By Greg Kats*

The International Performance Measurement and Verification Protocol (IPMVP) was developed to solve a challenge: how to enable energy efficiency to become a more substantial industry. 25 years ago, energy efficiency projects were smaller standalone projects designed, documented and defined in hundreds of different ways that resulted in a hodge-podge of approaches, multiple documentation and transactions costs. This resulted in higher costs of energy efficiency projects and higher cost of financing, and an inability to use modern methods to financing energy efficiency. For example, it was hard or impossible to do off-balance sheet financing or pool energy efficiency (EE) projects for funding through bond markets.

As the newly appointed Director of Financing for Energy Efficiency and Renewable Energy (EERE) at the US Department of Energy I was keen to help solve these barriers. I was fortunate to work with Art Rosenfeld who joined to serve as an advisor to the Assistant Secretary for EERE. Art is widely described as the father of energy efficiency, and we had met ten years earlier.

Our initial idea was to create a new quasi-governmental agency based on Sallie Mae¹ and Fannie Mae.² The name I came up with was Effie Mae. We spent some time on the idea until we realized it would take many years to develop, fund and build such an institution. Instead, we thought we should better understand more precisely why banks that said they want to finance EE did not, and then to solve the obstacles to doing so.

To help us map a way we organized a daylong session and invited the heads of various EE organizations such as NASEO, NAESCO, as well as seven senior VP level energy bankers from Wall Street banks – all of whom I had spoken with about the Effie Mae idea. We structured a very tightly organized discussion around why these banks were not investing more in EE. Secretary of Energy Hazel O’Leary kicked off the meeting. From this and subsequent discussions Art and I launched what we called the North American Energy Measurement and Verification Protocol (NEMVP) – but we were not thinking broadly enough! The protocol would soon become international with the publication of the first version of the IPMVP in 1997.³

The process was a long one because it involved developing a best practices consensus around how to design, specify measure, verify and document EE projects and savings. Doing so required persuading dozens of for profit and not for profit organizations to give up their proprietary M&V approaches and to adopt a consensus approach. This involved a lot of giving credit to organizations and by individuals to persuade them onto the IPMVP bandwagon. It was also greatly helped by early key supporters such as Steve Kromer, Jeff Genzer of NASEO, David Carey at Fannie Mae, Dave Kuncio at Citi and Glenn Tobias at Banque Paribas.

During this process, we developed a saying which is that “if you convince 100 people they are the father then you are guaranteed to have a successful child”. To this end, I wrote a thank you letter from the Secretary of Energy to the 100 or so key people in the industry we wanted to feel a paternal role about IPMVP and had the Secretary sign the individualized letters. (In reality, these letters were “signed” by the Secretary’s autopen, a fact that has not been shared before!) And two years later we did another such letter.

The upshot is that IPMVP gained broad support and adoption, and through a multiyear process involving a few hundred volunteers on various committees we developed the IPMVP as the industry standard. We also broadened outreach to include EE experts and government officials from a dozen countries, so IPMVP became international quite quickly (hence the name change) and was translated into multiple languages.

I had the opportunity to Chair the IPMVP effort for its first seven years. IPMVP Inc. was incorporated as a not for profit organization in 2001 to maintain and improve the IPMVP over time. In 2003 I stepped down as chairman. Within a few years under the leadership of Steve Kromer, a new organization called Efficiency Valuation Organization (EVO) was formed that is now the parent organization for the IPMVP and has broader EE aspirations. In the early years, we were greatly helped by the hiring of Satish Kumar a very capable energy expert who staffed the effort for at least five years and went on to become the Chair of EVO.

During my years as Chair, I had the opportunity to organize and run several workshops at the World Bank on IMPVP and energy efficiency financing, including work with then World Bank VP Richard Stern. We worked with the World Bank on what was then the largest EE project in the world to date and involved privatization of housing in Russia. In work with Dennis Whittle, co-head of a special project for the World Bank President, it became clear that the project success hinged on ensuring standardization and delivery of comprehensive energy efficiency upgrades, all of which was addressed with an early version IPMVP. This led to work supporting other multilateral development banks, including the EBRD and the Inter-American Development Bank, all of which were trying to expand the scale of EE lending. The IPMVP proved an essential tool in doing so.

One of the objectives of IPMVP was to standardize documentation and project design sufficiently to allow project pooling and to create asset class for EE that was sufficiently similar and rigorous to enable off-balance sheet financing for EE as an asset class. It took about five years for this to happen and it has been an important step forward for the EE financing industry.

It also became clear that the EE industry was limited by lack of M&V experts. In conjunction with the Association of Energy Engineers (AEE), we developed an M&V training and certification program called the Certified Measurement & Verification Professional (CMVP), that tests and awards technical degrees internationally to M&V experts and this is now the global credential for EE M&V.

At the same time, I was involved in designing a new green building standard - LEED, including at design workshops in places like the Rockefeller estate retreat in upstate New York. I served as chair of LEED’s Energy and Atmosphere Technical Advisory Group and on the LEED steering committee of its first 6 or 7 years. These roles included defining how much energy efficiency LEED would require and how LEED users would be required to undertake their energy efficiency projects to ensure savings. IPMVP was the obvious standard to serve in this role and has been the EE M&V basis for LEED and most international green building standards since then.

Although the IPMVP has had a huge impact in expanding the energy efficiency industry it did not achieve all we had hoped. The transaction costs of EE projects were substantially reduced but are still too high. And there are market design failures. For example, the value of CO₂ reductions that result from EE investments still generally do not go to the building owner or project developer – instead, they default to the utility. This strips out an important financial incentive. The IPMVP provides a powerful way to document and claim these CO₂ reductions and to allow the value of these CO₂ reductions to be included in the transaction - thus driving better returns and deeper retrofits.

To address this problem six years ago Don Kennedy (former President of Stanford University) and I launched an effort to create an initiative to shift the value of the CO₂ to the building owner. It is called CO2toEE and has gained broad support from a broad range of organizations including BOMA International and the National Electrical Manufacturers Association. There is now interest at the California Energy Commission and elsewhere to make this change in CO₂ ownership starting on a pilot basis. IPMVP/EVO is in a strong place to help enable and drive this logical reallocation of the value of CO₂ that results from EE investments, and I believe this should be a priority for EVO and IPMVP going forward.

(*) Greg Kats is President of Capital E, a national clean energy advisory and venture capital firm.

END NOTES

1. SLM Corporation (commonly known as Sallie Mae; originally the Student Loan Marketing Association) is a publicly traded U.S. corporation that provides consumer banking. https://en.wikipedia.org/wiki/Sallie_Mae
2. The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the New Deal, the corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities. https://en.wikipedia.org/wiki/Fannie_Mae
3. Here is a link to Art Rosenfeld’s description of the early IPMVP years.