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Perspectives on

Energy Efficiency

Georgia Tech Clean Energy Speaker Series


January 27th, 2010
Project background

During our research on U.S. GHG


abatement, McKinsey encountered the
puzzle of energy efficiency.

We extended our research to


validate the potential, analyze the
barriers inhibiting energy efficiency,
and identify solutions that can
overcome those barriers

McKinsey & Company | 1


Our research has been supported by a broad range of leading
institutions – both reports are available at McKinsey.com
U.S. GHG Abatement Cost Curve – December, 2007 U.S. Energy Efficiency – July, 2009
▪ 7 leading institutions joined with McKinsey to co- ▪ 12 leading institutions joined with McKinsey to co-
sponsor sponsor

▪ Analyzed 250+ abatement opportunities across 7 ▪ Analyzed 675+ energy efficiency opportunities in
sectors of the US economy – buildings, power, stationary uses economy-wide (with regional
transportation, industrial, waste, agriculture and breakdown)
forestry

▪ Provided comprehensive ▪ Provides granularity behind


mapping and fact base of attractive opportunities
U.S. GHG options
▪ Explores key implementation
▪ Highlighted challenge to barriers and potential
achieve projected targets solutions
▪ Published in December ▪ Published in July 2009
2007

McKinsey & Company | 2


Central Conclusion of our work
Energy efficiency offers a vast, low-cost energy
resource for the U.S. economy – but only if the nation can craft a
comprehensive and innovative approach to unlock it.

Significant and persistent barriers will need to


be addressed at multiple levels to stimulate demand for energy
efficiency and manage its delivery across more than 100 million
buildings and literally billions of devices.

If executed at scale, a holistic approach would yield gross energy


savings worth more than $1.2 trillion, well above the
$520 billion needed for upfront investment in
efficiency measures (not including program costs).
Such a program is estimated to reduce end-use energy consumption
in 2020 by 9.1 quadrillion BTUs, roughly 23 percent of
projected demand, potentially abating up to 1.1 gigatons
of greenhouse gases annually.

McKinsey & Company | 3


Significant efficiency potential across fuel types
Contribution by energy source to 2020 efficiency potential
Percent
Savings
Percent 26 23 20 18
1,080 TWh 2.9 TCF 250 MBOE 100%=

End-use 9.1quadrillion
9.1 quadrillion
energy BTUs
BTUs

Primary 18.4 quadrillion


energy BTUs

Carbon 1.1 gigatons


emissions CO2e

Electricity CHP Gas Oil Other

McKinsey & Company | 4


The southeast accounts for the largest share of US EE
potential but has similar reduction levels from BAU
Trillion BTUs in 2020* Savings (Percent)
Reduction Share of
Electricity Gas Oil Other from BAU US total

1,150 650 450 350 2,600 22 29 17

Southeast
100 22 12
550 250 1,050
150
Southwest

850 1,000 300 200 2,350 23 26


Midwest

150
700 600 1,650 23 18
200
West

450 500 350 100 1,400 24 15


Northeast

McKinsey & Company | 5


The fundamental nature of energy efficiency
creates challenges
FUNDAMENTAL ATTRIBUTES OF ENERGY EFFICIENCY

Requires Full capture would require upfront outlay of


outlay about $50 billion per year, plus program costs

Potential is spread across more than 100


Fragmented
million locations and billions of devices

Low mind- Improving efficiency is rarely the primary focus


share of any in the economy

Difficult to Evaluating, measuring and verifying savings,


measure is more difficult than measuring consumption

McKinsey & Company | 6


Opportunities group into actionable clusters
Percent, 100% = 9,100 trillion BTUs of end-use energy efficiency potential

40 35

25

Industrial Commercial Residential


Total (Trillion BTUs) 3,650 Total (Trillion BTUs) Total (Trillion BTUs)

Non-energy intensive Lighting & major 3,160


24
Industry processes appliances 11
Community Electrical devices &
infrastructure 2,290 19
small appliances
Energy-intensive 12 10
43 Office and non- New homes
industry processes 13
commercial equipment Existing low-income 19
16
New private buildings homes
25
Government buildings
Energy support Existing non-low
33 Existing private 41
systems 35 income homes
buildings

N = 330,000 enterprises N = 4.9 million buildings, N = 129 million homes,


~3 billion devices 2.5 billion devices
CHP is an additional cluster
with potential of 1.4 qBTUs of
primary energy
McKinsey & Company | 7
Addressing barriers in non-low income homes
Barriers Manifestation of barrier Potential approach Solution strategies

Agency
Agency Educate users
Educate userson
on

Information flow
Landlord-tenant issues
issues
issues Home energy consumption
energy consumption
labeling and
Transaction
Transaction Research, procurement and preparation Promote voluntary
Promote voluntary
Structural

assessments
barriers
barriers time standards/labeling
standards/labeling

Pricing Establish
distortions pricing signals

Ownership
Ownership Limits payback to time owner lives in
transfer issues
transfer issues home

Risk and

Capital outlay
uncertainty* Increase availability
of financing vehicles
Awareness Limited understanding of energy use
Behavioral

Awareness
and information
and information and potential Provide incentives
and grants
Custom
and habit

Elevated
Elevated
Behavioral 40% discount factor
hurdle rate
hurdle rate

Adverse Raise mandatory


bundling codes + standards

Capital
Capital
Availability

Competing uses for a constrained budget


constraints
constraints

Product
Product
Limited availability of contractors
availability
availability

Installation
Installation Support 3rd-party
Improper installation and use of measures installation
and use
and use

McKinsey & Company | 8


Addressing barriers in non-low income homes
Barriers Manifestation of barrier Potential approach Solution strategies

Agency Educate users on

Information flow
Landlord-tenant issues
issues Home energy consumption
labeling and
Transaction Research, procurement and preparation Promote voluntary
Structural

assessments
barriers time standards/labeling

Pricing Establish
distortions pricing signals

Ownership
Limits payback to time owner lives in home
transfer issues

Risk and Innovative

Capital outlay
uncertainty* financing vehicles Increase availability
of financing vehicles
Awareness Limited understanding of energy use and
Behavioral

and information potential Provide incentives


Tax and other
and grants
Custom incentives
and habit

Elevated
Behavioral 40% discount factor
hurdle rate

Adverse Required upgrades Raise mandatory


bundling at point of sale/rent codes + standards

Capital
Availability

Competing uses for a constrained budget


constraints

Product
Limited availability of contractors
availability

Installation Develop certified Support 3rd-party


Improper installation and use of measures contractor market installation
and use

McKinsey & Company | 9


Building blocks of a comprehensive energy efficiency
strategy
“What to do”

Energy efficiency Customer & Regulatory and


potential analysis Business legislative
implications strategy
“How to do it”

Program and Organization Stakeholder


delivery and alignment
mechanism capabilities
design

McKinsey & Company | 10

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