How Far Will Energy Efficiency Take Us?
Implementation Roadmaps for the Coming Retrofit Revolution
Cities are seeking greater energy efficiency and fiscal sanity by transitioning to cleaner and greener physical systems — from the big building assets to the smaller lighting solutions, both indoor and outdoor. What are the financing solutions coming out of the private sector? Hear from the lessons learned in CA, the East Coast, and Europe. What policy drivers are successfully driving energy efficiency? Where are the case studies that reveal key lessons that are replicable and scalable and transferable? Which technologies haven’t yet been scaled, but could be so? And which ones are in the pipeline?
- Alison Peters, Managing Director of the Deming Center for Entrepreneurship at CU-Boulder’s Leeds School of Business
- Harry Verhaar, Sr. Director Energy & Climate Change and Head of Strategic Sustainability Initiatives, Philips Lighting (via Telepresence from Amsterdam)
- Charles B. Leitner III, Chief Executive Officer, Greenprint Foundation / Chairman, RREEF (via Telepresence from New York City)
- Jane Pater Salmon, Associate Director, Navigant Consulting
Good Afternoon everyone, I’m Alison Peters, Managing Director of the Deming Centre for Entrepreneurship. I am one of your hosts here today and am delighted to welcome you to this session on energy efficiency. I am going to be completely dispensing with my prepared remarks and we will be talking about the intersection of people and technology because one of the things that we are going to be dealing with here is that we have two TelePresence speakers who have not yet made their TelePresence connection. So we will be working with what we have got and we will be very open to audience participation for that reason.
With that preamble, I would like to let you know who our speaker is who has kindly joined me here. We have with us today Jane Pater, I’m sorry, Jane Pater Salmon – I never remember that. Jane is the Associate Director at Navigant Consulting. She works in energy efficiency and renewables and she focuses particularly on the utilities sector. Jane is actually replacing Michael Simonovich from UC Davis who was in our program who is not able to attend. We owe a special debt of gratitude to Navigant for giving us Jane and they will also be sending over second participant, Stewart Share who is one of the directors, to talk about some other aspects of energy efficiency. So this will be a little bit on the fly here.
At the same time, we are trying to cover a lot of different topics as we were given a rather ambitious subject matter addressing financing, policy, case studies and technology and how they relate to cities in terms of energy efficiency. So, what we are going to do is have Jane start, she has some prepared remarks. We are hoping to patch in our other panelists as they arrive. I certainly have plenty of questions that I can ask, but, be thinking of some yourselves as well. We will be welcoming your involvement.
So Jane, I am going to let you to start, and I wanted to have the overall focus. Harriet O’Hare who is in Brussels right now and, hopefully will be joining us, was asking the question; ìWhy are we where we are and what’s the real issue we are trying to solve here with energy efficiency?î So Jane, if you would keep that in mind as you are giving your opening remarks and help us frame the issue.
Jane Pater Salmon
I work in the utilities sector also with policy makers for energy efficiency and so, I think, it’s great that I get to go first because I think policy sets the framework for a lot of what we actually can do in energy efficiency. Certainly the opportunity to interact with utilities provides a great opportunity to increase the rate of return on some of these investments and to help publicize some of the availability of energy efficient technologies. Stewart Share is here. Stewart, you should go and get your mic in the back and then come join us up here on the panel.
Intersection of technology and people, I think it’s actually a great part of this topic. So, we’ll talk a bit about the utility sector which has a strong presence in energy efficiency in some markets and in other markets, not so much. But, they do have a tremendous opportunity to help. I’ll take my next slide please. I can do that? Oh good. What I wanted to start with was, looking at the policy spectrum and looking at a couple of the types of policies that have really helped promote types of energy efficiency across the country. Essentially, I want to look at a couple of types of policies.
One is the performance incentives for electric energy efficiency. Essentially, these are types of structures that regulatory commissions can put in place to provide incentives to the utilities themselves to invest in energy efficiency and to provide incentives to the end users. The customers like you and me, our businesses, industrial customers, who use quite a bit of the energy and so, the regulators in many States. As you know, the electric utilities and gas utilities are regulated and is a legacy of years of many different evolutions. Every State is a little bit different, has different regulations and so we have a tremendous amount of diversity in the way electricity is incentivized by utilities, but we also have a good amount of opportunity, because you can influence different ways in different places and quite a good amount of experimentation as well.
In this slide, you can see that 21 States have adapted performance incentives including a couple of different ways they can do this. They can pay out a share of the achieved savings. If there is a dollar saving associated with energy efficiency, the utilities can earn a rate of return on that investment and they can also receive a different rate of return on investment.
