Moving energy management forward

Dr Joanne Wade FEI

Energy efficiency is increasingly valued at all scales. ESOS has brought awareness, and possibly action, to large organisations. SMEs are increasingly aware of the benefits, from both a cost perspective and a reputational one of managing energy to achieve greater efficiency. The EI’s recently published Energy Barometer report revealed that energy professionals across sectors (on both the demand and supply side) and disciplines value energy efficiency and management and recognise its potential to transform the way energy is consumed.

Among the top concerns that EI members are grappling with in 2016 is of course the low oil price and its impact on investment and decarbonisation, drawing focus from energy demand and efficiency. Despite this competition from low crude oil and transport prices, commercial and domestic energy efficiency are seen as the only low-risk areas for investment across the energy value chain. Efficiency (in buildings, transport and industrial processes) also tops the list for where energy professionals believe investment should be increased. But energy professionals caution that policy stability is imperative to take advantage of this potential, enable investment, and develop the sector. Recent changes to the Green Deal and the Zero Carbon Homes policies are not the signals that are needed. Energy professionals expected a decision to leave the EU to have a negative effect across most of the energy sector, including on improving energy efficiency, and general market uncertainty following the vote on 23 June is indeed affecting investor confidence. This reinforces the need for a new, robust policy framework to encourage investment.

The EI has long been supporting the development of energy management as a profession, promoting good practice and recognising those at the top of their field. A new publication, released in May, is aimed at those who are new to energy management, of which there will be growing numbers as more organisations embed energy management in their strategy and operations. A guide to energy management gives a high-level introduction to the what, why and how of this practice, and is aimed at those considering a new career or anyone who has been asked to take on energy management alongside an existing role. It can also be a useful tool for consultants pitching to senior management teams, helping to make the case for and explain the basics of managing energy in an organisation.

The guide is part of the Energy Essentials series produced by the EI Knowledge Service – foundation-level documents which help to promote knowledge and understanding and make important topics understandable to non-experts. The documents in this series are reviewed extensively by qualified subject specialists under the guidance of the Energy Advisory Panel, which I chair. The guide to energy management serves an important purpose and I hope it makes this field more accessible and easily understood, particularly in those organisations with limited resources or for individuals with little technical background.

Both the Energy Barometer report and our new guide are examples of the EI’s efforts to promote knowledge, share information, and enable informed discussion about energy. Both are also only made possible by the generosity and expertise of our 23,000 members, who never hesitate to put their views and insights to good use. Thank you to the EI College and to our 60 peer-reviewers for your input, which is improving the quality of the debate and hopefully enabling the changes needed to move the industry forward.

Diversity and convergence: the 2016 Energy Barometer

Professor Jim Skea CBE
EI President

Energy professionals are a pretty diverse lot: engineers, managers, planners, finance people, lawyers and others. Lots of different perspectives but some remarkably convergent views have emerged from the 2016 Energy Barometer survey of 438 members of the Energy Institute. And the points on which they agree could be seen as some of the most contentious.

On Brexit, an overwhelming majority of contributors foresee negative effects on the UK energy system, especially in relation to securing energy supplies, renewable energy development, climate change and sustainability, and air quality. On the biggest challenges facing the energy sector, lack of continuity in energy policy, closely linked to investment obstacles, came out easily as the number one concern.

Scepticism that politicians’ appetite for ambitious climate targets is matched by their capacity and/or willingness to deliver marks a third area of striking consensus. More than 70% believed the world would warm by more than 2°C, regardless of the even more ambitious Paris agreement. And more than half thought the UK would fall “significantly” short of its own 80% emissions reduction target by 2050. Closer to the present day, there was also scepticism about the UK’s ability to meet its 3^rd, 4^th and 5^th carbon budgets. However, my personal view (and I was one of the randomly selected Barometer participants) is that the UK will easily meet the 3^rd carbon budget through Alice in Wonderland net carbon accounting and interactions with the EU Emissions Trading Scheme (should we remain part of it).

A final area of consensus, and one close to the Energy Institute, lies in the perceived shortage of skilled workers across all parts of the energy sector except North Sea oil and gas and fossil fuel electricity generation. Nuclear is seen as having the greatest shortage in skilled workers, both today and in five years’ time.

