Getting more from less – just how efficient are our energy systems?

While energy efficiency programmes are necessary for sustainable energy development, they are not sufficient on their own to address all energy accessibility, availability and acceptability goals. According to the World Energy Council, energy efficiency instruments and investments should be seen as one element of the bigger global energy system challenge.

It is remarkable how higher energy prices concentrate the mind. In industrialised countries with universal electricity access, governments see energy efficiency programmes as a means of maintaining their competitiveness and energy-intensive industries, stretching supplies over a longer period of time and avoiding greenhouse gas (GHG) emissions. Improvements in energy efficiency also support the WEC goals of energy accessibility, availability and acceptability (the three As). The driving forces are somewhat different in developing countries. While reducing local pollution is of increasing importance to many developing countries, the need to reduce GHG emissions is generally allocated lower priority. Reducing energy investment requirements and making the best use of existing supplies to improve energy accessibility often rank higher in meeting developing country priorities.

Energy efficiency has improved considerably over the last 30 years in many countries – for instance, in the exploration, production and delivery of primary fuels to distant markets, which drives down costs to offset upward pressure on primary energy prices due to marketing and other factors. The average consumption of a refrigerator or a washing machine has been halved and the average fuel efficiency of cars has improved nearly as much, but the overall consumption of both electricity and mobility services in most countries has continued to rise. The impact of better building codes has been offset by investment in larger homes, with the result that, despite such codes, there is an upward trend in energy use in this sector in OECD countries. In a nutshell, energy efficiency improvements appear to have been ‘captured’ by consumers to increase their well-being by using energy in new ways, keeping their energy budgets at a constant share of their spending, whatever the final energy price.

Estimates of the gains that can actually be won vary dramatically. For example, when the UK White Paper on Energy was published in 2003, it put a 60 percent reduction in CO2 emissions as the number one objective and argued that 25-40 percent of future UK energy needs could be met by improvements in energy efficiency. On the other hand, during the deliberations of the recent US Energy Task Force, some people argued that energy efficiency and conservation would not play much of a role in reducing US dependence on oil imports. In contrast, a recent International Energy Agency publication found that, while progress on energy efficiency in OECD countries has tapered off dramatically since the late 1990s, end-use efficiencies alone could account for a 3.5 gigatonne reduction in global carbon dioxide emissions by 2030. How? Where? In particular, what does it all mean for the large developing economies, which will account for such a high percentage of the increase in energy demand expected in the coming years?

The World Energy Council (WEC) has been working on specific aspects of efficiency in generation, network management and end-use that can have immediate pay-offs and can impact all countries. So what are the efficiency opportunities along the value-chain?

Power generation

Energy efficiencies in power generation can be achieved by improving the availability of existing plants or by replacing the existing power plant fleet (with an average worldwide efficiency of approximately 30 percent) with state-of-the-art technology, achieving 45 percent efficiency today. Such actions would reduce the global CO2 emissions by about one billion tonnes per year, or about four percent of global anthropogenic sources of CO2 annually. As a more specific example, in the 1950s in Europe 700g of coal were needed to produce 1kWh of electricity, while today only 300g are required – a real improvement in efficiency, but also a very positive result for environmental performance. With cleaner fossil fuel technologies and the use of waste heat in combined heat and power plants, the reduction in emissions could be even greater. Nuclear power plants have also significantly improved overall efficiency through increased fuel burn-up, recycling and better operational procedures resulting in higher availabilities.

When it comes to improving the availability of power plants in operation today, analysis of the performance data presented in WEC’s Performance of Generating Plant: New Realities, New Needs published in 2004 shows a substantial gap between the average power plant availability performance and that achieved by the best performing plants. Eliminating that gap would result in savings of US$80 billion per year. Since the existing plants could operate with higher availability, the need to build and operate additional capacity could be postponed. Such improvements could be implemented at an average benefit to cost ratio of 4:1, and only minor technology enhancements and equipment upgrades will be required. The majority of the improvements will come as a result of addressing certain management issues. In fact, if this area is not improved, new technologies will be unable to achieve their inherent superior performance potential. It is important to note that remarkable strides have also been made in producing electricity with natural gas. The total energy efficiency of combined heat and power plants based on natural gas or coal can reach 85-90 percent efficiency compared with 40 percent for conventional power plants.

