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20070727 Precourt Energy Efficiency Workshop final.ppt
Curbing Global Energy Demand Growth: The Energy Productivity Opportunity
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
Scott Nyquist, McKinsey & Company, Inc.July 2007
20070727 Precourt Energy Efficiency Workshop final.ppt
1
Overview
• Mapping global energy demand
• Top energy productivity opportunities
• Appendix
–China’s productivity opportunity
–The U.S. productivity opportunity
20070727 Precourt Energy Efficiency Workshop final.ppt
2
Global energy end-use demand map, 2003: U.S. and China are the largest energy usersEnd-use energy demand by sectorPercent; QBTUs
4735
45 4657
35
37
35 33
36
1828
20 217
422
Global
82
U.S.
86
Europe
20
Middle East
60
China
Transportation
Commercial and residential
Industry (steel, chemicals, other)
100% =
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Energy demand growth accelerates from 1.7% to 2.2% per annum to 2020QBTUs
106158
66
95
137
180
43
63
60
36
Residential
Road transport
613
2020
Other industrial
Commercial
ChemicalsSteelPulp and paper
Air transport178 17
9
422
2003
1129
CAGR 2003-20Percent
2.2
1.7
1.93.13.13.62.2
2.2
2.4
Up from 1.7% 1986-2003
Consumer-driven
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Developing regions will dominate, accounting for 85% of demand growth to 2020...
* Includes Baltic/Eastern and Mediterranean Europe and North Africa.** Includes Australia and Korea.
*** Includes South America and Mexico.Source: MGI Global Energy Demand Model
End-use energy demand growth by region, 2003-20 QBTUs
Developed
Developing
22
18
1715
15
21
16264
29
China Canada
191
North-western Europe
JapanIndia ROW
8
Other Asia**
Other Europe*
U.S. Latin Ame-rica***
TotalMiddle East
27 2
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. . . as will consumer-driven sectors, particularly in developed economies
$50 OIL SCENARIO,BASE CASE GDP
End-use energy demand by region, 2003-20 Percent; QBTUs
53 54
47 46
613
2003
Consumer-driven
Industrial
100% = Quads
2020
60 62
40 38
167
2003
197
2020
48 51
52 49
416
2020
255
2003
Global Developed regions Developing regions
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MGI forecasts higher energy demand growth than IEA in China, the Middle East and Europe
* Reconstructed CAGR 2004–2020 for WEO 2006.Source: IEA World Energy Outlook 2006; MGI Global Energy Demand Model
2003–2020 delivered energy demand growth
CAGR deltaIEA WEO 2006 CAGR*
0.4
1.9
0.3
0.9
0.7
0.7
1.2
1.6
1.5
1.2
0.5
0.7
MGI $50-oilCAGR
3.3China 4.0
Industry 3.84.1
Transport 5.35.8
Other sectors 2.13.3
Middle East 3.44.9
Industry 3.75.3
Transport 2.84.7
Other sectors 3.44.6
OECD Europe 0.91.6
1.0Other sectors 1.4
Industry 0.91.6
Transport 0.91.8
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GDP, not oil price, main source of uncertainty –
2020 base case demand = 613 QBTUs
GDP Oil price
Scenarios
Global demand growth to 2020Percent• High 2.8 2.2• Low 1.7 2.1
670
565
606
Energy productivity
3.20.7
720
480
but energy productivity matters most
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Global energy productivity 1980-2020 base caseEnergy productivity of the global economy – output per QBTUs$ Billions
94
79
59
202020031980
+34%
1.3% +19%
1.0%
Total change (percent)
CAGR (percent)
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In the base case U.S. will see the lowest energy efficiency improvements across all sectors
Source: EIA; LBNL China Energy Group; McKinsey Global Institute analysis
Japan
1.0Europe
0.2
China
U.S.
1.5
2.0
Annual improvement of energy productivity indicators, 2003-20Percent
SectorIndicator
ResidentialEnergy efficiency
CommercialEnergy efficiency
RoadFuel economy
SteelEnergy efficiency
0.6
0.4
1.5
0.4
0.7
0.8
0.8
0.5 0.2
0.3
0.3
0.6
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32
52
25
613
Commercial
13
Residential
13
Transportation
Transformation
2020 base demand
Industrial
2020 478
Large opportunities for improving energy productivity are available across sectors . . .Potential demand reduction in 2020 through enhanced energy productivityQBTUs
Capturing 135 QBTUs would cut global energy demand growth from 2.2% to 0.7% p.a.
