Today’s energy economy faces competing challenges: We don’t just need more energy, we need energy that is clean enough to protect our climate, and cheap enough to power growing economies that are trying to lift millions out of poverty.
Jennifer Layke is taking on these challenges in her new role as global director of WRI’s Energy Program. She joins from WRI’s Building Efficiency Initiative, where she recently launched a major report for urban leaders planning for transformative change. She also has significant experience in climate negotiations, green power development and corporate social responsibility.
I spoke recently with Layke to hear her perspective on important energy questions:
We’re coming up on a year since countries adopted the Paris Agreement on climate change. What signals did the Agreement send to the energy sector?
I was thrilled with what happened in the Paris Agreement. Most of the countries who signed the Agreement and submitted INDCs (their “Intended Nationally Determined Contributions”) selected the energy sector as a key strategy, if not the key strategy, for helping meet the global climate challenge.
Early indicators of success will be whether we see investments shift to renewables, whether we will see renewed commitment to implementing building codes, and whether we have the ability to create direct links between urban energy use and rapidly growing cities in developing countries.
But the energy sector is a sector that is slow to move. Long term planning is critical. These are major investments -- there are billions dollars of investments in each power plant. Renewable energy is actually cheaper when you consider the lifetime costs so consumers will benefit from the transition. But fundamentally we haven’t yet seen the world back away from coal use the way it needs to.
Let’s say you could convene all the key stakeholders to address one truly urgent energy issue. What would you pick?
One of the most significant challenges we face in the transformation to a clean, low carbon energy system is around the flexibility and responsiveness of the grid. The power grid was designed with a centralized model in mind, and with the utilities having a monopoly over both the power plants and the distribution of the electricity.
But in today’s world we have more technologies that connect in to that grid, and we have more people who need access to that power. So we need to rebalance and create a dynamic system that will allow energy to come in from multiple points, and demand can be managed as well as the supply. We need a grid that has flexibility and an operational model that allows for people to participate in different ways.
We have the ability with technology today to do that. It’s just that we haven’t got the managerial capacity, the regulatory mandate, and the knowledge of how to manage it technically. We’re seeing innovation emerging—for example, with demand-response programs where customers sign up to reduce their power use during peak demand days. Grid transformation can happen, but we’re not doing it yet at scale, and we’re certainly not talking enough about how you pay for the best, cleanest technologies to reach every corner of the globe.
You previously worked on building efficiency. How will that inform your work as WRI’s Energy director?
It’s not enough to focus on supplying energy; you have to be able to distribute it to the most people in order to deliver the best quality of life. That means we have to stretch the kilowatt hours we produce as far as they can go to meet the demand.
The good thing about energy efficiency is that we already have the technologies today to cut in half the amount of energy used in a building or home, while providing the same level of comfort. The challenge is making those technologies available, accessible and affordable to people. That means overcoming the “first-cost” barrier. It’s easy to say energy efficiency saves money over the long term, but it’s much harder if you say it costs $100 more now. The challenge for energy efficiency has been to create a decision-making approach that allows people to say, “I want to make this investment that delivers a future that is better than my life today.”
What are the financial innovations that are helping people make those investments in energy solutions?
Whether you are talking about a community solar project in Rajasthan or retrofitting the Empire State Building in New York with efficiency equipment, access to finance is critical. Many homeowners or businesses don’t have the money to pay upfront for renewable energy or efficiency upgrades – they need finance.
The good news is that there are banks and other institutions creating financial products to overcome this first-cost challenge. In the United States, cities are issuing bonds and making the funds available to businesses and homeowners. The repayment is made over time through a special surcharge on their property tax bill. That way, the upgrades are linked to the property value (this is called “Property Assessed Clean Energy” (PACE)).
Banks like Citi have been making progress on new financing models for energy efficiency called Energy Service Agreements (ESAs). In that approach, there is a firm that specializes in energy efficiency that provides the technologies and installation for a building, and the owner makes payments on those technologies. This financing model is showing progress in leveraging the power of capital markets for energy efficiency projects, and could be a turning point in getting larger sources of capital to commercial- scale energy efficiency projects.
For small buyers, one innovation we’re seeing is “pay as you go” business models by some pioneering companies in East Africa. These companies let customers pay for solar home systems in small amounts over time. This makes household solar so much more accessible to consumers with low or sporadic incomes. Consumers can purchase solar energy the same way they might purchase kerosene or candles for lighting. These “paygo” models are one way that off-grid and underserved customers can invest in cleaner energy, but they also require specific types of capital in order to grow and scale. We’ve done a series of papers on energy access and we have another paper coming soon to look specifically at finance for paygo companies—particularly locally owned and managed ones.
How can we meet the needs of underserved consumers?
Today, 1.2 billion people lack access to electricity – and many millions more we would consider “underserved,” meaning that their electricity is intermittent, unreliable or limited. The opportunity we have with the underserved is to leapfrog directly to clean power: diesel generators make people sick from fumes, and keep them captive to fossil fuel purchasing. We need to make solar power and batteries affordable as an alternative.
WRI is working in partnerships in India, Tanzania and Kenya to do three things: 1) Looking at decentralized approaches like mini or microgrids to provide power rather than waiting for central power plants and distribution lines; 2) Examining innovative approaches like pay as you go financing programs for solar home systems; and 3) Creating maps and data documenting where the underserved are, and who has unreliable electricity service. This will allow policymakers to target those households and the private sector to develop strategies and approaches that can bring people a new energy economy.
How can data play a role in solving energy challenges?
We know we need to have a better, more open dialogue around the global investment in fossil fuels. There are data sets that are proprietary, and our goal is to open up the conversation around those power assets. Over the last couple of years, we’ve been working to develop a platform that will provide better open information to allow people to see where our power plants are today and what kind of fuel mix is in play.
There are real barriers: consumers don’t know about the pollution generated from their electricity, they don’t know how much more comfortable or efficient their homes could be, they are locked in to a system they don’t feel they can control. Data is critical for effective energy sector planning, but it is much scarcer in developing or emerging economies. Being able to provide transparent information to consumers and planners around what their energy mix is, what their options are, and how they are performing is really important. Data helps us make informed decisions that result in an affordable, clean and flexible power grid for all consumers.