NYSERDA Conference on On-Site Power Generation

I just spent two days at a NYSERDA conference about On-site power generation, which brought together solar PV, CHP and storage, in an attempt to inquire what could be done to achieve better integration and coordination among these market actors. The conference also at least acknowledged that there were many other technologies that could have been drawn in, but they just simply wanted to start somewhere. Still, we are in the Northeast, where 70% of building energy loads are thermal, and it remains amazing that solar thermal and heat pump solutions were not included in such a conference and trade show. We swam in between all the participants representing some dramatic efficiency measures, and the finance and economics to make projects better - we're making friends with all parties, because we shorten the paybacks of all On-Site Generation retrofit projects.

During the conference it hit me with even more force than usual how the entire energy retrofit business is a shambles that in large part is caused by the structure of incentives and regulation at both the federal, state, and local levels. At the same time, I am sincerely impressed with the REV process in NY State, which at least attempts to create a structure for energy solutions for the future, based on a clear awareness that the legacy regulatory structure is holding us back in the face of technology change.
Interestingly, this conference took place against the backdrop of all the uncertainty about the new administration and its energy policy, about which we know too little for now, as Bloomberg just reported in a major article that points towards a major shake-up. The good news was that I heard comments even from equipment vendors attempting overcome this confusion and take a longer view, such as one CHP vendor who pointed to the fact that they were at least discussing their solutions with clients in terms of long-term building values, which is of course the only valid perspective to have.

I got some welcome take-up for one of my own pet-peeves, that accountants should not be desinging energy systems. I advanced as an example of dysfunction how incentives and Energy Star ratings had promoted the use of tankless water heaters, but that in practice this was often a bad decision if a property owner found themselves a few years hence looking at either a heat pump solution or a solar thermal solution where DHW (Domestic Hot Water) storage provides the cheapest way to harvest energy. The premature decision to adopt tankless water heaters in that case amounts to throwing out the batteries with the bathwater. This is a typical example of how the 'energy efficiency' regulations themselves and the incentives cause capital destruction, in which property owners make decisions like so many chickens with their heads cut off. Sure, tankless water heaters may very well be very efficient by themselves, but that fails to take the overall building systems into account. The answer is that the only thing that will work in the long run is a carbon tax or similar solution, and not device-level incentives, so that the focus shifts to results, not how you get there. Politicians and accountants should not micromanage the design of systems, and make successful outcomes harder, not easier. Focusing on the results is the only way where engineers and economists can design the optimal solution that creates building value, and leave accountants and component-level tax-incentives out of it.  From that standpoint, it would be fine by me if the new administration just wiped out all incentives across the board, and let the markets sort it out - people would have to start thinking for themselves again.

Dysfunctions resulting from the incentive structure

The examples I have seen are many and varied, and anyone who has been around this industry for a while has seen the ridiculous results when tax- and other incentives and regulations dictate energy system design ahead of engineering and economics. My list includes:

• Tankless water heaters, even though they have valid application as backup in a renewable design.
• Condensing boilers in a back-up role where the heat-exchangers rot out if these don't run flat-out, yet the rules specify Energy Star boilers, which all come with heat-recovery. In short, in a backup role in a renewable design, 
• In general the incentives at the device level push over-use of certain devices, and this is often compounded by vendor greed, because they make more money over-specifying devices, instead of doing what's good for the customer. This can be seen in oversizing boilers or CHP or solar systems, all of which are commonly done. These equipment vendors sometimes take no interest in optimal outcomes for customers that can be realized through efficiency measures because they reduce the size of the systems they sell, even though they would sell more systems if they produced better economic outcomes for their customers. 
• Solar PV is the single most prominent example of a technology that thrives only because of incentives, but in practice it is a negative-NPV decision for most property owners in the Northeast, except for in specific design scenarios, particularly where it's combined with a heat-pump solution which by itself would increase electrical demand, but in combination could be very well an optimal solution in many cases. But the tariff structures and incentives are becoming an increasingly thorny issue here, particularly if grids are not designed for two-way traffic.

