Navigant Research Blog

Better Buildings Challenge Boosts ESCOs

— January 12, 2012

In late 2011 President Obama announced the Better Buildings Challenge, a $4 billion program sponsored by the DOE with the support of a number of public and private sector partners.  The program aims to make American buildings 20% more energy efficient by 2020 by directing federal agencies to engage in performance contracts (driving efficiency with zero taxpayer funds) as well as mobilizing major companies to invest in efficiency upgrades to their own buildings and plants.

The list of partners in the Better Buildings Challenge is impressive, including major building service providers such as Schneider Electric and Transwestern, as well as industrials with large building portfolios such as Saint-Gobain and General Electric.  To date, 1.6 billion square feet of space have been committed to the program, and that figure will grow as more companies, government agencies, and other organizations get involved.

But is it enough to reach the 20% goal by 2020? Four billion dollars may sound like a lot, but some studies have indicated that reducing energy consumption in U.S. buildings will take much more than that.  A 2009 study from McKinsey found that a potential $1.2 trillion in gross energy savings sit latent in the U.S building stock – but it would take $520 billion in upfront investment to unlock those savings and reduce projected energy demand by 23%. The amount of capital directly engaged for the Better Buildings Challenge is less than 1% of the $520 billion McKinsey believes is needed.  So the 20% reduction by 2020 may be a stretch with these funds alone.

However, the announcement could have a ripple effect on the energy service company (ESCO) market and in energy efficiency investment more broadly.  In the federal sector alone, President Obama has ordered federal agencies to invest $2 billion in energy efficiency.  That money will likely be spread out over the next few years and will go to energy performance contracts with the 53 ESCOs qualified to do federal work.  That, in turn, will put ESCOs in a better cash position to build new capacity and reach more customers.

Other emerging trends in building efficiency policy might help the U.S. chip away at the funding gap.  Regulations such as PACE financing are starting to lower the bar for commercial building owners to engage in efficiency upgrades in cities from Los Angeles to Washington D.C.  And commercial benchmarking laws in cities like New York and San Francisco will soon make energy efficiency even more of a differentiator in commercial real estate markets. 

The Better Buildings Challenge follows shortly after the announcement of a major zero energy building initiative by the General Services Administration, the federal government’s real estate manager.  GSA will launch zero energy retrofits of 30 federal buildings around the United States over the next few years.  The federal government has long adopted a “lead by example” approach to efficiency in commercial buildings, and these two major federal energy efficiency initiatives will help accelerate investment in efficiency not only in the public sector, but also in the private sector.


E-Trucks : The Outlook for 2012

— January 11, 2012

As we think about what to expect for 2012, I have assembled a short list of what I am watching in the world of medium and heavy duty trucks.  Here are several key trends that we are watching in the truck market in 2012:

1)      The world economy is improving (albeit slowly), such that overall truck purchases are expected to rise this year.  The United States saw consumer confidence and spending grow slightly in the last quarter and should be able to extend this into 2012, despite continued risks in Europe.  Speaking of Europe, the crisis in Ireland and Greece appears largely averted.  While other countries remain worrisome (looking your way, Italy), the leadership finally appears to be taking this seriously and 2012 is looking to be a bit smoother than 2011.  Interestingly, a cloud that hangs over early 2012 is China’s potential trade deficit with the United States.  Slowing exports may mean that China’s employment may not keep up with its growing urban population, which would stunt domestic economic growth.  This could potentially add to the economic growth in the U.S. and Europe as imports to China rise.  However, expect that the Chinese government will make some policy changes (stimulus or monetary changes) to bolster specific domestic economic sectors – likely producing a positive impact on the truck market in China.

2)      We anticipate that 2012 will be the year that hydraulic hybrids will move from demonstration projects to full commercialization.  These hybrids will be focused in the largest users of fuel (we have seen them in delivery vans and refuse trucks for the most part so far).  This focus will continue, but wider fleet adoption is expected in 2012.

3)      Natural gas is growing in heavy applications (transit buses and Class 8 trucks) where the upfront cost of hybrids and plug-in remains a significant hurdle.  In 2012, this trend is likely to continue, particularly in European and developing Asian markets.  The lower cost of the natural gas conversion and the availability of low cost refueling infrastructure in some markets will push transit agencies in particular to focus on CNG as the fuel of choice. 

4)      Plug-in electric truck growth has been slow in 2011.  A large part of this is due to the industry being focused on the United States, Japan, and China for plug-in trucks.  Japan spent a good part of 2011 rebuilding from the disastrous earthquake, leaving China and the weak economy of the United States to lead the global sales of plug-in trucks.  China is expected to be flat or even slightly lower in 2012 depending on how item #1 plays out, leaving the focus to remain on U.S. into 2012.  However, Pike Research expects that Europe will start to see significant growth in plug-in trucks as well.  Smith Electric Vehicles of the U.K. (now part of the U.S. Smith Electric Vehicles) is well positioned for growth, and Daimler and Mitsubishi Truck & Bus (Daimler owns 85% share) have demonstrated the Fuso Canter E-Cell battery electric truck based on one of the most popular truck platforms in Germany.  Transit buses are another source of interest in heavy duty electric drivetrains in Europe, with electric bus projects showing up in the U.K. and France.

5)      Small fleets will continue to be neglected in 2012.  While the big fleets (think Fedex, UPS, DHL, Perolator, Fritolay) capture the headlines because of their large green truck purchases, a large part of the volume in the medium and heavy duty truck market comes from small fleets.  These small fleets have been largely ignored by emerging plug-in and hydraulic truck technology, leaving CNG and hybrids to take a lead in this market.  This won’t likely change in 2012, though hybrids may start to play a bigger role in this market as Hino, Navistar, and Freightliner continue to push their hybrids through their large dealer networks.  However, most smaller fleets will continue to look towards truck and engine downsizing, and alternative fuels as their best options for reducing fuel costs.


