Opportunities for Developing the Building Retrofit Industry and Market (BRIM)

1. Opportunities for Developing the Building Retrofit Industry and Market (BRIM) John Cleveland, Innovation Network for Communities Joel Rogers, COWS (Center on Wisconsin Strategy) Chinwe Onyeagoro, O-H Community Partners December 13, 2010 Rockefeller Foundation, New York City

2. Agenda

3. Project Summary

4. Project Purpose & Deliverables Conduct a scan of the technical assistance (TA) infrastructure for the building retrofit market, and recommend steps to support the design and development of a collaborative applied R&D innovation infrastructure for the industry. Scan major providers of TA for the BRIM. Identify issues in the current TA system and recommend steps towards their improvement. Identify the requirements of an applied R&D and innovation infrastructure for the industry. Facilitate a meeting of Better Building grantees to explore opportunities for collaboration on system development. Facilitate a meeting of funders and USDOE to develop a shared strategy framework for investment in BRIM development.

5. Process • Inventory of TA providers (156 total) • Secondary analysis of 78 players • Phone interviews with 27 individuals • Interim scan findings memo • Feedback on Interim Findings • Meeting of 19 Better Building sites (Oct 21) • Meeting with USDOE staff • Final report preparation

6. Framing Observations • Long-term, it’s about building a market, not implementing programs • BRIM is not one market, but several related segments • Most market segments are at a very early stage of development • Most retrofit initiatives are at an embryonic state of implementation • Developing markets is very long term work; focused investments in this market are a recent phenomenon • BRIM investment needs to be approached simultaneously at the local and national levels • This will require a shared framework for analysis and action • It requires a long-term view and strategic coordination across multiple players – funders; federal government; local government; private and NGO enterprises • Philanthropy can play a key role in market development

7. Three Kinds of Work There are three kinds of work that different players are doing in the BRIM niche. This scan focused on the second two – Technical Assistance and Market Development.

8. Three Primary Opportunities Coordinate National Investments in Market Development Explore New Structures for Field Collaboration Plan Now for the Post-ARRA TA Infrastructure

9. Findings & Recommendations – BRIM Development

10. Summary of Findings & Recommendations – TA

11. Summary of Findings and Recommendations – Collaboration

12. Top Down and Bottom Up…

13. …With an Integrated Investment Strategy Market Stakeholders Funders Working Group USDOE & EPA

14. Opportunities for Developing the Building Retrofit Industry and Market (BRIM) December 13, 2010 Rockefeller Foundation, New York City Supporting Slides

15. Framing the Building Retrofit Industry & Market (BRIM) Opportunity

16. Summary of Key Points • BRIM is one segment of a much larger “green economy” sector • Markets develop in stages – BRIM is at a very early stage of development • BRIM has several distinct sub-segments that need to be addressed differently • Significant investments have been made in key aspects of market development • There seems to be consensus on the high level market development opportunities • Market development investments are not well coordinated

17. It Is About Building a Market, Not Implementing Programs Living Cities, Lessons Learned: “Concentrated philanthropic investment together with unprecedented federal funding begs for coordination and intentional efforts to invest in creating an industry (supply, demand and an enabling environment for scaled transactions), not just disparate parts.” • Better Buildings Vision: • “A self-sustaining market for building energy efficiency retrofits that results in economic, environmental, and energy benefits across the United States.”

18. BRIM Is Part of the Larger “Green Economy” Segmentation based on Brookings/Battelle Metro Green project

19. BRIM Has At Least Five Separate Segments • Existing Building Stock: • 40% of all energy consumption • 72% of electricity • 38% of carbon emissions • $400 billion to heat and cool “Retrofitting of existing buildings to reduce overall energy consumption and greenhouse gas emissions.” Residential Commercial/Industrial Small C/I Large C/I MUSH* Single and two family residential Multi-family *Municipal, University, Schools, Hospitals Each market segment has significant variations in customers, economics, drivers, and regulatory environments. Many segments have further defined sub-segments.