More Political Dysfunction ahead

The pendulum swings of politics are about to really upset the apple-cart of energy policy, as summarized in the Bloomberg article cited above, but there are limits even there, as summarized recently in a Forbes article by attorney Brian J. Potts: the new administration will have to pick favorites, for there are many clear examples of conflicting interests even among the fossil-fuel options. Another aspect that is a major unknown is what international response will be. Evidently, foreign investment in the US may suffer, and even US investors who are committed to a climate change vision may shift their investments outside the US as a result of regressive policies. Growing the US economy and dialing back energy policy may well prove to be incompatible. 

Needless to say the last word about our energy future has not been said, and for the real estate industry in particular, the fact remains that buildings will outlive the swings of politics, and smart decision making would focus on retrofits that make economic sense, and fortunately many renewable technologies are extremely valuable because they in fact eliminate major energy costs. Heat pumps with efficiency ranging from 200-250% for air source to 400-500% for ground source remain an attractive choice, and the applications for solar thermal, offering 4-5 times the energy output of Solar PV, are multiple. Solar PV without a subsidy regime to prop it up is not going to be very attractive in many cases, though it will be worthwhile in niche applications.

What will be interesting to see is how the states will respond, for increasing dysfunction at the federal level will shift the burden to the states. Will the Northwest reinforce its regional climate change efforts with Canada? Will California secede, or at least grow its climate leadership role?  Will New York and New England orient themselves to Canada more, where a serious climate change agenda is now a fact? We cannot ignore the fact that energy is the single largest industry in our industrialized society, and is key to our long-term welfare. 

The upshot is the major imponderables are the roles the states will play in energy policy, and the role the international community will play, the role that investors will play by voting with their dollars, and at the end of the day there is the fact that the Trump administration in no way has a mandate that would support the sweeping change it seems to be contemplating. So, the politico-economic outlook is definitely cloudy, and property owners must make their own long-term decisions, in which the only sane argument is to look 30-50 years out and ignore these short term swings. What remains is the fact that properties outlive political swings.

Creating Long-term Value

The simple must be, as always, that property owners must discipline themselves to look at energy retrofits as capital decisions, even though traditionally energy is treated as O&M (Operating and Maintenance) by most property owners. The reality is that the availability of many technology paths produce clear alternative scenarios for buildings, that must be evaluated as such as a long-term capital decision.

Site-Derived Renewable Energy (SDRE) is an alternative to the typical legacy energy plan that depends on buying energy from the grid (or oil, or propane deliveries, etc.), so the consideration of SDRE is a make-or-buy decision, but even within that, there are usually multiple scenarios which most often are mutually exclusive and have very different economic/financial outcomes. The unfortunate effect of the legacy incentive regime is that it is completely counterproductive to looking at long term capital decisions, for it tends to place the emphasis on short term payback at the equipment level, which can arguably be improved by incentives, but undermines the necessary discipline for long-term capital decisions. The prospect of dismantling various levels of incentives therefore shifts the focus from the short-sighted decision making that tends to create capital destruction, towards the long term decision making that helps property values and capital formation.

Hybrid systems are the future

At the convention I found myself happily technology agnostic, and plugging the idea that with some simple efficiency measures, we are able to take 20-30% of the energy demand out of buildings and shorten the payback of deep retrofits that include on-site generation by 20-50%. Needless to say we also have interesting financing partnerships developing, for shorter paybacks make financing easier. Most vendors welcome that conversation, but there are always a couple of regressive thinkers, who put the short term ahead of the long term, and their own commission check ahead of the customer's welfare, never realizing that happy customers will create referrals and more business. It drives home the point that property owners need to have the intelligence and advice on their side and look at the long term energy outlook for their buildings, at a holistic level, with at least a 30-year capital budget for energy provisioning.

