Johnson Controls 2010 Energy Efficiency Indicator Webcast

Editor's Notes

• #3: Welcome everyone, and thank you for participating in today’s webcast. I am Dave Myers, president of Johnson Controls Building Efficiency business. With me is Clay Nesler, vice president of Global Energy and Sustainability for Johnson Controls.This morning we will release the results of the fourth annual Johnson Controls Energy Efficiency Indicator.
• #4: We will begin by introducing our organizations and the purpose of the study.I will then present an overview of 2010 findings for North America. After the results summary, Clay will moderate a discussion amongst a panel of experts who will comment on the survey results in relation to their organization’s perspective and experiences. We are delighted to have Don Young, Peter Molinaro, and Jennifer Laykewith us to discuss trends in energy management.Following the panel presentations, there will be an opportunity for Q&A.
• #5: So who is Johnson Controls and why are weinterested in this topic?For those not familiar, Johnson Controls is a global diversified technology and industrial company serving customers in over 150 countries. We have 3 major business units:Our Building Efficiency business provides equipment, controls and services to make buildings more comfortable, secure, energy efficient, and sustainable;We are also the largest manufacturer of automotive batteries and a leader in developing advanced battery technology for hybrid and electric vehicles; andThird we are a global leader in interior systems for automobiles. Currently celebrating our 125th anniversary, we have been in the energy efficiency business since 1885, with Warren Johnson’s invention of the first electro-pneumatic room thermostat.
• #6: I’d now like to introduce Don Young, VP of Communications for the International Facility Management Association and thank them for their partnership.Good morning Don.[Don introduces IFMA and their role as our partner on the Energy Efficiency Indicator over the last 4 years]
• #7: Thanks DonI’d now like to turn to an overview of the Energy Efficiency Indicator and the 2010 results for North America.We’ll first explain the purpose of the study and who completed the survey. Then I’ll share some highlights of the research in three categories:How much of a priority is energy management and what factors are the most important drivers?How much do organizations plan to invest in energy efficiency this year and what financial criteria do they use?What specific energy management practices and technologies have been adopted and how will this change going forward?
• #8: For the fourth consecutive year, Johnson Controls has partnered with IFMA to commission a survey of decision-makers responsible for making investments and managing energy in commercial buildings.This year, the Energy Efficiency Indicator is being conducted at a global level, available in eight world languages. Today we will be presenting the results for the 2010 survey for the United States and Canada, which was completed in March of 2010. Why do we commission this research each year? According to the Department of Energy, commercial buildings consume 18 percent of our primary energy and 35 percent of electricity in the United States. A focus on improving energy efficiency in existing buildings is one of the most important solutions to the world’s economic, energy security, and climate challenges.We conduct the Energy Efficiency Indicator annually to track the progress in this important area. The survey examines the attitudes, practices, and investment plans of those on the front lines of energy management. What are the key drivers of energy efficiency investments?What types of investments are organizations making?What financial criteria are used?What trends are emerging that will drive future investments?
• #9: First let’s take a look at who was surveyed in North America this year….
• #10: In order to qualify to take the survey, respondents must meet 2 basic criteria:1.They must have capital- or operations-related budget responsibility for their organization’s facilitiesTheir job responsibilities must include :monitoring the amount of energy used by their company’s facilities and/or proposing or approving initiatives to make their company’s facilities more energy efficient.
• #11: The 2010 survey was completed by a total of 1,435 respondents across North America. In any one organization, there may be several individuals that can have a significant impact on the energy efficiency and sustainability of that organization’s buildings and operations. This year’s survey included a balanced mix of roles, including c-level executives,vice presidents and general managers, and facility managers.Our survey also covered a broad variety of industry sectors, both public and private sector. The highest number of respondents this year came from the health care, consulting, legal, manufacturing, financial services, government, and retail sectors.And respondents came from nearly all regions throughout North America.
• #12: This chart gives a sense of number of respondents for each category.The North America respondents also come from a wide range of organization sizes, ranging from small sole proprietorship businesses to large global corporations with property floor area totaling tens of millions of square feet.
• #13: We begin our summary of the results with a set of questions regarding how much attention energy efficiency is receiving this year and what motivating factors are of greatest priority to decision makers.
• #14: Again this year our research shows attention to energy efficiency is growing among business leaders.65% of those surveyed say they are paying more attention to energy efficiency than they were one year ago. And amongst those planning new construction and retrofit projects this year, 84% say energy efficiency is major priority for the project.
