CarbonSignal

We’ve just rediscovered a gem from a few years ago.  In March 2007 Stanford University hosted a 5-part lecture series on Advanced Energy Efficiency, presented by Amory Lovins.  Each lecture is loaded with useful insights, ideas, anecdotes and a bit of humour.  At 1.5 hours per lecture the series takes considerable time to watch and digest.

The lectures cover buildings, industry, transportation, implementation and implications.

The videos can be viewed on Google Video and transcripts can be downloaded from the RMI website.

We all know there are profoundly sound business reasons to conserve energy and invest in renewables, even without a CPRS or strong government policies.  But is this investment happening, and quickly-enough?

Few energy users – or their consultants – seem to be focussed on creating STEP-CHANGES in energy efficiency.  Glen from HAC observes: “In our experience it can be less risky and of much greater benefit to the client to ‘grab the bull by the horns’ and really chase those step-changes in efficiency.  It’s hard to get staff and bean-counters excited about saving 10% of energy costs, when energy is only a few percent of operating costs.  With energy efficiency, big is definitely better”.

Gains through energy efficiency can often be augmented by investment in on-site renewable energy.  Many clients are finding that larger investments actually deliver better returns on investment (ROI) and/or shorter paybacks.  And the ongoing energy savings from larger investments are substantive, often freeing-up cash than can be used for marketing or increased production.

So how are wine-drinkers saving the planet?  It turns out that wineries and other related businesses are the ‘low hanging fruit’ of the energy efficiency world.  Lessons learned here can be rolled-out across the economy, one sector at a time.  For wine businesses, firms like HAC are able to bundle efficiency measures with solar panels to create savings up to 30%, quickly equating to hundreds of thousands of dollars per site.  In many cases, the savings can be guaranteed and the investment costs fully financed, with new expenses being less than the energy savings.  There are even Government grants available to many businesses in this sector.

The Prime Minister’s Task Group on Energy Efficiency is seeking “options for delivering a step change improvement in Australia’s energy efficiency by 2020”.

The opportunities and barriers regarding energy efficiency are well-studied and well-known.

Of the many known barriers to energy efficiency improvements, we believe the key barrier is access to capital.  The companies that control efficiency opportunities are not necessarily lacking in capital resources, however the available capital is often allocated to other projects.  The problem is not so much the absolute availability of capital, but the competing priorities for capital expenditure that exist within each organisation.

We do not suggest that the government should necessarily make capital freely available for energy efficiency projects.  Grants and loan guarantees should be allocated to projects which carry a high degree of risk, thus helping overcome the investment barrier that exists for innovations which require further research and development before widespread uptake can occur.

For the majority of efficiency projects, the upgrades do not require further R&D – they involve technologies and changes which are relatively well proven and ready for deployment.  Amory Lovins of the Rocky Mountain Institute often states that “efficiency is arguably the highest return/lowest risk investment in the whole economy.”  Further, in his work in over 29 industrial sectors, which includes a large amount of work in Australia, Lovins has found that large-scale energy efficiency projects which achieve substantial energy savings provide better returns than small-scale projects.  “So we get expanding, not diminishing, returns on investments in advanced energy efficiency.”

For many companies, capital is allocated to growth projects before efficiency projects.  Energy efficiency may be recognised as a high-return/low-risk investment, hurdle rates and other investment triggers may be exceeded, however efficiency projects are still deferred because growth projects which expand operations and increase throughput are seen to be more profitable and more progressive.  For some organisations, energy is only a few percent of the cost of doing business.  There are bigger issues demanding attention and energy efficiency ends up at the bottom of the priority list.

One way to overcome this challenge is to create a centrally-managed investment fund which is dedicated to energy efficiency projects.  If we accept Lovins’ statement that “saving energy is among the highest-return investments anywhere” , then this investment fund should be a sustainable and profitable enterprise.  The investment fund could be a public/private partnership which aggregates funding from government funds and private financiers, and sets out a structured framework to evaluate investment opportunities and share the returns with the companies hosting the changes.  Previous work in efficiency investment finance, and measurement and verification, such as the Energy Efficiency Council Best Practice Guides , can be referenced to define the terms under which this fund would operate.

This fund should be a sound investment.

We suggest that the PM’s Task Group could recommend this as a possible solution requiring further development, and could further incentivise companies to undertake energy efficiency projects through tax savings and other financial benefits.  The government could allow companies to depreciate energy efficient equipment on an accelerated schedule, and pile on other incentives so that energy efficiency investments are seen as a tax sanctuary.

HAC has significant experience with the opportunities, issues and barriers surrounding energy efficiency.  We will continue to expand on these ideas, and assist in the design and implementation of effective solutions.

If a step change in energy efficiency is the goal, then energy efficiency needs to become an easy decision and a high priority for business.  We believe a step change can occur if the government creates an array of resources and incentives which, in the words of Thomas Friedman , make energy efficiency a “no-brainer good deal” for businesses leaders.

Click here to download HAC’s submission to the PM’s Task Group on Energy Efficiency.

A recent report from PwC and the Institute of Chartered Accountants identifies ‘20 issues on the business implications of a carbon cost’.

This paper is an excellent way for executives to get a quick update on the current status of carbon policy in Australia, and an understanding of the issues that will affect their business.   The 20 issues successfully link the risks and opportunties associated with carbon policy to a set of fundamental questions that executives should ask themselves.  The report includes emissions data from the first year of NGER, and other references such as the Deutsche Bank report on DCF valuations under a CPRS -5% scenario.

Developing a response to each issue is not easy and will require the attention of senior executives and external specialists.  Companies that have developed a response on each of the 20 issues will be well prepared to minimise the downside and capitalise on the upside of future carbon pricing.

In the midst of California’s budget crisis, the mayor of LA has unveiled a plan to drop all coal-fired generation by 2020.  The ambitious plan includes a boost in new renewable capacity to 40% of the city’s power mix, with the remainder sourced from natural gas, nuclear and existing large hydroelectric.

There are no coal-fired power plants in California, but LA maintains contracts with interstate coal-fired generators.  One of the major contracts ends in 2019, however, the other major coal-fired contract runs until 2026, presenting a potential legal battle.  Read more on Reuters.

The State currently cannot pay its bills, it is facing a US$26.3 billion deficit, and it has issued IOUs for the first time in decades (mostly to residents in lieu of a tax return).  The Mayor of LA said that rates would rise to meet the higher cost of renewable generation over coal, and that some of the cost would be recovered through an expected 10% improvement in energy efficiency.  LA is currently on track to get 20% of its power from renewables by 2010.

Obama’s stimulus act allocates $4.5 billion USD to develop a smart grid in the US.  This is a hefty chunk of change, but is it enough to kickstart a widespread transformation of the electricity infrastructure?

There are many possible smart grid configurations and technologies, but the fundamental concept is that information exchange between power generators and consumers will enable better control of generators and loads, thus improving the efficiency of the network and possibly increasing the penetration of distributed renewable generators on the grid.  See this Forbes article for a good explanation.

In Australia, a Smart Grid Alliance was formed last September.  Silver Springs Networks is currently attempting to network “approximately 1 million homes and businesses in Victoria” with advanced metering infrastructure, and IBM has signed data management contracts handling information from thousands of sensors scattered throughout the networks.

This seems like a good start, but how big is the challenge?  Obama’s initial investment is intended as a “down payment” that will fund several pilot projects which will demonstrate the viability of a smart grid.  The LA Times reports that,

“The Electric Power Research Institute, a utility industry think tank, has estimated the cost of building a smart grid at a staggering $165 billion — about $8 billion a year for two decades.”