Efficiency First: a new paradigm for a sustainable energy system

The UK’s energy policy is at crossroads. Ambitious carbon targets, an aging energy infrastructure, rising fuel poverty and a legacy of fossil fuel investment warrant bold political decisions to ensure the UK transitions to a sustainable low-carbon energy system. Because of the long-term nature of investment in energy infrastructure, decisions made over the next five to ten years will shape the trajectory along which the energy system will evolve. Getting those choices right is key for ensuring a sustainable, affordable and secure energy future - the principle of Efficiency First delivers on all three.

Efficiency First is a principle applied to policy-making, planning and investment in the energy sector. Put simply, it prioritises investments in customer-side efficiency resources (including end-use energy efficiency and demand response) whenever they would cost less, or deliver more value, than investing in energy infrastructure, fuels, and supply alone.

At a first look, this is purely a common-sense policy – surely public policy should promote end-use efficiency whenever saving energy or shifting its use in time costs less or delivers greater value than conventional supply-side options. Doesn’t this happen automatically? Unfortunately, no. On the demand side, investments in efficient solutions are impeded by numerous market barriers to individual action; and on the supply side, industry traditions, business models and regulatory practices have always favoured, and continue to favour, fossil fuel based energy infrastructure and sales over lower sales and energy saving technologies. As a result, not a single pound of the £256 billion investment pipeline for energy infrastructure is allocated to energy efficiency.

Efficiency First can radically change our thinking about supply and demand-side infrastructure. It means developing the discipline to systematically test policy proposals and investment decisions asking the question whether or not the same outcome could be achieved more cheaply through demand-side measures generating more societal value. It does not simply mean to spend more money on or to always prioritise energy efficiency. But it requires considering efficiency explicitly before investments are locked into new costly supply-side infrastructure.

Here is a concrete example of what this means: In the early 1990s, MANWEB, the electricity supplier and distributor for the North Wales (now part of Scottish Power), was facing the prospect of having to build a new substation for the town of Holyhead at a cost of £850,000. Electricity demand in Holyhead was increasing by 2% per year. After a Member of MANWEB’s board suggested that investment could be deferred through demand reduction, MANWEB launched the Holyhead Powersave Project with the aim of reducing peak demand on the island. The Holyhead Powersave Project cost £500,000. This resulted in avoided investment cost of £350,000, as with the implementation of the programme, there was no need to build the substation due to the reduction in peak demand by 10%.

This example illustrates why Efficiency First is so important. Meeting the demand for energy services more efficiently and more flexibly on the demand side will avoid more costly investments in energy infrastructure and fuel, and is essential to the cost-effective and timely decarbonisation of the economy. Moreover, investment in demand-side alternatives will benefit not only the energy system, but can carry many additional benefits, such as improved air quality, improved health, and increased energy security. It is easy to see the reasons to avoid the wasteful consumption of fossil fuels, with their unwelcome emissions and energy security costs – but it is also important to maximize the efficient use of renewable, non-emitting resources as we seek to rapidly and cost-effectively decarbonise the UK economy. Wasting high-value renewable resources on inefficient end-use consumption is both economically costly and a drag on the pace of decarbonisation. Customer-based efficiency and demand response resources are an essential foundation to achieving all of the other key objectives of the UK’s energy policy – the oft-cited “trilemma” of security, sustainability and affordability.

The principle of Efficiency First has gained traction at EU level since the launch of the Energy Union Communication in February 2015 and also in some European countries such as Germany where it has become an energy policy principle and is now the underlying principle of Germany’s Green Book on Energy Efficiency. The UK should follow and adopt the Efficiency First principle - this is consistent with reaching the 2050 climate goals most economically. Adopting a “hard look” policy to examine and invest in Efficiency First is the first and most important step the Government can take to unlock the huge reservoir of low-cost, low-carbon savings that now sits untapped in every part of the United Kingdom.

Jan Rosenow is a senior associate for the Regulatory Assistance Project (RAP)

The views expressed in this essay are those of the author, not necessarily those of Bright Blue