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Energy Policy 36 (2008) 3278 3285

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Energy efciency in New Zealands residential sector: A systemic analysis

Arun Abraham Elias
Victoria Management School, Victoria University of Wellington, P.O. Box 600, Wellington, New Zealand

a r t i c l e in f o
Article history: Received 13 December 2007 Accepted 5 May 2008 Available online 24 June 2008 Keywords: Energy efciency Residential sector Group model building

a b s t r a c t
This paper examines the complexity arising from the multiple, time varying factors that impact energy efciency in New Zealands residential sector. Initial problem structuring involved the analysis of behaviour over time of main variables and incorporated stakeholder analysis using a systems approach. Further, a systems model of the problem situation was developed using a participative group model building process. The analysis of the model revealed a set of feedback loops operating in the system identied as responsible for the complexity of the problem situation relating to energy efciency. The paper concludes by highlighting some of the main results relating to long-term structural changes suggested by the stakeholders involved in this study to change the behaviour of the system. & 2008 Elsevier Ltd. All rights reserved.

1. Introduction New Zealands rate of visible improvement in energy efciency has been relatively low over the last 10 years by longer-term international standards. To address this situation, the New Zealand government formulated the National Energy Efciency and Conservation Strategy (NEECS), which sets the agenda for government programmes to promote energy efciency and renewable energy. Released by the New Zealand Minister of Energy on 27 September 2001, the strategy sets two national targets: a 20% improvement in energy efciency by 2012; and increasing New Zealands renewable energy supply to provide a further 30 PetaJoules of consumer energy by 2012 (EECA, 2006). A review of this strategy was conducted by the Energy Efciency and Conservation Authority (EECA), a body responsible for helping the New Zealand government deliver its energy efciency agenda. As a part of this review, an analysis of trends of some of the factors related to energy efciency in New Zealand was conducted. The trends of four such factors are discussed here. First, energy consumption in New Zealand is increasing. Table 1 presents the trend of consumer energy, the energy used by nal consumers in PetaJoules. Along with energy consumption, the price of energy is also increasing. Table 2 presents this increasing trend of energy prices using nominal electricity consumer prices. While energy consumption and energy prices are increasing in New Zealand and elsewhere, energy availability is decreasing globally. In some countries, this could be due to a decrease in renewable and/or non-renewable energy generation. In New Zealand, the proportion of electricity generated from renewable

energy sources is reducing (Parliamentary Commissioner for the Environment, 2006). Fig. 1 presents this declining trend of electricity generation from renewable sources. The blue line shows the actual values, while the black line represents the trend line. Finally, it was also found that action to date has been insufcient to produce a substantial improvement in energy efciency. Although NEECS aims to increase energy efciency signicantly to reach the target of 20%, this has not occurred. Between 2001 and 2004, New Zealands energy efciency performance improved by around 0.4% per annum (EECA, 2006). The average rate of improvement over the 5 years prior to the release of the strategy, i.e. 19962001, was around 0.75% (EECA, 2006). Fig. 2 presents the energy efciency trend in New Zealand. To summarise the problem situation, while energy consumption and energy prices are increasing, energy availability is decreasing in New Zealand. In addition to this, although energy efciency is improving in New Zealand, action to date has been insufcient to produce a substantial improvement. So, the problem situation related to energy efciency in New Zealand is quite complex. It is complex since there are several factors affecting this problem, and they are changing with respect to time. In this context, a study was undertaken to analyse the factors affecting energy efciency in New Zealand. The scope of this study was limited to the residential sector and the factors associated with it. This paper presents the essence of this study, including relevant literature, methodology used, data collected, and a model developed.

2. Theoretical background In the New Zealand context, energy efciency is dened by the Energy Efciency and Conservation Act 2000 to mean a change to energy use that results in an increase in net benets per unit of

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E-mail address: Arun.Elias@vuw.ac.nz 0301-4215/$ - see front matter & 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2008.05.005

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Table 1 Total consumer energy by sector in New Zealand Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Agriculture (PJ) 17.3 17.9 19.4 20.3 20.5 19.0 19.6 20.7 23.7 19.8 Industrial (PJ) 149.7 150.7 145.8 149.4 151.7 151.6 149.7 153.5 166.3 168.6 Commercial (PJ) 38.4 36.7 37.1 38.3 39.9 45.7 46.5 47.5 43.8 48.3 Residential (PJ) 54.8 56.5 57.1 58.3 56.6 55.2 56.8 56.5 57.8 66.4 Domestic transport (PJ) 162.0 164.5 169.9 172.8 177.0 185.3 190.7 199.2 207.7 212.7 Total (PJ) 422.2 426.2 429.3 439.0 445.7 456.9 463.3 477.5 499.2 515.9

Source: Ministry of Economic Development (2006, Table A.4b, p. 11).

