We just became a member on Noesis Energy – a FREE platform of tools and reports that automates analysis, bench marking and monitoring for building energy use. This site also has a great portfolio of tools for access to incentives (under-works) and is a Social Media platform for the Energy and Sustainability Professional to engage in. We have found some interesting Q &A posted and some really great blogs and white papers to access.
One of the latest posts, by Lacey Miller, Product Marketing Specialist, titled “Five Market Forces Pushing Energy Retrofits” caught our interest. Lacey’s overview of the drivers and forces affecting the sustainable retrofit market listed out some positive trends. We differ in our perspective on Lacey’s take on performance contracting done through ESCO’s. In our opinion, the model of ESCO’s is not preeminent to performance contracting. That being said, we do agree that “the momentum for energy efficiency projects is continuing to build.” Thanks Lacey and Noesis Energy for the great highlights of the forces at play!
Five Market Forces Pushing Energy Retrofits
By Lacey Miller
According to the US Department of Energy,commercial buildings account for 35 percent of US electricity consumption and, on average, spend 30 percent of their operating budgets on operating costs. And, while roughly two percent of commercial floorspace is newly constructed each year, and a comparable amount renovated, the majority of opportunities to improve efficiency over the next several decades will be in existing building stock. Most of which are constrained by old equipment, aging infrastructure, and inadequate operations resources. Improved efficiency of existing buildings—through building retrofitting and other measures—represents a high-volume, low-cost approach to reducing energy use. But, even as the numbers continue to reflect positively for energy retrofits, we delay projects, and argue the benefits.
The majority of all commercial building owners and managers recognize that energy efficiency retrofits have the potential to yield substantial savings on operating costs. Yet, considerable time and effort continues to be spent by industry specialists in the identification of the numerous barriers (rather than solutions) to accomplish retrofits on a large scale. Lack of capital, unproven results and investment returns, and the lack of post-project data measurement are a few of these barriers. What will bring us past these challenges? The answer may be market trends.
Substantial market forces are positioning sustainable/energy retrofits of commercial buildings to be the next big thing; the drivers of this industry movement include the following:
1. New financial tools…to facilitate underwriting the economic benefits of such retrofits will become mainstream, proving the value of retrofits and thus unleashing untapped capital to finance the requisite reconstruction projects.
2. Performance contracting will continue to be used as turn-key solutions for sustainable energy retrofit projects and assist in securing existing third-party financing. Under a typical performance contract, an energy service company (ESCO) assumes some portion of the risk over a retrofit project’s useful life by offering a guarantee of energy and operational cost savings, and in some cases, assist in securing financing.
3. Green leases and green tenant demands are on the rise, causing landlords to support these market demands through increased energy efficiency. Tenants ultimately incur the cost of the retrofits, but they also see the direct benefits in the lower operating expenditures.
4. Advancements in building automation technologies and the convergence of information technology and building data are forcing the commercial marketplace towards retrofits on a global basis. Post-retrofit, these technologies monitor, adjust and synchronize a comprehensive infrastructure that reduces energy consumption on a real-time basis and interfaces with smart meters and smart grids.
5. Typically, when weighing an efficiency project against other opportunities, a metric such as return on investment (ROI) or internal rate of return (IRR) is applied to compare the financial attractiveness of various choices. Energy efficiency, coupled with a performance guarantee to transfer risk to the energy service company, provides an attractive investment when compared to common vehicles. When coupled with a savings guarantee through performance contracting, efficiency is low risk as well.
Analysis by the American Council for an Energy Efficient Economy shows that the average return on investment for energy efficiency projects is over 20%.
While progress towards the completion of large-scale energy retrofits in commercial buildings has been frustratingly slow, it seems that market forces are beginning to change things. In developed countries, at least half of the buildings that will be used in 2050 have already been built, creating a major opportunity for retrofit projects, which are increasingly more desirable and necessary. With these five market forces and more government subsidies, the momentum for energy efficiency projects is continuing to build.