The cheapest kilowatt hour

Thursday Thoughts    Jan 12, 2022 9:11 PM

Being in Canada for several weeks over the year-end holiday period is a reminder of the differences between Colombia and North America in term of energy consumption. Despite these, the Colombian government believes there is still much that the country can do to be more efficient.

Comparing consumption

The statistics say that Canada uses about ten times more energy per capita (all purposes including transportation) than does Colombia. (The US uses more than 25% LESS than its northern neighbor on a per capita basis.) Within that total energy figure, Canada generates 8.5 times more electricity than Colombia on an absolute basis and nearly 15 times more on a per capita basis. Both countries export power but with such a difference it is fair to assume that domestic consumption is in the same order of magnitude. (The statistics come from BP’s 2021 Statistical Review of World Energy.)

At this time of year, the reasons are somewhat obvious although the brightly colored streets and blazing Christmas trees are not the primary concerns. Canada is cold now and energy for heating is the main driver of consumption. As I write, it is -30oC outside and the electric heat pump has been running continuously for days. Although -30oC is unusual, over the past few weeks the average daytime temperature has been below zero. And there is little relief in terms of energy consumption at the opposite end of the year because Canada’s climate is not cold (as many believe), it is extreme. Summer daytime temperatures average 25oC where my family lives and air conditioning is used to keep things cool.

By contrast, Bogotá’s average daytime temperature is 19-20oC all year round. My house has neither heating nor cooling. We use gas to cook and to heat water. Electricity powers the lights, the electronics, the refrigerator and the washer/dryer. Nobody likes their electrical bill no matter where they live, but in terms of consumption, I use a fraction of what my sister does.

 

Doing better

Just before leaving on holidays, I found an article in the Financial Times on global progress in energy efficiency. Part of the global warming equation is reducing overall energy consumption / generation. For all the investment (and research) around new zero-carbon (or lower carbon) technologies, rather obviously, if you produce less energy, you produce less carbon dioxide and other greenhouse gases, no matter how your matrix is constructed.  The benefit of investing in efficiency is, in fact, greater while your matrix is still ‘dirty’ if the objective is getting closer to carbon neutrality or zero carbon. Once 100% green energy is achieved (if that can ever be achieved) then greater efficiency means less cost but not less carbon.

The FT article says that post-Covid-19 economic reactivation programs are directing money to energy savings and the amounts are not trivial. It is a welcome change after two years where the pandemic directed investment to other priorities.

“The latest detailed report on the topic, published by the International Energy Agency last month, suggests that public and private investment in energy efficiency is expected to increase by 10 per cent globally, to just above $290bn — a record level — with much of it concentrated on the transport and buildings sector.”

The bad news, says FT, is that spending has to double again to hit countries’ Paris Commitments.

Not to be left behind, the Colombian government has identified efficiency as a strategic priority for its National Energy Plan (PEN for its initials in Spanish).

As we reported in the cited article, inefficiency in consumption is costing the country between US$6.6B and US$11B a year, a figure which represents between 1.6 and 2.7 tax reforms such as the one that went into effect in mid-September. The PEN compares the energy consumed by the technologies currently in use with that which would be used if the best available technologies were adopted on a national and international scale. Colombia’s final energy consumption could be reduced by 38% to 50% if it switched all technologies to the best available domestic reference equipment.

The document said that energy could even be reduced up to 62%, if technologies available in international markets are adopted.

The transportation sector (as always) is the big culprit and stands to gain the most from greater efficiency, especially the transition to electric vehicles. Given Colombia’s already green and getting greener generation matrix, going from carbon-based to electricity will significantly contribute to reducing greenhouse gases.

The second most important sector is residential consumption, especially the use of wood for cooking.

(On my first trip to Casanare I remarked to a community leader on the nearly treeless landscape. He told me ruefully that there had been trees when he was younger but the village had burned most of them for cooking. I was reminded of Jared Diamond’s reaction to the ecological destruction of Easter Island in his book, Collapse: “What were they thinking when they cut down the last palm tree?”)

The cheapest kilowatt-hour is the one you don’t have to use

This statement is Economics 101 and the justification for improving efficiency in any activity. Better to not use a resource than to use it no matter how cheaply or effectively it is produced.

The added part of the equation today is the avoidance of carbon. Using energy more efficiently will help get closer to zero carbon. The transportation and residential sector examples above will increase electrical consumption and out-of-pocket costs but transforming them will definitely reduce the country’s carbon footprint. Colombia’s matrix is pretty green today (over 70% hydro depending on the year) and renewables are growing quickly. Switching from fossil fuels (transportation) or burning wood (residential) to electricity will definitively reduce greenhouse gases per capita.

It will also definitively cost more. This is one of the challenges in a middle-income country like Colombia: lower carbon is almost always higher out-of-pocket than existing energy sources (at least without adequate carbon pricing). Especially in rural areas of a fertile, tropical country ‘biomass’ is abundant. Just step outside and cut something down. From the consumer’s point of view, this kind of energy is free. However, if they install electricity or gas (natural or propane) in their kitchen, someone will have to be paid for it. (Except perhaps in the Caribbean Coast but that is another issue.)

But biomass is far from free when considering the health consequences of breathing wood smoke in a confined area or the effect of greenhouse gases on global temperatures or the loss of carbon dioxide-absorbing vegetation.

The economists call this an externality and until energy pricing properly reflects these, and we invent a way to make these costs plain – and painful – to consumers, becoming more energy efficient will be hard to achieve, no matter what the PEN might estimate to be the national benefits.

 

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