Navigant Research Blog

What It Will Take To Transform Buildings in Large Cities

— January 22, 2015

From New York to Los Angeles, a growing number of the largest U.S. cities are recognizing that tackling building efficiency translates into progress toward climate resilience.  The underlying assumption is that better information leads to action.  As these cities compile baselines on commercial building energy use and educate the public on the cost-effective opportunities for energy reductions, the next question that arises is whether building owners will take action.

New York State of Mind

New York City was the first to launch a comprehensive strategy to tackle energy waste in commercial buildings through four local laws under the Greener, Greater Buildings Plan.  The complementary laws not only mandate energy benchmarking, but also require performance upgrades to meet local energy codes for citywide renovations, major retrofits in buildings over 50,000 SF to meet lighting efficiency standards, and the installation of submeters by 2025.  Mayor Bill de Blasio has continued the commitment to improving the city’s climate readiness and, in September, announced a new goal for a citywide 80% reduction in greenhouse gas emissions by 2050.   According to a recent article in The New York Times, the mayor’s office estimates that the energy efficiency advances in buildings deliver tremendous economic benefits.  According to the director of the Mayor’s Office of Recovery and Resiliency, the city spends $800 million a year to run its facilities, and energy efficiency retrofits could generate $180 million in annual savings by 2025.

Best Practices

The City Energy Project (CEP), a national initiative directed by the Institute for Market Transformation (IMT) and the Natural Resources Defense Council (NRDC), aims to help 10 cities design energy efficiency plans and share best practices for promoting change in their largest commercial buildings.   Atlanta, Boston, Chicago, Denver, Houston, Kansas City (Missouri), Los Angeles, Orlando, Philadelphia, and Salt Lake City have each joined the project, according to the CEP fact sheet. As outlined on the CEP website, in 3 to 5 years, the initiative will create transparency on building energy use and create financial vehicles for investment in energy efficiency.

New financing channels are a critical element in the mission to tackle commercial building energy efficiency.  While many of the most attainable energy efficiency improvements can be low-cost or no-cost improvements through scheduling and procedures, transformational changes require capital investment.  The challenge is how to engage building owners with financing mechanisms that enable those investments.

Opening the Purse

At the 2014 World Energy Engineering Conference, held in October in Washington, D.C., several sessions honed in on the challenge of financing energy efficiency.  The market recognizes the opportunity and benefits associated with energy efficiency, but the reality is that capital budgets are tight.  Former President Bill Clinton, the keynote speaker, declared, “Financing is holding back the energy revolution.”

In Navigant Research’s view, the challenge is two-fold.  On one hand, there is the opportunity to adjust perspectives on energy efficiency investment.  Advocacy efforts, such as the CEP, could help building owners broaden their views from a focus on payback to a longer-term view of how energy efficiency and intelligent building investments enhance the value of their facilities.  On the other hand, our research suggests that a change is underway in the performance contracting and shared savings models that have helped fuel investment in energy efficiency historically.   Watch for a new report on energy service companies and the transformation of intelligent buildings financing in 2015 as a part of our Building Innovations Service.

 

How Technology Partnerships Will Shape the Future of Building Innovation

— January 20, 2015

The last 5 years have been monumental for the smart buildings industry.  Major building automation vendors have repositioned themselves as tech companies, a flurry of startups have entered the market, and building owners have become increasingly aware of the business value of integrating energy and operations management technologies.  Navigant Research expects to see a shift from the rash of acquisitions that dominated the smart buildings news a few years ago to partnerships shaping the market’s near future.  Companies are coming together to help customers overcome the challenges of enterprise awareness and integration and to make energy service offerings even smarter.

Enterprise Awareness

Even as the economy improves, many customers resist investing in energy efficiency.  The upfront capital costs of systems integration and equipment upgrades can be a daunting proposition for building owners and managers still learning the business value of intelligent energy and operational management.  Yet, a growing number of startups are finding new ways to bring cost-effective solutions to market that will help deepen the market penetration of smart building technologies.

In August, for example, Panoramic Power and Lucid announced a partnership to help customers capitalize on enterprise efficiencies through wireless energy monitoring and analytics.  Panoramic Power’s self-powered micro-sensors and Lucid’s BuildingOS software help customers aggregate building data and generate useful data across diverse systems and facilities.  In October, GridPoint and MicroStrategy announced a new partnership to enhance the software platform and visualization capabilities of GridPoint Energy Manager for cost-effective insight across light commercial building portfolios.  These two examples epitomize the partnering activity in the market that’s helping customers realize the benefits of smart building technologies at lower costs.

Enhanced Energy Services

Energy and engineering service companies are also seeing the benefits of partnering to bring smart building technologies to their customers.  AtSite is now enhancing its smart building professional services with the BuildingIQ Predictive Energy Optimization software.  The collaboration converges cloud-based software analytics with engineering expertise to elevate the service offerings to their customers.  ForceField Energy has partnered with Noveda to enhance its energy service company (ESCO) offerings with the IntelliNET Luminaire Management System (LMS) offering.  These partnerships illustrate how smart building technologies can generate new efficiencies and insights for professional service providers and differentiate offerings to customers who increasingly demand data-driven decision support.

Navigant Research will continue to track how new partnership models unfold in 2015 and whether these companies can successfully utilize their individual core competencies to deepen market penetration and expand the market for smart building technologies.

 

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.

 

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