Building Energy Efficiency: Constructing a Low-Carbon Future
A Foundation for the Future
Energy solutions for new buildings will pave the way forward
Cities, cities, everywhere. By 2050, 68% of the world’s population is expected to live in urban areas, adding approximately 2.5 billion people to cities. The construction industry is trying to keep pace with this boom in growth. In 2020, global construction output was $10.7 trillion, and is forecasted to reach $15.2 trillion by 2030. This combination of rapid population growth, construction development, and concerns about a warming planet has turned government and market attention to building energy efficiency.
Buildings will play a vital role in achieving the goals set forth by the Paris Agreement, namely limiting global warming to 1.5°C. To do this, the building and construction sector needs to operate at net-zero emissions by 2030. According to the World Economic Forum, a mere 20% shift in heating towards heat pump applications would reduce CO2 emissions by 9%. This shift, in addition to other smart solutions, could save over $3.2 billion in human health benefits from decreased air pollution by 2030. Investments in energy efficient buildings provide the basis towards a net-zero future, as buildings constructed today will be standing for the next half-century or so, creating a lasting impact on the climate.
Market Trends: Facts, Figures, Forces
Market forces
According to the OECD, buildings account for 40% of global energy-related greenhouse gas emissions. This share is even larger in major cities: emissions from buildings in London, Tokyo, and New York account for 76%, 71% and 67% of total emissions, respectively. These emissions patterns in the built environment are at odds with the Paris Agreement - building energy intensity must be reduced by 30% by 2030 to align with the Paris Agreement.
Improving and investing in energy efficiency in buildings can both substantially reduce energy consumption and CO2 emissions, create jobs, improve health, and make household energy more affordable.
Market Facts
In 2020, revenue from building efficiency totaled $341.7 billion globally and $94.5 billion in the United States.
In 2020, energy efficiency investments in buildings reached almost $180 billion, up 11% from 2019.
To achieve 2050 emissions goals, this spending must triple.
Investment Opportunities
Investment Opportunities
While the construction of energy efficient buildings has been in its nascence, there is growing investor and regulatory focus, increasing the industry’s market potential:
It is possible to reduce building emissions by 87% by 2050 with energy efficient technologies, yet only 1% of buildings were zero carbon as of 2019.
In 2021, energy efficiency investments rose by ~10% to $300 billion
Although there are many barriers to energy efficiency investment in emerging countries, governments and larger financial organizations have helped spur energy efficiency projects in India, South America, and China
While the upfront cost of an energy efficient building will be higher than that of a traditional building, companies that invest in efficient buildings will cut energy expenditures, reduce future renovations, and enhance their ESG portfolios.
A key catalyst to unlock investments in the building energy efficiency industry has been a spate of supportive policy frameworks which aim to decrease risk in energy efficiency investments.
Zero Carbon Buildings for All, a multi-year, multi-stakeholder initiative launched at the UN Climate Summit, aims to mobilize $1 trillion to support decarbonization of buildings by 2030.
Building Efficiency Accelerator (BEA), a public-private collaboration, was set up by Johnson Controls, Inc., the Global Environment Facility (GEF), and P4G to achieve the U.S. Sustainable Energy for All’s initiative of doubling energy efficiency by 2030.
Energy Efficiency Financial Institutions Group, which is supported by the EU Commission, provides de-risking and underwriting services to support innovative businesses within this space.
In 2021, the U.S. Department of Energy announced investments of $13 million in energy efficiency technologies in federal buildings, and allocated about $83 million for 44 projects to increase building efficiency and lower Americans’ energy bills.
Market Segments
Residential:
The U.S. residential sector was responsible for 16% of U.S. primary energy consumption in 2021.
Purchasing energy efficient appliances, lighting, and other products (such as those certified by Energy Star) can decrease energy consumption and costs.
Building certifications include LEED For Homes, Enterprise Green Communities, Energy Star Homes, Passive House.
Non-residential (commercial & industrial buildings)
HVAC systems and lighting systems make up the majority of energy consumed in commercial buildings.
IEA states that retrofitting commercial buildings to align with zero-carbon building standards will be key in achieving energy efficiency in the buildings sector.
LEED and Energy Star certification is available for commercial and industrial buildings to help them lower their energy use, carbon footprint, and energy costs.
Components
Controls the levels of moisture within a building and proper ventilation controls mold growth and prevents structural damage.
Natural ventilation, spot ventilation, and whole-house ventilation.
Whole-house ventilation system types: exhaust, supply, balanced, and energy recovery.
Depending on the climate of the building’s environment, different ventilation strategies will be necessary.
Light emitting diodes (LEDs) are the most energy-efficient lighting technology on the market and available in multiple product types.
Using LEDs saves the average household around $225 in annual energy costs.
Energy management systems (EMS)
These systems control HVAC, lighting, water, electricity, energy consumption, and other building functions.
With advances in technology, EMS have become more efficient and are able to provide higher energy savings as well as healthier working environments.
In residential buildings, EMS provides residents with information on their energy-use patterns, helping them take actions to conserve energy.
Impact
Energy efficient buildings can reduce air pollution, energy and resource consumption, and outdoor emissions. They can save lives and provide financial and productivity gains:
Energy efficient buildings surveyed in the U.S. had 34% fewer CO2 emissions, consumed 25% less energy, and 11% less water.
