Making “Step changes” in energy efficiency

Building on experienced success.

Hans NilssonChairman of the IEA DSM-Programme

FourFact ABwww.fourfact.com

Energy-use in the IEA-11

Source: 30 years of energy use in IEA countries

Actual energy use

20

40

60

80

100

120

140

160

1973

1980

1985

1990

1995

1998

Ex

ajo

ule

s

49%49%

Hypothetical energyuse without savings

1975

AUSDEKFINFRAGERITAJAPNORSWEUKUS

20%

Additional energy use with1973 intensity = Energy saving

The rise in welfare depends more on energy efficiency improvements than on

growth in energy use!

Energy efficiency – The most important means to reduce GHG

1

2

3

4

5

Source: The IEA EnergyTechnology Perspectives, 2006

The best way to satisfy a growing need for energy services

Time

Demand

System capacity

+ 1 kWh

-1 kWh

Should be the cheaper of the two options:More supply or less demand

AB

Difference in Electricity Investment in the Alternative vs. Reference Scenario

2003-2030

Additional investments on the demand side are more than offset by lower investment on the supply side

-2 000

-1 500

-1 000

- 500

0

500

1 000

bil

lio

n d

oll

ars

(200

0)

Difference

Additional demand-sideinvestment

Efficiency measures Avoided supply-side

investment

Generation

Transmis-sion

Distribu-tion

Source WEO 2004

Energy Efficiency is the cheapest resource

Negative Costs!

The curse of the Energy Efficiency

• Energy Efficiency is invisible

• Energy Efficiency is not a Product, but a characteristic (with products in comparison)

• Energy Efficiency is delivered in many small packages

• …..and on different occasions

LARGE-SCALE ENERGY EFFICIENCY

“Mandating” Market Acceptance

StandardsAgreedactions

Delegated

Actions Commitments

Price-responsivecustomers

“Commoditise” for Non Price-responsive

e.g. VoluntaryAgreements;TechnologyProcurements

e.g. Muni-cipalities Planning;FEMP

e.g. White Certificates

e.g. ESCO; Labels, Branding e.g. Taxes;

DR (elasticity)

e.g. MEPS;Top-runner;Energy Star

But there are several means

Market Transformation

Product Performance

Market Penetration

Base case

Preferred Case

NEW

MORE

LESS

Market Transformation

Product Performance

Market Penetration

Base case

Preferred Case

TechnologyProcurement (TP)

Aggregatedproc. (AP)& Labels

Standards& Directives

Means for accelerated diffusion

Diffusion curve

Time after introduction

Technology Procurements,Demonstration

Feed-in tariffs,Certificates,Campaigns

Labelling,Training

Comprehensiveadaptablestrategies

Join

t Res

earc

h on

a)Te

chno

logi

es

b) M

arke

t res

pons

e

(Res

ult =

Pot

entia

l * A

ccep

tanc

e)

The (textbook) market

Flow of goods

Relation

Actor

Influent

User

SUPPLIER

Price

Quantity

The (real) market

Wholesale

Retailer

IInstaller

Owner

Service

Consultant

Subsupplier

Flow of goods

Relation

Actor

Influent

Authority

User

SUPPLIER

Energy Efficiency has multiple dividends

• Employment• Industrial development• Poverty alleviation• Holds back prices in supply• Reduces pressure on

supply reserves

• Cost• Environment/Climate

Energy Efficiency is the first step on the road to sustainability

Supply

High Density (e.g. fossil, nuclear)

Low Density (e.g. solar, wind, bio)

End-

Use

of E

nerg

y

High Efficiency (Low Intensity) e.g. CFL and LED lighting; Adjustable speed drives

UNECONOMICAL

SUSTAINABLE

Low Efficiency (High Intensity) e.g. Incandescent lamps, Direct electrical heating

PRESENT SYSTEM

HARDLY FEASIBLE

Thank you!

EXTRA MATERIAL

1. The learning investments have to be covered and recovered

• Learning investments are not subsidies IF they can be anticipated to yield future profit

• Someone has to start the process

• It takes TIME to reach break even

• The investments might be HUGE

Cumulative Sales

Pri

ce Challenging New TechnologyA

BC

Learning investments

…and ditto profit

4. There is always someone to share the bill

• (I) Government and companies that have a “first-mover” interest

• (II) Private sector (users) who have a worse alternative

• (III) Private sector (users) who have an interest in showing leadership

Cumulative Sales

Pri

ce Challenging New Technology

Willingness to payon niche markets

I

IIIII

INDIA150 GW

Break-even 1$/W

General Market Segmentation

• Innovators (Enthusiasts)• Early Adopters

(Visionaries)• THE CHASMTHE CHASM• Early Majority

(Pragmatists)• Late Majority

(Conservatives)• Laggards (Sceptics)

General Market SegmentationDiffusion curve

Time after introduction

Ad

op

tio

n o

f iin

ova

tio

n

Innovators (2.5 %)

Early adpoters (13.5%)

Early Majority (34%)

Late majority (34%)

Laggards (16%)

"Take-off" in the region 5%-15% of the market

Accelerated diffusionDiffusion curve

Time after introduction

Ad

op

tio

n o

f iin

ova

tio

n

Innovators (2.5 %)

Early adpoters (13.5%)

Early Majority (34%)

Late majority (34%)

Laggards (16%)

Accelerated diffusion

Cumulative Sales

Pri

ce

IncumbentTechnology

Challenger

Willingness-to-pay inChallenger Niche Markets

A

B CD

Government and industry (R&D)

A’

Positioning companies (capitalising)

Customers withHigh alternativeCosts (incumbent+)

Lead users(capitalising) “Chasm-crossers”

New paradigms – Distributed Generation

Source: Distributed Generation In Liberalised Electricity Markets. OECD/IEA 2002

Bypass congestion

Reduce losses

Enables use

Stimulatescompetition

28

Potential

Marketpotential

EconomicPotential ( individual)

Technicalpotential

EconomicPotential ( societal)

Time

1.ReduceTransac-tion costs

2. Improve Credibility,Organise

3. ImproveSupplierslearning

4.Improve technology

Result (Efficiency) = Potentialtechn.;time. * Acceptancetime; exposure

29

TO MEASURE SUCCES

Electricity in Finland