We asked:
What segments within energy saving for the built environment result in big reductions in energy use? How big are these priority opportunities? What do the markets look like structurally and who are the players in the supply chain? What is the role of ICT?
How will electric vehicles be integrated into smart cities and how quickly and deeply? How big are these opportunities? How will the energy companies of the future work with customers industrial, commercial, residential? How is the government planning to revolutionise the delivery of energy efficiency? And if we understand these areas, what are the market barriers to them? What should we do: act as role models? Lobby for logical sets of actions by others? Do nothing or wait-and-see?
Delivering heat is the top use of energy in the UK. Of this, in terms of carbon emitted per person per year, space heating is the largest single contributor, making up half the total. That total is slightly more than the total carbon emitted from passenger-km.
How do we achieve 80% reduction? Plenty of examples of role models are there, and known. People have put on lots of jumpers and built passive house. But these are relatively few and far between still. The question is how how do we get the whole country to change? Some barriers are: resource constraints (money, materials, tradesmen, etc), achieving what was planned or promised and delivering value. On this last, the speaker did not see moving backwards, i.e. constraining peoples’ lives as a way ahead. We must deliver comfort and freedom as people wish, but at the same time do it at much lower carbon.
The heat database was shown as a distribution: 8m households in the UK giving data on energy use. It was absent obvious, strong correlations between energy use and the physical attributes of the household or the social status of the occupants. This meant a tough task to move the mean, median and mode of the distribution to lower levels. The speaker showed how an optimal balance of demand and supply technologies deployed to achieve the 80% reduction in CO2 from 1990 levels was a sweetspot that could save the UK tens of billions of pounds. While people now spend £1200 on energy on average a year, one needs to spend between £20,000 and, say £70,000 on energy saving technologies to achieve these reductions on average. Spread over 40 years even (if such were possible) this would still represent a proportion of the energy bill itself corresponding to between 42% and 146% both of which are probably unpalatable to the vast majority of householders. But on a more optimistic note, this represents a huge opportunity for suppliers in more upbeat and urgent conditions.
Looking at the turnover rates of various markets, the appliances area, like smart phones and gadgetry is extemely fast, whereas that of network-facing billing and metering, the energy and utilities, companies is very slow. The worst outcome for everyone is that the fastmoving ICT companies and consumers end up shunning this market because the energy companies seem to conservative, risk-averse and slow-moving.
Even something that delivers real value to houses, like central heating, has taken 50 years to get it into most houses. Having said that, an optmistic note on infrastructure: when we have made a decision to make a switch, e.g. to natural gas, it has happened very quickly. You can mobilise and change infrastructure quickly and then you live with it for a long time.
We need to look at the whole supply chain: find opportunities, have customer contact, analyse and plan, IS, inventory, off-site, distribution, on-site, QA, monitoring and control. But the rate limiting factor is probably the awareness, and agreement of householder to do what is needed to the house.
Remaining opportunities for efficiency improvements in houses were limited. The undone work on windows, insulating lofts and walls ranged from 12-22% of them – the majority have been completed.
The question of scale is interesting for the CIR Conferences series, particularly HEAT and Smart Grids & Cleanpower which cover the two ends of the scale from building up to national infrastructure. Factors such as operating effectiveness through capital efficiency through finance availability vary with scale. This is another thicket of complexity for us to work through for the optimal approaches.
So in the long run, what do we do as a nation to implement the large energy efficiencies now made law out to 2050? There are an infinite number of combinations of things we could do. We know we can achieve the 80% reduction targets to that year. The sustained value is critical and the affordability. And who are actual making these choices? At the householder level, car companies know a lot about who in the house makes the choices on cars and why. This is not so regarding the investments needed in energy systems for households and buildings generally. We need also to understand the supply chain and limiting factors around delivery rates of solutions, and indeed quality or reality of those ‘solutions’. On scale, many small improvements doesnt always add up to a few big things.
Public sector having trouble raising finance – how will we see cashflow to renovate buildings. 80% of buildings we will occupy in 2050 are standing now. So retrofit is going to be important. What is an energy performance contract? This is a contract that acts for a set of buildings, whose energy usage rate is guaranteed by the ESCO. In public sector language, it is a spend-to-save scheme, you are buying future energy performance. Practically, the EPC is a 4 stage process. Stage 1 is a desktop audit, checking which buildings can be retrofitted and estimating savings. Stage 2 qualifies this and the qualification must be close to the audit claims. A 30% saving cannot reduce to 3% at stage 2. Stage 3 is the implementation and stage 4, the guarantee. The energy saving can be converted to a monetary amount saved and this in turn can be used to pay the staff of the ESCO, forming a real partnership. LDA has set up a framework called REFIT to do large public sector energy saving contracts. Anyone in the public sector can use this framework. There are 12 ESCOs available to choose from to carry out projects. EPC should be off-balance sheet, funded by service not assets. They can be funded in 3 ways: write a cheque for cash; go to public works loan board; use a bank loan or asset finance. None is ideal. The EPC should find out the savings during and after the EPC programme, cost of kit and service. This ratio gives breakeven and ROIs and other financial measures. But these are difficult to prove upfront. But if the ESCO will guarantee the EPC then banks and lenders generally may be happy to lend against the projects. Sophisticated lenders may be able to hedge both energy costs and carbon emissions.
