Saturday 21 September 2013

Guest Blog: Mervyn Bowden – Can we learn anything from the US on energy?

I find the United States to be a fascinating place and spend as much time as I can there. Very often it initiates new trends well before they find their way "across the pond”, not least and unexpectedly so in the case of energy.

Not surprising when you consider how important energy is there and the volumes they use.

The US can almost be viewed as a microcosm for the global energy market. It has all the component parts to varying degrees – selective but rapidly growing renewable electricity generation, energy efficiency almost entirely based on cost/kWh and payback on investment rather than semantics, growing awareness of energy issues & especially energy security, use of subsidies & improving the energy effectiveness of both existing and new buildings based on improving standards of specification and last but not least, a challenging climate.

I first looked at the some of the energy issues in the US back in 2010 with a view to assessing whether there was anything we somewhat arrogant Europeans could learn from the perceived energy squanderers. Were they really as bad as in popular perception?

It’s worth saying at this point that for lots of historical reasons there are large swathes of the US, not least California (remember those mega power blackouts?), which are susceptible to reduced energy security – poor infrastructure for distribution, decentralised power generation, power lines hit by shock weather events, etc. There are also many different localised prices for electricity dependent on where you are within the US. Historically they’ve not had quite the same access to natural gas as we have – many have propane tanks buried in the yard to supply their heating needs.

Practical economics, commodity-based pricing, has driven a number of logical situations in the US – those states, largely on the Pacific/Atlantic & Gulf coasts, where energy prices are highest, have been the focal points for a rapidly growing interest in - and application of - energy efficiency over recent years. These have also been the states which have gone the extra mile in subsidising renewable generation significantly.

We in Europe tend to studiously ignore the fact that some of the major American corporations, like Johnson & Johnson and IBM, have actually set many of the trends for not only energy management but also much wider Corporate Social Responsibility practice for many years, indeed decades - way before some of the aspiring leaders in Europe started out on the sustainability path. More recently there has been extensive and prominent take-up by the likes of Walmart, Wholefood Markets and many others. Whilst there was a degree of philanthropy, the underlying philosophy has always been fundamentally about the economic benefits.

This thinking has continued and whilst the application of improved energy awareness and practices starkly parallels energy prices, there have more recently been drives by many of the commercial companies, notably vast multi-site retailers keen to improve not only their image on environmental management but more particularly margins, who have established national management practices to help reduce their impact on the environment.

This has been a very powerful driver even in areas where the energy price may be lower and the generation largely fossil-fuel based, for securing some traction for a new way of thinking about energy in the longer term, inspiring a reaction against the traditional high-carbon practices there.

Clearly the dynamics have changed significantly with the advent of widely available shale gas, with all the price benefits which have been accrued across the US economy. The economics and thinking have needed to radically change to match a whole different range of circumstances. Maybe some more lesson opportunities for the UK and Europe when considering direction in this area albeit the benefits aren’t expected to be quite as dramatic. The progressive introduction of shale gas into the US fuel mix has had implications for energy markets, especially related to coal and LNG, across the globe.

There are wholesale differences between the US and the UK/Europe in many respects – the sheer size of the country/buildings and the distances involved are the more obvious but then the whole generation & distribution infrastructure there is also different, but these serve to accentuate the reasons why specific technologies or economic benefits have secured favour in certain states and locations versus much lower take-up in others. These are many potential learnings for us.

Perhaps more importantly given our reducing margins between supply and demand of electricity at a national level, the US has pioneered much work, often working with companies like our own National Grid, in shifting as well as reducing commercial energy demand to reduce the impacts of peak demand on generation provision. Automating demand reduction is a rapidly developing theme here now.

Disappointingly, there are still quite significant areas of the US, comprising many large states, which have thus far not applied themselves to the problems posed by high and relatively uncontrolled energy usage.

This suggests - and we don’t hear too much about it outside the energy community itself - that maybe there ought to be more localised intra-UK treatments of energy both on the supply and demand side – look, for example at the disparity in TRIAD and distribution charge banding charges across the country. Perhaps those areas with the highest rates should be the focus of greatest efficiency investment as the payback rates are highest and infrastructure costs could be reduced the most? I’m sure many forward thinking organisations are already doing this but it’s yet to become mainstream.

It’s always worth keeping a close eye on what America and others across the world are doing in the energy space as the best and most innovative ideas will hit our shores before too long... indeed we’re significant players in the new ideas department ourselves. Key is that we look behind the obvious and that we understand why things happen in the way they do – we need to learn new ways of producing and managing our energy quickly to have any hope of meeting UK and EU targets.

Mervyn Bowden is the Managing Director of Intuitive Energy Solutions and will be speaking at Energy Live 2013.