California’s massive building code revisions, called Title 24, target achieving sea-changing growth in energy efficiency investments by eliminating the conflicted and uncertain economics that currently constrict energy efficiency project financing. Title 24 is a huge bet by California that smart, energy efficient and renewable energy technologies can be grown to economies of scale that will deliver price competitiveness. It is also an unprecedented path for sparking growth in a construction industry still recovering from the Great Recession.
If successful, Title 24 will open the door to increased amounts of energy efficiency financing, expanded sources of capital and lower financing costs. If successful, Title 24 will revolutionize the economics of smart building technologies that will reshape America’s homes and offices to be cleaner, smarter, healthier and less costly to operate.
Building energy efficiency’s conflicted financing challenge
Today, an increasing number of homeowners have a growing prejudice toward utility-sponsored energy efficiency programs due to experiences that too often fail to result in lower monthly bills. Corporate CFOs continue to block the financing of building energy efficiency investments because they are “non-strategic” to core business growth and the typical CFO requirement that non-strategic investments must achieve two-year paybacks (a not unreasonable CFO viewpoint when 75 percent of all stock transactions are “day trades” and a company’s valuation is often based upon 90-day results).
The real estate industry’s ability to finance energy efficiency investments is caught in a quagmire of conflicted interests linked to triple-net leasing agreements where the benefits of a property owner’s investment in energy efficiency reduces the tenant’s electric bill without generating near-term cash flow to the owner. California’s revised and new Title 24 codes will cut through most of these financing barriers. It will also accelerate the adoption of smart building technologies that will generate the type of big data analytics that is proven to enable energy project financings.
California’s Title 24
Title 24 is California’s body of state building codes. These codes have been revised to move the building industry toward comprehensive building solutions with a goal of achieving Zero Net Energy (ZNE) residential and commercial buildings. In a ZNE building, the annual building’s energy consumption is equal to the building’s onsite renewable energy generation. California has set a goal for all new residential construction to be ZNE by 2020 and for all new commercial construction to be ZNE by 2030. Additionally, the repurposing and remodeling of existing buildings that are of a size-threshold defined by Title 24 will also have to comply with Title 24 revised codes.
Financing a “smart” Zero Net Energy building
The challenge of financing any energy efficiency or renewable energy project is in providing assurances to the source of capital that the project will actually generate sufficient cost savings to cover financing costs plus repayment of invested capital. The number one challenge for winning energy efficiency investments is the uncertainty in documenting bill savings results. Too often, the cost savings generated by an investment in energy efficiency is lost in higher electric bills as new loads are added and utilities raise rates.
Information technologies that monitor, control and financially operate a building through links to real time prices of grid-supplied electricity are the foundation for enabling Title 24 project financing. Smart ZNE buildings will operate to optimize the economics between reducing building demand, reducing energy consumption, on-site generation, use of on-site energy storage and purchases of grid electricity.
What will further enable the financing of ZNE buildings is the ability of enabling information technologies to “look forward” in time to proactively shape a building’s operation and grid purchases to financially support the building’s project financing. The technologies that can achieve these results have already been invented. What California is pursuing through its Title 24 code revisions is a massive economies of scale push for these technologies to drive their costs down and increase their ability to be financed.
The sales pie just got bigger…a lot bigger
Beginning in 2014, Title 24 will blow the sales doors open for smart building technologies, energy efficiency technologies, onsite energy storage and renewable energy technologies. Title 24 will create a new competitive landscape for architects, general contractors, sub-contractors and vendors based upon their ability to offer price competitive services and products that comply with Title 24 codes. The construction industry’s sales path for energy efficiency projects will no longer be anchored by utility incentives that support targeted energy efficiency upgrades like re-lamping a building with more efficient lights. The new sales path will be based upon cost-effectively delivering code compliance to achieve financeable building performance. New competitive advantages will be won by contractors and architects that offer building performance assurances to building owners and financing sources.
The new Title 24 sales strategy: Empowered energy solutions
Title 24 will push California’s building industry into the Information Age. Information technologies that realize the economic potential of a building’s operation by arbitrating between load shifting, energy efficiency, self-generation, energy storage use and grid purchases will be the foundation for building designs. Architects and general contractors that have competitive advantages in smart building technologies will be in the position to bid jobs that include building performance assurances to building owners and sources of capital. The building industry is now entering a new bid environment where bids are won not only on price but also on performance assurances.
Ted Torre-Bueno is president of Empowered Energy Solutions. He is both a general contractor and a technologist. The following six-minute video interview profiles his strategy for winning bids based upon his smart building technologies that enable his ability to offer both competitive job costs and building performance assurances.
Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017
This article is the second of a three article series that draws from Bill Roth’s coaching program for trade professionals entitled “How To Grow Sales From Title 24 Code Revisions” that was conducted on November 5, 2013 at the San Diego Gas & Electric Energy Innovation Center.
Read the entire series: