GHG Abatement and the Role of Energy Efficiency. MIT-Nescaum Symposium August 11, 2009

Transcription

1 GHG Abatement and the Role of Energy Efficiency MIT-Nescaum Symposium August 11, 2009

2 Project background During our research on U.S. GHG abatement, McKinsey encountered the puzzle of energy efficiency. We recently completed research to validate the potential, analyze the barriers inhibiting energy efficiency, and identify solutions that can overcome those barriers McKinsey & Company 1

3 Project scope Analyzed stationary uses of energy across residential, commercial, and industrial sectors, including CHP Examined over 675 efficient end-use measures, but only existing technologies Focused on productivity; not on conservation (no changes in lifestyle or behavior) Analyzed NPV-positive applications of energy efficiency; based on incremental capital, operations, and lifetime energy costs excluded program costs and indirect benefits discounted at 7 percent Identified the potential for energy efficiency, the barriers, and potential solutions no attempt to declare how much potential will be achieved McKinsey & Company 2

4 Central Conclusion of our work Energy efficiency offers a vast, low-cost energy resource for the U.S. economy but only if the nation can craft a comprehensive and innovative approach to unlock it. Significant and persistent barriers will need to be addressed at multiple levels to stimulate demand for energy efficiency and manage its delivery across more than 100 million buildings and literally billions of devices. If executed at scale, a holistic approach would yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed for upfront investment in efficiency measures (not including program costs). Such a program is estimated to reduce end-use energy consumption in 2020 by 9.1 quadrillion BTUs, roughly 23 percent of projected demand, potentially abating up to 1.1 gigatons of greenhouse gases annually. McKinsey & Company 3

5 Energy efficiency offers the most affordable means of delivering energy Average cost for end-use energy savings Dollars per MMBTU Noncommercial electrical devices Refrigerators Pulp & paper processes Chemical processes New building shell Waste heat recovery Energy management for energy-intensive processes Energy management for non-energy-intensive processes Lighting Energy management for waste heat recovery Programmable thermostats Non-energy intensive processes In large establishments Basement insul. Duct sealing Retrocommissioning Cooking appliances Non-energy intensive processes in medium establishments Steam systems Attic insulation Iron & steel processes Clothes washers Building utilities Heating Home HVAC maintenance Water heaters Windows Residential Commercial Industrial Freezers Average electricity price Average price of all fuels 6.90 Average natural gas price ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 8,500 9,000 9,500 Computers Non-PC office equipment Electrical devices Cement processes Community infrastructure Electric motors Energy management for support systems Home A/C Non-energy intensive processes in small establishments Air sealing Add wall sheating Refrigeration Boiler pipe insulation Lighting Ventilation systems Dishwashers Building A/C Wall insulation Home heating Potential Trillion BTUs Water heaters Slab insulation Source: EIA AEO 2008, McKinsey analysis McKinsey & Company 4

6 Significant efficiency potential across fuel types Contribution by energy source to 2020 efficiency potential Percent Savings Percent ,080 TWh 2.9 TCF 250 MBOE 100%= End-use energy 9.1 quadrillion BTUs Primary energy 18.4 quadrillion BTUs Carbon emissions 1.1 gigatons CO 2 e Electricity CHP Gas Oil Other Source: EIA AEO 2008, McKinsey analysis McKinsey & Company 5

7 Potential remains attractive even under significant changes in assumptions Quadrillion BTUs, end-use energy Base-case Discount rate 10.3 Carbon price Industrial Commercial Residential Discount factor (%) * 40* Carbon price ($ /ton CO 2 e) * Utilizes retail rates (vs. lower avoided cost rate proxy of industrial rates) Source: EIA AEO 2008, McKinsey analysis McKinsey & Company 6

8 Clusters of opportunity emerge Percent, 100% = 9,100 trillion BTUs of end-use energy efficiency potential Industrial Commercial Residential Total (Trillion BTUs) 3,650 Total (Trillion BTUs) Total (Trillion BTUs) Non-energy intensive Industry processes Energy-intensive industry processes Energy support systems Community infrastructure 2, Office and noncommercial equipment New private buildings 25 Government buildings Existing private buildings 35 Lighting & major appliances Electrical devices & small appliances New homes Existing low-income homes Existing non-low income homes 3, N = 330,000 enterprises N = 4.9 million buildings, ~3 billion devices N = 129 million homes, 2.5 billion devices Source: Energy Information Agency s Annual Energy Outlook 2008; McKinsey analysis McKinsey & Company 7

9 The fundamental nature of energy efficiency creates challenges FUNDAMENTAL ATTRIBUTES OF ENERGY EFFICIENCY Requires outlay Fragmented Low mindshare Difficult to measure Full capture would require upfront outlay of about $50 billion per year, plus program costs Potential is spread across more than 100 million locations and billions of devices Improving efficiency is rarely the primary focus of any in the economy Evaluating, measuring and verifying savings, is more difficult than measuring consumption Source: McKinsey analysis McKinsey & Company 8

10 Addressing barriers in non-low income homes Barriers Manifestation of barrier Potential approach Solution strategies Structural Agency issues Transaction barriers Pricing distortions Landlord-tenant issues Research, procurement and preparation time Home labeling and assessments Educate users on energy consumption Promote voluntary standards/labeling Establish pricing signals Information flow Ownership transfer issues Limits payback to time owner lives in home Behavioral Risk and uncertainty* Awareness and information Custom and habit Limited understanding of energy use and potential Increase availability of financing vehicles Provide incentives and grants Capital outlay Elevated hurdle rate Behavioral 40% discount factor Adverse bundling Raise mandatory codes + standards Availability Capital constraints Product availability Competing uses for a constrained budget Limited availability of contractors Installation and use Improper installation and use of measures Support 3 rd -party installation Source: McKinsey analysis McKinsey & Company 9

11 Addressing barriers in non-low income homes Barriers Manifestation of barrier Potential approach Solution strategies Structural Agency issues Transaction barriers Pricing distortions Landlord-tenant issues Research, procurement and preparation time Home labeling and assessments Educate users on energy consumption Promote voluntary standards/labeling Establish pricing signals Information flow Ownership transfer issues Limits payback to time owner lives in home Behavioral Risk and uncertainty* Awareness and information Custom and habit Limited understanding of energy use and potential Innovative financing vehicles Tax and other incentives Increase availability of financing vehicles Provide incentives and grants Capital outlay Elevated hurdle rate Behavioral 40% discount factor Adverse bundling Required upgrades at point of sale/rent Raise mandatory codes + standards Availability Capital constraints Product availability Competing uses for a constrained budget Limited availability of contractors Installation and use Improper installation and use of measures Develop certified contractor market Support 3 rd -party installation Source: McKinsey analysis McKinsey & Company 10

12 Portfolio representing cost, experience, and potential of clusters possible with specified solution strategies Experience with relevant approach* Proven Piloted Emerging Office and noncommercial equip. Electrical devices and small appliances Community infrastructure Combined heat and power Non energy-intensive industry processes Energy support systems Energy-intensive industry processes New private buildings New homes Lighting & major appliances Existing non-lowincome homes Existing private buildings Existing lowincome homes Government buildings Residential Commercial Industrial CHP Bubble area represents size of NPVpositive potential expressed in primary energy Cost of saved energy $/MMBTU Source: McKinsey analysis McKinsey & Company 11

13 Important observations Recognize energy efficiency as an important energy resource while the nation concurrently develops new energy sources Launch an integrated portfolio of proven, piloted, and emerging approaches Identify methods to provide upfront funding Forge greater alignment among stakeholders Foster development of next-generation energy efficient technologies McKinsey & Company 12