Table 2 Nominal electricity consumer prices in New Zealand Year end march average 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Residential excluding GST (cents/kWh) 10.24 10.73 11.45 12.08 11.61 11.87 11.76 12.86 13.82 14.84 16.59 Industrial excluding GST (cents/kWh) 5.84 6.33 6.12 7.01 6.98 5.94 6.31 6.71 7.23 8.10 7.56 National average (cents/kWh) 8.77 9.20 9.44 9.90 9.70 9.32 9.49 10.16 10.81 11.85 12.42

Source: Ministry of Economic Development (2006, Table I.1, p. 146).

80 70 Percentage of total generation 60 50 40 30 20 10 0 1990

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year

Fig. 1. Electricity generated by renewable energy sources. Source: Parliamentary Commissioner for the Environment (2006, Fig. 4.5, p. 32).

energy (EECA, 2006). The term residential energy efciency, as used in this paper, means the application of this denition in the residential sector. Literature relating to residential energy efciency is quite extensive and several streams of literature can be identied. One of these literature streams includes interesting applications of residential energy efciency in different countries like Denmark, Norway and Sweden (Unander et al., 2004), Lebanon (Cantin et al., 2007), Malaysia (Saidur et al., 2007), Pakistan (Eiswerth et al., 1998), and Switzerland (Jakob, 2006). In another stream, the different benets related to residential energy efciency surfaced and are discussed. For example while Seidel (1977) explained the

benets of conservation of residential gas heating, Tonn and Peretz (2007) have highlighted the state-level benets of energy efciency. In addition, there is another stream of literature that reects the different types of analyses related to residential , 2006), energy efciency like social costbenet analysis (Gull consumers energy analysis (Kempton and Layne, 1994), and sociological analysis (Ouedraogo, 2006). This latter stream also provides a variety of methodologies, methods, and tools for conducting these analyses like the two-factor method outlined by Martinaitis et al. (2007), fuzzy logic methodology (Jaber et al., 2005), and the Lawrence Berkeley Laboratory model (Kahn et al., 1987). However, an identiable gap in this literature relates to the

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Table 3 Methodological framework Phases Problem structuring Steps Behaviour over time chart development Stakeholder analysis Hexagon generation Cluster formation Variable identication Causal loop model development Causal loop model analysis

3
Group model building

1 = Energy consumption, 2 = Energy price, 3 = Energy availability, 4 = Residential energy efficiency.

1995

2005

Fig. 2. Behaviour over time. 1 Energy consumption, 2 energy price, 3 energy availability, 4 residential energy efciency.

absence of any overall, systemic analysis of residential energy efciency and the factors surrounding it. In this study, an attempt was made to conduct a systemic analysis of the complex problem situation encompassing residential energy efciency in New Zealand. The management literature suggests that systems approaches can be used to analyse complex problem situations and that they can be characterised as hard (e.g. Forrester, 1961), soft (Checkland, 1981), critical (Ulrich, 1987), and multi-methodological (Brocklesby, 1993). Such approaches encompass a variety of systems thinking processes that were drawn upon for this study.

3. Methodological framework This study used a process called group model building (Vennix, 1996), which is based on the system dynamics methodology. Group model building is a process in which team members exchange the perceptions of a problem and explore such questions as what exactly is the problem we face? How did the problematic situation originate? What might be its underlying causes? How can the problem be effectively tackled? An important characteristic of group model building is that fact is separated from value. The primary focus is descriptive and diagnostic, the way the team members think that how a system works is separated from the question about how they would like a system to work. The goal of group model building is to create a consensus after sufcient deliberation and contrasting of viewpoints has taken place (Vennix, 1996). Among the different methods available for group model building, the method used in this paper is that based on the systems methods outlined in Cavana et al. (1999). In this, hexagons are used to facilitate systems thinking. Maani and Cavana (2000) have provided a detailed explanation, drawing on Hodgsons (1994) use of hexagons for issue conceptualisation and Kreutzers (1995) FASTbreakTM process using hexagons to develop causal loop diagrams. In this study, before conducting the group model building sessions, an attempt was made to structure the problem systemically. First a behaviour over time (BOT) chart was developed. Then a stakeholder analysis was conducted to identify and analyse the stakeholders of this complex problem situation. The two phases used in this study and the associated steps are shown in Table 3.

