Energy Efficiency and Innovation

By Patrizia Toia, MEP, (pictured)
Summer 2018

Patrizia Toia, MEPEnergy efficiency means investing in innovation. By now, most people understand that the industrial sector is radically changing the way we produce - and hence how we work and live: this is the fourth industrial revolution, or Industry 4.0. But what may not be completely apparent is that the energy sector is also going through a revolution, one that is based on digitalization.

Energy has been a key factor in all previous industrial revolutions: steam powered the mechanisation of manufacturing that triggered the first industrial revolution in 1784. A century later, electrification drove the second industrial revolution by allowing the development of the production line, based on the division of labour. The third industrial revolution, around 1970, was based on the use of electronics and IT to control energy through the microchip. Today, the fourth industrial revolution is based on the digitalization of production, products and consumption: innovations such as the Internet of Things, 3D printing and modular production are crossing and blurring the borders between manufacturing and services, between hardware and software and between producers and consumers.

How is this is going to affect the energy sector? Before looking at the big picture let's consider a couple of everyday examples that show how the fourth energy revolution is already happening. Home automation, or domotics, is the residential extension of building automation and involves the control and automation of lighting, heating ventilation, air conditioning, and security and home appliances. Today, you can have lights that save energy by switching off automatically when nobody is in a room; or you can programme your washing machine to wash during the night, when energy prices are lower. Many already know this as the concept of the Smart Home.

Elsewhere, hybrid cars, are becoming more and more common on our roads. Their batteries can recover the kinetic energy that would otherwise be lost during braking, in order to reuse it later through an electric motor. A computer uses software to manage these flows of energy, deciding between recovery and reuse. This is energy 4.0: systems composed of physical entities and controlled or monitored by computer-based algorithms. And it is at the same time both the cause and the consequence of a revolution in energy production. Nuclear plants and fossil fuels are being phased out, giving way to intermittent renewables, making energy efficiency more and more fundamental.

According to the International Energy Agency (IEA), if EU countries were to exploit fully the potential of energy efficiency, overall GDP would grow by up to 1.1% per year. The European Commission has estimated additional GDP growth of up to 4.45% by 2030 if 40% energy savings could be achieved. Construction, for example, is a strong engine of the European economy, contributing nearly 10% to EU GDP and accounting for 18 million jobs. Investment in the energy efficiency of buildings robustly supports this sector, which is why in April the EU Parliament approved the Energy Performance of Buildings Directive (EPBD). The first of 8 legislative proposals, it forms part of the Clean Energy for All Europeans package brought forward by the European Commission on 30 November 2016. The new legislation requires member states to develop national long-term strategies to support cost-saving renovation of public and private buildings, with a view to reducing emissions in the EU by 80-85% compared to 1990 levels.

Investing in energy efficiency will boost industrial competitiveness. High dependency on international energy markets exposes companies to price shocks, which reduce the predictability of returns on investment. Sudden price increases cannot always be passed on to the market and can therefore undermine profitability. Rising worldwide demand and the introduction of energy taxes are likely to drive energy price rises over the next decade, and energy efficiency measures can help decouple energy prices from energy costs for companies. Furthermore, the European Commission's scenario modelling also sees a direct link between energy consumption in Europe and international energy prices.

According to the models, achieving energy efficiency gains of 40% by 2030 could lower gas prices by 8% and oil prices by 3%, compared to business-as-usual scenarios. Meanwhile, energy-efficient operation of industrial plants in the EU already makes them more competitive: Energy Efficiency Services Companies (ESCOs) deliver overall management of energy demand to energy end-users, providing operational, design maintenance and management of equipment services and leading to optimisation of energy consumption.

Energy efficiency is a driving factor for innovation in the manufacturing and services sectors. However, innovation centres will only stay within the EU if legislation is able to provide an ambitious long-term framework that demonstrates the political will to realise energy saving potential. The creation of local skilled jobs is an absolute imperative for the EU and it is widely recognised that ambitious energy efficiency measures lead to significant net job creation: the European Commission states that the number of jobs could be increased by up to 3% by 2030 if a 40% energy savings target were implemented. In other words, more ambitious targets on energy efficiency will boost our economy and the competitiveness of our industries, but will also have direct beneficial consequences for European citizens. About 10% of them are considered fuel poor, while many governments spend more money on fuel subsidies than on reducing energy bills sustainably through energy efficiency measures.

Energy efficiency is one of the smartest investments we can make, and is a win-win move for industries and citizens. All we need is a daring and forward looking approach.