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Energize Energy efficiency: Still the low-hanging fruit
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Energy efficiency: Still the low-hanging fruit

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by Fereidoon P. Sioshansi, Ph.D, Menlo Energy – 

Efficient use of energy is the key to a low carbon future. “In the battle against climate change, the world is actively seeking anticyclones. If the ongoing shift from fossil to renewable energy is one of those, another, less energetically publicised but with more attractive financial paybacks, is energy efficiency.”

That is the opening line in a recently released report, “Emissions Anticyclone”, by Sebastien Gruter and James Moore of Redburn, a London-based market research firm. It explains, among other things, why energy efficiency gains must almost double to reach the Paris Agreement’s targets and why energy efficiency is the largest and cheapest untapped source of emissions reductions.

Figure 1: Energy intensive industries under “enormous pressure”.

The report’s main point is that the carbon reduction impact of the transition from fossil fuels to renewable resources will be greatly amplified if energy is more efficiently utilised – who can argue with that? It says, “If the relationship between GDP and energy consumption holds steady over the next 20 years, we will consume 25% more energy in 2040 … (putting) … us a long way above climate goals …”. “Complying with the Paris Agreement while continuing to increase our wealth would require a material shift in energy mix and a marked step down in energy intensity.”

Redburn’s comprehensive report examines some 2500 listed companies from all sectors specifically looking at their energy intensity – that is energy used per unit of output. Not surprisingly, it finds that energy-intensive industries such as fossil-fuel power generation, marine, steel, airlines, building material – think cement manufacturing – to name the obvious ones, will be under “enormous pressure to lower their energy use and CO2 emissions” (See Figure 1).

Assuming a price of US$57/t of CO2, not an unreasonable number, would be a devastating blow to some industries – it would represent 16% of sales for fossil fuel generators, 6% for airlines, but only 2% for major oil and gas companies. It explains why coal mining companies and coal-fired generators are essentially doomed. It also explains why LED lighting manufacturers or those in the business of making efficient equipment for heating, ventilation and air conditioning (HVAC), air compressors, building automation, insulation material, high efficiency pumps and motors are likely to prosper as emitting carbon becomes expensive.

Figure 2: Quick payback.

It also explains why older, less efficient aeroplanes will remain grounded as the airline industry resumes flying after the pandemic. The rewards in energy efficiency investment, according to Redburn, are hard to pass. Many, including high efficiency motors, drives, compressors, building energy management systems, efficient lighting and HVAC systems have paybacks within two to three years under reasonable assumptions (see Figure 2).

Redburn, whose unbiased original research is used by investment fund managers, examined three categories in its report:

  • The substitute category refers to a technology that replaces a less energy-efficient technology, for example an LED versus incandescent lamps,
  • The energy-centric category refers to a product where energy accounts for a large share of the total cost of ownership whilst representing a meaningful share of the energy consumption in the customer’ process, for example an air compressor; and
  • The optimiser category refers to a product that helps to optimise energy use, for example, a low-voltage electric drive or motor.

This being a capital goods report, Redburn examines major stakeholders such as Siemens, Alstom, ABB, Electrolux and upgrades Epiroc and Schneider to “Buy” status because they are deemed to be well-positioned to take advantage of the push towards energy efficiency services. Redburn points out that “There are two ways to reduce greenhouse gas emissions while maintaining economic growth: we can produce ‘cleaner’ energy that generates fewer emissions – renewable energy, for example; or we can produce more goods or services with less energy” – focusing on the latter.

Figure 3: Warmer climate, higher energy use.

The report includes nuggets which are sometimes lost in such comprehensive studies. For example, it points out that a warmer climate will result in higher energy consumption,all else being equal. “Based on UN projections, we calculate that more than 85% of the global population increase in the next 20 years will come from countries where the average temperature is above 20°C. Not surprisingly, energy-intensive countries in hot climates such as those in the Middle East and hot and humid ones such as those in South East Asia will require even more electricity to remain functional (See Figure 3).

Meteorologists are warning that hot parts of the globe will become more-or-less unbearable, requiring even more air conditioning and water – both highly electricity intensive. Climate change is no longer an abstract concept. Arid parts of the world – for example, the Southwest of the US and Australia’s interior – will get drier and warmer. Working outdoor during the midday summer hours in parts of the Middle East and North Africa (MENA) region, already unbearable, will become fatal.

Figure 4: Nowhere to hide your emissions.

In the grand scheme of things, of course, large listed companies as well as banks and fund managers who invest in them, are increasingly being pressured to report their contribution to climate change, their exposure and what they are doing to address these issues (visual). The report examines the energy efficiency’s low hanging fruits – efficient lighting, motors, pumps, HVAC, etc. – the usual suspects. Redburn focuses on two applications with tremendous potential: Lighting and electric motors because:

  • They use lots of electricity; and
  • Their energy savings potential is extremely high and easy to capture.

Redburn reports that lighting consumed 20% of world’s electricity as recently as ten years ago, but this has dropped to 13% today, due to the improved efficiency of lighting fixtures. The US Department of Energy (DOE) projects more energy savings in the next 15 years as LED penetrates 85% of the installed base by 2035, with 66% of the savings expected in the commercial sector and from street lighting.

Figure 5: Where to focus.

According to the International Energy Agency (IEA) an astonishing 45% of global electricity consumption may be attributed to electric motors (see Figure 5), about two-thirds of it in the industrial sector. Even more astonishing is that this percentage is likely to grow as the electrification of the global economy gains momentum. Making electric motors, lighting and HVAC more efficient has never been more critical or profitable.

Acknowledgment

This article was first published in the July 2020 edition of EEnergy Informer and is republished here with permission.

Contact Fereidoon P. Sioshansi, Ph.D, Menlo Energy Economics, fsioshansi@menloenergy.com

 

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