Many years ago on New Year’s Day, I received a phone call from a client who said, “I’m calling to tell you that the party’s over and it’s time to clean up the mess.” I thought we were being fired (we weren’t) and also that it was a pretty cool new-year metaphor.
For some, the start of another year is a time for resolutions, self-reflection and perhaps, a strategic review for the future. Maybe we want to live better lives — spend time with family, be healthy, safe, kind and gentle. Or, become a little more prosperous and get ahead of those ever-looming bills.
In terms of business strategy for mechanical people, we might want to think about ways to benefit from key mega-trends. If we learned anything at AHR and GreenBuild in 2017, it was that the question is no longer, “Are energy efficiency and intelligent systems here to stay?” Instead it’s, “How soon will world domination be complete?”
Of course, planning your strategy is no simple thing. The mega-trends are made up of a disorganized complex of mini-trends, technologies, public pressures, government interventions and big money commitments. It can feel like you have to be a brilliant detective to figure out where we are going in the year ahead.
Follow the money
Famous detectives like Sherlock Holmes, Hercule Poirot, and Lieutenant Columbo, all rely on one tactic more often than any other: They follow the money. As we head into 2018, what the money people in the construction world are saying should serve as clues on which technologies are about to be murdered.
“Evidence does not lie…It’s not influenced by emotion or prejudice. It's not confused by the excitement of the moment.” – Gil Grissom, CSI
Evidence: According to Research and Markets, U.S. shipments of heat pumps are expected to hit $5.5 billion by 2022, achieving the fastest growth among solutions in the air conditioning sector. Persistence Marketing Research says that tankless water heaters will experience at least 5 percent growth worldwide every year for the next 5 or 6 years, with North America growing even faster. RNR Market Research is predicting that ductless products will make up 15 percent of the HVAC market, and others have suggested twice this amount. GTM Research says that in the past 10 years, solar has experienced an average annual growth rate of 68 percent. It employs 260,000 Americans, reached 1 million installations in 2016 and will hit 2 million in 2018. Morgan Stanley says the demand for electricity storage (which cements the technical capability of renewables) is expected to grow from under $300 million a year to as much as $4 billion in the next 2-3 years.
Evidence: The International Energy Agency (IEA) reports that investment in energy efficiency increased by 9 percent reaching $231 billion in 2016. Most of it, $133 billion, went to the buildings sector. The IEA also says that for the first time, the electricity sector moved ahead of oil and gas in 2016, becoming the largest recipient of energy investment. The biggest share was in new renewables-based power capacity, at $297 billion. This money stretched further than usual, creating 35 percent more power capacity thanks to lower costs and technology improvements for solar and wind. At the same time, investment in upstream oil and gas fell by more than 25 percent.
Apparently, the money people in the building and power industries are voting with their wallets for clean, efficient, intelligent technology.
“Well she was shot in the head so unless she tripped and fell on a bullet, it wasn't an accident.” – Kate Beckett, Castle
A couple of months ago, Curt Radkin told me that his organization’s increasingly green approach is no accident. “Sustainability and the environment is quite simply good business.” Radkin is a senior vice-president for Wells Fargo, one of the biggest banks in the U.S. I asked him about funding specifically for green building projects and he said that since 2012 the bank has provided more than $70 billion in financing for green businesses and projects.
Also, more than 8 percent of all wind and solar PV energy generated in the U.S. came from projects owned completely or in part by Wells Fargo. He said that all the major banks were now highly active in energy efficiency and sharing best financing practices for both retrofits and new construction.
It’s good to find a senior bank executive willing to make these kinds of statements, because although green building extras and retrofits pay for themselves more quickly these days, a common complaint in the industry is that financing the up-front cost is not always easy. Banks, investors and other financiers can be very demanding and it has been said that in the past, they have generally ignored the operational savings created by energy-efficient systems, presumably because they are hard to reliably document.
