Great businesses solve big problems.
In a time of great geopolitical and climate change, great businesses have no shortage of big problems to go after. And the value of solutions has never been larger.
Take energy for example. Everyone - and everything - depends on it. It contributes to some 80% of human made greenhouse gas emissions. It is fuelling conflict conterminously in almost every corner of the world, from Eastern Europe to the Eastern Mediterranean, and prospectively from the Artic to the South China Sea. Geopolitics and climate change are now combining to create choke points, such as drought at the Panama Canal and attacks at the Suez Canal, causing a wide range of impacts from the price of food exports to disruptions in global trade.
Europe is feeling the heat. Facing volatility in the cost and availability of energy after the supply shock from Russia’s invasion of Ukraine, it stands to suffer more than most from climate change. Its Copernicus observation agency reported a ninth consecutive record monthly temperature for February 2024 of 1.77C above pre-industrial (1850-1900) levels, above the Paris Agreement target for the decade of 1.5C. This week, the European Environment Agency issued a warning of financial shocks with the prospect of the thermostat reaching 3C higher than pre-industrial times by 2050. The shock in Europe could be particularly bad given that it is currently the fastest warming continent on Earth, with temperatures rising twice as fast as the global average. A long-term global average temperature rise of 1.5C would mean 3C in Europe.
And yet, as I explain in detail in my book, ‘The Edge: How competition for resources is pushing the world, and its climate, to the brink – and what we can do about it’, as well as my Substacks, despite its pivotal role in contributing to conflict and global warming, most energy is wasted. This is a big problem. Not only is this problem not insurmountable but given the range of cost-effective solutions that exist today, solving it is the largest, fastest, cheapest, and cleanest source of greenhouse gas emission reductions, economic productivity gains and resource security. Put simply, we can do the same, or more, just using less energy.
Indeed, taking the optimistic side of the argument, if this wasn’t the case, then we would have an even bigger problem. Building our way out of the current climate crisis by adding more resource intensive infrastructure, on its own, would take too much time, money, and material to make a big enough difference fast enough, and even risk making certain problems worse. This would be our only option if the world worked efficiently, if we had optimised the way we use energy, water food, and the other essentials, without which society can’t function. But we haven’t. Not nearly.
In this respect at least, at least some of today’s bad news is tomorrow’s good news. The world is extraordinarily inefficient. As much as three quarters of the world’s energy is lost even before it gets to the point of use (mostly as waste heat in the centralised generation process, but also in extraction, conversion, transmission, and distribution), and then more is wasted when it gets there through sub-optimal equipment for lighting, heating, and cooling, insulation, and controls. Around half of food and a third of water is lost to inefficiency too. So, while we wait for the roll-out of cleaner technologies and invent new ones, we can immediately address the chronic waste and make the energy system cheaper, cleaner, and more reliable.
An acronym I use in business to frame solutions to the energy waste problem is ‘EDGE’, which deconstructs as ‘efficient and decentralised generation of energy’.
Decentralised generation of energy involves bringing energy to the point of use, avoiding the losses involved with centralised energy centres built far from where they are needed. This can be delivered cost-effectively with established technologies such as solar and storage, ground and air sourced heat and combined heat and power (CHP) systems, ideally fuelled by recycled or green gases, or at least by much more efficient use of natural gas. Examples of the types of established solutions that can as much as halve the carbon footprint for end users at lower energy costs include projects in our portfolios for the heavy and ‘hard to abate’ industries such as steel (Primary Energy), public and private buildings (Onyx Renewables), agriculture (Oliva), datacentres (Citigroup), hospitals (including the UK’s National Health Service and Irish Health Service Executive), logistics and light manufacturing (RED Rochester).
Energy efficiency projects can also involve the reduction of energy loss or waste at the point of use. Examples of solutions that work include LED lighting (which we have delivered at scale for banks, commercial, industrial and retail buildings, car parks, manufacturers, and hospitals), heating, cooling, ventilation and air conditioning, refrigeration, building management systems, motors and controls. They can also help to improve the efficiency with which energy is used in the transport sector. Our investments in ultra-fast charging infrastructure for electric vehicles through the EV Network now serve over a quarter of a million customers in the UK and help to reduce the 70-85% plus ‘well-to wheel’ losses associated with petrol compared to the 70-80% efficiencies of ‘wind-to-wheel’, while reducing lethal city pollution at the same time.
These solutions all involve solving energy problems for end users, getting energy to the point of use without most of it being wasted on the way, and then, when it gets there, making sure it’s not wasted. They involve proven and now conventional technologies, where the biggest innovation would be in implementation. This will involve a focus on solving problems for customers, not just the grid, because most energy is used by buildings, industry, and transport, requiring a different and fundamentally more customer solution-focussed approach from the energy sector. Because solutions are more efficient, they are usually cheaper, as well as greener, and therefore require little or no subsidy, only a well-designed regulatory framework and for some of the largest energy users, such as the public sector, leadership by example. As the UK’s largest energy user, the NHS should now take the opportunity to change the other half its lights to LED.
Most energy waste can be addressed with existing technology and occurs in the industrial, commercial, transport and public sectors. Domestic energy use is and important contributor, but is in the minority and, after all, important to keep people warm. Today’s efficiencies today improve productivity and competitiveness and facilitate growth by allowing the same or more economic output to be produced using less energy. The occasionally referenced Jevons Paradox, named after a 19th century economist who tracked a correlation between the increasing (or ‘rebounding’ demand for coal as steam engines became more efficient, has been overtaken by time and technology. For example, streetlights don’t shine during the day because, or if, energy is cheap, while well-designed regulation should, and increasingly does, address waste. (Jevons had another de-bunked theory, his ‘semiprime’ number, whereby he contested that no one other than he could find two numbers that multiplied together to make 861640799. He was wrong. A basic hand-held calculator these days can demonstrate that it’s 89681 x 96079).
However, there are also exciting new technological breakthroughs that will help to change the game, in terms of impact, speed, scale, productivity and economic performance. One promising example is an investment that we made alongside Microsoft within the portfolio of the SDCL Energy Efficiency Income Trust plc, Rondo. Rondo has created a heat battery capable of reaching 1500C, cutting industrial emissions by up to 80% and providing grid stability by making use of and storing heat excess renewable power. It announced a deal worth up to 2GW with European utility EDP last week. Another example is Iceotope, a solution for datacentres – one of the largest and fastest growing sectors for the energy market - that cools racks rather than the rooms, saving resources and space, with precision liquid cooling. Doing so can remove nearly all the heat generated by electronic components of a server, reducing energy use by up to 40% and water consumption by up to 96%.
Globally, governments have now focussed on energy efficiency’s crucial role in the energy transition to mitigate climate change. It was paired with renewable energy as the first call to action in the United Nations backed Dubai Agreement in December 2023. ‘Energy efficiency first’ is, after the Russian invasion of Ukraine, core European energy policy.
Around 20% of the United States landmark climate policy in the Inflation Reduction Act is associated with energy efficiency. Last week, in his necessarily energetic State of the Union address, President Joe Biden said that he would try to make history by ‘confronting the climate crisis, not denying it’ and by ‘taking the most significant action on climate in the history of the world’.
Whoever is taking the action in governments after most of the world goes to the voting polls in 2024, there is good business in solving energy problems and efficiency is at the heart of it.
Picture credit: ChatGPT 4
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