Navigant Research Blog

Explosive Growth Drives India’s Smart Cities Movement

— January 19, 2015

In June, Prime Minister of India Narendra Modi announced the country’s goal for the development of 100 smart cities.  Fundamental to this vision is the development of smart buildings.  According to a recent article by Surabhi Arora, director of research services for Colliers International, “The advantage of following smart building concept is that they can be considered as future-proofed assets … The shift to smart buildings has only just begun, and will now accelerate very quickly with proactive government support.  It is the time for forward-thinking developers and landlords to prepare themselves to lead, rather than follow, the change.”

My colleagues James McCray and Lauren Callaway recently commented on the drive to create a more resilient and smarter grid in India.  As with that effort, India will face some inevitable challenges on the path toward developing smart buildings.  According to the United Nations, Indian cities will see populations burst with an additional 404 million people by 2050.  This rate of urbanization will put unprecedented pressure on city infrastructure and resources.  Smart city and smart building goals speak to the priorities for sustainability, climate change readiness, and human welfare, but economic commitments will be critical to see these objectives come to fruition.

Outside Forces

The international community has recognized the opportunities in India, and Japan, the United States, and Singapore are major government allies for the Indian smart cities agenda.   According to an article in Forbes, the Delhi Mumbai Industrial Corridor (DMIC), a 1,000 kilometer stretch between Delhi and Mumbai, will be a major focus of the smart cities development plan.  It’s projected that the new manufacturing and commercial centers within the smart cities will require upwards of $90 billion from international investors.  The smart city development in this corridor is integral to the nation’s vision of becoming the “Global Manufacturing and Trading Hub,” according to the DMIC Development Corporation, the government partnership between India and Japan.  The international interest for participation in the development of these smart cities also stems from major technology companies such as Microsoft and IBM.

A Chicago a Year

The Indian government is pushing the smart city agenda forward through an important round of stakeholder planning meetings that began at the end of December.  The government recognizes that accomplishing its vision will be no small feat; as one government official explained, “a new Chicago needs to be built every year.”  The political commitment, international interest, and growth demands in India represent a major opportunity for smart building technology companies.  India’s smart cities movement could demonstrate how smart buildings deliver significant cost savings through energy efficiency and strategic facilities management, and could become a hub for the spokes of the smart city infrastructure.

 

Commercial Real Estate Holders Realize the Value of Energy Management

— December 23, 2014

Conventional wisdom states that the split incentive of tenant-occupied commercial buildings undercuts the benefits of energy efficiency and smart building development.  Those tides are shifting, though, and major commercial real estate (CRE) firms are doubling down on investment and promoting the value of strategic energy management.  In the last few months, major CRE firms have announced new strategies and corporate perspectives that highlight the promising future for smart commercial buildings.

America Realty Advisors has discussed a new sustainability strategy for its $6 billion commercial real estate portfolio in a recent article in National Real Estate Investor.  The first steps include benchmarking energy and water use and conducting targeted energy audits at under-performing facilities.  CRE firms are seeing that smart, efficient buildings translate to stronger bottom lines.  American Realty Advisors’ managing director Jay Butterfield explained in the article: “We have seen that firms successfully reducing a property’s energy usage by 30% may realize increases of up to 5% in both net operating income and asset value.”

Making a Stand

JLL has also taken its stance on energy efficiency and sustainability to the front lines, promoting its IntelliCommand energy management system as a service offering and taking a stand on climate change.  In a recent editorial supporting the U.S. Environmental Protection Agency’s (EPA’s) Clean Power Plan, JLL’s Dan Probst explained, “Our energy efficiency initiatives have helped our commercial real estate clients reduce their greenhouse gas emissions by 12 million metric tons while saving them $2.5 billion in energy costs over the past seven years.”

The benefits of strategic energy management go beyond the CRE giants and their flagship Class A buildings.  Two recent examples demonstrate the economic impacts of energy efficiency upgrades in Class B buildings.  In Houston, a 24-story office building and historic landmark went through significant upgrades in 2011, including the installation of a building energy management system, and Hines (the real estate management company that manages the building) is touting the benefits.  Hines sees this kind of strategic energy management focus helping lower capitalization rate, generate operations and maintenance (O&M) savings, and stay competitive.

Too Big to Ignore

Meanwhile, according to The New York Times, the benefits of energy efficiency in Class B buildings are too big to dismiss.  The energy and sustainability benefits of Class B upgrades in New York are underscored by the added benefit of helping building owners prepare for the energy reductions targets for 2020, under the bundle of laws supporting the PlaNYC climate change agenda.

The mounting risks of climate change, rising demand for sustainable workplaces, and maturing market of smart building technologies are combining to spark momentum in CRE strategic energy management investments.  These CRE early adopters are laying the groundwork for the growing penetration of smart building investments in commercial buildings.