this study. As indicated in Table 3, two steps were used in structuring the problem situation, developing a BOT chart and conducting a stakeholder analysis. Developing a BOT chart or demonstrating reference mode behaviour is a tool used in systems thinking to show the patterns of the main variables in a system over an extended period of time, typically several months to several years. Such patterns can indicate the variations and trends in the variable of interest, for example, growth, decline, oscillations, or a combination thereof. The important elements captured by a BOT chart are the overall trends, directions and variations, not the numerical value of the variable. Therefore, BOT graphs are usually drawn in a rough sense without exact numerical values attached (Maani and Cavana, 2000). In this study, a BOT chart was drawn to capture the trends of the four variables related to the problem situation, previously discussed in Section 1 of this paper. These variables include energy consumption, energy price, energy availability, and residential energy efciency. Fig. 2 presents this behaviour, showing an increasing trend of energy consumption and energy price. These trends are based on Tables 1 and 2. It also shows that the generation of energy from renewable energy sources is declining based on Fig. 1 of this article. Finally, residential energy efciency in New Zealand is increasing, but this increase is not really substantial (EECA, 2006). During the second part of problem structuring, stakeholders related to the problem situation were identied and analysed. For this purpose, a stakeholder analysis methodology, evolved from stakeholder literature (e.g. Freeman, 1984; Mitchell et al., 1997), was used. According to Elias et al. (2002) this methodology consists of nine steps: (i) developing a stakeholder map of the problem situation; (ii) preparing a chart of specic stakeholders; (iii) identifying the stakes or interests of stakeholders; (iv) preparing a power versus stake grid; (v) conducting a processlevel stakeholder analysis; (vi) conducting a transactional-level stakeholder analysis; (vii) determining the stakeholder management capability; (viii) analysing the salience of stakeholder; and (ix) analysing the changing positions and interests of stakeholders. The stakeholder map developed in this study is presented in Fig. 3. A detailed description of the remaining eight steps and its illustration is beyond the scope of this paper. However, it is important to note that such a stakeholder analysis helped in structuring the problem situation by systematically identifying the stakeholders and their stakes. It also helped in dening the problem systemically using multiple stakeholder perspectives.

5. Group model building 4. Problem structuring To gain a systemic understanding of the problem situation, a problem structuring exercise was conducted in the rst phase of In the second phase of this study, 10 stakeholders belonging to 10 different categories, as identied in the stakeholder map (Fig. 3), were brought together to participate in the group model

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Residential energy users Non-residential energy users

Government

Political

Energy generation companies

Residential Energy Efficiency

Energy related businesses

Special Interest Groups Regulatory Agencies

Media

Environmentalists

Fig. 3. Stakeholder map of residential energy efciency problem in New Zealand.

building exercise. In this qualitative group model building approach, hexagons are used to facilitate systems thinking. For this research, steps in the group model building process can be categorised as follows: Step Step Step Step 1: 2: 3: 4: Hexagon generation Cluster formation Variable identication and Causal loop development

Step 1: Hexagon generation This step consists of portraying each issue, opportunity, or obstacle identied by the stakeholders as a hexagon. To help the stakeholders in generating hexagons, an organising question was used in the rst group model building session. The organising question was What are the factors that affect the residential energy efciency in New Zealand? Coloured hexagons were used as a facilitation tool. Yellow hexagons were used for recording ordinary issues, opportunities, or obstacles identied by the participants. Pink hexagons were used when they generated a strongly held/felt issue, opportunity, or obstacle. The stakeholders who attended the session generated a total of 38 hexagons. Step 2: Cluster formation As the second step, the stakeholders identied hexagons that have something in common. These hexagons were grouped together to form clusters, and a descriptive name was given to each cluster. In the workshop, the stakeholders made 18 such clusters. The descriptive names given to each of these seven clusters include: energy costs and supply, monitoring residential energy efciency, EECAs effectiveness, environmental sustainability, healthy homes, consumer behaviour, and standards and support. As an example, the cluster on consumer behaviour is presented in Fig. 4. Step 3: Variable identication In the next session, the stakeholders identied a few variables associated with each cluster. Blue hexagons were used to represent the variables. These variables are presented in Table 4. Step 4: Causal loop development Causal loop diagrams are visual representations of causeeffect relationships in a system (Maani and Cavana, 2000). To develop a

causal loop diagram, the stakeholders tried to establish the links between variables identied in Step 3. They rst identied two variables that were related and provided a directed arrow between each pair of related variables. To generate a directed arrow, they placed a positive (+) sign near the head of the arrow if an increase (or decrease) in a variable at the tail of an arrow caused a corresponding increase (or decrease) in a variable at the head of the arrow. If an increase in the causal variable caused a decrease in the affected variable, a negative () sign was placed near the head of the arrow. An initial version of the causal loop diagram was thus developed. It is shown in Fig. 5. At the end of the group model building exercise, a general agreement that this model represented their shared view was obtained from the stakeholders who participated in this exercise.

