OK. So Version 2.0 of PlaNYC2030 came out, and it is full of helpful research as well as wonderful initiatives and plans, and the question will be if this is going to be just like the yesterdays's infamous Soviet 5-year plans and 10-and 20-year plans - top down planning that does not work, or is it going to become a practical reality? Better yet, are some going to see the opportunities to get ahead of the crowd and cash in on the inevitable?
NYC seems to be ahead of much of the world, and most cities, in terms of planning and good intentions, and occasionally in some far-sighted action as well, but nevertheless there remains widespread room for improvement, and some of that comes in the form of opportunity. One of the most important insights of recent years is how disproportionate is the contribution of buildings to energy waste and the associated environmental problems in the city, and with all the brave plans we now have, some of which have already become reality, such as the new energy efficiency codes which the City adopted last year, this is starting to be addressed.
This new code is already a very important step, but the question remains how many owners will see money in exceeding it... that's where the music is. The logic of the code is to deal with new buildings and alterations of existing buildings, but we all know that if the problem with cars was that they live 10 years, building have even more obnoxious longevity habits, and can be around for many decades or even centuries. Meanwhile it is only buildings over 50,000 square feet, who must complete their benchmarking by August of this year. So the question is: what war was ever won by attacking the enemy where he is strongest? Or in this case by attacking the problem where it is the biggest? Granted, there is some underlying logic to this approach, but it is important to ask why we are not attacking the enemy where he is weakest. Namely: are there any targets of opportunity, which are being missed?
The answer is yes, and if these targets of opportunity could be addressed properly, the City's energy future, air pollution problems etc., could be improved both more and faster than in PlaNYC2030 as it stands now, which is why I'd like to suggest an alternative PlaNYC2020. Stronger yet, much of the current policy framework incentivizes short term, shallow, and incremental improvements in efficiency, which implicitly causes the indefinite postponement of deep energy change.
The City is full of older apartment buildings (I live in a reasonably decent old D-Class building). What it will take is owners who look at the long term future and realize that a building substantially without energy bills is going to be worth more than the identical building next door with very high energy bills. For comparison, I mention the fact that in my native Holland neighborhoods are already being planned from the standpoint that if they did not do anything, energy costs would eventually outstrip rents. That kind of view point is a big motivator for creative thinking. The current class of property owners very well may not have the mindset, and the NYC Dept of Housing Preservation and Development is no help in the matter either. They talk about putting the emphasis on Building Preservation (many of these old buildings could be quite viable), but their de-facto policies fly in the face of their pronouncements about building preservation. The emphasis on Energy Conservation over Renewable Energy and Energy Independence is by nature a path of diminishing returns, and bound to breed slums in the future, for when buildings are committed to the path of energy efficiency they eventually will be just as much at the whim of energy costs as they always were.
Older apartment buildings offer a scale which facilitates renewable energy even with today's technology, but it is not done, and the most important reason that it is not done may well be in the fact that existing incentive programs to encourage energy conservation, actually incrementally prevent the serious development of energy independence for the future. Many of the existing subsidies, and incentives, including things like NYSERDA's MPP (Multi-Family Performance Program), are geared to maximizing energy efficiency at a point in time. The worst problem from that viewpoint is the Energy Star program - for all its evident merits, from the standpoint of a building system it is anathema, for it suboptimally allocates resources (capital) at the component level, and thereby prevents other decisions which could have been more effective. The NYSERDA MPP program is an improvement to a degree, but it still misses the point because it only looks at thermal efficiency at the building level at one point in time, and ignores long term integration potential.
The critical observation here is that in an existing building, the two options, energy efficiency and energy independence are divergent investment paths. The former is really a customer retention program for your local utility and your oil dealer, whereas the latter is truly an investment in increasing building values in the future, as it produces compounding returns. Equally important, energy efficiency is by definition an investment with diminishing returns: every successive percentage point of improvement becomes rapidly more expensive as you approach the limit of what can be done, and so you might have reduced energy spending by 30 or 40%, or even 50% but then you hit the limit, and you are still buying subscription energy, and only waiting for prices to increase enough to do... what else? Then you may finally have to look at renewable energy seriously. Typically the first efficiency measures show paybacks under 18 months, but pretty soon you start running out, as paybacks for incremental improvements become explosively more expensive.
The alternative path, towards Energy Independence Now! is the plan towards PlaNYC2020... and it starts in a less attractive way, probably with 5-7 year paybacks, but it gets better after that, as you get the benefit of compounding returns. To choose the energy independence strategy now requires careful planning and a long term view. Speculative owners need not apply. Owners looking for a long term income property should explore this path, and in fact are stealing from themselves if they don't, for the more money you spend on energy conservation or energy efficiency without examining the alternatives thoroughly, that is capital down the drain that will make switching to the other track increasingly difficult. It is not that energy efficiency is not a factor in the energy independence path, but inevitably different efficiency measures would be prioritized under an energy independence plan.
In this context failing to plan is definitely planning to fail, for if you invest in the more efficient burning of gas, as in my all time favorite oxymoron of Energy Star rated gas hot water heaters, then you will never think of looking at other sources for heating water, and their economies, such as geothermal or solar. Nor will you think about the radically different energy infrastructure you will need to develop for your building to exploit these opportunities in the future. Because of engineering interdependencies, the critical choice is which of these technologies to deploy first, which will vary building by building. If that implementation sequence is done right, with at least a 10 year horizon, then the result will be a building that has eliminated 85% of their fossil fuel based energy bills, versus the same building next door which went the efficiency route, marching politely at the hands of NYSERDA and other authorities, and will be down to 60% of of their erstwhile energy bills. So again ask yourself, which building will be worth more in 2020, the one with 60% of the 2011 bills, or the identical one next door with 15% of 2011 bills, if the oil prices are $250/bbl, and NatGas is at $2/therm plus the ever rising delivery costs? For the grid costs are bound to rise ahead of inflation as far as the eye can see, for both gas and electric.
This is the real question. It is the difference between PlaNYC2030 and PlaNYC2020, and the crucial point is, that if you do not plan to get to the 2020 plan today, but you follow the rules for the 2030 plan, you will make absolutely sure that you will not get there in 2030 either, and a fortune of money will have been lost in the process. This amounts to pure capital destruction on a societal level, and the premature and exclusive focus on energy conservation over energy independence is to blame. Energy efficiency does NOT cumulatively add up to energy independence, and if it is prioritized without examining the alternative, the pursuit of it will postpone an energy independent future indefinitely, and PlaNYC2030 will not live up to its promise, though the potential is there today to exceed its targets by a landslide. Yet the majority of the market place is either doing nothing at all, or at best following some of the elements of the 2030, and thus collectively ensuring the postponement of energy independence, and the continuation of the maximum allowable levels of pollution in our urban environment.