As you may know, many utilities have a fixed rate of return on their capital investments and, so energy efficiency and the incentives associated with it are not – actually typically, utilities do not get compensated for their work to incentivize energy efficiency across their customer base. That’s a major financial barrier as you may expect for utilities to promote energy efficiency. So, when regulatory commissions put in place frameworks that enable them to earn a rate of return at least commensurate with their rate of return on capital investments, then you can see a real opportunity opening up there.
The other type of incentive that I wanted to talk about are lost revenue adjustment and decoupling. Electric utilities are in the business to sell electricity and so, when you do energy efficiency, you decrease their revenue and that’s a very fundamental truth and also another financial barrier to doing energy efficiency at the utility scale. In some States you can see here, a handful of them have implemented Lost Revenue Adjustment policies so that, it’s at least cost recovery on the investment that they make in energy efficiency whether that’s the administration of the programs or the incentives that they pay out, they get to recover those costs.
Then the other item here, the decoupling mechanism. Decoupling is a really interesting opportunity for policy makers to provide an even greater financial incentive for utilities to promote energy efficiency. Essentially what this does, it takes a part or all of your revenues, typically a part of your revenues and says this part of your revenue will not be related to the sale of electrons. So, essentially your revenues are decoupled from the sale of electricity and so this creates an opportunity for energy efficiency to be promoted at the utility level without the fear of losing, not only the revenue, but the rate of return on that revenue, and all the other things that go along with that.
So, we are really thinking about utilities shifting their business model. In parts this is not wide, wide spread but it is an opportunity, going forward as you see utilities not just in the business of selling electricity but in providing for the energy needs of their customers through a variety of services and products, including electricity.
Those are those two and I just wanted to share a little bit about a story that many of you may know in the State of California with their investment and energy efficiency and what that has done over the last forty years. You can see here, the blue line is our per capita energy consumption across the United States and the yellow line below it is California’s per capita energy consumption. You can see quite a divergence there right around 1973, and that was about the time that California started to incentivize energy efficiency and started to make policies to provide it and require their utilities to promote it.
So what you have seen here is the progression, over time, of energy efficiency making a major impact in the marketplace and providing a great opportunity to demonstrate an effect on policies. Now, I am not going to say that their investment in energy efficiency is the sole thing that has resulted in that decrease in per capita energy consumption. Certainly, energy prices have a major impact on that, but just to give you some perspective, we are currently in an evaluation cycle of the current cycle of evaluation programs in California and just to evaluate the progress of those programs. There is $100 million on the table over a 3 year period. The programs themselves are funded at $1 billion. They are talking about the next 3 year period being funded at $3 billion over that 3 year cycle, split across the 4 investor utilities across the State.
So there is quite a bit of money at stake there and the utilities have on the order of $200 million in terms of Shareholder incentives if they meet their energy efficiency targets. So it’s starting to create a business for energy efficiency at that level that also trickles down and creates an incentive for them to act in the market and create new influences there as well.
Those are just a few of the initial thoughts that I wanted to share, just framing the issue from this perspective. Policy makers have a tremendous opportunity to create opportunities that many market actors have the incentive to promote energy efficiency, not just the end user who has to pay the bill at the end of the month. But enabling mechanisms, whether they are people, whether they are organizations like utilities, are very important and can play a vital role, moving forward, with energy efficiency.
I would like to come back to that a little bit later but before we do that I am very delighted to announce that we have a second panelist, actually we have a second intern panelist, Stewart. If you would like to join us, that would be great. I am going to be introducing Chuck Leitner who is joining us from New York. Hello Chuck.
Hi, how are you?
I am so glad you could be here. Chuck is the CEO of the Greenprint Foundation addressing greenhouse gas emissions in the Real Estate industry, so he’s going to give us that real estate perspective; he is also chairman of RREEF which was mentioned this morning which is Real Estate Investment Management arm of Deutsche Bank’s Asset Management Division. Chuck, would you like to give us a few words of introductory remarks from the Real Estate perspective?
Oops, that’s not good. Come back to us Chuck and give us your opening remarks from the real estate perspective.
Okay. Hopefully, you can hear me. Is that working?
I am delighted to be here via TelePresence and thank you to Cisco for providing that capability. Sorry I can’t be there in person. I spent some time here in New York earlier in the week with the Clinton Global Initiative, talking about sustainability in the real estate sector, so it was hard to be in two places at once but technology has almost created that opportunity. Thank you for having me and it’s a pleasure to be part of the discussion.
I will do my best, without being physically there to frame what we are trying to do in the real estate space and, hopefully, that will encourage some back and forth discussion with audience and the other members of the panel. But, as was said during the introduction, I wear a couple of different hats but one is as the CEO of an organization called Greenprint which really is an alliance of real estate investors from around the world.
They’ve come together to focus specifically on that component of the build environment which isn’t the entire build environment, but a significant part of it and actually get serious about developing performance measurement standards and benchmarking capability around energy efficiency and Greenhouse gas emissions is its two primary functions initially. And hopefully, create something that allows the real estate marketplace to actually find the correlation between good energy performance, good responsible emissions, awareness measurement and financial performance and financial returns.
