Discussions about energy almost always dwell on two things: developing a more sustainable supply; and the total cost of it.
Politicians and pressure groups often focus on the first aspect, whereas business and industry are strongly concerned with the second one.
The preferred action to tackle both concerns, is energy efficiency - reducing total consumption delivers fewer emissions as well as lower total costs. Although this is a valuable approach that makes common business and policy sense, it obscures one important factor: the underlying energy system has become so complex, with such an overwhelming variety of stakeholders taking part in it, that simply reducing consumption may actually be counterproductive - both in terms of sustainability and costs.
Just consider the case of solar panels. By reducing electricity use as much as possible, we often see huge excesses of energy being supplied on a sunny Sunday afternoon. This strains the electricity grid - eventually leading to costly capacity upgrades -, requires action to do away with the oversupply; and a lot of idle generation capacity that can pick up once the sun goes down. This setup is very costly and hard to manage. Moreover, the kind of generation capacity that can be used to fill in the gaps is typically not the most efficient one and causes considerable emissions. Or what to think of heating? Low heat demand of homes and buildings is a boon, but if a nearby industrial site is expending large amounts of energy to get rid of waste heat it could have been better to pipe it directly to those homes.
Those examples are of course very typical ones that everyone in the sector is familiar with. To me they are a reflection, however, of the huge, hidden and growing cost of complexity. Because cost and benefits do not accrue to the same parties, influencing one group without taking into account the effect on the overall system, will drive up the costs for everyone. This is where the single-minded focus on energy efficiency reaches its limits.
If we really want to go into a transition to a more sustainable energy system, pure efficiency will only be one part of a far more complex puzzle. The key still lies with energy consumers - in the first place industry -, but they will have to consider a wider range of options, each with ramifications for the overall energy system: targeted efficiency measures; forward-looking purchases of electricity, heat and gas; management of demand-side flexibility; joint investments in production assets and even active trading on energy markets to smoothen peaks in demand and supply.
The good thing is that the rewards of active energy management far outstrip the costs - and are repeatable year-on-year. Once we are talking about active energy management at a substantial scale - say 20 MW and up -, it even becomes a real opportunity to generate substantial financial returns. This is a reassuring thought - it will only be a matter of time before economics and policy pressure will force everyone to start thinking very seriously about energy. For once this may mean extra income rather than extra costs.