Energy Efficiency Basics

Energy efficiency produces equal or better services with less energy. Learn how energy efficiency can improve energy security, provide access to affordable and reliable energy services, promote sustainability, and support additional development objectives.

Energy efficiency enables services, such as lighting, to be provided at the same quality using less energy.

Efficiency is typically expressed in percentage terms. The percentage improves when a lower supply of energy achieves the same or better service output. For example, an energy-efficient, ductless air-conditioning heat pump system typically uses half the energy of a standard air conditioner but provides the same or better cooling output. In this case, the heat pump offers a 50 percent improvement in efficiency.

Efficiency can also be understood in terms of productivity. If a factory installs efficient motors that require 35 percent less energy to produce the same number of products, the business has increased its productivity and is saving money.

If implemented widely, energy efficiency measures can have a significant impact on a national level. In Bangladesh, for instance, a 2012 USAID study showed that improved energy efficiency in the jute, food processing, steel re-rolling, and textile industries would lower the country’s energy use by 20 percent (or avoid 9.4 billion kilowatt hours) compared to a business-as-usual scenario.

Energy efficiency is often confused with energy conservation. Energy conservation involves using lower levels of energy services—for example, turning off lights or raising thermostat temperature settings for air conditioning. Energy conservation is usually a short-term solution because the behavior is difficult to maintain over time. Energy efficiency strategies are more sustainable, and therefore better for economic development, because they do not lower the level or quality of services. In other words, energy efficiency promotes economic prosperity through lower costs and the same or better productivity. Follow the Energy Efficiency Talking Points link above to learn more about additional benefits of energy efficiency.

The ultimate goal of many energy efficiency programs is to transform the market so that consumers choose energy-efficient products, technologies, and services without the need for incentives or subsidies from the government or utilities. The figure below illustrates a typical Market Transformation Process.

An example of a market transformation is Ghana’s Refrigerator Energy Efficiency Project. This activity was designed to replace inefficient refrigerators with newer models that would consume less energy. Customers were expected to be unfamiliar with energy efficiency, skeptical of the cost savings from operating the new refrigerators, and unlikely to pay the higher purchase price. As an incentive, stores offered a rebate to reduce the cost of qualifying refrigerators and to encourage customers to trade in their old units. This program achieved two immediate benefits:

1. Participants saved money every month through lower operating costs for their refrigerator.
2. Energy use and the emissions associated with energy generation decreased through the use of newer, energy-efficient refrigerator technology in the market.

Over time, as participants experienced the lower costs associated with energy-efficient refrigerators, and shared their positive effects with others, rebates could gradually be removed.

This type of program not only affects the market for a particular appliance, but also increases consumer acceptance of other types of energy-efficient technologies and programs.

Energy efficiency has wide-reaching benefits that go beyond reducing the demand for energy. The sections below describe common drivers for energy efficiency programs and expected outcomes.

Energy Security

Resources such as coal, oil, and natural gas that utilities use to generate electricity are often concentrated in geopolitically sensitive locations, from which they are extracted and moved across borders. Energy supply routes, and infrastructure such as fuel pipelines and power transmission lines, are thus subject to risk in terms of the physical security of energy supplies and potential political pressure from energy-supplying countries. Even renewable energy supplies are not immune to these risks, if their power output crosses national borders or if key components for their construction or maintenance must be imported.

Security concerns can jeopardize access to reliable and affordable energy. Adoption of energy efficiency measures across residential, commercial, industrial, transportation, and agriculture sectors can reduce this risk. Efficiency measures reduce energy consumption, lowering demand for energy and fuel imports from other countries. In Ukraine, for instance, USAID’s work with district heating companies led to energy efficiency measures aimed at optimizing natural gas use and improving metering in residential and commercial properties. In 2014, when Russia cut off gas supplies as part of the conflict in eastern Ukraine, Ukraine was relying on Russia for half of its national gas supply. Russia had previously cut off gas to Ukraine in 2006 and again during the winter of 2008-2009. Ukraine has come to view energy efficiency as a matter of both national and energy security.

Energy Access

The United Nations Development Programme estimates that over one million people around the world do not have access to electricity. The Sustainable Development Goals (SDG 7.1) call for universal access to affordable, reliable, and modern energy services by 2030.

Energy efficiency plays an important role in increasing access by reducing both demand and cost. For example, by reducing energy demand among large commercial and industrial consumers, efficiency programs free up power so that utilities can expand transmission and distribution networks to reach households and small businesses that are off the grid. Most developing countries need to increase energy supply to substantially improve access, and many USAID programs support new generation. A notable example is Power Africa, launched in 2013. Programs like these tackle the issue on three fronts: Reduce energy demand through low-cost efficiency programs, improve reliability in the near term, and reduce the amount of generation investment needed for long-term sustainable access.

Initiatives to provide energy to rural areas through off-grid power can also benefit from incorporating energy efficiency. High-efficiency lighting and other technologies can reduce energy demand, enabling smaller solar-powered micro-grids and battery-based distributed solar systems to affordably provide critical energy services to populations that might otherwise go unserved by the traditional electricity grid.

According to a 2015 report for the World Bank—prepared by the international organization CLASP—energy efficiency was one of the primary factors in the success of the Bangladesh Rural Electrification and Renewable Energy Development initiative, which advanced the market for solar home systems. After the introduction of light emitting diodes (LEDs) or LED, a 20 watt-peak system with super-efficient appliances could serve a household that previously required a more expensive 50 watt-peak system.

