Off the Charts Spring/Summer 2008

2008 ENERGY STAR Partner of the Year Awards
EPA’s ENERGY STAR Partner of the Year Award singles out companies with world-class energy management programs and bestows this honor at a recognition ceremony in Washington, DC every year. Organizations that win this award have achieved significant energy savings through strong energy management programs.

California Pension Funds Work to Improve Energy Performance of Real Estate Portfolio
The nation’s two largest pension funds are forging ahead with programs to improve the energy performance of their real estate holdings. Full Article Below

Energy Costs Creating New Risks for Information Age
The global economy’s transformation from paper to digital is being driven by increasingly powerful information technology (IT) equipment that is constantly increasing in processing power, data storage, and networking capabilities. Full Article Below

ENERGY STAR Award for Sustained Excellence Building Energy Management
– Using EPA’s energy performance rating system, Transwestern achieved an exemplary portfolio with an averaged rating of 76 across its 217 managed properties in 2007.

– USAA Real Estate Company has reduced the energy consumption across its building portfolio by more than 27 percent since 2001, with 5 percent savings portfolio wide in 2007 alone.

Food Lion, LLC – Food Lion, LLC has reduced energy use by more than 27 percent since 2000, despite an increase in the number of stores.

Giant Eagle, Inc. – More than 85 percent of Giant Eagle’s grocery stores have earned the ENERGY STAR label for superior energy performance.

Marriott International Inc. – Marriott International Inc. saved nearly $4.6 million in 2007 on energy bills.

ENERGY STAR Award for Sustained Excellence Energy Service Company

Advantage IQ, Inc. – Over the past 12 months, Advantage IQ, Inc. has delivered more than 116,000 individual building ratings, a 400 percent increase over 2006.

ENERGY STAR Award for Sustained Excellence Industrial Energy Management

Raytheon Company – Raytheon Company achieved an almost 4 percent reduction in energy consumption in 2007 alone.

California Portland Cement Company – California Portland Cement Company reduced energy intensity in 2007 by 2.5 percent from 2006 levels for a savings of nearly 363 trillion Btu and $1.8 million.

PepsiCo – PepsiCo beat its 2007 energy saving target of 4 percent, providing savings equal to the sale of 14 million gallons of Tropicana Premium Orange Juice© or 28 million bags of SunChips©.

Merck & Co., Inc. – Merck & Co., Inc. achieved energy savings of 20 percent of its current corporate-wide energy savings goal in 2007 alone.

3M – 3M exceeded its goal of reducing energy consumption by 4 percent in 2007 by achieving a 6.4 percent savings.

Ford Motor Company – Ford Motor Company has reduced energy use across its U.S. operations by 4 percent in 2007, saving the energy required to assemble 167,000 Ford Escape Hybrids.

Toyota Motor Engineering & Manufacturing North America, Inc. – Toyota Motor Engineering & Manufacturing North America, Inc. has reducing carbon dioxide (CO2) emissions by 21 percent per vehicle produced since 2002, propelling the company well ahead of its industry’s commitment to reduce CO2 emissions by 10 percent per vehicle by 2010.

ENERGY STAR Partner of the Year Award Building Energy Management

CB Richard Ellis, Inc. – As of the end of 2007, CB Richard Ellis, Inc. has benchmarked more than 525 office properties, representing nearly 130 million square feet.

Simon Property Group – The Simon Property group invested $7.6 million in 14 energy efficiency projects in 2007

TIAA-CREF – TIAA-CREF benchmarked 100 percent of the company’s 43 million square feet of office space in 2007.
J.C. Penney Company, Inc. – J.C. Penney was the first retailer to earn the ENERGY STAR label for a retail store upon the release of EPA’s energy performance rating for retail in October 2007

ENERGY STAR Partner of the Year Award Industrial Energy Management

The Dow Chemical Company – Between 2004 and 2007, the Dow Chemical Company has reduced the average energy intensity from its U.S. operations by nearly 2.5 percent per year, saving the equivalent of about 47 trillion Btus and $325 million.

