How do you consume electricity in your home? For many households, this isn’t a question often considered.  The question “How much do you spend on electricity?” resonates more with households and bill payers.  Most people need an easy and actionable plan for managing costs, which at the same time will reduce overall energy consumption.  Understanding these dynamics in matters of residential energy efficiency is crucial to designing programs that will drive increased energy savings.

Building energy efficient homes requires both technical engineering and “financial engineering”.  The latter is increasingly the focus of stakeholder business models.  Efficient products for the home – from insulation to windows, and appliances to distributed generation – have advanced rapidly, and demand for energy efficient homes is on the rise.  But the market has struggled to connect supply and demand, and a profitable business model for whole-house retrofits or energy efficient-designs hasn’t fully emerged.

Lending organizations and new service providers are eyeing business models based on residential energy efficiency, and some big names in the market think there is money to be made in providing related services.  The KfW Bankengruppe in Germany is a notable example of a proactive lending organization that has developed dedicated green product lines to stimulate energy efficiency in residential properties.  KfW’s green portfolio includes financing for residential upgrades at low interest rates, support for innovation, and consumer outreach.  This proactive approach to the residential energy efficiency market is also driving successful whole-house approaches to retrofits.

In the United States, SolarCity – the firm that changed the dynamic of the distributed solar market through solar leasing – has turned to energy efficiency as the next aspect of its home energy management business model.  SolarCity offers customized home evaluations and delivers reports detailing opportunities to save energy.  Through its strategic partnership with Admirals Bank of Boston, SolarCity targets reducing the financing barriers in the market as well; offering either a one-year interest free loan, or a three- to ten-year loan with low interest rates.

Big-box retail stores such as Lowes and Home Depot are eyeing the growing market for residential energy efficiency, by partnering with programs like ENERGY STAR and offering energy efficient products ranging from windows to home energy management devices.  These stores are also increasingly eyeing the services market for residential energy efficiency, in which energy management could become one of several services as part of a home automation package offered by large retailers.

These innovative business models not only acknowledge the value of investing in residential energy efficiency, but are also poised to drive the market forward.  The ultimate success will come in combining technical and financial engineering prowess.

The cost of economic development in China – both in monetary terms and in externalities – is unparalleled.  The housing sector demonstrates not only the vast infrastructure development the Chinese government is driving, but also the human and environmental costs associated with the scale of development.  At the same time, the Chinese government is entertaining pragmatic reforms that could open the market for energy-efficient housing across China.

The Chinese real estate industry is anticipated to continue new construction at a rate of nearly 1 billion square feet every year until 2020, according to the Pike Research Global Building Stock Database.  The land for such infrastructure is the primary source of revenue for local governments, generated through one-time sales to property developers.  As a result, local governments have been transferring land at unimaginable rates to generate operating revenues, while burgeoning urban areas are left with a glut of energy-intense housing stock, constructed on the cheap.

The impacts on the Chinese housing market – which has been booming since reforms in the 1990s permitted private homeownership – are well known; most analysts are holding their breath for the housing bubble in China to burst.  The solution to the ills of the housing industry in China might just be energy efficiency, of a sort.

The Chinese government has been trialing energy and environmental tariffs, designed to raise the cost of carbon-intense commodities to encourage energy efficiency, in parts of the country.  The measures may be nationalized in the future.  These taxes could provide relief to both the housing market and ameliorate the negative externalities imposed on Chinese citizens and the environment by overheated development.  Such a policy addresses what may be the root cause of the housing bubble: local governments could rely on taxes for operating revenues, rather than continuing one-time sales of land that encourage accelerated construction of sub-par housing.

So while Western countries like the United States are still debating whether energy efficiency mandates constitute “over-regulation,” the Chinese government is seriously pursuing policies to encourage energy efficiency – not because it’s good for the environment, but because it’s good economic policy.

A house is not merely the sum of four walls and a roof.  As urbanization, rural development, and economics continue to change the way people think about homeownership globally, new formulas for home design, technologies for efficiency, and home value are emerging.