Total opportunityPercent
24
10
10
38
18
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3.2
1.7
1.5
2020
Transformation
Industrial
Transportation
Commercial
0.9
Residential
2020 base demand 35.3
27.3
0.7
Pursuing the energy productivity opportunity would also have a big impact on CO2 emissions Potential CO2 emission reduction in 2020 through enhanced energy productivityMetric tons (billions)
Capturing the energy productivity opportunity would cut global CO2emissions from 2.4% to 0.8% p.a.
Total opportunityPercent
21
9
11
40
19
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Marginal abatement cost against PPM targets, 2030
Cost of abatementEuros per tCO2e
Abatement potentialGtCO2e per year
10 15 20 25 30 3550
50
-100
-150
-50
25-35
550 ppm
Marginal costEuros per tCO2e
35-40
450 ppm
40-50
400 ppm
20070727 Precourt Energy Efficiency Workshop final.ppt
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Overview
• Mapping global energy demand
• Appendix
–China’s productivity opportunity
–The U.S. productivity opportunity
• Top energy productivity opportunities
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In the US and Europe, capturing the energy productivity opportunity would cancel out growth for energy demand...
QBTU
* Includes Northwestern Europe, Baltic / Eastern and Mediterranean Europe and North Africa** Power generation and refining sectors.
Source: McKinsey Global Institute analysis
18
8
3
2
4
5
Industrial
88
Transformation**
2020 net demand
Residential
922003 demand
Base demandIncrease to 2020
Commercial
Transportation
24
5
2
7
5
86
2
89
Percent of total opportunity
34
15
11
19
21
Capturing the energy productivity opportunity would see US energy demand decreasing by 0.3% p.a. instead of growing by 1.1% p.a.
QBTU
Percent of total opportunity
27
10
8
33
22
Capturing the energy productivity opportunity would see US energy demand growing by 0.3% p.a. instead of 1.5% p.a.
United States Europe*
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... while in China and the Middle East, it would almost halve the strong projected energy demand growth
* Power generation and refining sectors.Source: McKinsey Global Institute analysis
64
7
13
5
2003 demand
Base demandIncrease to 2020
Commercial
Transportation
Industrial
Residential
60
1
Transformation*
962020
1
22
4
4
29
20
3
1
2
Capturing energy pro-ductivity opportunities in China would reduce demand growth from 4.4% to 2.8% p.a. to 2020
Capturing energy pro-ductivity opportunities in Middle East would reduce demand growth from 4.5% to 2.3% p.a.
QBTU
Percent of total opportunity QBTU
Percent of total opportunity
China Middle East
25
5
4
47
19
19
6
30
30
15
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The Top 5 priorities represent a large share of the total energyproductivity OpportunityBreakdown of the global energy productivity opportunity%, QBTU, Billion metric tons
* Residential and Commercial building sectors** Assuming the removal of 80 percent of fuel subsidies globally (largely in the Middle East, Venezuela, and Mexico)
Source: MGI analysis
16
6
6
100%
9
6
6
Other sectors
Road transportationfuel subsidies**
CO2 emissions
10
66
Power generation tail
China Buildings*
US Residential
4
Energy demand
4
55
China Industrial 13
= 135 QBTU = 8 billion tons
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3.0Steel
1.0Chemicals
0.3Pulp and paper
8.9Other
SectorOpportunityQBTUs
Share of 2020 sector demandPercent
19
7
27
27
China’s industrial sector offers the single largest energy productivity opportunity
Source: McKinsey Global Institute analysis
30.451.2
33.9
2003 Base-case growth 2003-20
13.1
Energy productivity opportunity
Abated 2020 demand
China industrial end-use demandQBTUs
10% of the total global opportunity
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3
6
5
3
10
2
3
Introducing cutting-edge technologies and methods would curb industrial energy demand growth
Technology/method*
Industrial sectors affected
Energy savings as% of 2020 demand within affected sectors (unless otherwise specified)
* In order of largest to smallest by estimated absolute value of energy savings. ** Based on aluminum, chemicals, food processing, steel, pulp and paper, refining.