“For me, it is truth. I want always truth.” – Hercule Poirot
Investors Confidence Project (ICP)
“The energy savings that are used to build the business case might need to be better verified,” says Matt Golden, North American director of the ICP. “It’s because every building is different, so it can be hard to do due diligence with the complexities some projects present. We’re trying to help with that.”
His organization seeks to certify green building projects as “investor-ready” through a well-structured program that includes preliminary energy audits, peer review by third-party engineering firms, a requirement that all project budgets include mechanical system commissioning, and so on. Banks and investors love this kind of standardization. They seem a little interested in LEED, but LEED doesn’t connect properly to cost savings.
When a church in Stamford, Connecticut wanted to convert from oil to gas heat, and install variable-flow hydronics, a VAV air handling unit, a new BMS, outdoor hot water temp re-set, and more efficient motors, it contacted Johnson Controls Inc. In this case, JCI acted as an energy services company and a credentialed ICP Project Developer, performing an ASHRAE Level II energy audit, and the other steps in the ICP process.
They brought in Sustainable Real Estate Solutions (SRS), a software developer that has embedded the ICP methodology into its platform to streamline technical review, documentation, and project optimization. The church got its funding through a Property Assessed Clean Energy (PACE) model, and will recover its $700,000 investment in about 15 years, by saving more than $44,000 per year on utility costs.
At the risk of putting non-financial people (including this writer) to sleep, it’s important to talk a little more about the instruments and other details that are making it easier for banks to finance green building technologies.
The banks & DOE are taking green buildings mainstream
Does anybody care? “More than 5,000 people have used our new Navigator tool in just one year,” says Joe Indvik of Rock Creek Consulting, who helped develop a website for project managers for the U.S. Department of Energy (DOE). “When Morgan Stanley, Citi, Wells Fargo, and Bank of America become more involved, that means we’re going mainstream. These organizations are like huge cargo ships that move slowly, but when they turn, they create a big wave.”
The website describes some old and some new creative financing models being used by banks and others for green projects. It provides case studies on green buildings, with specifics about the deals.
Brenna Walraven, CEO at Corporate Sustainability Strategies in Anaheim, California worked with Indvik on the project. She emphasizes two of the most popular newish models, namely Energy Service Agreements and PACE. “PACE has now been enabled in 30 regions compared with just two jurisdictions five years ago,” Walraven says.
One of the projects Indvik talks about is Pier 1 in San Francisco. When building owner Prologis wanted to reduce its energy load, recommission the HVAC system, add occupancy sensors, LED lights and solar panels; it also hired Johnson Controls. JCI did the upgrades, financing the project through a PACE program accommodated by the State of California and GreenFinanceSF, which managed the deal.
PACE funds can be used for energy efficiency and renewable energy upgrades. Property owners receive 100 percent financing, then repay it as a property tax assessment for up to 20 years. PACE does two key things: it eliminates upfront costs for the energy upgrade, and it connects the loan to the property (and is transferable). Building owners don’t need to think about when they might sell the property, while they evaluate the energy initiative.
Energy Service Agreements (ESAs) are also becoming popular. The Kuakini Medical Centre, a 212-bed hospital in Honolulu, Hawaii needed $5.8 million to build a new chiller plant, add some boilers, boosters, fire pumps, VFD air handlers and modern lighting. It eliminated worry with the help of an ESA. With this model, the hospital pays monthly for the new plant and its maintenance, which technically, is initially owned by an outside company.
This other legal entity receives up-front financing from a bank and contracts separately with a mechanical contractor to do the install and also to do regular service and maintenance during the life of the deal. Projected energy savings are guaranteed under the agreement and are used for monthly payments adjust so that the hospital is cash flow positive and risk free throughout the project period. It also has an option to purchase the equipment at the end of the 20-year term. Given that the retrofit saves about $1.1 million on annual electricity and power (5.5-year payback), everybody wins under the ESA finance model.
