Disruptive Technologies in Energy Efficiency: The Next Big Lever for Net Zero
Disruptive Technologies in Energy Efficiency: The Next Big Lever for Net Zero
As the demand for AI propels the rise of data centers, while rising temperatures lead to a need for sustainable cooling, investing in energy efficiency technologies is crucial to climate neutrality.
Since 2010, energy intensity (energy use per unit of GDP) has improved at an average annual rate of 1.8%, driven by the adoption of more efficient energy-saving technologies, advanced heat pumps, and energy efficiency measures across industries. This improvement means that for every dollar generated in the economy—whether through the production of goods or the provision of services—less energy is being consumed than in the past. However, the question remains: Is this progress sufficient to meet our long-term climate goals?
The below figure shows represent the economic impact of the global temperature increase 2°C on countries’ annual GDP per capita growth.
Figure 1 highlights the uneven distribution of the economic consequences of the climate change and warmer regions, particularly in Africa, South America, and Southeast Asia, are projected to suffer economically. To solve the economic challenges an integrated approach of inclusion of disruptive energy efficient technologies in the renewables and existing infrastructure is critical need of the hour to mitigate localized impacts thus lessening the economic burden of high energy costs in these regions.
Figure 2 above illustrates the rising trend in energy consumption alongside energy generation from both fossil fuels and renewable sources. It also highlights the increasing energy savings due to the implementation of energy efficiency measures. When we project these trends forward, it suggests that renewable energy generation could meet global energy demand by 2033, with an estimated energy consumption of 28,000 TWh. However, by factoring in current energy efficiency measures, this transition could be accelerated, reaching completion as early as 2031—resulting in fewer years of reliance on fossil fuels.
Moreover, investing in energy efficiency not only shortens the timeline for the energy transition but also offers significant cost savings. For every dollar invested in energy efficiency measures, we can avoid US $2 to US $3 spent on fossil fuel infrastructure. Additionally, energy efficiency can help delay the need for renewable energy installations by 10 to 15 years, resulting in savings of US $1 to US $2 per kW in renewable energy infrastructure costs.
Energy efficiency measures are gaining momentum across sectors, with governments leading the charge. For example, the European Union aims to reduce energy consumption by 32.5% by 2030 through initiatives like the REPowerEU plan, which seeks to reduce dependency on fossil fuels, particularly from Russia. The UK’s Smart Metering Program is another example, targeting the installation of 53 million smart meters by 2025 to optimize energy use. Corporations are also playing a pivotal role, heavily investing in energy efficiency. In 2022, corporate investments in energy efficiency reached US $391 billion. Companies like Apple, which is on track to achieve 100% carbon neutrality by 2030, have already reached 70% of this goal by optimizing their supply chains.
Additionally, institutions such as universities and hospitals are integrating energy efficiency into their operations. Stanford University has reduced its energy use by 32% through its Energy Retrofit Program, while Cleveland Clinic saves over $3 million annually, thanks to energy-efficient technologies in its facilities. These institutions serve as models of sustainability, influencing broader community behaviors and practices.
“Improving energy efficiency could deliver 44% of the emissions reductions needed to meet the Paris Agreement goals. This would save the global economy US $500 billion in energy costs each year and avoid the need to build 265 gigawatts of new power generation capacity.” – Faith Birol, Executive Director of International Energy Agency
Geopolitical tensions, such as the Russia-Ukraine war, have underscored the urgent need for energy independence. In response, countries are diversifying their energy sources and investing in energy efficiency to reduce reliance on volatile fossil fuel markets. For instance, the REPowerEU initiative aims to cut the European Union's gas demand by 15% through enhanced energy efficiency. Simultaneously, the growing global energy demand—driven by population growth and economic development—poses a critical challenge. India’s energy demand is projected to double by 2040, making energy efficiency a key factor in meeting this demand sustainably.
Advancing Energy Efficiency: Technologies, Financing, and the Global Landscape
1. Innovative Technologies Driving the Future of Energy Efficiency
Global energy demand could be reduced by 10-25% by 2030 with widespread implementation of energy efficiency measures. Over the last decade, significant technological advancements have occurred in energy efficiency sector, particularly in advanced materials, heat efficiency, and energy storage. The energy efficiency measures can be broadly divided into four major categories as shown in Figure 3 below.
The combination of relevant government policies, technological enhancements and inflow of the public and private investment in the space has led to significant cost reduction in the adoption of energy efficiency measures at commercial scale. For instance, in the last decade, storage battery cost has reduced from US $1.8 Mn/MWh in 2014 to US $1.1 Mn/MWh in 2022 and the cost for EV batteries has also reduced from US $2.2 Mn/MWh in 2014 to US $0.6 Mn/MWh in 2022.
In Chile, a new solar and battery initiative in East Sumba now provides 15 MW of clean energy, enough to power 4,000 homes, helping avoid 5.5 KtCO₂ emissions annually. The lower cost of solar technologies have made this investment commercially viable and cost-competitive. In India, growth of onshore and offshore wind capacity can be attributed to lower energy storage cost and it is expected that by 2027, India will be able to add 21.2 GW of wind energy capacity. Some of the other global success stories are Britain Coal Free Milestone and Germany’s Retrofitting of Buildings.
While the dramatic price reduction in lithium ion batteries have become a backbone for India’s energy storage and systems, the other technologies in the long duration energy storage (LDES) such as thermal, flow and solid state batteries are also finding their path for commercial viability. India, in the first quarter of 2024 alone, has added 120 MWh of capacity and programs such as Viability Gap Funding (VGF), with a budget of US $452 million, will be a catalyst in achieving 4 GWh of battery energy and storage systems (BESS) by 2026.
