Waste not, want not

3rd May 2017

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Rees Davies

Energy and resource expert Niall Enright explains why efficiency efforts can sometimes flounder

There are some compelling reasons to implement energy and resource efficiency programmes. For most organisations, there is significant value to be unlocked. This value is often expressed in financial terms, but can also be described in terms of competitive advantage, a continuing licence to operate, enhanced brand value, or a greater ability to deliver service to stakeholders.

Resource inefficiency also represents a major threat to our survival. Society’s demand for improvement is bringing about rapid change, which we can either shape actively or observe passively. To be a winner we need to engage with this change and use it to competitive advantage. Finally, there is a moral imperative to be efficient.

Organisations are not islands; they have obligations to many stakeholders, not just in the present but also in the future. Day by day it seems that more organisations are appreciating these facts and responding vigorously to the risks and opportunities of energy and resource efficiency. If one were to examine what many of the world’s largest corporations are saying, one would be forgiven for thinking that the problem is solved.

The reality

Unfortunately, this is not the case. Despite self-congratulatory case studies to the contrary, the reality is that energy and resource efficiency efforts are proving difficult to sustain in organisations. Many efforts remain superficial while what some organisations publish is downright misleading. The landscape is littered with disappointments, premature declarations of victory and outright failures.

In my professional experience, less than one-third of programmes achieve their objectives, and a much smaller proportion approach their true potential for improvement. There are many reasons for this. Resource efficiency is complex. It requires many parts of the organisation to be engaged for protracted periods. Sometimes it needs third parties to act in concert with us. It seems never-ending: no sooner has some improvement been made but there is a demand for more – whether to satisfy regulators, stakeholders or just to remain competitive.

Many people who start an energy and resource efficiency programme believe that this is primarily a technological challenge. After all, we are constantly reminded that the solution to carbon emissions is better kit – whether that be solar panels or more efficient boilers or electric vehicles.

It does not take long, however, for it to dawn on those tasked with delivering results that the main obstacles are not technological but organisational. It is this failure to perceive of energy and resource efficiency as a change management process that often results in the disappointing outcomes.

The economics

The most visible evidence of barriers to energy efficiency is the difference between the observed and potential efficiency. If this difference is small, one could argue that there are few barriers to realising the potential whereas, if this difference is large, one could conclude that the obstacles are considerable.

From an economics perspective, all decisions are rational. Studies suggest the potential for energy efficiency savings ranges from 17% across all sectors to 46% in buildings. If true, efficiency measures should attract large numbers of investors seeking good returns. The fact that we don’t see this needs an explanation.

Orthodox economists looking from the ‘top down’ argue that, since the markets for energy-using technologies are broadly efficient, the only possible reason that these opportunities are overlooked is that they do not, as claimed in the studies, offer a net positive return on investment. They argue that, far from there being barriers specific to resource efficiency, the failure of adoption is due to the more general case that the costs of efficiency are understated and so the investment is, in truth, unattractive. These ‘hidden and missing’ costs could account for the apparent lack of investment, and a perception of greater risk explains the higher hurdle rates that efficiency investments are required to achieve.

From the ‘bottom-up’ perspective of people like myself, who regularly encounter highly attractive opportunities within organisations, this explanation is flawed. We see lots of ‘no and low-cost’ savings – called ‘no regrets’ savings since they don’t take any investment away from other options. According to the orthodox economists, this category of savings should no longer exist – they cost nothing and take no money away from other investments, and so should have been implemented in full.

The truth

So who is right? As in all debates, there is some truth in both arguments. Common errors in the bottom-up aggregation of opportunities include an underestimation of installed cost and the failure to take account of the interaction of the savings – a 20% saving on top of a 20% adds up to 36% savings, not 40%. On the other hand, the assumption that decisions are entirely rational and there are no barriers specific to resource efficiency defies much research evidence and the personal observations of many efficiency practitioners like myself.

There are genuine challenges associated with persuading organisations to invest time and money in efficiency. Denying that these exist means denying the potential, and this could rob us of the opportunity to deliver what is almost certainly the cheapest and most rapid method of addressing climate change.

A guide to the manual

Energy and Resource Efficiency Without the Tears will be published in June. Written by Niall Enright, energy and resource efficiency consultant and occasional contributor to the environmentalist, the 840-page, two-volume manual is described as the complete guide to adding value and sustaining change in an organisation.

The book is complemented by an extensive set of companion resources that will help practitioners to drive improvements in their organisation (bit.ly/2nwxshg). These files include: more than 50 spreadsheets to accompany the data analysis and financial analysis; a lighting hours tool to create daily, weekly or monthly lighting demand profiles; MACCBuilderPro, to draw marginal abatement charts (previously sold for £85); a non-commercial license for an M&T tool, MATOD; business case models; full documentation of a certified ISO 50001 system; and a complete software specification that can form the basis for the selection and procurement of a resource efficiency tool. 

A free pdf version of the book is available at sustainsuccess.co.uk/iwik, with access to the companion resource files (zip file) for a single user costing £29.99. The manual is also available in paperback and hardbound at £59.99 and £79.99 respectively. Buyers of the print edition receive free access to the companion files.

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