Unlocking Energy Efficiency in the U.S. Economy October 5, 2009 - PowerPoint PPT Presentation

Unlocking Energy Efficiency in the U.S. Economy October 5, 2009

Recent McKinsey report on energy efficiency addressed opportunity, barriers, and potential solutions Report approach Sponsors of the report ▪ Stationary uses of energy ▪ 675 existing technologies ▪ Productivity, not conservation ▪ NPV-positive excluding program costs ▪ Discounted at 7 percent ▪ Potential for energy efficiency – no attempt to declare how much is achievable | SOURCE: McKinsey analysis McKinsey & Company 1

Significant energy efficiency potential exists in Industrial Commercial the U.S. economy Residential End-use consumption Carbon emissions Quadrillion BTUs Gigatons CO 2 e * Savings 39.9 4.3 36.9 3.9 -9.1 -23% -26% 30.8 3.2 -18% -29% -28% Baseline Baseline NPV- Baseline Baseline NPV- case, 2020 positive case, 2020 positive 2008 case, 2020 2008 case, 2020 * Includes carbon emission abatement potential from CHP | McKinsey & Company 2 Source: EIA AEO 2008, McKinsey analysis

The fundamental nature of energy efficiency creates challenges FUNDAMENTAL ATTRIBUTES OF ENERGY EFFICIENCY Full capture would require upfront outlay of Requires about $50 billion per year, plus program costs outlay Potential is spread across more than 100 Fragmented million locations and billions of devices Improving efficiency is rarely the primary focus Low mind- of any in the economy share Evaluating, measuring and verifying savings, Difficult to is more difficult than measuring consumption measure | Source: McKinsey analysis McKinsey & Company 3

Additional opportunity-specific barriers inhibit energy efficiency OPPORTUNITY-SPECIFIC BARRIERS Structural Behavioral Availability Incentives split between parties, Agency impeding capture of potential Owner expects to leave before Ownership payback time transfer issue Unquantifiable incidental costs of Transaction deployment barriers Regulatory, tax, or other distortions Pricing distortions | McKinsey & Company 4

Ownership transfer is a significant barrier in non-low- income homes 4% Agency End-use energy barrier Trillion BTUs Barriers applies Non-low- income homes 96% Low-income Agency barrier homes does not apply Electrical devices & Ownership small transfer appliances barrier Lighting and major applies appliances 60% Ownership New homes transfer barrier does not apply | Source: EIA AEO 2008; McKinsey analysis McKinsey & Company 5

The agency barrier plays a much larger role in Tenant Occupied commercial buildings Owner Occupied Potential affected by agency barrier End-use energy Percent of end-use potential Trillion BTUs Existing Food Service 77% 23% private buildings Lodging 72% 28% Food Sales Office and 65% 35% non-commercial Merc/Service devices 53% 47% Warehouse 52% 48% Government buildings Office - Small 50% 50% Other 47% 53% Community Education 45% 55% infrastructure Health Care 45% 55% New private Office - Large 45% 55% buildings Assembly 33% 67% | Source: EIA AEO 2008; McKinsey analysis McKinsey & Company 6

Additional opportunity-specific barriers inhibit energy efficiency OPPORTUNITY-SPECIFIC BARRIERS Structural Behavioral Availability Regarding ability to capture benefit Risk and of the investment uncertainty About product efficiency and own Lack of consumption behavior awareness Practices that prevent capture of Custom and potential habit Similar options treated differently Elevated hurdle rate | McKinsey & Company 7

Few end users are aware of their consumption drivers and opportunities for efficiency Homeowners view on effective ways to reduce GHG emissions 50% Recycling and energy efficient appliances 15% Improving insulation Assessed 2 Homes having an energy efficiency rating or assessment 98 Not assessed | McKinsey & Company 8

Additional opportunity-specific barriers inhibit energy efficiency OPPORTUNITY-SPECIFIC BARRIERS Structural Behavioral Availability Combining efficiency savings with Adverse costly options bundling Capital Inability to finance initial outlay constraints Insufficient supply or channels to Product market availability Improperly installed and/or operated Installation and use | McKinsey & Company 9

