Why Market Evaluations Matter: Significantly Improving Energy Program Outcomes with Market Intelligence in the Large Commercial Building Sector American Evaluation Association Annual Meeting San Antonio Texas November 2010 John H Reed Charles Bailey jreed@innovologie.com 305 Summer Garden Way Rockville MD 301 340-8702

Topics The problem Markets and market evaluation The large commercial office market Life before understanding the market The lift from a market based strategy Cultural revenge Reprise — why market evaluation matters

The Problem Optimizing the strategy to reduce energy consumption in commercial buildings

The Focus Buildings and technologies? or the Market?

A Market is a system, a social structure, or a collection of activities that may or may not be spatially delimited with informal and/or formal roles, norms/rules, and/or procedures that allow participants to exchange particular kinds of goods, services, and/or information

Context Programs operate in a

Market Evaluation Is Used to: Determine where and how to intervene to optimize treatment effects Assessing the effectiveness of an intervention (e.g. improve the efficient (utility HVAC program) cy of heating and air conditioning systems (HVAC) and/or

These sources and methods were used to understand the commercial building market Government data (EIA, Commercial Buildings Energy Consumption Survey) Trade and professional association data Exploratory In-depth interviews Focused in-depth interviews Network analysis Surveys

The evaluation showed the commercial building market to be a complex place

Commercial Building Market — Submarkets (4.7 million buildings) Commercial office lease Owner occupied office Food sales Food service Warehouse Education Healthcare

Segments in the Commercial Office Submarket Large national firms Large local and regional firms Small office building owners

The Large Office Commercial Submarkets has a Cast of Many Players Financiers Developers Owners (corporations, Real Estate Investment Trusts, pension plans) Property management firms Facility engineering firms Real estate brokers National renters Local renter

And Players of Many Stripes Sole owners (own and manage) — EOP; Legacy; Sunset Owner/manager (REITs) — Hines; Boston Properties Fee based property managers — Jones Lang LaSalle; CBRE Large institutional investors — TIAA CREF; CALPERS; Prudential; Calster; Other retirement funds Engineering service/construction firms — Able Engineering; ABM

A defining principle of the market is “aggregates” About 80 - 100 and sometimes fewer than 50 large firms dominate these and other commercial building submarkets The 80/20 rule

137 Properties 47,735,315 Square Feet Owner A Owner B Owner C Owner D Owner E 137 Properties 47,735,315 Square Feet

So, where does the decision-making occur Owner Vice president or senior property manager Chief Engineer Facilities Engineering Firm Property management firm Property manager Building Engineer Building Manager

Fleet Cross-Over Owner Fleet 1 Owner Fleet 2 Owner Fleet 3 Fee Manager Fleet 1 Fee Manager Fleet 2 Fee Manager Fleet 3 Fee Manager Fleet 4 Facilities Engineer Fleet 1 Facilities Engineer Fleet 2 Here we may wish to try a ven-type diagram – another way of making the point.

There is a cultural disjunction between Owners and operators who are focused on fleets And agents promoting energy efficiency (utilities and others) who are focused on technologies and buildings and are organized by geography

Traditional Approaches to existing and new buildings (one example) Contact someone at the building Provide some minimal education Identify opportunities Present a proposal Install equipment Ignoring the reality of the market leads to suboptimal results

“More than a Million”: A different approach Focus on aggregates at the C-level (Top down rather than bottom up) Treat each player type as an opportunity to aggregate services Benchmarking (assess energy opportunities in every building) Establishing a set of priorities across and within buildings and technologies Provide comprehensive planning Dedicated support team Education and marketing messages Tools attuned to the needs to different decision-makers

The Impact of Refocusing from Buildings to Fleets Program Years Project sites MW Savings (GWh) Therms Incentives (000’s) Pre- More than a million 2005-6 16 0.26 1.98 1,095 $135 Post- 2007-8 270 1.73 6.15 1,098 $564 % change 1588 565 211 0.3 318

Cultural Revenge Pre-MTM costs for operating programs were spread across geographies and account executives and therefore invisible Focusing on fleets made costs visible in the form of a dedicated account representative The perception — this program costs too much The reality — it probably costs less and produces more savings

Why market evaluations matter? They focus on the larger context They help to identify where interventions need to be targeted They assist in developing an optimal intervention strategy They can result in significant increases in impacts They can help to identify where structural and cultural change is needed In the energy efficiency case they remind us that consumption is behavior (writ large) mediated through technology rather consumption as a function of technology