Best Practices for Energy Efficiency Improvement in Industry

Xianli ZhuCopenhagen Centre on Energy Efficiency

16 Sept, 2016

Outline

• About C2E2

• Why industrial energy efficiency?

• Information‐led policies

• Institutional, regulatory, and legal policies

• Financing 

• Sources for Further Information

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About C2E2

The Copenhagen Centre on Energy Efficiency (C2E2) is a research and advisory institution dedicated to accelerating the uptake of energy efficiency policies, programmes and actions globally. 

C2E2 serves as the Energy Efficiency Hub of the Sustainable Energy for All (SE4All) Initiative. The Centre's prime responsibility is to support SE4All's objective.  Global average GDP energy intensity change is ‐1.3% between 1990 and 2010; SE4All target is  to double this to ‐2.6% between 2010 and 2030.

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Copenhagen Centre on Energy Efficiency

Launched in September 2013

www.energyefficiencycentre.org

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Copenhagen Centre on Energy Efficiency

C2E2

International Organisations e.g. UNEP, IEA, 

IRENA

Development Banks e.g. World Bank, ADB, IADB, 

EBRD

Regional Partners e.g. 

UN Reg Comm, Cenef, AIT

National Governments

OtherStakeholderse.g. Private Sector, 

Universities, IFIs

SE4All Global EE Accelerator Platform

Capacity building in target countriesCapacity building in target countries

Private sector engagement 

(including PPP)

Private sector engagement 

(including PPP)

Raising the profile of Energy Efficiency

Raising the profile of Energy Efficiency

Key Focus A

reas

Importance of industrial EE improvement

• Improving energy efficiency represents the cheapest and cleanest 

energy resource we have

• Cost‐effective today using available technology

• Industry is 29% of total energy

• Industry is concentrated and therefore represents an “easy” sector 

for policy makers compared to buildings or transport

• There is no actual market for energy efficiency• Lack of understanding of benefits• Lack of data• Cuts across departmental boundaries• Largely invisible• Involves many tiny decisions • Dominance of energy supply industry 

Barriers to energy efficiency policy

energy savings that can be achieved using currently available technical know-how and technology

energy savings that can be achieved using no-cost, low-cost and with no significantly changes in lifestyles and practices

73%

25%number of power stations avoided in 2020 if 21 – 47% savings were to be achieved in the UK

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Why organisations don’t reduce energy? The inside‐out view

0% 5% 10% 15% 20%

Poor innovation by suppliers & business…

Financial constraints e.g. high hurdle rates

Corporate cultural resistance to new ideas

Inadequate R&D and funding by governments

Insufficient collaboration among stakeholders

Leadership attitudes towards avoiding new…

Uncertainty over the viability

Failure of assess the side effects or…

Energy providers want to maintain status quo

Lack of leadership by policy makers

SOURCE: The Future of Energy. A Harvard Business Review Analytical Services Report 2013

Multiple aspects in managing energy

Multiplier Effect

Business Processes

Tools & Techniques

Information & Insight

Organisational Engagement

Relating energy use to activity Engaging Employees

Aligning company to vision / plan

Maximising energy savings

Engaging Top Management

Minimising capital cost

Having confidence on numbers

Controlling energy consumption

Sustaining achieved savings

Renewing efforts to improve

Systematic framework to build up organisational energy intelligence

1. Profiles – where is energy is consumed?

2. Baselines – making energy a variable cost

3. Audits – finding cost‐effective opportunities to save

4. Objectives and Plans – putting opportunities to top management

Key is in “guiding” 

organisations to gain insights

ISO 50001 merely adds “bits and pieces” on 

top

plating Gold‐plating may lead 

organisations to “merely comply”

• Often focusing on medium or big industrial enterprises

• Often starting from energy-intensive sectors, like cement, iron

and steel, other metal production, petrochemicals etc.

• Need to build long-term certainty and stimulate competition

(Japanese Top Runner Approach for energy efficiency

standards )

Policies on industrial energy efficiency

• Why? Lack of knowledge or awareness is a major barrier to implementing energy efficiency.

