Use energy management systems to enhance building efficiency

Buildings are responsible for almost 40% of energy- and process-related CO2 emissions globally (1). Most of these building emissions are generated during the use phase of buildings, driven by ongoing energy requirements and long lifespans. By contrast, the sourcing of building materials typically accounts for 10% to 30% of building emissions globally (primarily from highly carbon-intensive production of concrete, glass, aluminum, plastic, and steel), while construction makes up only ~5% (2). These are global average figures; the picture varies by region depending on climatic conditions, penetration of renewables, etc. While global building emissions need to fall drastically from now through 2050 to reach Net Zero, worldwide floor space is projected to nearly double in this period (3). Accordingly, solutions are needed for construction-related and in-use emissions (the focus of this case study).

There are two long-standing strategies to address emissions from building operations: installing energy efficiency assets and implementing energy management systems that maximize efficiency through the operation and maintenance of those assets.

Energy management systems can be deployed in almost any building, old or new, to enhance energy asset efficiency. However, it is important to understand first the underlying energy assets, as they are essential to the core energy services and efficiency potential, alongside management.

Energy assets

Energy assets are building components that provide energy services, and the latest technologies make these assets significantly more efficient and smarter. These assets include LEDs, efficient AC units, heat pumps, efficient electric stoves, and insulation improvements. These can be installed when constructing new buildings or retrofitted in older buildings as existing equipment ages. Improved building designs may also reduce the need for heating and cooling in general (e.g., passive homes in California) (4). So-called deep retrofits combine multiple interventions timed with equipment replacement cycles in buildings to create interconnected efficiencies.

Energy management systems:

Energy management systems minimize building energy consumption by, in part, leveraging automation to use energy efficiently. Energy management systems are a crucial measure for energy efficiency but should be considered as an incremental cost-effective step along the decarbonization journey. Deeper decarbonization measures will be needed over time (e.g., renewable electricity and heat, low-carbon construction, etc.) Some examples of energy management are:

• Smart heating/cooling controls: Electronic devices to optimize heating (e.g., smart thermostats, ventilation, automated blinds)

• Smart lighting controls: Digital tools to monitor and optimize lighting (e.g., occupancy sensors)

• Sensors and actuators: A variety of sensors deployed around the building to measure temperature, humidity, lighting levels, airflow, air quality, etc.; actuators retrofitted to legacy equipment to connect them to management systems for automated control

• Ongoing maintenance: recommissioning/retro-commissioning of energy assets in the building – essentially (re)tuning them for optimal performance to maximize efficiency

• Energy analytics:

  • Sensing and analysis of building energy usage to predict energy needs, optimize energy systems, and provide actionable information to occupants/users

  • Predictive maintenance

  • Optimization of energy usage based on energy prices, carbon intensity of electricity, or even gas supply (e.g., load shifting away from hours with peak electricity prices on a hot summer day)

Financing energy management and assets:

Energy efficiency assets and/or energy management systems can be deployed by companies either through making investments using company capital; taking out specific green loans for these measures; or using Energy-as-a-Service (EaaS) providers to leverage the Opex model (described below). Available local and regional incentives can usually be applied, regardless of approach. For example, in the US, the IRA offers a tax deduction to commercial building owners who can increase building efficiency by 25%, with bonuses for higher improvements (5). The EU helps finance energy efficiency projects through the European Investment Bank by lending money to projects that contribute to reaching the EU’s energy and climate goals (6).

Energy-as-a-Service is an approach that is growing in popularity for deploying building energy management systems, as well as energy efficiency assets, for commercial buildings. It is typically offered by Energy Service Companies (ESCOs). Simply put, it is an option for companies and building owners to implement building energy management without using their own capital. EaaS is typically a pay-for-performance financial arrangement, where ESCOs are paid based on demonstrated energy performance and savings over longer periods of time (7). ESCOs act as project developers for energy management systems according to the building owners’ needs and assume the risks associated with a project. ESCOs can also provide service ongoing maintenance and management of the various energy assets (e.g., heat pump, lighting controls) to ensure optimized performance (8). In some cases, special purpose companies can be set up to own both efficiency upgrades and even renewable power sources separately from the building ownership, enabling much deeper carbon footprint reductions.