Victory for Greenpeace as Facebook Un-Likes Coal

— January 10, 2012

The release last month of a joint announcement by Greenpeace and Facebook marks the end of one of the most interesting green campaigns of recent years.  Greenpeace first targeted Facebook 20 months ago, after the social media giant announced a new purpose-built data center, which it turned out would depend on electricity mainly generated from coal.  Facebook cited its commitment to building an energy-efficient data center, but Greenpeace argued that ignoring the prime source of energy for the site undermined other green elements of the strategy. 

According to the new statement, Facebook is now committed to using renewable energy in future data centers and also offers to promote this approach to other companies:

Facebook is committed to supporting the development of clean and renewable sources of energy, and our goal is to power all of our operations with clean and renewable energy.  Building on our leadership in energy efficiency (through the Open Compute Project), we are working in partnership with Greenpeace and others to create a world that is highly efficient and powered by clean and renewable energy.

A number of specific activities are also mentioned in the statement.  Facebook has committed to adopting a siting policy that states a preference for access to clean and renewable energy supply, and funding research into energy efficiency that will be shared through the Open Compute Project.   The company will also “Engage in a dialogue with our utility providers about increasing the supply of clean energy that power Facebook data centers.”

Greenpeace, meanwhile, will help support for the Open Compute Project, by encouraging companies to join in, use the technology, and share their own efficiency innovations, and will encourage utilities to offer ways for customers to get their utility data.

Purists may decry the lack of specific goals or actions relating to existing data centers, but the statement clearly marks an acceptance by Facebook of Greenpeace’s basic argument.  The biggest irony of the campaign of course is that Greenpeace used the facilities of Facebook to campaign against Facebook.  More than 700,000 people signed up to the organization’s Unfriend Coal page on Facebook (which now includes a timeline description of campaign).  Now that same platform (though not necessarily that page) will be used to encourage energy efficiency and to convince other companies to adopt clean energy sources. 

The Open Compute project mentioned in the statement was started by Facebook as a means of sharing its own work on energy efficiency in the data center.  While the initiative sought to counter some of the flack being received from Greenpeace, it also addressed an important criticism of many of the major Internet companies with regard to their secrecy over their data center operations.  The new sense of cooperation between Facebook and Greenpeace is likely to put more pressure on other Internet and cloud providers to increase their transparency in this area.  The campaign demonstrates the importance and visibility that is now attached to data center facilities and the fact that citing a low power usage effectiveness (PUE) rating isn’t enough to satisfy environmental campaigners.

The power of Facebook, Twitter and other social media is now becoming evident on a daily basis.  In our recent report Social Media in the Utility Industry, for example, we estimate that in 2011 more than 57 million utility customers worldwide will use some form of social media to engage with their electricity providers, and that number will grow to 624 million by the end of 2017.  As Facebook found, important conversations are already going on that will impact your business, whether you’re involved or not. 


On Clean Transportation Policy, Less Is Not More

— January 9, 2012

Political developments in the last couple of months of 2011 highlighted the quagmire into which U.S. energy policy has sunk.  In November the Obama Administration postponed a decision on a 1,700 mile pipeline to deliver tar sands oil from Canada to refineries in Texas called the Keystone XL until 2013 (the GOP-led Congress subsequently moved this timetable up to February of this year, to ensure the decision comes before the general election).  Shortly after that both Enbridge and TransCanada floated alternatives and partial solutions designed to reduce the bottlenecks that the Keystone XL pipeline was supposed to solve.  At almost the same time in Danville, NY, the Department of Environmental Conservation held public hearings on permitting hydraulic fracturing for natural gas in New York. 

While each of these events had their own specific issues and implications, all could have an impact on motorists.  The Keystone XL pipeline was designed specifically to add pipeline capacity to utilize excess oil refining capacity in Texas.  While this will not have an impact in the short-term, by 2015 the current pipelines will be at capacity and fuel costs will increase.  The administration’s move to delay approval of this pipeline is seen as either an environmental win or short-sighted instance of kicking the can down the road, depending on which side of the issue you sit on.

Although New York’s fracking debate is a state-specific issue, this is more a representation of the issues facing the natural gas vehicle industry.  Between the push-back on hydraulic fracturing and the now all-but-defunct NATGAS Act, it seems clear that while politicians often express support for natural gas vehicles, that support is largely hollow.  While the NGV market may not need political support to survive, what’s more disturbing is the lack of national guidance at the federal level on new oil and gas extraction technologies, which means that the effort to monitor and improve fracking safety will likely be left to states and local governments.  This may in fact be the single greatest negative threat to the NGV market in the coming years.

Meanwhile, a bill has been introduced in Congress to end the Advanced Technology Vehicle Manufacturing Loan (ATVM) program.  This will inevitably be linked to the loans offered to Solyndra, the solar cell manufacturer that collapsed last fall.

All of these developments demonstrate that when it comes to clean transportation, U.S. policy is a mess.  The ATVM loans and the postponement of Keystone XL both have the potential to change the way Americans drive, through technology and higher petroleum costs.  This, in combination with increasing availability of public transit, is the strategy that the Obama Administration appears to have fallen into – a sound, long-term, high-cost strategy that clearly isn’t supported on either side of the aisle.  Meanwhile, the market for NGVs struggles toward viability.

The one-word answer to the question of U.S. policy on clean transportation would be simply “Less” – less oil, less technology, less alternative fuels.  Unfortunately, “less” is not a strategy, and neither the Obama administration nor Congress seems willing or able to come up with one.


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