Navigant Research Blog

Reimagining Energy Efficiency as a Pillar in the Climate Action Strategy

— December 5, 2017

A recent Wall Street Journal blog post by Sam Ori from the University of Chicago, “Why Government Energy-Efficiency Programs Sound Great–But Often Don’t Work” starkly criticizes energy efficiency programs and ideas on how to revisit residential program design. The author’s conclusion is sound, but there is more to be said on how energy efficiency can become a sturdier pillar in the strategy to combat climate change. Ori points out, “there is an opportunity for policymakers to rethink the ways they choose, design, implement, and evaluate energy-efficiency programs.” Based on ongoing Navigant Research analysis, policymakers play a role, but the challenge requires a balanced two-pronged approach.

Utilities Are Only Part of the Equation

The reality is that a transformation of the energy industry is underway. A more dynamic, digital infrastructure of renewable, distributed, and non-traditional resources is being applied in the commercial buildings context. Navigant Research characterizes this new energy ecosystem as the Energy Cloud. In the buildings sector, rapid adoption of behind-the-meter energy management technologies, alongside onsite power generation and storage and ongoing investments in information technologies on the utility side of the meter, are redefining the relationship between electricity supply and demand.

This means federal and state policy and electric utilities will no longer be the gatekeepers of energy supply or the rule makers for how to orchestrate shifts in energy demand. Energy efficiency improvements are crucial for building optimization, which is made possible by intelligent technologies—notably the uptake of Internet of Things infrastructure and analytics. Navigant Research’s recent Building-to-Grid Integration report outlines how the intelligent building represents a conceptual paradigm shift for businesses through the integration of facilities management and IT. The intelligent building unifies strategy, investment, and decision-making. The door is open to market influencers, utilities, and many others that can introduce creative ways to utilize existing technology infrastructure, deploy new solutions, and analyze increasing data streams to optimize facility operations that meet broad business demands with energy efficiency savings as a byproduct.

Do Not Undervalue Energy Efficiency for Commercial and Industrial Customers

The Wall Street Journal blog outlined some significant challenges to realizing greater carbon emissions savings from energy efficiency in the residential sector, but missed one important part of the climate change big picture: tackling commercial and industrial (C&I) building energy use. C&I facilities are important because they not only consume more energy, but are also more energy-intensive per SF of floor space compared to residential customers.

Furthermore, C&I customers can be effective partners in tackling energy efficiency improvements because the scale of their effectiveness (and business perspectives) can help accelerate change. First, the energy savings potential of a single large building, single customer with multiple buildings, or a campus simply delivers a greater volume reduction in energy use and therefore carbon savings. In order to meet the magnitude of savings to combat climate change in a significant way (as outlined in the Wall Street Journal blog), business customers need to participate. Second, business customers understand the risks that climate change presents to their bottom lines and the mounting environmental, social, and economic challenges tied to unfettered energy consumption. This sector deserves credit for showing leadership through sustainability initiatives. Read more about how C&I customers invest in sustainability and combat climate change in Navigant Research’s report Intelligent Building Technologies for Sustainability.

As Ori summed up, “Energy efficiency offers significant potential as part of a portfolio of climate policies. But that potential will only be realized if we crack the code to get programs structured to deliver results. If we don’t, dealing with climate change will be much more expensive than we realize.” Want to hear more about Navigant Research’s perspective on the importance of energy efficiency? Register for our upcoming webinar, Monetizing Energy Efficiency, with Tom Machinchick.

 

Can Technology Solve the Dysfunction of Sustainability?

— November 30, 2017

Sustainability is a term that, by itself, can be meaningless. The downfall of “green” into “greenwashing” is a cautionary tale for sustainability champions. In a recent Triple Pundit article, “The 8 Dysfunctions of Sustainability,” a Penn State University professor articulated the problem: “[My critique] is meant to both reclaim the original fullness of ‘sustainable development’ but even more to point to the baggage we must leave behind. In a word, sustainability has to grow up.” Professor Erik Foley’s criticism is sound and defensible. The question then becomes: How can we course correct and make sustainability a relevant and impactful metric?

