When I first started writing about energy and, in particular, energy policy, energy efficiency wasn’t at the top of my list for the most important thing to support, promote, or put money into. I knew it was good and knew it deserved to be in the mix, but I didn’t initially realize how much potential was sitting in this option. In the past year or so, it has risen to the top of my energy priorities list, perhaps the very top. However, really, the point is that a mix of energy efficiency and clean energy is the full package we need. That said though, energy efficiency certainly doesn’t get the spotlight wind and solar energy get, despite deserving it. Maybe a new Deutsche Bank and Rockefeller Foundation report will help to change that.
The report, “United States Building Energy Efficiency Retrofits,” finds that new types of financing models that more strongly encourage households and businesses to invest in energy efficiency could end up saving the U.S. approximately $1 trillion. Additionally, it could create over three million jobs. From the report:
In the United States alone, more than $279 billion could be invested across the residential, commercial, and institutional market segments. This investment could yield more than $1 trillion of energy savings over 10 years, equivalent to savings of approximately 30% of the annual electricity spend in the United States. If all of these retrofits were undertaken, more than 3.3 million cumulative job years of employment could be created. These jobs would include a range of skill qualifications, and would be geographically diverse across the United States. Additionally, if all of these retrofits were successfully undertaken, it would reduce U.S. emissions by nearly 10%. The potential employment and climate benefits presented by energy efficiency retrofits have led the Rockefeller Foundation to explore a program initiative in this area, and to partner with Deutsche Bank Climate Change Advisors to produce this research report as a publicly-available resource for all interested stakeholders.
This follows a Deutsche Bank report I posted a story about in January which showed great energy savings potential, billions of dollars worth, in energy efficiency retrofits in multi-family housing. Numerous studies by the American Council for an Energy-Efficient Economy (ACEEE) on the matter have come to similar findings.
And how to tap into this potential? The report identifies a few top, non-traditional models that could be used (one of which, PACE, we’ve been promoting for years):
… a status quo bias, asymmetric information and structural barriers in the real estate industry have traditionally resulted in low levels of demand by home and building owners. Over recent years, a number of financing models have emerged which offer the potential to scale investment in these markets and overcome both the supply and demand side barriers. Utilizing the work done by the World Economic Forum as a reference point, we profile these models, including the Energy Services Agreement (ESAs), Property Assessed Clean Energy (PACE) and On-Bill Finance (OBF), in addition to examining the largest historical provider of energy efficiency upgrades, the Energy Services Companies (ESCOs).
Each of these models merits consideration, and we believe that a robust market will offer multiple options to building owners seeking third-party investment in building retrofits. The ESA model appears to be especially promising in the near term, given its potential to scale without policy or regulatory requirements. A number of firms have already demonstrated early traction utilizing this structure.
While parts of the market are poised to grow independent of government policy, an enabling policy environment could further accelerate adoption and facilitate greater, or more rapid, scale. Enabling policies go beyond subsidies to include measures such as building data disclosure requirements. Some models and market segments, such as single family residential and affordable multifamily, are more policy dependent than others.
Here’s a little more from the report summary on these models:
- Over the past few years, there have been new emerging financing structures, such as Energy Service Agreements (ESAs), Property Assessed Clean Energy (PACE), and On-Bill-Finance options, which offer significant potential to address historical barriers and achieve scale across the different market segments.
- These provide additional options beyond Energy Service Companies (ESCOs), which operate primarily in government markets (which include both commercial and institutional segments).
- PACE has potential as a model for all segments, but it requires significant regulatory support and acceptance from the mortgage industry. On-Bill Finance could be utilized with enabling regulation or used as a mechanism to enhance other financing models across the three building market segments.
- In particular, we believe that the Energy Service Agreement structure offers significant near term potential to scale quickly and meet the needs of both real estate owners and capital providers in the commercial and institutional market, without the requirement for external enablers such as regulation or subsidy.
For more, check out the full report.
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