Author Archives: Aditya Ranade

Why Arik Levinson is Wrong About Building Energy Efficiency

In early 2015, Superfreakonomics author and Georgetown professor Arik Levinson put forth a version of his working paper “How Much Energy do Building Codes Really Save? Evidence from California” along with a podcast summarizing his conclusions. His conclusion from the working paper is that “There is no evidence that homes constructed since California instituted its building energy codes use less energy today than homes built before the codes came into effect.”

This study suffers from one major flaw. It looks at the residential segment where compliance with the code is the weakest, and it does not weed out non-compliant buildings from its analysis. The study would have had very different conclusions if it had focused on commercial buildings before and after compliance. Presumably Levinson knew this and listed non-compliance with building codes as one of the factors responsible for the lack of reduction in energy consumption, along with measurement and verification (M&V). Yet he has not corrected for it and maintained his misleading headline. Also, this study only looks at electricity, despite the fact that the dominant source of heating in California is natural gas.Thus any energy savings gains that are on the heating side would be missed altogether.

When we compared commercial building energy use intensity (EUI) in the U.S. from 1973 to 2013, we saw a clear effect of building codes and appliance codes on energy use intensity.

As the figure shows, during the oil crisis of the 1970s, the Carter Administration took several steps toward promoting energy efficiency e.g. widespread usage of appliance ratings. The price signals along with policy moved the needle and the EUI dropped by 5% between 1973 to 1983. During the era of cheap energy prices and lax regulations between 1983 to 2003, EUI jumped by 13%, no doubt with contributions from economic growth during this period. After 2003 there has been a significant push for adoption of building energy codes starting with ASHRAE 90.1 2004 and IECC 2003 as well as the commercial energy efficiency tax credit introduced as part of the Energy Independence and Security Act 2007. The Obama administration has continued the initiatives from the Bush administration in encouraging building energy efficiency via the DOE making energy code compliance mandatory for states. The impact of all of these efforts on EUI is significant with a nearly 10% drop from 2003 to 2013.

In addition to the above macro trends, studies done on actual buildings before and after ASHRAE 90.1 2010 and Title 24 compliance in California show energy savings across all building types. A similar study in New York state from Pacific Northwest National Laboratory shows savings across all building types after compliance with ASHRAE 90.1, 2007.

To be fair to Levinson, his point about M&V is important. We do agree that empirically measuring energy savings is difficult. However many of the emerging technology developers under Lux Research coverage e.g. Panoramic Power and Wattics give the granularity to accurately disaggregate loads and see where savings are or aren’t. ASHRAE 90.1 and IECC building codes prescribe certain solutions such as air barrier membranes, insulation with specific R values, changes to the lighting and HVAC system, based on building energy modeling, which can be inaccurate at times and must be augmented with measurement and verification. But these inaccuracies mostly result in overestimating or underestimating the extent of energy savings, and don’t change the basic fact that compliance with building codes does result in discernible energy savings.

In the Complex World of Green Building Certification Standards, Under-addressed Opportunities Exist for Technology Developers


Green building certifications have certainly proven to be good marketing schemes, but higher occupancy rates and higher dollars per square foot charged to tenants are also not uncommon in the commercial space. That said, there is a vast range of certification standards being adopted at vastly different rates in different countries. Given the overall trend for more resource efficient, occupant friendly buildings and the technologies that enable these performance attributes, it is critical to keep track of all of the standards, their adoption, and also the prime opportunities for technology developers in the space in various segments.

Our recently released Green Buildings Tracker has captured the floor-space certified by 19 major Green Building standards in 95 countries from 2011 to 2013, including 64800 individual projects captured over the past 3 years. The overall data is compelling for developers with green certified building floor-space increasing from 249 million m2 in 2011 to 325 million m2 in 2013 at a 14% CAGR. Green construction activity is shifting from U.S. and Western Europe to Asia-Pacific, although the U.S. still holds the top spot. In terms of certified space by country, the pre-dominance of Energy Star and LEED has kept the U.S. in the top spot. That’s not to say there aren’t other major centers of green building activity with the top five countries – the U.S., China, France, UK, and Germany – commanding 89% of the certified floor-space in 2013. Among others, India, Canada, South Africa, and Mexico have shown a considerable uptick in Activity. By sector, the commercial space dominates with a 56% market share in 2013, but the residential sector has increased in significance over the last 12 months, now commanding 24% share, and has displaced institutional buildings as the second largest segment. Finally, in terms of standards, the top five – Energy Star, LEED, China 3 Star, BREEAM, and HQE – command 90% share of the certified floor-space in 2013. Interestingly, China 3 Star has now overtaken LEED as the second largest standard in terms of certified floor area, now trailing only Energy Star.