ArcelorMittal USA – In 2007, ArcelorMittal USA has met one-third of its 3 year goal by reducing energy intensity by 389 kBtus per tonne of raw steel, for a combined 2 year savings of $184 million.

Allergan, Inc. – Allergan, Inc. reduced energy intensity in existing facilities by 2 percent from 2006 to 2007, saving more than 7.8 million kWh of energy and $840,000.

ENERGY STAR Partner of the Year Award Utility/Third-Party Program Administrator or Other Organization

Building Owners and Managers Association (BOMA) International – In 2007 alone, approximately 5,000 industry professionals participated in BOMA courses that provide strategies, technologies, and other resources to improve the operational performance of commercial properties (BEEP), bringing the total number of participants to 10,000 since the program’s inception.

Pacific Gas and Electric Company (PG&E) – PG&E facilitated energy efficiency improvements in almost 10 percent of the buildings rated in 2007, with projected annual savings of 22 million kWh, 390,000 therms, and 1.2 megawatts of peak demand.

California Pension Funds Work to Improve Energy Performance
of Real Estate Portfolio
The nation’s two largest pension funds—the California Public Employees’ Retirement Fund (CalPERS) and the California State Teachers’ Retirement System (CalSTRS)—are forging ahead with programs to improve the energy performance of their real estate holdings. Several years into the “greening” of their portfolios, both pension funds are confident they can increase the risk-adjusted returns of their real estate portfolios by incorporating energy efficiency and sustainability in their management and development. As CalSTRS’s real estate staff reported recently to CalSTRS’s board of trustees, “By reducing resource consumption, value is added to the portfolio.”

CalPERS is the nation’s largest pension fund with assets of approximately $250 billion, and CalSTRS is the second largest with assets of nearly $175 billion. Operating in a state that ranks as the 12th largest emitter of greenhouse gases worldwide, these California funds are in a position to significantly influence and accelerate growth in the environmental investment arena. Roughly 10 percent of their assets are invested in real estate in California, the rest of the United States and nearly two dozen other countries.

Beyond actual energy savings achieved within their own portfolios, these funds are raising awareness of energy efficiency investments in the property market as a whole. At an investor summit held at the United Nations in February 2008, with some 450 institutional investors present, CalPERS and CalSTRS joined with other institutional investors totaling $1.75 trillion in assets under management to call for a 20 percent reduction in energy use in core real estate holdings that these funds either manage or own. A study released at the summit by McKinsey Global Institute found that energy efficiency improvements remain a largely untapped opportunity for reducing GHG emissions that could cut energy demand growth in half—and be a good investment as well, generating internal rates of return of 17 percent on average.

California “Green Wave”

The California “Green Wave” initiative, launched in 2004, is focused first and foremost on more sustainable investment practices. But for CalPERS and CalSTRS, this meant they had to establish policies aimed at reducing the energy costs of their sizeable real estate holdings, which rank among the largest in the state. Both pension funds embraced a four-pronged investment strategy to “bolster their financial returns, create jobs, clean up the environment and combat global warming.” To accomplish these goals, they focused on improving the energy efficiency of buildings in their portfolios as well as promoting more “green” private equity and public investments and corporate governance practices to achieve these ends.

CalSTRS identified four primary implementation steps in its real estate green program:Incorporating conservation and sustainability into the planning cycle for its existing portfolio;
Establishing benchmarks to track energy use, develop capital improvement plans, make energy efficiency upgrades and measure the benefits of reduced consumption of energy;
Including sustainability measures in investment decisions, including new development projects; and
Practicing conservation and sustainability within the CalSTRS occupied facilities.

As a first step to establish energy benchmarks, CalSTRS investment committee directed the real estate staff to perform comprehensive energy audits of CalSTRS’s real estate portfolio in July 2004. Six months later, CalSTRS joined as an EPA ENERGY STAR® partner. After reviewing the different energy management programs of the investment managers, CalSTRS developed a new guideline specifying that all investment managers use ENERGY STAR tools, such as EPA’s energy performance rating for buildings, to meet their benchmarking requirement.