Transmission and distribution

Even the best-managed electricity transmission and distribution systems cannot operate without losses. These losses can be technical (such as those occurring during long distance transmission or grid failures) or they can be non-technical (for example, due to illegal connections to the distribution grid or non-payment for the electricity consumed). While the average worldwide losses in transmission and distribution are in the range of 10 percent, WEC’s Pricing Energy in Developing Countries (published in 2001) showed that non-technical losses could reach up to 50 percent of the total electricity transmitted over the network. Technical losses can usually be decreased by the introduction of modern technologies and improved management practices, but it is the absence of comprehensive metering and ineffective payment systems that lead to high non-technical losses.

At a level more fundamental than transmission and distribution losses, enormous high-level efficiencies are potentially to be found in the regional integration of system design. Increasingly, this is happening across national borders, as with the building of the single European electricity and gas markets and with the development of gas and electricity interconnections in Latin America. Supported by WEC analysis, other regions are also evaluating the efficiencies to be gained in integrated cross-border planning of energy infrastructure where third party choice and trade in energy services is not only more efficient, but also protects against the market power of large companies. Developing regions are well placed to realise this potential, as their infrastructure is still at an early stage of development.

End-uses

Energy efficiency is not just a technical matter, it is also a matter of efficient services and the wise use of energy: the retail offer of the latest eco-efficient appliances, making a phone call instead of a physical visit, recycling, reducing heat at night and using modern building materials and insulation, all result in a decrease in energy consumption for identical or very similar services.

It should also be kept in mind that the considerations for individual end-users will typically be different to those of business and industrial ones. The bottom-line benefit of substitution of more efficient capital equipment is likely to be well analysed and transparent for the latter, whereas for individuals both the underlying information and the impact on personal expenditure may be much less clear. There are likely also to be significant differences in the expected operating life of the equipment concerned.

Ultimately, however, end-user choices for electricity, heating and mobility services are a matter of individual behaviour and the response to final energy prices, as well as environmental awareness and other factors. Eliminating the unnecessary consumption of energy, or choosing the most appropriate equipment to reduce the cost of energy, contributes to a decrease in individual energy consumption for the same energy services.

Making such decisions is certainly a matter of individual behaviour, but it is also, often, a matter of the availability of appropriate equipment: thermal regulation of room temperature or automatic control of room lighting are good examples of how equipment can help influence individual behaviour. Insulating a house makes it obviously more energy efficient: less energy is consumed for the same comfort. Similar conclusions can be drawn from industry experiences: each factory individually can decrease its energy consumption per unit of output with more energy efficient technologies.

While the costs of oil and natural gas extraction and delivery, processing liquids from gas and coal, and electricity have allowed transportation fuels – road, rail, air and marine – to remain relatively low, experience of energy efficiency policies and measures for vehicles and mobility demand have been mixed. At the same time, the increasing congestion and deteriorating air quality in rapidly growing cities is a strong argument for developing new technologies and policies. Today, technology can only provide an efficient solution and sustainable mobility with changes in basic infrastructure supported by clear energy policy.

Both for vehicles and for aircraft the immediate promise lies in achieving greater efficiency in the use of existing fuels. As noted earlier, average fuel efficiency of cars has nearly doubled over the past 30 years. The time needed for totally new options to penetrate the market is considerable because of the timescale for commercialising new technologies and the extent of the current capital stock of vehicles, but the fuel supply infrastructure is also critical. So the next steps are likely to be an increasing array of hybrid options, with a totally new fuel base still decades away. In any case, almost all OECD countries and an increasing number of non-OECD countries are implementing new or revised end-use efficiency measures, adapted to their national circumstances.

Energy Efficiency: A Worldwide View (completed in 2004) focuses on the evaluation of energy efficiency policies and measures their results in different operating and regulatory environments around the world. The research finds that market instruments (e.g. voluntary agreements, labels, information dissemination, audits and diagnostics), regulatory measures and standards are effective when the market fails to give the right price signals to favour insulated buildings or environmentally friendly appliances.