So, the theory being that there is a connection. There is a lot of debate about where that connection happens, but without good information, good data, good processing the data and reliable standards in common language, it will be very difficult for the markets actually to ultimately make the correlation. The group is about 2 years young and we have about 20 of the largest investment owners of real estate around the world. We are trying to grow that membership to increase participation.
To give you some idea of some of the measures we’ve created, we’ve been at this now for 2 years like I said. We’ve published now two volumes of our Carbon Index Report which is a true database and now a true time series that measures carbon emissions, coming from a portfolio of investment real estate that includes property types from office buildings, to shopping centers, to industrial parks, multi-family residential properties, hotels. As I said, now as a time series, it is a publicly available index, you can look at our website and actually look at that portfolio, look at it’s performance. I am delighted to say that year over year, the first year at it, we’ve actually slightly reduced carbon emissions in that portfolio in the first year. I will say, we are very young from a data point of view so I will be very careful not to make the claim that that’s absolutely what’s happening out there.
To give you a brief example, we started with only 600 properties which doesn’t sound like a lot, but as far as we can tell is one of the largest portfolios assembled to actually track emissions for this part of the market. We had 14 companies participating and obviously, in the first year, you don’t generate a time series and we published that report in October of 2010. We published volume 2 in July of 2011 so less than 12 months later. We went from 600 properties to 1600, increased our participation in members from 14 to 19 and increased the square meters in that portfolio by 100%. We are starting to get more statistically relevant. Trying to but not necessarily drawing out conclusions from that yet because it’s still a pretty immature database in terms of scale, but we are developing and trying to educate the real estate market in terms of investment on how to use a tool like that. How increased participation will make it a better tool and how you can actually do comparative analysis inside that portfolio.
One of the big challenges with data in the real estate space is like for like comparisons. A lot of regulatory action has occurred in places like New York city as an example, to force carbon disclosure, which is great but there are mountains now of data being generated without the tools to compare assets to one another in a way that makes sense. It’s very hard, obviously, to try and compare a pre-war apartment building to a state of the art office building in terms of carbon emissions. How do you normalize data and create sub-indices so you can create benchmarking that actually works, where people can do like for like comparisons and hopefully make intelligent decisions about how to reduce emissions, how to increase energy efficiency to improve performance?
And then, our theory is that the market will ultimately see that there is a correlation between that action and that performance and the financial performance. So, that is a brief summary of what we are doing. I am happy to get into some more details but we’ve learned a lot about where the real estate industry is and where it needs to go.
My background is in the real estate investment side. It’s not on the energy side so I represent some of the converted or the wanting to be converted part of the industry to say, ìLook, we’ve got to get more serious about this.î There’s a lot of eyewash about the green sustainability environment. A lot of really good work has been done around sustainability and energy in the build environment. Rating certification being a very good example that whatever those rating certifications might be they definitely have made a difference in the market but ongoing performance measurement is the next step. We are really hoping to show a way to do that in a very dynamic real time way and get information into the hands of the decision makers, the owners, to accelerate market activity. Whether that be retrofits, whether that be investment strategies and standards, whether that be not investing in certain buildings that don’t have certain characteristics and being more of an advocate around changing the built environment because of those underwriting criteria and those investment criteria that can now be measured – and the investment business has always been obsessed with performance measurement, and rightfully so.
In some ways I look at this as an opportunity to do what had to happen in the real estate industry back in the late 1980’s and 90’s. An increase in transparency from a financial point of view which happened in the public marketplace was a big part of making that happen. Real estate sort of grew up as an acid class from a transparency point of view in the 80’s and early 90’s, during the last crisis. Now, we have an opportunity to grow up from an energy point of view and increase transparency performance measurement in that important category. That’s what we are trying to do at Greenprint and I would love to engage with my fellow panelists and all of you around how there are common threads between real estate and other activities in the space.
Thank you so much Chuck, we’ll come back to some of those topics you’ve been raising. Now Stewart, if you wouldn’t mind introducing yourself and if there are some comments you want to make about where we are with energy efficiency, we are happy to hear them.
I appreciate you having me here today. I’m Stewart Share, I’m a Director at Navigant Consulting, the same firm that Jane is at. Actually, we were a local Boulder based company until about 2 years ago. It was started just about three blocks from here with a focus on energy efficiency, designing programs for utilities and evaluating those programs. A lot of our work is ensuring that energy efficiency claims are real and adjusting claims. A lot of times utilities are given incentives for the efficiency achievements that they are able to get. The whole idea in the last 20 years, there has been a shift. Instead of just rewarding utilities and giving an incentive return on investment for building power plants, what if we gave the same return on investment for building energy efficiency, and that idea has caught on. I wouldn’t say it’s on par with building power plants.
