Leveraging Data To Move Markets

Recently, I blogged here about the fact that significant improvements in the efficiency of existing buildings – a critical and potentially cost-effective part of our carbon reduction strategy – are not easy to achieve, and described how doubts about the likely success of energy upgrade projects are a barrier to “scaling up” efficiency in buildings.  I also touched on EDF’s efforts to change that.

Today I’m happy to report further on some of the progress being made toward a future in which energy efficiency (EE) project originators and funders will have greater reason to expect success in energy upgrades involving existing buildings.

Last week, EDF partnered with Bloomberg New Energy Finance to host ‘Leveraging Data to Move Markets,’ a half-day discussion among government, real estate, Wall Street, real estate entrepreneurs and NGOs, with participation from the Department of Energy (DOE) and the White House Center for Environmental Quality (CEQ).  The discussion focused on DOE and EDF efforts to address key data and standardization requirements to meet the needs of private capital markets to facilitate comprehensive energy efficiency projects.

It was clear based on the conversation throughout the day that investors and other market players are looking for accurate, reliable, and transparent forecasts of savings from EE projects and related loans in order to manage risk associated with investing.  The lack of standards for data and for the various practices that make up the lifecycle of an EE retrofit are not only affecting the ability to rely on the savings being delivered, but also impeding the origination of projects and creating significant transaction costs to all players. 

As Jonathan Powers described at the opening of the meeting, the White House’s CEQ is keenly interested in stimulating discussions among private market actors and parties in possession of data, with an eye toward how data sets can be leveraged to achieve purposes above and beyond the capabilities of the entity that collected it in the first place.  The DOE is actively engaged in creating data sets with the potential to change the landscape in which energy efficiency projections are made.

Ron Herbst of Deutsche Bank observed during the day’s opening panel that “Data informs where you should hunt for opportunity.”  He also noted that auditable energy performance data would be a substantial step forward, and emphasized the power of transparency to correct malfunctioning markets.  Jeff Pitkin, of the New York State Energy Research and Development Authority (NYSERDA, a New York State authority with a mandate to run energy efficiency programs), seconded the need for transparency. Mr. Pitkin noted that the ability to ground projections in something that is “seen as a credible process,” and transparency with respect to the distinct track records of different market actors, would be powerful levers for building better programs and making prospective projects more attractive to property owners.  Angela Ferrante of Energi, an insurance company seeking to underwrite performance risk in energy upgrade projects, similarly stressed that the variability among project proposals is itself a real barrier to efficient underwriting.

Source: ACEEE

While the discussion touched on many varied opportunities to improve the information available to investors, the need for standards and transparency was the overarching theme of the afternoon.  Investors and other market players need accurate reliable forecasts of savings from EE projects, and there is a massive need to standardize energy retrofit protocols and procedures to enable effective origination and lower engineering overhead. Cody Taylor and colleagues at the DOE spoke of their flagship effort with respect to building efficiency data, the Buildings Performance Database (“BPD”), which is both aggregating anonymous benchmarking data and providing a standard taxonomy for the consistent expression of data. The BPD is ultimately a dataset that includes building asset data as well as energy performance data.  It is designed to facilitate projections of the likely distribution of savings associated with a contemplated energy upgrade project by enabling comparisons between a building in its pre-retrofit condition and similar buildings with key equipment differences, which can be thought of as “comparables” to the building in its post-retrofit state.

EDF, offering a different perspective, presented some of the preliminary results of our Investor Confidence Project (ICP). ICP is an undertaking that considers the same key question – how can a proposed retrofit be expected to perform? – from a vantage point that is more concerned with the full lifecycle of a retrofit project than with the actuarial data that result from performing a large number of upgrades.  Our preliminary results include:

• a proposed standard framework for the full lifecycle of energy upgrade projects,
• a proposed set of best practices for the engineering of projects in large commercial buildings (which parties being asked to accept performance risk could insist upon), and
• a proposed standard form for presenting for energy upgrade projects to prospective underwriters.  

Other, complementary developments were discussed over the course of the afternoon, including the emergence of contractual regimes that require data transparency throughout the entire lifecycle of efficiency projects, and the potentially transformative power that could come from leveraging smart meter data and other already existing datasets, particularly in conjunction with efficiency data.

We need all these things for investors to get the credible energy efficiency performance projections they need to commit far greater resources to far more efficiency projects, particularly to increase the investment in comprehensive building upgrades.  We need data about building performance; we need to have tools for distinguishing more and less promising projects based on project-specific attributes; and we certainly need to leverage relevant datasets from other sources, including increasingly granular utility meter information.

In our own work, we have been struck by the absence of any publicly-accepted standard expectation for efficiency project development and execution, and believe that our initial ICP outputs point in the direction of such a standard.  Our hypothesis is that if those seeking the opportunity to bet on efficiency projects stated clearly an auditable standard that any proposed projects should obtain, project originators will respond by designing in accordance with that standard.  This would make possible a generation of projects that can readily be evaluated, compared to one another and compared to other projects that were developed without reliance on such a standard.  To that end, we invite engineers, building owners and managers, software developers, prospective lenders and investors, insurers, utilities and others to participate in testing and improving the ICP specifications.  Your participation is welcome. 

Please feel free to contact me, Elizabeth Stein, at estein@edf.org for further details.