Energy Efficiency Basics

Energy efficiency can be incorporated into policies and programs to improve energy security, access, affordability and reliability while also contributing to low-emission development strategies and other development objectives.

Energy efficiency enables the provision of the same level of energy services using fewer resources than previously needed. It is typically measured as a ratio of energy supply input to useful energy service output and is often expressed in percentage terms. Efficiency is improved when less energy supply is used to achieve the same or better energy service output. For example, a more energy-efficient ductless air conditioning heat pump system typically uses at least 50 percent less energy than a standard air conditioner but provides the same or better cooling output. If implemented widely, energy efficiency can have a significant impact on a nation’s energy use. In Bangladesh, for instance, energy efficiency activities in the jute, food processing, steel re-rolling, and textile industries would lower the country’s energy use by 20 percent (or avoid 9.4 billion kilowatt hours) compared to a business-as-usual scenario.

Energy efficiency is often confused with energy conservation. Energy conservation involves using lower levels of energy services—for example, turning off lights or raising thermostat temperature settings for air conditioning. Energy conservation is usually a short-term solution because the behavior is difficult to maintain over time and does not support economic development. Energy efficiency strategies are a more sustainable approach to achieve low-emission development objectives because they provide the same services but consume significantly less energy. As a result, energy efficiency promotes economic prosperity through lower costs and the same or better productivity.

The ultimate goal of many energy efficiency programs is to transform the market so that consumers choose energy-efficient products, technologies and services without the need for incentives or subsidies from the governments or utilities.

Sample Market Transformation Process
  1. Educate and raise awareness of energy and cost savings
    • Marketing at point of sale
    • Product labeling scheme
  2. Devise and implement incentive structure
    • Technical assessment of savings potential
    • Payment models
  3. Increase market penetration of energy efficient-product
    • Program evaluation (e.g. market penetration)
    • Further standards development

An example of this type of intervention is Ghana’s Refrigerator Energy Efficiency Project, designed to motivate the average citizen to purchase a new, energy-efficient refrigerator by offering a rebate for turning in the old refrigerator. This program has two beneficial outcomes:

  1. The participant saves money every month through lower operating costs
  2. Energy use and the emissions associated with energy generation have been decreased through the use of newer refrigerator technology.

Over time, as participants see the benefits of newer technology and lower costs associated with running the efficient technologies, financial incentives (i.e. rebates) for these products can gradually be removed. On a larger scale, the prospect that energy savings could offset any increased technology costs can be used as the basis for obtaining sufficient financing to install energy efficiency improvements.

Energy efficiency has wide-reaching benefits that go beyond reducing the demand for energy. The sections below describe common drivers for energy efficiency programs and expected outcomes.

Energy Security

Resources required for motors and heating fuels, and for the generation of traditional forms of electricity (such as coal, oil and natural gas), are often imported from or located in geopolitically sensitive locations. Energy supply routes, and infrastructure such as fuel pipelines and power transmission lines, are thus subject to geopolitical risk in terms of the physical security of energy supplies and potential political pressure from energy-supplying countries. Renewable energy supplies are not immune to these risks, particularly if their power output crosses national borders or if key components for their construction or maintenance must be imported.

Such factors create security concerns for developing countries and can jeopardize access to reliable and affordable energy. Countries can increase their energy security by adopting energy efficiency measures across residential, commercial, industrial, transportation and agriculture sectors. These measures reduce energy consumption throughout the economy, in turn lowering the demand for energy and fuel imports from other countries. In Ukraine, for instance, USAID has worked with district heating companies to implement energy efficiency measures aimed at optimizing natural gas use and improving metering in residential and commercial properties. Prior to 2015, Ukraine was highly reliant on Russian gas imports and now views energy efficiency as both a matter of national and energy security.

Energy Access

While there is not currently an internationally agreed-upon definition of energy access, it commonly refers to the introduction of modern energy services in previously unelectrified households, which in turn facilitates greater economic productivity. Energy efficiency strategies, in turn, can increase the number of people with access to electricity. By reducing energy demand among large commercial and industrial consumers, demand side management (DSM) programs free up power so that utilities can expand transmission and distribution networks to reach households and small businesses, which are currently off the grid. Many USAID programs focus on increasing energy access, most notably the launch of Power Africa in 2013. Efforts to increase access to electricity through long-term power generation investments can be supported by short-term, low-cost energy efficiency programs.

Initiatives to provide energy access to rural areas can also benefit from incorporating energy efficiency. High-efficiency lighting and other energy-efficient technologies reduce energy demand, enabling solar-powered micro-grids and battery-based distributed solar systems to affordably provide critical energy services to rural populations that might otherwise go unserved by the traditional electricity grid. According to a 2015 CLASP report for the World Bank, energy efficiency is lauded as one of the primary factors in the success of the Bangladesh RERED initiative, which advanced the solar home system (SHS) market. After the introduction of light emitting diodes (LEDs), a 20 watt-peak system with super-efficient appliances could serve a household that previously required a more expensive 50 watt-peak system.