6. Analysis of the causal loop diagram To critique the casual loop model, an analysis of the feedback loops formed in the causal model was conducted. Feedback loops can be reinforcing or balancing. Reinforcing loops reect positive feedback systems. They can represent growing or declining actions. Unlike reinforcing loops, balancing loops reect negative feedback systems and seek stability or return to control (Sterman, 2000). A total of eight feedback loops were identied in this model. Out of this, four were reinforcing, while the remaining four were balancing loops. Their interaction and interdependencies form the basis for the illustrative analysis that follows. An analysis of the seven feedback loops, including the links between the variables, as identied by the stakeholders, is explained in this section. 6.1. R1: energy generation loop A possible point to start this analysis is the problem of increasing residential energy consumption. This may be the result of several factors, for example, increasing migration to New Zealand or increasing New Zealand population, beyond the scope of discussion possible for this paper. Increasing residential energy consumption will lead to higher energy demand, which in turn will require more energy generation. More energy generated provides more energy for residential

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1 Lack of resources

4 Clear information and advice to householders

5 Aesthetics

7 Take back

8 Household behaviour

12 Why should residents care?

15 Central heating

16 Energy Efficiency not on clients radar

17 Desirability for energy efficient products

19 Benefits for landlords?

23 Increased sales of EE products

37 Rate of home/appliance replacement/ renovation

Fig. 4. Example of a cluster reecting consumer behaviour.

Table 4 Variables identied by the group model building participants Variable name 1. Quality of life 2. Comfort level 3. No. & size of houses 4. Energy generation capacity from non-renewable sources 5. Residential energy consumption 6. Energy generation 7. Energy demand 8. Energy availability 9. Energy price 10. Prots made by energy generation companies 11. Tendency to waste energy 12. Energy demandsupply gap 13. Tendency to purchase luxury items 14. Money available to spend 15. Money saved on energy bills 16. Residential energy efciency 17. Government intervention 18. Awareness of residential energy efciency 19. Energy conservation 20. Home-heating efciency 21. Water-heating efciency 22. Use of energy efciency appliances

ones they already have. This trend leads to more residential energy consumption, thus completing the second reinforcing feedback loop in this model. 6.3. R3: energy availability loop As the energy generation increases, the potential energy generation or capacity is depleted. This is because most of the energy generation is from non-renewable energy sources. When the energy generation capacity is depleted, there will be less energy available. When energy availability decreases, energy prices will go up. When energy prices are high, energy generation companies will make more prot, allowing them to invest more in energy generation. This completes the third reinforcing feedback loop which is named as energy availability loop. Now, these three loops R1, R2, and R3 are mutually reinforcing in nature and can throw some light on reasons for the increasing trends of energy demand and energy prices, and decreasing trend of energy availability. In addition to this, although not mentioned directly, it also captures and reects the increasing trend of energy costs. However, these are not the only loops operating in the wider system. The problem situation, as explained using these three loops, will likely demand government intervention, giving rise to more feedback loops, as explained below. 6.4. B1: energy conservation loop An increase in energy demand will result in an increase in the energy demandsupply gap, prompting a New Zealand government reaction to intervene. Government intervention usually introduces activities to improve the awareness of residential energy efciency among the New Zealand public. This has several effects pertaining to energy efciency and energy conservation in New Zealand. One such effect is an improvement in energy

energy users to consume, thus completing a reinforcing feedback loop. 6.2. R2: energy consumption loop When residential energy users consume more energy, we presume that their comfort level will increase, leading to an improved quality of life. The current New Zealand trend shows that this has led to a boom in the New Zealand real estate market with New Zealanders buying more houses that are bigger than the

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Quality of life

+
Comfort level + Energy generation capacity from non-renewable sources No. & size of houses

R2
+

+
Energy availability

Residential energy consumption

R3 R1
Energy generation + +

Energy price

+
Energy demand

Profits made by energy generation companies

+
Energy demand-supply gap Tendency to waste energy -

+
Tendency to purchase luxury items + Money available to spend +

B1

+
Government intervention + Awareness of residential energy efficiency

B5
Money saved on energy bills + Residential energy efficiency +

+ Energy conservation
B2

+ Home heating efficiency

B3

+ Water heating efficiency

B4

+ Use of energy efficiency appliances

Fig. 5. Causal loop diagram.