Energy Affordability and Reliability

Access to affordable and reliable energy is a key driver for economic growth worldwide. Business and industry are able to operate effectively and compete in regional and global markets only when power outages do not force them to shut down or to rely on expensive (and polluting) diesel generators for backup power. Supplying power inconsistently also makes it difficult for utilities to recover their costs.

The World Bank has estimated that roughly 4.5 percent of electricity sales were lost in low-income and lower middle-income countries between 2005 and 2014 as a result of electrical outages. According to the International Energy Agency, shortfalls in electricity cost Pakistan’s economy several billion U.S. dollars in 2007 alone. In 2011, there was an estimated shortfall of about 7,000 MW during the summer months, which continued to impose a financial burden on the Pakistani economy.

Energy efficiency can increase affordability and reliability by reducing total energy demand and peak electricity demand:

• Total energy demand is the cumulative amount of energy required to meet a country’s needs over a specific time period.
• Peak electricity demand is the highest level of demand for electricity at any one point in time.

Utilities need to have the capacity to meet peak demand. If they do not, they will face power outages when they cannot supply enough electricity to the market. Peak electricity demand dictates the number and size of power plants, and the amount of reserve power supplies, that countries need to construct and operate. The lower the peak, the fewer resources and infrastructure need to be developed and maintained.

Periods of peak demand are dictated by patterns of energy use across a market. For example, if manufacturing plants ramp up production in the early afternoon at the same time that commercial buildings begin using significant amounts of energy for air conditioning, the result will likely be a period of peak demand.

Demand Side Management Strategies

Powerwise

Energy efficiency programs are often put in place as part of a demand-side management (DSM) strategy to reduce overall energy demand, especially during peak hours. Programs may include financial incentives, regulations, and/or consumer education to increase the adoption of efficient technologies and strategies.

As shown in the figure, in critical situations where outages are frequent, efficiency can be combined with conservation efforts that encourage consumers to use less energy during peak hours (“peak shaving”) or to move the time of energy use to off-peak times such as during the night and on weekends (“load shifting”). This enables existing power supplies to keep the grid operating reliably and meet consumer needs. Time-of-use (TOU) tariffs are often used to promote load shifting, as demonstrated in USAID’s 2015 study in Ghana.

For consumers, energy efficiency lowers utility bills for homes and other buildings by reducing the amount of power needed. This increases household disposable income, raises revenue for businesses, and lowers operating costs for the public sector, including schools and hospitals.

When compared on a per unit basis, energy efficiency also costs less than adding new generation. According to the U.S. Energy Information Administration (EIA), the cost of saving electricity through utility rebate programs in the United States in 2017 was estimated at $0.02/kWh. Compare that figure to the average cost of purchasing electricity of approximately $0.10/kWh. Thus, investing in energy efficiency is up to five times cheaper than investing in new power generation.

When countries invest in efficiency first, they forestall the need for more expensive supply investments, which keeps future energy prices lower. Over time, energy efficiency measures can help shift economies away from a reliance on energy subsidies to keep energy affordable.

Climate Change Mitigation

Energy efficiency reduces greenhouse gas (GHG) emissions in three distinct ways: It reduces the need for future fossil fuel extraction and processing by lowering energy demand, enables the deployment of renewable-energy systems by lowering demand and making renewables more affordable, and is the most cost-effective strategy for reducing current GHG emissions—because efficiency has zero emissions.

The International Energy Agency (IEA) modeled a scenario looking at the technology contributions needed to reduce CO₂ emissions and limit global temperature increases to 2 degrees Celsius. Energy efficiency consistently accounted for the greatest share of emission reductions. By 2030, for example, efficiency needs to reduce emissions by 4.8 gigatons.

Energy efficiency can be applied to all major sectors that contribute to CO₂ emissions, including power plant operation, industry, transportation, and buildings. Depending on the major fuel type used, efficiency will have varied impacts on emissions on a country-by-country basis.

Environmental Sustainability

According to the U.S. Energy Information Administration, most electricity-generating systems worldwide (67 percent) use fossil fuels. Fuel extraction and electricity generation are resource-intensive processes that often result in the destruction of vulnerable ecosystems and the rapid depletion of natural resources. This disruption in turn has a direct impact on the daily lives of people and on industry. For example, foraging for wood for domestic cooking fuel can result in massive deforestation, which limits the future availability of wood for domestic and commercial uses and damages the affected ecosystems. Energy-efficient cookstoves can dramatically reduce the demand for fuel wood and its associated negative impacts.

The health of the environment, both outdoors and indoors, is also increasingly understood to benefit from energy efficiency. In the U.S., states that have had to take action to comply with federal air quality standards have successfully increased energy efficiency to reduce air pollution. In 2018, the American Council for an Energy-Efficient Economy (ACEEE) reported that 11 states used energy efficiency to avoid more than 2,500 tons of emissions. An additional 21 states reduced over 1,000 tons of pollutants by introducing efficiency measures that cut the amount of energy that power plants had to produce to meet demand.

While energy efficiency does not directly improve the quality of indoor air, it is a key driver for actions and technology that do. For example, weatherization is a process of sealing windows and door casings, and insulating buildings. This process enables air conditioners and heaters to operate more efficiently by running less often. Sealing cracks also reduces air (and outdoor pollutant) infiltration into buildings. Weatherized buildings are better equipped to maintain healthy temperatures year round, and effectively filter pollutants from indoor air.

Finally, when building owners invest in improved air conditioning equipment, they can benefit from the increased efficiencies of new technology, which means less operating time, lower energy use, and cost savings.