Navigant Research Blog

BEMS Booms in Japan

— April 16, 2013

The Japanese market for building energy efficiency technologies has been strong for decades, thanks in large part to the 1979 Act Concerning the Rational Use of Energy, the foundation of Japan’s stringent building energy codes.  In the 2 years since the Fukushima earthquake and the ensuing energy crisis – which has caused a 17% increase in the price of energy for non-residential customers of TEPCO, the monopoly utility that serves the greater Tokyo region – demand for energy efficiency technologies in Japan has grown significantly.

In particular, demand for building energy management systems (BEMSs) has grown as much as 30% to 40% year-on-year over the last few years, according to discussions I’ve had with market participants and key industry players in Japan.  Although the concept of BEMSs is mature in Japan, given that it is a requirement of the Act Concerning the Rational Use of Energy, the concurrent timing of the energy crisis and the market availability of software-as-a-service (SaaS)-based BEMS software has led to a surge in its adoption.   (It should be noted that the concept of BEMSs in Japan overlaps significantly with the concept of BEMSs in Europe and North America, though BEMSs in Japan often include additional technologies such as building-to-grid connections, smart meter technology, and others that are often considered part of the smart grid in other regions.)

Driving DR

At the recent World Smart Energy Week at the Big Sight in Tokyo, I was focused on learning more about the adoption of technologies such as building energy management systems (BEMSs), direct digital controls (DDCs), demand response (DR), and other intelligent building products in Japan within the 3rd Eco House & Eco Building Expo.

I attended several sessions of the event’s Smart Grid Technical Conference, where representatives from organizations such as Itron, NEDO, and Toyota discussed smart building technology in the context of the increased intelligence of the utility grid.  In particular, the increased growth of PV and wind in Japan will continue to drive the country’s emerging DR market, which will expand further through the adoption of smart building technology.  As Taichiro Kawahara of Hitachi put it, “Demand-side energy management in Japan must be promoted through demand-side management and demand response.”

The conference not only explored the application of these technologies in Japan, but also compared and contrasted similar successes and challenges with smart grid integration experienced in Europe and North America.  This perspective is critical for ensuring that the adoption of smart grid technology in Japan unfolds as smoothly as possible and for providing Japanese technology developers with important insights into the market landscape in other regions into which many Japanese companies are looking to expand.  This sort of international forum is critical for spreading market-leading technology – and ensuring that the industry doesn’t make the same mistakes twice.


Tipping Point Near for LED Lighting

— April 7, 2013

Like children in the back seat on a road trip, many LED enthusiasts keep asking: “Are we there yet?”  The promise of LED lighting has been clear for a number of years, with high expectations that at some point LEDs will take over a significant share of the lighting market.  But when, exactly, will that point come?

The primary barrier is cost.  LED prices have fallen dramatically in recent years, but the cost premium over traditional lighting technologies can still be significant.  A 14W, standard type A screw-in LED bulb retails for around $20.  That is a huge drop from previous years but still far more than an equivalent incandescent or compact fluorescent bulb.  The comparison is even worse for 4-foot linear tubes, the dominant form of lighting in commercial buildings.  An LED product can sell for $65 or more, while the equivalent fluorescent product is less than $2.

Fortunately for the LED industry, it will not be necessary for LED prices to match those of traditional technologies before wide-scale adoption can take place.  Increasing efficiency and a host of other benefits will make LEDs the clear choice in many applications, as long as the upfront cost can be paid back through electricity savings in a reasonable time.  The real question is not when an LED tube will cost less than $2, but rather when will the payback period fall under 2 years?

The answer, needless to say, is not simple.  Subsidies and rebates in countries around the world are already reducing LED payback periods to a point where the economics are favorable.  The wide range of electricity prices between and within countries also affects the value of electricity savings.  Furthermore, some end uses will become attractive targets for LEDs before others.  Cold storage facilities, for example, are already adopting LED lighting en masse.  In those spaces, low temperatures negatively affect fluorescent performance and other lighting types generate far too much heat, leaving LEDs the clear winner.

Navigant Research has synthesized all of the factors affecting LED adoption in a newly updated report titled Energy Efficient Lighting in Commercial Spaces.  The chart below shows the share of LED lamps used in commercial lighting retrofit projects increasing from only 5% in 2013 to 63% by 2013, while fluorescent and other lighting types quickly fall off.

Share of Lamps in Retrofit Projects by Lamp Type, World Markets: 2013-2021

(Source: Navigant Research)



LED Revolution Rises in the West

— March 17, 2013

The market for light-emitting diodes (LEDs) has reached the turning point from “promising technology” to “practical mainstream solution.”  The replacement of 125-plus years of vacuum tube lighting by LEDs seems as inevitable as the transition from TV tubes to flat screen LED monitors, though it won’t happen nearly as quickly.  But even as we witness this shift, I wonder if we really perceive the revolution taking place.

