Global Energy-Efficiency Market Is Growing – But Not Fast Enough

International Energy Agency (IEA) launched the Energy Efficiency Market Report 2015 on Oct. 8 via a webinar. IEA projected the market would continue to grow and would reach $120 billion USD by 2020. However, this number “still falls far short of the estimated $215 billion USD to reach the 2-degree scenario,” said Sam Thomas, senior programme manager at IEA. [[{"type":"media","view_mode":"media_large","fid":"2116","attributes":{"alt":"Earth at night","height":"335","width":"450","style":"float:right","class":"media-image alignright size-medium wp-image-17904 media-element file-media-large"}}]]

As the third publication of IEA’s energy-efficiency market report series, which started in 2013, the 2015 report demonstrates the recent trends and different characteristics of the global energy-efficiency market. This report also aims to contribute to the COP21 climate negotiations in December.

“The report complements the work IEA is traditionally known for, which is building scenarios looking forward to seeing particular targets,” Thomas said.

The term 'energy efficiency' has a very broad definition in the report. It includes all types of improvements that help increase energy efficiency in the building, industry and transportation sectors, from R&D investments to project delivery.

Achieving Multiple Returns beyond Financial Benefits

According to the report, accumulated investments in energy efficiency since 1990 have generated 22 EJ of avoided total final consumption (TFC) globally in 2014, representing an actual “virtual supply” of energy. This “invisible generation” contributes to the decrease of OECD countries’ energy intensity, helps decouple the economic growth from energy consumption growth, and plays a crucial role in improving emerging countries’ energy productivity.

IEA calculated energy consumers saved around $550 billion USD in 2014, with a cumulative savings of $5.7 trillion USD. Besides the financial returns, the report also pointed out that energy-efficiency investments can improve domestic energy security by reducing primary energy imports. They can also generate climate benefits.

The report said energy-exporting countries also welcome energy-efficiency investments “to manage rapidly rising domestic consumption and boost energy exports.”

Expanding the Efficiency Market through Building Retrofits

Responsible for more than 30 percent of final energy consumption, buildings are a key area for energy-efficiency investments. IEA estimated that the global market size of building energy-efficiency investments is $90 billion USD, with a rapid increase seen recently and expected to continue.

While energy-efficiency projects in new buildings, which are relatively cost-effective, are driving most of the investments, especially in China and the United States, retrofits for existing ones are also considered to have large market potential.

The report also said, however, that the highly disaggregated nature of existing building energy-efficiency projects requires more market development. This challenge has already been noted by energy-efficiency pioneers in the United States market.

Transitioning Electric Utilities between Business Models

In IEA member countries, energy-efficiency investments have successfully helped flatten the electricity consumption and produce negative growth since 2010, according to the report.

Mainly driven by mandates, electric utilities are key players in this game, especially in OECD countries.

The decrease of electricity demand caused by the energy-efficiency investments brings a sizable challenge to utilities’ conventional sales-based business models. The challenge could be further amplified by the high fixed costs of utilities. However, policy, market and technological drivers will push the growth of energy-efficiency investments.

“They can destabilize some of the… vertically-integrated generators,” Thomas said.

And in non-OECD countries, energy-efficiency investments haven’t stopped the growing electricity demand. In contrast, governments expect that the implementation of energy efficiency, through both T&D infrastructure improvements and demand-side management for utility customers, can help improve the stability of electricity systems, the report said.

Looking toward a Robust Market

The recent low oil price would have some impacts on the energy-efficiency market in the short term, “particularly in the passenger-vehicle market, but certainly not universally,” Thomas said.

Considering the strong encouraging policies on both the national and sub-national levels – such as the EU Energy Efficiency Directive, the United States Clean Power Plan, and INDCs submitted for climate goals – IEA foresaw a positive market trend in the medium and long term.

“The energy-efficiency market can be expected to grow in size, visibility and importance over the next several decades,” the report said. Connecting the work to the upcoming climate negotiations at COP21, IEA said that the contribution of energy efficiency should be noticed and further market developments would be necessary.

While acknowledging that without efficiency, future global developments will make achieving the climate goal much more difficult, Kame Ben Naceur, director for sustainable energy policy and technology at IEA, said that “we are still falling far short from that level of investment of the 14 trillion dollars (as accumulated investments required in the next 20 years) – and in the future, we need to double the investments in energy efficiency.”

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