It is not all consensus of course and, if there were, the value of the Barometer would be diminished. For example, there is a range of views about prospects for gas and electricity prices, with more of a balance between those who thought prices would rise, those who thought prices would fall and those who thought they would stay roughly the same. But there is a tendency for more respondents to foresee electricity rather than gas prices rising as a result of investment needs for infrastructure and low carbon supply.

So what have we learned as an institute from conducting the survey? First, our members are enthusiastic and ready to contribute their expertise to the public debate. Second, that government and other stakeholders are ready to listen. We are launching this year’s report as part of the Energy Systems conference, organised with our partners at Elsevier. The 2016 Energy Barometer project, led by Dr Joanne Wade FEI, Chair of the Energy Advisory Panel, looks like a big success that builds on the 2015 launch of the Barometer. Who know what will happen in the next year (or even on the next 10 days)? But the world will listen if Energy Institute members voice their views again in 2017.

Climate Action in the US

Professor Jim Skea CBE
EI President

I had the good fortune to be invited to the Climate Action 2016 Summit in Washington DC in early May. This was a truly stellar event hosted by the UN Secretary General, the World Bank, the Rockefeller Foundation and the World Business Council for Sustainable Development. The broad aim was to galvanise bottom-up climate change action as implied by the Paris agreement reached at the end of last year.

Apart from keynote talks from the great and good – Ban Ki-moon, Al Gore, Ségolène Royal, Jeffrey Sachs – what was fascinating was a) the degree of enthusiasm behind the climate agenda and b) the particular groups that were strongly represented at the meeting. The energy sector, notably, was not which I’ll come back to later.

There was particularly strong participation from city administrations, the finance sector and consumer-facing businesses. On the city side, Michael Bloomberg, businessman and former Republican Mayor of New York, made a strong case for the power of city administrations to effect real change through their influence on transport and planning. This message was endorsed by mayors from Washington DC, Atlanta, Montreal, Paris, Belo Horizonte in Brazil and Pristina in Kosovo. Prospective mayors of Sheffield and Manchester take note. As the event took place on the same day that London elected its new mayor, I did feel there was one important city in need of representation.

The finance community, both the multilateral developments banks (like the Asian Development Bank) and private sector investors and insurers, were out in numbers. Here the call was for carbon pricing to underpin low carbon investments and considerable celebration of the falling cost of renewable energy and energy storage. The one voice flagging up the limitations of carbon pricing was development economist Jeffrey Sachs from Columbia University’s Earth Institute. He warned that the ambition in the Paris agreement implied that planning and regulation were needed as well.

Business was represented by companies like Unilever (CEO Paul Polman) and Kelloggs. Message: they’re getting on with it especially in terms of greening the supply chains. But no real input from the energy sector! This point was explicitly addressed by Peter Bakker from the World Business Council for Sustainable Development. He was explicit that energy companies, including oil and gas companies, needed to be part of the agenda. Any transition away from fossil fuels would take decades and would need to be actively managed by all concerned. The hostility towards fossil fuels – and certain fossil fuel companies – expressed by some of the activists at the summit was not constructive and could certainly have discouraged attendance. A role for the Energy Institute in fostering dialogue and debate on these issues?

Finally, a word on how strongly the UK was represented at the meeting, both in terms of the number of participants from private companies and international organisations, and in terms of the quality of the input. Unfair to single out any one person, but Rachel Kyte, leader of the UN Secretary General’s Sustainable Energy for All initiative and former Vice-President of the World Bank, stood out in terms of commitment, grasp of her brief and quality of advocacy. Proof that climate action and energy access can go hand in hand.

We need a new energy trilemma

Ian Marchant FEI Immediate Past President

The biggest energy policy issue facing us is not the so called energy trilemma but the various perspectives and drivers of the demand and supply of energy. The demand side involves decisions by millions of different people and businesses all over the country, whereas there are probably only a hundred or so companies involved in the supply side. The scale of decision is also different, ranging from hundreds of pounds to hundreds of millions. Just consider your personal decision about whether to replace your gas boiler and your corporate decision whether to replace your gas-fired power station.