Already, hybrid solar thermal cum fossil fuel heating systems are becoming the norm in places like Germany, and new solar thermal systems in this country are rapidly increasing the options, such as Zonbak, which is starting to ship in mid 2017. The future will be hybrid solutions in which the traditional silos will increasingly break down. You A/C does not have to be electric, it can be thermal, and your heating does not have to involve combustion, it can be largely or wholly thermal, with a little bit of electricity to keep it running.

In practice, some efficiency measures may be independent from structural retrofits, such as on-site generation, but in many cases it is not, and examples include both solar, and battery charging, and therefore BEV implementations. The fact is that harmonic noise is cumulative in a facility because of the shared neutral bus, and LEDs and solar inverters and battery chargers all inject harmonics into the electrical system, adding the load and therefore potentially increase the overall harmonic load, making harmonic filters every more critical. Are there other solutions? Yes, but they are more expensive, and on a facilities basis, the harmonic filters intercept the problem closest to the source, preventing deterioration of the whole circuit.

The benefits of harmonic filters:

10-30% reduced electrical bills,
20-50% shorter paybacks for retrofits.

Holistic Solutions Put Property Values Central

Selecting the right energy technology plan for your property with a life-cycle outlook and taking all the relevant efficiency measures into consideration at the same time, is the only valid way forward. The best advice amid the whole confused scenario is to keep your eyes on the ball, and that means to maximize long-term property values, and it's up to the political will to provide incentives to minimize environmental impacts. Both economizing water usages and minimizing GHG-emissions are part of the long term value picture, regardless if one administration or another changes the incentive regime. Don't let the vendor of solar panels, or CHP, or anything else be your only source of information, for at least some of them will sell you and oversized system. Don't put the incentives first. Good financing (including incentives) can make a good project better, but it can never make a bad project good. 

50 Ways to Kick the Energy Efficiency Habit

Energy Efficiency sounds good, but it makes lousy policy, because of the simple financial fact that as a strategy it produces diminishing returns. So, with the thought of Paul Simon's 50 Ways to Leave your Lover in mind, here are some thoughts on how to free ourselves from this collective insanity which is holding up the transition to increasing deployment of renewable energy and progress towards energy independence, not to mention building property values.

The motto for this list is the famous statement:

Premature optimization is the root of all evil. (Donald Knuth)

This comment from one of the world's most famous computer scientists is exactly to the point, for unless you do the capital budget and a long-term plan first, and you can see a clear timeline on what energy future you want for your property, you are operating without a plan, and capital destruction is sure to follow, as night follows day. All the "energy efficiency retrofits" suck asset values out of properties and transfer them to the financiers, instead of improving property values.

50 WAYS TO KICK THE ENERGY EFFICIENCY HABIT

1. Hop on the bus, Gus, but by all means do proper financial planning, and see for yourself. Failing to plan is planning to fail and you'll fall prey to incentives and be stripped of your asset appreciation.
2. Be honest about how much you've spent on energy efficiency. Shouldn't

   

