Kohl's Efficiency Kick: $50 Million in Savings

Kermit the Frog once bemoaned, it's not easy being green. One of the world's largest retailers, Kohl's Department Stores, would disagree with our amphibian childhood friend.

As reported in GreenBiz, Kohl's has reached another milestone in its aggressive sustainability campaign: 500 stores in the retail chain have now earned the Energy Star label. Smart company, smart energy. Here's an encapsulation of the story:

The [Energy Star] designation, now borne by almost half the company's 1,089 stores, recognizes the sites for outstanding energy efficiency and building performance. To obtain the label, buildings must rank in the top 25 percent of the rating system set by the Energy Star program maintained by the U.S. Environmental Protection Agency and the Department of Energy.

In announcing the achievement yesterday, Kohl's said its energy efficiency efforts in the past four years have helped the company avoid $50 million in electricity cost and have boosted efficiency by more than 20 percent.

The firm marked its accomplishment by making a new commitment to green building: Starting next spring all newly constructed stores are to pursue "Designed to Earn the Energy Star" designations.

The recognition means the building has been designed for a level of energy efficiency that would merit an Energy Star label, and "Designed to Earn" sites must perform at that level for a year in order to qualify for an Energy Star label. So far, five Kohl's stores have been deemed "Designed to Earn the Energy Star" this year.

"We are building on our commitment to drive energy efficiency companywide as we continue to near our goal of being carbon neutral," said Ken Bonning, Kohl's executive vice president of store planning and logistics, in a statement yesterday.

In December, Kohl's set a goal of becoming carbon neutral by the end of this year. The target applies to the company's U.S. stores, distribution centers and corporate offices, which are to operate with net-zero greenhouse gas emissions by the close of 2010.

$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.

New York City completes energy efficiency benchmarking for all City-owned buildings

You can't manage what you don't measure.

So opined NYC Mayor Michael Bloomberg in announcing the City has benchmarked the energy efficiency of every city-owned building over 10,000 square feet (2,790 total facilities). “Understanding the consumption across the city’s portfolio is a critical component of meeting our goal of reducing city government carbon emissions 30% by 2017," the mayor explained.

The project was undertaken using the US Environmental Protection Agency’s Energy Star Portfolio Manager benchmarking tool, a process analogous to Octus Energy's methodology in developing energy efficiency projects. As summarized in the GlobeSt.com post:

Benchmarking measures the total electricity, natural gas, steam and fuel oil consumed in a property and adjusts for other factors—including building type, year of construction, number of workers and gross square footage–to help determine which facilities operate inefficiently. The idea is to allow the city to prioritize buildings for energy efficiency investments and monitor performance over time, according to a release.

On an annual cash flow basis, the city expects to break even on its energy efficiency investments in 2013, and projects that by fiscal year 2015 it will have saved more on its energy bills than it has spent on all the planned investments to that point.

Five barriers to energy efficiency savings: What we can learn from Google and GE

Google and General Electric know a bit about making money and creating shareholder value. It's no surprise, then, that they're sages when it comes to energy efficiency. A panel discussion at a recent Fortune Brainstorm Green session -- which included Google’s Green Energy Czar Bill Weihl and Gretchen Hancock, project manager for corporate environmental programs at GE -- germinated a list of five key roadblocks to energy efficiency. First, a panel primer from the Environmental Defense Fund's Innovation Exchange:

Here’s a business conundrum for you: energy efficiency saves serious money, cuts carbon pollution, requires low tech solutions, and is a known quotient, having been around since the 1970s. So why are so many companies still not taking the necessary steps to identify and eliminate these inefficiencies?

“What we learned in Econ 101 doesn’t hold true when it comes to energy efficiency – the notion of perfect markets, where information flows freely and people are maximizing their value,” notes Environmental Defense Fund’s Gwen Ruta. “Instead, it’s as if companies across the globe are walking around with a hole in their pocket with coins dribbling out nonstop.”

How is it that smart companies who are vigilant about monitoring the bottom line, stock price, customer satisfaction and much more let this wasteful “dribbling” occur? This question launched a robust discussion at a Fortune Brainstorm Green session last week titled “A Trillion Dollar Opportunity: The Hunt for Energy Efficiency.”

