22 November 2016
The global appetite for energy seems insatiable. Fuel consumption is set to increase almost 50% by 2040, according to the International Energy Agency, driven by economic growth and a rising population.
Yet the unwanted side effects of energy use are becoming harder to ignore. Air pollution contributes to around three million premature deaths a year. The OECD (Organisation for Economic Co-operation and Development) fears the death toll may climb to nine million by 2060. And global warming threatens to weigh on crop yields, water quality, and ultimately global growth.
Confronting these challenges, governments have started to incorporate efficiency targets into their energy strategies.
The default option when countries need more power has been to produce more – often committing to a multi-billion-dollar power plant that would operate for many decades. But it can be far more cost-effective to squeeze out waste.
Energy efficiency: The world’s "first" fuel
All of the energy challenges that nations confront can be helped by improving efficiency. Only some nations have coal or oil, but every country has the potential to exploit efficiency. For that reason it can be considered the world’s first fuel.
The EU, for example, has set itself the goal of becoming 20% more energy efficient by 2020 – which equates to turning off 400 power stations. The BRIC nations are also making a determined effort to reduce their CO2 emissions and improve energy efficiency. Russia, for example, announced a few years ago its goal of boosting energy intensity by 44% between 2005 and 2030. Brazil is targeting 10% efficiency gains in the electricity sector by 2030. And China aims to reduce CO2 intensity per unit of GDP by around 65% between 2005 to 2030. This is part of a global drive. Energy standards now cover 30% of fuel used worldwide, according to the IEA, up from 11% in 2000.
The race to meet regulation
Energy-saving products and services markets are forecast to grow as fast as 7–8% a year in the coming two decades, according to the IEA. That is a leap in annual spending from USD 130bn in 2013 to USD 550bn in 2035.
A key focus will be upgrading buildings, which account for 40% of total global energy demand. "There can be incredible waste in commercial buildings, with heating and air-conditioning systems being run on the same day and lights or computers being left on through the night or over weekends," explains Jim Barrett, chief economist of the American Council on an Energy Efficient Economy. Smart buildings have centralized systems that control these environmental systems. As standards improve, firms that coordinate these processes – turning lights and computers off when the last worker leaves – can realize even greater efficiency.
In the US, it costs just three cents on average to save a kilowatt-hour through energy-efficiency measures, versus around 10 cents on average for electricity generation, according to research by the ACEEE (The American Council for an Energy-Efficient Economy). Nations like Switzerland and Japan, which have limited domestic fuel resources, have been trailblazers here, achieving major efficiency gains that others can emulate.
The road to clear skies
Only about 25% of the energy contained in gasoline reaches the wheels of today’s average vehicle.
Transport accounts for another 30% of global energy demand. The implementation of standards for car fuel economy have already saved the equivalent of 2.3 million barrels of oil a day – approximately the output of Brazil. Yet only about 25% of the energy contained in gasoline reaches the wheels of today’s average vehicle, according to US Department of Energy data. Electric cars, with a conversion ratio near 60%, have the potential to increase transport efficiency even more.
Companies that offer cloud computing services could also benefit from the push for energy thrift. "Instead of maintaining energy-guzzling servers, which are often underutilized, companies can let cloud providers that efficiently pool resources run their IT infrastructure," says Sundeep Gantori, an analyst for the CIO. Various studies suggest this could more than halve businesses’ energy consumption.
Another major challenge is trimming waste when transmitting electricity. ABB estimates that 80% of electricity is lost between resource extraction and final use. Such inefficiency is an even more pressing issue in Africa, where power outages are the bane of businesses
Rich and poor countries alike are already cutting waste. The US economy has grown by 150% over the past 25 years, yet energy use rose just 26%. Global energy intensity – the amount of energy used per unit of GDP – improved by 1.8% in 2015, the IEA calculates. But far more needs to be done. Progress on energy intensity needs to be 50% faster than at present to meet the Paris Agreement goals on climate change, according to the IEA. As governments focus on climate, pollution, and energy-security goals, the appetite to invest in companies that help reduce energy waste looks set to increase.
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