• It is therefore necessary (but NOT sufficient by itself), to supply timely and targeted information to the correct people in appropriate ways.

• BUT simply providing information does not automatically lead to the correct actions!

Information led policies

“Decisions and subsequent behaviours are not always the product of a rational, deliberative and individual evaluation; “they are as likely to be based on opportunistic or emotional impulses, habit and cultural tradition, social norms... as well as a host of other contextual factors.”

Conclusions of the British Psychological Society (2013) following an investigation into decision‐making

The importance of psychology

Traditionally includes the why, what and how:• motivation to take action (why do anything?)• management systems• ISO 50001• specific techniques such as M&V• technology options for specific industry sectors• specific advice on how to implement management systems and technologies.

Provision and dissemination of information

The most effective behaviour change activities will incorporate financial incentives and non‐financial elements. For example: 

‒ Prioritising actions that will bring greatest benefits‒ sufficient financial incentives‒ latest knowledge of how people learn and change‒ effective marketing‒ training‒ meaningful information at critical decision‐making points‒ quality assurance ‒ award schemes.

Effective interventions

Can cover the aspects of an effective EnMS: ‒ Energy Auditing‒ Measurement and Verification‒ Building Business Cases‒ and specific technical opportunities. 

Standard qualifications for energy managers can be developed.Government can assist appropriate institutions to develop and accredit courses. 

Training

• develop an energy management programme• set and review energy reduction targets• undertake an annual energy audit• report annually on energy performance

Features of an ongoing campaign

Essential for encouraging excellence• China: judges manufacturers on quantitative metrics for the efficiency of 

appliances.• The US Energy Star: has qualitative judgements as well.• Japan: include multiple rounds of judging and often site visits.• Germany: the Initiative EnergieEffizienz campaign. A criteria is• transferability of a measure to other companies. • UK: Energy Institute’s annual Environment and Energy Awards. These are 

third‐party• Asia: Power & Electricity Awards, e.g. “Best Asian Energy Efficiency 

Project of the year”. & the ASEAN Centre for Energy in Jakarta's Energy Awards for the most energy‐efficient buildings.

Recognition and reward programmes

• Information provision, training and awareness‐raising are vital to change behaviour. 

• BUT not sufficient: incentives and ongoing monitoring and support needed also. 

• Must cover benefits, establishing energy management systems and specific kit, promote standards such as ISO 50001.

• Peer‐to‐peer networks often better than centralised provision.• Training is important for capacity building.• Labeling of products is useful.• Award schemes for successful energy efficiency programmes

and projects helps motivate. 

Summary

Institutional, Regulatory and Legal Policies

• Voluntary agreements• Mandatory measures including:

– energy performance targets– energy audits– energy managers– mandatory reporting– trading– adoption of standards like ISO 50001

• Minimum Energy Performance Standards (“choice editing”)• obligations on energy suppliers to invest in energy efficiency.

Case studies• Mandatory energy performance targets

- China’s Top 1,000 and Top 10,000 Energy Consuming Enterprises programmes

• Mandatory energy audits‐ Mandatory energy audits under the EU Energy Efficiency Directive (first in 

2015, once every four years afterwards)‐ UK’s Energy Savings Opportunity Scheme (ESOS)‐ Australia’s Energy Efficiency Opportunity (EEO) programme

• Mandatory energy managers– India’s mandatory energy manager and energy audits

• Mandatory reporting– UK's Carbon Reduction Commitment (CRC)

• Mandatory trading of carbon or certificates‐ The EU Emissions Trading Scheme‐ India’s Perform, Achieve & Trade (PAT) Scheme

Summary

• Voluntary agreements with industry can be effective but require careful design to avoid industry pushing for Business-As-Usual targets.

• Mandatory energy performance targets can be set to reduce energy use.

• Measures that can be made mandatory include energy audits, energy managers, energy and carbon reporting and trading of energy saving certificates or carbon.

