Edward Perry, Analyst, HSBC
Smart buildings cut emissions
Buildings account for about 40 per cent of global greenhouse gas emissions – but they are rapidly getting greener thanks to ‘smart’ technologies.
Software, automated sensors and innovative materials are being used to boost the energy efficiency of everything from heating and lighting to security systems.
Falling costs, together with regulation to tackle climate change, are encouraging take-up of smart tech. The prospect of better working or living conditions makes energy-efficient properties attractive to potential occupants too.
Healthcare buildings, especially hospitals, are leaders in incorporating smart systems into properties. Big technology companies, banks and car firms have followed.
In the past, most systems were installed in existing properties rather than new buildings using proprietary hardware and software. This resulted in a highly fragmented, disparate ecosystem.
However, over the past three years more intelligent analytics, aided by cloud computing and the internet-of-things, have allowed products to be connected to each other as well as to a central system.
That is making building-automation systems economically viable for a wider range of organisations. The cost of installing a basic system has fallen by two-thirds. And new smart systems can deliver energy savings of up to 25 per cent, compared with the 20 per cent achieved by traditional systems.
That means an installation cost of USD37,500 on a 50,000 sq-ft building can now produce annual savings of USD23,000, giving a payback period of less than two years.
Greater environmental awareness among companies and governments is also driving a shift towards more efficient buildings with lower emissions.
Decarbonising power generation alone will not be sufficient to meet the Paris Agreement’s target of limiting global temperature rises to 2 degrees Celsius. As it remains hard to decarbonise many energy-intensive industrial sectors, policymakers are turning their attention to areas such as buildings.
We calculate that green buildings could substantially contribute to carbon reduction targets through efficiency gains in heating and cooling equipment such as boilers and air-conditioning, in appliances such as fridges and washing machines, and in the building envelope itself – the façade, roof, insulation and glass.
Technological advances have a crucial role to play at the design and construction phase for new buildings, as well as in retrofitting existing stock.
Several countries and cities are already targeting the buildings sector to help meet emission-reduction goals. European nations have some of the more ambitious policies and the European Union’s Green Deal aims to achieve the first climate-neutral continent.
The deal’s initial outline suggests the renovation rate of Europe’s building stock must almost double to meet energy efficiency and climate targets – potentially requiring more stringent legislation.
“Cities will be an important driver for green buildings”
And on a global level, the UN Climate Action Summit in September 2019 announced a ‘Zero-Carbon Buildings for All’ initiative aimed at decarbonising all new buildings by 2020 and all existing buildings by 2050.
We believe cities will be an increasingly important driver for green buildings. Urban areas generate up to 70 per cent of all greenhouse-gas emissions with residential and commercial buildings contributing about one-eighth of that through direct use of fossil fuels – and possibly twice this amount including power generated using fossil fuels. Cities in the US, UK, Canada and Australia have already made commitments to increase the efficiency of buildings.
While emerging markets are still urbanising rapidly, many developed countries have reached peak urbanisation. But they still want to encourage people to keep living in cities.
Constructing better buildings that provide a superior user experience is one way to make urban areas attractive and retain talent. We think smarter, greener buildings will be at the heart of the cities of the future.
- Disclosure and disclaimer
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Edward Perry, CFA
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