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Chatting with RE Tech Advisors’ Deb Cloutier about data centers, lifecycle costs, and the value of federal data.
Last fall, my colleagues and I at Heatmap put together a comprehensive (and award-winning!) guide on how to Decarbonize Your Life. Though it contained information on everything from shopping for an EV to which fake meats are actually good, as my colleague Katie Brigham noted, “an energy-efficient home needs energy-efficient … gadgets to fill it up.” So we also curated lists of climate-conscious stoves, heaters, and washer-dryers — recommendations we made by talking to experts, but also by looking closely at appliances’ Energy Star certifications.
You’ve probably relied on these certifications, too. Overseen by the Environmental Protection Agency, Energy Star labels are recognized by 90% of Americans as indicating that an appliance is top of its class when it comes to saving electricity and money. According to the government’s estimates, the voluntary program has saved Americans $500 billion since it began in 1992.
But now all that appears to be reaching its end: Last week, EPA leadership told staff that the division that oversees the Energy Star efficiency certification program for home appliances will be eliminated as part of the Trump administration’s ongoing cuts and reorganization (although the president has also long pursued a vendetta against low-flow showerheads and dishwashers that “don’t work”).
To better understand the ramifications of such a decision, I spoke this week with Deb Cloutier, the president and founder of the sustainability firm RE Tech Advisors and one of the original architects of Energy Star. She provided technical guidance and tools as a consultant during the program’s development stages of the program, and later worked as a strategic advisor for the Department of Energy’s Better Buildings Initiative. Our conversation has been lightly edited and for length and clarity.
You’ve been involved in the Energy Star program since the beginning. Can you tell me a little about what the atmosphere was like when it was established back in 1992? Was there resistance to it from appliance manufacturers or Republicans at that time?
Energy Star represented a voluntary public-private partnership, meaning a nonregulatory approach to engaging the business community and catalyzing the adoption of strategic energy management. So at the time, it was the first of its kind. I wouldn’t say folks were just like, “Yes, let’s do this.” It was really new and different.
The other thing is that at that time, we had come out of the oil crisis of the 1970s, and people were starting to recognize the importance of where and how our energy was being produced. But we weren’t focused on thinking about it as an opportunity. For office buildings, the single largest controllable operating expense is your energy or utilities expenses; if the Environmental Protection Agency or the government could build awareness, develop tools, and help businesses understand how they could invest in energy efficiency and how that would translate to financial performance results for them — it was a great experiment. And it turns out that it’s the single most successful voluntary program we’ve had to date, saving over $5 billion annually.
It’s clear how losing Energy Star would harm consumers, but I’m curious to hear from you about how this is also bad for building owners and residents. What is the cost of losing this program, especially from a climate perspective?
The most important contribution of the EPA’s Energy Star program is that it has created a national standard to benchmark and measure efficiency and energy performance. You can’t manage what you don’t measure, and consistency across building types, ages, and sizes — it’s pretty complicated to make an apples-to-apples comparison.
One of the tools and resources that Energy Star has created, which I see as being embedded in the fabric of American businesses, is their benchmarking tool called Portfolio Manager. It is tied to dozens of state and local jurisdiction policies and legislation that range from building energy disclosure to mandatory best practices to maintaining and operating buildings and emissions thresholds. So the Energy Star rating system is tied not only to how organizations assess their whole building performance, but also to how it tracks and measures progress towards efficiency improvements and then gives a certification or recognition for the most highly efficient ones.
Another thing folks tend not to consider is the relationship between energy efficiency and grid stability. Energy Star-certified appliances, homes, buildings, and industrial facilities help to reduce peak demand, which improves grid stability and resilience. It also lowers the risk of brownouts and blackouts. Think about the growing demands of data center computing and AI models — we need to bring more energy onto the grid and make more space for it. People sometimes don’t realize that it is really dependent on a consistent, impartial standard as a level setting.
If you look at some of the statistics, they’re projecting that investments in new data centers will grow at more than a 20% compound annual growth rate, and that’s equal to $59 billion. It’s just astronomical how much more energy demand there will be. If you try to put that on top of a grid that is fairly antiquated and very inefficient in the way it generates, transmits, and distributes energy, then you are intensifying the potential problem.
I’ve heard about manufacturers or an outside energy or appliance group possibly setting up a replacement program if Energy Star is eliminated. What is the advantage of having the government specifically oversee Energy Star?