   To the tune of: 50 ways to leave your lover

   your bills be negative already? If in doubt go back to point #1
3. You can't save yourself rich, not with money, not with energy.
4. Successive Energy Efficiency investments exhibit diminishing returns,
5. Therefore Energy Efficiency literally does not add up - it is NOT additive.
6. The reason you can't save yourself rich is diminishing returns.
7. Not only does Energy Efficiency not add up, it is not additive towards sustainability, instead it is a sure prevention of sustainability - again because of diminishing returns.
8. Energy Efficiency is not interchangeable with renewable energy in achieving sustainability, it is of value only if it is complementary to site-derived renewable energy (SDRE).
9. Energy Efficiency in a fossil fuel system, is like lipstick on a pig and it is mutually exclusive with renewable energy.
10. Premature Energy Efficiency is the best prophylactic the carbon economy has to offer against renewable energy.
11. In a proper capital budget for energy, it will be seen that 30 years of no (or very small) energy bills versus 20-30% energy savings with various energy efficiency programs often easily justifies the far larger CapEx for SDRE, but intelligent use of passive measures and efficiency will reduce the ICap (Installed capacity) for SDRE.
12. The corollary to this is that any would-be analytical models which emphasize energy efficiency and utilize payback analysis automatically move renewables out of range.
13. Every step into renewable energy increases building resilience, yet we offer subsidized programs to quickly convert buildings to natural gas, before anybody gets the idea of going renewable (NYC Clean Heat). OTG Conversions are public enemy number one from the point of resilience and sustainability.
14. If you count in the cost of the consultants on NYC Clean Heat, and various building resiliency studies, we could have converted half those 10,000 buildings to renewables already.
15. Energy Efficiency makes the problem bigger not smaller, and makes it dollar for dollar less likely we'll ever switch to renewables.
16. With gratitude to Steve Hallett & The Efficiency Trap - energy efficiency is much ado about nothing. This book is the behavioral corollary to the financial problem of diminishing returns, providing yet another reason energy efficiency does not add up.
17. Kudos to Steve Hallett & The Efficiency Trap again, energy efficiency expands demand. The mission is to build the alternative.
18. With every dime you spend prematurely on increasing efficiency of your fossil fuel system, you are postponing the transition to a renewable system. This is capital destruction.
19. Successive steps of a well engineered renewable energy transition in a property will show interdependencies, which demonstrate an engineering reason why energy efficiency and renewable energy are mutually exclusive, on top of the financial reasons, unless they are properly planned and leverage each other so as to produce profound synergies.
20. Many if not most NYSERDA programs are for the benefit of your favorite utility company, and/or manufacturers of equipment, at the expense of optimal asset value for property owners. You want to do your own financial model first before you use their programs to see what subsidies you could qualify for. The old adage applies: great financing can make a good project better, but it can never make a bad project good. Happy shiny sales people of energy solutions violate this rule all the time, such as when they ask you if you would like to see if you qualify for "free solar panels." Hold on to your wallet.
21. Most NYSERDA programs as well as direct utility incentives bribe property owners to do what's good for the shareholders of the utility, and necessarily not what's in the best interest of the owners of the property.
22. Most NYSERDA programs, ConEdison's Greenteam, and other similar programs with other utilities, are customer retention programs for the utility and have little or nothing to contribute to property values, nor are they green if they only target energy efficiency.
23. Tax incentives, and financing requirements based on Energy Star ratings of equipment, tempt property owners to specify the wrong equipment for the sake of short term gain, and they make good design harder, not easier. These incentives need to be restated on the basis of GHG emissions, and/or water use reductions.
24. Energy efficiency and Energy Star requirements for buildings are counter productive, GHG reductions should be used instead for law makers, and regulators, while property owners should maximize NPV based on a 30 year energy plan.
25. Green financing is falling into the efficiency trap and makes the capital blunder of financing short term measures with long term money. It will lead to instability, and it is another underwriting crisis in the making.
26. PACE bonds have become nearly irrelevant by embracing energy efficiency instead of renewable energy.
27. Green Finance including PACE bonds could ensure above market rate appreciation of the underlying assets ONLY by mandating renewable infrastructure, never by energy efficiency requirements.
