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Mar 14, 2013

Trial By (Reinventing) Fire: Emerging Lessons from RMI’s Portfolio Energy Retrofit Program

 

Rocky Mountain Institute developed our RetroFit Initiative portfolio partner program to accelerate the development and adoption of beyond-best-practice portfolio energy management. Thus far, we have worked directly with the Army and Air Force Exchange Service, AT&T, and Kaiser Permanente. We have also built a network of energy managers and practitioners at these and many other organizations from which we have been able to glean many lessons.

From this initial base of activity, we have learned that organizations tend to have areas where they are more or less advanced. In consideration of this fact, we have identified a number of themes that readers will find useful to advance their overall approach to portfolio energy management, regardless of their starting points.

 

Linking Energy Retrofits to Strategic Value Creation

Author and business strategy expert Chris Laszlo describes business sustainability approaches as either being “bolt-on” or “embedded,” which serve as perfect images of our findings that energy retrofits are more successful when linked to strategic value creation.

In a bolt-on sustainability approach, energy retrofits are completed in a relatively ad-hoc manner when opportunities—identified somewhat haphazardly and generally without full knowledge of the art of the possible—have a good simple payback. This approach has yielded marginal energy savings for our partners that at times barely outweigh the hassle of finding the opportunities.

A far more effective approach is to embed energy retrofits into the enterprise strategy. This means being clear why energy savings is important to the enterprise and how energy-saving activities tie to other value drivers, as well as ensuring real energy results at the end of the day. A clear and definite strategy around energy savings gets all players working together with a shared strategic intent. The most advanced energy managers we know are in most cases advanced because they are working in such a context.

To help executives get to that level of strategic intent around energy retrofits, RMI senior advisor Scott Muldavin wrote a 650-page book on the value sustainable and energy-efficient buildings deliver. Among an enormous amount of compiled research, which we are distilling into a white paper to be published soon, he points out that energy retrofits can help mitigate six out of the ten risks identified in the 2012 Ernst & Young Business Risk Report, “The Top Ten Risks for Global Business,” and also create numerous other forms of tangible value such as health and employee recruiting/retention cost reductions.

In support of those tangible values, there is substantial value in improving the buildings themselves because they embody “who we are” as occupants. As Chris Laszlo recently put it, we can talk about how sustainability helps humans and enterprises “flourish” in addition to how it creates competitive advantage.

The Energy-Savings Target Conundrum

A particular hang-up that some of our portfolio partners have experienced is around setting an energy-savings target. Some set very conservative and short-term goals to ensure success. Others have set audacious long-term goals and have since felt uneasy about being able to achieve them. Both are examples of shooting blind, and we have seen many missed opportunities caused by each of these approaches. A good target-setting exercise can both push the enterprise out of its comfort zone and alleviate most achievement headaches.

RMI’s approach, tested now with several clients at the campus level as well as the portfolio energy level, has been to set targets by first considering the technical potential in each building in the portfolio. The technical potential is the energy savings and building betterment that could be achieved in the portfolio using off-the-shelf technology and standard design, with no regard to capital cost and financial return. This approach allows us to compare an actual building to the best theoretical version of itself, carefully considering opportunities that would not otherwise be considered.

Then we consider the capital costs and value of achieving the technical potential. During this process we estimate not just the energy cost savings value, but other values such as potential health cost savings (e.g. from a naturally ventilated building), better employee recruitment and retention (e.g. through better daylighting and views to the outside), or increased sales (e.g. through improved public image). If there are components of the technical potential that we simply cannot justify in reasonably concrete terms, we remove them to create the achievable potential.

From our experience, organizations can identify the technical and achievable potentials for an entire portfolio of buildings at a fairly high level, using just basic information about the buildings. A key ingredient here is an accurate set of data—we have run into a lot of inaccuracies, including typos such as an extra number in the in the square foot column (creating an order-of-magnitude difference), or kilowatt-hours entered in the kilowatt column. It is also important to have this data easily accessible—another area where we see a lot of room for improvement.

We estimate that in most cases this high-level exercise is effective for setting an energy savings target that is based on real analysis, and which strikes at the desirable nexus of being both achievable and ambitious.

Strategic Resources for Right-Timed Retrofits

Our partners spend millions of dollars each year on capital and maintenance projects in their buildings. Many of these dollars could also save energy for marginal added cost and provide an excellent return on investment—yet they do not. This has been a major challenge for our portfolio partners. This lack of execution amounts to enormous lost opportunity each year. Addressing this issue means identifying the energy retrofit measures and their value up front, and ensuring that facility managers are aligned with the enterprise goal.

The standard means of developing energy retrofit measures is to employ an on-site energy analysis (or audit, as they are unfortunately called in the industry). New and emerging tools are leveraging the growing abundance of energy and real estate data. Some of these tools analyze hourly energy use data—often available from utilities, if not in the building automation system—to indicate retrofit opportunities ripe for development with a local contractor as well as low- and no-cost opportunities ready for capture. Others take and analyze thermal pictures or capture insights from maintenance logs.

However the measures are developed, they should be stored in a database for future planning and implementation. To help ensure that every business-as-usual dollar that can save energy does save energy, organizations can send an alert to capital planners when they are considering projects that would work well with one or more energy retrofit measures.

The final piece to ensuring that the energy retrofit measures are considered at the right time leverages existing human resources by communicating with and incentivizing facility managers appropriately. Are these managers aware of the enterprise-level energy reduction goal? Do they know how much energy they need to save and when? How the measurement of this goal is to take place? Does the energy performance of the buildings they manage affect their performance review? If so, do they know what is at stake?

These themes represent a sample of emerging lessons from our ongoing portfolio work that beginner and advanced portfolio energy managers and practitioners can use to improve their approaches. Be on the lookout for other updates as our exciting projects and research continue.

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Image courtesy of Shutterstock.com

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