Three or four things make the federal government the most unique entity and the most well-equipped to oversee the Energy Star program. First, they have access to large data sets using CBECS, the Commercial Building Energy Consumption Survey, and RECS, the Residential Energy Consumption Survey. The government inherently is an impartial, unbiased group, and entities are willing to share their data with it, and that would not be the same if it were a third party or a privatized group. That data set is instrumental in creating the standards that allow you, for products, to evaluate the most energy efficient, or for buildings, to develop a one-to-100 score. Energy Star allows the top 25% to be recognized as exemplary energy performance.
The government also has access to the National Renewable Energy Laboratory resources; they have the data, and I believe they have the impartiality and the trust. Today, the Energy Star brand has over 90% consumer recognition. I would be concerned if manufacturers or others would produce confusion in the marketplace related to a single little blue label.
Is there anything consumers should know about making decisions or navigating their choices if we return to a pre-1992 landscape?
In the absence of an Energy Star label, one thing we can do is help consumers understand that it is not just about the first cost of a dishwasher or a washing machine or renting an apartment. It’s about total lifecycle costs. What the Energy Star label does is it helps you have confidence that [an appliance] will use the least amount of energy necessary to run over its lifetime. But if your product or apartment is full of less efficient appliances, you have to think about how much more energy you will pay for over that life cycle. That’s sometimes a difficult concept for folks to understand: They think of their first cost, not the cost to operate or maintain something over time, which is higher if it’s not energy efficient.
Is there anything else people often overlook when considering the ramifications of losing Energy Star?
Energy efficiency is important for all constituencies and all sectors of the U.S. economy. Some folks will be harder hit by this, and by that, I mean low-income housing, schools, hospitals, and public sector buildings. Those facilities often have very limited budgets, so energy efficiency is one of the lowest-cost, most effective investments with good returns. But if you’re a low-income family, think about it: If you make less than $33,000 a year for a family of four, your utility bills have an outsized impact on the total cost of living. If the total utility bill is $300 or $400 a month, then utilities represent 10% to 15% of your total income, so efficiency can have an outsized impact.
The other side of that is mission-critical facilities. Having the ability to run lights, air conditioning, and cooling is important for comfort, but in some facilities — like precision manufacturing or biopharmaceuticals, data centers, things of that nature — it becomes a mission-critical area, not a nice-to-have. We can help reduce the amount of energy used by those facilities, extend their useful life, help them maintain their systems longer, and allow those businesses to be more competitive.
What’s your read on how the proposed Energy Star elimination is being discussed right now?
There’s a lot of hyperbole about Energy Star being eliminated — it’s a fait accompli. It is important to note that Energy Star is a line item identified in the statute by Congress for approval for funding. It seems pretty unrealistic, from a judicial standpoint, that it would be able to be eliminated before the end of this fiscal year.
I know that there are many, many representatives, both Republican and Democrats, who support Energy Star. We’ve had 35 years of bipartisan support, and it has been earmarked in congressional law many times, through multiple George H.W. and George W. Bush administrations. And there are a lot of lobbying efforts that I’m personally aware of within the commercial real estate industry and the manufacturing industry, where folks are reaching out and doing calls to action for the House and Senate Appropriations majority members — similar activities to what we did eight years ago when Energy Star was directly under fire.
It seems like such a strange thing for the administration to go after. It’s not like appliance manufacturers were clamoring for this, right?
It’s very vexing to me. I don’t get it. If the Trump administration wants to focus on affordability in American households, energy efficiency isn’t the thing to cut. I’m not sure if it’s getting caught up in the fact that it is in the Office of Atmospheric Pollution Prevention, or because at the Department of Energy’s Better Buildings Program, Biden launched the Better Climate Challenge. I don’t know if it’s because it had some ties to climate, but what’s ironic is that it didn’t start as a climate program. It began as an energy efficiency program, and it’s always been focused on businesses and the financial returns on investment — it helps us attract capital and debt for investment in real estate. It’s really disconnected.
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And more of the week’s top news about renewable energy conflicts.
1. Nassau County, New York – Opponents of Equinor’s offshore Empire Wind project are now suing to stop construction after the Trump administration quietly lifted its stop-work order.
2. Somerset County, Maryland – A referendum campaign in rural Maryland seeks to restrict solar development on farmland.
3. Tazewell County, Virginia – An Energix solar project is still in the works in this rural county bordering West Virginia, despite a restrictive ordinance.