"Uh, One more thing...There are a couple of loose ends I'd like to tie up. Nothing important you understand…but it's your perfect alibi that's gonna hang ya.” – Lieutenant Columbo
If it all sounds a little too perfect to say that the banks are suddenly very friendly with modern technology, your little gray cells are performing well. Indvik acknowledges that it’s still looking mostly at creditworthiness of projects. And although the investor-ready certification and some of the special financing structures discussed here are helping it warm up to energy savings in business cases, if you look closely, you’ll see that it is mostly still doing what we expect our banks to do — insulating itself from a lot of the risk. It uses limited liability shell companies, and lien waivers, but it DOES lay out cash for more and more deals.
On the other hand, Wells Fargo could be described as going beyond and actually sipping the Kool-Aid. It’s not just talking the talk. It’s also dancing the ‘dab’ or the ‘Quan’ or the ‘whip’ as it were.
The Wells Fargo Foundation has established a $30 million program co-administered by the DOE’s National Renewable Energy Laboratory (NREL), to develop sustainable building technologies.
The program helped a start-up called Whisker Labs develop peel-and-stick energy submetering technology that reduces meter costs by 90 percent. The sensor is applied to the outside of a circuit breaker, permitting simple, non-invasive information collection by non-technical people. After initial evaluation at NREL, the product was pilot-tested at a Wells Fargo bank branch in Aurora, Colorado. Later, Whisker Labs was bought out by a large backer with good development resources.
Wells Fargo has also completed 600 renovation projects to existing Wells Fargo bank branches and other buildings, involving about 27 million square feet. “We’ve saved 40 percent on energy, 65 percent on water (a billion gallons) and about 50 percent on waste since 2010,” Radkin says. The company installed LED lighting, solar panels, and hundreds of new irrigation systems with mini-weather stations that transmit information wirelessly to a controller, ensuring that foliage is neither over-watered nor under-watered for prevailing conditions. And it switched to more drought-tolerant shade plants. Some 24 percent of the building portfolio is now certified under LEED EBOM, and about 15 branches have solar panels on the roof.
“It’s elementary my dear Watson.” – Sherlock Holmes
Some of you might say it’s painfully obvious that banks would be looking for ways to get involved in the full-on economic energy disruption of the century. But for anyone who is still grappling with energywise and digital heating, cooling and refrigeration technology, please set your fears aside and get committed. There may be difficulties with some of the new ways, but as a new year and a new era begin, there are many reasons to be courageous and hopeful.
Courage and hope in 2018
Business for mechanical designers and trades is growing relatively quickly in most regions and there are more than a few ways to quickly expand your expertise into newish technological areas and thus improve your professional prospects. State and municipal regulations and incentives are driving a lot of business. You can quickly learn about these and use this knowledge to add revenue. Energy retrofit opportunities, although sometimes challenging, are numerous and growing. With better modelling, smaller, smarter equipment and increasingly efficient tools and vehicles, it should be possible to plan for greater productivity and the benefits that come with it.
Better modelling software and improving compatibility is also making the entire process easier and more professional. You can use intelligent design processes to distinguish yourself. Solutions that save energy, save water or use environment-friendly refrigerants are multiplying and they are more proven than ever before. New electronic equipment is usually easier to master than it appears, providing a simple path to add to your value as a leading-edge expert.
As cleaner, energy-saving systems become the norm they are less expensive compared to older systems, making it possible to save your customers money, help our planet, and increase your own business, all at the same time.
It may be that in 2018 we should consider recommending more heat pumps and variable speed equipment that can save customers about half or more of their energy, tankless water heaters that can save about one third, and solar thermal or geothermal systems, that when they apply, save even more.
"It's like, everything really is two ways: the way we all pretend it is and the way it really is." – Dexter Morgan
We might also consider that today on this planet we will push 28 million tons of CO2 into the air. Tomorrow we will add another 28 million, and again the day after, and so on. Today we will also dump 700,000 tons of toxic waste, plastic and sludge into our oceans, lakes and rivers, totaling 240,000,000 tons or more, during 2018.
If you’ve been piecing together the clues, you’ll guess that what I’m trying to say is that the party’s over; so, let’s resolve to start cleaning up the mess, because it will help with our self-reflection. It will help us have a prosperous and very happy new year. Cheers!