Money out the window
1. Engagement: Teach the will to win!
Selling efficiency requires appealing to the behavioral economics that drive decisions.
“A competitive dynamic makes things interesting very quickly,” says Riggs Kubiak, CEO of Honest Buildings. “There are already competitive metrics – data from each building and also from cities with benchmarking laws. If you can create a competitive dynamic, the conversations around ROI, IRR and energy efficiency investments become a lot easier to have.”
Competition and loss aversion are bigger motivators than savings. “Saying ‘stop wasting energy’ is preachy,” says Bartos, “tell [people] they are losing $1000 a month and the only reason they are not mad is that they don’t know.” In an example provided by Byrne, when savings information from one institution was presented to others, facilities managers were quick to say “Why are they saving so much and we are not?” In hotels when guests were asked to hang up their towels to “Save the Planet” there were low participation rates, but when they were told that 75 percent of others who stayed in the room hung up their towels, participation rates climbed.
Drawing on the neighbor spirit, O’Neill has conducted successful neighbor-to-neighbor residential efficiency challenges in Connecticut; she says homeowners exclaim, “I never knew how uncomfortable I was until I did these retrofits!”
2. The outfit approach
There is not a one-size-fits all approach in the efficiency market, each sector has “a different flavor,” explains Salant. As with any market, there are formulas for selling to different verticals. He outlined eleven sectors including CNI (commercial and industrial), residential, and MUSH (municipalities, universities, schools and hospitals), citing examples of successful programs that have been tailored to a specific sector. In Delaware, the government supported a massive project to retrofit highly inefficient prison buildings. In the MUSH market, 50 projects were pooled to total a $400M investment since none of them were big enough to standalone.
Customizing different outfit approaches for retrofits by sector includes creating the financing mechanisms that make the most sense for each.
3. Create additional financing mechanisms
On bundled projects, securities such as E-Bonds could provide cash to cover equipment and installation. Individual investors looking for secure investments could purchase E-Bonds as a safe place to grow their money and because the facilities would be paying back interest and principal with immediate efficiency savings, the bonds could yield a higher interest rate and rate than T-Bills and lower risk than preferred stock.
4. Secure Financing
“If we want to store value in instruments, energy efficiency has much lower risk and higher reward,” says Byrne.
At Citigroup, Salant created an alternative energy finance group that has provided capital for three building power projects and rooftop solar deals. “When we did transactions for Solar City, SunEdison and Solar Constellation, we saw a business model that worked really well,” said Salant. “Solar financing through savings with a locked in lease was a great business model.” This led to the creation of a similar model for energy efficiency financing.
A concern for banks around efficiency securities is that assets are more difficult to reposess and sell. As compared with foreclosing houses, it is much more difficult to take out lightbulbs, boilers, and insulation. However, unlike predatory lending, efficient business is good business. Those who demonstrate the foresight to invest in energy efficiency are also highly likely to demonstrate operational and capital efficiency and will outperform the market.
5. National Standardization
Facilities that desire energy efficient ratings are presently faced with a plethora of options and results may vary depending on the expertise of the auditor. High profile trade organizations have been pioneers in setting standards, ASHRAE provides three levels of audits, and the USGBC council awards several LEED points for efficiency. The government-backed Energy Star program has a national database of buildings and awards ratings based on comparisons to industry peers tabulating only electricity bills, square footage and industry.
Legislation for efficiency is speckled (much like the patchwork of support for renewable energy). As forerunners, five cities nationwide have passed Benchmarking laws which require commercial buildings to get an Energy Star rating. In Austin, TX even homes must conduct an energy audit and disclose the results before being sold. Beginning in 2011, California requires new construction to include sustainability guidelines under the CalGreen code.
The Federal government has expressed support for efficiency programs and all of the jobs they create. Obama and Clinton announced the Better Buildings Initiative, public-private partnership, in December 2011 that will dedicate $4B to commercial efficiency upgrades. The White House CTO, in response to the smart grid, worked with utilities to create a “GreenButton” that customers can use to access their energy data. However, this impetus must be taken a step further to turn information into action. A national standard for audits, benchmarking, green building and disclosure is necessary.
Energy efficiency is not a leap of faith. The dollars are on the ground (and in the walls, windows, and control systems). However, policy, market mechanisms, smart strategy, and customer psychology need to be advanced in order for efficiency to show businesses, individuals, investors, the government and the environment the returns they are looking for.
image: mystuart via Flickr cc (some rights reserved)
This article was reprinted with permission from TriplePundit.