Energy efficient buildings reduce building maintenance costs by 20% and retrofitting buildings decrease operation costs by ~10% in one year.
In the United States, building certifications such as LEED are contributing to healthier and more productive workforces by reducing indoor air pollution with better ventilation and combustion systems. This also improves energy performance by at least 10% across thousands of buildings and cuts down on waste.
Market Movers: Current and Future Heavy Hitters
Market Leaders
Johnson Controls (U.S.)
Since 1885, Johnson Controls has been at the forefront of efficiency, offering a wide range of building technologies, software, products, and services to make buildings smarter.
Developed their own building automation system (BAS) called Metasys in 1990 and recently released Metasys 11.0 which identifies building system-related faults and provides causes and solutions.
Had $6.1 billion in sales as of Q2 2022.
Redaptive (U.S.)
Based in San Francisco, Redaptive is a young Energy-as-a-Service (EaaS) provider, meaning that their customers get access to their energy equipment without an upfront capital investment so energy savings and emissions reduction come faster.
Works with large campuses and real estate portfolios.
Funds and manages energy and sustainability installations.
In late 2021, Redaptive submitted a draft registration statement to the SEC regarding its proposed public listing.
75F (U.S.)
Developed an IoT-based building automation system that analyzes building performance and optimizes HVAC systems.
Used in offices and small businesses.
In 2019, 75F raised $18 million in Series A funding with Breakthrough Energy Ventures.
In 2021, 75F announced an investment from Next47, a VC firm backed by Siemens AG., which will bring their total Series A funding round to $28 million.
BlocPower (U.S.)
Founded in 2014 and based in Brooklyn, New York, BlocPower uses its software in multifamily buildings to upgrade HVAC and other building systems, focusing on low-moderate-income (LMI) communities.
Recently, BlocPower has partnered with Menlo Park, California and Ithaca, New York on large-scale electrification initiatives.
In January, 2022, BlocPower received $30 million from Microsoft Climate Innovation Fund to expand their equitable electrification projects, already funded by Goldman Sachs.
Tado° (Germany)
Developed a smart thermostat which allows customers to control their home heating and cooling systems from their phones.
In early 2022, Tado announced that it will be going public via SPAC deal on the Frankfurt exchange, expected to be valued at $514 million.
Tibber (Norway)
Launched in 2016, this digital energy company helps their customers analyze their energy consumption in real time through their app
Their analytics can be used for homes, electric cars, and thermostats
Raised $100 million in Series C funding led by Summa Equity in early 2022
OhmConnect (U.S.)
Founded in 2014 in San Francisco, OhmConnect is a free service that alerts customers weekly to save energy for one hour when the grid demand is high.
Customers in California, New York, and Texas using participating utilities companies can connect their utility account to OhmConnect and save money when they reduce their energy during peak usage times.
Venture Capital/PE and Other Fund Investors
FactorE is a global VC fund dedicated to investing in companies in the sustainable development sector, with a portfolio spanning energy, mobility, waste, and agriculture.
Recently invested in Odyssey, a company focused on the development, financing, and distribution of energy projects.
Early stage private equity fund focuses on digital solutions addressing climate risk in energy, agriculture, real estate, and transportation with specific focus on adaptation and mitigation.
In late 2021, Buoyant invested in Storm Sensor, a company that installs low-cost sensors in sewer pipes to help prevent urban flooding.
Started in 2009, Elemental is a non-profit VC firm funding climate technology across the energy, mobility, agriculture, circular, water, and other sectors.
They have over 130 portfolio companies and have given $48.8 million to companies.
A corporate venture capital fund created under Schneider Electric investing in energy management, electric mobility, cybersecurity, AI, and Industry 4.0 in buildings, infrastructure, and industry.
Based in Menlo Park, California with $565 million under management.
Started in 2005 and based in Boston, Massachusetts, Clean Energy Ventures is an early stage private equity fund.
Investing in technologies and business model innovations that are changing energy consumption and production.
As part of their investment criteria, portfolio companies must have a technology, product, or service that has the potential to mitigate at least 2.5 GtCO2e between 2022-2050.
Final Thoughts
While the benefits of investing in energy efficient buildings seem endless, there are several key barriers to escalating building decarbonization. For example, the sheer lack of awareness around the importance of energy efficient buildings in the fight against climate change means that the market has been slow to grow in this area. In addition, many policy measures being created in cities and regions around the world that should spur investment and growth, lack coordination across governments and are thus unable to push property owners to improve building efficiency. It has also been difficult for national governments to develop and implement comprehensive monitoring and evaluation frameworks. With that said, many of these issues can be fixed by private investment. In a survey put out by the OECD, 76% of cities and regions that responded cited “insufficient budget and resources” as the main obstacle to energy efficiency in buildings. Thus, many cities and regions (nearly 60%, according to the OECD survey) are prioritizing private sector engagement.
Building energy efficiency has the ability to significantly reduce GHG emissions in cities across the globe. As governments become more adept at quantifying efficiency targets and disseminating large-scale frameworks, and as investment in building energy efficiency technology grows, we will have a greater chance of reducing our carbon footprints where we work, sleep, learn, and play while creating sustainable, healthy, and efficient communities for everyone.