In itself, this helps isolate down to specific countries and sectors, but for companies looking to target a specific new technology or product, more segmentation is required. Importantly, the over-hyped and under-addressed technology categories, which can be found within their respective certification, influence the largest standards. For each of the five top standards, we assigned points which were influenced by given technology types on the scoring protocols for each standard. This yields an overall Green Building Standard Impact for the various technologies. In parallel, Innovation Velocity in these technology classes was derived using a weighted composite score of VC funding from 2000 to 2014, the number of start-ups in our coverage and patent filings from 2012 to 2014. Comparing the two indices, advanced glazings, particularly dynamic windows and building energy management software are significantly more hyped than their actual impact on green building standards. In comparison, integrated HVAC, integrated lighting and recycled materials show less innovation activity than their impact on green building standards. These represent promising innovation white spaces.

Quality data allows for a full country, building segment and technology strategy to be pulled together and modified as the landscape changes. The combination of data and primary research throughout the value chain can enable any technology provider to keep up. As slow as construction can be at times in technology adoption, the hotspots exist if you know where and how to fund them.

Source: Lux Research Green Building Tracker (client registration required).

IPO Gives Lifeline to Aspen Aerogels

On June 12, Aspen Aerogels filed for an initial public offering (IPO) to raise $83 million. The stock is traded on Nasdaq under the ticker ASPN. The market capitalization on the day of the filing was $226 million, and rose to $235 million on June 18. Per the press release, Aspen intends to use the $83 million towards an outstanding line of credit and notes payments and towards completion of the new manufacturing facility in Providence, Rhode Island. The amount for the IPO is smaller than the $110 million it was previously aiming for in June 2013.

A closer look at the financials reveals that although the top line last 12 months (LTM) revenues have grown from $46 million on December 31, 2011 to $91 million on March 31, 2014, the company’s net loss has increased from $32.8 million to $67 million over this period. Overhead like sales and research and development (R&D) expenditures continue to plague the company, but more worrying is the interest expense, which has risen significantly from $3 million to $41 million over the above time period, and has almost single-handedly wiped out the gains made by the company in getting the gross profit up.

Given the very high interest expense, using the IPO proceeds towards debt repayment is a sensible move by Aspen. But the underlying issue is that the company overestimated the addressable market size (client registration required) and is still trying to divest the high capital investments made earlier in its lifetime; This will take a while to correct. However, the company’s recent successes in the industrial insulation markets, winning customers like Cheil Yeosu for Polycarbonate Manufacturing, and Gas Verde for liquified Natural gas (LNG) production, bodes well for the company. In the industrial applications, Aspen’s silica aerogel is replacing a more expensive calcium silicate, rather than competing against the much cheaper fiberglass insulation in the building insulation market. This change in focus to non-building applications where space saving can be monetized, and its attempt to rein in interest expense, will make Aspen a good investment for its existing investors, if they can hold off the stock beyond the required six months to a couple of more years.

Despite Adoption Challenges, Solar Control Films Will Be a $863 Million Market by 2018


Managing solar heat gain, light transmission, and glare have become critical pain points, as the use of architectural glass has grown globally and the pressure from building codes and standards to manage heat gain have risen. Compared to competing technologies such as switchable glazings, aerogel glazings, and daylighting skylights, after-market solar control films offer a low-cost, short-payback-period technology that can address the much larger retrofit market. Despite this promise, there are significant specific concerns to overcome, particularly perceptions of thermal stress build-up and inertia induced by specified incumbent technologies like low-emissivity glass and external shading. Even with these adoption challenges, energy security and regulatory drivers will propel the market from today’s $450 million to $863 million by 2018. The factors driving adoption across the globe vary by geography. While Europe continues along a path of relative macroeconomic paralysis, near Net Zero Energy Building (nNZEB) mandates keep the demand for solar control films constant. In contrast, Asia-Pacific grows at 20% per year driven by the adoption of Passive House in Korea and China. Falling in the middle of these growth extremes, the east and west coasts of the U.S. drive the market due to strong city- and state-level policy support.