A number of pilot projects are being run around the UK.
In summary, the objective is normally to finance on the P and L or revenue account (public sector).
Electronics can also be part of the energy efficiency solution. Electronics are moving into a wide range of new areas: sensors and monitoring, and others. There is a broad move towards the internet of things, where objects are connected to the internet and each other. This move seems inexorable. This means more energy use in buildings coming from more gadgetry. But this can be mitigated in a few ways at chip design level. It can be mitigated by efficiency improvements to motors. It can be improved by devices running or standing by at much lower or zero power. And as things take on shared use, the hardware has more chip commonality and can be reused.
Electricity is very inefficient, it was claimed. 12.4% of fuel use is in its delivery. 28.7% of fuel is wasted in electricity losses. And more than 50% of electricity is used in motors.
Moving to smaller, more efficient computers, i.e. from desktop to laptop to netbook, will improve energy efficiency considerably.
Data centres could be improved to obtain an 87% reduction in emissions through virtualisation, smart cooling, storage and CPU.
Poor design exists especially around TVs, game stations. There is also scope for saving around how these are used.
All in all, it will be a tough battle to reduce energy usage absolutely as demand increases for devices and connectivity. Those increases can be reduced through energy efficiency. Companies in the field of electronics design will surely thrive as they introduce more efficient technology. Culture change will not be their priority, even with a squeaky clean CSR policy. Leaders at the conference in this area certainly appeared to be taking seriously the problem of mitigating the energy demand increases at the small scale level.
1.5 billion meters in the world now. No single company can build the smart grid. It is an effort by a partnership of companies. Interoperability will be very important: we must make sure it not a silo; it should have more than one use.
We are to build in many wind farms to the grid. What happens when there is no wind? We need to build the new grid for intelligence, avoiding needing to build so many new power stations. Intelligence also in energy management, and within the generators. So we need to be able to look at the whole system.
The whole system needs to be smart, not just smart in silos.
Changing demand patterns is really important, but there is no agreement on how to do that. It is a political question as much as a logical one where costs vary to manage demand and supply.
The stick of tougher regulation and compliance is the practical result of political will. But how is this fairly set?
Microgeneration in houses and districts and peer to peer trading of loss-free electricity obviously mean consumer participation in the delivery chain.
The CIR Conferences will continue to focus on new service and business model opportunities.
The Smart Grid will also be an innovation platform for a world of companies kept out of the undynamic grid of today.
The new business models have been talked about above around EPCs. This will lead to more monitoring and control of consumption and cost of energy in an atmosphere of heightened corporate sustainability and responsibility policy.
In the new ecosystem of energy management, you have regulators defining prioritisation; you have renewable generators, who want to produce power when it is windy (or sunny), power that we must maximise; you have the DNO who want to make sure their network is robust and secure – a critical aspect; and you have the energy retailer that wants to buy cheap and sell higher the electricity. What energy retailers do wont particularly affect the grid directly. It was argued that the above creates tensions as well as technical challenges, which implies the need for regulation done well, with understanding of the whole picture and connected to long run goals.
Smart meters continue to play a pivotal role in the smart grid. They will give near real time meter reading, not needing visits. This leads to more accurate forecasting and billing which energy provider like, as perhaps do most consumers. Extra home energy information can lead to strongly lower consumption, again given the new customer involvement. But it also enables time-of-use pricing, much more detailed than as in Economy 7. Pricing could vary hourly for example. Customers could run programmes to analyse this data automatically, and to automate their choice of demand response. This would last long after they might become used to the novelty of home energy data from monitoring and metering.
In modern design product lifecycles including for smart energy, an area of growth for product design work, the product is making first contact with the customer (perhaps a utility company) much earlier in the process, for extended trials. They will buy in large numbers. This means developing and making a demonstration in a single design iteration that works like the real thing, through rapid development with a multidisciplinary team. Rapid can mean 3-4 months. This is a case of understanding the route to market and developing an approach to suit this route.
It is contended by some and not others at the HEAT conference that you can change consumer/customer behaviour.
There must be benefits to consumers in the this evolution which seeks to decarbonise energy and provide security of supply for the long run.
TOU tariffs, demand response and microgeneration all have the potential to make life more complex and overall worse for the consumer. This would be bad for the market. So we must strive to unravel that complexity and stay focused on consumer benefits. We repeatedly overestimate the appetite of the mass market consumer for screens and technology.
Visibility of pricing, through alerts for example, and automation could work in favour of TOU price choices.
Consumers do not think about consuming energy, they think in concrete terms of appliance use. And motivation without empowerment leads to frustration. With empowerment, action follows. Being social animals, motivation comes from role modelling and reputation, and from collaboration.
Homeworking and the obligation of large companies to report carbon emissions of employees has meant companies are able to help consumers know more about their footprints and what to do about it.
People are not going to be moved towards utilities web portals for their energy data. This is only one of many places and not the favourite.