WEC’s Energy End Use Technologies for the 21st Century, published in 2004, estimates potential worldwide energy savings of as much as 25 percent by 2020 and over 40 percent by 2050. The scope for improvement is largest in the developing countries, and it is not static since it closely follows final energy services prices and technology development. On the other hand, developing countries can ‘leapfrog’ the developed world by installing the most modern technologies immediately (such as water heat pumps), without having to replace embedded infrastructure. This can be achieved by helping developing countries to transfer, acquire and maintain the appropriate technologies.

The price driver

Viewed historically, interest in energy efficiency has largely followed oil and other primary energy price fluctuations: the higher the price of oil, the stronger the interest in energy efficiency. Following a period of low oil prices at the end of the 20th century when little attention was paid to energy efficiency, higher energy prices have again propelled energy efficiency to the top of political and public agendas. It is therefore vital that final price signals reach consumers through cost-reflective pricing.

For final energy prices to drive high levels of efficiency, they should ideally reflect all long-run costs, meaning that subsidies that may have helped a technology penetrate the market eventually need to be removed and identified externalities need to be included. The prices of energy and energy products often reflect only a part of the overall costs, the part tied to the immediate cost of primary supplies or electricity generation. Rarely do they include longer-term environmental costs or the long-run marginal development costs and cross subsidies among consumers. To achieve cost effective market prices, governments need to introduce sound legislation and stable, investor-friendly regulations.

If final energy prices do not reflect true costs, decisions made by final consumers when purchasing equipment or making an energy efficient investment (e.g. retrofitting a dwelling) more often will not reinforce the drive towards global economic optimisation. There will be a gap between the actual achievements in energy efficiency and what could result if an accurate price system accounting for all costs involved were required by government policy and supported by clear regulations.

If price signals are to be felt, then at least some payment for energy services must be made. Metering and a workable energy payments system are, therefore, critical to the promotion of greater energy efficiency. At the same time, it is a practical political reality that abrupt and total withdrawal of subsidies may not be possible, particularly for poor remote rural populations and for the increasing numbers of poor people who are crowding into the urban and peri-urban areas of developing countries. Where tax credits or subsidies are maintained, however, they should be transparent, targeted and time-bound. Significant quantities of electricity in developing countries are stolen at this time through illegal connections – this is the worst ‘subsidy design’ possible, and experience shows that even very poor people are willing to pay something and will use electricity more carefully as a result.

Similarly, where political realities include energy taxation (for example, to cover the costs of externalities in end use prices), the principle of transparency regarding objectives and the level of taxation should be applied. Energy taxes themselves are often a source of serious distortion in the ways energy is used.

Energy efficiency policies that use direct or indirect price mechanisms (e.g. removing subsidies, incorporating externalities through market based mechanisms) are the most effective in lowering energy consumption trends. However, even without changing the overall price environment, energy efficiency policies should be pursued to correct market imperfections such as lack of information for small consumers about household improvements or the full operating costs of appliances, the building owner-tenant interest in thermal performance, and access to funding for technology improvements. Here again, legal standards, labels and information dissemination, along with an adequate payments system for energy are central to energy efficiency goals.

To achieve cost-reflective pricing, lifecycle analysis is therefore an essential tool. This is a ‘cradle-to-grave’ analysis of impacts and costs of a given energy source, be it biomass, solar, nuclear, conventional fossil fuels or any other fuel option. Lifecycle assessment has been applied, for example, to comparative evaluation of alternative automotive fuels and technologies that are expected to become available in the near future.

Some of these costs are already reflected in final prices, but there are significant omissions, including typically health and environmental impacts that are geographically dispersed. Of course, emissions trading schemes such as the one now operating in the European Union do have the effect of internalising the cost of carbon mitigation in the energy prices.