Monday, May 30, 2011
Sunday, September 19, 2010
What Was The Question?
A paradigm shift starts by flushing out the assumptions that are unconsciously taken for granted. The classic business school example was the great crash of the railroad company, which followed... you get it: the railroad rush and boom... if only, the theory goes, they thought of themselves as transportation companies instead of as railroads. But, naturally it is only typical that when we are successful at what we do, we do not have eyes and ears for the next thing, for almost everyone falls for the temptation of believing themselves and their business invincible - after all their accountants tell them they are making record profits, so they must be doing it right. There seems to be no need to question the "accepted" model and the long forgotten assumptions that underlie it.
Energy policy is such an area. Technology is shifting very fast, but the use of it for the most part is unimaginative, and plagued with those unconscious assumptions. So we end up plugging renewable energy into a business model that is based on the subscription model of energy, and the capital expense for renewables does not seem to be warranted. We are oblivious to the fact that we asked the wrong question.
The question seems to be I'm now spending, let's say $100,000 a year for energy in my building, what can I do to reduce my cost? The first round of answers came from the utility industry and was based on the insight that sometimes you get more bang for the buck by reducing demand than by increasing supply, so incentives were created to achieve that. But on the basis of an individual building manager, answer is not enough, for it does not address the true economics of building ownership - it simply perpetuates the franchise of the utilities, which defeats the purpose in the long run, which must be energy independence. This approach is akin to a heroin addict who goes on methadone for a while because he can't afford his daily fix any longer, but then after awhile goes back to heroin when he thinks he can manage it. Making the addiction "manageable" does not solve the problem. Or, to use another metaphor, our real estate industry is like a little baby who refuses to be weaned from the breast of the utilities and the oil companies and start eating solid food.
To put it in financial terms, if the question is how do I reduce my $100,000 energy expenditures, then I tend to get focused on energy conservation as an investment, which always produces the predictable diminishing returns. Simply put, when I started I had the choice of 5 technology options, and since I'm conservative and prudent (or so I think), I take the one with the shortest payback first. It saves me 10%, so now my base is 90% of what it was before. The next one also saves 10% but only 9% on the original scale, so the second 10% reduction brings my expenditure to $81,000 annually, and the third 10% to $72,900. Note, in actual life the results will likely be worse, because some of these options tend to partially cancel each other out, so in reality I may get to $75,000 in constant dollars.
Next I contemplate a much more expensive option, which promises a 30% savings, however since my base is now only $75,000 and my payback period now is 4 years, when it would have been only 3 years, if I had done this investment first. Not to worry, just wait until the energy prices go up again, and your payback will meet your criteria. Or did you think energy prices were going down? The bottom line is, that of the five options we had we should have contemplated the biggest one first, and the other second, for otherwise we talk ourselves out of the deal. The longest payback should have won out on that basis, if it was within the criteria at the outset.
However, we are still investing with diminishing returns, so incrementally every dollar yields less, and we run up against a hard limit beyond which we cannot go with this approach. The alternative is to learn to wean ourselves from the breast milk of the local utilities and the oil companies. When is the time? Perhaps we should first max out our investment in energy conservation, before we wake up? Or should we wake up now and start properly investing in the profitability of our business, instead of just incrementally spending ourselves into the corner of diminishing returns, and be totally stuck when the next energy crisis hits?
The point is very simple, that solar hot water heater, may have a 6 year payback, even after incentives, and it has a 30 year lifespan, but that high efficiency gas hot water heater with its 3 year payback only has a 10 year life expectancy, so over the 30 years you will still have gas bills, and 3 replacements, while the solar plant has negligeable O&M costs. In six years, which building will produce a higher asset value mine with an energy cost of $20,000 a year, or yours - an identical twin otherwise - with a proud certificate of achievement from ConEdison and NYSERDA on the wall that you are one of their most efficient consumers because you reduced your energy consumption by 30%? By the way, you're now only 4 years away from having to replace that high efficiency gas hot water heater, and I don't think that a new one that's 99.6% efficient in the lab is going to make much difference over the old one which was 99.5% efficient, and looked like such a bargain. And meanwhile my building may still be buying energy in one form, but quietly it is generating an offsetting amount of energy in another form, and monetizing it, so that it is effectively hedged against the cost of energy going up.
So, financial common sense would argue that you quit listening to the vendors who are pushing their devices based on payback - let the shortest payback win - and treat these investments as intra-marginal investments in your building, and focus on long term asset value of your portfolio. In short a discounted cash flow model, and NPV should be your criteria, as well as the long term engineering path towards energy independence. I know, the banks will gladly lend you 20 year money for a 5 year problem fix. Sure, you can save a lot of energy, and you can afford to service the loan, but after all, whose interests do you serve - the utilities, the oil dealers, the banks, or perhaps creating value in your own business should be considered?
In short the next question that should be questioned is: "How do I reduce my energy bills?" The proper question should be: "How do I create the highest asset values in my buildings?" and energy should be looked at as a profit center, not a cost center. Even an economically minimally viable path towards energy independence will create higher asset values, than current practices that are focused on energy conservation, energy efficiency. You may have to give up on those certificates of achievement from your local utility.
Energy policy is such an area. Technology is shifting very fast, but the use of it for the most part is unimaginative, and plagued with those unconscious assumptions. So we end up plugging renewable energy into a business model that is based on the subscription model of energy, and the capital expense for renewables does not seem to be warranted. We are oblivious to the fact that we asked the wrong question.
The question seems to be I'm now spending, let's say $100,000 a year for energy in my building, what can I do to reduce my cost? The first round of answers came from the utility industry and was based on the insight that sometimes you get more bang for the buck by reducing demand than by increasing supply, so incentives were created to achieve that. But on the basis of an individual building manager, answer is not enough, for it does not address the true economics of building ownership - it simply perpetuates the franchise of the utilities, which defeats the purpose in the long run, which must be energy independence. This approach is akin to a heroin addict who goes on methadone for a while because he can't afford his daily fix any longer, but then after awhile goes back to heroin when he thinks he can manage it. Making the addiction "manageable" does not solve the problem. Or, to use another metaphor, our real estate industry is like a little baby who refuses to be weaned from the breast of the utilities and the oil companies and start eating solid food.