Empire State Building: The iconic New York City skyscraper underwent a major energy efficiency retrofit in 2010 that resulted in a 38% reduction in energy consumption, reducing its carbon emissions by 54% over the past decade (9). Energy management measures (HVAC system operation, real-time energy use feedback and benchmarking for tenants, and demand-based ventilation optimization) contributed up to one third of overall savings (10).

AT&T: In 2017, AT&T partnered with Redaptive, an EaaS provider, to install smart efficient lighting systems (e.g., smart controls, sensors) at nearly 650 facilities (including data centers and retail stores), resulting in a total of $20 million in annual energy cost savings and reducing emissions by ~100,000 tons CO2e (11).

University of Nottingham: In 2019, the University of Nottingham partnered with Schneider Electric to install efficient energy management systems in its buildings (12). This involved a software and hardware solution that allowed central monitoring and control of building automation. The system alone resulted in a 5% reduction in overall energy consumption and a 25% reduction in maintenance costs.

Climate impact

Targeted emissions sources

Scope 1 (of building operator/owner): Avoided direct emissions from combustion of fuel (e.g., gas) in building, and refrigerant leaks.

Scope 2 (of building operator/owner): Avoided emissions from purchase of electricity and centralized heating (e.g., steam from utility).

Decarbonization impact

Overall, building energy efficiency measures (including energy management and assets) could deliver a reduction in annual energy-related emissions of over 1 Gt CO2e globally, or ~3% of global annual GHG emissions (13).

Energy management systems allow for energy savings from optimized usage, and, at the very least, sustained savings over a long period of time. At the building level, it is reasonable to expect 10-15% extra energy (and thus similar carbon) savings by optimizing usage through energy management systems.

Business impact

Benefits

• Cost savings: Energy savings are associated with cost savings, given decreased energy use, potential optimized timing of use vis-à-vis energy prices, and increased ease of maintenance; cost savings could be ~10-20%.

• Increased productivity: Research shows that green buildings can also improve the health and productivity of those who live or work inside them (14).

• Policy/regulatory advantage: Securing a competitive edge over industry rivals by avoiding future regulatory penalties (e.g., Local Law 97 requirements in New York City, EU Energy Performance of Buildings Directive), and leveraging available governmental infrastructure funding to decarbonize buildings.

• Enhanced brand perception: Decarbonizing buildings can provide reputational benefits for corporations, typically as lessees for office spaces, which can benefit consumers, employees, and business partners.

Costs

• Impact on operating costs: Energy management can provide significant operational cost savings from having to buy less energy, as well as spending less on maintenance. In general, total cost of ownership of these measures is lower relative to legacy systems before rebates and financial incentives (15).

• Investment required: Energy management systems represent a relatively low capital expenditure, with sizeable returns by way of energy cost, maintenance-related savings and short payback periods. Business models like EaaS (where upgrades and upkeep are financed by ESCOs) provide options that do not require capital expenditures; these options are seeing rapid uptake in many countries.

• Payback periods: For new construction, energy management systems can be very cost effective. For retrofits, the payback periods can be longer. For energy efficiency assets, the same trends exist between new construction and retrofits, but for some asset types, like low-carbon heating solutions, the payback periods for retrofits can exceed 10 or 15 years. EaaS-type approaches could be great solutions for installations with longer payback periods, as they better match financial profile with financial appetite.

• Eventual subsidies used: Regional and country-specific subsidies apply (e.g., Germany is providing $6.5 billion in incentives for energy efficiency measures via its COVID-19 recovery and emergency gas programs (16) and the US Inflation Reduction Act provides several incentives for building owners (17).

Indicative abatement cost

Energy efficiency and energy management systems are widely recognized as being highly cost effective in terms of abatement costs. Over their lifetime, they may likely have negative abatement costs, i.e., net savings per ton of CO2e (18). They outcompete many low-carbon options, such as some renewable energy sources, biofuels, nuclear power, and carbon capture and storage. However, all these solutions along with energy efficiency assets are core to bringing GHG emissions to net zero; energy management systems provide incremental emissions reductions (19).

Impact beyond climate and business

Co-benefits

Reduced air pollution: Energy efficiency measures that reduce the use of fossil fuels can also help reduce local air pollution, which can improve public health and air quality.

Improved climate resilience: Energy efficient and energy-smart buildings can better withstand the impacts of climate change (e.g., energy-efficient buildings are less likely to experience overheating outages during extreme heat waves) (20).