It is important to define a scope of action to make the concept of sustainability concrete. Let’s look at the commercial buildings sector as an ecosystem of business, economics, and people that can provide structure to the analysis of sustainability. Technology can be deployed to alter how we operate and assess the value of buildings against the environmental, social, and governance lenses of sustainability. To be specific, data, analytics, and automation can represent three pillars of a mature solution for the buildings sector that ensure continuous and ongoing improvements in the buildings sector from a sustainability perspective. Let’s examine two dysfunctions from Professor Foley’s article to highlight how technology can be the pathway forward.

#2: We measure what we can manage even if it doesn’t matter.

The bottom line here is action. We have tracked the evolution of the intelligent buildings market for years at Navigant, and it is evident the technology can make significant impacts on sustainability metrics. We have tracked the transformation from traditional building automation solutions that improved scheduling and reduced hot and cold calls in the biggest buildings to software as a service (SaaS) applications that provide enterprisewide insight on building operations—the key shift is action. Effective intelligent building solutions provide an end-to-end solution for gathering, communicating, and analyzing data that is translated into meaningful information with integrated automation and controls that enable continuous improvement in operations. What that means that customers can utilize technology to reduce costs, improve experience, and lower environmental impact through a systems-based strategy.

#4: Efficiency ≠ sustainability.

Foley’s fourth dysfunction sets up a further explanation of the sustainability improvement opportunities tied to the systems-based approach to building operations made possible by intelligent building solutions as described above. The smarts of the data-driven approach to intelligent buildings are rooted in the idea of holistic insight and operational improvement. This approach is a perfect counter to dysfunction #4. Take, for example, our historic approach to energy efficiency and demand management—these two objectives were seen as isolated strategies for energy management that delivered different and possibly competing benefits. The real-time insight and continuous operational changes made possible by integrated automation and controls with analytics enable reduced costs, lower environmental impacts, and increased comfort. One side does not have to take precedent over another but can be prioritized at different times to meet a larger goal. From a sustainability perspective, an intelligent building solution can support overall energy use reduction, but also optimize equipment operations so energy is used at peak time if there is onsite solar, for example, or reduce energy during peak if reliant only on grid power.

Today, there is a real opportunity to re-envision sustainability to deliver operational changes that provide sustained social, environmental, and governance improvements. Interested in more of Navigant Research’s point of view on sustainability? Check out our recent report, Intelligent Building Technologies for Sustainability.

 

Rethinking Intelligent Building ROI: Follow the Money to Transactions

— November 14, 2017

The intelligent buildings market has undergone a makeover in recent years that has yet to move the needle on widespread investment. The narrative has shifted in the last 2-3 years from a focus on energy efficiency to business insight. The logic behind the push makes sense when you consider the financial impacts of energy costs relative to employee costs in terms of building ownership (remember the omnipresent JLL 3:30:300 calculator). The problem is, metrics that impact payroll or employee costs are complex and interactive. There is no mutually exclusive measure of productivity—if a workspace has the perfect temperature and lighting, an employee may still fail to meet a deadline because of so many hard-to-measure issues: personal life, management, workplace culture. The healthy building approach has been a pathway many stakeholders are taking to frame workplace conditions and worker productivity, but the reality is the numbers are still soft.

Energy efficiency remains a straightforward way to measure the impact of technology deployment. You invest in controls and automation in your office building, you see a reduction in your energy bill by 10%—that is a defensible measure of ROI. However, energy remains a small overall share of operating costs for many building owners, particularly relative to other business costs, so what can make building energy performance bare real weight in business? It seems a one-two punch of public disclosure and financial due diligence may be the answer.

