Why energy efficiency is so hard to achieve

Energy efficiency, as the International Energy Agency (IEA) claims, is the first fuel. It delivers a multitude of benefits, from reducing energy consumption to mitigating greenhouse gas emissions. 

As energy has interlinkages with different sectors of an economy, energy efficiency has a broader role than only saving energy. It can contribute to national energy security and alleviate energy poverty. 

Among other things, energy efficiency can lead to the creation of a significant number of jobs. Yet, attaining energy efficiency is often difficult to come by, thanks to diverse reasons. In this piece, I dwell upon some of the reasons that affect energy efficiency achievement from different angles. 

Quality of appliances and information asymmetry

One of the simplest measures, for instance, in households, is to replace inefficient incandescent lights with LED lights. Available data reveal that LED lights are 50% energy efficient, i.e., LED lights consume 50% less energy, concerning incandescent lights. 

LED lights are delivered with warranties for longer life than incandescent lights. Additionally, LED lights are supposed to deliver more quality light. The pay-back of LED lights is very quick too. 

However, the energy-saving opportunities LED lights offer remain largely untapped. Well, with increasing awareness, people in Bangladesh today spend additional money to replace their old incandescent lights with LED lights, but the quality of LED lights is a problem, which in turn influences the level of energy savings. 

In the absence of standards, marketers often promote sub-standard appliances. Therefore, despite all the good intentions of consumers, efficient products don't deliver the energy saving that they are supposed to. 

Similarly, consumers face the problems of information asymmetry. With so many suppliers of, for example, LED lights, choosing the best one is certainly a tough task for general consumers. Things become worse when street vendors sell LED lights at a very cheap price.    

To ride out the challenges of quality and information asymmetry, energy standards for appliances, like LED lights, need to be fixed. In making people aware of the energy efficiency levels of different appliances, labelling appears to be a proven approach, which is being used in different countries.

While enforcing standards and labels for appliances, it is also imperative to consistently carry out market monitoring to ensure that poor-quality products are being phased out over time. Alongside, awareness-raising campaigns on energy efficiency standards and labelling of appliances may be carried out.  

Energy efficiency is often not a priority 

Over the years, the number of energy audits being conducted in different industries of Bangladesh is on a rising trajectory. Involving energy auditors, ranging from a couple of days to even more than a week, industries receive detailed reports on energy consumption patterns of their industries, the areas of significant energy use and the measures to save energy. 

These are accompanied by specific assessments of the measures that require no or low investment and high to very high investment. These reports also provide snapshots of financial analysis, including pay-backs, NPVs and IRRs, of different energy efficiency measures. 

Yet, there is perhaps a mismatch between the number of energy audits being conducted at industrial facilities and energy efficiency measures that are being implemented by industry managements. 

There are excellent examples of super-efficient industries operating in the country and they work on continuous optimisation of energy use. This number is, however, very limited. 

Energy efficiency is not a priority for many industries. The industry managers have competing priorities – expansion of the existing business, investing in new business and others. 

As a result, energy efficiency has often remained at the bottom of the priority list of industry management. Many industries also don't have a team capable of successfully implementing energy efficiency projects. 

The government providing annual energy efficiency targets to the industries that consume a very high quantity of energy could be one of the options to encourage them to pursue efforts for energy savings. 

Later on, the number of industries could be increased by including the medium to high energy-consuming industries on the list. Simultaneously, acknowledging the contribution of the super-efficient industries in national relevant events could also intrinsically motivate other industries to frontload efforts on energy efficiency.     

Access to finance

While there are low hanging fruits with capacity to deliver significant energy savings, many energy efficiency measures require huge investment. 

Nevertheless, access to finance for energy efficiency projects is at times challenging. The quality of energy audit reports, also, is being questioned by some people. 

Bankers find financing regular projects simpler than financing industries for retrofitting measures. The impression of bankers is that financing energy efficiency projects are riskier compared to other projects.

Be that as it may, more interaction between industries and banks on energy efficiency financing would be key to removing many of the bottlenecks vis-à-vis access to finance. 

Bankers may visit the successful projects to increase confidence in energy efficiency financing. Establishing Energy Service Companies (ESCOs) would help minimise the risks associated with energy efficiency projects in terms of energy efficiency performance. 

The role of energy subsidy

The presence of subsidies makes energy prices artificially low. As the true price of energy is not reflected in the final bill, the motivation to save energy becomes low among energy consumers. 

Moreover, with low energy prices, many energy efficiency measures are not financially super attractive. Subsidised energy may encourage energy wastage too. 

Therefore, energy subsidies should be gradually phased out to provide the market signal for energy efficiency investment. In case energy subsidy is essential for people of lower-income strata, targeted programs may be undertaken.  

Understanding the real value of energy efficiency is important and equally important is to address the barriers that limit the implementation/success of energy efficiency. 

In essence, there would be a need for combining regulations, such as standards for appliances, annual energy efficiency targets for large energy-consuming industries, etc., with campaigns for awareness-raising and measures to contain energy subsidies to capture the benefits of energy efficiency. And of course, access to finance should be made simpler. 

Shafiqul Alam is an environmental economist.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.