Combining Energy Efficiency and Renewable Energy

As the race to address climate change gathers pace around the world, the corporate world is increasingly embracing the business opportunity presented by the transition to net zero carbon emissions. For most companies there are two main areas they can invest in to benefit from this transition: i) energy efficiency, and ii) renewable energy. As shown in the chart below, 94% of the expected emission reductions (in the current and planned policy scenario) come from energy efficiency and renewable energy (including electrification) projects. We discuss below how these two strategies complement one another.

Source: ResearchGate

ENERGY EFFICIENCY

Energy efficiency is often quite technical and complex, and therefore doesn’t attract many media headlines in the fight against climate change. However, 40% of global emission reductions are expected to come from energy efficiency projects (as shown above). So it’s a big deal, and an area in which many corporations should spend more time developing their strategies.

Each industry has different energy consumption profiles, thus, there are many different areas where energy efficiency can be improved - each with also many different technical solutions. Energy service companies (ESCOs) (e.g. Malaysia-listed Sedania Innovator Bhd), are able to identify inefficiencies and remove them. Due to the complexity of possible solutions and a vast range of available technology vendors, many corporations engage with such ESCOs through Energy Performance Contracts, which means the corporation only pays the ESCO for its achieved savings, and not for the equipment itself. In other words, the corporation pays for results, not assets.

While many corporations struggle to achieve their annual 3-5% energy or carbon reduction KPIs, a single Energy Performance Contract typically achieves 20-30% permanent energy reduction within a half year – even if the corporation has operations in many locations across Malaysia.

Furthermore, Energy Performance Contracts help companies significantly reduce their carbon emissions without any capital expenditure and still benefit from a net operation cost reduction.

RENEWABLE ENERGY

The second major step for most companies is to invest in renewable energy which represents 54% of expected global emission reductions (as shown above). For most companies, the most compelling renewable opportunity is to invest in solar energy as solar has become more economic in recent years (as shown below). It’s a relatively straight-forward strategy to execute in Malaysia as it doesn’t require an Environmental Impact Assessment (EIA), nor any third-party ingredients (like Biogas) - and it is predictable (as long as our sun exists)!

Bearing in mind the cost of solar continues to improve each year, investing in solar is becoming increasingly more attractive. The economic benefits of solar come from the cost savings generated by self-consuming as much solar energy as possible during the sunny hours, and/or the credit received from TNB for any unused solar energy which is sold back to the grid (Net Metering or NEM). And the cost of investing in solar may be reduced by Government solar incentives such as the Green Investment Tax Allowance (GITA) and the Green Income Tax Exemption (GITE) which further enhance the return on investment.

THE COMPLEMENTARY OPPORTUNITY

The financial opportunity created by the transition to net zero carbon emissions is compelling. Companies who combine their energy efficiency (EE) and renewable energy (RE) efforts into a single holistic strategy can maximise the positive outcomes due to synergies in design, technologies, installation and maintenance work. These synergies can range from 20-35% in cost!

For example, a retailer with over a hundred locations across Malaysia and the ambition to become the first retailer running on 100% sustainable energy, recently adopted the following combined strategy:

• Step 1 – improve energy efficiency which leads to energy savings;

• Step 2 – generate free renewable energy from rooftop solar which reduces TNB’s power supply;

• Step 3 – purchase renewable energy certificates to convert the remaining fossil-based (brown) energy to renewable energy

Visually this combined energy strategy looks as follows:

The retailer will save 24% of its energy costs through energy efficiency measures, then a further 19% saving from its rooftop solar PV systems, and lastly will offset its remaining energy needs through RECs (Renewable Energy Certificates). The ESCO-Investor’s (Sedania) job scope involved a half dozen different energy efficiency technologies, multiple rooftop solar PV systems, and the purchase of carbon offsets (Renewable Energy Certificates).

The retailer is therefore achieving its zero-carbon goal without any capital expenditure. And the company will enjoy a net energy cost saving of approx. 5-10% for many years to come.

In this innovative business model, Sedania is the strategic investor: it provides expertise, technology and funding while generating an investment return from a share of the client’s future savings.

On the flip side, Energy Performance Contracts offer companies a compelling opportunity to transition to a lower carbon, lower cost of energy world without risk or investment.