 

Two Reasons 2015 Will Be a Bright Year for Smart Buildings

— December 21, 2014

It’s been an important year for the smart buildings market in the United States, and recent trends suggest increasing momentum in near-term technology adoption.  Vendors are making waves on two fronts:  innovative financing options have been introduced to lower upfront costs to customers; and vendors are finding ways to scale smart building solutions to the small and medium business (SMB) segment – a critical move toward substantial market penetration.

Less Money Down

Finding the cash is often the biggest challenge to smart building investment for today’s early adopters.   Innovative technologies provide a rapid payback coupled with valuable, yet hard-to-quantify operational efficiencies.  But many customers just don’t have the capital for new hardware and systems to develop smart buildings.  Noesis Energy and Daintree Networks provide two examples of cost-effective alternatives to traditional energy efficiency and smart building investment.

This year Noesis Energy announced a new $30 million investment fund to support a shared savings approach to smart building investment.  Customers can access $300,000 to $1 million to finance their smart building development projects and repay the financing through the energy savings realized on their monthly utility bills.   This approach mimics the traditional energy performance contracting models that have been common in public sector energy efficiency projects for years.

More recently, Daintree Networks announced a new subscription model for energy management, which helps customers take advantage of smart buildings technology with a monthly fee instead of hefty upfront capital costs.   Daintree’s Building Energy Management as a Service provides a cloud-based application of the company’s ControlScope software.   This subscription model has been adopted by U.S. smart building analytics startups to shift a capital cost that may derail investment into an operational cost that fuels innovation and efficiency.

On the Small Side

According to Navigant Research’s report, Energy Management for Small and Medium Buildings, investment in the SMB sector is expected to surpass $1 billion by 2022.  The opportunities in this sector are critical for the future of smart buildings because SMBs represent the largest portion of the overall building stock.

Vendors have honed in on opportunities to engage larger organizations with portfolios of smaller buildings.   These projects represent a proving ground for solution scalability.  GridPoint, for example, has showcased performance in retail and fast serve restaurants.  Last month, GridPoint announced that it has helped the retail chain VF Outlet achieve an average energy savings of 26% across the portfolio since 2012.  When you bring this level of savings to a portfolio of facilities, it creates a compelling business case.  It’s evident the market players – from startups to major players – see the need to tackle SMBs.   In early January, EnerNOC announced it had acquired Pulse Energy as a means of expanding its offerings to service all commercial and industrial customers.

 

How Building Innovations Can Help the United States and China Tackle Climate Change

— November 17, 2014

Under the terms of the U.S.-China Joint Announcement on Climate Change, China has agreed for the first time to set a limit on the rise of its greenhouse gas (GHG) emissions.  As the two biggest economies in the world, the United States and China have the ultimate responsibility for leadership in tackling climate change.  The next big hurdle is driving emissions downward.  Federal regulation on climate change in the United States has been at a standstill, but elements of this agreement shed light on opportunities to reduce emissions while stimulating the economy.

We know buildings demand about 40% of all energy used in the United States, and there is a lot of room for improvement in how we live and work in buildings.  In China, the opportunities to tackle inefficient building operations are just beginning to unfold.  In fact, China’s State Council Development Research Center projects that energy efficiency in buildings could provide 25% of China’s new power needs by 2020.  The central government projects that, by 2020, 60% of the population will be urbanized and more than 1 trillion square feet of new commercial and public buildings will be added to the country’s building stock (learn more from Navigant Research’s reports, Energy Efficient Buildings Asia Pacific and Smart Cities).

Measure, Monitor, Manage, and Mitigate

As the saying goes: you can’t manage what you don’t measure.  The first big benefit of smart building technologies is insight into how your facility is operating.  In order to make improvements, you must have a baseline.  Recognizing this challenge, cities across the United States (including New York City, Seattle, and Chicago) have passed building benchmarking laws to start a new wave of energy awareness.  A wide array of smart building solutions is available to help building owners track their energy use to meet these new demands.

Smart buildings are defined by integrated and dynamic systems.  From the innovators in building energy management systems (as detailed in Navigant Research’s Leaderboard Report: Building Energy Management Systems) to advanced wireless controls for smart buildings, technology is helping building operators and decision makers shift their operations to new schemes for continuous improvement.  Smart building solutions redesign the processes for monitoring and managing systems from heating, ventilation, and air conditioning to plug loads, and in doing so, provide new ways to mitigate GHG emissions from building operations.

The development of smart buildings should be a keystone in the collaboration and innovation targets of the U.S.-China Climate Agreement, because the enabling technologies not only dramatically reduce energy consumption and GHG emissions, but also make real economic sense.

 

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