The Role of Net Zero Buildings-as-a-Service in the Energy Transition

We can produce all the renewable energy we want, but the march to net zero will take an unnecessarily long time if all that power is being used in inefficient buildings. Buildings are responsible for about 40% of energy related carbon emissions around the world. That means any conversation about reducing emissions and achieving net-zero goals will have to feature insights about the efficient construction and – perhaps more importantly – operation of buildings.

Mark Reinbold, vice president of Global Sustainable Infrastructure at Johnson Controls, joins the show to discuss what he gleaned from attending COP28 in Dubai about how business executives and other experts are factoring infrastructure into their sustainability strategies. Mark shares some of the key findings from research Johnson Controls conducted with Forrester Consulting about smart building trends and outlines the role technologies like artificial intelligence are playing amid the expansion of the concept of net zero buildings-as-a-service.

Highlights from Mark Reinbold

Conversations about sustainability with global leaders - (2:08)
Common roadblocks to more sustainable infrastructure - (6:39)
Have global gatherings like COP and Davos 'jumped the shark'? - (8:19)
Any deal follow-up from COP28 - (10:26)
Expanding Net Zero-as-a-Service - (13:10)
Key takeaways from Forrester Research on smart building trends - (16:20)
Examples of artificial intelligence delivering for smart buildings - (19:16)
Showcase project: University of North Dakota - (23:41)
How renewable energy is factoring into projects - (26:16)

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Transcript

(Note: This transcript was produced using artificial intelligence. It has not been edited verbatim.)

Sean McMahon  00:00

Hey what's up everyone, and welcome to the Renewable Energy SmartPod. I'm your host, Sean McMahon. And today we're gonna be talking about an aspect of the energy transition, that we don't often focus on buildings. Buildings are responsible for about 40% of energy related carbon emissions around the world. That means any conversation about netzero needs to feature insights about the efficient construction, and perhaps more importantly, the efficient operation of buildings. Think about it, we can generate all the renewable energy we want. But the march to net zero is going to take an unnecessarily long time if that renewable energy is used to power inefficient buildings. To learn more about this topic, I'm pleased to welcome Mark Reinbold to the show. Mark is the vice president of global sustainable infrastructure at Johnson Controls. He and other members of the C suite from Johnson Controls were at COP28 in Dubai. So Mark's gonna share what he gathered from that event, about how business executives and other leaders are planning for the energy transition. And when it comes to renewable energy, be sure you stick around till the end of our conversation. When Mark shares his insights about a promising shift he has detected and how business owners are looking to access renewables. I learned a lot from Mark about how sustainable buildings of the future will interact with the grid, and the role technology will play in that interaction. I hope you enjoy this conversation. 

Hello, everyone, and thank you for joining me today. My guest is Mark Reinbold, Vice President of Global Sustainable Infrastructure for Johnson Controls. Mark, how you doing today?

Mark Reinbold  01:58

I'm doing excellent. Sean, thank you very much for having me as a guest on your podcast.

Sean McMahon  02:03

Yeah, excited to have you here. It sounds like you got a lot of energy for this conversation. So let's get rolling. Right now we're recording this January 22. And Davos was just wrapped up. Last month, we had COP 28. A hot topic and all these global gatherings is sustainability, energy efficient buildings. And those kinds of topics come up all the time. So what are some of the takeaways from those, I believe you were at COP 28.

Mark Reinbold  02:26

I was I did have the opportunity to go to COP 28 was was a tremendous gathering. And, you know, what an honor to be there with all the world's leaders, by the way. But you know, key takeaway for me, when you look at either Davos are capped 28, is the commitment to sustainability is still very, very strong. And we're talking about the economics of sustainability. We're talking about how do we actually execute and, you know, get to work. I think one of the things that I, you know, sort of talked about at COP 28 is the concept that there's a lot of talk, and not quite enough action yet. And if we want to hit the goals of science based target goals, want to hit 2030 or 2040, whichever your organization has committed to. The reality is, I mean, we gotta get started now, and we gotta get moving. And, you know, we at Johnson Controls have kind of taken a much more pragmatic approach about this and just said, look, what are the things that we can start to do immediately that have great economic impact, and will make measurable impact on on decarbonisation, and you can't help but default to 40% of emissions come out of buildings. So great place to start. And when you start laying out, what you can go do in buildings on the mat curve are the marginal abatement cost of carbon, and buildings come right up to the top.

