Commercial sector in UK missed in promoting energy efficiency

The news agency, Reuters, has recently published a column by Gerard Wynn on how the UK’s energy efficiency strategy has by-passed the commercial sector – a sector with significant potential for electricity savings.

UK efficiency drive skips commercial sector

Britain is missing a huge potential for electricity savings by companies as the government focuses on a higher-profile effort to upgrade residential property and raise standards for home appliances and light bulbs, a draft government report shows.

Under present policy, fully half of its projected energy savings by 2030 will be met simply by replacing incandescent with compact fluorescent light bulbs, while the government policy barely registers on industrial electricity bills.

The report, “Capturing the full electricity efficiency potential of the UK”, was published online in draft form last month and uses internal and outside consultancy analysis.

Meeting the country’s full potential savings would require a trebling of the impact projected under present policy by 2030, it found.

Britain’s present ambition is reflected in its draft energy bill published in May, which noted that “demand for electricity is likely to rise”.

The bill went on: “Despite the improvements in household and non-domestic energy efficiency … overall demand for electricity may double by 2050 due to the expected expansion in the uses of electricity, with the electrification of transport, heat and other carbon-intensive sectors.”

The energy bill projects a massive increase in power consumption, while the report from the new Department of Energy and Climate Change (DECC) suggests it is possible actually to decrease usage even after allowing for the electrification of transport.

DIM VIEW

The DECC study shows the present policy’s relentless focus on the residential sector, which accounts for more than a third of total final power consumption.

Mandating higher domestic appliance standards has merit as a cost-effective, even money-saving, lever to drive energy savings.

Nevertheless, the savings from switching products and from improving the energy efficiency of buildings do not extend sufficiently beyond the residential sector.

“While policy seeks to address a number of barriers in the residential sector, barriers in the service and industrial sectors are less well addressed,” says the report.

“The policy captures 76 percent of the total residential (energy savings) opportunity, but only 13 percent of the opportunity in the service sector and 4 percent of the industrial opportunity.”

One clear policy omission in the public and services sectors, described in the report, is support for control systems that use automated sensors to dim lights when not needed.

Such an omission puts in context Britain’s flagship political effort, a “Green Deal” to be launched in October, to help deliver whole-house residential retrofits.

Installing lighting control systems would result in bigger potential annual energy savings by 2030 (at 15.6 terawatt hours) than all building efficiency improvements across the entire residential estate (at 14.7 TWh). It would also require less cost in upfront capital, which would easily be covered by subsequent energy savings.

COMMERCIAL OPPORTUNITY

The lack of policy focus in the commercial sector is compounded by a well known principal-agent problem.

The vast majority of office property is leased, which means the main beneficiary from lower energy bills is the tenant, while the owner would have to foot the bill for efficiency upgrades.

“Agency issues in the commercial sector appear to be a significant barrier as 61 percent of commercial space is leased and 75 percent of the corporate sector outsources its facilities management capabilities, often without incentives for reducing energy costs,” the report finds.

That conventional view is not entirely supported by progressive commercial practice, however.

Take, for example, the property investment fund of carbon specialists, Climate Change Capital, through its Climate Change Property Fund (CCPF).

The fund aims to capitalise on lower fuel bills for tenants through higher rents, capital values and occupancy rates, as businesses come under more pressure to report their CO2 emissions.

The CCPF last year reported large energy savings from lighting and other upgrades with short payback times across prime office properties.

POLICY DESIGN

Extending action into the commercial sector requires a change in policy, beyond simple awareness-raising.

Both the latest DECC report and previous government studies going back 14 years have identified similar problems in pump design for industry, for example. Pumps are often too big for the systems they apply to.

Industrial pumps are widely used to provide cooling and lubrication services, transfer fluids for processing and provide the motive force in hydraulic systems.

The DECC report identified pump efficiency as the biggest source of industrial energy savings not captured by present policy, noting that water pumping systems were “poorly controlled and not well matched to process requirements”.

But DECC’s predecessor 14 years ago made a similar point: “Over-sized pumps cost more to purchase and because they are not operated at their peak efficiency flow they also cost more to run,” it said in a 1998 report on driving energy savings.

Policy levers must extend beyond outreach and awareness-raising.

The latest DECC report details, and by implication leans toward, a bewildering choice of potential market mechanisms currently in practice in various U.S. states and elsewhere.

For example, electricity suppliers can be forced to deliver savings at a certain percentage of their total sales through tradable certificates and other schemes, whose costs are ultimately passed to consumers.

Perhaps the smartest idea is for large electricity consumers to bid to make energy cuts in technology-neutral auctions, which are usually reserved for allocating power generating capacity.

That idea, applied in New England, is great in principle, pitching cost-effective demand reduction against highly capital-intensive power supply, but Britain should beware complicating further its power market reforms, which have been the subject of years of drip-feed fine-tuning and are still some way from launch.

The simplest policies should not be played down.

Appliance standards inflict minimal cost when tuned to replacement cycles and could be applied beyond the residential sector’s fridges and washing machines to commercial lighting, heating and industrial motors.

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