*** Percentage of total steam energy inputs.**** Percentage of total energy losses.
Source: U.S. Department of Energy; Lawrence Berkeley National Laboratory; MGI analysis
5***
Chemicals, food processing
Steel, metals
Across sectors
3****
Across sectors
Energy-intensive sectors**
Refining, pulp and paper
Across sectors
2-3
– Co-generation
Optimized motor-driven systems
– Plant-level energy system integration
Near-net-shape casting
Gasification
Membranes
– Steam best practices (operating and maintenance)
Heat recovery in production of mechanical or electrical power
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Large energy productivity opportunities exist in China’s residential and commercial buildings
Source: McKinsey Global Institute analysis
26.0
38.6
21.0
2003 Base-case growth 2003-20
8.4
Energy productivity opportunity
Abated 2020 demand
China buildings end-use demandQBTUs
6% of the total global opportunity
7.0Residential
1.4Commercial
SectorOpportunityQBTUs
Share of 2020 sector demandPercent
21
10
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China's energy efficiency potential stands at 35 percent in the Commercial sector
* As an example, doubling energy efficiency for a given end use leads to a demand reduction of 50%.Source: LBNL, China Energy Group; MGI analysis
35
5
9
29
47Space heating
Water heating
Cooling
Lighting and other applications
Weighted total
Energy demand abatement potential*
49
26
9
17
Share of demand, 2005
%Examples of efficiencyimprovements
• Strong shift away from coal boilers to natural gas boilers
• Efficiency of natural-gas boilers increases from 70% to 90%
• Increased share of heat pumps
• Increased share of room A/C and heat pumps vs. centralized A/C
• Increased share of CFL
Assuming enforcement of current energy-efficiency policy to 2020 allows the capture of 25%, leaving a 10% potential
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Impact of increasing consumer demand
for comfort
Efficiency improvements if policy
effectively enforced
Assuming enforcement of current energy-efficiency policy to 2020 allows the capture of 25%, leaving a 10% potential Key drivers of China commercial sector energy demand growth, 2003-20Percent
* Growth rate of delivered energy is below the growth rate of energy use because of increasing share of power, and associated generation losses, in end-use demand
Source: Lawrence Berkeley National Laboratory (LBNL) China Energy Group; McKinsey Global Institute analysis
1.9
0.7
5.64.8
Intensity increase
0.3
Building mix
Growth rate of delivered* energy
0.8
Efficiency improve-ment
Efficient technology choice
End-use penetration
Floor space
0.7
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Residential sector is the single largest opportunity to reduce demand in the U.S.
Total QBTUs 2020
13
21
At EU levels
Base case
8 QBTUs = 34% of U.S. abatement
• Lighting• Heating and
cooling• Water heating• Appliances
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All the energy-efficiency opportunities identified in the U.S. residential sector have an IRR above 10 percent
* ENERGY STAR home exceeding current building standard by 50%.** Based on future improvements.
Source: EIA; literature search; MGI analysis
% savings potential Description% IRR
Heating and cooling package
• 50 (new builds)• 25 (replacement)
• Based only on current technology*• Shell improvement assumed only
for new buildings
• ~10• ~10
Lighting • 65 • 100+ • Compact fluorescent lighting
Water heating
• 65 • 11 • High-efficiency electric water heater
• Solar water heater
Major appliances
• 40-60** • N/A(maybe ∞)
• Increasing appliance efficiency standards at 2–3% per year
Small appliance standby
• 40 • N/A(maybe ∞)
•• 14 Reduce standby-power requirements of televisions,set-top boxes, etc.
% of sector savings
• 10• 15
• 17
• 20
• 24
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In oil-exporting countries, high oil prices boost GDP growth and consumer income...
