The 1 kWh Energy Reduction Strategy

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The business case for energy efficiency should be simple: the cheapest unit of energy is the one you do not use.

In spite of this, why is hard to get energy efficiency and energy reduction projects underway?

According to the International Energy Agency (IEA), energy efficiency is the only energy resource possessed by all countries.

Globally, we are making progress on energy intensity – it’s just that we aren’t making enough progress as fast as we need to do.

According to the IEA:

  • Global energy intensity improved by 1.8% in 2015 (2014 = 1.5%).
  • Emerging and developing countries reduced intensity by 2.5%, doing better than developed countries who managed 2%.
  • China is the best performer, with a reduction of 5.6%.

Although this is good, we need to have an annual improvement in energy intensity of 2.6% globally to meet our climate goals.

A 2.6% improvement doesn’t seem challenging. At an individual and organisational level, why is it that we can’t easily meet that target?

The problem is that globally is that more than 70% of energy usage is not covered by any form of energy efficiency performance requirement.

Two-thirds of buildings built do not have to comply with codes or standards.

In these situations, market forces determine what gets done, and people will quite often go for the cheapest option, which may not always be the most efficient.

For example, India is the third largest energy user in the world and installs a staggering amount of solar panels.

As it gets richer, however, it is also installing more air-conditioning, and so its energy demand is rising faster than the amount of new clean generation being installed.

Large projects face large challenges

Governments and policy makers want to meet climate change targets in the quickest and easiest way possible.

That is why they focus on large projects, such as the Hinkley C nuclear plant. The idea is that it will deliver both a substantial amount of secure energy and have a lower carbon impact, helping the UK government meet its targets faster.

The public debate and scrutiny, however, can be intense. It takes a long time to get such projects approved and underway.

In organisations, large energy efficiency projects that involve high capital costs, longer payback times than core business options, or the need to enter into long term agreements with third parties can face several hurdles.

You need to put together business cases, have them reviewed by panels, go through approvals processes before they are eventually accepted or denied.

Governments know this, and that is why much policy focuses on creating new infrastructure.

It is easier to get people to do something new from scratch than it is to have them fix an existing situation.

The solution may lie in a concept called ‘the aggregation of marginal gains’

Doing small things better regularly adds up over time.

This method can be traced back to the Austrian chess player Wilhelm Steinitz, who applied an ‘accumulation of small advantages’ to gain a positional advantage in his play and became the first official world chess champion in 1886.

The most current example of this approach is how Sir Dave Brailsford transformed British Cycling and the performance of Team GB in the Olympics.

His basic idea was that if you broke down all the activities involved in winning cycling races into their component parts and then made a 1% improvement in each of those components, then the gains would add up to a significant amount.

Another example is Mazda’s 1 gram strategy.

What they do is look for ways to save just 1 gram in weight from each component of the car.

The Mazda2 weighs a little over a tonne and this low weight means that Mazda can use less expensive transmission technology, making the car more affordable, more efficient and requiring less materials to build.

At the same time, the lighter car makes for a agile and nimble ride – keeping Mazda’s ‘zoom-zoom’.

Is a 1 kWh strategy the answer?

Instead of focusing mainly on large projects, perhaps applying a 1 kWh strategy is the way to get significant energy reductions in organisations.

In Europe, with two years to go before mandatory energy audit reports for large organisations have to be done for the second time, energy managers should look at the small changes they can make every day.

Look at every component of how your organisation uses energy, and see if you can shave just 1% off that.

There are 200 working days in a year. If you asked each person to work from home just 1% of that time – 2 days a year – what impact would that have on the fuel consumption associated with commuting?

If you have 5,000 lights that are on all the time, what would removing 1% of them, or 50 lamps, do to your operations?

What would a 0.5 degree change in your setpoint for heating or cooling do to your building’s need for electricity?

How would removing one printer in a hundred affect the way in which your business worked?

How would replacing one desktop in every hundred with a laptop impact your staff?

We ignore small wins too often because they don’t seem worth the effort.

The point, however, is that the “long tail” of small wins could get you to where you need to be in terms of energy efficiency without stumbling at all the hurdles that are associated with large projects.

The ‘aggregation of marginal gains’ strategy has worked in fields as diverse as sport, automotive manufacturing and healthcare.

There is no reason why it shouldn’t work across industry and business in general.

How to choose your next job

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How do you make a decision about what to do next?

Which job should you choose, which option should you explore, which project should you spend time on?

These are problems we face every day, often under time pressure and with limited information.

Take, for example, one of the most important decisions you make – what job to do.