conservation efforts by some members of the New Zealand public, resulting in a decreased energy demandsupply gap. An analysis of this loop shows that it is a balancing loop. 6.5. B2: home-heating efciency loop Another effect of increased awareness about residential energy efciency is that more New Zealand residents would seek to improve their home heating, thereby creating gains in homeheating efciency. An increased home-heating efciency will result in improved residential energy efciency, in turn decreasing the energy demandsupply gap. This loop is also a balancing loop. 6.6. B3: water-heating efciency loop This loop is similar to the home-heating efciency loop. Here, an increased awareness about residential energy efciency will result in New Zealand residents improving their water-heating efciency, which in turn improves the residential energy ef-

ciency. This will result in a decreased energy demandsupply gap, thus forming another balancing loop.

6.7. B4: energy efciency appliances loop This loop is also similar to the previous two loops. An increased awareness about residential energy efciency will result in more New Zealanders using energy efcient appliances. This will also improve residential energy efciency, thus resulting in a reduced energy demandsupply gap. Like the previous three loops, this is also a balancing loop. Due to the combined effects of these four balancing loops B1, B2, B3, and B4, the system will act as a self-regulatory control of the energy demandsupply gap. The effect of these four loops will also help in improving the residential energy efciency. Unfortunately, these are not the only loops in the system that affects residential energy efciency. There is yet another loop operating in the system as explained below.

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Quality of life +

Comfort level + Energy generation capacity from non-renewable sources + Energy availability Energy price

No. & size of houses

R2
+

Residential energy consumption

R3
Energy generation + +

R1

+ Energy demand

Profits made by energy generation companies

Fig. 6. Causal loop diagram.

6.8. B5: energy wastage loop Improvement in residential energy efciency will result in residents saving more money on energy bills. The more money saved by residential users can mean more money available to spend on other goods. When there is more money available to spend, there is a tendency to purchase more luxury items. This tendency could lead to wastage of energy and any such wastage of energy will reduce residential energy efciency. This is a balancing loop and the effect of this loop is to dampen the improvement in residential energy efciency caused by the other four balancing loops B1B4. To summarise, the BOT chart in Fig. 2 can be explained using the eight feedback loops in the causal loop model. In other words, the interactions of these loops explain the complex problem situation presented in the BOT chart.

7. Conclusions The structure of the system, as captured by the casual loop diagram (Fig. 6) and the feedback loops in it, dictates the behaviour as shown in the BOT (Fig. 2). To induce long-term changes in this behaviour, short-term quick xes in the structure might not be helpful (Senge, 1990). Instead, long-term structural changes need to be devised to change the behaviour of the system. In this respect, after the group model building sessions, some of the stakeholders involved in this study discussed the implications of the model and then surfaced a few strategic initiatives to change the structure of the system. One such initiative related to addressing the energy wastage loop B5 and the behavioural issues underlying it. It was felt that a two-pronged approach was needed in government intervention, targeting both energy wastage and energy efciency. It was hoped that such an initiative would help in raising the current slow rate of increase in residential energy efciency, by releasing residential energy efciency from the grip of the energy wastage loop, which was responsible for resisting it grow at a faster rate. Another strategic initiative proposed by the stakeholders relates to controlling residential energy consumption, as captured in the feedback loops R1 and R2. It was felt that there is a need for more EECA intervention to support the Reserve Bank of New Zealands efforts to control the current real estate boom. In addition to this, a need for specic interventions to improve the awareness and readiness of wealthy New Zealanders

to control their residential energy consumption was suggested. Both these initiatives were recommended to EECA as a part of this study, with an aim to control the trend of increasing residential energy consumption, and to accelerate the increasing trend of residential energy efciency. Overall, these initiatives showed how this study contributed to policy analysis and development in the energy sector in New Zealand. To summarise, this study has explained how causal loop diagrams could be used to represent the perceived systemic reality of residential energy efciency in New Zealand. As mentioned in the systems literature, it showed how these diagrams could be used as communication devices (e.g. Sterman, 2000) and also as a means of identifying, describing, and facilitating the analysis of complex systems (Maani and Cavana, 2000). This study also illustrated how group model building processes used in the system thinking literature (e.g. Vennix, 1996) can be used in the domain of residential energy efciency literature. To a practitioner in this eld, it offered a participative process that can be used to reveal the mental models of multiple stakeholders related to a problem situation. Finally, this study lays a platform for further empirical research, not only on the topic of energy efciency, but on related problem areas, and in doing so, help build methodological understanding of complex problem situations facing decision makers. References
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