For solar control film adoption to proliferate, the decision-makers in the value chain need to be identified and the perspectives of early adopters, early resistors, and the as-yet unaware or ill-informed need to be taken into consideration. There is greater familiarity with incumbent technologies that must be combated, requiring demonstration of the upside to hurdle adoption barriers. Warranty issues arise from residential window manufacturers requiring development of relationships with glazing OEMs to mitigate barriers, and with ESCOs such as Siemens and property management firms like Jones Lang Lasalle and CBRE to create pull. Finally, building energy simulations from the likes of Sefaira can provide granular energy assessment and payback estimates.

Of course, from a value proposition perspective there is much that can be done by incumbents and new entrants alike beyond managing inertia- and perception-based issues. Improving durability of existing solutions and developing tools for predicting project-specific energy savings represent concrete steps to accelerate market growth and grow market share for current value-chain participants. Data on thermal stress build-up in assemblies, including failure modes such as seal breakage, will allow better warranty longevity. Also related to durability, marketing films with a lower coefficient of thermal expansion, such as biaxially-oriented polyesters, will open up further paths to adoption. Despite a relatively aggregated market, there are technology-driven paths for prospective new entrants in the space. Waterborne ceramic oxide coatings, such as those offered by Advenira Coatings, offer an entry point for polyolefin film manufacturers into the solar control films market, a space previously limited to polyesters, polycarbonates, and fluoropolymers. Polyolefins and acrylics can also be positioned as low-cost alternatives to polyester substrates, particularly in emerging economies.
In reality, solar control films offer a path to growth for all participants in the value chain, through improved energy efficiency with relatively short payback periods at one end, to penetration for all-too-familiar materials for which new markets are few and far between at the front end.
Source: Lux Research report “Opportunities and Challenges for Solar Control Films” — client registration required.

U.S. EPA Announces Rules on Carbon Emissions: But the Real Payoff is in Spurring Technology Development and Deployment, Not a Binding Global Climate Deal

On Monday, U.S. Environmental Protection Agency (EPA) administrator Gina McCarthy revealed a “Clean Power Plan” to implement Obama administration’s proposal for reducing CO2 emissions from existing power plants down 30% from 2005 levels by 2030. The President had laid out the broad brushstrokes of the proposed regulations in his weekly address on Sunday. EPA’s announcement yesterday underscored that the rules are enforceable with specific targets for each state ranging from lower targets for coal-dominant states, like Kentucky at 23%, and for states with a cleaner energy mix, such as New York at 44%. The EPA rules are not prescriptive for specific technologies, but allow for flexibility by individual states in how they choose to achieve their targets. They can institute Renewable Portfolio Standards (RPS) like much of the Northeast, or set up carbon trading markets, including broad regional ones. Any such plan will include more renewables, both utility-scale and distributed. For some states, the targets may not be a heavy lift: For instance, analysis from the World Resources Institute indicates Minnesota can achieve a 31% reduction by continuing its existing RPS, increasing the use of combined cycle natural gas (currently operating at 11% capacity), and enforcing existing energy efficiency standards.

The EPA will enforce the new rules under section 111-d of the Clean Air Act, but is bound to face many legal challenges prior to that. However, if the U.S. Supreme Court acts on its own precedents set in Massachusetts vs EPA in 2007, the new rules will withstand the legal challenges. More serious challenges may be in the offing on the political front, particularly if a Republican takes the White House in the 2016 presidential election.

The new rules represent the most significant action taken by the U.S. government to address climate change to date, given that existing power plants account for 38% of the country’s carbon emissions, and complement the expected reductions in the transportation sector generated by the EPA’s increased fuel economy standards for automobiles, released in July 2011. This action has raised the hopes of international agencies like the United Nations Framework Convention on Climate Change (UNFCC) regarding a global climate deal in 2015.

