Green energy people in the UK didn’t have a comfortable summer despite the sunny days, with unpleasant surprises like cuts in Government financial support for solar energy generation.
The new direction from the UK Government is to help people reduce their domestic energy costs (and maybe carbon), without costing the Government any money. At the same time policies must keep businesses on board, and win public acceptance. Enough of a challenge to keep anybody busy. Energy efficiency as a strategy to resolve that cluster of problems is therefore, in policy land, the site of big hopes.
I heard some great policy ideas recently to help people consume energy more efficiently. One I liked a lot came from Simon Roberts OBE at the Centre for Sustainable Energy, pitched at a ‘Dragon’s Den’ event at the Policy Exchange thinktank in London. The idea stood the idea of supply and demand on its head.
Simon proposed a ‘Demand Reduction Obligation’ (DRO) to be put onto energy suppliers, i.e. the Government would set targets for energy suppliers to reduce the demand from their customer base. The idea has the beauty of being both simple and radical. It is simple because it sets a desired outcome without being prescriptive about the means. It is radical because it sets businesses free to build new types of service, new types of customer relationship, and new types of management system. It could free up demand for technical innovation in energy efficient products, social innovation (social marketing of energy efficiency) or most excitingly, business model innovation. That’s why it stands the idea of supply on its head, because it is mandating businesses to sell less of their product – with the implication that they need to find something else to sell. Perhaps most businesses will not welcome an obligation to sell less of their product. But a few business leaders may see it as an opportunity to give their business a new direction, perhaps carving out a niche within circular economy principles or taking up a service model.
The implications for consumers become interesting. If you are a low energy user, you could find yourself courted with great deals as energy companies seek to entice you over to keep their portfolio balanced. There might need to be some smart profiling – for example, private rented housing is likely to be much less energy efficient than owner occupied or social housing, but the data is there to create fair DROs for suppliers. And you would need to make sure there were no dwellings that nobody would serve. But the idea could be really exciting for sustainability leaders in the energy supply business, and for consumers. Maybe some particularly energy efficient consumers could become entrepreneurs themselves, trading their abilty to avoid using energy at peak times with people who have to feed the whole family and put the washing on between 6-8 pm.
When asked what energy suppliers should do if not supply energy, Simon Roberts proposed that one shift would be to develop businesses such as ‘LED lightbulbs as service’. At the moment if you want low-energy lightbulbs you can’t have the pretty ones. The vintage-type ones that look like someone’s been waving a sparkler up and down inside a lightbulb, are F rated. The plain, functional, virtuous LED ones are A+ rated.
Imagine a company that not only reduces your lighting costs but offers a range of nice lightbulbs as service, maybe identifying where your family needs different kinds of light, or maybe with a winter special of warm-glow lightbulbs swapped with cool bluer bulbs in summer. That’s the sort of thing that could make energy efficiency inspiring to people as home-dwellers, not as bill-payers. As people at the Policy Exchange event kept saying ‘people are not spreadsheets’ and yet that’s how energy efficiency is marketed. And as a result, people for whom status and luxury is more important than cost, are one of the groups stubbornly failing to make energy efficiency savings. Cost is a huge driver of consumer behaviour, but it is not the only one. Making life more inspiring can go hand in hand with living more efficiently and sustainably.
A rare example of a pretty LED lightbulb, by Edison.
Common Threads 
Very interesting Essi. I think the change of energy culture is amongst us. Research in Europe shows that we are now past peak consumption of energy and now reducing our consumption levels. This is not true in China and certainly not true in India so there is much to do there, in fact they will likely continue to increase their energy needs for the next few decades.
It is however these markets that will make or break the 2c world. However there is a ethical trade off between growth and quality of life and carbon caps. This is a horribly complex question.
I am however hopeful that with advances such as you mention these tradeoffs can be made less painful. Distributive power in India is a growing trend and advances in solar in China is now maturing.
I live in a city state of 7m people and we now have LNG fired taxis and the largest footprint of electric cars in the world – all driven by government policy.
