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Rocky Mountain Institute

Orchestrating the energy transition: Tuning into buildings

The transition to clean energy is akin to the entire world participating in a symphony. Each player has a critical role, timing is essential and all parts must come together deftly in order to execute this masterpiece. 

But this is no idle exercise in orchestration. The Intergovernmental Panel on Climate Change (IPCC) has declared that this transition must occur within the next 10 years to limit global warming to 1.5 degrees Celsius and avert a global climate catastrophe. Many sectors will have a role to play, including an evolving building sector and, in particular, a growing energy services company (ESCO) industry.

Tuning the buildings

The building sector contributes 39 percent of global energy-related CO2 emissions. Rocky Mountain Institute’s assessment is that for the buildings sector, playing its part in the energy transition means achieving a 50 percent reduction in global building emissions by 2030 and achieving zero-carbon emissions from buildings by 2050.

This will require a monumental effort. Aside from setting aggressive net-zero or near net-zero energy code standards for new construction, an equally critical component to the orchestration is the need to retrofit our existing global building stock. This need is apparent when considering that over 80 percent of the buildings that will exist in 2030 are already built and exist today.

How big of a bang will building energy efficiency retrofits actually make in this opus?

Taking the current global rate of energy efficiency retrofits of about 1 percent of buildings per year and assuming a 30 percent energy reduction on average per building retrofit, that equates to a 3 percent reduction in building emissions by 2030 and 9 percent by 2050.

We need to increase the current global energy-efficiency retrofit rate in buildings from about 1% per year to over 5% per year.
That’s a far cry from the big splash we need to make with the reduction targets stated previously. Furthermore, to accommodate baseline adoption of electric vehicles projected to be on the road, without increasing generation capacity and related emissions dramatically, we need to increase the current global energy-efficiency retrofit rate in buildings from about 1 percent per year to over 5 percent per year.

To take the symphony analogy further, ESCOs are like teams of "sound engineers" working to constantly improve the acoustics of this massive production, as they provide services and help secure the financing for energy-efficiency retrofits in buildings.

While there are a number of financing and implementation models for energy-efficiency retrofits, ESCOs and the use of guaranteed savings energy services performance contracting (ESPC) are the dominant forces in the retrofit space. In the United States, ESCO performance contracting services generated 75 percent, or $3.7 billion, of industry revenue in 2014. Their global market share of the energy-efficiency industry is likely higher.

But have you ever listened to the sound quality of old recordings? As sound engineering is an ever-improving and evolving craft, so, too, it is with the ESCOs that must update and scale their business model to meet the demands of the challenge ahead. 

ESCOs and the industry, in general, should scale their business model to include small to medium commercial buildings (SMCB) segment, the largest market opportunity for energy-efficiency retrofits. Furthermore, incorporating advancements in building-to-grid interaction and demand management will unlock greater value from energy retrofits, enabling the expansion into new segments such as the SMCB market.

Power sector instrumentation with clean energy generation

The interplay between greening the power generation sector through renewable energy deployment and tuning our buildings through energy efficiency retrofits must be executed in concert.

The share of renewables in electricity generation must reach about 50 percent by 2030 to stay in line with the 1.5 degrees C target. It also will be necessary to accelerate the rate of retrofits to 5 percent per year. If conducted correctly, these changes will allow us to reach our targets within the buildings sector.

Dynamics in the system with load flexibility

If the infrastructure of the electric grid is the musical staff, then without dynamics in the music, our symphony will fall flat. The energy transition requires that dynamism in the electrical system in the form of load flexibility on the grid.

This is needed because wind and solar are both intermittent generation sources, and with a greater deployment of these two sources on the grid, the coincidence of supply and demand of energy becomes more of a challenge. The variable nature of these renewable energy sources necessitates that we have the ability to dynamically flex the energy demand in order to balance the load on the grid in real time.

Therefore, to meet the needs of changing energy infrastructure with up to 50 percent renewable energy globally, our buildings will have to not only be more energy-efficient but also grid-interactive and flexible. By leveraging more onsite generation plus electric and thermal energy storage — as well as intelligent, predictive controls that shift, shed and modulate building loads — buildings can achieve greater load flexibility and help provide the grid services needed to support the energy transition.

In this way, the buildings of the future will not be just endpoints on the grid that consume energy as they have been in the past, they will be assets on the grid that provide load flexibility services in response to a dynamic grid and market signals.

Crescendo leading to a resolution

The global energy-efficiency retrofit market will continue to experience tremendous expansion, as evidenced by the annual growth rate in the global ESCO market. The overall market grew at 8 percent to $28.6 billion in 2017, with China’s ESCO market leading the world at 11 percent growth and nearly $17 billion in 2017. 

But will the sustained growth rate be enough to match the need? Annual energy-efficiency investments need to grow by a factor of four by 2040. By some estimates, the ESCO industry to date only has captured around 4 percent of the global investment potential for energy-efficiency retrofits.

To fully align with the changing power sector and capture the vast pent-up value of energy-efficiency retrofits, ESCOs and the retrofit market need to accelerate the pace of energy-efficiency retrofits, scale up building electrification and embrace advancements in grid-interactive energy-efficient building technologies.

To meet the needs of changing energy infrastructure with up to 50 percent renewable energy globally, our buildings will have to not only be more energy-efficient but also grid-interactive and flexible.
By integrating electrification of buildings with advanced controls, predictive modeling and analytics that enable load flexibility and grid-interactive measures, resulting projects can have greater energy cost savings, increased resilience to disturbances or outages on the grid and reduced greenhouse gas emissions.

Load flexibility of buildings’ energy demand can be optimized to respond to grid signals through both onsite generation and energy storage — including battery energy storage or thermal energy storage — as well as through building-level load flexibility. Building-level flexibility includes thermostatic control of the building to respond to grid signals, as well as demand limiting and staging equipment, and the use of advanced lighting controls.

On the policy front, replicating leading building energy-efficiency policy initiatives at the local level not only will produce reliable returns for building owners and create jobs but also can be designed strategically to meet critical emissions targets.

The Building Energy Performance Standards established in Washington, D.C., through the Clean Energy Omnibus (PDF) law, the Climate Mobilization Act in New York City — including the Greener Greater Building Plan and Local Law 97 (PDF) in particular — are leading examples that can be adapted and applied in other jurisdictions around the world.

Federal legislation and subsidies such as tax incentives also can be used to foster greater growth and expansion of the retrofit market and the ESCO industry. Finance mechanisms such as the residential and commercial Property Assessed Clean Energy (PACE) programs can be leveraged to encourage retrofits beyond the municipal, school, universities and hospitals (MUSH) and industrial markets, and into the much larger opportunity as a whole associated with the SMCB sector. Government procurement policies should be revised where necessary to enable the use of ESPCs to upgrade public sector buildings.

Finally, who is conducting this grand symphony? Unlike in the symphony hall, the global energy transition cannot rely on a single conductor to lead us through each passage to the final resolution. In the global clean energy symphony, perhaps the conductor is our collective conscience that must have vision and resolve, and be attuned to the opportunities, to the risks and to our moral obligations. To be tone-deaf in this case would not just result in a major flop but a calamity of global and epic proportions.

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