We posit often about how companies and property owners leave money on the table; dribbling coins (nonstop) from their pockets is a new one. What are the main barriers to energy efficiency and how can companies try to overcome them? According to Innovation Exchange's recap:

Barrier #1: Information overload and lack of focus. There’s a ton of information out there about energy efficiency – and what companies should do to reap the savings – but it’s diffuse and challenging to wade through. Companies need help focusing in on the right tools and content and prioritizing where and how to begin. GE conducts through regular energy “treasure hunts” inside a given company where selected employees come together for a jam-packed three-day working session to identify energy efficiency savings at a chosen manufacturing site. The results are impressive – each treasure hunt typically identifies opportunities to reduce energy spent by 20% – and proves that when people have the information, data and focused time to spend on this challenge, huge savings can be found.

Barrier #2: Structural limitations. This is a big one. Companies of all sizes suffer from a siloed approach to business, where business units and operational departments are managed by separate budgets, performance timelines, product cycles and more. Finding energy efficiency savings requires employees throughout the company to share information and make trade offs in order to achieve strong results. For example, there may be an increase in cost to the R&D budget around energy efficiency efforts, but balanced by a result in savings that will show up in the facilities management budget. Most likely, these two divisions communicate rarely and have little in common – including different bosses who may not communicate well among themselves, either. Why would one take on a cost for the other to reap the savings? Google takes a “total cost approach” that is geared to precisely avoid this problem. And GE’s treasure hunts bring cross-functional teams together over the three-day activity which by definition helps break down silos. According to Gretchen Hancock, the more people from different departments are involved, the better the results of these treasure hunts are.

Barrier #3: The solutions are small and diffuse, not few and mighty. There is no single “gee whiz” step that companies can take to ensure they are reaping all the benefits of energy efficiency for their organizations. It takes time for companies to unearth where and how they can save both cash and carbon through energy efficiency. Some employees may be attracted by bigger, more appealing sustainability projects or cost savings efforts that are being considered or launched by their company. To avoid this problem, the hunt for energy efficiency savings should be institutionalized throughout companies as a continuous process, not one-off events. Energy efficiency savings should be one of the metrics that business units are evaluated on, and therefore, regularly measured and reported on.

Barrier #4: Cultural resistance within companies. As Gretchen Hancock noted, some companies hear the phrase energy efficiency and think, “Didn’t we tackle this problem in the 1970s?” In companies where innovation and excellence is the expectation and the norm, executives may believe that the “low hanging fruit” of energy efficiency is either too low-tech to consider or has been dealt with decades ago. But the fact is that energy efficiencies exist where even super bright executives might not expect to find them. Aging equipment can cause inefficiencies, new technology enables new savings and employees need to be trained and retrained on efficiency issues and practices.

Barrier #5: Those super-short ROI expectations. We all know how Wall Street expects speedy ROI for corporations across the board. As a result, public companies have a strong disincentive to invest in processes, products or technologies where recouping the costs may take anywhere from 1 to 5 years. This short-term thinking leads to short-term strategies, and serious money being left on the table.

Energy Efficiency and Real Estate: Opportunities for Investors (take two)

In a post last week, we summarized a Mercer and Ceres report, Energy efficiency and real estate: Opportunities for investors. The report equips real estate investors and property managers with a pragmatic framework, and anecdotal evidence, to make informed decisions about how to implement energy-efficiency initiatives, with a central theme: If you’re not investing in energy efficiency, you are leaving money on the table. Corroborating music to our ears.

The report concludes with eight terse and meaningful morsels:

• Energy efficient buildings offer a measurable financial benefit over non-green buildings, in the form of higher rent, occupancy, valuation and lower operating costs
• No- or low-cost energy efficiency improvements can have quick and dramatic impacts on property operating costs
• Poorly performing buildings represent an opportunity for a significant investment gain when it comes to energy efficiency
• Additional improvements require planning, partnerships and initial investments, but can also decrease operating expenses and raise resale and leasing value
• Investment managers and products that consider energy efficiency and green building practices are increasingly available to investors
• Barriers to implementing energy efficiency improvements are eroding as demand grows, research on the benefits continues, and supporting products and services improve feasibility and cost-effectiveness
• A growing number of strong networks, initiatives and tools are helping investors, owners and property managers measure and improve energy performance and prioritize new projects and programs
• All of the above factors facilitate indirect approaches to energy efficiency improvements, which provide further opportunities to investors

As Energy Efficiency Booms, Buildings Get a Brain

The Cleantech Group recently released a comprehensive analysis of energy efficiency innovations in commercial office buildings. The findings are promising -- and lucrative -- for commercial building owners, managers and developers, let alone smart energy investors.

