Energy and the Winds of Change

It’s hard to imagine our lives without electricity. It’s the invisible stuff of “civilization” keeping our buildings cool, our spaces illuminated, and the motors of industry turning.

In Hong Kong, a two-company oligopoly has provided consistent and reliable supply for almost 100 years. Their approach has been to build more to meet ever-increasing demand.

Yet, on a finite planet, infinite growth cannot go on forever. Over the last two decades, a revolution in thinking has been taking place and, increasingly, utilities around the world are providing electricity services rather than more and more megawatts.

Kong Kong Electric has requested permission to increase the capacity of its Lamma power station by 60%, and possibly also add a waste-to-energy incinerator as well. At the recent Designing Hong Kong symposium in late February, we had the chance to speak with Amory Lovins, probably the world’s best-known and most-respected expert on energy efficiency. With his wife Hunter, he founded the Rocky Mountain Institute, a think tank devoted to helping utilities improve efficiency, save energy and make profit. Mr. Lovins is a prolific speaker and writer, and the Wall Street Journal, in their Centennial Issue, named him among 28 people most likely to change the course of business in the 1990’s.

Here’s what we discussed:

Gomberg and Bischoff (G&B): We just missed you in Kyoto (at the U.N. Climate Summit) a couple of months ago, where there was a lot of gnashing of teeth and anxiety about how could we possibly meet a 6% cut in greenhouse gases. What was your take on what happened there?

Amory Lovins:  You were probably inadvertently listening to one of the 169 lobbyists from something called the Global Climate Coalition spearheaded by the coal industry to try to pretend that either there isn’t a problem or, if there is, it’s too expensive to solve it.

They forgot a rather important point though: it’s cheaper to save fuel than to buy it, therefore protecting the climate by using fossil fuel a lot more efficiently is not costly but profitable. And since it’s profitable, it can be done in the marketplace through things that are rather good for us – like innovation, competitive advantage, and economic opportunity. It’s really about profits, not costs.

That message is starting slowly to sink in and we get calls from a lot of industries – major chemical companies and so on – saying: “Gee, now that there will be a trading scheme (whose framework was agreed to at Kyoto) to reward people to emit less carbon, how can our company make money off that?” And I think the race to a more efficient and climatically-benign economy is definitely off and running.

G&B:  To bring it back to Hong Kong, we had a tour recently of the power plant on Lamma Island, a huge power plant that burns 3.5 million tonnes of coal every year. They (Hong Kong Electric) maintained that it’s not profitable for them to be doing those energy-efficiency measures, that it’s more profitable to project 4 or 5 % growth and to build more power plants.

Lovins:  That was largely true under the previous regulatory arrangement called the Scheme of Control. However, they have negotiated a new agreement that lets them actually get rewarded for saving energy not only for selling more. I think this will gradually move more and more in the direction of letting the utility keep some of the savings it creates for the customers whenever it can save electricity cheaper than making it. That’s a very sensible arrangement because it means whatever gives you lower bills will give them more profits, so your interests are aligned instead of opposite. That sounds like a good idea. We’ve done it in about eight of the United States and it does have a miraculous effect on a utility’s behaviour.

G&B:  You’re talking about a change in culture also, because they’re so used to building more power plants and selling more and more.

Lovins:  They have a lot more than they need. They’re just getting used to the idea that it’s cheaper not to run the ones they have than to run them, and if so then they shouldn’t run them, no matter how many they’ve got.

G&B:  So are you saying that, today, it’s cheaper for Hong Kong Electric, or China Light and Power, to be selling efficiency measures rather than selling more kilowatt hours?

Lovins: Very much so. It’s a lot cheaper to sell, or even give away efficiency than even to run existing power stations even if building them costs nothing. Of course if you design buildings properly in the first place, then they save 3/4, 4/5, or even more of their electricity. Even 90% in some cases. But they cost less to build because you don’t need all that expensive mechanical equipment to keep them comfortable when they’re more efficient in the first place.

G&B:  You’re saying these things, yet they don’t seem to be part of the “conventional wisdom” so to speak.

Lovins:  Well, we have some pretty perverse incentives in place. Architects and engineers here, as elsewhere, are paid for what they spend, not for what they save. Utilities are rewarded for selling you more electricity and penalized for cutting your bill. People are very good at responding to exactly the incentives you give them. So if you reward the opposite of what you want you get the opposite of what you want.

Governments are slowly waking up to this and starting to get the incentives right and then it gets a whole lot easier. We did a paper for the Kyoto conference called: Making Sense and Making Money which codified about sixty obstacles to using energy in a way that saves money and then showed how to turn each obstacle into a business opportunity, each stumbling-block into a stepping-stone

G&B:  But do you see that new buildings going up in Hong Kong are meeting these kind of energy-efficiency standards that you’re talking about?

Lovins:  New buildings here are not yet efficient, but I think they will get more so because the market downturn actually focuses developers’ attention on things they hadn’t thought about before. Operating costs are starting to become important when before they weren’t. People were just building so fast and flipping the property to some other owner that they didn’t care what it would cost someone else to run it later. Now they do because the market is starting to become more particular about that as people trim their costs.

G&B:  Is it cost effective to go back to all these old buildings and fix them up, make them more energy efficient?

