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Energy EFFICIENCY :the biggest value opportunity on the planet?

Dr. Steven Fawkes

16th January 2013

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Global potential for energy efficiency

$170 bn a year investment would:

-halve the projected growth in energy demand (reducing demand by ~ 64 million barrels a day)

-produce half the emissions abatement required to keep atmospheric CO2 at 450ppm

-have an average IRR of all projects 17% (at $50/barrel oil)

Source: McKinsey

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€336 bn

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INEFFICIENCY EVERYWHERE

US runs at least 8 large power stations just to power stuff that is turned off

< 10% of the fuel that makes electricity for pumping applications actually creates customer value

< 1% of the fuel that makes electricity for a data centre actually creates customer value

Source: Rocky Mountain Institute

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Just How inefficient are we?

475

5555

Source: University of Cambridge, global figures , in EJSource: University of CambridgeUnits: Exajoules

$6 trillion pa on energy

Energy services

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Us ee market

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$43 billion EE premium

$5 billion through EPC

Source: ACEEE

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Us ee & DR market

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$59 billion EE and DR

Source: Climate Change Business Journal

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Us real estate

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$279 billion

investment opportunity

Source: Deutsche Bank

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Global BEMS MARKET

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$320 million p.a. by 2020for utility programmes alone

Source: Pike Research

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UK EE MARKET

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£17.6 billion p.a.136,000 jobs

5% pa growth rate

Source: DECC

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india

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$16 billion in 2012$148 billion to 2020

Source: EY

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barriers

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BARRIERS TO energy efficiency

Many barriers including:- Supply side domination

- Low priority in many organizations

- Not regarded as strategic

- Split incentives – landlord / tenant problem

- Measurement of results (M&V)

- Limited capacity – technical skill shortages

- Access to capital

- ‘The ribbon problem’

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HOW TOWAKE UPTHE SLEEPINGGIANT OFENERGYEFFICIENCY

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Massively scaling up efficiency

Requires three things:

- Expanding DEMAND for energy efficiency

- Expanding SUPPLY of energy efficiency products and services

- Expanding FINANCE for energy efficiency

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SCALING UP DEMAND

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Scaling up demand

Requires:

- a sector (and sub-sector) examination of Enabling Conditions

- market segmentation NOT market classification

- capacity building at all levels from:- Institutional shareholders

- CEOs and CFOs, energy managers, shop floor workers

- householders

Regulations help but you also need to address capacity

ISO 50001

Electricity market design

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Scaling up supply

Requires:

- Capacity building, especially in:- Improved M&V (IPMVP)

- Integrative / holistic design techniques

- Improved technologies (in some cases)- Analytics

- Evaluation tools

- Advanced materials (e.g. insulation, windows)

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Scaling up FINANCE

Problems:- Small project size

- Off-balance sheet issue

- Not a recognized asset class

- Mis-pricing of risk

- Contract forms

- Application of private equity model

- Lack of standardization

- Lack of M&V

- Lack of a secondary market

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EMERGING technologies

A few examples:- Adaptive building materials

- Home automation

- Energy analytics

- Micro-generation (mCHP)

- Materials processing

- Integrative, holistic design techniques

- Complete building retrofits

- ‘Intelligent energy efficiency’

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38% energy saving3.1 year payback on incremental capital

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BUSINESS MODELS – SHARED SAVINGS

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Total energy costs after contract

Total energy costs before

contract

Total energy costs during

contract

Repayment of capital

Net savings

WID

ELY REPRODUCED –

WID

ELY MIS

-UNDERSTOOD

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Not a new idea

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75% of the US market is MUSH- MUSH has access to cheap municipal debt

Excess margins being made in US public sector

ESCO incentivised to maximise capex NOT savings

Split incentive in commercial offices

Accounting standards (IFRIC 12)

Transaction costs

Projects too small for institutional investors- project sizes ~ £/€/$ 1m to 20m

- cheque sizes > £/€/$ 100m +

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Problems with the esPC model

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BUSINESS MODEL INNOVATION

The problem is NOT availability of money

ESPCs are NOT the answer

Need to develop and structure projects in a way that allows institutional investors to invest at scale

Innovation needed

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SOME EMERGING innovations

Energy Services Agreement (ESA or MESA)- off-balance sheet services contract

- backed by an ESPC contract

PACE - works in US local tax system

- now bringing in private finance

- now being applied to commercial buildings

On-bill repayment (OBR)- dependent on regulatory regime

On-bill loan - Green Deal in UK and others

Aggregation vehicles

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AREAS FOR R&D

TechnologiesDemand generationAggregation of demand (city wide programmes)Business models (services)-Buildings-Transport

Policies to create markets for efficiency-Enabling efficiency to be used in the electricity market

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There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.

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summary

Potential for growth in energy efficiency is huge

We need to wake the sleeping giant of energy efficiency by:

- Increasing DEMAND- Increasing and improving SUPPLY- Increasing availability of FINANCE

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contact

Steven FawkesDay One Energy Solutions

+44 77 0223 1995

sfawkes@dayoneenergy.com

www.linkedin.com/in/stevenfawkes

@DrSteveFawkes

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