• Mandatory energy audits should include requirements to ensure that senior management see the opportunities for improved energy efficiency.

• Minimum Energy Performance Standards (MEPS) are the best way to ensure significant market penetration of high efficiency motors.

• Regulations to mandate energy efficiency programmes by utilities can be effective at increasing investment into energy efficiency.

• The challenge is to increase investment into energy efficiency

• Investment on‐balance sheet and third party investment

Financing policies

• Hard to measure• IEA estimate $310 to $360 bn a year• IEA 450 Scenario requires increasing this to $1.1 tn by 2035• 60% of EE investment is self financed• Need to increase third party investment• Institutional investors want to invest in efficiency

Current levels of investment into EE

Barriers to investing in EE

• Small size of projects• Difficult to measure outcome• Seen as boring – non‐strategic• Invisible (results and sometimes the technology as well)• Equipment embedded into processes and buildings

Sources of industrial EE investment

• internal investment from the host organization (on balance sheet – equity or debt)

• external investment from a third party (TPI). This can come from:– utilities, through mandated programmes– financial investors and lenders providing equity and/or

debt– Energy Service Companies (although in practice most

ESCO investment is third party finance from banks and investors)

– investment from the public sector either in the form of either commercially priced finance or some form of subsidies such as grants or low interest loans.

To increase investment

• Improve financial returns– Grants– Offer low‐cost finance– Reduce transaction costs e.g. through standardisation

• Reduce risk– Guarantee mechanisms

• Increase available funds– Specialised funds– Aggregation vehicles leading to secondary markets

Case Studies

Tax breaks: – Enhanced Capital Allowances in UK (corporate tax)– Swedish programme for Improving Energy Efficiency in Energy‐

Intensive Industries (Exemption from consumption tax if companies implement ISO50001 & demonstrate improvement in efficiency)

• Grants– Chile’s electric motor grants– Philippines Chiller Energy Efficiency Project– South Africa’s Standard Offer Model

Specialised Funds

• Argentina’s Energy Efficiency Fund• Thailand’s ESCO Fund• China’s Utility Based Energy Efficiency Finance programme (CHUEE)• UK Green Investment Bank

BUT• Provision of finance alone is not enough• Strong need for project development assistance • Strong need for investment  “infrastructure” e.g. standardization 

through tools such as the Investor Confidence Project (eeperformance.org)

Summary

• Need to accelerate the rate of investment into energy efficiency – both internal and 3rd party investment

• Requires a systematic approach that addresses:– Provision of funding– Project development– Capacity building on demand and supply side as well as in the finance industry

• Growth of 3rd party finance through energy services will be significant in future

Energy Efficiency Knowledge Management System

The Industrial EE database by IIP is now jointly takenover by C2E2 and UNIDO, it containsa lot of information on Industrial EE policies, practicesand case studies for Iron & steel, cement, and petrochemicalindustries

Industrial Energy Efficiency Accelerator: Structure and Building Blocks 

Key Stakeholders:Ministries of environment / 

energy, engineering firms, Industry 

associations, Banks, NGOs, etc.

Supporting Organizations:EnWG, DOE, EEP, 

IPEEC, Carbon Trust, DOW Chemicals, 

etc..

Leading Partners: UNIDO, IIP, TERI, and 

4 Principal Offerings of the Industry Accelerator:

Support for development and formulation of EE policies• Integrated policy and investment roadmap that provides innovative tools and 

instruments to promote successful polices under local circumstances at regional, national, and subnational levels

Capacity building for adoption of EnMS• Training of public and private officials via “train the trainer” approaches, and 

on‐the‐ground region and sector‐specific pilots

Financing solutions for the development and implementation of Accelerator goals• Financial institutions mainstream EE financing into standard loan operations, 

coupled with technical and EnMS implementation assistance

Knowledge‐sharing and information dissemination• Platform for knowledge exchange for best practices in policy design and 

implementation, fostering south‐south collaboration to address information barriers