4. Allan County, Indiana – This county, which includes portions of Fort Wayne, will be holding a hearing next week on changing its current solar zoning rules.
5. Madison County, Indiana – Elsewhere in Indiana, Invenergy has abandoned the Lone Oak solar project amidst fervent opposition and mounting legal hurdles.
6. Adair County, Missouri – This county may soon be home to the largest solar farm in Missouri and is in talks for another project, despite having a high opposition intensity index in the Heatmap Pro database.
7. Newtown County, Arkansas – A fifth county in Arkansas has now banned wind projects.
8. Oklahoma County, Oklahoma – A data center fight is gaining steam as activists on the ground push to block the center on grounds it would result in new renewable energy projects.
9. Bell County, Texas – Fox News is back in our newsletter, this time for platforming the campaign against solar on land suitable for agriculture.
10. Monterey County, California – The Moss Landing battery fire story continues to develop, as PG&E struggles to restart the remaining battery storage facility remaining on site.
A conversation with Biao Gong of Morningstar
This week’s conversation is with Biao Gong, an analyst with Morningstar who this week published an analysis looking at the credit risks associated with offshore wind projects. Obviously I wanted to talk to him about the situation in the U.S., whether it’s still a place investors consider open for business, and if our country’s actions impact the behavior of others.
The following conversation has been lightly edited for clarity.
What led you to write this analysis?
What prompted me was our experience in assigning [private] ratings to offshore wind projects in Europe and wanted to figure out what was different [for rating] with onshore and offshore wind. It was the result of our recent work, which is private, but we’ve seen the trend – a lot of the big players in the offshore wind space are kind of trying to partner up with private equity firms to sell their interests, their operating offshore wind assets. But to raise that they’ll need credit ratings and we’ve seen those transactions. This is a growing area in Europe, because Europe has to rely on offshore wind to achieve its climate goals and secure their energy independence.
The report goes through risks in many ways, including challenging conditions for construction. Tell me about the challenges that offshore wind faces specifically as an investment risk.
The principle behind offshore wind is so different than onshore wind. You’re converting wind energy to electricity but obviously there are a bunch of areas where we believe it is riskier. That doesn’t mean you can’t fund those projects but you need additional mitigants.
This includes construction risk. It can take three to five years to complete an offshore wind project. The marine condition, the climate condition, you can’t do that [work] throughout the year and you need specialized vehicles, helicopters, crews that are so labor intensive. That’s versus onshore, which is pre-fabricated where you have a foundation and assemble it. Once you have an idea of the geotechnical conditions, the risk is just less.
There’s also the permitting process, which can be very challenging. How do you not interrupt the marine ecosystem? That’s something the regulators pay attention to. It’s definitely more than an onshore project, which means you need other mitigants for the lender to feel comfortable.
With respect to the permitting risk, how much of that is the risk of opposition from vacation towns, environmentalists, fisheries?
To be honest, we usually come in after all the critical permitting is in place, before money is given by a lender, but I also think that on the government’s side, in Europe at least, they probably have to encourage the development. And to put out an auction for an area you can build an offshore wind project, they must’ve gone through their own assessment, right? They can’t put out something that they also think may hurt an ecosystem, but that’s my speculation.
A country that did examine the impacts and offer lots of ocean floor for offshore is the U.S. What’s your take on offshore wind development in our country?
Once again, because we’re a rating agency, we don’t have much insight into early stage projects. But with that, our view is pretty gloomy. It’s like, if you haven’t started a project in the U.S., no one is going to buy it. There’s a bunch of projects already under construction, and there was the Empire Wind stop order that was lifted. I think that’s positive, but only to a degree, right? It just means this project under construction can probably go ahead. Those things will go ahead and have really strong developers with strong balance sheets. But they’re going to face additional headwinds, too, because of tariffs – that’s a different story.
We don’t see anything else going ahead.
Does the U.S. behaving this way impact the view you have for offshore wind in other countries, or is this an isolated thing?
It’s very isolated. Europe is just going full-steam ahead because the advantage here is you can build a wind farm that provides 2 or 3 gigawatts – that’s just massive. China, too. The U.S. is very different – and not just offshore. The entire renewables sector. We could revisit the U.S. four or five years from today, but [the U.S.] is going to be pretty difficult for the renewables sector.
