Energy Consumption and Productivity

In a recent study we analyzed the relationship between two basic parameters which are crucial for every economy: its final energy consumption (FEC) and its productivity level. Conventional wisdom has it that, in order to stay competitive, a modern economy has to become more productive over the years. There are clear differences between various countries as far as their productivity growth is concerned. The overall picture is such that between 1995 and the beginning of the financial crisis in 2008 economic output per working hour increased significantly in most EU Member States. Then, with very few exceptions, a general downturn set in yielding lower output figures than before the crisis. One  notable exception was Spain where productivity rose even during that difficult period.

If, on the one hand, economies are supposed to increase their production per working hour they are, on the other hand, also keen on using as little energy as possible. The aim is to produce more with the same amount of energy or, in other words, to improve energy intensity.

In order to make the two things comparable, we have indexed them, setting 2005=100, and followed them during the period 1995 – 2009. All the raw data of our investigation have been taken from Eurostat.

Let us look at the EU-27 data first (Fig. 1).

Fig. 1 Productivity and final energy consumption (FEC) in the EU. 2005=100.

We see that productivity has increased siginificantly stronger than final energy consumption (21.8% vs. 4.0%). Remarkably, just before the economic crisis, the EU managed to go up in productivity while at the same time consumption figures climbed only moderately. The crisis of 2008 led to a slight downturn in output per hour and and to a substantial lowering of energy needs.

The overall EU picture is nicely reflected by Germany showing a similar pattern (Fig. 2).

Fig. 2 Productivity and final energy consumption in Germany, 2005=100

Germany´s final energy consumption index has been fairly stable over the years, mostly oscillating between 95 and 100 and reaching its lowest value in 2009  (-3.5%). Her economic performance, on the other hand, was outstanding (+20.1%). Similar conclusions may be drawn for France and the Netherlands which are not shown here.

The situation is strikingly different in the case of Spain (Fig. 3).

Fig. 3 Productivity and final enrgy consumption in Spain, 2005=100.

First we note that Spain´s productivity gain has not at all been outstanding over the 14-year period. Compared to other countries like Germany, the increase was rather moderate (9.6%). Second, energy consumption has gone up at a much higher pace than output per hour (39.6%). As a consequence of economic crisis the consumption index went down for the first time in more than 10 years. A rather similar conclusion can be drawn for Italy (not shown), whereh a moderate rise in productivity was met by a soaring energy consumption. After 2005 consumption figures came down here, too, and the productivity index followed shortly after.

The situation looks entirely different in Sweden (Fig. 4).

Fig. 4 Productivity and final energy consumption in Sweden, 2005=100.

In terms of energy consumption Sweden has steadily gone down (-9.5%) whereas productivity gains were quite impressive (30.3%), the latter, not surprisingly, being shaken by the global economic situation from 2007 onward. This picture clearly reveals that Sweden not only managed to produce considerably more per working hour but also with less energy.  The situation is a bit similar in the UK (Fig. 5) with substantial improvements on the productivity side (30.5%). Consumption figures, on the other hand, show a slight downward trend though less pronounced than in the case of Sweden (-3.2%).

Fig. 5 Productivity and final energy consumption in the UK, 2005=100.

Thus, it is possible to see productivity rising and at the same time consume less energy. If, however, energy consumption is growing faster than productivity, this clearly indicates that there is a gap in energy efficiency which needs to be closed. Some countries set nice examples of how this can be achieved.

Renewables in Europe 2: Photovoltaics

In a recent posting we discussed the development of energy produced from biogas in the EU over the past two decades. The growth rates, as for most renewables, were impressive, showing the huge potential of that particular source of energy. Simultaneously, it became clear that not all countries progressed at the same speed. Yet the overall contribution of biogas to the energy mix is still quite small.

Similar statements can be made about photovoltaics. At the beginning of the 1990s it was virtually non-existing. But soon things started changing.

