Energy efficiency plays a key role in driving sustainable energy transition and decarbonising the global economy. It is crucial for achieving sustainable development goals, including climate change mitigation and increasing the share of renewables in energy consumption. To put the world on the path to net zero emissions, there is a need to double our efforts in improving energy intensity. To accelerate these improvements, new approaches to financing energy efficiency across buildings, industries and transport are essential.
A recent report titled “The Strategic Plan for Advancing Energy Efficiency Across Demand Sectors by 2030”, prepared by the Ministry of Power (MoP) and the Bureau of Energy Efficiency, presents recommendations for advancing energy efficiency, achieving Sustainable Development Goal 7 and aligning with the mandatory decarbonisation actions of the Paris Agreement. The plan has been presented to the Energy Transition Working Group of the G20 to shape the global perspective on energy efficiency as the cheapest, fastest and cleanest means to drive the global energy transition. The strategic plan focuses on five key pillars – enhancing energy efficiency in buildings, industries and the transport sector, as well as improving energy efficiency financing and fostering behavioural changes. An overarching principle emphasised in the report is the need for strengthened international cooperation to elevate, support and invest in energy efficiency. This collaborative approach is seen as essential for promoting faster progress in the G20 and Global South countries. Edited excerpts from the report…
Building sector
The building sector accounts for 30 per cent of global energy consumption, making it a critical area for achieving energy savings by 2030. The report identifies “Rethinking Energy Codes for a Net-Zero Energy World” as a high impact opportunity in the segment. It recommends developing or strengthening building energy codes to ensure that all buildings are constructed with optimal energy efficiency levels, ultimately aiming for a 40 per cent improvement in the overall building stock’s efficiency. The report also recommends implementing appropriate Minimum Energy Performance Standards (MEPS) for all appliances. This could deliver a 25 per cent decrease in their overall total energy use by 2030.
The report highlights the rapid growth of cooling as an end-use segment, which currently accounts for 15 per cent of electricity use and its rising demand can increase emissions. It recommends implementing policies to decrease energy consumption for heating and cooling in new buildings by 50 per cent and increase heat pump usage to represent 20 per cent of heating demand by 2030 while prioritising access to the 1.2 billion people who lack access to heating and cooling.
Industrial sector
The industrial sector accounts for 38 per cent of G20 energy consumption. While it has made significant improvements in energy efficiency, the rate of energy intensity improvement reduced from 2 per cent in 2010-15 to 1 per cent in 2015-20.
In order to reduce the energy and emissions intensity of industries in G20 economies, mandatory and voluntary policies, such as regulatory measures and targets, informational measures, and financial incentives, are crucial. According to the report, promoting energy efficiency in micro and small enterprises is necessary to reduce costs and increase global competitiveness as these enterprises comprise 30-50 per cent of all businesses. Energy management systems (EnMS) have been recognised as an effective approach to achieving industrial efficiency goals. Several studies have demonstrated that modifying operational features through EnMS can lead to up to 20-30 per cent of energy conservation. The simplified standard 50005, launched in 2021 and designed for small and medium enterprises (SMEs), can be used to promote the adoption of EnMS for minimising energy utilisation.
The report highlights the significant opportunity for enhancing motor efficiency in the industrial sector by scaling up motor efficiency in SMEs. MEPS have been established for industrial electric motors, with International Efficiency (IE) standards serving as the basis. The standards range from the least efficient (IE 1) to the most efficient (IE 5).
To accelerate the process of improving energy efficiency, the adoption of a motor replacement programme is essential to extend the use of IE class 3 electric motors and variable speed drives. In addition to this, implementing policies that mandate emission audits and reports, promoting efficient industrial equipment other electrification technologies as well as adopting EnMS can further enhance efficiency.
Enforcing rules that facilitate production process optimisations, such as leakage control, regular maintenance schedules, accurate compressor load sizing, and temperature optimisation in process heat fluxes; and implementing robust industrial regulations that promote greater energy and material efficiency while encouraging the use of low-carbon substitutes can ensure sustainable manufacturing and enable scalability in industrial operations.
Transport sector
The G20 nations are responsible for 80 per cent of energy demands used in transport, with light and heavy-duty vehicles accounting for 90 per cent. Road transport contributes to 75 per cent of emissions and poses several challenges.
To enhance transport efficiency, various steps have been taken, including improvements in fuel quality, implementation of vehicle economy standards and formulation of the Energy Efficiency Action Plan. These measures aim to incentivise the adoption of energy efficient technologies and facilitate the transition to clean transportation.
Hybrid electric engines, advanced combustion engines, improved fuel injection systems, lightweight materials such as aluminium and carbon fibre, advanced tyre technology, continuously variable transmission and automated manual transmission systems and renewable energy sources have the potential to improve internal combustion engine efficiency and reduce emissions by 50 per cent. IoT in transportation can enhance safety and enable real-time monitoring, control and optimisation of infrastructure, vehicles and transportation systems. The report identifies that policies aimed at strengthening the fuel efficiency quality can encourage the overall efficiency. Further, the creation of easy, affordable and sustainable public transportation systems can encourage a modal shift from individual transportation modes. In addition, promoting the use of electric vehicles and formulating policies to boost their sales in the future can significantly reduce carbon emissions in the transport sector.
Investments and financing of energy efficiency
To achieve the ambitious goal of doubling the annual improvement rate of energy intensity to 4 per cent by 2030, it is necessary to triple the annual investments in energy efficiency from $300 billion to $840 billion in the second half of decade 2020. Of this, 60 per cent of funds must be allocated to the building sector, 30 per cent to transport and 10 per cent to industry. Low-cost financing can play an important role in increasing access to clean technologies and promoting energy efficiency, particularly in emerging economies.
Public finance has historically proven to triple the co-investment from the private sector. Hence, the report stresses the importance of implementing comprehensive policy frameworks and methods that can increase the demand for energy efficiency projects or purchases, making them more financially accessible and attracting investment.
However, there are challenges faced by private sector investors such as split incentives for investment, which can disarrange the incentives among multiple parties involved. Industries, especially SMEs, face difficulties in obtaining timely and sufficient funding at reasonable rates, particularly for loans with longer durations. Many SMEs have a short – to medium-term (three to four years) investment horizon, which is adequate to recoup the cost of low-to-medium priced energy efficiency expenditures. However, there are difficulties, such as banks’ inability to analyse the risk of energy efficiency investments, insufficient creditworthiness or bankability of SME clients, lack of guarantees or collateral for SMEs and the inability of SMEs to prepare bankable energy efficiency investment projects.
To mobilise investments in energy efficiency, the report recommends developing frameworks and programmes that enable innovative financing and business models. These models can help lower transaction costs and the cost of capital (such as aggregating several small investments), mitigate risk (perceptions) and overcome persistent access barriers. It also proposes the deployment of de-risking instruments and financing models for SMEs. Moreover, providing counterguarantee support for energy service companies (ESCOs) is recognised as an effective strategy. It highlights the importance of strategic deployment of public finance to enhance investment in currently underfunded areas, and de-risk projects to attract private sector investment at a ratio of three to four times the public investment. It also highlights the importance of developing policies and instruments that improve data and information availability, enhance skills and provide technical assistance for project preparation and market readiness activities.
The way forward
Net, net, energy efficiency initiatives and the increasing deployment of renewable energy sources are propelling countries rapidly towards achieving net zero emissions. To further accelerate this transition, increased collaboration on best practices and technical assistance among developing and emerging economies is essential, along with enhanced investment in energy efficiency initiatives and behavioural modifications towards responsible energy consumption.