GDP growth, 2003–2020CAGR
Source: Global Insight; MGI analysis
6.7• Middle East
6.0• Western Africa
6.9• Russia Belarus
4.6• Venezuela
3.8• Other exporting regions
4.3
4.9
4.2
4.0
3.6
4.9
5.5
4.5
4.2
3.7
0.6
0.6
0.3
0.2
0.1
Historical growth2002–2005
Growth in$50/bbl case
Growth in$70/bbl case
Growth delta between$70 and $50 casesExporting regions
Importing regions
3.5• United States
1.5• NW Europe
8.1• China
7.5• India
2.8• Other importing countries
3.4Global total
3.1
2.0
6.0
2.6
3.2
6.7
3.1
1.9
6.6
5.8
2.6
3.2 0
0
-0.1
-0.1
-0.1
-0.2
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... while large fuel subsidies insulate consumers from oil price, leading to escalating fuel demand growth
* $50 crude oil equals 119 cents per gallon.Source: GTZ, International Fuel Prices 2005; BP Statistical Review; MGI analysis
Gasoline retail priceCents per gallon
117106
102
102
9191
79
723434
15
11Iraq
Venezuela
Iran
Libya
UAE
Yemen
Kuwait
Qatar
Saudi Arabia
Oman
Bahrain
Indonesia
Crude oil*
Middle East
The Middle East contributed half global light-distillate growth at high 2005 oil prices
79
47
87
2.6
2005
MiddleEast
53
ROW
2004
130.6
21
0.8
2001
Breakdown of global light-distillate-demand growthCAGR, %
% growthin year =
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Removing 80 percent of fuel subsidies would reduce road-transportation fuel demand by 2.5 MBD
Source: MGI analysis
Road-transportation fuel demandMillion barrels per day
2.8
0.7
1.3
3.9Middle East
Mexico-CAM
Southeast Asia
Venezuela-Caribbean
0.2
0.2
0.4
1.7
Reduction%
43
30
8
30
2020 base caseExpected demand reduction
20070727 Precourt Energy Efficiency Workshop final.ppt
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Some Russian heating is subject to fixed pricing; prices of actual usage are far lower than other countries
Source: Rosstat; MGI analysis
$/MBTU, 2005
0.25
District heat/m2/ month
0.50
Naturalgas main/ person/ month
6.82
12.50
0.242.15
District heat
Natural gas
UnitedStates
32.06
Japan (2004)
China
Communal heating tariff –Russian (Implied) residential heating price per MBTU
Russia Residential natural gas – other countries
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Removing subsidies could reduce energy demand, especially Russia’s subsidy on heat
0.32China LPG/kerosene subsidy
0.37India LPG/kerosene subsidy
0.31India electricitysubsidy
0.07Russia electricitysubsidy
2.20Russia natural gas/heat subsidy
21
21
14
9
43
2020 QBTU reduction% of base case 2020, country fuel demand
Source: MGI Global Energy Demand Model
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The traditional power generation technologies are improving efficiency
ST = Steam TurbineSource:IEA, World Energy Council
Older STEfficiency
~30-35%
Current Coal STEfficiency 38%
Super-CriticalEfficiency42-44%
Integrated GasificationCombined Cycle (IGCC)Efficiency>45%
Coal
Old ~35% Efficiency
Current38% Efficiency
Super-Critical42-44% Efficiency
Ultra Super-Critical42-44% Efficiency
Coal
Steam TurbineEfficiency 35%
Combined Cycle Gas Turbine (CCGT)Efficiency 50-55%
Advanced CCGTEfficiency 55-60%
Gas
Old ~35% Efficiency
Current38% Efficiency
Super-Critical42-44% Efficiency
Ultra Super-Critical42-44% Efficiency
CoalVarious developments to improve• Capital investment required• Construction time• Fuel cycle cost and fuel “burn-up factor”• Safety improvements
Nuclear
Increased competitiveness against coal and gas fired power plants
20070727 Precourt Energy Efficiency Workshop final.ppt
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Gas efficiency can be improved dramatically in China and Russia by moving towards CCGT
* Russian power generation also exports significant amounts of heat which is not included, making the efficiency artificially low. Efficiency including heat exports is 61% which is still low (80% possible)
Source: IEA 2003, Platt’s UDI
Japan 44%
U.S.
35%
44%
China
51%
EU
India
Russia*
42%
26%
1.94
5.39
4.27
0.49
0.05
5.42
EU
India
Japan
China
U.S.
Russia
Russia has significant Steam turbine gas which is far less efficient than CCGT. Its power builds going forward will
move to CCGT, improving efficiency
Gas based Power Generation Efficiency (%)
Gas Consumption in Power Generation (Quad BTU)
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Replacing the inefficient power–generation tail would save 12 QBTU of demand globally
* Based on current final power demand by region** Fuel savings valued at market price, i.e. not taking into account subsidized prices for power generation
Source: MGI analysis
0.20.6 0.5
0.9
3.4
0.9 0
3.3
0
4.2
Russia
03.7
China
1.2
00
1.2
U.S.