These new rules, however impactful for the U.S. emissions, on their own are unlikely to have a dramatic impact on the global climate, given that almost all future growth in carbon emissions will come from developing and underdeveloped countries – most notably China, which became the largest carbon emitter in 2007. Hence much of the debate about the rules has centered on how likely they are to help induce China and other nations to agree to binding targets of their own. However, much of the discussion misses a critical point: Whatever their political importance, the rules will accelerate technology development and deploymentmaking it more practical and affordable for nations everywhere to reduce emissions. While their success is far from certain, their influence on innovation is where they will need to have the biggest impact for the world to achieve its CO2 reduction goals.

We predict four major technology sectors to get a boost:

  • Combined cycle gas turbines (CCGT) will gain greater ground

States will continue to look for decarbonizing fossil fuel power plants first, to ensure supply security and to use infrastructure the utilities have already invested in. The administrations’ earlier announced rules regulating CO2 from new power plants have already had some impact, contributing to the coal-to-gas switch for electricity generation. Firms like Platt are already predicting a significant rise in gas prices as a result of the new EPA rules. In this environment, expect that combined cycle gas turbines, which use energy from natural gas burning as well as steam generated from the hot exhaust gas, will rise in demand, given their higher efficiency at 50%, relative to 40% for regular thermal power plants. We anticipate CCGT giants like General Electric to benefit from this rise in demand.

  • Commercial- and utility-scale solar demand will rise in unexpected places

Subsidized internal rates of return (IRRs) are already high for commercial and utility solar installations in states like California and Massachusetts, ranging from 10% to 15% (see Lux Solar Demand Tracker — client registration required). However, the new carbon emissions rules will likely open up hitherto unattractive markets due to the lack of significant subsidies, such as Georgia and South Carolina, where we project IRRs between 2% and 5%. As the IRRs rise in the Southeast, expect a greater flow of debt capital and competing business models, such as leasing from SolarCity and solar loans from Sungage, to make their presence felt. Provided the states comply, the new rules will also make it more difficult for utilities to raise legal objections to increasing use of renewables in the energy mix (client registration required).

  • Negawatts will prove to be the cheapest compliance option for states and utilities

Saving electricity is considerably cheaper for a utility than producing it. A recent study (client registration required) from the American Council for Energy Efficient Economy (ACEEE) shows that the average cost of saving electricity across all the utility energy efficiency programs in the 20 U.S. states is 2.8 cents/kwh, two times cheaper than even coal power generation. The new rules will make the trade-off even more attractive by raising the cost of generation in coal-dominated states like Kentucky, Ohio, and Wyoming. Expect the utilities dominant in these regions, such as American Electric Power (AEP), to expand their residential energy efficiency programs, leading to the adoption of air barrier materials, light-emitting diode (LED) lights, and double-pane, low-e coated windows.

  • Carbon capture and sequestration (CCS) will get a new lease on life

Current costs of CCS using the incumbent integrated gasification combined cycle (IGCC) technology are an astounding $60/ton, according to the U.S. Department of Energy. Therefore, demonstration projects have been few and far between – and even when they do get commissioned, the capital costs are out of control: A case in point being the 582 MW Kemper CCS plant in Mississippi, where the capital costs now stand at an estimated $5.5 billion, compared to $2.4 billion originally budgeted. The new rules will likely accelerate the development of game-changer second- and third-generation CCS, such as use of metal organic frameworks (MOF), which have the potential to get the costs down to $20/ton.

The increased deployment of the above technologies will have an impact beyond the U.S. As CCGT and CCS technologies scale, expect developers like GE, Toshiba, Siemens, and Alstom to expand their footprint in India, China, South Africa, and Vietnam. Leading CCS research institutes in China, such as Huazhong University of Science and Technology, will partner with companies like the Sinopec group to commercialize the second- and third-generation technologies. A greater diversity of financing models will migrate to countries with attractive rates of return for solar projects, such as India. Utilities plagued with energy security issues (client registration required), such as Korea Electric Corporation (KEPCO), are already engaged in smart grid pilot projects and will likely start launching building energy conservation programs.

In short, the impact of the new EPA rules will neither come via a global binding climate deal nor from an absolute reduction in U.S. emissions, but from catalyzing technology development and deployment. Clients engaged in developing CCGT, CCS, solar, wind, and building energy efficiency solutions should take note and use the opportunity to deploy their technologies aggressively.