Sean McMahon  04:01

I gotcha. So what are the first things that kick off that conversation?

Mark Reinbold  04:05

The first thing to make building decarbonize, you're gonna have to get electrified, right. So electrification of buildings is is critical and a key component that everyone was talking about at COP 28 And it resonated widely was the application of having heat pumps, if your listeners are familiar with the concept of heat pump, instead of burning fuel on site, heat pump uses electricity to move heat from one place to another. And when ever you can move, energy or move heat from one place to another, it's so much incredibly more efficient. And you know, electrification of buildings is the first step into decarbonizing your sCOPe one and and you know, then getting into sCOPe two emissions where the grid is going to be decarbonized. Next, and as long as we're electrified, we're going to be in great shape. The second piece though, is just the simple act of taking buildings and making them much more energy efficient. And energy efficiency in buildings is something that we walk by these opportunities all the time, and Johnson Controls and my team and sustainable infrastructure. And we're doing everything possible to make it easier for our customers and for the world to take action now in buildings to make them more efficient. And we use strategies like net zero buildings as a service, or providing financing vehicles that go along with that work to make it easier. And then I'd say the last thing is the hottest topic is the role of AI. And the role of technology and data in sustainability and decarbonisation. And AI is, is going to be such a big, big topic, not only for what it does in the technology, and using and leveraging data inside the buildings, but also how we go about decarbonizing and making buildings more efficient. And it's, the process is very labor intensive. And AI is a key strategy and how we can start to speed that process up, and use our labor much more efficiently and get to more of the building stock quick, because speed is key. You know, I

Sean McMahon  06:27

don't know what you're talking about with AI being a hot topic, or anybody talking about

Mark Reinbold  06:33

everyone talking about AI?

Sean McMahon  06:34

Hope it's not blockchain all over again. That's all I'm gonna say. So I'm gonna get back to what you said about the things that Johnson Controls is doing to try and make some of these things more simple. And what are some of the points of pushback really, you might get so say you're at COP 28. Right, and you're talking to some business leader, invariably, you gonna run into some business leaders who haven't walked the walk as much as you're saying, and you know, there may be kind of behind what excuses or what reasons I should say, are they given you why they haven't made all these changes? Is it cost? Is it they're waiting for better technology? Or what is it? Well,

Mark Reinbold  07:05

I think everybody is, is looking see what is in the future as far as technology goes. But I think the bigger issue right now is absolutely Where do you want to put your capital, and the capital expense that's required to really get into the hard work of decarbonizing buildings, makes it seem pretty scary to some folks. And end of the day, we've tried to make that a lot easier with what I was talking about earlier, which is this idea of net zero buildings as a service, so that you don't have to lay out all of that capital upfront, you can sort of pay for your energy efficiency and your building upgrades as you go and turn what would normally be a big capex expense into an operating expense. And then we take the energy efficiency, which we think is core to building decarbonisation, and that has economic payback. And when you have economic payback, that starts to defray some of the cost of some or all of the cost of doing the hard work in the buildings and end of the day, that starts to make it a little bit easier and a much better value proposition.