28. All energy efficiency programs are a greenwash, because they achieve the opposite of what they set out to do, both environmentally, as well as financially.
29. Energy efficiency programs are a rationalization for the good feeling of sacrificing something for the common good.
30. Energy efficiency programs are another demonstration that logic and reason are the horse the emotions ride in on. The only satisfaction is emotional, nothing is being accomplished.
31. The use of marginal analysis in the form of payback on equipment justified by energy savings is irrelevant to property owners, and only of interest to the sellers of that equipment. Caveat emptor applies here, for most retrofits have engineering interdependencies that may lock you out of other options, and you need to understand the holistic view of a long-term plan for your property first.
32. Net zero is not necessarily the sole objective, but a direction. Again: energy independence of your property and even partial independence from the grid, ensures you won't be left stranded.
33. Selling back to the grid can be avoided by implementing heat pumps, particularly high efficiency GSHP (ground source heat pumps - 500% efficient!), but also ASHP (air source heat pumps - 250% efficient).
34. In renewable energy design, energy efficiency comes back in play and should be used to optimize installed capacity (ICap) requirements. Notice that if your energy is free, you can pick your capital tradeoff, if it is cheaper to install more capacity or insulate more. The bottom line is that in deep retrofits there is no payback period for efficiency alone, but the right use of passive measures and efficiency will reduce the overall payback of a project and make it easier to finance.
35. Implementing renewables (SDRE), means shifting energy from liability to asset.
36. Implementing renewables also means focusing on production, not reducing consumption as the predominant strategy.
37. The renewable strategy means playing offense, not defense with energy.
38. Net-zero and green construction is growing like mad in new project development, so existing homes are eventually headed for demolition and abandonment if they cannot come up with a renewable strategy. Search for net-zero and energy efficient homes, and you'll see what I mean.
39. Energy efficiency is a bottomless pit that will keep you in the poor house if you fall into it. Stop now, and make a financial plan to switch to renewables wherever possible.
40. Energy Efficiency is the addiction that covers up our energy addiction, so again it makes the problem bigger, not smaller. Energy is like methadone for heroin addicts: it makes the addiction manageable, but it is harder to kick.
41. If you are a renter, Energy Star appliances and other Energy Efficient Products are your best friend. For renters marginal payback of the equipment from energy savings is appropriate.
42. Whenever renewable energy is treated as a building block in energy efficiency, it will be undervalued and implemented incorrectly.
43. Avoid net metering whenever you can, except in emergencies. Plan your design to capture and use as much energy as possible in your property.
44. The 90by50 report from the Green building council is full of good ideas, but once again gets lost in the weeds of energy efficiency.
45. Manhattan is a heat sink, but renewables will mean the outer boroughs can become far more attractive places to live, while Manhattan will become the energy slum, with a small number of exceptions to prove the rule.
46. When buying a coop or a condo find out the energy plans, it will make at least a 10-20% difference in building values within 10 years.
47. It is time for tenants associations to work with landlords, even to the point of mixed ownership of energy plant if nothing else will work. Community solar is such an idea. It is high time to get rid of the split incentive. There is room for innovation here.
48. Write to your politicians to support the principles of the DaBx Renewable Energy Retrofit Portfolio Standard, and focus on subsidies for achieving reductions in GHG emissions, and try to get exemptions from all rules that stand in your way. Many well intended rules hold up the show because they are counter productive on a building level.
49. Evaluate all technology options that are suitable for your property, not just one. Solar thermal DHW and/or HVAC as well as heat pumps should top your list.  They are mature technologies, wind energy is often superior if you have the right location. Solar PV comes last unless you have space to waste. Don't forget green roofs, and other passive energy strategies either.
50. The reason they are giving away solar PV, is because it is your worst option, unless it fits your overall design and you have the space for it - which most residential owners don't. Solar PPAs are usually a really bad deal for almost all consumers. They are only better than doing nothing. Solar thermal yields up to 7 times the amount of energy per square foot.

