Energy efficiency goes nicely with renewables

I wrote this article in 2018 after comparing renewables and energy efficiency to find which is more beneficial in terms of climate change mitigation and sustainable finance. Now re-reading this I think is just as relevant as it was back then.

The corporate world today is very familiar with choosing renewables in their power consumption as part of corporate responsibility. The collective aim is to promote renewables in the electricity market, helping them gain ground against traditional fossil fuels, and thus relieve the growing pressure of climate change.

The renewable initiatives are effective and definitely at the top of the list of climate friendly actions, but a very compelling case can also be made for energy efficiency programs as parallel actions to going green.

When taking national, or even global viewpoint, we expect that buying renewable electricity would increase the share of renewable production and push out fossils. This will definitely be the case when major consumers choose renewables for their electricity mix and the demand for green electricity will surpass its production, but what if there is more renewable electricity to sell than consumers are willing to buy?

For now, this is more often true than not. In this situation, choosing renewables for power consumption is just as responsible as in the case of shortage, but the direct pushing-out-fossils effect is weaker.

Luckily, energy efficiency can give this effect a nice boost.

In order to explain, we need to take a very brief look at the electricity markets. There, the order in which electricity from different plants is fed into the grid is mainly determined by the plant's operating costs (short term marginal generation costs). This is best explained by the merit order curve.

The curve is a rather simple supply and demand curve, and accordingly, we see that widening the renewables part will move the rest of the energy sources on the supply curve to the right, phasing them out, one by one. This is the effect we hope to accomplish by choosing green power.

However, we can boost the phase out speed by moving the demand curve to the left - which, as you guessed it, can be done by reducing consumption. This effect holds true, even when the amount of renewables does not grow. This means that reducing electricity consumption by one MWh increases the share of renewables in the market at least as much as choosing to consume one MWh of renewable electricity.

In multinational companies and major cities, hoping to have global impact, this effect should be kept in mind when building a portfolio of sustainable actions. Promoting renewables is (at least for now) most effectively done by consuming less energy.