If you asked most utility executives, they would probably prefer the assuredness and the history of putting steel in the ground. What we have got now is these returns and there are incentives so in theory it should be a fair game. A utility can make as much money by conserving energy as by building a power plant and that whole idea is what is driving investment in energy efficiency. So that was what the company Xcel Energy was designed to do. My role at the company is focused on both energy efficiency and demand response.
Jane asked me to speak a bit about the idea of demand response as a part of the energy efficiency demand side management field. Energy efficiency in general is reducing the amount of kilowatt consumption. How much gas or coal you have to burn – by reducing that we reduce emissions and other things. But the point that a lot of people don’t think about, is do we have to build more power plants to meet our needs in the peak of the summer with the air conditioning load? All new homes are built with air conditioners these days. Twenty or thirty years ago that wasn’t the case, and on that hot July day we need enough power to meet the demand. So there is a whole field that’s called demand response and it’s aimed at reducing that peak load in urban areas both through commercial buildings and residential. And the idea is to avoid very expensive need for a new power plant which also means there are issues of location. Where do we want to build it? I want to touch on maybe three areas today and save more of the time for questions. The three areas are distributed generation, demand response and smart grid.
Distributed generation is the idea that we don’t just build power plants 50 or 100 miles away and transmit the power here. We can actually transmit the power inside the cities. A very common type of distributed power is solar on the roof tops. There are advantages, you know, individuals can invest and then be, mostly self-sufficient or partly self-sufficient. You don’t have to build the infrastructure of the distribution and transmission system to deliver the power, you can generate it inside the city and it offers a lot more diversification. If we had virtually all the homes with solar panels on the roof, you’re not going to have one big failure of a transmission line or have a plant that causes a rolling black out situation; you’ve got a lot of very small power plants built throughout the city. So distributed generation can come in different forms, but that’s one type.
Another type that is sometimes called the negawatts – energy efficiency is called negawatts, negative kilowatts – is the demand response. You could have that same home and whereas you could have a solar panel on the roof, at four in the afternoon it’s probably generating about at its maximum but, you can also have demand response and Xcel Energy is probably one of the leaders in the country here in hooking up residential air conditioners to a small switch. It’s the Saber Switch here in Colorado and perhaps, on those 5 or 10 days a year where they really need the power or it can get very expensive and all those costs get passed onto you, Excel will call an event that limits, for a few hours, the amount that an air conditioner can run.
This is only for customers who have chosen to be part of the program, there’s a small incentive for participating and for a few hours in the afternoon instead of your air conditioner running 50 minutes every hour, it’s maybe running 30 or 40 minutes every hour and that can be just enough to get through that period and avoid the need for an entire new power plant just to meet those few days of load. The idea of demand response can also be used to support renewable energy. It’s a newer field but in the Northwest it’s big and in Hawaii, which is looking at over 50% renewable energy in the next 20 to 30 years, demand response is being used side by side to support renewable power.
What happens, when the sun goes behind a cloud, you have a real, sudden drop in the amount of solar power that you have and the electric system is typically geared to handle that but it has slow ramp ups and ramp downs in the power needs and the engineers can plan for what they need. But, when you have a sudden loss of solar power and when the wind suddenly drops, you need to be able to accommodate that. Demand response is one way the electric system is able to accommodate solar power. It can be activated very quickly, it can even be automated where the sun goes behind a cloud, there’s a system drop, there’s a change in voltage and it can virtually, instantly trigger these demand response events for air conditioners, perhaps for 10 minutes and it can happen within seconds or a minute and within 10 minutes they can get another power plant up and running or cranked up higher to accommodate the loss of the solar power.
Without demand response, a lot of people would say it’s going to be really costly for renewables because for every one gas fire power plant, you get to count the whole thing for meeting the capacity needs of the system. If you build a solar or a wind plant, the numbers will depend on a lot of factors where it’s located, but you might count only 10% to 30% of that capacity of that renewable power. When people talk about the cost of renewables it’s not just how much does it cost to build a solar panel or to build a wind farm and how much does it cost to operate but, it’s also a matter of do we need to build a whole new power plant, just to support them, just in case or half a power plant to support it, because it’s not as reliable. So, those are some of the issues where demand response comes into play.
Some of the interesting things with technology and maybe the crossover with smart grid, which is the third topic I wanted to touch on – is the idea that you have both commercial buildings and residential participate in demand response. The way it works with commercial buildings – if you are not familiar, it might surprise you, but office buildings might raise the temperature inside the building for a few hours; they might shut off escalators, decorative fountains, things like this. Much of it is things that don’t get noticed or that it’s for a short enough time that tenants don’t realize it.