20. Energy Consumption Varies by Building Type Source: USDOE, “Better Buildings Overview”, 11.10.10

21. Markets Develop in Stages Market for retrofits can be developed like any other market: by targeting and reaching additional consumer segments Rogers Innovation Adoption Curve Early Majority Early Adopters Late Majority 2.5% 13.5% 34% 34% 16% Innovators Laggards www.valuebasedmanagement.net Source: “Market Development for Building Energy Efficiency Retrofits”, RW Ventures and O-H Community Partners

22. Healthy Markets Have Common Characteristics SUPPLY EXCHANGE DEMAND Costs of Production Costs of Transactions Perception of Need Healthy Market Characteristics • High quality producers • Adequate labor supply • Occupational credentialing and certification systems • Well developed supply chains • OEM supplier standards • R&D infrastructure that supports innovation • Low transaction costs • Easy for buyers and sellers to find each other • Trust in the transactions • Feedback loops affect future quality • Consistent industry standards that govern transactions • Perceived customer need • Good value proposition • Good customer information • Consumer confidence in performance • Clear performance measurements • Affordable

23. Stakeholders Approach The Market With Many Motivations Environmental and Economic Development Benefits Customer Value Proposition Robust Retrofit Market? • Comfort • Energy Savings • Improved Home Values • Helping the Environment • Reduced GHG Emissions • Economic Development • Community Development • Poverty Alleviation How aligned are perceived customer needs with the desired environmental and economic development benefits? “Will the dogs eat the dog food?”

24. It is Not Yet Clear Where Retrofits Fall in the Market Development Spectrum Public Policy Incentives Private Exchange Source: Bob Weissbourd, RW Ventures

25. Some Retrofit Market Barriers SUPPLY EXCHANGE DEMAND • Low margins compared to cost of sales • Difficult to aggregate demand • Some labor scarcity • Requires new business models • High owner transaction costs • Difficult to assess competence & quality • Multiple vendors required • High effort relative to cost and benefit • Consumers have other priorities • No metrics to measure savings • Value not reflected in equity • Unaffordable for some segments • Financing can be complicated

26. Living Cities Market Development Framework

27. Different Stakeholders Play Different Roles in Market Development Source: OH Community Partners

28. There Are Four Main Ways to Invest in Market Development

29. There Are Many Markets Where Foundations Have Played Important Development Roles • Affordable Housing • Public Education (Choice and Charters) • Underbanked Consumers • Sustainable Forestry • Investments have spanned all four categories: • Knowledge and R&D • Innovations • Standards and Policy • Institutions and Structures

30. Examples – Affordable Housing and Education

31. Examples – Underbanked and Sustainable Forestry

32. Some Examples of National Investment From Other Fields

33. BRIM Development Opportunities

34. Key Points • There are many promising opportunities for investing in BRIM development – and a reasonable level of consensus on the priorities • There is no “silver bullet” strategy available – it requires many investments in many facets of the market • The investments need to be coordinated with each other to maximize learning and adaptive capacity • Each area of investment is complex in its own right – managing the complexity across multiple domains is quite challenging, but not impossible • Different players have different areas of expertise; it is important to differentiate and specialize • In the absence of strong industry institutions, some kind of network structure will probably be needed to coordinate investments

35. Some BRIM Development Opportunities (1)

36. Some BRIM Development Opportunities (2)

37. One Way of Segmenting the “Opportunity Portfolio”

38. Another Way of Looking At It…

39. Envisioning a “Portfolio” Within One Area

40. Anatomy of Each Portfolio Project • What are the deliverables? • Who manages the project? • Who are the stakeholders that need to be engaged? • What is the project plan? • What is the budget? • Who are the investors? • How does it connect to other work? • What is the scaling hypothesis?

