Energy efficiency 2.0: Engineering the future energy system

Energy efficiency 2.0

Danfoss Impact No. 4

Energy efficiency, electrification, demand-side flexibility, conversion, storage, and sector integration are integral for a future energy system enabling an energy grid powered by renewables.

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It's time to rethink energy efficiency

By 2050, renewables need to make up roughly 70% of the energy mix if we are to reach net zero and the goals of the Paris Agreement. Will we have the capacity and infrastructure to efficiently use all that renewable energy once we have it? If we don’t have the infrastructure in place to effectively use electricity from wind and solar, producing so much of it is a relatively pointless endeavor. An electrified society could cut up to 40% of final energy consumption. At the same time, energy efficiency measures can accelerate the electrification of sectors.

In the future energy system, we need to use energy at the right time. Our habits and behaviors currently dictate when energy is needed. Similarly, nature dictates when the sun shines and the wind blows. Our need for energy will not always line up with nature’s weather plans, forcing us to use fossil power plants as residual energy sources when renewable supply is low. Energy efficiency in the form of demand-side flexibility solutions can better mediate the relationship between supply and demand, which is necessary to avoid carbon-intensive demand peaks.

Hydrogen will be crucial in the future energy system, where there inevitably will be periods of excess renewable electricity. Energy efficiency and electrification can keep hydrogen demand at a realistic and attainable level while at the same time producing hydrogen in the most energy-efficient way possible.

To supplement energy demand in 2050, excess heat will be captured and reused to replace significant amounts of electricity, gas, or other fuels that are otherwise needed to produce heat.

Energy efficiency must work in harmony with the build-out of renewables to meet our climate goals, ensure energy security, boost the economy, and fundamentally transform the way energy is governed and consumed. This revised understanding of energy efficiency – what we are calling “energy efficiency 2.0” – is the fastest and most cost-efficient way to turn a 2050 net-zero scenario into a reality. We already have the necessary technology. We don’t need magic, but immediate political action to scale the solutions.

Only got two minutes?

These are the key takeaways

Electrify wherever possible

By transitioning from a fossil energy system to a fully electrified one, we can cut up to 40% of final energy consumption. Electrification is itself a form of energy efficiency, as most electric technologies have a lower rate of energy loss while performing the same function as a fossil driven equivalent.

Implement flexibility solutions

Reinventing energy efficiency is not only about using less energy, but also using the energy at the right time. By maximizing the potential of demand-side flexibility, the EU and UK can annually save 40 million tons of CO2 emissions and reduce the electricity generation from natural gas by 106 TWh, or about one-fifth of the EU’s natural gas consumption for electricity generation in 2022. Adding to this, the annual societal cost savings amounts to €10.5 billion by 2030. Similarly, households can save on average 7% on their electricity bills.

Use hydrogen wisely

Powering our future energy system with renewables will require a rapid scale-up of hydrogen. However, hydrogen conversion requires incredible amounts of energy; by 2050, hydrogen production will require more than half the total electricity demand today. High-efficiency technologies for electrolysis will be essential to ensure energy security and stability, as well as to lower energy demand for hydrogen.

Integrate sectors

By strategically integrating sectors and deploying excess heat, we
can ultimately lower demand on energy production and maximize
efficiency. By 2030, up to 53% of the global energy input will be
wasted as excess heat. However, this heat can be captured and
reused to power machinery, as well as heat buildings and water through
deeper sector integration.

Using the word ’blackout’ to refer to a power outage is something of a misnomer. Losing light is the least of our problems when our electricity systems crash.
Gretchen Bakke, The Grid

Policy recommendations

Now is the time for decision-makers at all levels to set the right regulatory and economic framework to reach net zero by 2050. Energy efficiency 2.0 has the potential not only to reduce carbon emissions but also to deliver substantial economic savings both at a societal and customer level. But for this to become a reality, the regulatory framework must be implemented now.

Include flexibility solutions in energy policy at all levels

Include flexibility solutions in energy policy at all levels to mediate the relationship between supply and demand of renewable energy and to ensure energy security. The new smart grid must include load-shifting and peak-shaving technologies. Introduce demand-side flexibility (DSF) guidelines in building and industry regulations guiding consumers to implement flexibility solutions faster. Give both consumers and producers access to consumption data, facilitating active participation and opportunities for system operators to further integrate demand-side flexibility solutions. Implement pricing mechanisms to incentivize energy use in off-peak hours.

Save energy and electrify everything across transport, industries, and buildings

Save energy and electrify everything across transport, industries, and
buildings. Increasing efficiency across sectors alongside a full-scale electric overhaul of our infrastructure is the crucial first step to take. Reducing energy waste across sectors starts with mapping energy use to identify areas for improvement. Mandate energy planning, set ambitious and actionable short-, mid-, and long-term targets and plans, and implement a suitable regulatory framework to incentivize investments.

Invest in upgrading the energy grid

Invest in upgrading the energy grid to accommodate an increase of renewable energy in the system. Investments in the grid are necessary to accommodate the increased electricity demand and higher renewable energy supply. To get back on track to reach the Net Zero by 2050 Scenario, investments in the future energy system must double by 2030.131 Such investments will reduce the societal costs and reduce both energy costs and consumer energy bills. Several initiatives could be followed through to counter the aging grid infrastructure and address the urgent expansion. Most power distribution grids are situated around centralized power plants and need to be upgraded to distribute power from the fleet of local solar panels and wind farms. Implement a “one-stop shop” approach, where renewable energy investors only need to send the project application to one entity, who then coordinates all the authorization processes with the relevant authorities.

Invest in sector integration

Market barriers prevent market players from leveraging the potential of excess heat. Remove these barriers by, for example, supporting an equal treatment of waste heat and renewable energy sources used in heat networks. Redesign energy markets to allow for the participation of sector integration technologies in specific markets and internalize all positive externalities of low-carbon technologies.

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Energy efficiency 2.0: Engineering the future energy system