When is an energy efficiency offer too good to turn down?

ShutterstockDmitry Kalinovsky
A technician reading an air compressor

A funny thing about human behavior is exhibited by business managers and individuals alike:  We can know a course of action makes sense — even that it's in our self interest as well as good for the planet — and yet we still don't do it.

At the macro level, the GreenBiz 2015 State of Green Business report lamented the relatively timid steps businesses have taken collectively on sustainability compared to the urgency of a warming, polluted, resource-constrained planet.

One of the biggest head-scratchers in this area is the so-called "energy efficiency gap" — what economists define as the gap between the level of investment in energy efficiency predicted to be cost effective for a business and the levels of investment actually made.

The very question of why —  in a world so threatened by climate change and where assuring access to oil and other fossil fuels has led to wars and political stalemates — companies do not take advantage of relatively easy ways to reduce their electricity and fuel consumption has stumped economists for years.

Against this backdrop, at least one organization has been formed explicitly to try to answer the energy efficiency gap: E2e consists of economists, engineers and behavioral science academics at MIT, the University of California at Berkeley and the University of Chicago.

Now, that team is embarking on what it says is the largest study ever to understand what might motivate industry decision makers to invest in low cost energy efficiency. They plan to deploy advanced energy monitoring at 100 industrial facilities, randomly chosen to reflect a wide range of proclivity towards energy conservation, then provide participants with precise data on energy savings opportunities in their factories.

From there, they'll follow who takes action.

“Policymakers are looking to energy efficiency to reduce the world’s dependency on fossil fuels, yet our understanding of how business behavior influences energy use is still poor,” said Catherine Wolfram, faculty director of the project from the UC Berkeley Haas School of Business and the Energy Institute, in a statement. “This project will give us empirical evidence on what motivates businesses to save energy.”

Measuring apathy

The new study will be funded with a $5 million grant from the California Energy Commission, which comes with the stipulation that the research be conducted in the Golden State — a timely endeavor, as the state has an ambitious goal to reduce greenhouse gas emissions by 40 percent below 1990 levels by 2030.

Large energy users in California and some other states can receive interval metered bills, which show electricity use over 15-minute periods, but that information often isn't put to use, said Andrew Campbell, executive director of the Energy Institute at UC Berkeley's Haas School of Business, which is leading the study.

“A typical industrial customer doesn’t really know that much about their energy use. They just see their bill,” he said. “Generally companies are not making much use of the data they have."

The study will rely on an advanced energy monitoring software system developed by Israeli cloud computing company Lightapp Technologies, and involve deploying thousands of sensors throughout a factory's air compression operations to collect data and send it to the cloud-based analytical software. Lightapp software platform identifies and quantifies energy and operational inefficiencies, said Boaz Ur, Lightapp's head of business development and strategy. In that way it facilitates change management throughout an industrial organization.

"Contrary to the common belief that if there is an opportunity to optimize in a factory it will be done,  we actually discovered that the vast majority of factories don't even measure their energy the right way and even if measured they don't have the right tools and processes to turn the data into valuable action. Lightapp's unique tools and approach unleashes this potential as we proved with over 50 industrial customers already," Ur said in an email. 

Campbell said the availability of advanced cloud-base analytic software and cheap sensors is what's driving the level of detail that the study will provide.

California has about 73,000 industrial facilities to draw from as potential recruits, he said. Hundreds of companies will be recruited for the study, and the final group of 100 companies will be whittled down through a double randomized selection.

Researchers plan to include a cross section of industries, many related to manufacturing of some sort, such as semiconductor makers, food processors, breweries, pharmaceutical firms and others. Among the first California companies to deploy the LightApp Technology software and sensors will be Anheuser-Busch. 

Campbell said the E2e team anticipates the California manufacturers could realize a 15 percent savings in energy costs after deploying the system, based on early pilots in Israel. 

The E2e team believes that could translate to a potential $38 million savings if all California manufacturers deployed the advance monitoring system in their air compression operations. "If deployed throughout their operations, not just air compression, they could save $480 million," he said.  

That is, assuming managers at all of 73,000 industrial facilities decided to use the system and act on its findings.

The strategy with the double blind selection is to take into account the varying personalities found among humans, and thus among business managers who make decisions about energy efficiency investments.

"Today in the energy policy area, government will put in place a policy to promote a particular technology — it may be solar or an energy efficiency technology or whatever — and then we'll observe that certain companies adopt these technologies," Campbell said. "Some will say, 'Hey, this policy works, we just need to get everybody to do this.'"

The problem, he explained, is that "people who adopt the technology first are early adopters and they are inherently different from people who didn’t adopt it" — a variable that most studies on the topic have not taken into account.

To combat that hard-to-define dynamic, the team is using a science-based approach to make sure it includes the spectrum of adoption tendencies.

Using air compressor facilities as the focus, the team then will deploy thousands of data-collecting sensors around these factories. The data will be funneled into a data-crunching app created by LightApp Technologies, and precise information on potential cost savings energy efficiency measures spat out.

LightApp, based in Israel, has deployed the software in pilot programs in its home country and said it’s been able to help companies cut energy costs by 5 to 27 percent by finding small hidden ways where efficiencies can be made. The median point of that, 16 percent, is the ballpark savings they anticipate here.

But the key, again, is showing decision makers that the efficiency measures are an offer too good to refuse.