To put it in financial terms, if the question is how do I reduce my $100,000 energy expenditures, then I tend to get focused on energy conservation as an investment, which always produces the predictable diminishing returns. Simply put, when I started I had the choice of 5 technology options, and since I'm conservative and prudent (or so I think), I take the one with the shortest payback first. It saves me 10%, so now my base is 90% of what it was before. The next one also saves 10% but only 9% on the original scale, so the second 10% reduction brings my expenditure to $81,000 annually, and the third 10% to $72,900. Note, in actual life the results will likely be worse, because some of these options tend to partially cancel each other out, so in reality I may get to $75,000 in constant dollars.
Next I contemplate a much more expensive option, which promises a 30% savings, however since my base is now only $75,000 and my payback period now is 4 years, when it would have been only 3 years, if I had done this investment first. Not to worry, just wait until the energy prices go up again, and your payback will meet your criteria. Or did you think energy prices were going down? The bottom line is, that of the five options we had we should have contemplated the biggest one first, and the other second, for otherwise we talk ourselves out of the deal. The longest payback should have won out on that basis, if it was within the criteria at the outset.
However, we are still investing with diminishing returns, so incrementally every dollar yields less, and we run up against a hard limit beyond which we cannot go with this approach. The alternative is to learn to wean ourselves from the breast milk of the local utilities and the oil companies. When is the time? Perhaps we should first max out our investment in energy conservation, before we wake up? Or should we wake up now and start properly investing in the profitability of our business, instead of just incrementally spending ourselves into the corner of diminishing returns, and be totally stuck when the next energy crisis hits?
The point is very simple, that solar hot water heater, may have a 6 year payback, even after incentives, and it has a 30 year lifespan, but that high efficiency gas hot water heater with its 3 year payback only has a 10 year life expectancy, so over the 30 years you will still have gas bills, and 3 replacements, while the solar plant has negligeable O&M costs. In six years, which building will produce a higher asset value mine with an energy cost of $20,000 a year, or yours - an identical twin otherwise - with a proud certificate of achievement from ConEdison and NYSERDA on the wall that you are one of their most efficient consumers because you reduced your energy consumption by 30%? By the way, you're now only 4 years away from having to replace that high efficiency gas hot water heater, and I don't think that a new one that's 99.6% efficient in the lab is going to make much difference over the old one which was 99.5% efficient, and looked like such a bargain. And meanwhile my building may still be buying energy in one form, but quietly it is generating an offsetting amount of energy in another form, and monetizing it, so that it is effectively hedged against the cost of energy going up.
So, financial common sense would argue that you quit listening to the vendors who are pushing their devices based on payback - let the shortest payback win - and treat these investments as intra-marginal investments in your building, and focus on long term asset value of your portfolio. In short a discounted cash flow model, and NPV should be your criteria, as well as the long term engineering path towards energy independence. I know, the banks will gladly lend you 20 year money for a 5 year problem fix. Sure, you can save a lot of energy, and you can afford to service the loan, but after all, whose interests do you serve - the utilities, the oil dealers, the banks, or perhaps creating value in your own business should be considered?
In short the next question that should be questioned is: "How do I reduce my energy bills?" The proper question should be: "How do I create the highest asset values in my buildings?" and energy should be looked at as a profit center, not a cost center. Even an economically minimally viable path towards energy independence will create higher asset values, than current practices that are focused on energy conservation, energy efficiency. You may have to give up on those certificates of achievement from your local utility.
Saturday, August 21, 2010
Of Hamster Cages, the Grand Canyon, and the Climbing of Mount Olympus
Energy Efficiency is a commendable thing, but I like to question its sometimes guileless application, which can product less than desirable results. As I point out repeatedly on this blog, energy efficiency, when applied in a fossil fuel framework, runs into the law of diminishing returns, and at some point it leads to capital destruction, because you spend yourself into a corner you cannot get out of, and in fact you are making the switch to renewables harder, not easier. Thus Energy Efficiency is not additive to Energy Independence. Everyone knows we can't save ourselves rich, but the same people blithely assume energy is the exception to the rule. It is not.
The following then is a thought experiment, for an imaginary old building of 100 apartments in an old city, like New York, with a steam heating plant burning oil, a coil in the boiler for hot water, etc. On day one, today its total fossil fuel consumption is 100, then some technology is implemented with a 10% efficiency improvement is implemented and it drops by 10 to 90. But the next improvement of 10% is now applied to the 90, and thus the improvement is only a further 9 points to 81, based on the original scale. The next improvement of 10% only moves the market 8.1 points to 72.9 on the original scale. And so on.
If we assume that we prioritized these investments based on their relative paybacks, selecting the first one first, etc. we will say that the paybacks are deteriorating for every next decision, and this function runs into a limit, because of diminishing returns. The end point of a fossil fuel based system, however efficient, is always a system burning fossil fuels. That limit might be an impressive improvement over past practice, but nevertheless the bills keep coming. Depending on what technologies are being implemented, there may also be an engineering interaction, because e.g. the function of certain controls might overlap, and you find that a 20% reduction, and a 10 % reduction result in about a 23% real reduction, or even less than expected based on the numerical analysis above. In short there are both arithemetic reasons and engineering reasons why 2+2=3 in this scenario, again we have diminishing returns for every subsequent investment, and we are painting ourselves into a corner.
The remaining fuel consumption (be it gas, oil, or electric), is subject to various price pressures, which in all likelihood will outrun inflation for the foreseeable future. In other words, let's say an overall 35% improvement in efficiency was achieved, this will inevitably eaten up by price creep for the irreducable remainder. For oil there are immediate price pressures, because of increased refining requirements in NYC. There might be some form of carbon taxation, and other pollution taxes. Gas is now the darling of fossil fuel, but even there, there are storm clouds on the horizon, and it has the same cost pressures on the delivery cost as does electricity. In the case of electricity, the cost of delivery is now 65% of the bill. Because of aging infrastructure, and the horrendous cost of upgrades, it is set to outrun inflation as far as the eye can see, and the other 35% of the bill is hostage to fossil fuel energy prices in general, as long as fossil fuels dominate. In short, every reasonable case would show a tendency for these prices to continuously outrun inflation. In short this scenario is the hamster cage of energy efficiency, if it is applied within a fossil fuel based framework.