One of the smart grid innovations for now is called Automated Demand Response. Instead of sending a signal or sending an email saying, ìDo you remember you agreed to shut off a few hallway lights and you said you would turn the thermostat up 2 degrees in your high rise office building,î Automated Demand Response uses common protocols that talk to the building management system. The utility decides we need an event or there’s an automated signal and within seconds or minutes you can have buildings that take their management system, the whole computer system that drives the motors, that drives the HVAC system, and it can instantly put a protocol in to reduce the load to get through the event.
If you are not familiar or building owners that are new to this think, ìAre you crazy? You are going to pay me to raise the temperature.î My whole business is, I’m a Landlord. I have tenants that work in here, but with new technology they are able to control exactly how much they change the building system to make it almost unnoticeable. Tying in with energy efficiency, in order to set up one of these systems, typically you have a much more detailed meter system and it’s web enabled and you have instant access to what your building loads are.
A lot of building managers have found that getting access to this data, that enables demand response, they are also able to see what their buildings are doing 24 hours a day to the minute or to 3 minutes and they find out, ìHey, what’s happening over night? What is this load that we didn’t know about?î There have actually been some pretty significant stories of savings many, many times greater than the incentives that the utility might pay to be part of this program. So, there are actually energy savings, big bill savings for the customer and at the same time, they are hooking up more and more buildings with these automated systems for demand response.
With the idea of smart grid there have been stories certainly here in Boulder. We are a poster child here for Smart Grid City. I am sure most of you will probably have heard of Smart Grid City. I am not sure how much people know within the energy efficiency industry the national reputation. For a couple of years, Smart Grid City was an international leader, it was cited as the up and coming thing but, it didn’t work out as well as the regulator, the utility and consumers had planned.
The idea was that it would automate access over billing information, you would have more control over your home energy usage if you were on vacation or an event came up you could increase or reduce the temperature in your home and other billing advantages and other things. Well, what happened not just in Colorado but around the country is smart grid was rolled out as this big savior and big new thing but nobody quite understood what the benefits would be. We thought they would be there, but nobody was quite sure and what happened is our expectations weren’t met.
In one example, in California, the city of Bakersfield got new smart meters and it happened to coincide with one of the hottest summers in many years and some changes in the billing rates that had nothing to do with smart grid. You had a lot of customers with old meters that had dirt in the cogs and they weren’t running as fast as they should have, then you put in meters that accurately measured the load and you had a really hot summer where air conditioning loads were high and you had a change in billing structure so that if you use more energy you are going to pay a lot more for that top piece, so people had these huge bills. People said, ìWe just got these new smart meters and now we’ve got these huge bills!î Big outcry and it put a dampener on that program. There are other stories similar to that.
So one of the messages of smart grid is, be careful what you ask for, be careful what you promise. There are promises of smart grid to automate demand response to give consumers the option for more control over their energy use but it’s not by itself a panacea.
I think I will close there. I have touched a few topics. Just maybe one small anecdote on how you can do energy efficiency wrong and why maybe you do need professionals in the field. There was one program, and we were auditing the program and we went to one of the facilities and it was a liquor store. They have a lot of coolers, so they have compressors that are connected to all of these walk-in freezers and small ice cream coolers in front and there’re lots of things with lighting and compressor efficiency that you can do. What the owners of this liquor store had done and they were quite innovative, is they had the compressors in the basement where they store all their wine. And, if you are not familiar, the compressor is the thing outside your house. It’s the thing that makes a lot of noise and kicks off a lot of heat and it sends the coolant through a tube and it cools someplace else; it cools in the walk-in freezer.
So they were worried about their wine getting warm and the wine was in the basement right below the walk-in cooler so they actually cut holes in the bottom of the walk-in cooler and they had a little slide that they could turn and open the hole bigger or smaller. They would take the cool air from their cooler where all the cold beer was stored and they would drop that cool air right on top of their wine. But 20 feet over from the wine, were the compressors kicking off heat and those were the compressors for the cooler that they were using to cool the wine. So they had this nice vicious cycle of inefficiency going.
There are many ways to not do efficiency well or to not do smart grid well. The key is to find what works and to roll it out in a way that customers want it and that can benefit efficiency and can benefit the pocketbook of the customers. Maybe we can talk a bit more about those but, that gives you an idea of some of the things going on in the industry.
Thanks Stewart, you’re pretty good off the cuff. We do have Harry Verhaar with us, I believe from Brussels – do we get a visual on Harry? Audio only. Hi Harry, I am sorry for keeping you up so late. Harry is with Philips Lighting, he is the Senior Director of Energy and Climate Change. He is also the Head of Strategic Sustainability Initiatives and I believe we have his PowerPoint here. So Harry do you want to go ahead, we can see your PowerPoint and if you want to just walk us through it, that would be great.
First of all, thank you for making the effort to connect after a slight mix-up in Brussels. So what I would like to do perhaps if we can go to slide 2, we will talk a little bit about barriers, solutions and then examples of where energy efficiency can take us, but before doing that, I would like to take one step back to see what is the challenge we are actually trying to solve and then show off how much energy efficiency can actually bring.