Sean McMahon  08:19

Okay, I want to pull on one more thread about, you know, COP 28 and Davos and global gatherings, kind of like that. You mentioned yourself, there's plenty of talk, and you're kind of hoping for more action. I'll confess, I've never been to either those gatherings but I've covered them for, you know, a decade maybe from afar. And I have some concern that maybe those are perhaps reached a tipping point, or kind of people are tired of all the news that swirls around at all, but to your point all talk and not enough action. So like said you're at COP 20 Is there a sense that people are kind of aware like wait a second, like this gathering is in danger of jumping the shark or is it still like this hyper valuable confab? And everyone's looking forward to Azerbaijan next year and expecting it the momentum to keep going? Or is there kind of a concern that it might be dissipating a little bit?

Mark Reinbold  09:06

So I'm going to answer this as a first timer to COP by the way, I'm going to be perfectly candid, I was skeptical of the value that I would get for spending the time to go to Dubai. And in retrospect, I wish I would have spent more time there. And there was tremendous, great interactions with not only thought leaders, but those who are actually executing. So our entire executive team went to COP we had our CFO there. We had our CEO, Chief Sustainability Officer myself. And I think the trend is is more and more towards, you know, there is great business in sustainability. It's part of everybody's brand, it's part of their value proposition. And the date of commitments that we've made to our shareholders and stakeholders is getting close. closer and closer. So I think it is going to start to pivot towards actually talking about the things that we can do to take action now, away from some of the theoretical conversations that have happened in the past. And that's really encouraging. I left super, super optimistic about the commitment levels and the willingness to go act. Now we just gotta make it easier. And we got to move fast.

Sean McMahon  10:26

So one follow up question to COP 28. So it's whatever, six weeks now and the rearview mirror? Have you had any follow up from some of the folks you've talked to? Because I mean, I've been to a lot of conferences and people are like, Yeah, I'll give you a call. And I'm sure you and your team are being very diligent about following up these people. But and I'm not asking you to name individual, you know, companies or government agencies or things like that. But has there been a good payoff to that, like the the exchange of contact information initially?

Mark Reinbold  10:51

Yeah, I'm the biggest trade show skeptic in the business, maybe. But yes, the answer is yes, we've had a number of large companies reach out based on our presentations and discussions at the Museum of the Future. Jon's controls hosted a really, really well attended event there. And then individual conversations panels that I was on panels that Katie McGinty, our CSL was on George Oliver was on, we've had a tremendous outreach, and, you know, leave some of the companies nameless, but at the end of the day, they, they saw what we were doing, and examples of how we were making it easier, and apply that same logic to their organization. And they're saying, How can you do that, for me, one of the stories that I told at COP 28, and you know, love to tell it to your audience, as well as we were working with one of the large US automakers, in their journey to to move in the energy transition to EVs. And we were right in the middle of negotiations, final negotiations and ended up signing a deal with a large automaker, right after COP, I told the story of how we stepped in to make a very, very complicated and foreign manufacturing process, which is, you know, building lithium ion batteries in clean rooms. That's not what the automakers had been focused on for the past 100 years, right? factories have gotten cleaner, but not a cleanroom environment, like where you make chips, right, like semiconductor environment. And, you know, Johnson Controls, and my team is stepping in for one of the automakers actually two of the big automakers to operate, maintain those facilities. And to do it on an as a service basis, telling that story. We've had connections with other automakers. We've had other folks in other industries like manufacturing and industrial, that have reached out and said, Wow, that's we didn't know you did that we didn't know that Johnson Controls are willing to step in, and actually take on the risk, and to contract for outcomes. And we'd like to talk about that. So for me, it was a huge hit. Okay,

Sean McMahon  13:11

and so you've mentioned a phrase a few times now. Net Zero building as a service. Yep. And expand on that a little bit. I mean, I'm familiar with it. But some of the listeners might not be. So what are the principles of that?