That revolution was evident at last month’s Strategies in Light conference, in Santa Clara, which focused on LED  technologies and, more specifically, LEDs applied to lighting applications.  Since this year marks the 50th anniversary of the invention of the visible LED, the program included an awards ceremony honoring industry pioneers Nick Holonyak Jr., M. George Craford, Roland Haitz, and Shuji Nakamura.  It was a rare window into history.

The conference also demonstrated that LED lighting R&D activity is overwhelmingly focused on achieving some degree of parity with conventional lighting in terms of light quality and cost, while still delivering on the energy efficiency and long life-cycle potential of LEDs.  Just as anyone seeking “plain white paint” is confronted by thousands of options at their neighborhood paint shop, “white light” is far from a neutral, standard attribute for lighting.  How a given light source’s color temperature maps against the standard Planck curve is just the beginning of a light quality assessment.  The facts are that LED lighting can be made very efficient, have good light quality, last a very long time, and be cost-effective.  But it’s exceedingly rare that all four of these goals are met simultaneously in a given application. Hence there’s much work to be done, justifying the focus on achieving parity and conventional lamp replacement.

Beyond Tubes

Beyond the focus on parity and replacement, however, are opportunities that are potentially much more transformative. Although the transistor radios of my youth seemed a major innovation compared with the vacuum-tube radios of a decade earlier, the real power of transistors came in the form of integrated circuits that unleashed a much larger information and communications revolution.  In a presentation titled “The Next Evolution of Lighting,” Brad Koerner, director of experience design at Philips Lighting, showed how LEDs are ushering in a new paradigm for lighting design, controllability, and occupant experience.  LED lighting form factors that mimic fluorescent tubes might make sense for today’s lamp replacement market, but they’ll probably look silly in retrospect when lighting is integrated into the very surfaces of next-generation buildings.  Today’s lighting programmability essentially means on, off, or dim – but what happens when lighting color temperature is also programmable, allowing sunlight’s subtle differences by time of day, season, or geographic location to be carried indoors to our work and living spaces?

We are only at the cusp of these revolutions today.  In the meantime, all those concerned with smart buildings, from architects to facility managers, should balance their healthy skepticism with a dreamer’s wonder at what may soon be.


2013 Shapes Up as a Big Year for PACE Financing

— March 15, 2013

The last few years have been up and down for Property Assessed Clean Energy (PACE) financing, which allows building owners to finance energy efficiency and renewable energy projects through an assessment on their property taxes.  Immediately following its inception in 2008, many states allowed PACE financing and dozens of jurisdictions launched programs.  In 2010, however, the announcement that the Federal Housing Finance Agency (which administers Fannie Mae and Freddie Mac) that it would not back any mortgage where PACE financing with a priority lien was placed on the underlying property halted most residential PACE programs and dragged many commercial programs down with it.  Although the FHFA is seeking public comment on its new rules, the residential PACE market has not rebounded, and the commercial sector remains a trickle.

This may change in 2013, primarily thanks to new market entrants that are helping municipal governments offer PACE programs.  The market continues to be limited by the considerable up-front effort required on the part of municipalities.  In a time when city budgets are shrinking, the professional resources required to get a PACE financing program off the ground can be hard to come by.

Move Along Please

In the last few years, however, a number of companies dedicated to PACE financing have emerged that aim to facilitate PACE financing by removing the administrative red tape (as we discussed in Pike Research’s recent webinar, Financing Energy Efficiency, which can be replayed here).  For example, Ygrene Energy Fund recently launched Clean Energy Sacramento, a $100 million PACE financing program in Sacramento, and is in the process of launching similar programs in Georgia and FloridaFigtree Energy Financing, which is leading a similar project in San Diego, is eligible to administer similar programs in dozens of other jurisdictions throughout California.  And Renewable Funding administers commercial and residential PACE programs around the United States (as well as a similar program in Melbourne, Australia), including the high-profile GreenFinanceSF PACE program.  Although each of these firms has developed its own business model, they typically make money through a combination of per-building fees and through interest on the bonds issued by the PACE financier.

In addition to the reduced administrative burden on municipalities, “fully-funded” models such as Ygrene’s offer a number of other potential benefits.  One is the accelerated pace of Ygrene’s model, which allows the municipality to release funds on a rolling basis, rather than waiting to pool enough projects before issuing a public bond.

“Many PACE models require property owners to arrange their own funding – a complicated and time-consuming process,” said Stacey Lawson, CEO of Ygrene Energy Fund, when I spoke with her recently.  In addition, building owners face less risk in terms of interest rates under the fully-funded model, as the interest rates are known at the time that a PACE project is signed; in contrast, a building owner may not know the actual interest rate until months after agreeing to participate in a bond issuance, posing long-term risk.

Although the potential for PACE financing is easily in the billions of dollars per year, only about $100 million worth of projects was financed in 2012.  The backlog of projects at many PACE financing outfits suggests that PACE financing could easily hit $250 million in 2013, which would be a major increase over 2012.  Once the concept has been further tested and proven, expect to see a growing number of municipalities launching similar programs and relying on specialty PACE financiers to design and administer their programs.


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