Does Renewable Energy Renew the Endeavor in Energy Efficiency?

Abstract

Improvement in energy efficiency (EE) has slowed globally since 2015 and is now falling short of the 2.6% per year target recommended by the United Nations Sustainable Development Goals, despite an abundance of EE opportunities. Barriers to EE have existed long before the rise in renewable energy (RE) investment. However, increased RE adoption may have unintended consequences for improving EE as adoption may raise or lower the barriers to EE. In this paper, we examine whether and how RE adoption can increase or decrease EE improvement. On the one hand, RE represent a competitor to EE for managerial attention and budget. On the other, the adoption of RE may increase the overall awareness of energy usage and drive EE improvement. Using site-level data from an industrial conglomerate, we estimate the impact of changes in RE usage and in the acquisition approach on the EE of 183 manufacturing sites across the globe from 2015 to 2020. On average, we find that using RE to meet 10% more of a site’s energy demand led to an additional 2.0% improvement in EE. However, there is significant heterogeneity in the effects depending on the acquisition approach. We find that while purchasing RE credits or entering into power purchase agreements led to gains in EE, installing on-site RE generators had no effect. To understand these gains, we surveyed site managers regarding their attitudes and intentions. The results suggest that there was a greater focus on EE by both managers and workers after increasing their RE usage. We also find quantitative evidence of managers submitting more budget requests for EE improvements in the twelve months following increases in RE. For corporations looking to use more RE, we offer evidence of additional returns in the form of energy savings, but realizing them requires careful consideration of the acquisition approach of RE.