Features

Energy efficiency has often been seen as the ugly sister to renewable energy, but there is nothing ugly or unglamorous about saving money, reducing energy costs and lowering emissions. While the market tends to focus on investment in renewables as a means of cutting carbon, there is growing evidence that investing in ‘negawatts’, a term coined to describe a megawatt of power avoided or saved from use on the energy grid, will provide a better return.

According to Amory Lovins of the Rocky Mountain Institute, energy efficiency is “the largest, least expensive, most benign, most quickly deployable, least visible, least understood, and most neglected way to provide energy services.” While that may seem a strong statement, there is widespread agreement that increasing energy efficiency can bring both financial and environmental benefits.

The opportunity for energy efficiency investment is immense – the International Energy Agency calls it the ‘fifth fuel’ after oil, coal, gas and nuclear. According to a recent report from the McKinsey Global Institute, Curbing Global Energy Demand Growth: The Energy Productivity Opportunity, increased energy efficiency is the biggest and most cost-effective lever to attack GHG emissions. It could deliver up to half of the reductions of global GHG required to cap the long-term concentration of GHG in the atmosphere to 450–550 parts per million — a level many experts believe will be necessary to prevent the mean temperature from increasing by more than 2°C, leading to dramatic climate change.

On a more local level, recent increases in input and commodity costs are putting increasing pressure on management, with some companies having seen input costs increase 100% in the last year. Increasing concern about carbon emissions are forcing corporations to rethink their approach to energy management. This is creating an entirely new awareness of the need to deploy technology and energy management solutions in order to cut costs, and cut carbon emissions. As exposure to energy risk and energy prices grows, this is becoming a key issue for management.

The importance of this issue is increased by name and shame projects such as the shareholder-driven Carbon Disclosure Project, which puts pressure on companies to report their carbon emissions and plans for mitigation. This is especially powerful in the retail and financial services markets, where there is significant competition to promote the green credentials of their brand.

Demand-side pressures are augmented by growing concerns about our ability to build new generation capacity, given environmental and planning constraints. Some commentators have even suggested that the UK will be facing power supply problems within the next five years. McKinsey research has shown that each additional £1 spent on energy efficiency avoids £2 investment in electricity supply, another reason that increasing efficiency is becoming a critical economic issue

Perhaps even more importantly, there is the opportunity to boost energy productivity using existing technologies in a way that pays for itself and frees up resources for investment or consumption elsewhere. McKinsey’s analysis suggests that annual investment of $170 billion would result in a cut in energy demand of 20-24% by 2020 and a CO₂ saving of 7.9 billion tonnes. McKinsey calculates that, at an oil price of $50 a barrel, $170 billion annual investment would generate over $900 billion in annual energy savings, a 17% annual rate of return. This would reduce global oil consumption by 21 million barrels a day, from today’s level of 86 million barrels a day.

While many energy efficiency market drivers are similar to those in the renewable energy market, we at Evolve Energy believe that investing in energy efficiency delivers greater carbon reductions and financial return than investing in renewables. We recently conducted some research on the return on investment for a typical 4 GW wind turbine in comparison to energy efficiency measures implemented for a large supermarket brand. We found that to generate 1 MW of wind energy costs approximately £1 million, while to save 1 MW through energy efficiency measures costs £350,000. For companies investing in wind technologies, it could take 20 years to achieve payback, whereas it would only take just over one year through energy efficiency. On a wider environmental point, businesses can reduce up to three times the amount of CO₂ for every £1 invested. This comparison shows that energy efficiency can provide a greater economic and environmental reward.

What this means for an average business is an opportunity to invest relatively small amounts of capital in exchange for significant returns, a crucial requirement for company boards demanding to see tangible results. And the key to energy efficiency is measurement, based on the doctrine that what gets measured gets managed.

Companies from retailers to manufacturer’s need a constant gauge of their energy use to find out which parts of the business are the main offenders in terms of wastage. The critical advantage is having the know-how to determine customers’ technical requirements, and thereby identify and evaluate opportunities for energy efficiency measures. Then, using intelligent IT systems, the emissions profile of a building, or a network of buildings, can be addressed. It is the communication of information that is central to this process; information is what drives return on investment.

The role of energy efficiency in solving the dependence on fossil fuels will become ever more critical as energy prices continue to rise and economic circumstances bite harder. It is proving to be one of the most cost-effective abatement options to meet long term emissions reductions. Of course, it is vital to analyse the full implications of a purchasing decision, taking into account the effects on servicing and operational costs. Good energy efficiency suppliers require the crucial technical know-how to determine a customer’s requirements, and to identify and evaluate opportunities for energy efficiency measures. Businesses need to realise that long-term changes in mitigating emissions and costs will also provide a positive impact on general operations. And the economics make it clear that investment in negawatts rather than megawatts provides a greater financial and environmental return.

Gary Parke

About Evolve Energy

Evolve Energy has worked with a diverse range of businesses and buildings from petrol forecourts and supermarkets to listed buildings such as the Natural History Museum and the Palace of Westminster. For projects, such as The Savoy Hotel, Evolve has brought a step change in their approach to energy efficiency, proving that up to 40% in energy savings through a series of bespoke measures can be achieved. By optimising existing systems, Evolve Energy has also cut a sizable amount of energy bills, typically in the range of 15-20%, in modern retail outlets such as Tesco and the Co-operative.

www.evolveenergy.com/

Gary Parke is CEO and co-founder of Evolve Energy. He has 20 years of experience in the energy industry in a wide variety of senior management and executive roles. Gary worked for Shell, Total and Centrica prior to setting up Evolve. He has worked in both the upstream and downstream parts of the natural resources energy business and has experience in both contract negotiations and mergers and acquisitions. He has led over £1 billion worth of transactions. Gary established an energy management business focused on commercial customers in Canada, which brought together a combination of energy supply, services and building controls technology. He formed Evolve in 2006 with Tim Schneider, a colleague from the Canadian business. Evolve Energy is a private equity backed business with large pension fund investors. He is married with two children and lives in Henley.