In particular, in new home construction or retrofits the house is increasingly viewed as a system, rather than merely a structure – one in which the lighting technology, and the heat it emits, influence the type of HVAC unit to be installed, for example. From the design phase on, four walls and a roof can consume less energy and cost less, as well, when treated as a system. Around the world there are many emerging approaches to the home-as-a-system idea, representing many different approaches for redefining value in the housing sector. Le Corbusier’s notion of a house as a “machine for living” has been updated for an era of energy management and holistic design.

In Europe, the PassivHaus standard emerged in the late 1980’s, when the idea of super low energy consuming homes emerged out of several research projects. While the technologies used in the PassivHaus design are not all that innovative, the treatment of all the building materials as inputs to a system is novel. Using tight home envelop design, geographic orientation, and combinations of super-insulation and efficient windows and doors, the PassivHaus can reduce energy consumption to only 15 kWh per square meter, without adding much advanced technology. In the United States, the average home consumes roughly 137.8 kWh per square meter, according to the 2005 EIA Residential Energy Consumption Survey.  

Meanwhile, in Japan, a systems approach to designing residential buildings is starting to look more high-tech from the curb. Battling severe electricity supply instability in the aftermath of the Fukushima disaster, Japanese companies are working together to provide a net energy-positive home that can serve as an active input into the electricity system. Recently, Kyocera, in conjunction with Nichicon and Samsung SDI, announced a new home energy management system that combines roof-top solar, on-site lithium-ion battery storage, and an IT-based energy management system, with sales beginning in summer 2012.

Around the world, shifting notions of home design and technical feasibility are being driven forward by country-level and regional initiatives. As a result, small companies with regional footprints and global corporations with large market shares are aligning their supply to accommodate new demand for a wide variety of residential energy efficiency needs. This market, and the opportunities it presents to all market players, form an increasingly important input into the management of the electricity system.

In these times of tightening budgets and linger economic uncertainty, the energy savings performance contract model appears to be enjoying growing popularity.  In our most recent analysis of the ESCO market in the United States, one of the most interesting dynamics in the market is the federal sector’s growing appetite for third-party financing.  This is a new course for the U.S. government and for the Department of Defense in particular, which has not favored the ESPC model historically.  It now appears the Pentagon, which spends roughly $4 billion annually on energy, is reviewing a broad menu of tools and resources that will ensure compliance with energy-saving mandates.

Third-party financing, accessed through guaranteed savings contracts, presents a unique opportunity for the DoD to reach energy savings targets in its portfolio of buildings, despite declining Congressional appropriations.  In these budgetary conditions the approach calls for low-cost, scalable tools that will assess initial energy performance and identify opportunities for improvement, and provide on-going feedback, without requiring an onsite energy auditor.  Such a tool exists: FirstFuels’s Rapid Building Assessment, which my colleague Eric Bloom wrote about last September.  It appears FirstFuels’s RBA, like the ESPC model, is seeing growing adoption in the federal sector.

Rapid Building Assessment was one of 27 proposals selected by the Department of Defense’s Environmental Security Technology Certification Program (ESTCP) to demonstrate how energy technologies can save the military dollars and kilowatt-hours.  The “zero-touch” software aims to assess energy performance across the DoD’s more than 300,000 buildings using algorithms applied to consumption data to deliver actionable intelligence on building energy performance.  At roughly $2,000 per building, RBA can track down energy savings opportunities without human interference, cutting costs from the start.  And with the help of the widely used International Performance Measurement and Verification Protocol (IPMVP), RBA can provide feedback on actual savings.  Measurement and verification is a requirement for Federal sector energy savings projects.

The energy consumption profile of the Department of Defense is unique, given its particular operational requirements, which can mean big costs even just to assess energy savings opportunities.  Given the time and monetary constraints the DoD faces in implementing energy efficiency measures, the selection of FirstFuel’s RBA could be the solution to getting out from between that rock and hard place.