Mark Reinbold  13:20

Well, the principles of this is, it's pretty common. And we've built on the idea that, you know, we can contract for outcomes. So we are legacy. And when I say it's common, I shouldn't shouldn't say that. It's been around in the form of performance contracting. So you think back about energy performance contract in the United States, at least, it's been around for 40 plus years. And all of it is based on the idea that you want to transfer risk, have a single party to come in an execute work, and have a financing mechanism that goes with it. So we've built a tremendous amount of expertise for one of the largest legacy ESCOs in North America. And we've also built a business that's called buildings as a service. And that's where we come in and operate entire buildings. When I say operate them, I mean, we can build the infrastructure will operate, maintain it. And we'll take care of it all the way through its lifecycle. So when I combine, you know, our history and our performance and performance contracting with the operations, maintenance and lifecycle that we can do for a building and buildings as a service, you get to this idea that it isn't that much further with great partners. And with additional capability that we've built up over the past couple years, that we can then now start to manage the supply side of energy procurement. We can also do what we do best and making buildings efficient. digitalize those buildings And then operate and maintain them over the period of up to 2030, even up to 50 years. So when we put all that together, it makes it so much easier for somebody to say, hey, I want to buy a building that has high performance, and that operates at net zero, then to try to go piece all those things together themselves. And end of the day, we just make it a simple, easy one monthly or annual payment for them, and bring all that together. And we'll live up to the commitment of delivering that zero building as a service, or will make them financially whole for not doing so one of the two.

Sean McMahon  15:41

Wow. So there's a little financial, you put your money where your mouth is, we

Mark Reinbold  15:45

do I mean, we take pride in my team in in managing risk on behalf of our customers. I mean, we have a massive portfolio in this business. And we have six and a half billion dollars of open guarantees sitting here right now that my team manages. So it's really not very much of a stretch for us to move into managing those outcomes around Net Zero buildings. And it makes something that just a lot of people just don't want to deal with it. They want the result. And a lot of our customers are saying, just give me the result, you take care of the process.

Sean McMahon  16:20

You know, we're talking about Net Zero buildings, obviously smart buildings. And when we talk about that, we're talking about buckets and buckets of data. Right. And I know when I was in research, before I talked to you, you guys recently put out a report where you collaborate with Forrester Research on smart building data and trends kind of in that sector, how it's collected, how it's used, things like that, if it's collected, if it's used, what were some of the key takeaways from that study, or some of the key findings?

Mark Reinbold  16:45

Well, I mean, that study was so conformational of everything that we've been talking about at the beginning part of this conversation, I mean, we we went out, we interviewed almost 3500 customers was very conformational, in that sustainability is a top business priority for our customers. And for those that were surveyed, I think everybody came back and said, look, it's going to be really, really hard to get to these results and to get to their commitments without great partners. And, you know, partnership is what we're all about when I'm talking about the idea of net zero buildings and service can't do that without a partnership, and somebody that you trust over a long period of time. But the thing that probably comes back to the data and AI question is that overwhelming majority said that smart buildings have to be leveraged. And that's something that is, you know, sort of music to our ears as we've built out our open blue platform. And open blue is our digital platform and digital technology that leverages AI to help make decisions based on the data that's coming from buildings, we make good decisions with that data that drive meaningful outcomes. And I just love seeing that come in from the building owners. And then you know, I think there was an expectation out of that data in the survey, that AI is going to be a part of the answer. And we certainly see that. And we certainly see that if we don't leverage AI, we just can't get enough, done fast enough, and cost efficiently enough to really hit the targets across the massive amount of building stock, you know, that we're talking about. I mean, when we started our journey and started to build out the team that I operate globally, now we did some market back research. And you get to the point where you look and say, once the market is over a trillion dollars of market opportunity, it's just so massive, that even as a supplier, you start to look at and say it's a little overwhelming. Can we put the if we put everybody in the industry to work, right now? Could we get all that done? And the answer really is not without technology, not without digital, and not without AI. Okay,

