[78] The needs for agile policy

New technologies need to be taken through a cost learning curve to iron out their teething problems. This means someone needs to finance the learning investment. For renewable energy technologies, many EU Member States provided financial support for these in the last decade, but such intervention leads to windfall profits when the learning effect is underestimated or regulation does not adapt quickly enough to cost reductions. Moreover, government budgets running out of cash lead to boom and bust cycles.

It is more challenging to let market forces play, but considering that the above risks are not unlikely, that’s what we need to do for energy policy in the future. Market design is key.

[77] Do we trust energy efficiency?

Compared to renewable energy systems, energy efficiency improvements have one major disadvantage: their yield is more difficult to quantify. Such quantification is vital for proving carbon emission savings and investment payback. Where to set the baseline and the system boundaries?

Measuring the energy consumption only at the utility meter is not sufficient, but a large number of decentralized meters leads to a large amount of data; how to turn this data into valid performance indicators? The question remains just as urgent as three years ago. Maybe the abundant evidence on the effectiveness of energy efficiency combined with its multiple benefits suffices to pursue it even without watertight quantification.

[76] Counterfactuals

We earlier mentioned the issues of baselines and counterfactuals for quantifying energy efficiency’s contribution [19, 77].

The finding in the 2014 energy efficiency market report from IEA is consistent with ACEEE’s conclusions described in [59]. Energy efficiency has been the biggest energy source over the past decades.

Considering the high cost-effectiveness of energy efficiency [3, 28], it should therefore be pursued to the maximum extent, to mitigate the cost impact of the energy transition.

[75] Energy services, not carriers

Or rather, a market that does not consider the energy carrier as an autonomous black box, but as a complex, integrated, digitally controlled system of input and output that serves to deliver energy services.

In the electricity grid 2.0, participants can both generate and consume electricity (prosumers) and monetize the flexibility in their energy demand. To make this possible in a direct and uncomplicated way,

  • an advanced standardized consumer interface should be developed;
  • regulation, tarification and taxation should be thought out according to business models that are advantageous to all parties.

[74] Low hanging fruit and diminishing returns

This is economic common sense, and applies both for an individual company as well as for the entire energy system.

That said, much of the low hanging fruit of energy efficiency has been harvested, and renewable energy solutions have gone through a substantial cost decrease, making the need for repeating the above adage less imperative than it used to be.

But there is no guarantee that this trend will continue. And unless we will find disruptive technological breakthroughs, the final steps of the decarbonisation process promise to become very difficult, making further energy efficiency improvement a welcome mitigation of the supply decarbonisation needs.