This Working Paper:
Informs the investment community by providing information and context on the potential market growth of energy-efficient technologies in buildings.
Explores how different policies on energy efficiency and climate change may impact demand for energy efficiency technologies in buildings, within certain markets.
Provides market growth forecasts based on two policy scenarios for the following technologies and markets:
- Insulation in the European Union: to reduce energy use and loss;
- Lighting worldwide: to develop new efficient lighting technology;
- Building controls in the European Union and United States: to optimize the use of air-conditioning, and lighting appliances.
Energy used in commercial and residential buildings accounts for 40 percent of global energy consumption and approximately 24 percent of the world’s greenhouse gases (GHGs). Heating, cooling, and lighting make up a large proportion of this energy use.
As governments around the world devise policies to reduce energy consumption and GHGs, and minimize dependence on foreign sources of energy, they are increasingly focusing on technologies that can improve the energy efficiency of buildings. Insulation, lighting, and building controls are the three energy efficiency technology categories that have emerged as having the most impact on improving energy use.
Setting the Scene
This paper develops policy scenarios to forecast the market size of key energy efficient technologies for buildings over the next 20 years (2010-2030). The objective is to provide information and context for those planning to invest in business opportunities in these growing markets.
The paper identifies the most important energy and climate change policies in three large markets – the European Union, the United States, and China.
Within those markets, referred to as “focus markets,” the analysis concentrates on three key technologies – insulation, lighting, and building controls. (Refer to Annexes 2 to 4 to get quick facts on each of these technologies.)
The potential future markets for these technologies are forecast based on specified assumptions about current and planned policies and market conditions.
Forecasts are developed for two time frames: the short-term (2010-2020) and the long-term (2020-2030).
The paper focuses primarily on buildings within the commercial and residential sectors.
Public policy actions to counter climate change and reduce greenhouse gas (GHG) emissions are increasingly focused on improving energy efficiency in buildings. This strong trend presents an opportunity for investors.
Emerging policies are likely to increase the uptake rate for energy efficient technologies. Policies of varying stringency and scope have been introduced in the featured markets to save energy and reduce GHGs. For example, the European Union and China have mandated the phase-out of incandescent lamps within the next decade, while the United States has imposed lighting efficiency standards and will likely pursue phase-out as well. This creates a major market opportunity for more energy efficient compact fluorescent light bulbs (CFLs) and Light Emitting Diodes (LEDs) which consume 75 and 66 percent less energy than incandescent bulbs respectively.
The most common policy mechanisms use a combination of requirements and incentives. For example, in the European Union, the Energy Performance of Buildings Directive (EPBD, 2010) sets a mandate encouraging member states to take measures to make all new buildings low or net-zero energy by 2020. Also, under the EPBD, an energy performance certificate must be displayed in all public and commercial buildings. This measure is designed to improve transparency between tenant and building owner on the energy efficiency of every building. In addition, the EPBD encourages member states to set up rebates, tax credits, and information on energy efficient technologies to help ease the burden of initial capital investment in building energy improvements. At present, the EPBD is primarily being interpreted as a guidance tool by member states where it fits into their national priorities. Nevertheless, the Directive sends a clear signal endorsing active policies for improving energy efficiency of buildings.
Given the trends above, this paper constructs two plausible policy scenarios based on expectations of how specific focus markets may grow in the next 20 years as a result of newly introduced and planned legislation promoting energy efficiency in buildings. Data on CO2 emissions, rate of technology uptake, and projected market growth of technologies were acquired from market research and annual company reports. These were used to project future developments of market sales and demand. The following policy scenarios were chosen based on the assumption that their implementation will have different impacts on market growth of insulation, lighting, and building controls. (Explanations of the methodology can be found in Section II and Annex 1.)
An “incremental” scenario that focuses on the impact of current and planned policies.
An “aggressive” scenario that assumes more ambitious public policy is enacted, further spurring technological advancements.
The main difference between the incremental and aggressive scenarios is that growth is expected to accelerate under the latter if existing policies become more stringent and if new policies help to reduce financing barriers. The differential between the two scenarios is clearer in the lighting and building controls sectors, where growth is expected to be slower in the short-term but accelerate in the long-term as technological innovation improves and products become more affordable.
The study findings suggest notable growth in market valuea, under both scenarios, across all three technologies from 2010-2030. Generally, growth in the short-term (2010-2020) in all three technologies in both scenarios is robust, suggesting a compelling investment opportunity. Although there is a slight decline in growth in the long-term (2020- 2030), market size of the three technologies remains significant.
Forecast highlights under the “incremental” scenario.
Insulation (EU-15b): forecast to grow in the short-term with a compound average growth rate (CAGR) of 3.9 percent; and a 4 percent CAGR in the long-term.
Short-term growth is expected to be driven by the Energy Performance Building Directive (EPBD 2010), which sets minimum building energy efficiency performance standards for existing buildings undergoing major renovations. In addition, a stronger commitment to reduce CO₂ emissions under the Kyoto Protocol may serve as a driving force to make buildings zero or low energy consuming.
In the long-term, growth is projected to stay at modest levels since no new policies are introduced.
Lighting Markets (Global): forecast to grow at a CAGR of 6 percent in the short-term slowing to 5.7 percent CAGR in the long-term.
In the short-term, the growth trend is expected to be attributed to an increase in popularity of fluorescent lamps, particularly CFLs in households. More efficient fluorescent and halogen lamps may dominate the lighting market through 2025.
In the long-term, growth may slow without government intervention encouraging the uptake of energy efficient products or promoting research and development into advanced lighting technologies.
Building Controls (EU and U.S.): forecast to grow at a CAGR of 7 percent in the short-term and 6 percent in the long-term.
In the short-term, growth is expected to be driven by increased government incentives for the installation of more sophisticated building controls in more buildings. This dynamic has the potential to attract new manufacturers of the technology into the sector and spur development of more affordable building control options.
In the long-term, growth is expected to be driven by enforced energy consumption monitoring and disclosure throughout commercial and multi-unit residential buildings. Increased uptake of building controls technologies has the potential to attract new manufacturers into the sector.
Forecast highlights under the “aggressive” scenario.
Insulation (EU-15): forecast to thrive short-term, resulting in a CAGR of 8.4 percent, then decline sharply to 3.3 percent CAGR in the long-term.
In the short-term, growth is expected to be driven by an extension of energy performance requirements for residential buildings under the EPBD (2010).
In the long-term, growth will taper off if GHG reduction targets for buildings are achieved in the early stages of policy implementation.
Lighting Markets (Global): forecast to grow substantially at 8 percent CAGR then decrease to 6 percent CAGR in the long-term.
In the short-term, growth is expected to be driven by countries that pledge to phase out energy inefficient lighting and switch to energy efficient alternatives over the next decade.
In the long-term, growth will likely continue as incandescent and fluorescent markets shift production/market focus to LED technology.
Building Controls (EU and U.S.): forecast to grow rapidly at 10 percent CAGR in the short-term but slow to 7 percent CAGR in the long-term.
In the short-term, growth will be determined by government programs that continue to subsidize the cost of new building control technologies and set specific regulatory standards for the installation of equipment to connect to smart grids.
In the long-term, regulations that require monitoring and reporting of building energy performance are likely to continue to lead to an increase in control applications.