Integrated Daylighting Systems Go Mainstream in 2013

2013 proved to be a banner year for integrated daylighting and artificial lighting systems. These systems became widely available across multiple geographies, exhibited low payback periods and attractive financial returns, and the technology developers saw their revenues and profit margins rise. A combination of technology, policy, and financing developments have led to this success.

The basic idea behind an integrated lighting system is simple – to let daylight in, without the glare, so as to reduce artificial lighting consumption. There are benefits – lower electricity consumption, enhanced user comfort, and, in some instances, a measurable uptick in the retail business or employee/student productivity. Our conversations with architects lead us to conclude that to realize the full benefits, relying on users to turn off the lights is not a reliable strategy. Therefore, there is the need for integrated solutions combining daylighting skylights or glazings with backup light-emitting diode (LED) or compact fluorescent light (CFL) lighting systems. The integrated systems necessitate use of daylight and occupancy sensors, so that when a room is occupied and the daylight falls below a set level (e.g. 500 lux for retail or 150 lux for industrial storage), the backup lights turn on.

Lux’s analysis indicates that a state-of-the-art daylighting skylight installed in southern California will have a payback period of three years, translating to a return on investment (ROI) of 31% (client registration required), assuming system lifetime of 10 years and cost of capital at 7%. Using backup LED lights with daylighting and occupancy sensors will increase the upfront cost somewhat (e.g. currently at $1/ft2 for Skyshade in India, translating into $0.04/lumen), but the ROI increases to 50% or higher depending on what kind of lighting system is replaced.

On the technology front, many materials developers, such as Skyshade and Econation, announced an entry into developing proprietary sensors and offer integrated systems. 2012 saw value chain integration (client registration required) from the opposite end with Acuity Brands – a lighting hardware company acquiring SunOptics. Along similar lines, lighting hardware company Cool Lumens and daylighting materials manufacturer Bristolite released a jointly developed product in August (client registration required). The CEO of Sundlier told us that the company is working with Abrisa coatings to apply an inorganic coating to its prismatic daylighting skylights, to reduce the solar heat gain coefficient (SHGC). So far, commercial daylighting systems have not offered any SHGC reduction benefits, so this is the first product of its kind. At the GreenBuild conference in Philadelphia, integrated lighting was predominant, with many firms, such as Autodesk, announcing building integrated modeling (BIM) solutions specifically for daylighting as part of their EnergyPlus platforms.

On the policy front, International Energy Conservation Code (IECC) announced: a requirement that daylighting locations be shown in floor plans; a U-value and solar heat gain control (SHGC) requirement for all fenestration replacements; and a reduction in the minimum size for mandating a daylighting skylight, from 10,000 ft2 to 2,500 ft2. American Society for Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) announced changes in its 90.1 code, requiring double-glazed fenestrations, daylighting sensors in combination with low-lighting power density (LPD) bulbs, and a maximum specification for visual transmission (VT) / SHGC ratio.

On the market development side, daylighting solution providers continued to acquire credible customers, e.g. Skyshade completing a 100,000 m2 installation for Indian Railways, and Econation acquiring Total, Kellogg, Unilever, and Sita.

These favorable policy and market adoption trends have translated into attractive financial results for daylighting companies. On January 9, Acuity brands reported a 20% rise in revenues and a 39% rise in profit margins for Q4 2013 over Q4 2012. Econation CEO Maarten told us that the company has experienced 300% revenue growth in 2013 and an after-tax profit margin of €450,000.

Google’s Acquisition of Nest Shows How B2C and Advanced Automation Make for Success in HEM

Yesterday Google announced a cash purchase of home automation start-up Nest Labs for $3.2 billion; Google Ventures has been a major investor in the company, whose last funding round totaled $80 million (client registration required). The acquisition represents a re-entry of sorts: Information technology companies’ initial foray into HEM last decade proved to be tricky, owing to fragmented utility sector, lack of clear standards, high hardware costs, and lack of clear incentives, leading Google, Microsoft, and Cisco to exit the space in late 2011 (client registration required). Google’s acquisition signals that home energy management (HEM) is a hot sector for investment again. In addition to Google, Microsoft has shown the intention of re-entering HEM with the acquisition (client registration required) of id8 Group R2 studios in Q4 2012.