If you look at a lot of the challenges facing the world today – credit crisis, energy and climate – at the core of the challenge I think is what we have seen in the last decade is that we have created a society that has optimized the lowest initial cost so a lot of our behavior is price tag focused. A lot of the processes that are used, particularly public procurement are tender based, always looking at the lowest initial cost, but also the way we judge things. As media as voters. Look a little bit if you allow me at the latest mid-term elections in the States. Any way that we look at results around us, we want instant gratification. That has resulted in what you would call a linear society.
We are, in fact, the only species on the planet that live in a linear society. On one side we extract, we consume and we exhaust in different ways and not too long ago we even felt that the amount of waste that we produced was a sign of prosperity – that is no longer the case – but it’s not too long ago. How come we are so addicted to this linear approach? Because we have the perfect indicator that wants this linear behavior and that’s GDP. 20 years ago, GDP was not talked about so much, and it’s now on the news every day, every hour. How are we doing in GDP and how is the stock market today compared to yesterday? It is a little bit of madness that we have called upon ourselves.
If you look here, we need to go to the time of cheap energy and small ecology impact is behind us and also labor has become more expensive. We need to take the operational expenses into account and those are for part economical and for part ecological and social, which in effect, also have a cost that you can also take into account albeit a little bit more complicated than just energy and maintenance. Then, we need to look at the whole life cycle and then make decisions that are overall cheaper and more economical. That means we need to move from a linear to a circular society. Energy is the first resource where we are confronted with global constraints but, of course, we see the same already happening to some metals, particularly in the lighting industry but also in other electronics sectors, particularly with other rare earth elements but also with water and foods.
So if we take those into account, a better indicator to look at to see how do they perform and how do they provide us with benefits where we live, work and leisure, that is then quality of life. It doesn’t mean that GDP has to move away but you could talk about GDP plus or beyond GDP and take into account how this impacts our lives in terms of health and wellbeing. I noticed some time ago when thinking about the States, that in the last 20 years I believe your GDP has grown by 40% but the same research has shown that, on average, people are less happy. So what is it that really counts? I think in the end what counts is how good we feel.
If you look at what lighting alone in one area of energy efficiency can bring, knowing that about two thirds to three quarters of all lighting globally is inefficient. You see at the right upper table what energy efficient lighting can contribute per light point and it’s not just the switch from incandescent light bulbs to more efficient solutions, which are not energy saving halogen and LED’s but also in offices and street lighting and retail, you have similarly old technology co-exiting with new technology that is around and the last column is in Euros, so you just have to add one third and then you have the dollar figures – but you can see there, the poor light points. Actually the annual gains are quite substantial. Then moving to the lower table, you see that the global figures and the figures for North America and if we would move massively to energy efficient lighting with existing technology we can save, on global scale $180 billion and in the U.S. it’s $55 billion.
If you also take a lot of carbon savings, a lot of car emissions can be reduced, but also what is very important is the number of power plants that would not be needed. Either you could argue that coal fired power plants that can be shut down or the ones that are at the end of life do not need to be replaced. That’s mostly the case when you talk about Europe and North America and Japan has a very much established market but for countries that are growing fast like China that are building a coal fired power plant every week it would mean that they would need to invest less and they can spend the money on education, healthcare and other factors that count.
Seeing all these huge benefits, so then what are the barriers? Why is this not happening faster? The barriers are in fact, two fold. You could say that there is a cluster of barriers that have to do with lack of awareness. Maybe not as long ago as five or six years that lack of awareness would be, what’s the problem, but then there are different shades of awareness. Moving ahead in time you could see initially – what’s the problem? The next barrier is what kind of solutions exists there? Where can I acquire those? Who has the capability to install those? There are a number of shades of awareness. The second barrier is financing. I think we all know that, it’s not only the initial financing with a more energy efficient solution has a higher, upfront cost but it’s also about the renovation budget that is also required for buildings and also for street lighting.
What kind of solutions are we looking at? Not too long ago I think we spoke about two types of solutions. Technology and policy frameworks. Then gradually financing came in but there is a fourth area which, in my view, we can leverage much more and certainly I know that many of you are of the same opinion. That of communication. So instead of just pushing and looking at the morality and the environmental necessity which are all real reasons to move, if we talk about communication, we could improve and leverage much more talking about the benefits. The benefits of changing.