This is a decision that has a major impact on your life and carries a lot of emotional weight. You will be influenced by experiences in previous jobs and what your goals and expectations are of the future.

It is a high stakes, high emotion decision.

In a crucial decision such as this, you should be taking into account several parameters and thinking clearly and carefully about your options and what you should do.

Instead, the human brain often gets overwhelmed and focuses on one or two factors and excludes other, equally important ones.

It defaults to emotional decision making, with people making choices about how they feel about the factors that seem most important at the time.

One study, for example, found that more than half of the people surveyed left their job because of their relationship with their manager.

That single factor might have been enough to discount all the other positive factors that might have made it a better choice to continue with that job.

So how do we make better decisions when it comes to a crucial problem like choosing your next job?

One tool that can help is called a decision table.

First, identify the paramters that are important about the problem.

What are the things that you should consider when assessing the choices you have open to you?

When you are doing this, it is important to consider more than just the ones that come readily to mind. What do other people think, what does the research indicate?

The list of parameters in the image above are from research that was carried out that identified the eight factors that were most important to the study participants when it came to job satisfaction.

Second, assess each job option you have against the parameters.

The question to ask yourself is, “Will this job mean I am better off or worse off on this parameter”.

A simple coding system to use is to use 0 when there is no change, + when you are better off and when you are worse off.

In addition, you could use ++ and to indicate when an option makes you much better off or much worse off.

Just doing this exercise means that you will consider each factor in turn and assess how your life will improve or worsen under each option.

At the end of the process, you will have a table that shows you how each job compares on the parameters or measures that are important.

Now that you have considered all the parameters, you can figure out which ones are more important to you.

Are you, for example, prepared to take on a long commute for the prospect of much more pay?

Or would you rather have less pay and a better commute?

Are you ambitious – is getting a promotion really important? Or are you at a stage when you want a job that will pay for food while you get on with something that is important to you, like a creative pursuit?

A completed decision table will help you have that discussion with yourself or with someone else and help you consider all the factors that are important. It will lead to a more balanced decision.

It also greatly increases the chances that the decision you eventually make will actually result in better job satisfaction.

The same process can be applied to other areas. Perhaps not things like whether you should have coffee or tea, but definitely the important decisions, like where to invest, what to do, who to enter into business with.

When you have a problem that is important and where there is a high emotional component, that is the time to get out a pencil and start working on a decision table.

Why good people do bad things

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We all know about the horrors that took place during the Second World War, in Cambodia, in Rwanda.

The history of humanity, in virtually every culture, is littered with stories where one group of people abused their power over another.

What do we infer from these stories?

One inference is that is was all down to a small group of individuals who were fundamentally evil and were able to dictate what was done from their position of power.

From Vlad the Impaler to Pol Pot, from the Nazis to Saddam’s Iraq, we can point the finger and find one person to blame, or a group of people that should be tried and punished.

Would you act differently if you were in their position?

The evidence suggests that you would not.

In a famous experiment conducted in 1971 at Stanford, researchers found that it took only six days to turn nice, normal college boys into sadistic monsters.

They did this by creating a prison, making some of the boys guards and others prisoners and setting up a simulation where the guards had absolute power over the prisoners.

They set up conditions that:

  • Dehumanized the prisoners
  • Deprived them of sensory stimulation – no clocks, no views of the outside world
  • Took away their identify – they were referred to as a number
  • The guards could punish infractions of the roles or improper attitudes

The end result was that the situation these people were put into brought out and magnified some of the worst aspects of their humanity and the experiment had to be abandoned after only six days.

Why is this relevant to us now?

Surely all this is just something that happened a long time ago somewhere else to people not at all like us?

The problem is that we tend to think that bad things happen because the people involved are bad rather than because the situation they are in allows them to do bad things.

This is called the fundamental attribution error and has been described as the “conceptual bedrock” of social psychology.

In every day life, we explain away our lapses by finding reasons in our environment for how we behaved as we did.

With other people, however, we tend to conclude that others are lazy, incompetent or thoughtless, explaning their behaviour as due to their internal characteristics.

Understanding that the environment has a huge impact on how people behave is crucial in some situations.

For example, I recently heard a someone talk about visiting a care home where the staff referred to the residents by their door numbers.

“Room 32 needs a change, Room 42 is hungry”.

This is the first step to removing that person’s identity – reducing them to a number rather than a person.

Such practices should have no place in an organisation – especially one where people have power over others.

Finally, on an individual basis, we place great emphasis on personal fulfillment.