0.50
1.1
EU
0
0
1.0
India
0.20.7
Japan
Naturalgas
CoalOil
Energy demand reduction from replacing least efficient capacity*QBTU
• A significant amount of inefficient capacity could be retired and replaced by new capacity at world-class efficiency with a 10% IRR*, especially in China and Russia
• Overall, this would yield 12 QBTU of energy savings
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Distorting policies and market imperfections reduce energy productivity capture
Examples
Policy distortions
• Fuel subsidies for transportation (e.g., Middle East)• Energy subsidies to households (e.g., Russian gas) • Lack of financial incentives for public industries
(e.g., China steel)• U.S. power regulation shelters consumers from real energy
prices
Lack of information
• Households unaware of the cost of their energy choices –and often make choices based on non-financial factors
• Fragmented energy costs often go unnoticed by companies
Agency issues
• Appliances makers don’t adopt efficient materials and technologies if consumers are unwilling to pay for them
• Landlords and tenants opting for lower energy productivity when benefits don’t accrue to them
Other factors
• High hurdle rates in many commercial and industrial companies
• Credit constraints for municipal (MUSH) and residential segments
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High hurdle rates reduce the level of efficiency investments
Source: EIA NEMS Commercial Model Documentation, 2005; disguised client interview, May 2006
"In the commercial sector, many energy-efficiency investments have 6- to 12-year paybacks, way above the typical 2-year cutoff used in capital budgeting."
Interview with manufacturer of energy-efficient equipment
46
27
Will never invest(infinite discount rate)
27
Less than 2 years(discount rate > 50%)
More than two years(discount rate <50%)
Distribution of required payback of US commercial sector consumers
73% of users will disregard energy-efficiency invest-ments with a pay-back time above 2 years (IRR < 50%)
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The energy productivity opportunity
• Spectacular opportunities exist to improve energy productivity in all regions and all sectors
• Improving energy productivity would not compromise the comfort and welfare of consumers
• If pursued, a win-win for the economy (business and individuals) the environment, and supply security
• However, targeted policy interventions will be required to overcome market failures and inefficiencies
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Overview
• Mapping global energy demand
• Appendix
–China’s productivity opportunity
–The U.S. productivity opportunity
• Top energy productivity opportunities
20070727 Precourt Energy Efficiency Workshop final.ppt
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l
. . . and across most regions100% = 135 QBTUs
28
6
9
10
21
2
6
18Other
Middle East
China
Russia
Japan
Other Europe
Northwestern Europe
United States
Developed
Developing
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77
29
Commercial
9
Other industries
Chemicals
Transportation
40
8
Residential
Steel
China energy demand in 2003 was 60 QBTUs with 57% from industry and 54% in coal100% = 60 QBTUs
Source: IEA; MGI Global Energy Demand Model 2007
Industrial sectorsEnd-use energy demand by sector
4334
11
21
54
Petroleumproducts
Biomass
Natural gasHydro
Coal
Nuclear Other
Primary demand by fuel
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China’s economy is energy-intensive, while per-capita consumption remains low by global comparison
* Northwestern Europe includes Belgium, France, Germany, Iceland, Ireland, Luxembourg, the Netherlands, Norway, Switzerland, and the United KingdomSource: McKinsey Global Institute analysis; MGI Global Energy Demand Model 2007
U.S.
Northwestern Europe*
Japan
Korea
Middle East
12,600
8,900
Global
China
7,200
31,400
33,000
15,100
4,400
Energy-intensity, 2003BTUs per dollar of real GDP
45
54
129
163
175
316
67
Energy consumption per capita, 2003BTU millions
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China end-use energy demand will grow at 4.4% annually to 2020QBTUs
1733
14
11
1
16
14
34
24
55
44
60
2003
2
124
2020
Other industries
Chemicals
SteelAir transportRoad transport
Commercial
Residential
CAGR 2003-20Percent
4.4
2.2
5.7
7.26.76.37.1
4.1
Source: McKinsey Global Institute; MGI Global Energy Demand Model 2007
Consumer-driven
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CO2intensity per outputKg per dollar of real GDP, 2020
China’s economy will remain one of the most CO2-intensive to 2020
2003
2020
1.82.1
0.20.30.5
0.7
1.81.5
0.20.30.40.6
GlobalNorthwestern
Europe Japan China Middle EastU.S.