Nest labs has done three things well to overcome the difficulties faced previously by HEM segment: 1) making an aesthetically appealing device with a simple payback under two years, which is the tipping point for the residential consumer; 2) combining a B2C distribution strategy with advanced automation capabilities; and 3) moving beyond energy management into security and smoke detection to offer a more complete user-comfort package (client registration required). Lux Research mapped 25 innovative developers in the HEM space based on their distribution strategy and automation capabilities (see upcoming report “Master of the House: Cutting through the Hype in the Home Energy Management Space“). What is striking is that there are just three companies that have both B2C and advanced automation: Nest Labs, Tado, and There Corporation.

Although the price for the acquisition looks rather high, 4X of the valuation in the last funding round in January 2013Google has three distinct motivations for it: 1) innovation in smartphones and tablets is incremental and arguably with diminishing marginal utility; 2) a smart thermostat and smoke detector are good additions to the line of connected gadgets from Google such as Google Glass; and 3) the acquisition fits with Google’s long standing strategy (client registration required) of clean energy and energy efficiency investments.

The Nest acquisition has critical implications for utilities, venture investors, and consumer electronics companies. Utilities are looking for differentiation and customer retention, especially in a market like the U.S., which has 3,200 utilities, so partnering with large analytical powerhouses such as Google can now be very attractive. There have been early signs of such collaborations between Nest Labs and NRG Energy. For investors like Nest backers Kleiner Perkins, the attractive returns underscore the appeal of energy IT or “cleanweb” sector for the 10-year venture fund, no doubt prompting the VC herd to keep sniffing around for me-too deals. Finally, Nest’s success will increase the already high interest in “smart homes” from consumer electronics companies such as LG Chemicals and Samsung. Conventional thermostat manufacturers such as Honeywell have been behind the curve on this, and have previously tried to stop Nest through legal means (client registration required). These laggards should change tactics and seek a second mover advantage by coming up with a better version of the smart thermostat.

Malthus and Maslow set for Disruptive Convergence in the World’s Key Crops



A confluence of climate change, rising prosperity, and changing diets has led to agricultural commodity spikes in the first decade of the 21st century. The most severely affected commodities are large-field grain crops such as wheat, rice, corn, and soybean. Such price pressures only reinforce concerns around whether global agricultural production can keep up with the rising demand going forward. Our analysis shows that if the demand and production continue along trends seen in past four decades, there will be a global shortfall of wheat, rice, and soybeans by 2030.

Across these crops, the timelines to systemic global shortage are quite different, and with very different levers to stay in front of the problem. Transgenic C4 wheat presents the best hope for yield improvement and can help close the gap between supply and demand up to 2040. However, regulations on transgenic crops may hinder this potential. In concert with precision agriculture solutions which integrate of soil, crop, and weather data with agronomic algorithms to increase the yield, supply can stay ahead of demand beyond 2045, while also growing the farmer’s bottom line and profitability.

In contrast, even with adoption of advanced transgenics and precision agriculture, global supply of soybeans will not keep up with the demand by 2030. There is simply less room for yield improvement with soybean crop modification, given that 80% of global soybean is already transgenic. Given that 70% of the soybeans produced today are used as animal and aquaculture feed, this shortfall and resultant spike in prices will increase the pressure on animal and aquaculture feed conversion efficiency, as well as the search for alternative feeds. This includes the use of alternative proteins for animal feed such as cassava leaves for herbivores, and duckweed and algae for poultry, pigs, and fish. Expect to see greater pressure on farmers to boost feed conversion efficiency, which means short-term opportunities for metabolism boosters and animal probiotics, and long-term opportunities for transgenic breeds.

The challenges and opportunities arising from food availability, regulatory barriers and population distribution will create a rich but complex landscape for governments and technology developers alike. Populous countries such as India, China and Indonesia will have to mix aggressive modified crop technology adoption, imports and land-grab strategies in resource-rich developing countries such as Malawi and Mozambique. In contrast, The rising tide of regulatory and consumer perception barriers will be major challenges for transgenic crops in all developed countries except the United States. As a result, seed companies will increasingly use non-transgenic biotech approaches such as site directed mutagenesis to try to get around the regulations. While precision agriculture solutions will have relatively less impact on yield, these technologies will be most instrumental in improving farmers’ bottom-lines by reducing operating costs.