Since CalSTRS’s separate account office portfolio represents about 43 percent of the value of CalSTRS’s core property assets, this benchmarking tool has been used as a primary measure of baseline energy savings. In September 2007, CalSTRS reported reducing energy consumption in its office portfolio by 3.5 percent. Notably, half of the 29 office buildings among CalSTRS’s separate account office buildings have measured 75 or higher on EPA’s energy performance scale, which rates buildings from 1-100. CalSTRS tracks energy usage in approximately 70 percent of the office space in its portfolio, a total of 17.5 million square feet between its separate account office portfolio and offices held in joint ventures.

CalPERS’s Progress

CalPERS also reports significant energy savings in its property portfolio. Between 2004 and 2006, it achieved electricity savings of 8.9 percent and natural gas savings of 14.7 percent in its core portfolio, on a per-square foot basis adjusted for occupancy rates.

At the same time, CalPERS significantly boosted both the number of buildings in its core portfolio and the number of reporting properties. In 2006, CalPERS obtained energy usage data on 514 of 577 core buildings owned at the end of that year with more than 34 million net rentable square feet of commercial space—roughly double the amount of square footage reported on at the end of 2005. By comparison, it had figures on energy usage in only 49 of 133 core buildings in 2005, before it began increasing its core property holdings.

As part of this expanded initiative, CalPERS’s real estate staff encouraged its investment partners to be part of the ENERGY STAR program and included promotion of ENERGY STAR as one of its five key recommendations to CalPERS’s investment committee in 2005. Six of CalPERS’s 49 reporting assets with an approximate market value of $630.7 million were ENERGY STAR-labeled in 2005.

Diloshini Seneviratne, a former investment officer with CalPERS’s real estate program, says that the staff is “very satisfied with the progress achieved to date,” noting that “Core portfolio managers understand that CalPERS is serious about greening its portfolio.” Seneviratne believes that CalPERS can affect change and facilitate energy improvements through its leadership role and also by taking actions such as serving as a “one stop shop” for energy efficient items such as compact fluorescent bulbs.

As part of its facilitator role, CalPERS has placed considerable emphasis on gathering information on energy saving methods used throughout its real estate portfolio in order to share best practices with its investment managers. Many recommendations in its core and non-core partnerships emphasize use of ENERGY STAR-rated products. These include investments in:
new energy efficient appliances and high efficiency condenser and heating units to replace out-of-date equipment;

installation of compact florescent lighting systems, occupancy sensors and temperature controls to reduce energy use within buildings;

building envelope conservation improvements, such as using insulated double- or triple-paned windows with Low-E coating;

using gas hot water and HVAC systems that provide fresh air quality beyond traditional standards;

installing “Green Fiber” wall spray insulation; and

implementing California’s Title 24 energy standard and integrating energy efficiency principles and solar energy technologies.

Now CalPERS is expanding its property management data collection efforts beyond energy to include water conservation, waste management and indoor air quality improvements. Its 2007 property management report is slated for release in the third quarter of 2008.

Big Goals Drive Change

When big pension funds like CalPERS and CalSTRS adopted a goal in 2004 to reduce energy use in their property management portfolios by 20 percent, no one said it was going to be easy. Then California Treasurer Phil Angelides estimated that if CalPERS and CalSTRS invested a combined $200 million to retrofit their real estate portfolios, they would save around $40 million annually in energy costs. The projected savings would result in a five-year payback on the capital investment and an internal rate of return of approximately 14 percent on that investment over 10 years. Angelides further estimated that the $200 million retrofit investment would create approximately 4,300 jobs and reduce energy demand in the state by 72 megawatts, which equals enough power to supply more than 50,000 homes.