For example, do work that makes you happy.

It turns out that what makes you happy is less to do with the work you do, and more to do with the conditions of your work – do you have autonomy, feedback and control over what you do?

People in charge of designing organisations need to realize just how important the environment is in influencing how the people in that organisation behave.

If you want your people to perform, first create the right environment for them to be good.

Why you might want to walk to work an hour earlier or later

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If you walk a kilometre to work in a city along a road used by commuters, you could quite easily pass 200 cars queuing and moving slowly along.

Car engines produce exhaust emissions that contain nitrogen dioxide, carbon monoxide and particulate matter.

Particulate matter, or black carbon, is associated with cardiovascular diseases and respiratory problems, such as asthma.

Air quality is becoming an important issue in many parts of the world.

The UK government was forced to release its plan to reduce nitrogen dioxide in towns and cities after a ruling by the high court.

The court considered the threat to public health “exceptional circumstances”, with nitrogen dioxide pollution is linked to 23,500 deaths a year in the UK.

The draft plan focuses on introducing more efficient vehicle technology and moving to electric vehicles as key steps to reduce air pollution.

Diesel vehicles are the biggest contributor to the problem, with nitrogen dioxide emissions from them at nearly 10 times the emissions limits set out in Euro standards.

If you walk or cycle along a busy route, you could be exposed to 40% more black carbon than along a quiet route.

This is hard to measure, however, as some measurements have not found a statistically significant difference between peak and off-peak hours.

The study still found that you could reduce expose to particles by walking a less polluted route.

You could also do this by avoiding peak hours when there are lots of commuters heading to work.

The issue is important enough for Defra to have a daily pollution forecast. Parents and schools are also running campaigns to get drivers to stop idling when stationery.

A final air quality plan is expected to be released by the end of the month.

Change is going take time, however, with the provisions being phased in by 2050.

If you have the ability to work flexibly, perhaps now is the time to start thinking about avoiding peak times when making your way to work.

How creating a red team helps you make better plans

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General Stanley McChrystal, a retired 4-star US General who commanded US and coalition forces in Afghanistan, creates a “red team” when planning an operation.

The idea is that when any group of people start to work on a plan, they think about certain ideas and strategies that they think will work.

As they do this, they start to focus on information that confirms what they believe and begin to discount what does not. It just seems to be the way the brain works – a confirmation bias.

In a military situation, this can result in the wrong decision – which can be fatal.

The job of the red team, which is made up of different people from those that did the planning, is to figure out how they would disrupt the plan.

Their job is to think creatively about the ways in which the plan could go wrong and what they would do to frustrate it.

This is also called ‘devil’s advocacy’, where one expert presents a plan and a second critiques it.

Importantly, the job of the job of the devil’s advocate is only to present flaws with the original plan, not to provide an alternative solution.

If they start to think about solving the problems they find, they start to introduce new biases.

In research by Richard Cozier and others from the 1970s onwards, they found that the use of a devil’s advocate significantly improved the prediction accuracy of strategic decisions.

Using a red team helps create a plan that is solid, rather than because the people who executed the plan were lucky.

We can still see how not doing this creates disastrous results now.

Theresa May’s result in the UK general election, where she managed to lose the conservative majority, is being blamed on how her chiefs of staff created an atmosphere where dissent was not tolerated.

This led to focusing on policies that lost them support and led to electing a UK parliment with a weakened government entering crucial negotiations with the European Union.

Some people may think that is actually a better result. A stronger government with an absolute mandate may have had the power to do what it wanted – resulting in a worse outcome.

The current parliment, with a stronger opposition critiquing the government’s plans, may result in a better outcome for the country in the coming years.

Why do fuel prices go up fast and down slow?

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Households in the UK spend between 12 and 27% of their disposable income on transport, of which a third can go on the cost of fuel.

People spent, on average, £72.70 on transport in 2016 and the cost of petrol and diesel was the biggest contributing factor.

Oil prices went up and down in 2016. At the start of the year, they were low and went lower on abundant supplies, with the spot price of crude oil heading towards $25 a barrel.

In the second and third quarter of 2016, producers responded with spending and production cuts, which helped prices head back towards $50 a barrel.

By the end of the year, OPEC’s decision to curb production and stick to quotas and an agreement from other countries to reduce output sent prices towards $55 a barrel.

So, in a market where global prices can double or halve in a year, why do these increases or decreases not show up in prices at the pump?

A litre of unleaded petrol in the UK went from around 102 pence per litre to 115 pence per litre by the end of the year.