Sean McMahon  19:17

so let's get in the weeds a little bit on the AI piece, you know, kicked off this call kind of joking, but seriously joking about how it's everywhere. It's everything everyone wants to talk about. Right? What are some kind of real fine tuned ways that AI can deliver on some of the things you're talking about? I mean, is it you know, H HVAC ways he controlling Heating and AC? Is it further up the supply chain or even the building chain or what what does it look like? Well, I

Mark Reinbold  19:41

think it's a lot of all of those places, but I'm gonna try to give one sort of concrete example. We're working on taking a part of open blue called Grid interactive optimization. So we believe that the buildings need to be part of A operational part of the utility grid. And what I mean by that is the greatest stressed and you think about EVs that we're moving to a lot of new load, you think about electrification of buildings, which I talked about, which is absolutely essential to decarbonisation, the building stock. And then the third piece is, as much as we love AI, it also comes with the price of more and more data centers that are being added to the grid. So when we start to think about our building stock, it can be a very, very effective, what we call virtual power plant. And the idea here is not totally new, because for those who've been in the building industry, you'll know what I mean, when I say demand response, right? Demand Response, utility sends out a signal, the building shed some load based on a pre programmed scheme that, you know, maybe it shuts the lights off, maybe it raises the temperature a degree or two. But if you really want to drive a bunch of value in that virtual power plant, you got to get much more advanced. And you got to start to think about how can I impact Shawn's office right now, to the maximum extent without making him uncomfortable. So the idea here would be, you know, in the case where a building needed to shed load, and and we apply AI, I start testing, you shall hunt. And I say, All right, today, 68 degrees, tomorrow, 67 degrees, until you get up and actually go press that thermostat, I'm going to keep lowering the temperature sensor, here we are in winter, until you're, you know, uncomfortable and you do something about it. Because everybody has a little bit of a different reaction, right to, you know, changes in an environment. AI will allow us to make all of those do all those tests without the intensive labor that would be required to go do that. Because in the past, what I'd have to do is send out an engineer to go sit with you and say, Hey, Sean, what can I take your office down to you 65 degrees, Will that be okay? And you know, in a situation where we need to give back power to the grid. So having those sort of mundane decisions made by AI will enable us to build a product and grid interactive optimization, that creates massive amounts of opportunity, both economically, and capacity. And then you take it one step further, you start to say, All right, now we have not only that just basic example of changing the temperature in your office, but you're going to have batteries in the form of bidirectional EVs sitting in your parking lot. Well, who's going to manage the charging and discharging scheme of all of that, that would normally have to be manually programmed AI makes all of that simple, easy and efficient. And it's, it's something that hopefully, that practical example will give just a little bit, you know, to your to your audience, about how we can actually make economic impact and speed things up using using AI and in the building space.

Sean McMahon  23:12

Yeah, definitely appreciate that example, in terms of, you know, smart building technology and trends, obviously, AI, were there any key recommendations out of that report, with Forrester on smart building trends? I

Mark Reinbold  23:23

mean, I think that the biggest recommendation is that we gotta move, and we got to move fast. And we have to, you know, leverage the technology we've been talking about. And frankly, I think, you know, the other piece is, we just got to make this this easier and simpler to go to. So

Sean McMahon  23:41

do you have any showcase projects, you know, kind of trophy projects that you're really proud of that really you think exemplify from start to finish the processes and the improvements we're talking about? Yeah,

