Saturday, 18 April 2015

* To slash electricity use, both utilities and their customers must play their part

Power consumption used to march in lockstep with economic growth. As the world recovers from financial crisis, that link is weakening. Though the average conceals wide variations, in 2014 advanced industrialised countries used 0.9% less electricity than in 2013, and slightly less even than in 2007, since when their combined economies have grown by 6.3%.

A new study for the UN Environment Programme concludes that two factors are at work. One is thrift. Faced with rising prices, consumers use less. British electricity prices increased by 44% over the period; consumption fell by 12%. The other is greater use of energy-saving technology. This includes better insulation, advanced heating and cooling systems, and energy-efficient devices, notably light-emitting diodes (LEDs), which, unlike incandescent bulbs, turn most of the power they use into light rather than wasting much of it as heat.

But if global warming is to be held to no more than 2ºC by 2050—the level above which most scientists think that climate change risks being dangerous and irreversible—energy use and economic growth need to part ways once and for all. The best hope, experts agree, is a huge increase in energy efficiency. This ought to be straightforward. The technology is getting cheaper and better all the time. Many energy-efficiency measures quickly pay for themselves. Yet progress is frustratingly slow.

The International Energy Agency (IEA), a research organisation for countries which import fossil fuels, reckons that for the 2050 target to be met, global spending on energy efficiency needs to rise from $300 billion a year today to $680 billion. But on current trends, the UN report concludes, the chance of that is “very slim”.

The potential gains are huge. Transport accounts for 27% of global energy demand. Lighting, heating, cooling and ventilating buildings account for roughly another third. New vehicles and buildings are far more efficient than old ones. The average annual consumption of an American light commercial vehicle built to 2010 standards is the equivalent of 1.5 tonnes of oil, but standards to be introduced in 2016 will cut that to 1.1 tonnes. A house with a floor area of 300 square metres built to America’s 2006 standards consumes the equivalent of 1.1 tonnes of oil a year; one built to 2012 standards, just 0.7 tonnes. Even the newer standards seem timid when set next to “passive houses”, which use insulation and heat exchangers to capture and reuse thermal energy generated by the inhabitants’ activities. Add solar panels and geothermal energy, and it is possible to create “net-zero” buildings that put as much power into the grid as they draw from it.

Vehicles are replaced every few years. But half the buildings standing today will still be there in 2050. So big efficiency gains can come only from making existing buildings less wasteful. The simplest measure is to persuade consumers to stop throwing energy away, for example by heating or cooling empty rooms. Spotting such waste and helping to cut it is becoming a decent business.

Opower, a data-analytics firm, crunches figures on size, occupancy, location and energy bills to find trends and make suggestions to 50m, mostly American, households. Pacific Gas and Electric, a utility in California, says that in 2013 Opower saved it 500 gigawatt-hours, or nearly 75,000 homes-worth, of consumption. Its customers saved more than $50m.

Efficiency gains in the first year are typically 2%, says Alex Laskey, Opower’s chief executive. This is a mere nibble out of the 20% of energy use thought to be wasted in a typical American home. But once customers’ attention is engaged it is easier to interest them in bigger changes, such as replacing inefficient appliances or installing efficient cooling and heating systems.

Further gains can come from managing demand rather than simply ramping up supply to meet it. In places with poor interconnections, such as Britain, this saves on dirty, costly standby diesel-fired power. But in any system, it saves money, since satisfying peak demand requires costly generating capacity that is unused most of the time. According to the UN Report, global investment in “smart systems”—hardware and software that adjust power consumption in response to price signals—rose by 5% in 2014 to a record $37 billion. That includes smart appliances, such as boilers that switch off when power is costly, and distributed storage, such as batteries to be charged during off-peak hours.

Storing off-peak energy as ice is particularly useful for air-cooling systems, one of the industrialised world’s biggest energy hogs. Air conditioning in commercial buildings accounts for about 5% of America’s electricity use. But in some parts of the country, on a hot day, the figure can reach 30%.

Cooling systems from Calmac, a firm that used to make furnaces, store energy by cooling water mixed with antifreeze when power is cheap, and release it when it is needed, rather than relying on power-hungry compressors to cool the building during peak daytime hours. Mark MacCracken, the firm’s boss, likens the approach to preparing ice cubes before a party rather than waiting until a guest asks for a drink.

At first glance, it is puzzling that more of this sort of thing is not already happening. The IEA reckons that only one-third of the available energy-saving opportunities with a cost-effective payback period are taken up. For businesses and residents alike, factors including ignorance, inertia and misaligned incentives still rule. A recent study commissioned by McDonald’s suggested that a typical outlet could cut its energy use by at least a fifth—and by up to four-fifths by using solar power. But that depends on decisions made by individual franchisees, who will struggle to assess the potential savings from measures such as capturing heat from a fryer to provide hot water. Some savings can seem too low to be worth the hassle, such as buying a new appliance to halve a small running cost.

And tenants are unlikely to invest in energy-saving measures that will benefit their successors most.
Yet behind the scenes, utility companies are preparing for change. Their new business models must encourage consumers to use less energy rather than rely on them to use ever more. At the same time, to replace elderly, inefficient power plants and transmission lines, they need margins healthy enough to support massive investment. Rocky Mountain Institute, a think-tank and research firm, reckons that upgrading America’s creaking grid alone will take $2 trillion by 2030. And in many countries, including America, utilities are having to accommodate consumers who also produce energy, typically from solar panels, and sell it to the grid—regardless of whether it is needed or not (see article).

This was a trivial obligation a few years ago. Now it is becoming burdensome. The solar eclipse in Europe last month demonstrated the problem well. In Italy, which has one of Europe’s best-developed solar-power industries, as the sunlight faded from the sky, solar output collapsed, and other generators had to take up the slack, of around 27 gigawatt-hours. The eclipse cost Italian consumers around €10m ($10.9m), Cosma Panzacchi of Bernstein, a research firm, reckons. Overall the boom in solar has increased the cost of “balancing” Italy’s network—keeping capacity in reserve for cloudy days—by half.

One way for utilities to keep their profit margins as consumption falls is to increase fixed charges, which users pay regardless of how many kilowatt-hours they consume. Consumption-based tariffs hit poor customers hardest, since they are unlikely to have the sort of homes or businesses that can accommodate large installations of solar panels, or the spare cash to invest in fancy energy systems. Another option is to charge users by the capacity of their connection to the grid, rather than the electrons that actually flow across it.

The good news for utilities is that for the nimblest, at least, there will be plenty of opportunity to profit. Managing demand via smart systems, together with distributed generation and storage, could be a huge business, Mr Panzacchi reckons—€40 billion annually for European utilities alone, and much more worldwide. With their large scale, utility firms can build storage and solar capacity far more economically than individual consumers can. They have the balance sheets to support big investments.

And they have the information on behaviour and technology to guide their customers through the increasingly mystifying choices they must make. That is the kind of muscle needed to make a real difference to the future of the planet.

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