With appropriate regulation and contractual packages unlocking investment, tomorrow's world could actually be a golden age for building efficiency, says Simon Hobday.
26 February 2015
What do you think of when you hear the term 'smart city'?
For those of us who grew up in the 1970s flying cars and robot servants probably feature. But building efficiency? Raymond Baxter didn't see that coming in Tomorrow's World.
Building efficiency has become one of the pillars of smart city thinking, along with intelligent transport systems, smart grids and energy storage.
So how does it fit with some of the 'sexier' smart city elements? When we asked 300 European business leaders which of four smart city elements they considered would contribute most to wellbeing, a quarter chose building efficiency - the second choice after intelligent transport systems.
Building efficiency covers both building design and integrating a broad set of technologies, software and materials into the built environment to improve energy use. The EU Vice-President for Energy, Maro efcovic, has been mandated by the European Commission to achieve a binding 30 per cent objective for energy efficiency by 2030 as the minimum, building on the target to reduce energy demand by 20 per cent by 2020. Much of this will be achieved by reducing buildings' energy use.
This doesn't just save costs. It also enables building owners or FMs to generate revenues intelligently from assets within buildings. By installing and technologies, building owners or FMs can, using developments in the energy market, generate revenue by turning energy-consuming equipment off or down at times of peak demand.
And greater efficiencies and revenues will be driven by managing a buildings portfolio. One threat to this is the danger of a VHS v Betamax-style 'battle of the formats'. Schemes like the programme established by the British Standards Institution and the UK Department of Business are helping to establish standards, but such initiatives must work on a European if not global level to be truly effective.
Having established the importance of building efficiency, it's perhaps surprising to find just how many issues there are with its development and adoption. Our survey respondents cited lack of demand, investment and incentives to encourage investment and security and privacy issues.
The funding gap
A quick win to bridge the funding gap is likely to be public private partnerships. Almost three-quarters of survey respondents say PPPs will be the best way to fund smart infrastructure programmes in the next three years. But the report also shows that 69 per cent of survey respondents believe government institutions alone will be the most active investors in smart city infrastructure.
There is a clear disconnect. To bridge the gap, private and public sectors, banks, investment funds, technology firms and the advisory community must work together to develop funding models.
For example, the Investor Confidence Project Europe has gathered a group of investors, funders, energy efficiency providers and governmental bodies to look at promoting common standards and leveraging best practices for each phase of an energy retrofit and credentialing projects through third-party review.
Project finance structures may also have a role to play; two-thirds of those surveyed believe project finance will be used to fund the roll-out of smart technology in the next three years. But structuring project finance deals for smart infrastructure is not easy, given the mix of property owning structures, budget practices, and divergent interests between building owners and occupiers.
Another key legal issue centres on data privacy and ownership. Data sits at the heart of effective building control systems. It drives everything you need to gauge, from temperature to occupancy levels. It's also one of the biggest potential legal liabilities.
Take one recent idea - using computer servers to heat buildings. This neat idea involves offering server space to banks and other institutions on specially designed servers that also work as radiators, negating the need for large data centres. The business where the servers are stationed benefits from the heat generated as the computers work. But making this work legally will be difficult. How secure will data be - and will banks, say, be comfortable with it being held on non-specialist premises? Who would be responsible for loss of data and hardware maintenance?
A second issue is overcoming an inherent mismatch between commercial building occupiers, who would benefit in the short term from lower energy bills while the commercial building owner pays for longer term upgrades to a building fabric or plant that creates efficiency gains. There is no reason why this could not be made to work, but a combination of distrust and lack of interest is holding back the necessary commercial will of those involved to enter into suitable arrangements. This is probably reinforced by the transaction costs, which are often prohibitive on a building-by-building basis. What is needed is a framework approach for the commercial sector.
Commercial developers, owners and tenants have been ahead of the curve on building efficiency. Once the costs of operating out of an inefficient building became apparent at scale, building efficiency became a commercial imperative. But until now that point has resulted in an entire refurbishment while new-builds and refurbishments have looked to exceed the statutory minimum. We need to enable energy efficiency upgrades earlier in a building's life to unlock savings across a range of built and occupied spaces. Commercial spaces will provide a template for efficiency across other sorts of buildings.
Simon Hobday is a partner specialising in the commercial and regulatory energy sector at Osborne Clarke