Conclusion: renewable energy adds value

50 ways to leave energy efficiency behind, because it is a financial dead-end, the corollary to which is the phenomenon of The Efficiency Trap. Only renewable energy will offer rising property values, as well as dampen any loss of value in downturns, as was widely acknowledged by institutional investors during the downturn of 2008. Net-zero or near-zero properties are one of the best asset classes ever to own.

What's Wrong With the Energy Retrofit Model and What To Do About It

Energy retrofitting will be a big business for the next few decades, for the simple reason that there are more old buildings than new. Granted, some buildings will be scrapped if they can't make it in the new net-zero and near-zero age, but many buildings are eminently capable of material overhauls that can eliminate 70-80% of GHG-emissions.

Premature Energy Efficiency:
The Best Prophylactic against Deep Energy Retrofits

The unfortunate fact is that the structure of various incentive programs as well as typical financing approaches have prevented deep retrofits and favored shallow programs that achieve just 20-30% GHG-reductions. A typical example was a deal sheet I recently saw from NYCEEC, effectively the New York City Green Bank: easily 80% of their projects were in the 20-30% GHG-reduction category, and just a few projects here and there were in the 70-80% GHG-reduction bracket. On their website, they focus almost entirely on marginal improvements in "energy efficiency," complete with their "Energiensee(tm)" calculator of energy savings potentential - therefore, the focus is on O&M, not on capital improvements. Yet, purely mathematically, in a state that has an objective of 50% GHG-reductions by 2030 and 80% GHG-reduction by 2050, clearly anything less than 50% GHG-reductions guarantees failure of the state's objectives, and the idea of providing incentives, including subsidized finance to do such deals is absurd on the face of it.

If you understand the economics of energy retrofits in buildings, it is clear that what is going on here is the clash between O&M (Operating and Maintenance), which tends to be on annual budgets, and Capital Budgeting. The structure of the real estate industry is that energy tends to be looked at through the lens of O&M, but there are now so many alternatives that represent structural change of building energy infrastructure, that these decisions need to be looked at as capital cases, and the investors/owners need to be involved. Long term building values are at stake. Capital improvement should be the driver for energy retrofits, and if you can't do them, you should probably get rid of the building, it's going to be scrapped.

Capital destruction results from an incremental O&M approach

Many, many, "upgrades" should not be done at all once you look at them through the lens of long term capital appreciation. That list includes:

• Tankless Water heaters. They are mostly a mistake, for DHW (Domestic Hot Water) storage is immensely valuable for e.g. Solar thermal, or Heat Pumps, but sometimes even for Solar PV. There are some valid uses of these, as backup in renewable retrofits.
• OTG (Oil-To-Gas) conversions, sure, you may save on your energy spending, but again, looked at from a capital budgeting standpoint, on a 30-50 year lifecycle timeline, these kinds of marginal improvements are usually pure capital destruction in the face of better alternatives such as hybrid solar thermal or heat pump solutions.
• Condensing boilers are a liability if there is solar thermal or heat pumps in your future, because if the boilers become the backup the heat recovery systems rot out in record time due to condensation under intermittent use. In other words, incremental decision making creates massive sunk costs that undermine building values in the long run.
• Solar PV. Especially at Northern latitudes solar PV retrofits are pure capital destruction in many if not most buildings when evaluated from a capital budgeting standpoint under a 30-50 year lifecycle assessment. Solar PV should be relegated to whatever space remains at the end of a retrofit process. It is too inefficient.

The Height of Folly: Tesla/SolarCity

Recently, I have been writing about Tesla and their SolarCity merger, which is the height of capital destruction. SolarCity never figured out the economic value they could provide for their retail customers, and their business model was driven by the demand of tax-equity finance and the Wall Street appetite for ABS-notes. It was clear that recent financings, starting at least from the John Hancock transaction earlier this year, meant that SolarCity was under water under those terms compared to the discounted cash flow model they sold to investors as being the "retained value" of the company, so they slipped from arguable "value creation" into "value destruction:" the installations were a loss leader for a fallacious "retained value" that is increasingly not working out, because it's only feasible by assuming lower discount rates on an equity basis than what they are actually paying on their recent deals, so that both the front end and the back end of their transactions is now under water.

