December 10, 2008

Efficiency 3 times cheaper than wind, payback in 1 year

Gary Parke, chief executive of energy services firm Evolve Energy, writes in Evolve Energy (Dec. 10, 2008):

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 clean tech sector 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 greenhouse gas (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 to 550 parts per million – a level many experts believe will be necessary to prevent the mean temperature increasing by more than two degrees centigrade, leading to "dangerous" levels of climate change. ...

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 $170bn (£115bn) would result in a cut in energy demand of between 20 and 24 per cent by 2020 and a CO2 saving of 7.9 billion tonnes. McKinsey calculated that, at an oil price of $50 a barrel, $170bn annual investment would generate more than $900 billion in annual energy savings, a 17 per cent annual rate of return. This would reduce global oil consumption by 21m 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, Evolve Energy has found first hand 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 4GW wind turbine in comparison to energy efficiency measures implemented for a large supermarket brand. We found that to generate one megawatt of wind energy costs about £1m, while to save one megawatt 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.

Note that per capita energy use in the U.S. is about twice that in the U.K.; there is obviously a huge potential for conservation as well as efficiency.