“Commercial office buildings consume 40% of the electricity produced in the U.S. and 18% of total U.S. energy,” said Sheeraz Haji, president of the Cleantech Group. “Our analysis shows that energy efficiency is poised to overtake solar as a top investment category in 2010, and commercial buildings represent a prime target. Lower investment costs, financial incentives, and faster payback periods are fueling product competition as data-driven technologies battle over the building’s brain.”

As we opined in a previous post, commercial, industrial and municipal buildings are dumb, inefficient and, above all, wasteful. If you own or manage a building (or a portfolio of buildings), you are unnecessarily wasting money every day. But, if your building has a brain -- if it's intelligent and you are intelligent in your management of your asset -- you, well, get smart. Andrew DeGuire, vice president, strategy and acquisitions with Johnson Controls, explains:

True building efficiency can only be achieved when executives take a more holistic view of their portfolio of buildings. Robust building control systems can be networked within buildings and across a portfolio to integrate security, lighting and HVAC with other enterprise applications, providing real-time data to track performance, decrease operating costs, and set future efficiency goals.

According to the Cleantech report, the focus on performance is driving an information and communication technologies invasion of buildings to enable greater visibility and control as vendors compete to be the gateway to building intelligence. Data-driven energy efficiency products and services look poised to grow, including low-powered Wi-Fi sensors, energy management software, building automation, and smart lighting and windows.

We could not agree more. A decade ago, few computers and information systems were networked; now, it's commonplace. Today, few buildings (and their energy-consuming equipment, specifically lighting and cooling systems) are networked. Ten years from now, we may look back and chortle at the back-then arcane -- boy, they were dumb! -- and wasteful condition of buildings.

Key Lessons: Energy Efficiency Retrofits

Leanne Tobias, author of Retrofitting Office Buildings to be Green and Energy-Efficient (recently published by the Urban Land Institute), shares a high-level summary of readily-available energy efficiency opportunities. Here's a snapshot:

• Energy efficient and sustainable retrofits can be remarkably cost-effective. A number of the case studies profiled in the book achieved payback in a year or less, and an early sample of U.S. LEED-certified retrofits showed average paybacks of approximately 17 months, with an average cost per square foot of just $.21.
• Many of the retrofit approaches with the best paybacks are the simplest. A few of the readily implemented, low-cost ways to reduce building energy use include such approaches as operational changes, lighting retrofits, and replacing constant speed drives with variable speed drives on major mechanical equipment. These types of changes are not technologically advanced, but they are extremely cost-effective.
• There are also some fascinating technological advances being introduced to the building energy-efficiency market. Among them: smart meters and smart grid systems, which use wireless technology to monitor and optimize energy use in real time.
• One of the most intriguing trends is the extensive use of passive heating and cooling to minimize reliance on mechanical systems. Passive heating and cooling approaches include the use of natural ventilation, the uncovering of thermal mass (exposing walls and underfloor slabs), and the use of vents or chimneys to regulate interior temperatures.

Click here to read the entire post published in GreenerBuildings.

Energy Efficiency and Real Estate: Opportunities for Investors

Commercial real estate developers, owners and managers are not adverse to making money. However, many are tentatively uncertain when it comes to energy efficiency -- implementing energy- and cost-savings measures to improve the performance and increase the value of their assets. Until recently, their trepidation made sense; minimal information and benchmarks existed to validate and propel their energy-efficiency investments. Times are changing.

A recent report authored by Mercer and Ceres -- Energy efficiency and real estate: Opportunities for investors -- elaborates how and why fiduciaries responsible for real estate portfolios assume significant risk and overlook substantial opportunities to enhance returns if they fail to factor energy efficiency into their real estate investment decisions. The seminal report lays out the steps investors can take to improve energy efficiency, and presents best practices for different types of investments.

A few metrics validating the business case for energy efficiency:

• A 2008 McGraw-Hill Construction/US Green Building Council survey found that markets for green commercial and institutional buildings in the US have risen from 2 percent in 2005 ($3 billion) to about 10 to 12 percent of construction value ($24 billion – $29 billion) in 2008, with projected growth to 20 to 25 percent ($56 billion – $70 billion) by 2013.
• Current research by RREEF, Deutsche Bank’s real estate investment division, reveals a shortage of energy efficient real estate to meet this growing demand. Price and value premiums observed for green buildings reflect this shortage of such properties on the market.
• A Maastricht University study found an actual rental premium of 3.5 percent on US office properties, a 6 percent increase in occupancy for ENERGY STAR buildings (similar to McGraw-Hill survey results), and a 16 to 17 percent premium on transaction prices (sales price per square foot).
• In a 2008 study, University of Arizona Professor Gary Pivo and Indiana University Professor Jeffrey Fischer found higher income and income growth, lower capitalization rates, higher net operating income per square foot, higher market value, higher rent and lower expenses for ENERGY STAR rated properties, compared to properties with no energy efficiency rating.
• In a 2009 study, researchers at the School of Real Estate and Planning at Henley Business School found commercial building price premiums of 10 percent and 31 percent, respectively, for ENERGY STAR and LEED- certified buildings.

