are turning to self generation in order to reduce energy costs (especially in renewables generation) and improve reliability. With battery storage becoming more reliable and cost effective, companies will be carefully monitoring their own generation and consumption needs.  [Business Parks Off-Grid Trend - A Utility Disruption] and [Power Producers Going Off-Grid in South Africa.]

Energy efficiency-a worldwide phenomenon

Energy efficiency improvements over the last 25 years saved a cumulative US$5.7 trillion in energy expenditures. This virtual supply of energy generates multiple benefits for governments, businesses and households, including greater energy security from reduced dependence on energy imports and billions of tonnes of greenhouse gas emissions reductions.

In the electricity sector, energy efficiency has proved critical in flattening electricity consumption across the world, driving utilities to change their business models.

According to an IEA report, major markets for energy efficiency include Latin America’s two largest economies, Brazil and Mexico, which are looking to efficiency to boost productivity and social development. Energy-exporting countries like Saudi Arabia and the Russian Federation are also turning to efficiency measures to increase exports and reduce the costs of growing domestic energy consumption. In addition to national governments, major urban areas such as Tokyo, Seoul and Paris are increasingly enabling energy efficiency investment. IRENA points out that energy demand in the Middle East and North Africa is expected to continue growing rapidly so energy efficiency solutions will be a priority going forward. 

The degree of continued public sector commitment to energy efficiency can be anticipated to be a major factor that will drive the size and impact of investments in this sector and this is where data analysis and proper engagement comes into being. Utilities are well positioned to engage better with various manufacturers and service providers in order to help their consumers (regardless of sector)  consume electricity more efficiently. Companies like Opower are already tapping into this large market potential.

Further reading

US Department of Energy-Better Plants

IEA-World Energy Outlook 2015

IEA-Key World Energy Statistics [pdf]

EIA-INTERNATIONAL ENERGY OUTLOOK 2013

IEA-Energy Efficiency Market Report 2015 [pdf]