Consumer behaviour change goes through in three stages: reveal, reduce and renew. We reveal through ‘usage shock’ and better tariff options (diagnostics). Then we reduce by establishing active behaviour change around smarter use, turning things off or down, more efficient appliances. And finally, through self-generation the bills and emissions can come down yet further.
In Holland smart meter roll out was rolled back as a result of not taking consumers along and informing them properly: It is vital to put consumers at the centre of our thinking.
Energy information is dull. We must watch out for schemes for behaviour change that do not help the energy situation and lead us down yet more wrong paths. This may seem good for business in the short run, but ultimately it is not going to help business either.
There is a shift to DC: web, lighting – everything above the waist. Design is an issue and one cuts out a lot of losses by keeping to a smart DC network with variable power.
Distributed storage sent back to the grid doesnt make sense, but DC storage and use as DC does.
Provide energy through a DC connected energy harvester. Retain the energy and provide power to a smart DC network.
Channels to market for SME tech providers include energy retailers, retailers, installers, and possibly government and own-brand websites direct.
In a talk entitled: The challenge of retrofitting homes for low carbon, the government, DECC, appears to have taken on board that retrofitting will be key, rather than new builds, which are relatively easily legislated in for much higher efficiencies on a timeline. We note in passing however that that aspect too is unlikely not to miss targets in the next 6-10 years.
Governments are said to be good at setting long run targets, such as to 40 years maturity, since they probably wont be in power when the time comes. But the 80% cut versus 1990 emissions for 2050 is a landmark piece of legislation. The legislation is coupled with binding interim targets called carbon budgets. These are total levels of carbon capped within 5-year periods from now 2008 onwards, when the Climate Change Act was agreed. Then the long run target law is coupled with an accountability framework: a committee that has access to government officials, in meetings and through auditing.
In 2006, carbon emissions had fallen 3% versus 1990 levels. So a further 77% to go over the 44 years from 2006!
Electricity generation was the highest contributor, followed by domestic transport, then residential and commercial heat and in similar amounts, industrial heat and processes. Taken together residential, commercial and industrial heat is the highest segment.
In the residential segment (heat), since 2008, the government claims that the levels of emissions have come down by 5% and to 2020, the target is to fall another 29%.
In houses, there are three ways to fill the gap: reduce energy needed through insulation, better heating systems and controls; producing low carbon heat through solar thermal and heat pumps; and finally: behaviour – attitudes and enabling technologies.
The way government looks at reaching this target, is to break down the achievement of the target into segments: policies, zero carbon homes, smart meters, and ‘whats left?’ It then tries to predict the effect of these areas of action in terms of contribution to the target. Existing policies are supposed to produce 60% of the target. Zero carbon homes a very small amount of 3%. Smart meters about 6%. New policies of Green Deal, the Future Energy Company Obligation including the Renewable Heat Incentive are supposed to produce the remaining 30% of the needed reductions to 2020 in this segment.
Looking at the usual graph of approaches to reductions ordered by cost effectiveness, solid wall insulation and lofts and cavity walls, those that remain to be done, seem to be a logical area to focus on. There are 10m, 7.5m, and 2.3m further lofts, cavity walls and solid walls to insulate respectively.
There are barriers to delivery, as noted before, that government is aware of. These are barriers that exist even when money can be saved in taking action.
From a consumer survey by government, some people, 20% of households, are aware but just not interested in loft insulation. Does this mean 80% are engaged and likely to go ahead? And many people are overestimating costs without checking the reality.
Will the Green Deal policy, in development now, to be completed late 2012, really be a Game Changer? This will try to plug the information and awareness gap with marketing and co-ordination. The idea is to get high street and utility brands on board. Brands that people cannot avoid being aware of. They will sell energy efficiency products and provide energy efficiency advice. There will be independent surveys to individual households. Then finance: Green Deal Finance will provide all or a good chunk of the money needed upfront. The construction industry and building trade generally has a fairly bad reputation. The government is keen to make sure this does not hamper the roll out of greener buildings. There will be accreditations so that people can show that they are qualified to install a given set of measures. The financing is designed to be taken from savings in the energy bill of the householder who has installed the measure. This will mean the bill will not go down as much, or not at all for a time, but this is still better than not having carried out the installation.
For those who or technologies which cannot obtain the Green Deal Financing, there is an additional piece of legislation, the Energy Company Obligation, which causes the energy companies to subsidise installations. Theoretically, all consumers would then be covered for all reasonable types of installation.
The Green Deal applies to non-domestic buildings as well. In this segment it is much more focused on electricity use. Business sector emissions amount to 214MtCO2, of which electricity causes about 100 MtCO2.
The CRC applies to less energy intensive industries, such as universities and supermarkets etc.
At the other end of the scale, of the nearly 5m organisations in the UK, 99% are SMEs, about 2m operate out of domestic premises (so dont be embarrassed if that is your business!)
CIR Conferences looks forward to meeting you again at Smart Grids and Cleanpower 2011 23-24 June Cambridge, for the followup conference. (see http://www.cir-strategy.com/events/cleanpower and http://www.cir-strategy.com/events/SGCPCall.pdf