In addition, the report (page 26) sequences -- in plain, make-it-happen language -- technical improvements for energy efficiency upgrades: Retrocommissioning, lighting, supplemental load reductions, air distribution systems, and heating and cooling systems.

Overall, the three most significant drivers for energy-saving retrofits are energy cost reductions, responding to client demand and a desire to create a superior product. Based purely on economic returns, investing in energy efficiency is the single most viable investment a property owner or manager can make.

Building Star: The latest star for energy efficiency?

First there was Energy Star, the long-established energy ratings system. Then came Home Star, an energy-efficiency incentive program for homeowners. Now, the Senate is contemplating creating a Building Star program to provide incentives to commercial buildings related to their energy efficiency. Is the third star a charm?

Rebate and incentive programs are proliferating for commercial building owners, most all regionally managed and delivered by utility companies. Building Star has catalytic potential to nationally incent and reward energy-efficient measures in commercial and multi-family residential buildings. Additional incentives plus low-cost project financing ... there's a potential star in the making.

According to Environmental Leader:

The bill was introduced March 4 by Sen. Jeff Merkley (D-Ore.) and Sen. Mark Pryor (D-Ark.).

The program is expected to save building owners more than $3 billion on their energy bills annually by reducing peak electricity demand. “Buildings represent 40 percent of the energy used in the United States, and many have old equipment that waste energy and money,” Pryor said.

In addition to rebates to reduce the cost of energy-saving measures such as high-efficiency heating and improved insulation, “Building Star” would also extend low-interest financing options to small businesses and other building owners.

Through the umbrella group Rebuilding America, Building Star has the support of the National Electrical Contractors Association, the Energy Future Coalition and the Center for American Progress Action Fund. The American Architectural Manufacturers Association also has pledged its support for the measure.

Among items proposed to be covered by the Building Star incentives are:

- building envelope insulation;

- mechanical insulation;

- windows, window films, and doors;

- low-slope roofing;

- HVAC equipment, water heaters, and boilers;

- duct testing and sealing;

- variable speed motors;

- interior and exterior lighting;

- building energy audits, commissioning, tune-ups, and training; and

- energy management and monitoring systems.

Why Smart Energy Matters

Commercial, industrial and municipal buildings are dumb, inefficient and, above all, wasteful. If you own or manage a building (or a portfolio of buildings), you are unnecessarily wasting money every day.

Dr. Amory Lovins, chairman and chief scientist of the Rocky Mountain Institute, quantifies the potential:

There are abundant opportunities to save 70% to 90% of the energy and cost for lighting, fan, and pump systems; 50% for electric motors; and 60% in areas such as heating, cooling, office equipment, and appliances.

Abundant and immediate savings. Here are additional reasons why smart energy matters:

• An estimated 97% of buildings lack controls or automation. For these building owners, energy use is invisible: Owners do not know where, when and at what cost their buildings are consuming electricity.
• Energy demand and utility rates continue to increase, while incentives to reduce energy use proliferate.
• In the U.S., the energy cost to light and cool buildings is approximately $100 billion per year, and experts believe there is an immediate opportunity to reduce energy bills by 50% of more. That's $50 billion per year in wasteful spending -- or, potential savings.

Andre de Fontaine, Markets and Business Strategy Fellow at the Pew Center on Global Climate Change, recently presented the Seven Habits of Highly Efficient Companies:

• Efficiency is a core strategy for the company
• Leadership and organizational support is real and sustained
• Energy efficiency (EE) goals are SMART: specific, measurable, accountable, robust, and time-bound
• The company uses an effective EE tracking and performance measurement system
• The organization puts substantial and sustained resources into efficiency
• The EE strategy shows demonstrated results
• The company communicates about EE as a core "story"

Is being smart about energy efficiency difficult? No. But it’s not enough to say you can do something – generating measurable, real-time results are the bottom line. For Octus, smart energy works based on our ability to generate significant energy cost savings, while improving the quality of our clients’ facilities, optimizing their operational savings, capitalizing available rebates and incentives, and reducing maintenance costs. Immediately and for years to come.