Public Disclosure and Real Estate Valuation

Many US cities have aimed at building energy use as a lever to tackle greenhouse gas emissions. Public disclosure programs range from voluntary to mandatory but are generally limited to reporting, without mandates for efficiency improvements because of the politicization of climate change in the US. It seems there must be a bottom-line pressure that aligns with the energy performance rating to drive investment in energy efficiency. And now it seems there is.

A recent article in Urban Land explains, “If energy efficiency can be correlated to mortgage default rates, it could have a significant impact on energy disclosure and possibly even mortgage interest rates. Underwriters on new projects may consider requiring energy disclosure before issuing a new loan, or charging a higher interest rate (all else being equal) for energy-intensive properties. Mortgage companies looking to reduce their default risk may also look to engage their current portfolio in strategies to improve their energy efficiency.” This article was based on findings from a 2017 Lawrence Berkeley National Lab study, which aimed to correlate commercial mortgage default rates and energy efficiency. The study concludes that “building-level source energy use intensity (EUI) and the electricity price gap are statistically and economically associated with commercial mortgage defaults. Using building energy simulations, we find that building asset characteristics and operational practices that affect source EUI have very important effects on the likelihood of default.”

So, there it is, a roadmap for quantifying the relationship between building energy performance and real estate asset value. The argument could even go a step further and assert that intelligent building solutions are worthwhile investments to provide a foundation for minimizing EUI and ensuring ongoing energy efficiency gains. The analytics at the center of leading intelligent building solutions will monitor, report, and even predict changes in energy consumption based on space use. This insight can become strategic guideposts for business decisions around real estate. As more data is collected, there will be greater opportunity to tackle the challenge of quantifying those softer, yet significant, employee costs over time. Today, energy efficiency remains paramount in showcasing ROI.

 

Data – The Foundation of Value in the Energy Market Transformation

— October 17, 2017

I attended GreenBiz’s annual Verge Conference in mid-September and found a unifying theme throughout the diverse discussions on the intersection of technology and sustainability: data is the key to market transformation. The topics of the conference’s sessions spanned from environmental justice to grid modernization, but in every conversation and demonstration, it was clear that access to, and use of, good data is the foundation for innovation and value creation. An unwavering commitment to environmental justice was the undisputable, yet unofficial, secondary theme of this year’s event. I would argue this important societal goal can be tackled alongside the transformation of the energy industry by using data and technology.

Decentralization Is Coming

Panelists on the plenary session roundtable for day 1 represented the major contingencies in the US utility landscape—a municipal, a retailer, and an investor-owned utility. From three points of view, these industry leaders agreed that decentralization is coming and “the traditional utility business model is obsolete, if not dead.” At Navigant, we have been articulating this time of market disruption as the emergence of the Energy Cloud. We are exploring how various platforms are creating value through business models built around a more dynamic relationship between energy supply and demand. The foundation of this new energy reality is digital transformation, in which data fuels business opportunity. Buildings2Grid (B2G) integration is just one of the platforms that illustrates the power of data in creating new business opportunities for utilities, as discussed in Navigant Research’s Building-to-Grid Integration report.

As one panelist put it, “Markets move at the pace of innovation, grid moves at the pace of regulation,” which can place a significant hurdle in front of a large proportion of our energy providers. So, how can utilities take a seat at the table in a new energy reality? It starts with data. Navigant Research took another look at utility opportunities in the Energy Cloud with a complementary report, Intelligent Building Technologies for Value-Added Services. The connectivity and data-driven insight of intelligent building solutions create the roadmap for redefining how commercial buildings operate and opportunities for new services to optimize energy use and generation. Or, as one of the more memorable lines from that Verge utility plenary put it, “great innovation is where megabits meet megawatts.”

Across the board, electricity suppliers are unified by a fundamental goal to keep lights on—to support reliable and resilient power. Intelligent building technologies provide a digital lens into commercial customer operations and a pathway to new engagement models for ensuring that power is reliable and resilient but also supports broader customer goals such as sustainability and operational efficiency.

 

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