There are two examples I would like to show on the next slide. You will see one example of street lighting. Actually here are a lot of projects including a project list of cities that have already implemented LED street lighting and the list since then is three times larger. But what you see there is cities that on average, half of their energy budget is spent on lighting. So street lighting, public offices and schools and so they can significantly relieve their budget by moving to the more energy efficient lighting and the carbon savings. One city will find that more important than the other but you get it when you move to more energy efficient solutions. Most importantly, what we are seeing with cities is that the high quality energy efficient white lights, and that is particularly so with LED’s, is improving the sense of safety and security that impacts directly. And also where we have seen examples of better lighting, the property prices go up. Those are all real issues and they are the issues that count most for citizens and, as a bonus you get a reduced energy budget and you get a reduced environmental impact and they go hand in hand.
The next example is one of the most impressive things that we have seen with energy efficient lighting, which is about schools. About one in four citizens are in schools so, primary, secondary and university and schools are more than any other segment that are squeezed on budget, so quite often – and I know the European figure is that still about three quarters of new schools are energy inefficient, I don’t exactly know the number for the US but, that is because they are so squeezed on initial budget that they are often forced to make the wrong choices.
Now we have developed lighting systems for schools that allow you in a very simple way to vary the intensity and the shade of white depending on what pupils and students are doing. If they are very concentrated or if they are reading or if there is another assignment – what you then see happening is that the energy consumption on lighting, which is the biggest consumer in school can be reduced by half but more importantly there is a positive impact on learning effectiveness. Reading speed goes up by 20%-30%; spelling mistakes go down by 30%-40% and children are less restless by up to 75% which would be very good for my own youngest son.
This is an example in school where research has been done by the University of Hamburg. What you see as in the street lighting example, you see the primary purpose of the school, education and learning effectiveness, that is what is improved and that is what they start talking about and that is what you now see in Germany and Belgium and Holland and the U.K. Like in the cities example, it’s almost like the carbon savings and the monetary savings are a bonus. This shows how the effect of communication can be a real lever to increase the speed of the transition to more energy efficient solutions.
In the next slide I am thinking particularly because in Europe and the U.S. there is a lot of discussion about the budget and then in our case the question about the Euro – whether it’s going to survive or not, but there are some numbers about what energy efficiency can do on the macroeconomic scale. You see here the numbers just on lighting and, of course, we need to take insulating, heating, HVAC and all of that into account. If you were to add those up the numbers would be even bigger but, on a global scale and then on a North American scale as I mentioned at the beginning – the energy saving can be $180 billion on a global scale; $55 billion for North America ñ but secondly, if you need fewer power plants – certainly in the case of North America, there are almost 200 power plants, 2 terawatt power plants – that’s the average size that would not be needed so that is going to be a budget of $400 billion. And thirdly, directly connected to that the more energy efficiency you do – and on average you see countries like North America and countries in Europe improving energy efficiency by 1% per year, will easily increase to 3% per year.
It would mean, and this may sound a little complicated but it would mean, that the capacity of renewable energy or low carbon energy to be installed by 2050 would be reduced by a factor of 3. So, from 140% to 40% of the current total energy production capacity and in the case of North America, that would be more or less the equivalent of $10 trillion over that period of time. Over 40 years. I can’t solve the budget ceiling discussions with this $10 trillion because it’s distributed over 40 years. However, you would agree with me this is an enormously significant amount and so the reason that I am showing this is that you see some countries where politicians are shying away from energy efficiency because they find it hard to create targets, to create mandatory measures on the number of buildings to renovate on the energy efficiency ambition. However, you can actually see from the California example it’s only beneficial both then to show those elements – energy efficiency, renewables and investments in power infrastructure and thereby, budgetary relief – how they are very tightly connected.
If you then go to the last slide, a few words in conclusion. Energy efficient lights or energy efficiency in itself is, clearly, a triple win. It benefits end-users, the environment and most importantly the economy. Coming back to the four solution areas that I mentioned, we can see in many debates that most unfortunately, our Leaders, our heads of state, our central government is not going to solve this. Not in Brussels and not in Washington. Okay they are talking or they are quarrelling but they are not going to solve this on the short term and that’s exactly where the second level government come in. So city mayors, states and regions are coming in together with proactive businesses to pick up this challenge to create those best practices and then by multiplication to bring that from best practice to common practice. We are certainly motivated to help and if we look at those four areas, we will certainly continue to work on them with all of you.
Thank you Harry, you’ve all done really well actually going from very big picture to very specific examples of what to do and what not to do. I am going to throw out a question. We are probably going to have time for one question to the audience so first one to the mic wins. To wrap up all my articles into one, I read an article yesterday about how energy efficiency is the low hanging fruit and I thought to myself, ìBoy has that fruit been hanging there for a very long time.î You’ve all talked a bit about innovation, information, incentives – what is it? Where should we be pushing the hardest right now, where’s the momentum that can move the energy efficiency needle?
Jane Pater Salmon
I think that Policy goes so far but, we need to think about actually making decisions on the ground. It’s really about the financial case and so as we are seeing these technologies come down the pipe, a lot of, I think, we are seeing emerging technologies taking on a bigger and bigger role in the portfolio of energy efficient technologies in the last 10 years. CFL’s, compact fluorescent bulbs have come a long way and have really made a big impact on efficiency savings.