For all these reasons and, because supply side energy assets are interesting and give good photo opportunities, it dominates the policy agenda. The supply side is like a black hole which sucks all the life from the energy policy debate into it. The three issues of affordability, security of supply and sustainability are a useful framework for a policy discussion, but it’s invariably a supply side discussion with occasional lip service to the demand side. Electricity policy debates quickly descend into who should build what power station, using what technology, where and when.

The supply side trilemma is important. But it is only half the story. We need a demand side trilemma. In conjunction with the Centre for Energy Policy at Strathclyde University, here are some suggestions. I ask you to weigh them up and think what yours would be.

1. Flexibility
2. Meetings of needs
3. Affordability

I think that policy on energy demand needs to balance these three forces and policymakers have to give equal emphasis to the two trilemmas. Let me explain a bit more what I mean about each force.

Flexibility
Firstly, flexibility. Our current energy system is actually remarkably flexible but in an oddly constrained way. When we flick the switch, the light comes on; when we turn up the thermostat, the boiler fires up; and when we get in the car it starts, usually. But the constraint is economic in that the cost of providing that flexibility varies enormously over the day and the year – but we are completely unaware of that variable cost. For example, the variable cost of producing electricity can range from effectively zero to hundreds of pounds per MWh, but our tariff is fixed regardless. However, as users we still want flexibility and in fact we want more. We want to be able to control our central heating and lights from wherever we are. As businesses and consumers, we increasingly want to be able to match our own generation with our own demand. So as a consumer, I want more flexibility and more control.

However, it isn’t that simple. The electricity industry also wants to increase flexibility and control but for its own purposes. There are two. The network operators want to use flexibility and control to manage their networks more efficiently and to avoid expensive, asset-heavy reinforcement. Imagine if every car on the street was a plug-in hybrid and they all plugged in at the same time. The local substation fuses would all blow and the street would be plunged into darkness until an engineer arrived to fix the fuses and switch the circuits back on, when they would all blow again. This is why network operators are exploring what they call smart grids. They want to know what’s happening on a real-time basis and try to create flexibility in demand. But their needs might be different from those of the other part of the electricity industry: the supply side.

In both its generation and retail forms, the supply side wants to make sure that demand knows the economic cost of the choices it makes, which means much more flexible pricing than we are used to. The industry jargon is “time of day” pricing, but what that really means is that you will pay a variable amount for your energy depending on its cost of production. This bit of the industry wants you to run your dishwasher when it’s windy, charge your car when it’s sunny and sit in the dark when it’s a still, clear night. The better the price signals, the more efficient the despatch of generation and the lower the overall cost.

From this brief description you can see how these three demands for flexibility and control can pull in different directions. The network wants you to delay charging your electric car, the generator wants you to charge it now and you want to know how much the different choices will cost and then make your own decision. Demand side policy has to address this flexibility trilemma but there are two other factors.

Meeting of needs
I don’t know about you, but I don’t actually want a kWh of electricity or a therm of gas and can’t actually visualise what they are. What I want is my phone charged, my lights on, my house warm and my shower hot. The trouble is that I don’t directly pay for these things or know how much they cost; I just get an estimated bill covering a few months. Smart metering will clearly help but I still won’t know what I’m spending money on, just when I’m spending it. Because we don’t know what is happening we overcompensate by using more energy that we need to make 100% sure that our needs are met. The setting of central heating time clocks is the best example here. I wonder what percentage of time your heating will be on this month when no one is at home? Demand side policy needs to put actual needs in the foreground, not just consumption.

Affordability
The third leg of the demand side trilemma is the same as for supply: affordability, but this time with a difference. The supply side addresses the unit cost of energy but the demand side looks at unit consumption. One times the other gives you your bill. This is often referred to as energy efficiency and that is a key part of making energy affordable but we mustn’t simply be wasting energy more efficiently. It’s no good if my car has a good fuel efficiency if I drive it when I should be using video conferencing.

In looking at the affordability of energy, it will be increasingly important to look at the three bills: power, heat and fuel in aggregate. If I switch to an electric car, then my power bill goes up but that doesn’t mean I’m more likely to be in fuel poverty as I’m saving even more at the petrol pump. For most people, the cost of filling their car each year is about the same as their annual power and gas bill combined, so let’s start looking at all three together.