With food’s position as a basic Maslowian need in a constrained resource world, appropriate deployment of technology will inevitably be the savior, and sooner than many realize.

Source: Lux Research report “Combating Malthus: Technologies to Feed 9 Billion by 2050” — client registration required.

Nearly-Zero Energy Buildings Will Deliver Strong Growth for Materials Manufacturers, but Geographic Segmentation Must Drive Strategy


As global awareness of the impact of building energy consumption on climate change has increased, a number of countries have announced supportive policy measures and mandates for transitioning all new construction to nearly-zero energy. However, for companies looking to find growth opportunities, it is critical to distinguish policy rhetoric from adoption reality. With most countries still lacking a clear definition of “nearly-zero” or policies with genuine incentives or punative ‘teeth’, forecasting the hotspots where growth opportunities exist is non-trivial. To be clear, no country will meet its 2017 targets for nNZEBs, but partial adoption will propel the nearly-Net-Zero Energy Buildings (nNZEB) floor space from 12 million m2 in 2012 to 80 million m2 by 2017, creating a $16.5 billion materials market.

While Europe dominates today, incentives in Korea, China, and India propel Asia-Pacific to an annual 31.4 million m2 by 2017. Numerous factors contribute to the region’s growing importance including energy security concerns in India, carbon tax in China, and cap-and-trade and an imminent national Passivehaus adoption target in South Korea, each of which directly or indirectly drive implementation and pursuit of announced targets for nNZEBs. In all, Asia- Pacific’s share of annual nNZEB installations will rise from 23% in 2012 to 39% in 2017.

In terms of technology, while the likes of cool roof coatings and air barrier materials will grow robustly from a modest base, high-R value glazing and daylighting skylights accounting for 86%, or $14.2 billion, of the total market for building envelope materials. High-R value glazing alone will be an $8.2 billion market, dominated by double-pane constructions as higher cost, thickness, and weight will keep the adoption of triple-pane glazings limited. Designers will try to get triple-pane performance with double-pane designs and advanced edge sealant materials, or will look to integrate emerging technologies into glazings. Designers in India and Australia will adopt light redirecting louvers to reduce artificial lighting, while designers in the Middle East will look towards incorporating phase change materials (PCMs) in double-pane glazings to reduce the air-conditioning energy usage during peak hours.

Companies looking to grow with the nNZEB market need to plan now for tomorrow’s market in terms of technology selection, manufacturing locations and partnerships in the value chain that can yield adoption of the right materials technologies in the right geographies. Six-fold market growth in five years should be compelling to any materials company, but appropriate strategy will determine who sees the spoils of the market opportunity.

Source: Lux Research report “Getting to Nearly-Zero Energy Buildings: Ambitious Targets, Modest Progress” — client registration required.

Hardwood Trade Restrictions by U.N. Group Likely to Spur Demand for Modifed Wood

On March 14, the United Nations Convention for International Trade on Endangered Species (CITES) announced new restrictions on trade of various plant and animal species, including 100 species of tropical hardwood. International trade in a range of rosewoods and ebonies from Asia, Central America, and Madagascar will now be regulated by CITES. The joint program between CITES and the International Tropical Timber Organization (ITTO) will support the efforts of the countries concerned, to strengthen their capacities to implement the Convention. The CITES agreement was signed by 170 countries, including most major timber exporters, e.g. Brazil, Thailand, Costa Rica, and Madagascar.

In the last two decades, the use of tropical hardwood in the developed world, especially in European Union countries, has come under scrutiny. Most countries in the European Union require tropical hardwood imports to be Forestry Stewardship Council (FSC)-certified. The changes required to get FSC certification likely raise the production costs, and as a result the use of tropical hardwood has fallen significantly from 1998 to 2007 in Europe. The recent announcement from CITES is now applying screws from the supply side. To date, CITES has applied restrictions on trade of endangered animal species such as sharks and polar bears. To our knowledge, this is the first instance where it has included any wood species under its rules. If implemented effectively, the new restrictions will boost the demand for modified wood products that have shown promise of hardwood performance, such as the furfuryl-alcohol-impregnated softwoods from Kebony and flavonoidimpregnated softwood materials being developed at the Max Planck Institute (client registration required). Clients interested in modified wood materials should focus on the European market and applications that require durability, such as boardwalks and decking.