Energy Affordability and Reliability

The availability of affordable and reliable energy is a key driver for economic growth worldwide and also has a direct impact on quality of life. Business and industry are only able to operate effectively and compete in regional and global markets when they have reliable access to affordable energy. The World Bank estimates that roughly 4.5 percent of electricity sales were lost in low-income and lower middle-income countries between 2005 and 2014 as a result of electrical outages. According to the International Energy Agency, shortfalls in electricity cost Pakistan’s economy several billion U.S. dollars in 2007 alone. Today, there is an estimated shortfall of about 7,000 MW during the summer months, which will continue to pose a financial burden to the economy.

Energy efficiency supports reliability by reducing total energy demand as well as peak electricity demand. Total energy demand is the cumulative amount of energy required to meet a country’s needs over a specific time frame while peak electricity demand is the point at which demand for electricity is at its highest. Periods of peak demand are dictated by patterns of energy use across all energy sectors. For example, if manufacturing plants ramp up production in the early afternoon at the same time that commercial facilities begin using significant amounts of energy for space cooling, the result will likely be a period of peak demand. Countries that do not have the power generation resources available to meet peak demand (or total energy consumption) often experience widespread electricity outages (otherwise known as load-shedding).

Demand Side Management Strategies
Demand Side Management Strategies

Demand side management (DSM)—or the modification of consumer demand for energy through various methods such as financial incentives and education—addresses the complications that arise from high energy demand. DSM includes energy efficiency to reduce overall energy demand, especially during peak hours, as well as strategies to encourage the consumer to use less energy during peak hours or to move the time of energy use to off-peak times such as during the night and on weekends. This frees up supplies to reduce load shedding and keeps the grid operating more reliably, especially in the chronically over-taxed power grids that characterize many developing countries.

Energy efficiency supports affordability and economic empowerment in two ways. First, efficiency reduces the units of energy consumed for the average consumer, which lowers their energy bills and makes energy expenditures more affordable. This in turn increases household disposable income while enabling public sector facilities to shift scarce resources to their core missions, e.g., education, health and public safety. Secondly, efficiency costs less per unit of energy saved than most supply resources cost per unit of energy supplied. For example, according to the U.S. Energy Information Administration (EIA), the cost of electricity saved through utility rebate programs is estimated at $.02/kWh while the average cost of electricity is approximately $0.10/kWh. Consequently, investing in energy efficiency is up to five times cheaper than investing in new power generation (which is more expensive in developing countries, where the average cost to produce electricity may be higher). When countries invest in efficiency first, they forestall the need for more expensive supply investments, which keeps future energy prices lower, and over time, energy efficiency measures can help shift economies away from a reliance on energy subsidies.

Climate Change Mitigation

Energy efficiency reduces greenhouse gas (GHG) emissions in three distinct ways: it reduces the need for future fossil fuel development, it enables the deployment of renewable energy systems, and it is the most cost-effective strategy for reducing current GHG emissions.

Studies show that energy efficiency can be deployed rapidly. According to the United Nations Foundation, cost savings from energy efficiency policies around the world are projected to total $98 billion USD in 2020. Achievable gains in energy efficiency are projected to contribute global annual reductions of 5.4 Gigatons of CO2 equivalent. These reductions alone could contribute up to 41 percent of the total projected emissions reductions necessary to limit global temperature increases (to 2 degrees Celsius) by 2020.

The deployment of energy efficiency measures and development of less centralized energy infrastructure, such as solar panels on residences or public buildings, can increase resilience and decrease demand on other energy infrastructure. Demand-side management programs that reduce energy consumption in energy intensive economies—such as Kosovo and Ukraine—can also relieve pressure on a taxed energy system, resulting in both GHG mitigation and adaptation.

Environmental Sustainability

According to the U.S. Energy Information Administration (EIA), the primary fuel used around the world to generate electricity is fossil-based, with 67 percent of global electricity generation being produced by fossil fuels. Fuel extraction and electricity generation entail resource-intensive processes that often result in the destruction of vulnerable ecosystems and the rapid depletion of natural resources. This in turn has a direct impact on the daily lives of people and on industry. For example, foraging for wood for domestic cooking fuel can result in massive deforestation, which limits the future availability of wood for domestic and commercial uses and damages the affected ecosystems. Energy-efficient cook stoves can dramatically reduce fuel wood demand and its associated negative impacts.

Low-Emission Development

Energy efficiency is critical to the success of low emission development strategies (LEDS). While many countries are committed to developing renewable energy supplies, these alone will not be able to affordably catch up with demand growth unless energy demand is kept within sustainable bounds. For example, if energy demand grows at 10 percent annually and renewable energy supplies grow at an increment of 7 percent of energy demand each year, the remaining 3 percent of demand growth will have to be met by fossil fuels. However, if efficiency policies cut demand growth to 5 percent per year, renewable energy development will serve all demand growth and begin to displace fossil fuel supplies. In this way, energy efficiency is a cornerstone of sustainable energy policy and is sometimes called “the first fuel” in the race for a sustainable energy future.

Implementing energy efficiency measures can also help reconcile the need for increased economic growth with the need to reduce GHG emissions. Energy efficiency does not require developing countries to trade off economic growth with emissions mitigation. Instead, they can strengthen their economies while simultaneously reducing emissions, providing affordable and reliable energy, and protecting natural resources and the environment.