How Can Increasing Interest In Energy Efficiency Help Johnson Controls?

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In the latest Energy Efficiency Indicator survey conducted by Johnson Controls (NYSE:JCI), the company found that the interest and investment in energy efficiency “are at an all-time high.” The survey of over 1,200 facility and energy management executives in the United States, Brazil, China, Germany, and India showed that 72% of the respondents expect to increase their investment in energy efficiency over the next year. What’s noteworthy is that the same metric for 2013 was at 42%. In China and India, a whopping 85% and 89% of the respondents planned to increase such investments.

JCI EE Investment

Another key finding of the survey was that heating, ventilation, and air conditioning (HVAC) was the “most popular improvement over the past 12 months,” with 63% of the organizations conducting HVAC improvements. Moreover, 80% of organizations plan to achieve nearly zero, net zero, or positive energy status for at least one of their facilities, compared to 49% of those surveyed in 2013. This means that 80% of companies expect to have at least one building that offsets all of its carbon emissions, implying massive investments by companies for energy efficiency in the future.

HVAC

Energy efficiency is at the core of Johnson Controls, and the company has 125 years of experience in developing and providing energy efficient solutions, which are innovative, cost-effective, and scalable. According to Bill Jackson, president of the Building Efficiency segment, “energy efficiency is the center of a major transformation of our buildings, energy systems, and urban infrastructure.” Much of their work focuses on driving down energy costs, which is the main driver for the adoption of such solutions by organizations in the commercial, industrial, and government sectors. Since in many sectors heating, ventilation, and air conditioning represent a significant proportion of the running costs, most are keen to boost the efficiency of such systems. While reducing business costs is the main reason for energy investments, companies are increasingly factoring in customer and employee attraction, greenhouse gas reduction, enhanced reputation, government policy, and investor expectations when making such investment decisions.

In the US, rising energy investments has become a key priority. As reported by the Bloomberg New Energy Finance, the electricity demand in the country has been flat since 2007, as opposed a  CAGR of 2.4% during 1990 to 2000. A key driver for the decoupling of electricity usage and GDP growth has been numerous state policies promoting energy efficiency; electricity load growth in 2015 clocked in at only 0.5%, compared to a growth of 2.4% in the GDP. Meanwhile, annual investments in energy efficiency have continued to grow.

Electricity Generation- US

As noted by the International Energy Agency (IEA), the uptake of economically viable, energy efficiency investments have the potential to boost the cumulative economic output by $18 trillion through 2035. Hence, the potential for Johnson Controls in this field is massive, as the need for energy efficiency to support economic growth, enhance social development, and advance environmental sustainability will likely continue into the future.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Johnson Controls.