Expanding Energy Efficiency

by Greg Kats, President, Capital E

My firm, Capital E, is working with partners such as the American Institute of Architects and with cities like Washington, D.C., to quantify the full costs and benefits of urban cool roofs and green roofs. Benefits include large gains in energy efficiency (EE) from lower building temperature and lower city wide summer temperature, as well as even larger secondary benefits such as health and resilience. This trend toward calculating and claiming broader EE benefits is essential if EE is to get the level of funding it needs and deserves.

Plunging natural gas prices threaten to weaken demand for EE. This matters because EE is the largest opportunity to cut CO2 in a cost-effective way. The new EPA Clean Air Act Section 111(d) program gives most states additional motivation to achieve deep CO2 reductions through expanded EE. What follows are some steps states can take to expand EE financing.

State-owned or -leased buildings typically have a range of often incompatible energy-using devices, controls, and systems. State buildings can operate more efficiently if managed through a strategy I call ESCO 2.0, which features integrated, near real-time, smart energy data, and controls and optimization that allows buildings to actively reshape load to enable on-site renewables and to respond to utility peak pricing signals. A recent Natural Resources Defense Council study of three already-efficient commercial buildings (including a newly commissioned LEED building) that adopted a smart-building optimization platform developed by AtSite showed energy use was cut by 8% to 17% with almost no new equipment investment. This kind of open platform allows virtually unlimited flexibility in adding on new equipment or applications, and enables better control and delivery of comfort and health. Similarly, BuildingIQ allows buildings to manage passive solar heat gain and thermal mass to optimize EE. Another advantage of an ESCO 2.0 strategy is that it allows a shift from expensive scheduled maintenance to less expensive and more effective maintenance triggered by measured equipment performance.

In states with CO2 cap-and-trade programs (states that include about half the U.S. population), current policies prevent investors in EE from getting much of the value they create. An EE investment results in two financially important benefits: (1) lower energy costs, which accrue to the building owner and/or occupant, and (2) a reduction in CO2 (and other pollution). However, state policies prevent building owners from getting the value of the CO2 reduction that results from their EE investments. In effect, current state policies are working against state EE objectives. A coalition initiative called CO2toEE advocates for a design change to programs—such as the Regional Greenhouse Gas Initiative or California’s cap-and-trade program—that would allow current and future CO2 reductions from today’s EE investments to be sold by intermediaries into CO2 markets, giving EE investors a large check at the time of their investment to achieve deeper EE. This effort has broad and fast-growing support from state and national corporations, associations, and nongovernmental organizations—and states should sign on.

Even in states with carbon markets, the market price for carbon is far below its real cost. A dozen federal agencies, including the Treasury Department and the EPA, developed a rigorous cost analysis called the social cost of carbon that finds a cost of CO2 in the $40 per ton range. States should include this (conservative) CO2 cost in all energy, building, and retrofit decisions. Doing so would improve their building design and investment decisions and increase EE. Just such a strategy was recently adopted by the congressionally mandated Federal Green Building Advisory Committee (which I chair) to be applied to the roughly 430,000 federal buildings.

Solar PV funding has grown rapidly through a power purchase agreement (PPA) structure allowing PV generation purchasing under long-term fixed contracts. States can apply the PPA structure to EE—essentially enabling state agencies and utilities (e.g., municipal utilities) to contract EE like an energy supply resource, with a high level of contractual certainty and standardization. One such effort by EnergyRM builds on the rigorous international performance measurement and verification protocol (IPMVP) standard to develop a virtual meter to provide utility-grade EE. This structure was used by municipal utility Seattle City Light to provide funding for deep EE investments by the Bullitt Foundation to build its zero net energy office building in downtown Seattle. States should pilot the contracting of EE through PPA contracts for their own building portfolios.

Perhaps the single most exciting recent EE event was Google’s acquisition of Nest Labs, because it signals a turning point—a kind of coming-of-age validation that EE is sexy(!) and scalable. It enables the essential trend of EE investments (e.g., lighting, HVAC, sensors) to be formally tied to, quantified, and—with states’ help— claim the resulting secondary benefits of health, comfort, and
CO2 reductions.

Disclosure: Capital E invested in MyEnergy, which Nest purchased before being acquired by Google; I serve on the board of AtSite; and I served as the founding chairman of IPMVP, Inc. This article draws on a recent talk at the National Academy of Sciences.


Greg has played substantial roles in developing the energy efficiency and green building industries, and is a long-time thought leader, innovator and investor in the transition to a low carbon economy. He is President of Capital E which works with cities, corporations and financial institutions to design, scale and implement clean energy and low carbon strategies. Capital E invests in early stage cleantech/green firms, and Greg is a partner in Cleanfeet, funding innovative green energy and agricultural projects.