Some of the improvements to the building envelope, to water consumption, are likely to be of equal value if we had developed the building with renewable energy, however in some respects technology selections and decisions might have been different in that case, for if it becomes a capital trade off against installed generating capacity, the evaluation for upgrades to the building envelope is far more straightforward than if it were against a forward string of "energy savings" which are discounted to the present. Depending on the energy systems in a design, different approaches to the building envelope might be selected than in the fossil fuel dominated case.
More importantly, the above defensive strategy ends up in capital destruction in the long run, exactly because of diminishing returns, and the fact that a fossil fuel based system somehow continues to burn fossil fuels, and be the victim of price increases. There is no way out of the trap of "efficient consumer" of energy, it merely cements the dependence upon subscription energy costs in all forms, as it stretches them as far as possible. This strategy does paint the investor into a corner, and the best you can expect is that your local utility sends you a certificate of honor for what an efficient customer you are. The point is, they get to keep you as a customer. But wait, it gets better.
The alternative to the above "energy efficiency" scenario is to choose a path towards energy independence. Energy efficiency plays a role here too, but it is more secondary, for the first order of business is selecting the generating technology or technologies. The generally accepted view is that renewable energy is not yet economical. Fortunately, there are some incentives, etc., and simply put, some buildings are more suited than others. So if you own the Empire State Building the focus is on energy efficiency, and renewable energy plays second fiddle. However, if you own an old line 5-8 story apartment building, like in the example we are discussing here, there might be a path towards a successful renewable strategy.
A renewable energy strategy takes a different mind set, and it takes more capital up front. Or, as an investment banker friend put it: You cannot cross the Grand Canyon in three easy steps -- I had to think about that image a while, but then I saw it: on the second step you fall to your death, so you must have a bridging strategy which takes the first three steps at once. The "Grand Canyon" of this situation is the shift - a paradigm shift - from consumption to production. It means starting to think about energy as a capital asset and therefore a profit center in building management, no longer as a business expense. The technologies are rapidly evolving to enable this type of thinking. Energy is becoming a technology business, and building-level generation is going to become the norm, be it that retrofitting old buildings, which were designed in the era of fossil fuels, is often a challenge, so the thing to do is to pick the right type of building to do these things. For most building portfolios, this will initially be a matter of pearl diving.
Also, along the lines of the things we said above about energy efficiency, if the building was recently overhauled based on the current common practice of emphasizing energy efficiency, then we've actually widened the Grand Canyon, because we've doubled down on our bet on the fossil fuels, which may not be the winning bet... There's no logic to this, other than, it seems to be what everybody does, and everybody assumes that renewable energy is not yet economical, and most folks are overlooking the possibility on that assumption, or if it is being attempted, renewable technologies are plugged in as a partial replacement within a design that is driven by the fossil fuel model, and most of the time that does not produce the desired results. However, by integrating technologies, in the right buildings hybrid solutions are possible which definitely allow a gradual development towards a renewable energy model, with energy as a profitable activity of the building.
The energy independence strategy will hinge on a comprehensive rethinking of energy use in a building, a very deliberate and extensive use of energy efficiency, as well as a long term plan which respects the interdependence of different generating technologies, so that and initial investment will lay the foundation for shifting into an energy production posture, and will be improved by subsequent enhancements. Conversely, if renewable energy is implemented without a long term energy plan, very likely the wrong sequence will be chosen, and the risk will be spending the same dollar two to three times over over the long run. In short, to get an initial bridgehead to the other side, it would behoove us to search out the narrowest point across, with more or less friendly features. By properly pre-planning for the interdependence of technologies in the context of a long term energy plan we will be making sure that we eventually do reach the top of Mount Olympus in the way of the classic Greek notion of making sure that our every step goes in that direction. The result will be a progressive accomplishment of energy independence. Independence from the grid, and 80-90% reduction in direct fossil fuel consumption is within reach in some cases in perfectly ordinary buildings, though the economic case is not yet easy, however once the foundational investment is made it gets easier, for different from the above "energy efficiency"scenario, the value of our investment now goes up with every price hike for fossil fuels, for here 2 + 2 =5, if you have got the engineering right. In five to ten years this approach should therefore yield improved property values by maybe 10 or 20% or more compared to the energy efficiency retrofit, who will be facing the same old problems in five to ten years, as energy pricing and "grid creep" catch up to them. The renewable energy choice will then be the only option, but the gulf is likely to be wider, because to some degree the same dollars will have to be spent twice.
To put it a different way, as is familiar to seasoned investors, all else being equal, investing for growth beats investing for efficiency and "savings," which is by definition a dead-ended strategy, something that becomes intuitively obvious by a reductio ad absurdum - anyone can see that 100% efficiency is impossible, just like you cannot save yourself rich. The strategy is clear enough and on a tactical level it boils down to finding the narrowest place to bridge the Grand Canyon, and to be like General George S. Patton who went back to square one, by selecting his route through Brittany and ultimately to Berlin based on Caesar's routes, where he could naturally ford rivers, so that the Germans could not stop him by demolishing bridges.
The following then is a thought experiment, for an imaginary old building of 100 apartments in an old city, like New York, with a steam heating plant burning oil, a coil in the boiler for hot water, etc. On day one, today its total fossil fuel consumption is 100, then some technology is implemented with a 10% efficiency improvement is implemented and it drops by 10 to 90. But the next improvement of 10% is now applied to the 90, and thus the improvement is only a further 9 points to 81, based on the original scale. The next improvement of 10% only moves the market 8.1 points to 72.9 on the original scale. And so on.
If we assume that we prioritized these investments based on their relative paybacks, selecting the first one first, etc. we will say that the paybacks are deteriorating for every next decision, and this function runs into a limit, because of diminishing returns. The end point of a fossil fuel based system, however efficient, is always a system burning fossil fuels. That limit might be an impressive improvement over past practice, but nevertheless the bills keep coming. Depending on what technologies are being implemented, there may also be an engineering interaction, because e.g. the function of certain controls might overlap, and you find that a 20% reduction, and a 10 % reduction result in about a 23% real reduction, or even less than expected based on the numerical analysis above. In short there are both arithemetic reasons and engineering reasons why 2+2=3 in this scenario, again we have diminishing returns for every subsequent investment, and we are painting ourselves into a corner.