Lovins:  (Licks his lips and smiles) There are some high quality properties – we’re standing in one of them now (Pacific Place) – that are really quite energy-inefficient and it would be very profitable to fix them up to save most of their energy. We’ve actually got experience of this in quite a few U.S. cases with broadly similar buildings and in rather similar climates. It’s not unusual to save 3/4 of the energy with a payback time of just a few years. Which is a lot better return than you can get any other way.

G&B:  One of the big energy users in Hong Kong is air conditioning. Can you talk about some of the innovations or changes that have happened for more efficient air conditioning?

Lovins:  We recently saved 97% of the air conditioning energy fixing up a California office and made it more comfortable. Instead of thinking of this as an air conditioning problem, let’s think of it as a comfort problem. And you can extend the range of conditions in which people feel comfortable through, for example, better windows that let in light but block radiant heat called super-windows which are not yet made in Hong Kong but are made now in Thailand. A friend of mine used them in his house and saved 90% of his air conditioning energy with no extra cost.

G&B:  Just by changing the windows?

Lovins: That was a new house, but it turned out that the extra cost of the windows and other efficiency measures was balanced by the value of avoiding 90% of the air conditioning capacity. So it worked out the same and it’s much more comfortable. Then with, for example, new kinds of office chairs where, for example, you sit on a ventilative net or mesh instead of insulating upholstery you keep your backside several degrees cooler. Ceiling fans can give you five Celsius degrees of extra comfort range. When you start adding it up you find it actually works pretty well. You get more comfortable.

Then you can reduce the unwanted heat coming into the space with better windows and shading, more efficient lights, and office equipment that releases less heat into the space. By those means, for example, we’ve eliminated cooling equipment entirely in California houses at temperatures up to 46 . And the house is more comfortable but costs less to build. Now that’s not a very humid climate like Hong Kong, but it’s still a good indication.

Then if you do have refrigerative air conditioning, which is common here, it can be made several times more efficient than it now is just by designing it better. The capital cost of doing that is less than the way it’s done now. And then you can improve controls. But better to design the kind of buildings so it doesn’t don’t need fancy controls – it just keeps you comfortable by itself.

G&B:  When we went to visit Hong Kong Electric last week we talked with them about burning all this coal and the problems of acid rain, they maintained that volcanoes are a bigger concern. Have you heard that one before?

Lovins:  Yes. (Pause) There’s no accounting for what some people think. However, there isn’t much we can do about volcanoes. There’s a lot we can do about burning coal. It’s cheaper not to.

G&B:  If cities were serious about reducing their energy use, and profitability was put in the proper place, what levels of reductions could be achieved with today’s technology?

Lovins:  It’s pretty straightforward to save half the energy easily and over time more like 3/4 of the energy with very attractive economics. As you gradually replace old with new buildings, the savings get up around 90% and the capital costs go down. In all cases, the buildings get more pleasant, and comfortable to be in. And similar savings will gradually come about in our other uses of energy, industry and transportation.

In the United States, we’ve already cut $150 or 200 billion (U.S.) dollars a year off the energy bill, but we’re still wasting $300 billion a year. And the more we save the more exploitable waste we find because we learn more; the technologies get better. You can save twice as much now as you could five years ago at just a third the cost. And that statement has been continuously true for at least the past fifteen years.

The real surprise lately is we’ve discovered that you can make big savings cost less than small savings. We call this tunneling through the cost barrier.

I’ll give you a simple example from a carpet factory recently built in Shanghai by the American firm Interface. I introduced the Dutch engineer who was designing it to some art learned from a friend in Singapore, Mr. Lee, who’s the efficiency wizard. A pumping system in this factory had supposedly been “optimized” by the top western firm but when the Dutch engineer got through re-engineering it, it was using a twelfth as much energy. The pumping and motor equipment were twelve times smaller.

How did he do this? Well he used big pipes, which have a lot less friction, and small pumps instead of small pipes and big pumps. You save a lot more money making the pumps and motors smaller than you pay extra paying for the fatter pipe in which the friction goes down, it’s almost the fifth power of diameter. So that’s a good deal. The other thing we did was lay out the pipes first, then the equipment so the pipes are short and straight instead of long and crooked. And they have less friction. Now this is not rocket science, this is good Victorian engineering. But it was a 92% energy saving at less capital cost and it all works better.

Very similar opportunities are available throughout industries and buildings just by using a better design mentality. It’s changing the “mindware” that’s really the challenge today. And as we discover in writing our new book “Natural Capitalism”, with Paul Hawkin, how these opportunities just pervade society. We’re ever more astonished by the opening of the efficiency cornucopia. I guess you could call me a neo-cornucopian.

The opportunity to do more and better with much, much less is greater than any of us would have dreamed possible even a few years ago. And that’s a good thing because we’ve been, for a hundred odd years now, making people in various industrial revolutions about a hundred times more productive than they were. And that made sense when we didn’t have many people, we didn’t have much technology, and pollution-absorbing capacity seemed to be abundant. But now that nature is scarcer and people are more abundant, we should keep using the economic logic that you economize on your scarcest resource. Because that’s what limits your progress.

Applied to new conditions of scarcity, it now makes sense to fire the unproductive tonnes, litres, and kilowatt hours and keep the people with more and better work to do. The way to do that is advanced resource-efficiency. Wring a lot more work – ten or a hundred times more work – out of the resources we’ve got. And that’s going to give us better lives and a stronger economy as well as a sounder environment.

G&B:  Sounds like a good deal.

Lovins:  Thank you.