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Unlocking Energy Efficiency in the U.S. Economy
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in the U.S. Economy
October 5, 2009
Recent McKinsey report on energy efficiency addressed
opportunity, barriers, and potential solutions
Report approach
Sponsors of the report
▪ Stationary uses of energy
▪ 675 existing technologies
▪ Productivity, not
conservation
▪ NPV-positive excluding
program costs
▪ Discounted at 7 percent
▪ Potential for energy
efficiency – no attempt to
declare how much is
achievable
SOURCE: McKinsey analysis
McKinsey & Company | 1
Significant energy efficiency potential exists in
Industrial
the U.S. economy
Commercial
Residential
End-use consumption
Carbon emissions
Quadrillion BTUs
Savings
Gigatons CO e*
2
39.9
4.3
36.9
3.9
-9.1
-23%
-26%
30.8
3.2
-18%
-29%
-28%
Baseline
Baseline
NPV-
Baseline
Baseline
NPV-
case,
2020
positive
case,
2020
positive
2008
case, 2020
2008
case, 2020
* Includes carbon emission abatement potential from CHP
McKinsey & Company | 2
Source: EIA AEO 2008, McKinsey analysis
The fundamental nature of energy efficiency creates
challenges
FUNDAMENTAL ATTRIBUTES OF ENERGY EFFICIENCY
Requires
Full capture would require upfront outlay of
outlay
about $50 billion per year, plus program costs
Potential is spread across more than 100
Fragmented
million locations and billions of devices
Low mind-
Improving efficiency is rarely the primary focus
share
of any in the economy
Difficult to
Evaluating, measuring and verifying savings,
measure
is more difficult than measuring consumption
Source: McKinsey analysis
McKinsey & Company | 3
Additional opportunity-specific barriers inhibit energy
efficiency
OPPORTUNITY-SPECIFIC BARRIERS
Structural
Behavioral
Availability
Incentives split between parties,
Agency
impeding capture of potential
Ownership
Owner expects to leave before
transfer issue
payback time
Transaction
Unquantifiable incidental costs of
barriers
deployment
Pricing
Regulatory, tax, or other distortions
distortions
McKinsey & Company | 4
Ownership transfer is a significant barrier in non-low-
income homes
4%
Agency
End-use energy
barrier
Trillion BTUs
Barriers
applies
Non-low-
income
homes
Low-income
96%
homes
Agency barrier
does not apply
Electrical
devices &
Ownership
small
appliances
transfer
Lighting
barrier
and major
appliances
applies
60%
New homes
Ownership
transfer barrier
does not apply
Source: EIA AEO 2008; McKinsey analysis
McKinsey & Company | 5
The agency barrier plays a much larger role in
Tenant Occupied
commercial buildings
Owner Occupied
Potential affected by agency barrier
End-use energy
Percent of end-use potential
Trillion BTUs
Existing
Food Service
77%
23%
private
buildings
Lodging
72%
28%
Office and
Food Sales
65%
35%
non-commercial
devices
Merc/Service
53%
47%
Warehouse
52%
48%
Government
buildings
Office - Small
50%
50%
Other
47%
53%
Community
infrastructure
Education
45%
55%
Health Care
45%
55%
New private
Office - Large
45%
55%
buildings
Assembly
33%
67%
Source: EIA AEO 2008; McKinsey analysis
McKinsey & Company | 6
Additional opportunity-specific barriers inhibit energy
efficiency
OPPORTUNITY-SPECIFIC BARRIERS
Structural
Behavioral
Availability
Risk and
Regarding ability to capture benefit
uncertainty
of the investment
Lack of
About product efficiency and own
awareness
consumption behavior
Custom and
Practices that prevent capture of
habit
potential
Elevated
Similar options treated differently
hurdle rate
McKinsey & Company | 7
Few end users are aware of their consumption drivers and
opportunities for efficiency
Homeowners view on effective ways to reduce GHG emissions
Recycling and energy efficient appliances
50%
Improving insulation
15%
Assessed
2
Homes having an
energy efficiency
rating or
assessment
98
Not assessed
McKinsey & Company | 8
Additional opportunity-specific barriers inhibit energy
efficiency
OPPORTUNITY-SPECIFIC BARRIERS
Structural
Behavioral
Availability
Adverse
Combining efficiency savings with
bundling
costly options
Capital
Inability to finance initial outlay
constraints
Product
Insufficient supply or channels to
availability
market
Installation
Improperly installed and/or operated
and use
McKinsey & Company | 9
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