The remaining fuel consumption (be it gas, oil, or electric), is subject to various price pressures, which in all likelihood will outrun inflation for the foreseeable future. In other words, let's say an overall 35% improvement in efficiency was achieved, this will inevitably eaten up by price creep for the irreducable remainder. For oil there are immediate price pressures, because of increased refining requirements in NYC. There might be some form of carbon taxation, and other pollution taxes. Gas is now the darling of fossil fuel, but even there, there are storm clouds on the horizon, and it has the same cost pressures on the delivery cost as does electricity. In the case of electricity, the cost of delivery is now 65% of the bill. Because of aging infrastructure, and the horrendous cost of upgrades, it is set to outrun inflation as far as the eye can see, and the other 35% of the bill is hostage to fossil fuel energy prices in general, as long as fossil fuels dominate. In short, every reasonable case would show a tendency for these prices to continuously outrun inflation. In short this scenario is the hamster cage of energy efficiency, if it is applied within a fossil fuel based framework.
Some of the improvements to the building envelope, to water consumption, are likely to be of equal value if we had developed the building with renewable energy, however in some respects technology selections and decisions might have been different in that case, for if it becomes a capital trade off against installed generating capacity, the evaluation for upgrades to the building envelope is far more straightforward than if it were against a forward string of "energy savings" which are discounted to the present. Depending on the energy systems in a design, different approaches to the building envelope might be selected than in the fossil fuel dominated case.
More importantly, the above defensive strategy ends up in capital destruction in the long run, exactly because of diminishing returns, and the fact that a fossil fuel based system somehow continues to burn fossil fuels, and be the victim of price increases. There is no way out of the trap of "efficient consumer" of energy, it merely cements the dependence upon subscription energy costs in all forms, as it stretches them as far as possible. This strategy does paint the investor into a corner, and the best you can expect is that your local utility sends you a certificate of honor for what an efficient customer you are. The point is, they get to keep you as a customer. But wait, it gets better.
The alternative to the above "energy efficiency" scenario is to choose a path towards energy independence. Energy efficiency plays a role here too, but it is more secondary, for the first order of business is selecting the generating technology or technologies. The generally accepted view is that renewable energy is not yet economical. Fortunately, there are some incentives, etc., and simply put, some buildings are more suited than others. So if you own the Empire State Building the focus is on energy efficiency, and renewable energy plays second fiddle. However, if you own an old line 5-8 story apartment building, like in the example we are discussing here, there might be a path towards a successful renewable strategy.
A renewable energy strategy takes a different mind set, and it takes more capital up front. Or, as an investment banker friend put it: You cannot cross the Grand Canyon in three easy steps -- I had to think about that image a while, but then I saw it: on the second step you fall to your death, so you must have a bridging strategy which takes the first three steps at once. The "Grand Canyon" of this situation is the shift - a paradigm shift - from consumption to production. It means starting to think about energy as a capital asset and therefore a profit center in building management, no longer as a business expense. The technologies are rapidly evolving to enable this type of thinking. Energy is becoming a technology business, and building-level generation is going to become the norm, be it that retrofitting old buildings, which were designed in the era of fossil fuels, is often a challenge, so the thing to do is to pick the right type of building to do these things. For most building portfolios, this will initially be a matter of pearl diving.
Also, along the lines of the things we said above about energy efficiency, if the building was recently overhauled based on the current common practice of emphasizing energy efficiency, then we've actually widened the Grand Canyon, because we've doubled down on our bet on the fossil fuels, which may not be the winning bet... There's no logic to this, other than, it seems to be what everybody does, and everybody assumes that renewable energy is not yet economical, and most folks are overlooking the possibility on that assumption, or if it is being attempted, renewable technologies are plugged in as a partial replacement within a design that is driven by the fossil fuel model, and most of the time that does not produce the desired results. However, by integrating technologies, in the right buildings hybrid solutions are possible which definitely allow a gradual development towards a renewable energy model, with energy as a profitable activity of the building.
The energy independence strategy will hinge on a comprehensive rethinking of energy use in a building, a very deliberate and extensive use of energy efficiency, as well as a long term plan which respects the interdependence of different generating technologies, so that and initial investment will lay the foundation for shifting into an energy production posture, and will be improved by subsequent enhancements. Conversely, if renewable energy is implemented without a long term energy plan, very likely the wrong sequence will be chosen, and the risk will be spending the same dollar two to three times over over the long run. In short, to get an initial bridgehead to the other side, it would behoove us to search out the narrowest point across, with more or less friendly features. By properly pre-planning for the interdependence of technologies in the context of a long term energy plan we will be making sure that we eventually do reach the top of Mount Olympus in the way of the classic Greek notion of making sure that our every step goes in that direction. The result will be a progressive accomplishment of energy independence. Independence from the grid, and 80-90% reduction in direct fossil fuel consumption is within reach in some cases in perfectly ordinary buildings, though the economic case is not yet easy, however once the foundational investment is made it gets easier, for different from the above "energy efficiency"scenario, the value of our investment now goes up with every price hike for fossil fuels, for here 2 + 2 =5, if you have got the engineering right. In five to ten years this approach should therefore yield improved property values by maybe 10 or 20% or more compared to the energy efficiency retrofit, who will be facing the same old problems in five to ten years, as energy pricing and "grid creep" catch up to them. The renewable energy choice will then be the only option, but the gulf is likely to be wider, because to some degree the same dollars will have to be spent twice.
To put it a different way, as is familiar to seasoned investors, all else being equal, investing for growth beats investing for efficiency and "savings," which is by definition a dead-ended strategy, something that becomes intuitively obvious by a reductio ad absurdum - anyone can see that 100% efficiency is impossible, just like you cannot save yourself rich. The strategy is clear enough and on a tactical level it boils down to finding the narrowest place to bridge the Grand Canyon, and to be like General George S. Patton who went back to square one, by selecting his route through Brittany and ultimately to Berlin based on Caesar's routes, where he could naturally ford rivers, so that the Germans could not stop him by demolishing bridges.
Monday, July 12, 2010
The Upshot of the PACE Bond/FHA Flap
If you carefully read the position of the FHA Statement on Certain Energy Retrofit Loan Programs, it should be clear that the right solution could only be positive, but that does not guarantee we will get there.