Voluntary industry action plans

In Japan, the Nippon Keidanren’s Voluntary Action Plan is based on individual industry action plans and has been effectively implemented to reduce greenhouse gas emissions. One of its principal components is to achieve quantifiable improvements in the energy efficiency of industrial processes, buildings and other activities of the companies. Industry agreements in Sweden for supplying and using waste heat are paying off. Similarly, as mentioned above, the cooperation of electricity generators to share information with WEC on best practises to improve the operating efficiency and maintenance of all types of power plants has both capacity and emissions pay-offs. Voluntary measures clearly reflect the special circumstances of each country or region; measures by city leaders and others, for example, to address congestion must reflect the specific history and cultural attitudes of the public.

Standards, labelling, codes and information

Standards and building codes implemented in OECD countries over the last 30 years have resulted in a drastic reduction of energy consumption of new dwellings (up to a fourfold improvement). Standards for new products should fall within existing or tighter performance standards for broadly similar products, or such performance standards should be rapidly introduced. Labels are important in channelling technologies to the marketplace to ensure that energy efficiency is taken into account. Audits and diagnostics for households and small businesses provide useful information to reduce energy costs.

Given the low stock turnover of the buildings and the difficulty of improving the efficiency once the building is completed, governments have a role to play in defining optimal building codes including insulation standards, double-glazing, and efficiency standards for lighting, refrigeration, central heating and air-conditioning systems. Similarly it is important that vehicles be covered by consistent efficiency criteria, so that choice is not distorted.

To ensure effective operation of transmission and distribution systems, regulatory authorities should adopt an investment-friendly approach to regulation and ensure better management of entire transport networks by introducing relevant incentives and penalties for reliable service.

Joint industry-government partnerships on energy RD&D

WEC’s recent work shows that robust research and development followed by demonstrations of new end-use technologies can potentially save at least 110EJ/year by 2020 and over 300 EJ/year by 2050. The success of such work depends on investments of about US$4 billion per year and decisions made today. Since it is almost certain that no single technology, or even a small set of technologies, will dominate in meeting all the needs of the globe in any foreseeable timeframe, new partnerships between industry and government are required to reduce the risks with incentives and policies that can help get end-use technologies from the laboratory or the test bed to market. In today’s world it is often easier up to a point to meet new capacity requirements in the energy chain through investments in energy efficiency rather than the siting and building of new plants.

Next steps

The World Energy Council stands ready to play its part in realising the potential of the energy efficiency opportunities available to all countries. In particular, it will:

• Become a ‘thought leader’ for raising public and industry awareness around the world on ‘intelligent use of energy’, working with active industry and government partners as appropriate to promote regional and global consensus on R&D as well as demonstration of new technologies and new materials.
• Disseminate, through its membership of nearly 100 countries, the important findings of its energy efficiency related work on regional integration of energy systems, pricing energy, life cycle analysis, performance of generating plant, energy efficiency policies and indicators and energy end-uses technologies.
• Support energy efficiency and energy saving initiatives as they emerge, such as the European Union’s call for ‘energy-saving action plans’ to be developed by member states over the coming nine-year period.
• Promote efficient energy technology transfer, installation and maintenance know-how in developing countries.

The World Energy Council believes, therefore, that the opportunities for enhanced energy efficiencies throughout the world are a reality, not a pipedream. Important gains in efficiencies have already been achieved but much more can be done with the tools at our disposal. It does signal, however, that further gains will not be easily won and will vary across countries and components of the energy value chain. While the greater potential for improved efficiencies lies in energy end-uses, including town planning and transport, the more immediate dividend lies in ‘upstream’ of end-uses.

From the WEC Statement 2006, “Energy Efficiencies:
 Pipedream or Reality?”

Key opportunities for energy efficiencies in the energy value chain

• Primary production: the quantity of primary energy per unit of energy required to produce it.
• Electricity generation: the kilowatt-hours generated per unit of fuel input.
• Primary energy transport (fuel transport, transmission and distribution): losses per unit of distance or unit of refined, processed or liquefied product.
• Energy storage, for example, natural gas storage.
• Stationary fossil fuel end-use for heating and industrial purposes.
• Electricity transmission and distribution: technical and non-technical losses as a proportion of kilowatt hours fed into the system.
• Mobility use: fuel consumption per kilometre of distance travelled or tonnes of product shipped.
• Other uses: heat for industrial processes, heating/cooling or lighting costs as a proportion of building costs per square metre, consumption in the home for computers and appliances.