Energy efficiency could be a several hundred billion dollar investment opportunity in the United States, but better policies are required to unlock broad-based financing from institutional investors, according to a new study by investor advocacy group Ceres.
Power Factor: Institutional Investors’ Policy Priorities Can Bring Energy Efficiency to Scale details the results of a survey of nearly 30 institutional investors and other experts from the energy, policy and financial sectors that identified three areas of policy: utility regulation, demand-generating policies and innovative financing policies. The study finds that these three areas have the potential to take energy efficiency financing to a scale sufficient enough to attract significant institutional investment.
“Energy efficiency offers investors a potent one-two punch: stable returns and an important strategy for mitigating climate-related risks,” said Mindy Lubber, president of Ceres. “Policymakers and regulators should work to unlock capital from institutional investors for energy efficiency by promoting the policies identified in this report. Many of these policies do not require public funds, and they can put money back into the pockets of homeowners and business leaders around the country.”
While solar, wind, hydroelectric and other renewable energy technologies often hog the sustainability spotlight – maximizing energy efficiency using existing technology could create an economic boom while reducing overall greenhouse gas (GHG) emissions.
“The hard truth is that renewables have started from such a tiny base that even with exponential growth, it will take a long time for them to take over a large share of the work now done by coal, oil, and natural gas,” said physicist and economist Robert Ayres, co-author of Crossing the Energy Divide: Moving from Fossil Fuel Dependence to a Clean-Energy Future.
The U.S. economy’s energy demands are too great for renewables to take over from coal and oil over night, according to Ayres. Even if the country’s solar generation capacity doubled every three years over the next decade (a goal set forth by President Obama), it would still only account for 13 percent of the U.S. energy supply.
A more practical route to a clean energy future is building what Ayres calls an “energy bridge” of energy efficiency, using its cost savings to invest in developing renewables to the point where they can take over the lion’s share of energy demands while also significantly reducing overall GHG emissions.
A good place to start is with buildings – they account for roughly 41 percent of total U.S. energy consumption. How can we make existing buildings more energy efficient?
The Ceres report cites three key areas of policy that could help build up a secondary market for building energy efficiency retrofit loans.
Public Utilities Commissions and other regulators can move the utility business model from a 20th-century model that rewards increasing energy sales to one that maximizes energy efficiency. At the same time, utilities and their regulators can help make energy-efficiency finance programs investment grade through the same protections provided to electricity sales, as well as better data sharing and strong contractor and performance standards.
Investors can highlight efficiency-inducing measures, including building codes and standards, and appliance and equipment efficiency standards to set a baseline of efficiency in the marketplace. Building energy disclosure requirements – such as those adopted by cities like Philadelphia, New York and Boston – can provide both an impetus to do energy efficiency retrofits and the transparency to facilitate investments in more efficient buildings.
Innovative financing policies
Implementing policies like Property Assessed Clean Energy (PACE) bonds, on-bill repayment, credit enhancement, and extending Master Limited Partnerships to combined heat and power (CHP) projects can overcome the challenge of paying for the upfront costs of energy efficiency retrofits. These policies also can provide vehicles for loans that can be packaged and sold to institutional investors.
The International Energy Agency estimates that one-third of emissions reductions must come from energy efficiency in order to avoid the worst impacts of climate change. As much as 75 percent of the electricity used in the U.S. today could be saved with efficiency measures that cost less than the electricity itself, according to Rocky Mountain Institute.
While the U.S. (and the world) must continue the march towards renewables, investing in energy efficiency will help erect an “energy bridge” to traverse the climate change chasm to reach a clean energy future.
Based in San Francisco, Mike Hower is an Associate Editor at Sustainable Brands and writes about companies and organizations engaged in sustainability strategy, clean technology and social entrepreneurship. As a natural politico, he has a soft spot for anything related to public policy and the intersection of business and government, which he also blogs about on SustySavvy.com. Contact him at email@example.com. You also can connect with him on LinkedIn or follow him on Twitter (@mikehower).