Conclusion
The two energy trilemmas need to sit alongside each other in the policy debate and be given equal weight. We also need to recognise that the two sides of the energy industry are fully interconnected and when a lever is pulled on one side it has consequences on the other. Policymakers, and those who seek to influence them, need to be aware of this full picture as an over aggressive focus on one trilemma or a point on a trilemma will only be counterproductive and potentially damaging. The biggest shift we need is to remember the demand side. On the supply side, policymakers and indeed engineers often like big “binary solutions” like nuclear/carbon capture etc and this “centralised supply side thinking” needs to change. We have seen the democratisation of intelligence in the computer industry from large mainframes through to PCs and smartphones. The same needs to happen in energy and I believe that a new demand trilemma of flexibility, meeting of needs and affordability should help to achieve that refocus.

Renewable energy: an uncomfortable position

Ian Marchant FEI, Immediate Past President

I have been looking at how the UK is doing against its EU renewable energy targets. These set us a target of having 15% of all energy from renewable sources by 2020. The government would have us believe that all is well. It’s most recent report (published in January) took great delight in saying that we comfortably met the interim target up to 2013/14. But is that really the right measure? Interim targets are just that: interim, and it’s always tempting for them to be made easy to push trouble down the road to someone else’s term of office. So let’s look at where we actually are in terms of our final target, against the rest of Europe and against long-term requirements. As you might expect, this gives a far from rosy picture.

Firstly, let’s look at how we have done. The baseline for the new targets was 2004 and in that year we achieved a pathetic 1.2% of energy from renewables. After ten years and by 2014 it was 7%. Some simple maths puts this into context. We needed an increase of 13.8% in 16 years and we have managed 5.8% in ten years. In over 60% of the time, we have managed 42% of the target. If we carry on at the same rate, we will only hit 10.5% from renewables. In fact, according to leaked internal government correspondence, they privately think we may only get to 11.5%. I have seen some analysis looking sector by sector and technology by technology which gives a range of 10% to 11.5%. That doesn’t look at all comfortable.

Secondly, let’s see if the international picture gives any comfort. The EU actually has an overall renewable energy target of 20% and has agreed country by country targets within this, with the UK having a lower than average figure of 15%. The EU have recently published a progress report and nine countries have already achieved their final target (no interim target nonsense for them) and we are third furthest away from the end goal (only France and the Netherlands are further away). Despite the government’s trumpeting, our 7% only ranks us 24th out of 27. Outside of Europe we are behind most other countries including Canada, Mexico, Switzerland and even the US. We are level with Australia and ahead of Japan and Russia. Being near the bottom of international league tables doesn’t feel comfortable.

Thirdly, let’s think about where we are against the long term. I hear DECC ministers talking gleefully about the deal they secured in Paris. Leaving aside the UK’s role in securing anything, by 2020 we will be one third of the way from 2004 to the 2050 deadline by which time the global leaders expect the energy industry to be largely carbon free. I can’t see how that can be achieved without renewables contributing over 50% to the energy mix and, at the current rate of progress, even if it is maintained for another 34 years, that suggests we will only get to around a quarter. So the long term doesn’t provide much comfort either.

All three perspectives feel uncomfortable and whilst progress in 2015 may be quite good, this was before the current government’s attacks on onshore wind and solar. One final bit of analysis – it is possible to turn the UK’s likely shortfall into the electricity output measures of TWhours. On this basis, the shortfall will be between 50 and 70TWh (to provide context, the UK annual electricity demand is usually just over 300TWh ). There are obviously choices as to how the gap could be filled but the UK government has ruled out using more onshore wind and solar and expects to boost heat and offshore wind. Given the UK’s track record on heat (in 2014 we were bottom of the heat pile in Europe), I’m not optimistic and offshore wind, although it’s getting cheaper, will always be more expensive than onshore. I’ve calculated that for every 1GW of onshore wind that isn’t built but is replaced by offshore wind, it will cost the UK £100m every year (that’s 2.5TWh of output at a £40 per MWh cost differential). There’s probably another 6 to 10GW that could be built so the total cost could get to as high as a billion a year.

So we aren’t in a comfortable position at all, however you look at it, and we seem to be making things more expensive and difficult than they need to be. A classic case of not accepting the short term headlines.

