Efficiency Yields Higher Returns than Other Corporate Investments

Building Efficiency
Source: Unlocking American Efficiency, p. 11

A study put out last month by United Technologies and the Rhodium Group finds that investing in building energy efficiency yields an internal rate of return (IRR) greater than 28%.  This is four times better than the average equity performance.  The study finds that a 30% improvement in building efficiency is possible with current technology, and if applied across all U.S. buildings would yield annual energy savings of $65 billion.  The report highlights the role that energy costs play in U.S. economic growth; overall U.S. Energy costs rose to 9.2% of GDP in 2011, up 3% in a decade.

Given the potential returns of investing in energy efficiency why aren’t we seeing greater investment?  The primary barrier to improving building energy efficiency is lack of information.   Commercial real-estate markets typically do not provide information on the efficiency of a building as part of a real estate transaction.  The report suggests better disclosure, and building labels to help address this problem.  A California regulation recently went into effect that requires the disclosure of a buildings Energy Star score as part of any lease, sale or finance transaction ( AB 1103: Nonresidential Building Energy Use Disclosure Program).  The other major driver cited is incentives and efficiency finance programs.  The growth of Energy Service Corporations (ESCOs) has helped drive energy efficiency, but mostly in the municipal, university, school, and hospital (MUSH) sectors.  Utilities are offering more efficiency finance programs, but the report finds there is still a large unmet opportunity for improving efficiency.  More detail can be found in the full report: Unlocking American Efficiency.

A good first stop for finding available incentives for energy efficiency and renewable energy is the Database of State Incentives for Renewables & Efficiency (DSIRE).  The website catalogs Federal, state and utility incentives for efficiency and renewable energy.  It also provides background on Federal and state policy that impacts efficiency and energy.

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