We’ve all seen that when global oil prices fall, the reductions don’t seem to show at the pump. But when they rise, the price at the pump seems to go up straight away.

Why is this?

It’s not just imagination. It turns out there is a phenomenon, described in the industry as “Rockets and Feathers” that takes place.

In a commodity market, where prices are posted daily for all to see, as in the domestic fuel market, retailers know what each other is charging.

If oil prices go up, one retailer can raise prices in the knowledge that others in the area will see the increase, and feel like they can increase their price as well to benefit from the increased margin.

As everyone can see the posted price, this can even act as a signal to other producers – although there is no actual collusion taking place.

On the other hand, when global prices fall, each retailer can wait for someone else to take the first step.

Again, because they can see all the prices, there is no need to drop their price until someone else does first.

So there are different incentives when prices go up compared to when they go down.

This is why price go up fast, as one retailer raises its prices, the others notice and they raise theirs as well. On the way down, everyone waits for someone else to make the first price reduction.

And so, prices rocket up and drift slowly down.

How long will it take before we are all driving electric cars?

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777,497 electric vehicles were sold globally in 2016 while global car sales in total were 77.31 million, meaning that electric vehicles made up around 1% of sales.

Electric car sales are growing fast, although from a small base. They increased 41% in 2016 and have shown a 32% Compound Annual Growth Rate (CAGR) over the last four years.

Conventional cars, on the other hand are forecast to increase sales by 1.5%, with nearly 94 million units of light vehicles sold in 2017.

The last few years have seen a supportive environment in the US, Europe and China – all key markets for electric vehicles.

California, for example, accounts for more than half of electric vehicle sales in the US because of its zero-emission vehicle (ZEV) mandate that requires manufacturers to sell a certain percentage of electric vehicles.

People are nervous, however, about U.S policy under the new administration.

China has a reduced vehicle exise duty of 7.5% for qualifying vehicles that is expected to support auto sales in the world’s largest car market, with 28 million units expected to be sold in 2017.

Analysts at UBS predict that electric vehicles could reach cost parity with conventional vehicles as soon as 2018 because they will become cheaper to produce.

At present, the Tesla Model 3 is expected to lose $2,800 per car for the base version while GM loses $7,400 per car on every Chevy Bolt.

Car manufacturers need to achieve scale before they will start to break even.

While the running costs of electric cars are much cheaper than conventional vehicles when charged at home, around a sixth of the price at £2-4 per 100 miles, there are some things to watch out for.

Charging at rapid chargers away from home could cost as much or more than filling up with fuel.

Home charging systems add to the total cost of ownership and, as electric vehicles increase in number, will place strain on the grid in areas with high purchases.

The vehicle industry has long product cycles – cars are used for many years, and high capital investments.

This means that change is necessarily slow as the entire system adapts to a changing transport mix.

Oil is still expected to make up a third of European energy consumption due to transport demand.

If governments start banning sales of non-electric vehicles between 2025 and 2040 as many have indicated, we could all be driving electric vehicles by 2050-2060.

Where does the world’s LNG come from?

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Three quarters of the world’s natural gas is used in industrial applications and for power generation.

It burns more cleanly than oil or coal, which means that emissions from natural gas are lower.

As a result, governments around the world have policies that make using natural gas more attractive than the alternatives.

The IEA estimates that global gas consumption will grow from around 120 trillion cubic feet (TCF) in 2012 to 203 TCF by 2040.

So where does this gas come from?

The graphic above shows the top exporters of LNG by market share in 2016 according to the IGU World LNG Report 2017.

Australia now has the largest market share of LNG, going from 12% in 2015 to 44.3% in 2016, a huge increase.

Qatar remains an important source of gas, although the problems it is currently experiencing with its neighbours may have an impact on gas production this year.

Russia, despite its enormous gas reserves, is a relatively small player in the LNG export market.

The one to watch is the United States.

In 2016, the U.S. had a market share of 1.1%, making it the 16th on the list.

Over the next few years, however, it is expected to ramp up exports significantly.

In the next decade, Australia and the United States are expected to be the dominant exporters of LNG to the global market.

Who will win when it comes to developing clean energy technology?

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A series of high profile failures and strategic changes by cleantech companies raise questions about the whole sector.

Acquion energy, a maker of battery systems filed for bankruptcy in March 2017 after raising nearly $200 million from investors including Bill Gates.

Lightsail Energy, a startup co-founded by a charismatic prodigy, Danielle Fong, raised funds to develop compressed air storage energy systems, but is now changing tack to sell its containers to gas markets.