For decades, environmental agencies around the world, have suggested that energy efficiency is the low-hanging fruit to help achieve a more sustainable energy landscape. Given the enormous potential, the key question, which comes to mind, is why so little has been achieved in this area.
I guess there are at least 3 reasons for this: (1) lack of awareness that these energy efficient technologies actually exist (especially in emerging markets), (2) lack of proper government policies to stimulate fast adoption of more energy efficient technologies, and (3) the perception that energy efficient technologies are more expensive than traditional ones.
In 2017, Kazakhstan’s capital will host Expo 2017. The overall theme of Expo-2017 Astana is ‘Future Energy’ and the following dimensions to ensure sustainable energy management are envisioned: (1) combating climate change and reducing CO2 emissions, (2) promoting energy alternatives – renewable energy in particular – and driving energy efficiency programs, (3) ensuring energy security, (4) managing energy production, storage and use, and (5) guaranteeing universal access to sustainable energy. Given that energy demand in emerging markets is still growing fast and that efficiency is not at the forefront of people’s thinking, energy efficiency programs are at the core of Expo-2017 Astana’s ‘Future Energy’ vision.
By showcasing, efficient lighting, electric appliances, passive housing concepts and better insulation materials, and efficient cars – hybrids, hydrogen and electric vehicles, it is hoped that consumption behavior of businesses, citizens and government leaders in Kazakhstan and from around the world will change.
I wouldn’t give up hope about the pretty light bulbs – The LED lights in my home office look pretty cool to me and my electricity bill has lowered over the years.
Hi, the Astana conference sounds amazing. It is taking that dilemma head on about how to ensure energy security for all while reducing carbon emissions – such a great challenge to address! All my best wishes for Expo 2017.
May I share with you the Scheme of Control (SOC) in the situation of Hong Kong. It is actually discourage energy-saving practices.
Utilities in general have a financial disincentive to promote energy efficiency because under traditional rate-making, the more electricity utilities sell, the more money they make. Therefore, efficiency programs will be in conflict with the utility’s traditional service objective.
In Hong Kong, under the Scheme of Control (SOC), the disposable profits of the utilty companies are based on the return on their equity capital. The tariff rates are set to allow the utilities to recover their operating and capital expenditures in supplying electricity to their customers. The permitted rates of return on capital investments are also included in the utility’s total revenue.
The cost of service in electric utilities generally tends to comprise a significant portion of capital expenditures associated with investments in power plants, including transmission and distribution systems, which is likely to be predictable in securing the utilities’ future revenues. This provides the utilities with a strong incentive to maintain revenues by increasing electricity demands and upgrading their systems.
If electricity demand is reduced through DSM measures, the need for having a new power plant can be eliminated or deferred. If this happens, revenue levels will be adversely affected. On the other hand, building new power plants will increase equity capital, which is the outcome upon which the economic returns of the utility companies are based.
In 2005, before the renewal of the second SOC, electricity sales were much lower than forecast, and Hong Kong Electric, which experienced a drop in profit levels, applied for an increase in the electricity tariff of 7.2%. The move provoked widespread discontent among legislative councilors. Therefore, power companies may be able to apply for an increase in electricity tariffs if the permitted level of return is not met due to the reduction in electricity sales caused by energy-saving measures.
Reviewing the Scheme of Control and including concrete Demand Side Management measures is the way forward to help Hong Kong reduce its electricity consumption. The government may consider:
Requiring the power companies in Hong Kong to set an aggressive DSM energy-saving target and launch relevant energy-efficiency programs for every customer
Providing incentives to encourage power companies to participate in specific energy-saving scheme for the users
Revising the tariff system in a way that requires those who consume more electricity to pay a higher price. This measure can compensate for the loss of profits that power companies may experience and can reduce the burden of increased tariffs for the more energy-efficient end users.
Technical suggestions to incorporate energy-efficiency programs and DSM measures into the SOC will be available on the website soon. Energy poverty must be addressed when there is a significant change in the tariff structure. Special care and subsidies must be given to those in need.