Author: Matt Golden
Investor Ready Energy Efficiency (IREE) certification offers a groundbreaking approach to energy efficiency by establishing a standard asset class for commercial retrofits. Standardization is crucial for defining how building retrofit projects are developed, engineered, and implemented and how their performance is measured. Green Business Certification Inc. (GBCI)’s IREE certification aligns existing industry-accepted technical standards into a standardized project development and quality assurance process to ensure that energy efficiency projects are consistent and adhere to high performance
and impact criteria.
and impact criteria.
Why standardization is critical
For the energy efficiency market to scale and attract meaningful private investment, there needs to be a shift away from the current bespoke approach to project development. Idiosyncratic project development and quality assurance processes pose substantial barriers to financing, requiring extensive engineering time and individual due diligence. This results in high transaction costs and prevents the efficient bundling of projects, a necessary step for securitization and risk management.
Drawing from the success seen in solar energy, mortgage-backed securities, and auto loans, it is evident that standardizing underlying assets is a crucial enabler of growth for financial markets. The solar, mortgage, and auto loan markets have all benefited from consistent understanding and standardization that enables efficiency; for instance, the securitization process that propelled the solar industry's growth relied on standardizing project documentation and third-party certifications. Similarly, the market for mortgages and auto loans thrived on a consistent asset definition that streamlined underwriting and enabled the bundling of loans. Standardization across these asset classes facilitated efficient capital allocation and attracted secondary market participants who could have confidence in project underwriting and investment risk profiles. As the demand for decarbonization efforts skyrockets globally, the energy efficiency retrofit market will require such standardization.
Drawing from the success seen in solar energy, mortgage-backed securities, and auto loans, it is evident that standardizing underlying assets is a crucial enabler of growth for financial markets. The solar, mortgage, and auto loan markets have all benefited from consistent understanding and standardization that enables efficiency; for instance, the securitization process that propelled the solar industry's growth relied on standardizing project documentation and third-party certifications. Similarly, the market for mortgages and auto loans thrived on a consistent asset definition that streamlined underwriting and enabled the bundling of loans. Standardization across these asset classes facilitated efficient capital allocation and attracted secondary market participants who could have confidence in project underwriting and investment risk profiles. As the demand for decarbonization efforts skyrockets globally, the energy efficiency retrofit market will require such standardization.
The role of federal investments and the need for private capital
With $20 billion of Inflation Reduction Act funds being invested into non-profit financial institutions for decarbonization projects, there's a pressing need for projects that deliver tangible results, are cost-effective, and are appropriately evaluated for risk.
Standardization through IREE certification will support these institutions in identifying projects that meet these criteria. Doing so, IREE will make energy efficiency projects more attractive to private investors by lowering transaction costs and providing a clear framework for assessing and managing risks. This will realize the larger vision of the IRA, attracting the large-scale private capital crucial for sustainable growth in the building retrofit market.
Standardization through IREE certification will support these institutions in identifying projects that meet these criteria. Doing so, IREE will make energy efficiency projects more attractive to private investors by lowering transaction costs and providing a clear framework for assessing and managing risks. This will realize the larger vision of the IRA, attracting the large-scale private capital crucial for sustainable growth in the building retrofit market.
A call for standardization in energy efficiency
As the United States moves towards significant decarbonization of its building stock, the need for a standardized approach in the commercial energy efficiency industry cannot be overstated. IREE certification is more than just a certification; it's a crucial underpinning for creating a scalable, investable market. By drawing lessons from other asset classes, it's clear that standardization is the key to unlocking trillions of dollars in capital necessary for this transformation. We expect the industry's adoption of standardized tests to drive a surge in investments and realize growth in energy
efficiency projects nationwide.
efficiency projects nationwide.
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