Fig. 1 Energy generation from photovoltaics

In 1990 only the following countries produced more than one TJ (Terajoule) of solar power (in decreasing order): Spain, Italy, Portugal, Germany, Finland (!) and the Netherlands. The output of all other states now forming the EU was virtually zero. But gradually more and more countries embarked into photovoltaics. By the end of our reporting period, i.e. in 2009, just a handful of the 27 Member States remained abstinent from solar energy, amongst them the Baltic countries, Ireland, Poland and Romania. Due to the low starting level in practically every country, the relative changes experienced in each of them turned out to be close to 100% or even higher than that in some cases. Fig. 1 highlights the annual change of energy produced from photovoltaics in some selected countries. A significant increase is almost always linked to a corresponding growth in PV capacity.

The overall picture turns even more impressive when we take a different point of view.

Fig. 2 Electricity generation from photovoltaics, 1990 = 100

Fig. 2 illustrates how production figures have risen. The starting level is 1990 = 100. As can be inferred from the picture, some countries like Germany, Belgium and France even exceed the scale given. In 2009, Germany almost reached a whopping 600,000, thus being the unquestionable European champion in relative output since 1990. Spain (not shown) comes second with almost 100,000. One of the most striking examples, however, is Belgium where PV virtually did not exist until the year 2005, after which solar electricity began skyrocketing. In that context it is worthile noticing that Belgium is not a particularily sunny country. Nevertheless, PV is underlining its growth potential even in places where clear skies are not so frequent.

Having seen all those astounding figures we should not forget, however, that solar electricity is still a minor contributor to the entire power supply. This is true even in countries like Germany where the solar industry has been pampered with high subsidies. In any case, it will be exciting to follow the further development of photovoltaics in Europe over the next decades. Its full potential is still not exploited. The question is where its limits are.

The Cost of Photovoltaics in Germany

2011 was a very successful year for the German photovoltaics industry. More than 7500 MW of new capacity joined the electricity grid all over the country. This was the highest amount of newly installed solar capactiy ever. Germany is going green, faster than ever before.

The increasing trend to use solar PV, however, comes at a price. Every kWh of solar electricity which is fed into the grid is currently subsidised with 3.59 cEUR. For every newly installed PV facility subsidies are guaranteed for 20 years. According to a paper by the RWI (Rheinisch-Westfälisches Institut für Wirtschaftsforschung), a German economy think tank, subsidies for photovoltaics will amount to about 18 billion EUR during the next few years. In total, the entire financial support given to the solar industry so far adds up to 100 billion EUR since the year 2000.  This corresponds to about 4 % of Germany´s GDP in 2010.

If the solar boom continues these figures are likely to rise. This means that electricity consumers will have to pay higher energy bills in order to support green technologies. Currently an average consumer (4500 kWh per year) would, thus, have to pay some 160 EUR on top of his/her electricity bill annually.


Does Saving Energy Push Renewables?

Yes it does. Let us look at a concrete example in order to get the point. The EU plans to improve its energy efficiency by 20% by 2020. In other words, 20% less energy will be used by then, according to plans. The baseline is the primary energy consumption for 2010 which was 1770 Mtoe. Thus, if all measures are in place, by 2020 this figure should be down to 1416 Mtoe.

In all likelihood, the savings will concern almost exclusively the use of conventional energies (coal, nuclear, oil) whereas renewable energies will not be touched by this development. Therefore, we may safely assume that on the consumption side renewables will be equally well off  as they are now. In fact, this is a very conservative estimate. On the contrary, renewable energy use may well be expected to rise over the next decade. But let us stick to our conservative approach for the time being. In 2010, the consumption of renewables amounted to some 172 Mtoe corresponding to 9.7% of total consumption.

Fig. 1 EU Gross inland consumption in 2010

Given our  2020 scenario from above and keeping renewable consumption at 172 Mtoe, we may conclude that by then renewables account for about 12.2% of total consumption. Bear in mind that this is true even if energy production from renewable sources does not increase.

The projection for 2020 would consequently look like this.

Fig. 2 EU Gross inland consumption in 2020

Thus, by saving energy the relative weight of renewables in the energy mix is automatically increased. The bigger the savings on the one hand the bigger the extra share of renewable energies on the other.