41. Potential Portfolio Project Example

42. Putting It All Together… MUSH Large C/I Small C/I Multi-Family Residential Market Building in Three Dimensions

43. Examples of Current Market Development Investments

44. A Very Incomplete Set of Examples of Market Development Investments

45. National Residential Home Scoring System • Part of the Recovery Through Retrofit Initiative • Pilot process launched in fall, 2010 in 10 pilot communities and states covering all climate types • Scoring system developed by Lawrence Berkeley Labs • Scores a home on a range of 1-10, with 10 the most efficient home • Scores are adjusted for climate zones • Will be launched nationally in late 2011 "The Home Energy Score will help make energy efficiency easy and accessible to America's families by providing them with straightforward and reliable information about their homes' energy performance and specific, cost-effective energy efficiency improvements that will save them money on their monthly energy bills.“ (USDOE Press Reslease)

46. National Residential Retrofit Guidelines • Purposes: • Lay the foundation for a worker certification & training program • Increase workforce mobility up and across career ladders • Help training providers develop course content and curricula • Build consumer and investor confidence in work quality • Key Content: • Job Task Analyses • Essential Knowledge, Skills and Abilities (KSAs) • Technical Standards Reference Guide • Standard Work Specifications

47. Building Energy Efficiency “Innovation Hub” • One of three hubs – solar energy; advanced nuclear reactors; building energy efficiency technology • Housed at Penn State University • $122 million in funding • Collaboration between USDOE; NIST; EDA and SBA • The R&D program will incorporate a systematic analysis of the role of policy, markets and behavior in driving the adoption and use of energy technologies in buildings. “The mission of this Energy Innovation Hub is to research, develop and demonstrate highly efficient building components, systems, and models which are applicable to both retrofit and new construction.” • Technology Focus Areas: • Computer simulation and design tools • Advanced combined heat and power (CHP) systems • Building-integrated photovoltaic systems • Advanced HVAC systems  • Sensor and control networks

48. Energy Efficient Home Partnerships • A total of $30 million in grants, ranging from $500K to $2.5 million • 18 month grant agreements; $20 million per year will also be made available for the partnerships for three potential one-year extensions • Focuses Building America on existing vs. new homes • Partnerships will be paired with Better Building sites for applied R&D applications Partnership Grantees Advanced Residential Integrated Energy Solutions (ARIES) Alliance for Residential Building Innovation (ARBI) Building America Retrofit Alliance (BARA)  Building America Partnership for Improved Residential Construction (BA-PIRC)  Building Energy Efficient Homes for America (BEEHA) Building Industry Research Alliance (BIRA)  Building Science Corporation (BSC)  Consortium for Advanced Residential Buildings (CARB) Habitat Cost Effective Energy Retrofit Program Team  Fraunhofer Center for Sustainable Energy Systems (CSE)  Integrated Building and Construction Solutions (IBACOS)  National Association of Home Builders (NAHB) Research Center Industry Partnership for High Performing Homes  National Energy Leadership Corps (NELC) NorthernSTAR Energy Efficient Housing Research Partnership Team  Partnership for Advanced Residential Retrofit (PARR) “These partnerships will research and deploy new technologies and demonstration projects, and provide systems engineering, quality assurance, and outreach for retrofit projects throughout the country.”

49. Deutsche Bank Americas Foundation Energy Efficiency Database Project Purpose: Create a database of100 New York City multifamily properties that will allow an evaluation of energy and cost savings due to the implementation of efficiency measures. Database will be used to inform bank underwriting standards. “If you approach a lender now with a plan to spend more to implement a green technology with the idea you will save on operating costs, they are skeptical and want to know what kind of proof you have. If you could be armed with an assortment of data, it would inevitably help you get financing and even increase your financing because your bottom line would go up.” (New York Times, 6.1.10)

50. HUD Title I Power Savers Loan Guarantees • Covers loans for up to $25,000 of home improvements • 90% insurance coverage for lenders; maximum of 10% of portfolio • Creates effective loan loss reserve fund of 9% for qualified lenders • Two year pilot launching in 2011 • Targeted at communities with retrofit initiatives; Better Building communities automatically eligible • FHA is working with Ginnie Mae to develop secondary market options http://www.hud.gov/offices/hsg/sfh/title/presentation.pdf