Potential side-effects

Perception of decreased utility/comfort: A common misperception is that energy efficiency and energy management can potentially make buildings less comfortable for users. With sophisticated solutions that can enhance comfort and safety available today, the opposite is possible. Smart controls that leverage multiple sensors and data points to understand environmental conditions and user behavior can react to evolving needs, and even predict needs based on usage patterns, ultimately providing tailored comfort and utility.

Typical business profile

Building energy management offers a particular advantage earlier in the decarbonization journey, as it is cost-effective, with the potential to generate savings that may be deployed toward other decarbonization measures.

This solution is particularly attractive for companies with high building-related energy costs as a proportion of total operating costs. Beyond providing climate and financial benefits across all commercial buildings, smart building energy management systems can be tailored to the users’ needs to unlock many other benefits:

• Office spaces: Measures like daylighting, increased ventilation, automated solar reflectors, and temperature controls can provide cost-efficient comfort and lighting that boost employee satisfaction (21)

• Manufacturing sites and datacenters: Sites where energy resilience is critical can use energy assets, including batteries tailored to ensure energy stability and power quality, as well as energy controls in response to energy prices and weather

• Hospitals: Energy assets can prioritize energy stability and backup power for emergencies, ventilation for pathogens and air quality

• Hotels: Real-time monitoring, occupancy sensors, window/door sensors, etc., connected to automated, smart, and efficient lighting and climate systems can reduce energy usage while providing optimal comfort

Stakeholders involved

An array of internal stakeholders must be brought along to contribute to the implementation of energy efficiency measures, for example:

• Executive Management: To set decarbonization goals and decide to allocate financial and human resources to support the project through implementation

• Finance & Accounting: To assess the financial feasibility of the energy management systems (and energy efficiency), including upfront costs and long-term savings

• Facilities management team: To provide ongoing maintenance of the energy management systems and energy assets, and coordinating with any ESCO or project developer for services provided

• Operations team: To ensure that the energy assets do not disrupt the day-to-day operations and comfort of building users, and update procedures and processes, as needed

• IT team: To provide ongoing support of energy assets and energy management systems with software integration, and conversely ensure that these do not impact the IT systems

• Human Resources: To make sure buildings meet employee needs and offer information on how upgraded workspaces can and should be used

Relevant external stakeholders will need to be engaged on an as-needed basis. For example, if the building user is a renter, the building owner and an EaaS provider may be partnered with to implement efficiency measures. Other potential external stakeholders include local contractors, regulators, and utilities.

Key parameters to consider

Solution maturity

Energy management systems are generally technologies that are mature and widely available. Smart lighting, cooling, and heating controls, for example, are affordable options with high abatement potential. Additionally, energy management systems are constantly improving. For example, smart grid technology is an emerging field whereby energy management systems can communicate with utilities, maximizing the use of clean power and minimizing fossil electricity use while saving users money.

Additional specificities

The availability and ease of deployment of energy efficiency and energy management systems vary by region depending on the climatic conditions, penetration of green building solutions, and regulatory support.

Implementation and operations tips

Below is the process that a company aiming to implement building energy management systems may follow to use an EaaS approach using an ESCO, which is increasingly common, as described earlier (22). Note, there are many different types of arrangements a company might pursue.

1. Audit energy consumption: The company may either conduct its own audit or invite ESCOs to conduct audits of the building energy usage. The audit would identify potential areas for reduced energy usage and cost savings

2. Sign ESA: The company and ESCO enter into the energy services agreement (ESA) for a contracted period (typically 5-15 years)

3. Equipment installation: The ESCO then installs the energy management systems, using subcontractors as needed. Underlying efficiency assets may also be installed

4. Ongoing performance and tracking: Depending on the ESA, the ESCO may also be contracted for ongoing maintenance of the equipment and systems and to ensure energy performance (e.g., minimum savings from a baseline). Measurement and verification can be provided for several years to ensure actual savings are being realized

5. Generate savings: ESCOs are usually paid over time (e.g., monthly over multiple years) based on performance levels. ESAs are often structured to ensure that the company receives net lower energy-related bills through most of the contract term. In other words, energy savings from the implemented projects would more than compensate for payments to the ESCO. The ESCO typically retains ownership of the equipment for the duration of the contract and is responsible for maintenance and overall energy performance

6. Contract end: At the end of the contract, the company can elect to purchase the equipment at fair market value, extend the contract, or return the equipment (less typical)