Achieving scale in the US: A view from the construction and real estate sectors

Achieving scale in the US: A view from the construction and real estate sectors is an Economist Intelligence Unit (EIU) paper commissioned by the Global Buildings Performance Network. This paper focuses on how companies in the U.S. approach energy efficiency investments, the challenges and opportunities they face, and the role played by innovative financing in scaling up energy efficiency initiatives.

The U.S. building sector’s energy consumption is on the rise. According to the U.S. Department of Energy, primary energy consumption in the sector increased by 48% between 1980 and 2009 and is projected to grow by a further 19% by 2035. The latest available data (collected in 2010) show that the sector accounted for 40.3 quads or 41.1% of total US primary energy consumption. This is more than the industry sector (30.3 quads) or the transport sector (27.6 quads).

Improving energy efficiency in buildings therefore represents a tremendous opportunity. A 2012 Deutsche Bank report claims that energy efficiency retrofits alone could bring $1trillionn worth of energy savings to the U.S. economy over the next 10 years. Should the current wave of financial innovation in energy efficiency in buildings succeed (see part V), the potential exists for a rapid scale up of current piecemeal investments.

It won’t be smooth sailing. US actors tend to expect to recoup costs associated with energy efficiency investments within a very short time frame. According to our June 2012 survey, more than half (56%) of U.S. respondents expect to recover such expenditure within three years or less. This is especially problematic for deep retrofit investments, which can have higher net present value compared with light retrofits but often require more time to recover investment cost.

Furthermore, while two-thirds of U.S. building executives surveyed last year have a good grasp of energy consumption associated with heating, ventilation, and cooling (HVAC) systems, equally as many overestimate the costs of making improvements in energy efficiency. Only one-fifth of US respondents have an accurate perception of energy-efficiency costs.

Finally, U.S. companies must make sense of a patchwork of federal and state regulations, segmented markets (i.e. residential, commercial, industrial, etc.) and a plethora of ownership structures. Finding ways to aggregate projects will be important to attracting large investors, including institutional investors, which have so far had limited involvement in energy efficiency projects.

Read the press release.