This development was bad news for SolarCity shareholders, but the whole business model was bad for retail customers, for SolarCity sales people have an incentive to sell you the most solar panels they can fit on your roof, and NOT to add the most value to your property. And because their whole sales model is wrong, they are destroyers of asset values for their retail residential clients. This is the reason why they are not a Solar energy company, but a Solar panel financier (and not particularly good at it). SolarCity's unique contribution has been that they figured out a way to sell sub-prime financing to prime customers, for their sales proposal to clients rested on a foundation of stretching the payments long enough to be nominally "cash-flow positive" based on the projected energy savings, and the sales mottos were "free solar panels" and "sell'em on the payments!"

The easy test was the study from Arizona State University, and the conclusion was that:

Solar panels owned by a home seller add 4 to 6 percent to the value of a home sale, often less than the cost of the panels, according to an analysis of local home sales and reports from real-estate agents. Houses with leased solar panels actually sold for less than those with no solar. (see story on AZCentral)

However, Solar panels installed with a lease or PPA might deduct 3-8% of the value of the property at the time of sale, for it places the seller between a rock and a hard place, namely, they either have to pay off the lease, or they have to get the buyer to assume it, at which point the buyer can negotiate a discount on the property.

And again, there are deeper issues here as well, and the value of the SPV install might not be optimal if other parts of retrofitting are ignored. Typical experiences in existing homes suggest that you should most often only require 50% of the SPV capacity that sellers like SolarCity will offer, if you implement the optimal mix of passive measures, ranging from insulation, radiant heat barriers on windows, and power quality solutions. The decisions are easier if your home is all electric, but usually the payback can be 20-50% shorter if you pursue the optimal balance of passive (insulation, etc.) and active (generation).

I recapped a lot of these issues in two articles on Seeking Alpha, about the Tesla mess, here:

•  The Solar Roof is Coming Off at Tesla
• 'Teslaverse:' of the Epitome of Failure of Energy Policy

Energy Efficiency Versus Energy Retrofitting:
History Lessons

For good historical reasons, originally it all started with energy efficiency, squeezing more energy from systems, but gradually, structurally different solutions came into being, which enabled different financial decisions, for once you enter into retrofitting, there are lots of interdependencies within a given building, and you have to make a clear decision about what your upgrade path is going to  be since many of the technology choices are mutually exclusive with other possible solutions. Here's how it has worked:

1. Phase one was pure O&M, lowering your bills year over year, which works initially, but in the end, you cannot save yourself rich, and this approach runs out of steam because of diminishing returns. The answer should have been capital budgeting, but instead financial slight of hand was used to "justify" further retrofits.
2. Stretching the financing became the way to make bigger and bigger retrofit projects happen, and as a result, financiers were effectively stripping value out of buildings, and building owners did not know any better. The financiers win and property owners lose. Just watch for buildings in the Northeast with Solar PV: they were sold a bill of goods, as per the analysis above.
3. We are now entering the capital budgeting phase, for the number of retrofit options have grown so much that a growing number of owners find out the hard way that incremental decision making produces capital destruction, and that a decision made one year ends up being undone a few years later. Typically failing to plan means planning to fail and in depth energy audits and thirty-year capital budgets must become the new normal.

The transition to the capital budgeting model will increasingly be precipitated by the emergence of more and more net-zero or near-zero buildings that go up right next door to older buildings so that economic competition will force the older buildings to either upgrade or be scrapped. 

The Key to Deep Retrofitting:
Holistic Approach and Value Creation 

Meanwhile, with my company, we are hard at work with the marketing of harmonic power filters that get rid of harmonic noise in power circuits, and while the payback is great, especially here in NY, where it's usually months, not years in most commercial applications, the real message is that in a deep energy retrofit, this technology alone can reduce the overall project payback by 20-50%. In other words, incremental "efficiency" retrofits should not be squandered by implementing them in isolation, but be viewed as part of the overall energy model, and enable building owners to undertake the retrofits that create true long-term property value. The magic is to add a sub one year payback to a project with a seven year payback, and create a project with a four year payback that's easy to finance.