Over the past four years our quarterly Energy Efficiency Trends report, in partnership with Bloomberg New Energy Finance, has tracked activity and sentiment in the UK energy efficiency industry. As we prepare for a re-launch with our November edition –– we have reflected on lessons learnt during a turbulent era.
Blinded by the light?
Eight out of ten commercial energy efficiency projects involve upgrading to LED lighting.
Over the last four years LEDs have been, without doubt, top performers – a new generation of technology that enable energy managers to make ‘once in a decade’ savings. In contrast, other energy efficiency technologies cannot compete in terms of savings, payback, ROI or trust. As a result, organisations have neglected alternative or multi-technology projects.
Aside from the ‘low hanging fruit’ argument, our research suggests that the main reasons for lack of broader technology uptake is consumers disbelieving the potential energy savings against capex. LED upgrades are rightly perceived to be low risk, and measurement of results is straightforward because savings are so pronounced. Projects relying on more complex technologies, building fabric upgrades, optimisation of controls or a combination of all three, are seen as more risky, partly because the outcomes can be more uncertain.
We believe this will change as the market adopts performance management techniques based on professional measurement and verification (M&V). We help clients manage complex programmes through a combination of good governance practice, real time monitoring and rigorous analytics. But for now the Trends data speaks for itself – these programmes are the exception rather than the rule. For many energy users, LEDs are the only game in town.
So the energy efficiency sector has a huge challenge. Many typical buildings remain inefficient, and every lighting-only project that goes ahead in isolation is an opportunity missed to incorporate other technologies and take advantage of an attractive combined business case.
If not addressed, the rush to LEDs could lock out other energy-saving technologies for years to come. So how can larger, more ambitious projects be developed?
Trends showed an increase in average project size from 2012 to 2014, indicating a movement towards larger, more ambitious and complex projects. Since 2014 deal sizes have declined. In 2016 the reports showed a return to small, single technology retrofit projects with short payback periods.
But isolated data for the public sector tells a different story. Here, there is a steady upward trend in project size, with median capital cost rising from around £80k in 2012 to £180k by 2015. It appears that energy performance contracting – a much-hyped pay-from-savings structure for large projects – has gained traction in the public sector, but has made little progress elsewhere. Performance contracts are being used to both improve energy efficiency, and also upgrade estates during cash-strapped times; offering guaranteed savings through a long-term relationship with an energy services company (‘ESCO’).
Embedding an energy efficient culture
Aside from the deeper savings on offer, a key outcome of a holistic approach to energy efficiency can be a change in energy culture and behaviours.
A simple switch to LED does not require building users to behave differently. They can rely on the organisation (and the technology) to reduce energy consumption and can continue with inefficient behaviours. But the science of energy behaviour programmes has advanced significantly in recent years, and has consistently been within the top 5 energy saving techniques reported by the Trends community.
This approach puts energy efficiency and energy actions at the forefront of user behaviour. Unlike retrofit-based projects, they are able to demonstrate how individual choices can result in a cost, or a saving. Many organisations are using specialist providers to deliver structured engagement programmes, while many more are developing their own in-house versions.
Policy and confidence
The Trends community has always been undecided about the impact of government policy on uptake of energy efficiency measures. On the one hand there is no doubt that initiatives like the Energy Savings Opportunities Scheme (ESOS) have driven activity, but on the other, shouldn’t the economic case for improving energy performance stack up on its own , without needing a policy incentive?
Our most recent edition focused on the impacts of the EU referendum. For suppliers of energy efficiency products and services, it’s very clear that Brexit has had an immediate impact, with more than half saying that they have experienced some changes to business conditions. By contrast, only around 20% of customers (energy-using organisations) stated that they had experienced an immediate impact, suggesting that for most it is ‘business as usual’.
This disparity could be attributed to the rapid devaluation of the pound and the anticipated effect on the cost of importing technologies often manufactured overseas; suppliers perhaps nervous about the ‘double whammy’ effect of lower overall demand as well as the need to take a hit on profit margins.
Anecdotal responses to the survey also highlight ongoing political and economic uncertainty as a key cause for business disruption. One survey respondent summed it up as:
“Before Brexit there was policy uncertainty, post Brexit there is the same uncertainty, and in addition a period ahead of trade negotiations which creates… uncertainty.”
While we are undoubtedly in uncharted political and economic waters, there are signals that the new-look government might be more supportive towards energy efficiency than their predecessors. With DECC and BIS amalgamated as the Department for Business, Energy and Industrial Strategy (BEIS), the focus is more ‘business like’. An view supported by Theresa May’s announcement that:
“we need a proper industrial strategy that focuses on improving productivity”.
Energy efficiency is indeed a productivity ‘quick win’ and must play a role in BEIS’ thinking. While large-scale infrastructure investments, such as new power plants and renewable generation, are important for energy security and sustainability, they are less directly and immediately linked to boosting productivity and enhancing UK competitiveness.
Perhaps a key task for the energy efficiency sector in coming months will be to ensure that the BEIS Industrial Strategy team recognises this and supports the quadruple benefits of investing in energy efficiency; improved UK-wide productivity, immediate impact (and not years of infrastructure planning), lower UK energy consumption and, quite simply, some confidence-boosting good news for UK businesses.
Focusing on the positives
Energy efficiency activity is happening. The LED lighting boom is delivering real impacts on energy performance, albeit that opportunities for deeper retrofit projects are being missed. Thought needs to be given to how bigger projects can be incentivised, perhaps learning from successes in the public sector, and there is no doubt that this presents an opportunity for a wave of projects that could transform the UK’s energy productivity.
Our next edition focusses on the innovations that may make this a reality. If LED lighting is now ‘business as usual’, what is the next wave of technology that will deliver savings in the built environment? How do business models need to change to achieve this? Is now the time for corporates to drive energy performance improvements through their facilities management supply chain, enabled by a new generation of smart monitoring and control technologies? Please sign up at www.energyefficiencytrends.co.uk and let us have your views, and look out for the free market report in November.
Here’s to the next four years!
Alex Rathmell is Managing Director at EEVS Insight.
Photograph: Flickr/ Dominic Alves.