• #15: Let’s look at some trends over the survey’s history. After the stated importance of energy efficiency and energy management climbed from 2007 to 2009, we observed a dip this year in perceived importance.The 84% considering energy efficiency a priority for upcoming projects is actually down from 93% in 2009.52%, down from 58% in 2009, say that energy management is very or extremely important to their organization.Despite the decrease, the statistics suggest that energy efficiency remains a strong business priority for individuals in a variety of roles in across many industry sectors.
• #16: Leaders responsible for commercial buildings say that there are a variety of significant factors that are influencing their energy management decisions.In this chart, the factors are ranked by the percentage who consider them at least somewhat significant.Energy cost savings is the most important factor driving energy efficiency improvements; energy costs are considered significant by 97% of those surveyed. However, several other factors were also deemed to be important, including enhancing public image (63%), benefiting from government and utility incentives (62%), and reducing greenhouse gas emissions (62 percent).
• #17: We didn’t ask about all of these factors in years past. But here are trends for two of them:In 2010, there has been a drop in the percentage of companies who report that government or utility incentives are influential.However, concern about the global climate and the need to reduce greenhouse gas emissions has grown in importance since last year. 62% consider greenhouse gas emissions to be a significant factor, up from 57% last year.
• #18: We also asked executives and building managers about their expectations for energy prices this year.After energy prices fell with depressed demand in 2009, most survey respondents expect energy prices to climb again during 2010. Most surveyed (64%) believe that natural gas and electricity prices will rise. There is variation amongst how much they are expected to increase, but most believe prices will rise between 1 and 20%.28% do not expect prices to change significantly. Overall, the average expectation is a seven percent increase in the combined price of energy over the next twelve months.
• #19: In the wake of the UN Climate Summit in Copenhagen,it is also interesting to observe trends regarding expectations for energy and climate legislation.The majority of those surveyed (75% ) say that legislation mandating energy efficiency and/or carbon reduction is likely within the next two years.However, that percentage has dropped in comparison with 85% who expected such legislationin 2009.Notably, however, despite a slight drop in expectations for legislation, more organizations are setting voluntary carbon reduction goals. 14% of the organizations surveyed have made their carbon targets public in 2010, up from 12% the past two years.
• #20: Organizations are using a variety of strategies to make progress toward their emission reduction goals.It is worth noting that 40% of those surveyed didn’t know their top strategy or hadn’t prioritized amongst these strategies.But of those that have prioritized, the vast majority identify improving energy efficiency in buildings as their top climate strategy. That focus was selected 8 times more often than the next most popular choice.Other popular strategies include telecommuting and virtual work strategies, installing onsite renewable energy, and purchasing renewable energy.And, while the results are not shown here, when asked to select their top 5strategies, vehicle fleet and supply chain strategies rise among the rankings.
• #21: Next, let us turn to the findings regarding planned levels of investment and the financial criteria used making such investment decisions.
• #22: Somewhat surprisingly, the economic recession has actually had a very mixed impact on efficiency investment.Over the last 12 months, 41 percent have invested less in efficiency as a result of the tough economic times, whereas nearly 60% say they have invested the same or more because of the recession. Forward looking organizations view energy efficiency as an opportunity to quickly wring out cost and become more competitive in this economy. (32 percent have invested more in energy efficiency as a result of the recession)
• #23: Those looking for signs that the U.S. economy is recovering can find encouragement in the percentage of survey respondents expecting to make energy efficiency investments over the next 12 months.52 percent (up from 46 percent last year) plan to make capital investments in energy efficiencyand 60 percent (up from 55 percent last year) expect to make operating budget expenditures in efficiency programs.So while last year we saw a disconnect between increasing stated importance of energy efficiency but decreasing planned investment, this year we seem to observe a reversal in both of those trends. Importance has fallen yet investment levels are starting to rebound.
• #24: In another indicator of improvedoverall economic activity, 30 percent of respondents say they plan to undertake building retrofits in the next 12 months, up from 22 percent in 2009.and22 percent say they are undertaking new construction projects, up from 16 percent last year.
• #25: Some notable differences emerge when one compares the percentage planning to make capital investments in energy efficiency across different industry sectors and organizations of differing size.There is a clear trend indicating that larger organizations are much more likely to invest in energy efficiency than small businesses. This could be a function of capital availability or it could be driven by brand concerns among larger, global organizations. We also see that amongst a few key groupings of industry sectors, the public sector leads in energy efficiency investment with 71% of government, schools, and colleges planning energy efficiency investments. Next comes healthcare, followed by manufacturing. The retail sector lags significantly compared to the others, likely reflecting the same trend seen among buildings and organizations of varying size.