To date, neither pension fund has reported that they have achieved these goals, but they believe they are off to a good start. Seneviratne and Mike Thompson, a portfolio manager in CalSTRS’s Real Estate program, concede that the original goal of the Green Wave initiative—reducing energy use in the funds’ core real estate holdings by 20 percent within five years—remains a challenge. With an eye toward their fiduciary responsibilities, both pension funds emphasize that all capital expenditures must be supported by investment measures and payback periods that compete with alternative investments.

But with oil at $135 per barrel and electricity prices on the rise as utilities max out on their baseload capacity, the goals of this program remain as compelling as ever. In that sense, it’s no wonder that other pension funds and property investors at the UN Investor Summit on Climate Risk decided to hop on the energy efficiency bandwagon. It’s no longer a question of whether they can afford to make such investments, but whether they can afford not to.

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Energy Costs Creating New Risks for Information Age
Electronic transactions have become ubiquitous. The global economy’s transformation from paper to digital is being driven by increasingly powerful information technology (IT) equipment that is constantly increasing in processing power, data storage, and networking capabilities. Government, financial services, healthcare, shipping, and media are just a few of the sectors that now rely on electronic transactions and storage and are driving growth in the number and capacity of data centers. While computer hardware capacity has exhibited exponential growth on just about every level, the energy efficiency of equipment and supporting facilities has not kept pace. Now, high energy costs combined with power and cooling limitations are prompting the data center industry to take a closer look at energy efficiency.

Data centers, which house servers and other IT equipment, range from small centers that reside in an office or building, to stand-alone facilities that can be several hundred thousand square feet, known as enterprise-class data centers. Data centers can be up to 40 times more energy intensive than a typical building and, according to EPA estimates published in an August 2007 report to Congress, they are responsible for about 1.5 percent of the total electrical consumption in the United States. About half of that electricity is consumed by the IT equipment, and the other half is used by backup power supply and cooling systems which are critical for continuous operation. Both the IT equipment and the building’s power and cooling systems can make energy efficiency gains.

Reliability has historically been a more important criterion than energy efficiency for data center operators and owners. However, hardware capacity has grown exponentially for 40 years, and now the building systems cannot keep up with the computer hardware power and cooling needs. This is limiting existing data center expansion and is forcing capital investment in either additional data centers or better power and cooling systems.

Energy costs are also becoming a greater concern. At one time, expensive IT equipment was the most significant data center outlay. Now, energy costs can exceed the original equipment price in as little as 3 years. When factored into project planning, energy costs can be significant enough to render unprofitable a new business proposition that requires increased computing power.

U.S. data centers were responsible for more than 7 gigawatts (GW) of peak load power in 2007 and will need 12 GW by 2011. Although there is a recent trend toward building new facilities in non-metropolitan areas, data centers still tend to be located in urban areas where the electric grid is already stretched thinnest. Consequently, utilities in some locations are seeking limitations on the construction of new data centers.

In some parts of the country, additional data centers cannot be built due to grid constraints. In a November 2007 survey of data center managers by Symantec, managers of New York-based data centers have been forced to take action because they have run out of electrical capacity. California-based Pacific Gas & Electric (PG&E) offers financial incentives to firms that improve data center energy efficiency, and based on that program’s success, is now leading a nationwide coalition of utilities that are interested in reducing data center electricity demand.

Defining Energy Efficiency

As of yet, there is no universally accepted criteria for measuring data center energy efficiency, although industry groups such as Uptime Institute and Standard Performance Evaluation Corporation have proposed metrics. Building on its experience in setting energy efficiency benchmarks for buildings and products through the ENERGY STAR program, EPA has set out to do the same for data centers. On October 30–31, 2007, in Santa Fe, New Mexico, ENERGY STAR held the first industry stakeholder meeting to discuss developing an enterprise sever efficiency specification and a whole building energy efficiency benchmark for data centers.

EPA is currently working toward developing both a performance specification for servers and a whole building benchmark for data centers.