Source: MGI Global Energy Demand Model 2007
CO2intensity per capitaTons, 2020
3.03.0
9.08.3
19.0
3.8 4.35.8
9.710.6
19.8
4.7
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With current policies, China will see significant energy efficiency improvements
Source: EIA; LBNL China Energy Group; McKinsey Global Institute analysis
Japan
1.0Europe
0.2
China
U.S.
1.5
2.0
Annual improvement of energy productivity indicators, 2003-20Percent
SectorIndicator
ResidentialEnergy efficiency
CommercialEnergy efficiency
RoadFuel economy
SteelEnergy efficiency
0.6
0.4
1.5
0.4
0.7
0.8
0.8
0.5 0.2
0.3
0.3
0.6
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13.1
64.3
95.92020
59.52003 demand
Base demand increase to 2020
7.0Residential
1.4Commercial
0.9Transportation
Industrial
5.4Transformation*
The largest remaining demand-abatement opportunities in China are found in residential and industrial sectorsPotential demand reduction in 2020 through enhanced energy productivityQBTUs
Capturing energy productivity opportunities in China would reduce demand growth from 4.4% to 2.8% p.a. to 2020
Percent of total opportunity
25
5
4
47
19
Percent of 2020 sector demand
* Power generation and refining sectors.Source: McKinsey Global Institute analysis
21
10
9
20
10
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3.0Steel
1.0Chemicals
0.3Pulp and paper
8.9Other
SectorOpportunityQBTUs
Share of 2020 sector demandPercent
19
7
27
27
China’s industrial sector offers the single largest energy productivity opportunity
Source: McKinsey Global Institute analysis
30.451.2
33.9
2003 Base-case growth 2003-20
13.1
Energy productivity opportunity
Abated 2020 demand
China industrial end-use demandQBTUs
10% of the total global opportunity
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Reducing costs offers additional opportunities to shift global energy productivity potential
Plant construction costs can be 30-40% lower in China . . .
Source: McKinsey analysis
21 18
2115
9
8
8
19
19
7
3100
EU/U.S.
2
610
China, Western standard
Spare partsPipingElectrical and instrumentation
Building
Civil engineering
Engineering design andcommercial
Equipment
34%
66
Percent
Plant location
. . . with an additional 30-40% savings opportunity by applying Chinese engineering standards and processes
100
20-40
EU/U.S.
60-70
China, Western standard
China, Chinese standard
30-40%
30-40%
Plant location
• Chinese engineering standards use lower-cost Chinese equipment and tailor plant setup and configuration to local processes
• Chinese processessubstitute cheaper labor for capital
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Introducing cutting-edge technologies and methods would curb Chinese industrial energy demand growth
Technology/method*Industrial sectors affected
Energy savingsPercent of 2020 demand within affected sectors (unless otherwise specified)
* In order of largest to smallest by estimated absolute value of energy savings *** Percentage of total energy losses; based on aluminum, chemicals, food processing, steel, pulp and paper, refining** Percentage of total steam energy inputs
Source: U.S. Department of Energy; Lawrence Berkeley National Laboratory; McKinsey Global Institute analysis
Heat recovery in production of mechanical or electrical power
Co-generation Across sectors
Steam best practices Across sectors**
Plant-level energy system integration
Energy-intensive sectors***
Optimized motor-driven systems Across sectors
Gasification Refining; pulp and paper
Membranes Chemicals; food processing
Near-net-shape casting Across sectors 10
6
2
3
5
3
2-3
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Large energy productivity opportunities exist in China’s residential and commercial buildings
Source: McKinsey Global Institute analysis
26.0
38.6
21.0
2003 Base-case growth 2003-20
8.4
Energy productivity opportunity
Abated 2020 demand
China buildings end-use demandQBTUs
6% of the total global opportunity
7.0Residential
1.4Commercial
SectorOpportunityQBTUs
Share of 2020 sector demandPercent
21
10
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Impact of increasing consumer demand
for comfort
Impact of technological catch-up with
developed regions
Increasing energy uses per square meter will more than offset projected energy efficiency improvements
1.9
0.7
5.64.8
Floor space End-use penetration
Intensity increase
0.3
Building mix
0.8
Efficient technology choice
0.7
Efficiency improve-ment
Growth rate of delivered* energy
Key drivers of China commercial sector energy demand growth, 2003-20Percent
* Growth rate of delivered energy is below the growth rate of energy use because of increasing share of power, and associated generation losses, in end-use demand
Source: Lawrence Berkeley National Laboratory (LBNL) China Energy Group; McKinsey Global Institute analysis
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Building-standards comparison – limitation of heat leakage in wall/window/roofWatts per sq.m.