• #26: This was a new question we added this year to better understand where organizations expect to source funding for their energy efficiency capital projects.Overall, most plan to use internal capital budgets to fund energy efficiency improvements in their buildings.It is interesting to note that 9% have specific energy- or climate- related capital budget set asides. Companies such as Johnson & Johnson and PepsiCo are leaders here. PepsiCo has made a public commitment to set aside 2 percent of its capital budget for environmental sustainability projects.In addition, 20% expect to use grants, rebates, and tax credits available from governments or utilities to help pay for projects.1 of every 6 respondents plans to make improvements through an energy savings performance contract, in which the energy service provider provides a financial guarantee of the expected cost savings.Notably, very few of those surveyed expect to use external project financing vehicles as a source of capital. Of the various financing options in the survey, power purchase agreements, or PPAs, were most common (8%).
• #27: Those investing in energy efficiency this year plan to use a consistent fraction of their capital and operating budgets for such investments. On average, respondents plan to spend about 7.8% of their facilities-related capital budget on energy efficiency improvements.Similarly, expectations for the energy savings that will be achieved by these investments are also very consistent with past years. Over the last four years, there has been a spectrum of savings expectations. Most expect to reduce their energy consumption between 1 and 9% over the next 12 months.
• #28: What investment criteria are organization’s using to make energy efficiency decisions?The distribution among payback expectations in 2010 remains very similar to distributions seen in past years.Nearly 50% of organizations require less than a 3-year simple payback on investment. A small fraction continues to require a payback less than 1 one year whereas nearly all organizations require less than a 10 year payback. Amongst the 1400 survey respondents, the average maximum payback was 3.2 years.Such consistency over time isn’t surprising. Organizations tend not to deviate in their hurdle rates over time. When asked how payback requirements have changed over the last five years, 44% said that they had not changed over time.
• #29: When asked what the top barriers preventing their organizations from making efficiency investments, capital availability was identified as the greatest barrier (by 38%). Said differently, 38% of those surveyed don’t have enough capital budgets to fund projects that meet their financial hurdle rates.This makes a lot of sense based on the statistic we saw earlier: companies generally only use internal capital budgets to make efficiency investments. When such capital must compete with investments that generate top-line revenue growth, cost-effective energy efficiency may be cast to the wayside.In addition, 21% said the greatest barrier was insufficient ROI: meaning projects aren’t meeting their maximum payback requirements, which, again, average 3.2 yearsAnd 16% say uncertainty regarding whether energy savings would actually be realized is the primary barrier holding them back from investment.The availability of expertise to identify and manage projects, landlord/tenant split incentives, lack of senior level buy-in, and lack of organizational ownership for energy management were also cited as barriers.
• #30: Finally we turn our attention to the specific types of energy management practices and technologies that organizations are adopting or considering.
• #32: The Energy Efficiency Indicator also assesses trends in green building and renewable energy practices.Among those surveyed in 2010, 33% are seeking green building certifications such as LEED for their new construction projects. This year 12% of respondents say they already have at least one building certified, up from 8% last year--suggesting that green buildings are now rapidly accumulating.Consideration of onsite renewable energy technology such as solar photovoltaics, solar thermal, and geothermal energy in conjunction with new construction or retrofit projects is also significant.
• #33: Green building ambitions have remained fairly consistent over the last three years.Interest in green building certification remains strong, particularly for new buildings. 33% are targeting green building certification for new construction projects. Another 52% seek to incorporate green elements. In total 85% have green building goals in 2010, up from 83% in 2009 and 82% in 2008.For decision-makers planning to building retrofits, 18% will seek to certify projects to a recognized green standard, an increase from 17% in 2009.
• #34: While a significant percentage of building owners are considering renewable energy technology in 2010, this year’s results suggest a decrease in consideration levels for nearly all of these renewable energy technologies (except biomass) from 2009 levels. This may be a result of economic conditions and the inherent capital intensity of these renewable energy investments.
• #35: We concluded the survey this year by asking respondents to look to the future.When asked to select 3 technologies they expected to see the greatest improvement in performance-to-price ratio over the next ten years, lighting and smart building technologies were the most popular selections.In other words, when asked which clean energy technologies would see the greatest technological improvement and the greatest “improvement in bang for your buck”, EEI respondents selected building efficiency technologies.Other options on the survey included solar photovoltaic energy systems (38%), electric and plug-in hybrid vehicles (28%), nuclear power (22%), stationary energy storage (6%), and carbon capture and sequestration technology for power plants (3%).