Access to capital presents a significant barrier to low- income homes Percent of homes (N=45 million) End-use energy Expected Trillion BTUs under ARRA Non-low- income 7 homes Weatherized 13 to date Low-income homes Electrical 80 devices & small appliances Remaining Lighting to weatherize and major appliances Allocating capital would require New homes at least half of a household’s annual non-core budget | Source: EIA AEO 2008; McKinsey analysis McKinsey & Company 10

Clusters of opportunity emerge Percent, 100% = 9,100 trillion BTUs of end-use energy efficiency potential 40 35 25 Industrial Commercial Residential Total (Trillion BTUs) Total (Trillion BTUs) Total (Trillion BTUs) 3,650 Non-energy intensive 3,160 Lighting & major 24 Industry processes appliances 11 Community Electrical devices & 2,290 19 infrastructure small appliances Energy-intensive 12 10 43 Office and non- New homes industry processes 13 commercial equipment Existing low-income 19 16 homes New private buildings 25 Government buildings Existing non-low Energy support 33 41 Existing private income homes systems 35 buildings N = 330,000 enterprises N = 4.9 million buildings, N = 129 million homes, ~3 billion devices 2.5 billion devices | Source: Energy Information Agency’s Annual Energy Outlook 2008; McKinsey analysis McKinsey & Company 11

Four categories of solutions emerge ▪ Increase education about energy Information consumption and efficiency opportunities flow ▪ Promote transparency through labeling and reporting ▪ Provide immediate signals through pricing or real-time information flow ▪ Provide access to financing Financing and ▪ Provide grants or incentive payments to incentives “ buy-down ” upfront investment ▪ Raise levels of mandatory codes and Codes and standards standards ▪ Expand “ do-it-for-me ” programs that Third party provide full solutions to end users deployment | McKinsey & Company 12

Addressing barriers in non-low income homes Barriers Manifestation of barrier Potential approach Solution strategies Agency Educate users on Agency Educate users on Information flow Landlord-tenant issues Landlord-tenant issues issues energy consumption issues energy consumption Home labeling and Transaction Promote voluntary Transaction Research, procurement and preparation Research, procurement and preparation Promote voluntary Structural assessments barriers standards/labeling barriers time time standards/labeling Pricing Establish distortions pricing signals Ownership Ownership Limits payback to time owner lives in Limits payback to time owner lives in transfer issues transfer issues home home Risk and Capital outlay uncertainty* Increase availability of financing vehicles Awareness Behavioral Awareness Limited understanding of energy use Limited understanding of energy use and information and information and potential and potential Provide incentives and grants Custom and habit Elevated Elevated Behavioral 40% discount factor Behavioral 40% discount factor hurdle rate hurdle rate Raise mandatory Adverse codes + standards bundling Capital Capital Availability Competing uses for a constrained budget Competing uses for a constrained budget constraints constraints Product Product Limited availability of contractors Limited availability of contractors availability availability Support 3 rd -party Installation Installation Improper installation and use of measures Improper installation and use of measures installation and use and use | McKinsey & Company 13 Source: McKinsey analysis

Addressing barriers in non-low income homes Barriers Manifestation of barrier Potential approach Solution strategies Agency Educate users on Landlord-tenant issues Information flow issues energy consumption Home labeling and Research, procurement and preparation Transaction Promote voluntary Structural assessments time barriers standards/labeling Pricing Establish distortions pricing signals Ownership Limits payback to time owner lives in home transfer issues Risk and Innovative Capital outlay uncertainty* Increase availability financing vehicles of financing vehicles Limited understanding of energy use and Behavioral Awareness potential and information Provide incentives Tax and other and grants Custom incentives and habit Elevated Behavioral 40% discount factor hurdle rate Required upgrades Adverse Raise mandatory at point of sale/rent bundling codes + standards Capital Availability Competing uses for a constrained budget constraints Product Limited availability of contractors availability Develop certified Support 3 rd -party Installation Improper installation and use of measures contractor market installation and use | McKinsey & Company 14 Source: McKinsey analysis