Energy storage systems will be crucial in ensuring round-the-clock power supply from renewable sources. The government is committed to providing financial support to develop large-scale storage capacity that will enhance grid stability and reduce curtailment of solar and wind power - Hon’ble Minister of Power Mr. R K Singh, Government of India
The other notable technologies in the advance materials space include the development of aerogels for energy efficient buildings, nanocoating materials using graphene for the solar panel efficiency improvement and phase change materials for the storage and release of thermal energy, are becoming drivers in the reduction of the energy consumption. While heat pumps have gone through a revolution in design and efficiency, the technologies such as combined heat and power systems (CHP) and heat recovery systems have become critical for industrial buildings’ energy generation and waste heat recovery.
2. Financing the Transition: Unlocking Capital for Energy Efficiency
Global energy efficiency market saw an investment of US $391 Bn in 2022 and US $377 Bn in 2023 with majority of the investment been into heat pumps, electrification of end uses and building efficiency. Figure 4 below, shows the market map of startups in the energy efficiency sector, divided into four major categories:
Between 2023 to 2033, the two sectors that received the most amount of funding were i) energy storage & distribution and ii) heating efficiency. Among these two, the highest growth rate is for i) , which has been growing at a compounded annual growth rate (CAGR) of 24% for the last decade. Some of the notable global companies in this sector are Antora, Energydome, Rondo Energy and TS Conductor. The end application of these technologies are primarily for hard-to-abate sectors, commercial & industrial (C&I) segments and power utilities, and the use cases are for renewable integration, heat generation and grid stability.
The demand for HVAC (Heating, Ventilation, and Air Conditioning) systems, particularly sustainable air conditioning, is growing as cities expand and living conditions in hot climates worsen. For instance, SkyCool Systems offers a cooling technology using radiative cooling, which could be adapted to Global South markets for low-carbon, sustainable cooling solutions. Other notable companies in this space include Jetcool and Magnotherm, which are developing cooling modules using their innovative technology to provide the sustainable cooling solution.
In terms of unlocking finance for the energy transition, government-led initiatives such as the European Union’s Green Deal, the US Inflation Reduction Act (IRA), and India’s Perform, Achieve, and Trade (PAT) scheme for energy efficiency in industries through market-based mechanisms (like trading energy savings certificates) are acting as significant levers for the adoption of energy efficiency measures. However, the fragmented approach to funding, high upfront costs, and the notable absence of standardized success metrics or frameworks to evaluate the performance and return on investment (ROI) for energy efficiency projects remain as barriers to private investment.
Innovative financing approaches, such as the aggregation of projects to set up special purpose vehicles (SPVs), public entities providing concessional financing or guarantees to reduce risk, Energy Performance Contracts (EPCs), and Pay-as-you-Save (PAYS) mechanisms, as well as development institutions offering off-balance-sheet financing, are some of the effective strategies to consider.
Energy Efficiency at the Crossroads: Balancing Global Energy Security with Consumer-Driven Innovation
As we stand at the crossroads of energy efficiency and the growing demands of digitalization, a pivotal balance is emerging between global energy security and consumer-driven innovation. This balance is particularly crucial with the rise of artificial intelligence (AI), the sheer volume of computing power to run these applications and the exponential growth of data centers, which are now significant consumers of energy worldwide.
AI applications, especially in sectors such as machine learning, deep learning, and natural language processing, are heavily reliant on computational power. According to estimates, training a single AI model can emit more than 284,000 kilograms of CO2, equivalent to five times the lifetime emissions of an average car. Data centers, which house the infrastructure that powers AI and other digital services, are growing at an unprecedented rate. With the rise in cloud computing, edge computing, and the Internet of Things (IoT), data centers are responsible for an estimated 1% of global electricity demand. By 2030, data center electricity consumption could increase by 8% globally, driven largely by consumer demand for digital services.
One of the largest sources of energy consumption in data centers is cooling. Innovative solutions such as liquid cooling systems and free-air cooling are increasingly being adopted, reducing reliance on traditional energy-intensive air conditioning. Google, for example, has applied DeepMind AI to its data centers, reducing cooling energy consumption by 40%, resulting in a 15% reduction. Microsoft, through Project Natick, which deployed underwater data centers, has tried location-based cooling solutions to significantly reduce energy use but failed to do so and currently looking at the liquid immersion technology to achieve data center cooling.
Looking Ahead
As the world moves toward decarbonization, energy efficiency plays a critical role, driven by global energy security concerns and growing consumer demand for sustainable innovation. It is recognized not only as a cost-reduction tool but as a strategy to reduce carbon emissions, stabilize the grid, and foster innovation. The rapid growth of AI and data centers presents challenges and opportunities, as AI's computational power demands increase energy consumption. However, AI is also helping optimize energy use, as demonstrated by companies like Google and Microsoft, which have significantly reduced energy consumption in their data centers, particularly in cooling.
To overcome high upfront costs, innovative financing mechanisms like Energy Performance Contracts (EPCs) and Pay-as-you-Save (PAYS) models are making energy efficiency projects more accessible. However, the lack of standardized success metrics continues to deter large-scale private investment. Technological advancements and strategic investments are crucial in addressing these challenges and achieving global decarbonization goals.
At Theia Ventures, we recognize the transformative potential of the energy efficiency sector as a cornerstone for building climate-resilient infrastructure. We are committed to championing the innovators and trailblazers who are pioneering these critical advancements, and we look forward to hearing from the companies which are building in this space.