• #36: In summary, its appears that investment in energy efficiency is expected to increase in 2010. This is largely motivated by cost reduction goals but public image and climate concerns are increasingly important drivers.Even in the absence of federal climate legislation, more organizations are making voluntary commitments to reduce their greenhouse gas emissions, and their primary strategy for doing this is improving the efficiency of their building portfolio.Yet potential energy efficiency savings often go unrealized due to a variety of barriers. Our research shows capital availability constrains efficiency investment, as most organizations only consider using internal capital budgets to fund efficiency improvements.Johnson Controls will continue to track progress with theannual Energy Efficiency Indicator throughout the globe.With that I’ll turn it over to Clay to moderate our panel discussion and Q&A session.
• #37: Thanks Dave.More detailed findings from this year’s survey are available in our online press kit, which can be found on the Johnson Controls website.A full report will be made available later this year. If you have technical questions related to the research, many of your questions will be answered when you review the report.We’d also like to note that Johnson Controls is currentlyconducting the Energy Efficiency Indicator survey in other parts of the world, including China, France, Germany, India, Poland, Spain, and the United Kingdom, with results to be released at events throughout the world during the summerof 2010.
• #38: I’d now like to introduce our expert panel who will be reacting to the results.Don Youngis Vice President of communications at the Houston-based International Facility Management Association (IFMA), where he has headed the communications function since 1989. Young is responsible for public relations, publications, social media, marketing and government relations. As one of four staff officers, Young also shares responsibility for achieving the association’s balanced scorecard objectives. He holds a bachelor’s degree in political science from Kalamazoo College, Kalamazoo, Mich. and did his foreign study at the Université de Caen in Normandy, France. Young also holds a master’s degree in speech/communications, public relations management studies, from the University of Houston. Peter Molinarois Vice President of Federal and State Government Affairs for The Dow Chemical Company based in Washington, D.C. He is responsible for supervision of federal and state government affairs professionals, advocacy management and maintaining relationships with national political and governmental organizations. He leads the company’s advocacy efforts on U.S. energy and climate change policy. Prior to joining Dow, Peter was Assistant Director of Government Affairs for Union Carbide Corporation after beginning his career in local government. He is a member of the Board of Directors of the American Council for an Energy Efficient Economy, The Business-Government Relations Council, the Public Affairs Council and is Immediate Past Chairman of the Federal Government Affairs Committee of the American Chemistry Council. He holds a Masters degree in Public Administration from the University of Hartford and a Bachelors degree in Political Science from Central Connecticut State University.Jennifer Laykeis spearheading the Institute for Building Efficiency, a new global initiative to provide information and analyses of technologies, policies, and practices in high performance buildings and smart energy systems from a practitioner’s perspective. Prior to joining Johnson Controls in January 2010, she was the deputy director, Climate and Energy Program at the World Resources Institute (WRI). There, she founded The Green Power Market Development Group, a partnership with 12 major U.S. businesses which announced in 2009 completion of its goal of supporting the development of 1000MW of new, cost-competitive renewable energy projects in the United States for corporate use. Ms. Layke’s work at World Resources included analysis of U.S. climate policy design options as lead staff negotiator in the U.S. Climate Action Partnership. In addition to writing and analysis on energy and climate action, Ms. Layke founded the Beyond Grey Pinstripes sustainability ranking of business schools conducted in partnership with the Aspen Institute. Ms. Layke earned an A.B. in Asian Studies and Political Science from Pitzer College in Claremont, CA, a M.S. in Natural Resource Policy and an MBA from the University of Michigan.
• #39: At this time, we’d like to open it up to taking a few questions from our audience.Questions can be submitted throughout the webcast by clicking “ask question” under the slides you are watching. The questions will be read by Clay Nesler and responded to by he and our subject matter experts including Jennifer Layke, Peter Molinaro, and Don Young.Potential questions:How do expect results to be the same or differ across different global regions this year?- In a recent Op Ed from the World Economic Forum, Energy Secretary Steven Chu has challenged the analogy used some economists who say there aren’t 20-dollar bills of energy efficiency lying around waiting to be picked up. If the savings were real, they argue, why didn’t the free market vacuum them up? Secretary Chu argues “there are indeed 20-dollar bills lying on the ground all around us. We only need the will – and the ways – to pick them up.” What’s keeping us from picking them up?- What does the significance of the capital availability barrier suggest about the need for new financing models.