By Jessica Lawrence
The requirement to benchmark buildings’ energy use and report that information to various stakeholders, including the general public, is a relatively new responsibility for U.S. real estate owners.
While leading cities and states such as Seattle, New York City, and California have pioneered required benchmarking in the U.S., the bulk of the real estate market’s energy use remains outside of public scrutiny. That, however, is changing.
Benchmarking and public disclosure policies are gaining momentum, and the number of cities that require disclosure of building energy use is expected to sharply increase over the next ten years. Is all this new data – the data on building energy use that is the outcome of benchmarking and disclosure polices – the groundwork for disruptive innovation?
The concepts of sustaining innovation and disruptive innovation, coined by Clayton M. Christensen in 1997, were originally applied to the march of progress in the technology world. Technological advancement has caused rapid cycles of change in how we interact in an increasingly digital world, and this cycle of displacement is disruptive innovation: cell phones displacing landlines, for example.
Contrast this with a sustaining innovation: the touch-tone phone replacing the rotary phone. It was an advancement, no doubt, and greatly decreased the time it took to make a call, but a whole new market? – a new way of using phones in our lives? – hardly.
The core principle of disruptive innovation is that it creates a new market and value network that eventually disrupts an existing market and value network. The real estate industry may be on the brink of a disruptive innovation renaissance when it comes to how energy is used in buildings.
A key ingredient, actual building energy consumption data, is finally becoming widely available for thousands of properties, with more on the way. We have already seen a surge in benchmarking and auditing jobs that coincides with the rollout of policy.
Looking forward, many more individuals and companies will be competing to combine this wealth of data with various technologies and business models to create new markets, new methodologies for constructing and renovating buildings, and new types of ownership structures.
Christensen’s disruptive innovation theory tells us to look to the fringes of the market to see whether a new market is on its way, or simply a refinement of the old. For real estate, that means the less traditionally desirable properties, the small owners and asset managers, and the new types of service providers.
One radical and definitely disruptive idea that could change the business model for real estate is creating a building that generates rather than uses energy. As technology advances, a savvy business person could use building benchmarking data to identify buildings that have low energy use profiles, acquire them, perform deep energy retrofits, and equip them with energy generating flooring and cladding, thereby creating an entirely new income stream.
This may sound far-fetched, but does it seem as unlikely as a telephone market dominated by cell phones seemed 40 years ago?
Jessica Lawrence is a program manager in Building Energy Performance Policy at the Institute for Market Transformation (IMT), a Washington, DC-based nonprofit that promotes energy efficiency in buildings. Prior to joining IMT, she worked for companies including ING Real Estate. She holds a Master of Real Estate from Cornell University.