Simply put, everyone who has done any work in the renewable energy area understands that as of yet there is very little understanding in the market place that energy is becoming a technology business and therefore a capital asset of buildings. It will completely alter the mortgage business, but it cannot do so unless and until it has a rational foundation. If this issue is solved constructively it could be the single biggest progress in improving real estate values in the nation, because in effect permanent renewable energy plant in any building is a hedge against rising energy prices, and there are very few people who would believe that energy prices will go down, or that America could ever hope to be competitive if it continues to spend more on energy per inhabitant than the rest of the industrialized world.
Buildings are the biggest single frontier in that battle with energy intensity, and handling this transition correctly could do more for real estate values than anything else. Meanwhile the current confusion is entirely due to the parlous state of energy programs and incentives, which generally confuses energy efficiency and energy independence, making in effect the unstated assumption that energy efficiency will add up to energy independence, which is simply not so. In fact, making energy efficiency a priority and treating it as a subsidized capital expenditure guarantees that we will prolong dependence on fossil fuels indefinitely, and completely back ourselves into a corner economically.
Only energy independence should be stimulated, subsidized, promoted, and energy efficiency should only be subsidized under the auspices of proper renewable energy projects, where it does become a capital decision, because it is a direct trade off against installed capacity. Energy efficiency in the context of fossil fuel use is an operational savings, and should not be treated as a capital investment, unless it is the only option, and preferably in the context of a strong renewable component. Giving buildings a measure of energy independence, by focusing on energy production at the building level, will always enhance building value, assuming it is done correctly. This is true for a residence as well as for commercial properties, and lenders will have to learn to make energy independence the true focus of building valuations, not mere energy efficiency.
Having said that, there are of course efficiency measures which are rightly part of the building structure, such as insulation, windows, etc. and they will therefore take on a permanent nature, but by making the distinction suggested here, we would solve the total quagmire we are in with respect to these types of investments. Namely, if we prioritize energy efficiency based on fossil fuel based systems, we are in effect postponing the decision to produce energy at the building level, and financially making it harder to ever make that decision in the first place. This type of a shift should properly be the domain of public policy, to see to it that the shift happens. The corollary to this is that once the focus is on building level energy production, investments in energy efficiency have a much quicker payoff, because they are then a proper capital decision, namely they directly reduce the need for installed capacity. In other words it is the order in which we do these things which is important.
Given that the confusion between energy efficiency and renewable energy is so pervasive, and programs therefore routinely subsidize investments which destroy capital by prolonging fossil fuel dependence, it will take some time before these mechanisms are adjusted to the new realities. Meanwhile it is up to owners to analyze their investment decisions correctly, and the ones who do will definitely win by seeing their returns not only operationally, but in terms of building valuation. Many old buildings can be made 80% energy independent with todays technology, by pursuing renewable energy production first, and efficiency second.
Simply put, everyone who has done any work in the renewable energy area understands that as of yet there is very little understanding in the market place that energy is becoming a technology business and therefore a capital asset of buildings. It will completely alter the mortgage business, but it cannot do so unless and until it has a rational foundation. If this issue is solved constructively it could be the single biggest progress in improving real estate values in the nation, because in effect permanent renewable energy plant in any building is a hedge against rising energy prices, and there are very few people who would believe that energy prices will go down, or that America could ever hope to be competitive if it continues to spend more on energy per inhabitant than the rest of the industrialized world.
Buildings are the biggest single frontier in that battle with energy intensity, and handling this transition correctly could do more for real estate values than anything else. Meanwhile the current confusion is entirely due to the parlous state of energy programs and incentives, which generally confuses energy efficiency and energy independence, making in effect the unstated assumption that energy efficiency will add up to energy independence, which is simply not so. In fact, making energy efficiency a priority and treating it as a subsidized capital expenditure guarantees that we will prolong dependence on fossil fuels indefinitely, and completely back ourselves into a corner economically.
Only energy independence should be stimulated, subsidized, promoted, and energy efficiency should only be subsidized under the auspices of proper renewable energy projects, where it does become a capital decision, because it is a direct trade off against installed capacity. Energy efficiency in the context of fossil fuel use is an operational savings, and should not be treated as a capital investment, unless it is the only option, and preferably in the context of a strong renewable component. Giving buildings a measure of energy independence, by focusing on energy production at the building level, will always enhance building value, assuming it is done correctly. This is true for a residence as well as for commercial properties, and lenders will have to learn to make energy independence the true focus of building valuations, not mere energy efficiency.
Having said that, there are of course efficiency measures which are rightly part of the building structure, such as insulation, windows, etc. and they will therefore take on a permanent nature, but by making the distinction suggested here, we would solve the total quagmire we are in with respect to these types of investments. Namely, if we prioritize energy efficiency based on fossil fuel based systems, we are in effect postponing the decision to produce energy at the building level, and financially making it harder to ever make that decision in the first place. This type of a shift should properly be the domain of public policy, to see to it that the shift happens. The corollary to this is that once the focus is on building level energy production, investments in energy efficiency have a much quicker payoff, because they are then a proper capital decision, namely they directly reduce the need for installed capacity. In other words it is the order in which we do these things which is important.
Given that the confusion between energy efficiency and renewable energy is so pervasive, and programs therefore routinely subsidize investments which destroy capital by prolonging fossil fuel dependence, it will take some time before these mechanisms are adjusted to the new realities. Meanwhile it is up to owners to analyze their investment decisions correctly, and the ones who do will definitely win by seeing their returns not only operationally, but in terms of building valuation. Many old buildings can be made 80% energy independent with todays technology, by pursuing renewable energy production first, and efficiency second.
Wednesday, July 7, 2010
Of PACE Bonds, Freddie Mac, Fannie Mae and Property Values
There are some fascinating developments around PACE bonds, and apparent obstructionism on the part of Freddie Mac and Fannie Mae, as reported in the New York Times on June 30th, 2010, "Loan Giants Threaten Energy-Efficiency Programs."
Based on some of the issues discussed in recent posts on this site, Freddie Mac and Fannie Mae arguably are actually right to threaten these energy efficiency programs, for to the extent that PACE bonds can be used to extend the fossil fuel franchise, they are suboptimal, and therefore destructive of real estate values.
The smart thing to do would be to have maybe the energy department provide simple criteria to ensure that the energy enhancements are viable renewable energy investments which would in fact enhance property values and therefore provide increased security for any mortgages, so that the technicality of the priority lien becomes irrelevant. After all an investment with a thirty year useful life, and a five year payback, in fact offers twenty-five years of free cash flows from energy "savings," which means a tremendous increase in value of the underlying asset.