To develop the rating for data center infrastructure, EPA is collecting data on energy use and operating characteristics from a large number of existing data centers, including both stand-alone facilities as well as data centers located in offices and other types of buildings. EPA is receiving help from industry stakeholders to make this effort a success. Data center owners and operators are measuring and submitting energy data for their facilities, Industry Associations are getting the word out to their members by encouraging them to participate, and equipment suppliers and consultants are informing their customers and clients about getting involved with this effort. As of May 30, 2008, over 120 data centers from more than 60 organizations have signed up to participate in the data collection.

If successfully completed, the EPA specification for servers will enable organizations to easily identify and procure more energy efficient IT equipment, while the EPA energy performance rating will enable organizations to better manage the energy and supporting equipment used in a datacenter. In addition to the energy efficiency specification and benchmarking work being conducted by the U.S. EPA’s ENERGY STAR program, the U.S. Department of Energy is developing an energy assessment protocol for identifying energy savings in data centers.

Better Data Center Energy Management

The benchmark setting process is expected to take a year or longer, but there are actions data centers can take today to reduce energy consumption. Equipment orientation and airflow can be optimized for energy efficiency, although this is typically only done in larger data centers. In these larger data centers, system redundancies, which are important for preventing downtime, offset some of the energy efficiency gains.

Server virtualization—simply migrating older platforms to newer, more efficient and more powerful equipment—is a practice that can bring about significant energy savings. Fewer new servers can do more work than the same number of older servers. It sounds straightforward, but data center growth has been haphazard, and busy data center operators may not have sufficient records to know what systems are being run off of old servers. Transactions worth billions of dollars are processed by servers every second, so no one is willing to simply unplug old equipment. Operators are not keen to make changes that they perceive may increase the risk of server downtime. This risk aversion helps keep data centers reliable and secure, but is also one of the barriers to making energy efficiency improvements.

Old servers running legacy systems represent wasted resources, dollars, and site capacity. According to the Uptime Institute, a data center industry consulting and thought leadership group, reclaiming that wasted capacity would allow for postponing investment in new data centers and could potentially save millions of dollars. Moreover, in a report applauding the EPA benchmarking efforts, founder and executive director of Uptime, Kenneth Brill, states that improved energy efficiency can result in “massive, industry-wide savings.” Uptime estimates that a new, efficient data center can result in up to 60 percent energy savings without sacrificing performance or availability.

Accruing such savings is important for firms, especially those that have already taken a look at other areas of energy consumption. John Beckinghausen, Director of Sustainable Development for HSBC North America, said that in the last few years, and most seriously this year, the bank began looking at its data center operations. He noted that data centers alone consume almost 25 percent of the total electricity requirements of HSBC’s North American operations. “From both a climate change and an economic perspective we simply cannot ignore the efficiency opportunities available today in [data center] cooling and computing design strategies.”

In addition to data center efficiency, organizations are also wise to explore energy and money savings through power management of computers and monitors. According to EPA, energy wasted by U.S. computers and monitors left running while not in use costs organizations about $1 billion every year. Power management enables computers and monitors to go into a low-power sleep mode after a period of inactivity. Power management has the potential to save up to $75 per computer annually—or up to $50 if monitors are already power managed. Despite the significant savings, according to Lawrence Berkeley National Labs, only 5 to 10 percent of U.S. organizations have deployed these settings.

To assist and recognize organizations for reducing the energy consumed by their computers and monitors, EPA is launching the ENERGY STAR Low Carbon IT Campaign. The campaign asks organizations to take an online pledge to activate power management features on their computers and monitors and increase energy savings further by purchasing ENERGY STAR qualified computers and monitors. In turn, EPA provides free assistance to help implement power management, an estimate of the organization’s energy and carbon savings, and official recognition from the agency.

The data center and IT industry as a whole cannot afford to ignore these unclaimed energy efficiency opportunities. The industry is projected to nearly double its energy use in the next 5 years, reaching up to 2.5 percent of total U.S. electrical consumption, according to EPA.

For more information on the U.S. EPA ENERGY STAR program’s Data Center Initiative, visit www.energystar.gov/datacenters. For more information on the Low Carbon IT campaign, visit www.energystar.gov/lowcarbonit.