China has potential to improve heating efficiency through higher-efficiency building shells
Wall Window Roof
Source: ERI; literature search
0.45
0.36
0.44
0.46
0.50
1.16
Canada 1
Russia 1
U.S. 1
U.K.
Germany
Beijing 4.0
2.0
2.9
2.8
1.5
N.A. double deck required
0.40
0.33
0.19
0.45
0.11
0.80Beijing temperature-equivalent areas
Harbin temperature-equivalent areas
0.52
0.27
0.17
0.30
0.32
0.42
Harbin
North Japan
Stockholm
Canada 2
Denmark
Russia 2
2.5
2.9
2.0
2.2
2.3
2.4
0.15
0.31
0.23
0.50
0.12
0.24
20070727 Precourt Energy Efficiency Workshop final.ppt
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Technology shifts will drive significant change in fuel mix
Example of the shift in the share of space-heating technologies in Chinese office buildingsPercent
59.5
8.0
28.0
26.0
14.0
40.0
10.0 8.0
2020
Heat pumpElectric heaterSmall cogen
Gas boiler
District heating
Coal boiler
2000
4.0
0 0
2.5
Overall shift away from coal to electricity and gasCommercial sector final energy demandPercent; QBTUs
20
47
20 18
19
6
49
5
3.1
2003
124
7.7
2020
Heat
Coal
Petroleum productsNatural gas
Power
100% =
CAGR 2003-20Percent
5.6
4.8
-2.62.5
13.9
10.9
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Overview
• Mapping global energy demand
• Appendix
–China’s productivity opportunity
–The U.S. productivity opportunity
• Top energy productivity opportunities
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U.S. energy demand growth will accelerate to 2020U.S. end use energy demand by sectorQBTUs
23 29
1921
15
18
19
22
11
93 1
2003
31
5
110
2020
Other industrialPulp and paperSteel
Chemicals
Air transport
Road transport
Residential
Commercial3
92
CAGR 2003-20Percent
1.10.8
-2.81.7
0.6
2.7
1.0
0.7
Source: McKinsey Global Institute; MGI Global Energy Demand Model 2007
Consumer-driven
Up from 1.0% 1980-2003
1.5
$50 OIL SCENARIO,BASE CASE GDP
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The U.S. remains the most energy-intensive developed region
2003
2020
33.031.4
4.47.28.9
12.6
34.4
21.8
3.66.06.3
10.7
GlobalNorthwestern
Europe Japan China Middle EastU.S.
Source: MGI Global Energy Demand Model 2007
5445
163175
316
67 8085
183198
327
82
Energy per capitaBTU millions, 2020
Total energy intensityThousand BTUs per real dollar GDP, 2020
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CO2intensity per outputKg per dollar of real GDP, 2020
U.S. will continue to produce the highest CO2emissions per capita to 2020
2003
2020
1.82.1
0.20.30.5
0.7
1.81.5
0.20.30.40.6
GlobalNorthwestern
Europe Japan China Middle EastU.S.
Source: MGI Global Energy Demand Model 2007
CO2intensity per capitaTons, 2020
3.03.0
9.08.3
19.0
3.8 4.35.8
9.710.6
19.8
4.7
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U.S. will see the lowest energy efficiency improvements across all sectors
Source: EIA; LBNL China Energy Group; McKinsey Global Institute analysis
Japan
1.0Europe
0.2
China
U.S.
1.5
2.0
Annual improvement of energy productivity indicators, 2003-20Percent
SectorIndicator
ResidentialEnergy efficiency
CommercialEnergy efficiency
RoadFuel economy
SteelEnergy efficiency
0.6
0.4
1.5
0.4
0.7
0.8
0.8
0.5 0.2
0.3
0.3
0.6
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18.0
8.0
4.0
5.0
92.02003 demand
Base demand increase to 2020
Residential
3.0Commercial
2.0Transportation
Industrial
Transformation*
88.02020
Large opportunities for improving energy productivity are available across sectors in the U.S.Potential demand reduction in 2020 through enhanced energy productivityQBTUs
Capturing the energy productivity opportunity would see U.S. energy demand decreasing by 0.3% p.a. instead of growing by 1.1% p.a.
