Johnson Controls Paints a Promising Picture for the Future of Energy Efficiency

Johnson Controls is the world's largest provider of energy efficiency solutions for commercial buildings. While their approach -- provision of services as an ESCO (primarily for governmental organizations) and the sale of large-scale, proprietary energy management systems -- differs a bit from what we do at Octus Energy, our focus is the same: Generate sustainable energy savings through various means for commercial building owners. JCI is big brother. When they speak, people and companies and analysts take note.

At last week's CleanTech analyst day -- as summarized in an investment brief by analyst Canaccord|Genuity -- Johnson Controls shared a few interesting morsels:

The cleantech “megatrend.” Clean technology is now a “long-term global growth megatrend,” according to JCI management. Management specifically noted that buildings in North America and Europe, which together account for 40% of the world’s energy consumption and 70% of electricity usage, represent the single biggest opportunity for cleantech.

$24 billion opportunity. JCI estimates the energy solutions market is a $24 billion global opportunity, growing at approximately 9%-14% per year. Key market drivers for the energy solutions market include: 1) climate legislation and energy security; 2) corporate climate commitments; 3) volatile energy costs; 4) innovative funding models (including PACE, as Octus discussed here and here); 5) deployment of smart-grid technology; and 6) energy efficiency renewable resource standards.

Feds step up. Legislation and regulation are key drivers in the energy efficiency marketplace. In the United States, there have been energy efficiency bills in both the lower and upper house (the American Energy and Security Act of 2009 in the House and the American Clean Leadership Act of 2009 in the Senate). The Senate bill has been passed out of committee and includes the following features:

• National electricity and renewable electricity standard
• Energy efficiency building retrofit program
• Energy efficiency programs for states
• Building codes incentives
• Building performance information
• New clean energy deployment administration

Meanwhile, recent events in the Gulf of Mexico are spurring interest in energy and climate bills that otherwise would not have been brought up or passed this year.

PACE financing programs gaining momentum. Property Assessed Clean Energy, or PACE, is a financing solution that enables property owners to pay for energy efficiency, renewable energy and water efficiency projects via an additional assessment on their property tax bill over a five to ten-year term. The PACE program benefits building owners by: 1) eliminating the need for large upfront cash payments; 2) offering a competitive cost of capital; 3) solving credit rating collateral issues; 4) potentially moving the projects off-balance sheet; and 5) allowing owners to pass through retrofit costs to tenants. Johnson Controls echoed our sentiment that PACE financing will be one of the keys to unlocking the huge retrofit opportunity in the commercial building sector.

IT convergence. JCI sees the “smart building” as the starting point that is needed before a “smart grid” is even possible; again, echoing Octus's energy management and building automation strategy through our Smart Energy Platform. Put simply, the “smart grid” can’t analyze much without a “smart building” providing it with real-time information. The company noted that the integration of equipment and controls coming together in one product has been a major advancement for the industry.

$50 billion reasons energy efficiency works

The growth of energy efficiency has been hamstrung by its relative transparency, its invisible nature. Is it real? Does it work? A recent GreenerBuildings post authored by Evan Smith, Kickstarting the Green Economy with Building Energy Efficiency, lends credence -- $50 billion worth -- to the immediate and perpetual efficacy of energy efficiency.

Quick synopsis:

What isn't getting enough play in our green technology economy is work we can and need to undertake right away: A serious coordinated effort to deploy network-based portfolio-management energy efficiency strategies and measures across our buildings and fleet transportation systems as rapidly as possible.

Here's one specific area for consideration. United States commercial real estate (all buildings except residential housing and goods-producing industries like manufacturing, agriculture and construction) consumes energy at a substantial and growing rate. It will grow at two-thirds the rate of gross domestic product through 2025, according to the Annual Energy Outlook 2005 published by the U.S. Energy Information Agency. In 2003, the commercial building sector, which is made up of 4.9 million commercial buildings covering more than 71.6 billion square feet of floor space, consumed 17,548 trillion BTUs of energy. Estimating a conservative nominal energy cost of $10 per MMBTU, the energy bill for commercial buildings in the U.S. exceeds $175 billion annually.

What is absolutely criminal is that today, somewhere between 20 percent and 40 percent of that energy is wasted, even from buildings built within the last 10 years.

The translation of energy waste to money lost -- seemingly simple, certainly proven -- is a cognitive challenge. Utility rates go up. Buildings age and become increasingly inefficient. Property owners and managers pay their utility bill every month. They can't see the energy they're wasting, and the hole in their pocket expands. It's groundhogs' day, and hole gets deeper with each setting of the sun.

Simply stated:

Start with the $175 billion in annual energy costs for the U.S. commercial real estate. Conservatively, 30 percent is available to conserve. The savings potential therefore approximates $50 billion annually.

What to do? The article frames a common scenario for facility owners and managers, and proffers a sage suggestion amplifying the purpose and utility of Octus's Smart Energy Platform:

In most facilities, maintenance staff work on the most egregious failures when they detect them, but the reality is that maintenance only detects and addresses some fraction of failures. The energy performance of most buildings today, even new ones, relying on alert maintenance staff and manual controls, is well below optimal.

New approaches to smart building facilities portfolio management enables digital readouts on zones, nodes and systems within wired buildings that can tell maintenance the energy (and air quality, safety, carbon footprint, etc.) impact of each failure on a real-time basis. These readouts - like giving each building an MRI every 15 minutes - can help maintenance staff to rapidly staunch energy losses and conserve most of the energy loss potential identified. These technologies and approaches are available now.