This issue goes to the heart of the matter and is very suggestive of a constructive solution. The nation certainly needs some support for real estate values, and the unfortunate fact is that the current confusion of energy efficiency and energy independence based on renewable energy in the rules and incentives, by Energy Star as much as by the ARRA incentives, which in turn depend on the Energy Star programs, is to blame for this confusion. Energy Efficiency only makes sense within the context of a viable renewable energy program, when it comes in the context of a direct trade off against installed capacity, and an improvement of the economics of the project.
Energy Efficiency as applied to extending the franchise of fossil-fuel based energy solutions does not deserve tax credits, or other incentives, it is an operational savings. To emphasize again an issue that I've raised in other posts on this site: Energy Star rated High Efficiency Tankless Hot Water Heaters are perhaps the poster child of federal subsidies for increasing our dependence on fossil fuels, and preventing a switch to renewable energy at a time when numerous viable renewable DHW solutions exist in the market place. They should be outlawed, not subsidized. There are many other examples along these lines, but this one has perhaps more visibility than anything.
If you think of these issues over the typical thirty year life of a mortgage then you'll quickly see that a 30-40% gain in efficiency in water heating with fossil fuels will be eventually offset by energy prices, and perhaps forms of carbon taxation, while solar or geothermal hot water are available and reduce dependence on subscription energy by 80-99%. Energy Efficiency of fossil fuel based systems only possibly makes sense if there is no economically viable renewable alternative. Thus the issue here is "free energy" versus a temporary reduction in energy bills, and the permanently free energy will win the day in most cases if the value of that free energy over the next 30 years is taken into account, and that is a direct enhancement to property values.
The whole issue goes back to focus on payback periods of the investments as if they were independent of the buildings. They should instead be viewed as intra-marginal investments in the building, to ensure that they enhance property values. For society as a whole this will lead to the optimal result.
Freddie Mac did the right thing for the wrong reasons, and the solution lies in a test along the lines suggested here to ensure that such energy investments are constructive and supportive of property values, not a mere green washing that undermines long term real estate values for the appearance of being green.
Based on some of the issues discussed in recent posts on this site, Freddie Mac and Fannie Mae arguably are actually right to threaten these energy efficiency programs, for to the extent that PACE bonds can be used to extend the fossil fuel franchise, they are suboptimal, and therefore destructive of real estate values.
The smart thing to do would be to have maybe the energy department provide simple criteria to ensure that the energy enhancements are viable renewable energy investments which would in fact enhance property values and therefore provide increased security for any mortgages, so that the technicality of the priority lien becomes irrelevant. After all an investment with a thirty year useful life, and a five year payback, in fact offers twenty-five years of free cash flows from energy "savings," which means a tremendous increase in value of the underlying asset.
This issue goes to the heart of the matter and is very suggestive of a constructive solution. The nation certainly needs some support for real estate values, and the unfortunate fact is that the current confusion of energy efficiency and energy independence based on renewable energy in the rules and incentives, by Energy Star as much as by the ARRA incentives, which in turn depend on the Energy Star programs, is to blame for this confusion. Energy Efficiency only makes sense within the context of a viable renewable energy program, when it comes in the context of a direct trade off against installed capacity, and an improvement of the economics of the project.
Energy Efficiency as applied to extending the franchise of fossil-fuel based energy solutions does not deserve tax credits, or other incentives, it is an operational savings. To emphasize again an issue that I've raised in other posts on this site: Energy Star rated High Efficiency Tankless Hot Water Heaters are perhaps the poster child of federal subsidies for increasing our dependence on fossil fuels, and preventing a switch to renewable energy at a time when numerous viable renewable DHW solutions exist in the market place. They should be outlawed, not subsidized. There are many other examples along these lines, but this one has perhaps more visibility than anything.
If you think of these issues over the typical thirty year life of a mortgage then you'll quickly see that a 30-40% gain in efficiency in water heating with fossil fuels will be eventually offset by energy prices, and perhaps forms of carbon taxation, while solar or geothermal hot water are available and reduce dependence on subscription energy by 80-99%. Energy Efficiency of fossil fuel based systems only possibly makes sense if there is no economically viable renewable alternative. Thus the issue here is "free energy" versus a temporary reduction in energy bills, and the permanently free energy will win the day in most cases if the value of that free energy over the next 30 years is taken into account, and that is a direct enhancement to property values.
The whole issue goes back to focus on payback periods of the investments as if they were independent of the buildings. They should instead be viewed as intra-marginal investments in the building, to ensure that they enhance property values. For society as a whole this will lead to the optimal result.
Freddie Mac did the right thing for the wrong reasons, and the solution lies in a test along the lines suggested here to ensure that such energy investments are constructive and supportive of property values, not a mere green washing that undermines long term real estate values for the appearance of being green.
Monday, July 5, 2010
The Lessons of Lamborghini Applied To Energy in Buildings
Lamborghini underwent an interesting paradigm shift with their latest new model, the limited edition Gallardo LP 570-4 Superleggera and the lessons of their design considerations are relevant to what is going on around energy usage in buildings. The "Eureka" came when they finally understood that investment in more horse power was running smack into the wall of diminishing returns as it was becoming exponentially more expensive as it became less and less effective, while reducing weight was so much more effective that at that level of performance carbon fiber became a totally affordable option by comparison in seeking to raise performance.
In buildings the reverse paradigm shift needs to happen. We have been overemphasizing energy efficiency, without looking into energy production sufficiently. Often because energy efficiency investments tend to be smaller, and more easily justified, and no one seems to realize that in the process we cheat ourselves out of the investment decision to produce energy in the first place and become at least somewhat energy independent. Simply put, since money tends to have some resource constraints (costs and availability), by nickel and diming ourselves into a stupor with more and more energy efficiency, we will ensure that we will never invest in energy production and energy independence because the more efficient we become at burning fossil fuel, the lower are the returns on investing in renewable production. So energy efficiency is the lullaby which will make us once again the perfect little victims for the next energy price spike. Still the energy efficient buildings which do not invest in renewable production will eventually be worth less than the equivalent buildings which do because of the rising value of eliminating recurrent subscription costs of energy.
