Increasing energy efficiency and reducing energy demand are cornerstones of strategies to increase economic competitiveness while reducing greenhouse gas emissions. Making better use of existing energy supplies through better technology for lighting or appliances can reduce or stabilize demand, even as populations continue to grow. Demand-side management (DSM) strategies can reduce customer bills, minimize total system costs, reduce tariff hikes (which are often necessary to improve the financial viability of the utility and sector), and improve system reliability and resiliency.
A fundamental barrier to wider adoption of DSM measures in developing countries is identifying the highest-impact measures, analyzing their cost-effectiveness, and adequately comparing them to alternatives, such as traditional generation resources (like gas or solar power). Beyond this barrier is the challenge that other country-specific factors can prevent cost-effective measures that save consumers money from taking off in the market. This requires another analytical step to determine whether the technical feasibility of a measure is met with political and economic feasibility—for example, is the program too complex given institutional capacity, or will financial incentives work if prices are too subsidized?
To meet this challenge, USAID and ICF developed the Energy Efficiency Opportunity Tool and the accompanying Opportunity Study methodology. The study considered the cost-effectiveness of different energy efficiency measures, while also evaluating implementation viability based on country-specific indicators and policies, such as consumer awareness and the availability of credit—two of six building blocks for market readiness that the tool considers.
Using a data-driven approach supplemented by discussions with local stakeholders, USAID and ICF produced an extensive analysis of energy-efficient technologies specific to each country in the Opportunity Study: Kazakhstan, South Africa, Mozambique, India (Telangana & Andhra Pradesh), Mexico and El Salvador. This tool, which is open source and accompanied by video tutorials on its use, is also being used to produce analysis on energy efficiency potential within Integrated Resource Planning (IRP). USAID is currently supporting two IRP processes in Ghana and Tanzania, where this tool enables planners to consider efficiency as a resource alongside traditional generation resources. The result provides countries with even more least cost options to optimize their energy mix and deliver reliable power at affordable prices.
For example, during research conducted in 2016, ICF found that the most promising energy efficiency investment areas in El Salvador are residential, commercial and industrial lighting programs. These opportunities are the highest ranked DSM opportunities (Figure 1) because their energy performance and potential uptake were high, while cost and payback period were relatively low. These opportunities were identified based on:
- Likelihood of Success - The tool scores measures based on six country-level indicators: market transformation potential, political feasibility, program complexity, environmental aspects, economic aspects, equity/affordability. The higher the score, the higher the likelihood of success of that individual energy efficiency opportunity.
- Cost-Effectiveness - The tool uses locally obtained costs and energy savings potential to calculate the cost-effectiveness of each energy efficiency opportunity. The higher the score, the more cost-effective the opportunity.
- Size of Opportunity - The size of each circle indicates the relative scale of the energy savings potential of each opportunity.
The El Salvador results were typical of those from the countries included in the opportunity study, in that they were widely-available technologies that could make large impacts in end-use markets, and that they showed large and cost-effective potential impacts. Figures 1 and 2 compare the top ten results for El Salvador and Mexico: while the relative size and cost-effectiveness of the opportunities differed somewhat between the two countries, the overall pattern is similar. This is somewhat surprising, given that Mexico has a much larger manufacturing base, as illustrated in Figures 3 and 4, which compare the sectoral shares of electricity consumption in the two countries. Mexico’s industrial consumption is a much larger share of the national total than in the case in El Salvador.
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