If the Energy Efficiency Market Is So Big, Why Aren’t I Even Busier?

July 18, 2013
Been asking yourself that question? Then take a look at a report released this week by the Carbon War Room that honestly investigates what bolsters energy efficiency markets, what doesn’t and why. We all know that energy efficiency is one of the big business opportunities of our time.  By 2020 it could become a $245 billion per […]

Been asking yourself that question? Then take a look at a report released this week by the Carbon War Room that honestly investigates what bolsters energy efficiency markets, what doesn’t and why.

We all know that energy efficiency is one of the big business opportunities of our time.  By 2020 it could become a $245 billion per year global market, according to “Raising the Roof: How to Create Wealth through Efficient Buildings.”

Buildings represent an especially large opportunity. Most buildings leak energy.  Fixing the problem can save building owners money, as well as increase building value and rent premiums. So why aren’t building owners chasing down energy efficiency companies like a kid after an ice cream truck?

Inertia is one problem. Confusion is another. A third is fear.

“Given the various energy efficiency products and services that come knocking at their door, it is understandable why building owners might have difficulty distinguishing between substance and hype,” said Joshua Kagan, report author and operation lead for energy efficiency at the Carbon War Room. “Asset owners and capital providers are understandably worried about risk. Will savings materialize? Will equipment malfunction?”

The report offers practical guidance by profiling real-world programs and projects, and reporting their successes and missteps. The Carbon War Room even details its own early difficulty developing Property Assessed Clean Energy or PACE programs.

PACE spares building owners upfront cost by financing efficiency upgrades through property tax bills.  An early residential program fell apart for the Carbon War Room when Fannie Mae and Freddie Mac refused to back mortgages with PACE liens. The Carbon War Room also found it difficult to export PACE to certain European cities.

The “white vans” are now moving for a commercial PACE program initiated by the Carbon War Room in California – but the organization had to overcome some big obstacles first, including the loss of the program’s  original financial backer.

The Carbon War Room  says it learned several lessons from its experience with PACE. For one, it is important to put together a group of lending partners, and not rely heavily on one. The organization also has come to understand the importance of making sure government officials have the right information (they often don’t),  and of focusing on the economic not the environmental message when dealing with municipalities.

That’s one small part of the report; it covers a lot of other ground. Some additional takeaways are:

  • To achieve energy savings of 20 percent or more, building owners often must make large upfront capital investments, and they don’t always have the cash.
  • Plenty of capital is available for energy efficiency projects. But many energy efficiency investments are new to the market, so are perceived as risky.  The industry needs more data, innovative insurance and credit enhancements to assure investors.
  • Building owners aren’t getting the message about the value of energy efficiency. Too often the industry presents information in a technical way. Potential clients don’t have access to valuable reports. Many just don’t know that efficient buildings achieve higher occupancy rates, lower operating expenses, and lower default rates.
  • The infamous ‘split incentive’ continues to plague the industry. Tenants won’t make efficiency investments since they are likely to eventually leave. And building owners won’t make the investment since it is the tenant that reaps the benefit of lower utility bills.

It’s not all gloom-and-doom though. Far from it. The report ultimately paints energy efficiency as a market set to soar, as new technologies, including big data, offer better analysis and significant savings.  In addition, innovations in financing are on the rise. In fact, the report sees 2013/14 as a “transformative period for energy efficiency finance” with advancements in PACE, on-bill financing, and Energy Savings Agreements and the possibility in the US of using Master Limited Partnerships and Real Estate Investment Trusts for energy efficiency (pending Congressional approval). And finally, governments on the local and national level are increasingly backing energy efficiency.

So if you’re not so busy now, enjoy the leisure. It may not last long.

The full Carbon War Room report is here.

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

Twitter: @ElisaWood

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