Seen in this light, energy efficiency is not a worthwhile goal unless it is truly the only option, and the basic make or buy decision of renewable energy production versus the alternatives should be considered first, lest we cheat ourselves out of ever making it. The way current policy and incentives reward energy savings on a par with renewable energy causes a metastatic cancer in our energy posture as a country, in which we continue to tinker with becoming simply more efficient addicts to fossil fuel consumption without ever making the switch to energy independence through renewable energy production. The way out of this delusion is to ask which building is worth more, this energy efficient building, which shaved 25% off their energy bills or the equivalent building next door which is e.g. 50, 60 or 70%% energy independent. Now it all comes down to a real estate decision, not an energy saving decision, and if you think you are in the real estate business, that is likely to be your better investment posture. And again, decision made, you can improve on it with energy efficiency.
Or, to put it differently, energy independence produces a higher property values than energy efficiency, and the order in which we consider these options matters a lot. As soon as some of the market adopts an energy production posture building values of those that don't will be depressed. Every investment in energy production is a direct price hedge, while energy efficiency for fossil fuels only attenuates the price risks. Politically the upshot is that the national interest in energy security coincides with a maximal use of renewable energy at the building level, and current incentives produce wildly suboptimal results. For real estate owners it is hard work to make the right energy decisions in spite of incentive systems which are very seductive, and make the wrong investment decisions seem plausible.
In buildings the reverse paradigm shift needs to happen. We have been overemphasizing energy efficiency, without looking into energy production sufficiently. Often because energy efficiency investments tend to be smaller, and more easily justified, and no one seems to realize that in the process we cheat ourselves out of the investment decision to produce energy in the first place and become at least somewhat energy independent. Simply put, since money tends to have some resource constraints (costs and availability), by nickel and diming ourselves into a stupor with more and more energy efficiency, we will ensure that we will never invest in energy production and energy independence because the more efficient we become at burning fossil fuel, the lower are the returns on investing in renewable production. So energy efficiency is the lullaby which will make us once again the perfect little victims for the next energy price spike. Still the energy efficient buildings which do not invest in renewable production will eventually be worth less than the equivalent buildings which do because of the rising value of eliminating recurrent subscription costs of energy.
Seen in this light, energy efficiency is not a worthwhile goal unless it is truly the only option, and the basic make or buy decision of renewable energy production versus the alternatives should be considered first, lest we cheat ourselves out of ever making it. The way current policy and incentives reward energy savings on a par with renewable energy causes a metastatic cancer in our energy posture as a country, in which we continue to tinker with becoming simply more efficient addicts to fossil fuel consumption without ever making the switch to energy independence through renewable energy production. The way out of this delusion is to ask which building is worth more, this energy efficient building, which shaved 25% off their energy bills or the equivalent building next door which is e.g. 50, 60 or 70%% energy independent. Now it all comes down to a real estate decision, not an energy saving decision, and if you think you are in the real estate business, that is likely to be your better investment posture. And again, decision made, you can improve on it with energy efficiency.
Or, to put it differently, energy independence produces a higher property values than energy efficiency, and the order in which we consider these options matters a lot. As soon as some of the market adopts an energy production posture building values of those that don't will be depressed. Every investment in energy production is a direct price hedge, while energy efficiency for fossil fuels only attenuates the price risks. Politically the upshot is that the national interest in energy security coincides with a maximal use of renewable energy at the building level, and current incentives produce wildly suboptimal results. For real estate owners it is hard work to make the right energy decisions in spite of incentive systems which are very seductive, and make the wrong investment decisions seem plausible.
Energy Efficiency is Not What It's Cracked Up To Be
A building is a system, and just like you can't save yourself rich, you can't achieve energy independence by endless investments in energy efficiency, for they are not additive, but instead, they run into the brick wall of diminishing returns on investment. Energy efficiency extends the franchise of the fuels involved, and needs to be seen in that context. They belong in the utility model.
To set up a methodology of justifying capital investment at the building level based on energy savings is counter productive to the extent that it locks us into the subscription models of fossil fuel use. The implicit and unexamined assumption of fossil fuel burning creates buyer lock in, and prolongs dependence on those fuels. This is not to say energy efficiency is not important. It is. However, energy efficiency is a secondary issue not a primary one.
We need to go back to square one, and that is the question what energy do we need? How much do we need as heat, and how much do we need as energy (electricity). After that we should look into however much energy can be generated at the building from renewable sources, solar, wind, and geothermal. Those decisions are make or buy decisions. Then comes the trade off decision of energy efficiency, namely how much can we lower installed capacity through energy efficiency. This will cause a much more constructive view of energy efficiency. It will also produce more of a systems look at the whole building.
Naturally, part of the consideration is also how can we successfully harvest peak load energy such as solar and wind energy, and in residential construction Domestic Hot Water (DHW) storage is our friend, and not the enemy, as long as we use well insulated storage tanks, to harvest our intra day needs of heat energy. Thus tankless hot water heaters are a no-no in almost all cases and should be stripped of their Energy Star ratings, because they lock us in to excessive use of peak cost energy, since they work on demand by definition, and the whole notion of the smart grid is learning to store energy and diminish on-demand usage. These devices represent a false economy which in the long run will lower the value of your building by more than any savings they could ever produce.
To set up a methodology of justifying capital investment at the building level based on energy savings is counter productive to the extent that it locks us into the subscription models of fossil fuel use. The implicit and unexamined assumption of fossil fuel burning creates buyer lock in, and prolongs dependence on those fuels. This is not to say energy efficiency is not important. It is. However, energy efficiency is a secondary issue not a primary one.
We need to go back to square one, and that is the question what energy do we need? How much do we need as heat, and how much do we need as energy (electricity). After that we should look into however much energy can be generated at the building from renewable sources, solar, wind, and geothermal. Those decisions are make or buy decisions. Then comes the trade off decision of energy efficiency, namely how much can we lower installed capacity through energy efficiency. This will cause a much more constructive view of energy efficiency. It will also produce more of a systems look at the whole building.
Naturally, part of the consideration is also how can we successfully harvest peak load energy such as solar and wind energy, and in residential construction Domestic Hot Water (DHW) storage is our friend, and not the enemy, as long as we use well insulated storage tanks, to harvest our intra day needs of heat energy. Thus tankless hot water heaters are a no-no in almost all cases and should be stripped of their Energy Star ratings, because they lock us in to excessive use of peak cost energy, since they work on demand by definition, and the whole notion of the smart grid is learning to store energy and diminish on-demand usage. These devices represent a false economy which in the long run will lower the value of your building by more than any savings they could ever produce.
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