What I’m hearing from developers and CEOs about the renewable energy industry after the Inflation Reduction Act
As the Senate deliberates gutting the Inflation Reduction Act’s clean electricity tax credits, renewable energy developers and industry insiders are split about how bad things might get for the sector. But the consensus is that things will undoubtedly get worse.
Almost everyone I talked to insisted that solar and wind projects further along in construction would be insulated from an IRA repeal. Some even argued that spiking energy demand and other macro tailwinds might buffer the wind and solar industries from the demolition of the law.
But between the lines, and beneath the talking points and hopium, executives are fretting that lots of future investments are in jeopardy. And the most pessimistic take: almost all projects will have their balance sheets and time-tables impacted in some way that’ll at minimum increase their budget costs.
“It’s hard to imagine, if the legislation passes in its current form, that it wouldn’t impact all projects,” said Rob Collier, CEO of renewable energy transaction platform LevelTen.
Even industry analysts with the gloomiest views of the repeal say there’s plenty of projects that will keep chugging along and might even become more valuable to investors if they’re close enough to construction or operation. This aligns with recent analysis from BloombergNEF, which found the House bill would diminish our nation’s renewables build-out – but not entirely end its pace.
“The more useful way to break down which project may be hit the hardest is where the projects are going to fall in their development life-cycle,” Collier said. “Projects that have either started construction or have the ability to start construction … are going to very likely rise in terms of their appeal and attractiveness and those projects will be at a premium, if they’re able to skate through the legislative risk and qualify for tax credits.”
There is a more optimistic industry view that believes increased project costs will just be passed along to consumers via higher electricity prices. The American people will in essence have to pick up the tab where the federal tax code left it. Optimists also cite the increased use of power purchase agreements, or PPAs, between renewables developers and entities who need a lot of electricity, like big tech companies. By signing these PPAs, buyers are subsidizing the construction of projects but also insulating themselves from the risk of rising electricity prices.
The most bullish perspective I heard was from Nick Cohen, the CEO of Doral Renewables, who told me deals like these combined with rising premiums for quick energy on the grid may obviate lost credits in a “zero-incentive environment.”
“It’s not the end of the world,” Cohen told me. “If you’re in construction or you’re going to be in construction very soon, you’re fine.”
But Collier called Cohen’s prediction an “experiment” in customers’ willingness to pay for new energy: “If we’re talking about 40%, 50%, 60% of a project’s capital stack now being at risk because of tax credits, those are pretty large price increases.”
I spoke to multiple companies that have been inking massive deals as this legislation has progressed — although many were not nearly as sanguine about the industry’s future prospects as Doral. Like rPlus Energies, which disclosed last week that it closed a commitment for more than $500 million in tax equity investments for a solar and storage project in Utah. rPlus CEO Luigi Resta told me that the legislation “certainly has posed concern from our investors and from the organization” but the project was so far along that the tax equity investment market wasn’t phased by the bill.
“Many people in my company, myself included, have been doing this for more than 20 years. We’ve seen the starts and stops related to ITC and PTC in solar and wind, in multiple cycles, and this feels like another cycle,” Resta told me. “When the IRA passed, everybody was exuberant. And now the runway looks like it may have a cliff. But for us, our mantra since the beginning of the year has been ‘proceed with caution, preserve and protect.’”
However, crucially, it is important to focus on how that caution looks: Resta told me the company has completely paused new contracting while the company is completing the projects it is currently developing.
One government affairs representative for a large and prominent U.S. renewables developer, who spoke on the condition of anonymity to preserve relationships, told me that “whatever rollback occurs will just result in higher electricity prices over time.” In the near term, the only language that would truly gut projects in progress today would be “foreign entity of concern” restrictions that would broadly impact any component even remotely connected to Chinese industries. Similar language all but kneecapped the entire IRA electric vehicle consumer credit.
“It included definitions of what it means to be a foreign company that were really vague,” the government affairs representative said. “Anyone who does any business with China essentially can’t benefit from the credit. That was a really challenging outcome from the House that hopefully the Senate is going to fix.” If this definition became law, this source said, it would be the final straw that “freezes investment” in renewable energy projects.
Ultimately, after speaking to CEO after CEO this week, I’ve been left with an impression that business activity in renewables hasn’t really subsided after the House bill passed, and that it’ll be the Senate bill that undoubtedly defines the future of renewable energy for years to come.
Whether that chamber remains the “cooling saucer” it once was will be the decider.