Percent of total opportunity
34
15
11
19
21
Source: McKinsey Global Institute analysis
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Residential sector is the single largest opportunity to reduce demand in the U.S.
Total QBTUs 2020
13
21
At EU levels
Base case
8 QBTUs = 34% of U.S. abatement
• Lighting• Heating and
cooling• Water heating• Appliances
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2020
1.9
9.5
6.7
0.9
Segment mix
U.S.
+42%
Europe Tech-nologyKey drivers of gap
Lower fuel economy of the U.S. light-vehicle stock leads to 37% extra demand vs. Europe for the same miles driven – a gap increasing to 42% in 2020Average fuel economy of light-vehicle stockLiters per 100 km, gasoline equivalent
2005
1.2
1.6
10.3
7.5+37%
Tech-nology
Europe U.S.Segment mix
Key drivers of gap
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Several technologies and methods have the potential to curb U.S. industrial energy demand growth
Technology/method*Industrial sectors affected
Energy savingsPercent of 2020 demand within affected sectors (unless otherwise specified)
* In order of largest to smallest by estimated absolute value of energy savings *** Percentage of total energy losses; based on aluminum, chemicals, food processing, steel, pulp and paper, refining** Percentage of total steam energy inputs
Source: U.S. Department of Energy; Lawrence Berkeley National Laboratory; McKinsey Global Institute analysis
Heat recovery in production of mechanical or electrical power
Co-generation Across sectors
Steam best practices (ops & maint) Across sectors
Plant-level energy system integration
Energy-intensive sectors
Optimized motor-driven systems Across sectors
Gasification Refining; pulp and paper
Membranes Chemicals; food processing
Near-net-shape casting Steel, metals 10
3
6
2
3
5
3
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There are many barriers preventing energy efficiency investments in the U.S.
Policy distortions
Lack of information
Agency issues
Other factors
Source: Department of Energy (DOE); McKinsey analysis
Challenges Emerging solutions
• Small commercial and residential ratepayers do not understand efficiency opportunities
• Contractor risk / 3rd party credibility• Electricity costs small percentage of
ratepayers budget
• Power regulation shelters consumers from real energy pricing
• Purchaser and operator of appliances distinct from entity paying energy bill
• Traditional utility incentive is to encourage more energy use
• Energy efficiency benefits shared by all ratepayers, not just those who make investments
• Metering and decoupling• Include more energy efficiency regulation in
building codes • Tax/ban inefficient products • Implement incentives through performance
based rates and modified decoupling schemes
• Collect EE surcharges from all ratepayers and use proceeds for education and subsidies
• Educate and inspire customers through multiple marketing channels
• Partnership / certification for installers/contractors
• Accrue benefits over time and share with ratepayers up front or at set intervals
• Energy efficiency requires high up front costs for a future benefit stream
• Skepticism and opportunity costs often result in companies requiring short pay back periods
• Provide upfront discounts for efficient products and/or tax inefficient products
• Simplify investment decision through partnerships with retailers and contractors
• Many products sold do not use most energy efficient technologies available
• Efficiency is not a focus for many R&D and product development efforts
• Continually increase efficiency requirements in building codes and appliance standards
• Increase R&D in energy efficiency
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Change between 2003 and energy productivity case
-8%
Scenario
Fuel mix 2020QBTU, Percent
2418
8
5
6
6
11
1
40
Base case
11
1
32
EnergyProductivity
RenewablesHydroNuclear PetroleumproductsGas
Coal
Power generation
26 19
2719
44
36
7
7 16
110
Base case
16
88
EnergyProductivity
Renew-ablesHydroNuclear Petroleumproducts
Gas
Coal
Total primary demand
-11%
3%
200%
-8%
1%
3%
175%
-9%
-7% -4%
Energy productivity would more than cancel the projected growth of fossil fuel demand
Source: MGI analysis, McKinsey Integrated Power Perspective 2007, McKinsey GEM practice
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The energy productivity opportunity
• Spectacular opportunities exist to improve energy productivity in all regions and all sectors
• Improving energy productivity would not compromise the comfort and welfare of consumers
• If pursued, a win-win for the economy (business and individuals) the environment, and supply security
• However, targeted policy interventions will be required to overcome market failures and inefficiencies
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