Renewable energy is not enough—we must reduce consumption too

Alan Pears explains why we must stop ignoring energy efficiency gains instead of just focusing on switching to renewables.

Is Australia’s focus on “clean energy” part of our economic and climate problems?

In its 2022 World Energy Transitions Outlook, IRENA (International Renewable Energy Agency), puts energy efficiency and renewable energy equally important, at 25 percent of the global energy decarbonisation path, with electrification (much of which is energy efficient technologies) at 20 percent (see Figure 1). The International Energy Agency (energy efficiency is the “first fuel”) and European Union) “energy efficiency first”) also see major roles for energy efficiency.

Yet major Australian clean energy industry advocates such as the Clean Energy Council and Smart Energy Council rarely mention energy efficiency. Nor do our politicians. Many community groups just call for a “renewable energy future”.

Is this due to ignorance? Or the desire to present a short, sharp media message? Does the renewable energy industry see energy efficiency as a threat to its growth? Do they all believe the hype that super-cheap, abundant renewable energy makes efficiency irrelevant? Do they believe that energy efficiency can only deliver small benefits, and that even this will be reduced as we decarbonise electricity supply? Does the language used in our National Energy Objective, “price” instead of “cost”, focus policymakers on supply instead of actions that may reduce overall energy cost but not necessarily reduce the price?

Australia seems to have a pervasive supply-focused approach to many things, not just energy. We consume land, we dig up and sell bulk resources. We mine water. Much of the discussion about circular economy in Australia focuses on reducing waste, not optimising the need for materials in the first place. Many businesses prefer to invest in risky strategies that ‘grow’ their businesses through producing and selling more instead of optimising productivity (and efficiency).

I just do not understand this distorted perspective. It is very costly, as it drives over-investment in wasteful consumption. And we are out of step with all the leading analysts and countries.

Coming back to energy, the belief that plentiful, cheap renewable energy will deliver cheap energy reflects a serious failure in economic analysis.

For example, Transgrid, in its 2021 Energy Vision, estimates “normalised electricity costs” over 2021 to 2050 for six scenarios, as shown in Figure 2. If we ignore the “De-industrialisation death spiral”, operating expenditure for generation is 5.6 to 10.4% of total electricity cost. Overall costs are dominated by distribution costs (43 to 51% except for the “Clean energy superpower” scenario when energy demand is much higher, at 33% for distribution). Distributed Energy Resources comprise 5% to 12% in all scenarios except “Prosumer Power” where it is 19%: DER includes capital and ongoing costs of on-site energy supply, storage and management technologies and associated services.

Even if operating costs of renewables were zero, energy prices would not decline by much: they would just be dominated by network charges, capital spending and other unavoidable charges, including GST, retail and administration charges.

Figure 1. Reducing emissions by 2050 through six technological avenues. 90% of all decarbonisation in 2050 will involve renewable energy through direct supply of low-cost power, efficiency, electrification, bioenergy with CCS and green hydrogen. Source: irena.org/publications/2022/Mar/World-Energy-Transitions-Outlook-2022

Our failure to focus on energy efficiency and productivity also lies with some other factors. Most decision-makers use “payback period” to decide about energy efficiency. This is a terrible indicator, as it gives the impression that the investor is behind until the payback period has elapsed. This is rubbish. A payback period of three years equates roughly to a 30% annual tax-free rate of return on investment: compare that with the after-tax return from bank interest! The investor has an asset. Many businesses are valued based on estimated profits over 10 to 15 years, so the annual savings that increase profits translate into substantial added business value. Then there are the multiple benefits of energy efficiency and productivity. These can include reduced waste of inputs, faster production, higher quality, improved health, safety and productivity, happier customers, avoided cost of carbon offsets and so on. These usually far exceed the significant value of energy saved.

In some ways, the energy efficiency industry contributes to the problem. Most energy consultants focus on energy savings and don’t factor other benefits into business cases. Many focus on incremental savings and express value in terms of payback periods.

So it’s not surprising that Australia ranks low on international comparisons of energy efficiency performance.

Figure 2. Normalised average cost of electricity for the NEM over the period 2021-50. Generation operating expenditure is a small part of total electricity prices. Some of the Distributed Energy Resources cost reflects the cost of on-site renewable generation. Source transgrid.com.au/media/x4mbdody/transgrid_energy_vision.pdf

Going off gas requires community engagement on practical action

Momentum is building behind the transition away from gas in homes. The ACT Government is considering legislation to phase out gas in new urban development, while the Victorian Government has released its gas substitution roadmap. Meanwhile, the case against eventual distribution of hydrogen to households is building, despite questionable gas advertising.

When I ran Melbourne’s Energy Information Centre in the early 1980s, we had a comprehensive display centre staffed by trained and enthusiastic people. Our caravan unit travelled Victoria helping people design better homes and educating children about efficiency and renewable energy. We had energy-efficient passive solar display homes around Victoria. The Gas & Fuel Corporation employed teams of cooking experts and interior designers to help people learn how to best use gas. When we introduced appliance energy labelling, the State Electricity Commission spent millions of dollars promoting the scheme: this was crucial in building public commitment.

Today, policy makers seem to think that dumping information online and designing policies is enough. They don’t seem to grasp that driving change involves competing for brain space with others who are spending tens of millions of dollars promoting their agendas. People (and businesses) need a lot of hand-holding to change.

Where are the educators showing people how to use a wok on an induction cooktop? Where are the people to advise on the complexities and subtleties of positioning and using a reverse cycle air conditioner to deliver comfort? Where are the built-in features and advice that warn you when your reverse-cycle unit is losing refrigerant or has a clogged filter that reduce its heating and cooling output and efficiency? Where are the ongoing advertising campaigns explaining building and appliance star rating schemes?

My experience over forty years is that few policymakers or politicians appreciate how important competent, comprehensive and well-resourced implementation is. And how few people know how to deliver that.

Where to for Australian economy?

Manufacturing policy expert Roy Green’s recent article (johnmenadue.com/industry-policy-for-a-changing-world) raises many important issues for the direction of Australia’s economy. The present hype is on minerals for the ‘new’ economy, hydrogen etc, and value adding by processing minerals with our expected cheap renewables. But exports are just one part of our economy, and these activities won’t employ many people.

We are lucky that technologies and business models are evolving in directions that suit Australian innovators. The services sector is growing beyond 70% of the economy and is already 90% of jobs. So a lot of the growth needs to be in services and virtual solutions, not traditional manufacturing.

One interesting trend is that boundaries between manufacturing, services and agriculture are blurring. A hot bread shop or in-store bakery can out-compete an industrial scale bakery. A farmer can also run a tourism operation and produce retail products while generating renewable energy for export to cities.

A flexible manufacturing facility can quickly change what it produces by reprogramming smart, flexible, connected electric machinery such as actuators that replace clunky, inefficient compressed air actuators (see a2ep.org.au/compressedair). 3D printers can make replacement parts on-site, recycling services can replace emission-intensive industry and complement new industries that use the materials it produces.

Modular electric processing equipment can be located in rural and regional areas, near production, instead of far away near a gas supply. Digitalisation (in industrial applications often called Industry 4.0) and energy productivity improvement strategies don’t just save energy but offer more value while cutting energy use.

It is an exciting, disruptive time. But a lot of Australian business is moving too slowly.

Author:
Alan Pears
Alan Pears, AM, is one of Australia’s best-regarded sustainability experts. He is a senior industry fellow at RMIT University, advises a number of industry and community organisations and works as a consultant. He writes a column in each issue of Renew magazine.

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