Widespread Energy Efficiency Is About Demand, Not Financial Engineering
I’ll admit it, I am a recovering financial engineer. I grew up around high finance, went to Wharton, and believed that financial structures could unlock the potential of energy efficiency. In one sector of the market, it has worked.
ESCO’s utilize financing to deliver billions of dollars in savings and upgraded facilities for long term asset holders like the Federal government, hospitals, and local municipalities. So it is no surprise that many very intelligent people in the financial, ESCO, and government worlds have assumed that innovative financing structures and instruments would be the key to unleashing rapid commercial building upgrades. The only problem is no one stopped to ask the commercial building owners.
While innovative financing like interest rate buy downs or PACE may nudge an owner to a decision, low costs of capital alone will not unlock the market. While an increasing number of owners think about the triple bottom line, profits still plays the largest role. So in order for energy efficiency to take off the industry must focus on the simple equation: Profit = Revenue – Cost. The efficiency of a building must either affect revenue by affecting rents and occupancy rates, or upgrading a building must significantly reduce costs.
We believe that Energy Star benchmarking laws promoted by the Institute of Market Transformation will start to affect revenue. These laws have been adopted in New York City, Seattle, Philadelphia, San Francisco and Washington DC. Other cities including Chicago, Atlanta, Cleveland, and Detroit should also examine Energy Star Benchmarking as a way to drive widespread energy efficiency. New cities enacting similar laws no longer have to start from scratch, as they can borrow from the learning that has gone on in the pilot cities.
Once a building receives an Energy Star rating, cutting edge remote analytical approaches can significantly reduce the costs of determining where to invest in energy efficiency upgrades. And the latest energy savings technologies including energy efficient lighting, high efficiency HVAC, high performance window, plug load management, retro commissioning and more can ensure increased profits through decreased costs.
As low cost benchmarking goes more mainstream and technological innovation increasingly generates demand, the financial whizzes can take it from there.