Historically energy efficiency has been the energy sector’s Cinderella – while coal, gas and renewables go to the media ball, energy efficiency has stayed at home, cleaning the fireplace. This is changing dramatically.

Energy efficiency is moving to centre stage in the energy revolution. Globally, climate change agreements and a booming market for energy efficiency are shifting the focus to energy management. Locally, South Australia has put energy back on the front page, reminding industry and regulators that energy management will be critical to support the transition to clean energy.

As a result, the National Energy Efficiency Conference in Sydney on November 15 and 16 will be this year’s most important event in energy.

For the first time ever, Australia’s major efficiency event is being delivered in conjunction with the International Energy Agency’s (IEA) Energy in Buildings and Community Programme, linking it with the world’s top experts in energy efficiency.

The IEA is the world’s most senior advisory body on energy, producing reports on oil, gas, coal, renewables and energy efficiency.

While the IEA started out in 1974 focusing on oil security, it has increasingly focused on climate change and renewables, and is now the leading global voice on energy efficiency.

In October the IEA released its third Energy Efficiency Market Report, which found that global investment in energy efficiency in 2015 was a staggering $290 billion. Investment in efficiency is growing at a remarkable rate, increasing 6% in just one year.

This is not only a huge business opportunity, it’s also vital for tackling climate change. Faith Birol, the executive director of the IEA, states that energy efficiency is the “single largest action” to help decarbonise the global energy supply.

The money that matters

The good news is that the ramp up in investment in energy efficiency is having a real impact. Global energy productivity (units of energy per unit of GDP) improved by 1.8% in 2015, triple the annual rate of 0.6% in the 2000s. However, this is still well short of the 2.6% rate of annual improvement that the IEA believes would be required to deliver on the world’s climate goals.

The Energy Efficiency Market Report 2016 also found that in 2015 improvements in energy efficiency met more of the world’s energy needs than new generation. Even more significantly, global investment in energy efficiency was 66% higher than global investment in conventional generation.

The report finds that energy efficiency is an enormous business opportunity. China alone invested $485 billion in energy efficiency between 2006 and 2014, delivering as much energy as China’s investment in renewable energy. China is also the largest global market for specialist energy service companies, which have seen rapid growth in the last decade.

While energy efficiency makes good business sense, distortions in markets for energy, buildings and appliances prevent us from tapping its full potential. The IEA has concluded that mandatory energy efficiency programs, including standards for buildings, vehicles and appliances, were critically important to capture this opportunity.

The tip of the iceberg

While governments have taken significant action, there is much more still to do. Action on energy efficiency needs to be ramped up even more to avoid dangerous climate change.

I spoke to Brian Motherway, the IEA’s head of energy efficiency, shortly after the release of the report. (Brian will be the keynote speaker at the National Energy Efficiency Conference in Sydney.)

“Our 2016 Energy Efficiency Market Report demonstrates that businesses and governments around the world understand the critical role energy efficiency will play in the transition to a low carbon economy,” he told me.

“Not only that, they and are acting on that knowledge and pursuing cost-effective energy efficiency that has benefits well beyond savings on energy bills in terms of comfort, health and productivity.

“This opens up significant opportunities for Australia to tap into the rapidly growing export market for energy efficient products and services, particularly in the Asia-Pacific region.”

The 2-degree target

While Australia could earn billions from smart energy exports, the main factors sharpening the local focus on energy efficiency are the Paris Climate Change Agreement and concerns about energy security and affordability.

The Paris Climate Change Agreement will come into force in November following ratification of the agreement by a majority of countries representing the majority of the world’s emissions. There is broad consensus that Australia will fail to meet the targets it committed to at Paris without new policies to drive emissions reduction.

Energy efficiency represents around half of the abatement opportunities in Australia’s energy sector, and we have barely started to capture these opportunities. Energy efficiency is also the easiest political option for the Turnbull Government, as the right policies would lower energy bills, improve productivity and dramatically cut emissions.

eec-chart

The Australian Government is well aware of these opportunities. In 2015 Minister Frydenberg lead the development of a National Energy Productivity Plan (NEPP), which aims to improve energy productivity (a measure of energy efficiency) by 40% by 2030.