Mark Reinbold  23:51

absolutely. I mean, other than I'm very, very proud of the ones we talked about in the in the automotive space and the Eevee energy transition, but one that's really kind of gives you a sense of, of making this easier, and making it real is University of North Dakota, we did a project with them. And they had been a lot, longtime customer of John's controls. In fact, we we found, we found invoices from this customer back from like, 1912. I mean, I don't know if your listeners know this, but John's control is almost 140 year old company. We have very, very long term relationships with some some customers. And this customer came to us and you know, they're in frozen tundra of North Dakota. And steam plant is their lifeblood, right, especially, you know, during the cold winters that we're experiencing right now. And they had a coal fired power plant sitting in the middle of campus. Now you can you imagine being a university president and trying to recruit students, and the first thing that they roll up to your campus and see is a steam steam plant that's powered by coal. So President said hey, listen Not only is this thing outdated, we want to decarbonize, but it's a real eyesore right out in front of the front of the campus, can you guys help us because we don't want to go to the legislature and have to ask for $100 million to replace it. So we went to work. And we figured out that by moving that to an infrastructure as a service model, providing financing, providing the operations and maintenance of that new plant, we were able to tear down the old one, build the new one, and keep them neutral, on what their annual operating expense. So you can imagine the university president is coming back to us and saying, not only do I not have to worry about this asset, I don't have to ask for $100 million from the legislature that they weren't going to get. And then the last piece is I get a brand new shiny steam plant that's natural gas fired helped me on my path to decarbonisation, not all the way there, but certainly a huge improvement. And I can do all that for the same annual payment that I'm making right now. So it was a huge, huge win for the university. And then along the long term customer for Johnson Controls that we couldn't be more proud of the partnership.

Sean McMahon  26:14

That sounds incredible. In the world of you know, everyone's trying to decarbonize and the energy transition. You know, we've seen tremendous growth in renewables, wind, solar, and also store energy storage, you know, battery. So I've got to imagine that those sectors advancing has changed the conversations you're having with clients or prospective clients, when we get back to that point about, you know, buildings are gonna become kind of a two way thing instead of just energy consuming. How has that changed? How is those technologies moving forward and becoming more commonplace? How has that changed your conversations? Well,

Mark Reinbold  26:45

it's a great question. And we've been doing solar, with our customers for 1015 years. I mean, we took, we took University of Hawaii, completely off grid. So the University of Hawaii came to us and said, Hey, listen, we want to remove ourselves from reliance on diesel generation, which, by the way, wise grid is mostly diesel, and through what we do inside the buildings and making them more efficient. And then deploying pretty good sized solar installation, along with energy storage in the form of lithium ion battery, battery storage, we were able to give them all the way to net zero. And you know, of course, they're not off the grid. That's that's, you say that in air quotes, but they are fully sufficient on their own power production. So they were one of the first and you know, I quote, a lot of universities, because you can obviously see they're first movers in the space. And they have a long time horizon. But a good deal of our customers in the public sector and in the private sector, are expecting to see renewables as part of their project. And then you can imagine the IRA, with the ITC enhancements, that's the investment tax credit, has really just put a whole new life into the renewable space battery storage and solar. So we're happy to deploy it ourselves. We also, you know, use a partner, a number of partners, that can put it in the form of a power purchase agreement. And you know, the key is making it simple, easy, and having great economic value. And that's kind of the core tenet for us is whether it's battery storage, whether it's, you know, solar, we don't do a heck of a lot of wind, because that tends to be utility scale, and front of meter. Most of this behind the meter work that we do, has great paybacks, and is very, very cost effective for our customers. So we tried to evaluate renewable energy on every project. And to some extent, there will be inclusion of renewable anywhere, you're going to go all the way to net zero. And I think that the last thing I'd leave your leave your audience with is, you know, we're seeing a nice trend of converting from the idea of but buying renewable energy credits and having off site production somewhere else or taking advantage of somebody else's renewable energy production to organization saying, Look, I want to bring it on site. I want additionality and I want it local and very visible for my employees and my customers.

Sean McMahon  29:36

Wow. Glad to hear that trend is becoming all more common. So listen, Mark, thank you for your time. I appreciate your insights. This has been great.

Mark Reinbold  29:44

Sean, it's been my pleasure. And thanks for having me on.

Sean McMahon  29:53

All right, everyone. Well, that's our show for today. Thank you all for listening. And if you haven't already, please subscribe or Follow this show on Apple, Spotify, Google or wherever you listen to your podcasts. And as always, please be sure to share it with your friends and colleagues. Have a great day.