In the fight to save energy and reduce pollution, everyone always says that energy efficiency is the “low-hanging fruit.” That’s because upgrading appliances and building performance typically saves enough energy and therefore money to pay for itself in just a few years.
So why aren’t commercial building owners in particular taking more advantage of the opportunities? And why aren’t lenders promoting these options — particularly when some estimates indicate that there could be $72 billion in market potential that’s being left on the table?
It’s the subject of much insider discussion, and a new report from Institute for Market Transformation (IMT) attempts to analyze the challenge through interviews with building owners and bankers. As Clean Energy Finance Forum reports:
“The key finding of our study was that lenders perceive a low level of demand for energy-efficiency finance,” said Leonard Kolstad, senior program associate at IMT. “That’s something we expected.”
What factors are at the root of this apathy? Building owners are highly skeptical energy retrofits will deliver reliable returns on investment, according to an article Clean Energy Finance Forum published in January 2015.
What would help? For starters, more outreach to building owners about how they can profit (i.e. raise rents) from retrofits. More building energy data would help, too, to show owners the current inefficiencies and also to prove the savings stream from certain retrofits.
It would also help to give banks a more formal role in energy efficiency incentive programs, so that banks were involved in utility outreach programs. And banks could likewise include efficiency finance as part of their environmental, social and governance (ESG) programs.
A move to pay-for-performance energy finance, as Berkeley and UCLA Law documented in a new report, could jumpstart this collaboration. As we detail in the report, measuring a predictable savings stream from specific retrofit improvements could give financial institutions something to bank on and finance, akin to rooftop solar.
Otherwise, business-as-usual is ignoring an unusual amount of business.