Solyandra a manufacturer of thin film solar cells, filed for bankruptcy in 2011, leaving the US Federal government liable for half a billion in a taxpayer funded loan.

An MIT study in 2016 found that more than half of the $25 billion invested in clean energy startups from 2006 to 2011 was lost, effectively result in a drying up of capital and investment to the sector.

What is going on here?

Many companies have still not figured out the economics of energy. The ones that will survive from now on will have to get their heads around some key factors.

1. Money

Cleantech companies often create new technologies, materials or processes.

These require investment in research and testing facilities, demonstration units and development installations or a track record in order to be accepted by consumers.

This means that they need a lot of money to invest in their infrastructure.

Many companies ran out of money before they created a sustainable income stream.

2. Time

Bringing a new cleantech product to market can takes months and years rather than days and weeks.

End user products such as battery packs have to go through rigorous testing, product certification and safety checks before they can be sold to the public.

The returns on individual technology projects for a customer are also likely to have paybacks that are longer than the typical corporate will accept: 5-6 years rather than 2 years.

As a result, the rates of return to investors in cleantech have been less than in other sectors traditionally backed by private / venture capital.

3: Competition

Electricity is a commodity. Makers of cleantech selling a system that creates electricity cannot control the price of the power from their systems.

They are, instead, forced to compete with existing alternatives in a commodity market.

Even in a cleantech market such as that for solar panels, new technologies struggle to compete against silicon panels.

This is not because the new technologies are not better. It’s just that the massive investment in silicon fabrication facilities worldwide has made the cost of silicon panels fall much faster than alternatives.

4: Policy

A huge amount of momentum in cleantech is driven by government policy.

Over several years, clean energy in Europe and the UK has been driven by subsidies.

In the US, tax treatment for energy from wind has resulted in large-scale developments by the likes of MidAmerican energy.

As we go forward, however, the new Trump administration wants a renaissance in oil and coal and will change policy to support those industries.

5: Buyers

Buyers and investors in cleantech companies are more likely to be existing utilities now rather than VC investors.

This is because the incumbents can add new technologies to their portfolio of existing assets rather than having to depend entirely on the new technology for income.

The energy sector has been around for a long time and change is slow. You need deep pockets to hang around

Summary

In summary, cleantech companies that have a core proposition built around a technology or process may struggle to create a sustainable income stream.

Larger systems are more economic. Scale succeeds.

TEsla has succeeded by going big fast, and its latest thing is to build the world’s biggest battery facility.

The sector will continue to need a supportive policy environment to move ahead, and we will need to wait and see what happens.

This is especially important in the US, given its size and innovative capacity.

Ultimately, the energy sector will be driven by large scale projects and policy – much like it has always been.

The maths of success

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How can you become more successful?

One answer was inside a TED talk by Damian Kulash, the lead singer and director of OK Go, an American rock band known for its elaborate and quirky videos.

Damian explained that in one of their videos, a giant Rube Goldberg machine, there were 130 sequences that had to take place one after the other where each sequence triggered the next.

In each sequence, something fairly simple takes place. For example, a ball rolls down an incline, a counterweight lowers an object or an object something swivels on its axis and hits something else.

If each sequence works 9 out of 10 times then its probability of working correctly is 90% or 0.9.

How likely is it the band will be successful at filming the entire set of sequences in one take?

The maths of probability is used to work this out. In the equation P^n, P stands for probability and n is the number of events.

Plugging this into the equation, the probability of each sequence working is P = 0.9 and the number of sequences is n = 130.

0.9 raised to the power of 130 is 0.000001125.

That means there is literally one chance in a million that the series of sequences will work.

In life and work, we often have to do things that follow a process, where one thing needs to be done after another.

If we aim to be quite good at each thing – and get it right 9 out of 10 times, then the more things we have to do, the less often we will be successful.

For example, if an operation in a business takes 10 steps and you are 90% sucessful at each step, the probability of success is 0.9^10= 35%.

That means two-thirds of your customers are likely to be unhappy with what they get from you.

You can improve your chances of success by doing two things.

First, increase P. Get better at doing each thing.

If you get things right 99% of the time, 0.99^10 = 0.9, which means your customers are happy 90% of the time.

Only 1 out of 10 walks away unhappy. Still not great.

Second, reduce n, the number of things you have to do.

If n was 4 rather than 10, then you would get 0.99^10 = 96%.

Now 96% of your customers are happy.

In summary, the maths of success says work on optimising the formula P^n so that the answer tends to 1.

In other words: Do less, and do it better.