The NEPP is still a broad outline that needs to be filled in with policy detail. This gives the government the ability to significantly ratchet up its efforts on energy efficiency, and it will be a key issue in the 2017 Climate Review.

However, the biggest driver for energy efficiency in the coming years will be keeping energy affordable and supporting the transition to renewable energy. Much of Australia’s generation fleet is approaching the end of its life, which means that we’d need to build new generators even if coal retained its current share of generation. Irrespective of the form of generation, building new generators will push up the cost of electricity, which means that we need to aggressively invest in energy efficiency to keep energy bills down.

However, it is very clear that the vast majority of new generation in Australia will be renewable. While the Energy Efficiency Council is formally neutral regarding sources of generation, we believe a shift to renewable energy is inevitable, driven by decisions of both households and major investors. This makes smart energy use (including energy efficiency and demand management) even more critical.

Consumers control demand

Demand-management refers to changing energy use in response to variations in energy supply and price. For example, during a period of high output from wind farms, a factory could chill phase-change materials that allow chillers to be switched off during periods of lower supply. There is a huge range of ways that demand can be managed that will have no impact on energy consumers, but substantially reduce the cost of supply.

Demand-management not only provides kilowatt-hours but also valuable services like frequency control that are critical to system stability. Stability has become a much hotter topic following the recent System Black in South Australia.

The Australia Energy Market Operator’s (AEMO) reports into the events of September 28 make it clear that the primary cause of the System Black was a storm that damaged 22 transmission towers, shutting down three lines north of Adelaide. This lead to 315MW of wind generation disconnecting, increasing the draw on the Heyward interconnector above safe levels, resulting in the interconnector tripping and then the shutdown of the remaining generators in the state.

Generators need to shut down under extreme variations in frequency or voltage to avoid damage, but there is ongoing investigation about whether some wind farm protection systems in South Australia were set incorrectly. However, this is not just an issue for renewable generation — in 2005 there was a partial System Black in South Australia after some dirt at a transmission station caused the state’s main coal-fired generator to shut down.

There are other key messages that come out of this event. Buried in the AEMO report is the statement: “There was no local SA Regulation FCAS [Frequency Control Ancilliary Service] requirement pre-event, as there was no credible risk of separation of SA from the National Electricity Market (NEM).”

In the common (rather than technical) sense of the term, it’s clear that disconnection from the NEM was a “credible risk”.

Effective mechanisms

This was an extreme event, and it’s not clear that local FCAS could have helped to keep the grid stable. But it raises the broader point that the energy market needs more effective mechanisms for tapping into demand-side services to manage fluctuations in both supply and demand, including both FCAS and demand-response over longer periods. This is especially true as the level of intermitted supply from wind and solar increases in the grid.

The new Finkel Review into energy security will need to deal with both supply-side and demand-side issues if it is going to identify the cheapest way for Australia to transition to clean energy while maintaining system security.

Affordability, security, climate change — these are huge topics individually, let alone together. It’s clear that energy efficiency is going to play a major role in the transition of Australia’s energy system. This year’s National Energy Efficiency Conference will be a critical start to the debate in 2017 that is likely to shape our sector for the next decade.

 

Rob Murray-Leach is head of policy at the Energy Efficiency Council.

The Energy Efficiency Council is Australia’s peak body for energy efficiency, cogeneration and demand management. Formed in 2009, the council is a not-for-profit membership association which exists to make sensible, cost-effective energy efficiency measures standard practice across the Australian economy. It works on behalf of members to promote stable government policy, provide clear information to energy users and drive the quality of energy efficiency products and services. www.eec.org.au

* Source: ClimateWorks Australia & WWF 2015 report “A prosperous, net-zero pollution Australia starts today”.