I think 60% or more of energy savings come from CFL’s and we need something to replace that. That’s very much mainstream now and it’s kind of business as usual; let’s go out and buy a CFL when you need a new bulb. So we are looking for those next technologies. Harry talked about LED’s and there’s a lot more. Lighting is certainly the most cost effective of any of the energy efficient technologies out there and I think we are starting to see more and more innovation and emerging technologies are required in order to push that envelope to the next level. We have done a great job getting this far, but that next stop needs to happen.
I’ll disagree with Jane. Actually, the disagreement is about the financial. It’s not about the financial; financial is a requirement, it’s necessary. Everything she said is true but I find for me personally, and from companies I talk to is, ìWhat do we really want?î The last speaker talked about the lighting in schools. That’s what we call a non-energy benefit. I replaced the windows in my home because they let in a lot of cold and I had heard and was in homes with nice windows and, boy, it was nice, even in the winter, to sit by them. If it had cost a lot of money, I might not have done it but it was the benefits that I got and we see that in the other work I do in commercial buildings. They don’t really care about the little bit of money from this demand response that they may do but again the access to information and this web based thing they can do lots with that for their own operations and for extra money.
So it’s really about what do people want to do or businesses want to do and how can energy efficiency pay for itself to allow them to do that.
Harry or Chuck do you want to jump in?
I would like to jump in. I was also in Brussels earlier today at an event and their conclusion was also that money is not the problem. There may be all kinds of issues on money but if there are good propositions, financing is not the issue. Even we, at Philips, we have created a financing service package where we can take away the hurdle by financing based on the savings. I would say, as I tried to explain with these two examples, it’s about communicating the benefits. I think most people across the world, we are done with preaching so, the morality is that it’s real but only 10% or 20% at most will move because of those factors. Then the other side of the spectrum – maybe you also have 10% or 20% of people who will only move at the very end when everything is obvious and then they will tell you that they actually took the initiative but in the middle. There is a group of 60%-70& of people who are conscious about this issue, about something happening; they should be doing something but they don’t know what; they don’t know how but certainly most of all they don’t know what are the tangible, individual benefits for them. What’s in it for them?
If parents would see from the school example that their children are getting a better education, that’s an easy thing to choose for. The narrative is also really important, just as one example, hopefully there will be many more. We would call that a ëlow carbon school’ and many parents would think, ëlow carbon school,’ low – something must be wrong, I am not sending my kids there. If you call it a ëgreen school’ which, I think, is a fair name, some people might think it’s a political choice. That’s why we talk about ëbright schools’ because it’s the learning effectiveness. In the end it’s the consumer benefit that counts. So my view is that we should communicate much more about the things that really matter and then accept how we can automatically pocket carbon and monetary savings as a bonus. They go hand in hand anyway.
Thank you. Well, let’s have our guest questionnaire step in.
Well, this is [inaudible 55:34] I am going to frame that as a question I guess, but I’m back to the point I made this morning. The one variable we haven’t talked about in this conversation this afternoon is space and if we look at the differentials in comparative space standards from Asia to Europe to the US they are absolutely huge. So, yesterday as part of this Meeting of the Minds, I went round the Environmental Protection Agency in Denver and I was, frankly, shocked at how much under occupied space I saw. How many empty cubicles with lights on. We were told it was a very well provided for building in terms of daylight penetration. There was no correlation in terms of the lighting being switched off; the building was very under occupied. I asked about the ratio of people to desks, contractors to people, utilization – very, very low figures.
Now in the U.K., at the moment, all of this is very seriously challenged and huge strides have been made. Cisco, as a client of mine, we worked on a pilot study for them in London; we dramatically reduced the space standard per head, and then I did the indicative which was to scale what the utility and real estate benefits of that would have been if that kind of efficiency had been applied over Cisco’s worldwide head count and I can’t remember the figures but they were absolutely huge. So the financial benefits of winning more efficient energy by being tighter on space are very clearly demonstrable. In addition, you get less embodied energy because you are having fewer buildings; you get less energy in negotiating the space between buildings. There is a very clear case for people here to be thinking about a less profligate use of built space.
I will be happy to try. I think the point is well made and I think that it gets back to Harry’s comment – the transformation and the revolution that we are all talking about and hoping for has to do with change in behavior and, if you have good communication and you point out the commercial and consumer benefits of changing behavior then that tour through that inefficient space will happen less over time. It doesn’t happen overnight but there has to be incentivization to change behavior and I think communication, real information, performance and correlating that to what your objective is, is really important. You are seeing densification happening all over the world, like you said in some places more than others, but I think its accelerated when people know why they are densifying and can measure the results of that densification.
Thanks to this great panel and Cisco for patching this altogether.