Facing the future head on

Louise Kingham OBE
Chief Executive

Gloom and doom casts a shadow across headlines about the oil and gas industry as economic slowdown and the continuing falls in commodity prices wipes millions off the value of stock markets around the globe. These circumstances are forcing companies to reshape their businesses with the inevitable pain of the impact this has on jobs, productivity, progress in the shorter term and the wider social impact which can be much longer lasting.

Industry cycles are expected – as are the’ ups and downs’ we experience when we’re in them. Clearly it’s important to ride the down times as well as you can but, at the same time, good leadership always has an eye on the future. Making time to think and understand how things will be different going forward and what that means for our organisations and so, being able to reposition to embrace change is essential.

At the same time, worldwide pledges have been made to reduce greenhouse gas emissions as part of the COP21 commitment. This takes engagement from the oil and gas sector and so, while managing the downturn, the industry is also examining the challenges and opportunities these environmental responsibilities present.

With that in mind, listening to the impressive line-up of leaders gearing up to speak at International Petroleum Week in London in less than two weeks’ time to tell us how they are facing the future head on will be time well spent. Bob Dudley FEI from BP, Patrick Pouyanne from Total, Ayman Asfari FREng FEI from Petrofac and Igor Sechin from Rosneft are among the many taking part in presentations and panel debates between 9-11 February. I’d suggest you can’t afford to miss it.

Behind the scenes at COP21

Professor Jim Skea CBE
EI President

You’d think that being at COP21 would allow you to have your finger on the pulse and provide deep insight into what’s going on. That, I think, is why I’ve been encouraged to blog on COP21.

I’m here exactly half way through, having been here for five days. There’s certainly the buzz, but an intelligent look at the media and UNFCCC websites would probably tell you just about all that there is to know.
I’m one of 40,000 people who have established a small temporary town at the Le Bourget site on the edge of Paris. The ‘blue zone’, accessible to people like me who have got an observer pass, consists of six giant aircraft hangar size halls – two hold country ‘pavilions’ where an endless stream of side events (workshops, discussions) is taking place, one contains meeting rooms and exhibits for observers, one for the media, one with meeting rooms for delegations and one containing offices for UN bodies and the French Presidency plus the all-important plenary negotiating rooms. It took me 24 hours just to figure out the geography.

That being said, the buzz here is actually very good, although there are still major issues to be addressed. The ADP (Ad Hoc Working Group on the Durban Platform for Enhanced Action) has produced a text to kick off the second week’s negotiations. The second week is the high-level segment where ministers turn up to drive things along. Amber Rudd, the UK’s Secretary of State, arrived at the weekend and will be here throughout the week.

A key issue for many Energy Institute members will be the implications for business. The big players are all here and are taking the outcome seriously. I was in a meeting earlier today with one of the Europe-based oil companies which is devoting a lot of senior time to the event. ExxonMobil has announced that it ‘strongly supports effort toward a successful outcome’ and that ‘putting a price on greenhouse gas emissions is the best option to meet Paris climate goals’.

Some companies have boldly gone further: the ‘B-team’ group of companies – including Virgin and Unilever – have been calling for zero emissions by 2050 and some have backed calls for a 1.5 degrees global warming target, never mind the 2 degrees already agreed under the Convention. At the time of writing, there is a proposal that IPCC should produce a special report on 1.5 degrees. As one of the new IPCC Working Group co-chairs this affects me.

Finally, it’s great place for celebrity-spotting. Yesterday I was at an event on the Arctic addressed by Ban Ki-Moon, Segolene Royal and the Norwegian Prime Minister (plus four Norwegian teenagers who’d skied to the North Pole). Al Gore has been prowling the halls and came to give IPCC a pep talk at our first meeting. And Leonardo de Caprio has been adding his voice. If Arctic sea ice melts what would have sunk the Titanic?

On 15 December, Professor Skea will speak at an EI event in London entitled ‘UN Climate Change Conference COP21: where next for energy policy?’. Visit the EI website for more details.

Energy Institute blog

Creating a better energy future

cop21

Moving energy management forward

Diversity and convergence: the 2016 Energy Barometer

Climate Action in the US

We need a new energy trilemma

Renewable energy: an uncomfortable position

Facing the future head on

Behind the scenes at COP21

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