James Cook: The demand for electricity is still on the rise, and it's expected to surge even more in the coming years, thanks mostly to the voracious appetite of data centers. But, there's a twist. Our energy crisis isn't just about supply. It's also about waste.

Jonathan Maxwell: Most of the electricity in America is generated in natural gas turbines, and in fact there's some nuclear facilities as well. Both have the same problem. You put a unit of energy in one end, like a molecule, for example, if it's gas. Only half turns into electricity, the other half turns into heat. So if the power station's in the countryside and the demand's in town, what happens to the heat? Nothing, it's dumped. So that's how roughly half of America's natural gas gets wasted, just at the point of generation.

James Cook: That's Jonathan Maxwell. He leads SDCL, a global firm specializing in environmental infrastructure investments.

In this episode of Trends and Insights, Jonathan joins Guy Granger, JLL's Global Head of Sustainability Services. Jonathan and Guy think the key to our energy future isn't just about generating more energy. It's about using what we already have in a smarter way. This includes intelligent buildings and on-site power generation.

Today, we're talking about innovations that could reshape our energy landscape.

James Cook: This is Trends and Insights: The Future of Commercial Real Estate. My name is James Cook, and I am a researcher for JLL.

James Cook: Okay. So we're in a national energy emergency. What are some solutions? Jonathan, I know you're personally working on some stuff. Tell us about what you're doing.

Jonathan Maxwell: The thing that people don't really talk about is that most of it's wasted, and there are two ways it gets wasted. First, getting it to buildings, and second, at the point of use. What we do is we build energy where it's needed, so that less is wasted getting it there in the first place. The other way that we invest is in solutions that reduce use. I don't mean do less; I don't believe in doing less deep growth. I believe in doing more, but I also believe in doing more with less. The opportunity to do that is very much evident in buildings and industry in particular because, according to the Department of Energy and my lived experience of 15 years with 50,000 buildings in 10 countries, buildings typically waste about 30 percent of the energy they use because they have infrastructure that isn't up to date.

James Cook: As an outsider, I'm going to talk in very broad terms. So we're losing electricity because it's being transmitted distances. Is that fair to say? And then also we're not being efficient enough within the buildings themselves.

Guy Grainger: My name is Guy Grainger. I head up Sustainability Solutions here at JLL. Yeah, it's a bit of both. And it's fair to say that Jonathan and I, despite our British accents and the fact that we are both currently in London, work all around the globe on both of these aspects. How do we stop the waste from energy source being transmitted to where it needs to get to? And then once it gets there, how do we make buildings more efficient?

We in our industry, in our property industry, are forever talking about smart buildings. Less than 10 percent of the stock in the developed world is a smart building. So actually, most of the time, buildings are being heated and cooled at the same time, particularly in the summer. We need to find a way through this.

It will require investment. It will require smart thinking. But the payback is unbelievably clear. And I must submit, the demand from businesses to be located in buildings that are super efficient is very strong. The demand from cities to retrofit and develop energy-efficient buildings is really strong.

And actually, nowhere are we seeing policy that's clearer than in the US at a city and state level, where energy use intensity is the major sort of KPI. That is either being taxed in places like New York or heavily monitored in many other cities.

Jonathan Maxwell: If I just give you a few instances about how some of these problems can be solved, if we take basically commercial buildings instead of generating energy in the middle of nowhere and using it in town, instead, generate energy where it's needed. A great example is solar on a rooftop, and you could do that at commercial industrial scale, but even if you wanted to use more conventional fuels...

Most of the electricity in America is generated in natural gas turbines, and in fact, there are some nuclear facilities as well. Both have the same problem. You put a unit of energy in one end, only half turns into electricity, the other half turns into heat. So if the power station's in the countryside and the demand's in town, what happens to the heat?

Nothing, it's dumped. So that's how roughly half of America's natural gas gets wasted. And then another 5 to 10 percent of transmission and distribution even if it was natural gas, if you built that power station at the point of use or close to the point of use, you can use the heat for safer hot water or heating or cooling and the combined electrical efficiency as well as the heat efficiency of the thermal efficiency. It roughly doubles the grid, and that on its own is a great example of a for instance.

Our on-site generators, whether it's buildings or industry, operate at extremely high levels of combined electrical thermal efficiency, even if they're natural gas. But guess what? You could even use waste gases. So for example, steel mills in America, we take waste gases that come off blast furnaces and use those as the fuel. There are extraordinary ways of retooling the way that we actually build and design energy systems to make them lower cost, lower carbon and more reliable.

Guy Grainger: And I think what's really interesting for me, who's been in the property industry for over 30 years and counting, is that actually we've seemed isolated from these other big sectors or industries, but now there is this coming together of buildings, energy, and transport. And if you can get all three right, there is an unbelievable opportunity for entrepreneurs to make money and also provide incredible security to the tenants that want to take those buildings.

Industrial and logistics are taking advantage of this, particularly distribution centers, but also retail parks. We're seeing some entrepreneurs out there that have, I think a lot of people realized, actually you create energy on the roof through solar of a retail strip. The retailers themselves actually don't use that much of the energy. And you can either provide energy to nearby buildings back to the grid or feed it into EV charging for the customers to come. And you've got a new income stream as an energy provider. You're also providing a really attractive place for your occupants to come because they've got secure energy. And as we've seen in places like Europe recently with the recent war, yeah, energies can spike very short notice and actually having security on that because the energy is being produced very close to where you need it and you have direct access to it. This is a real business opportunity that all of a sudden owners of real estate providers of energy and users of energy are coming together to collaborate on.

James Cook: Guy, what happened in that most recent example with when fuel prices go up? That's a pretty big impact on the economy, right?

Guy Grainger: In Europe, the government had to step in because so many businesses would have gone bust. So there were government subsidies, which came in a short place that creates its own problems. But in Europe, over the last five years, you've seen energy prices go up by over 70 percent over that period.

So it's not just these shocks and spikes actually. Generally, very inflationary, and this is having a real impact on the running of many businesses, it's a high cost line now, depending on what sector you're in. So this idea of just focusing on supply is something where Jonathan and I come in strong agreement that actually, because there's so much waste in the system, if you solve for the waste, you can do more with what we've currently got, and we're not suddenly going to go out and build 10,000 nuclear stations or new power stations and even the renewable energy and the transmission takes time to come online. So there's so much we can do now.

James Cook: Jonathan, let's get in. I'm going to dig into an example. Can you tell me about a project you've worked on maybe in the U.S., maybe somewhere in the world where you've created this efficiency?

Jonathan Maxwell: Yeah, I'll give you just a couple of examples, something that's very simple. We started doing a decade ago, but we still do loads of in America and something that's much more zeitgeist today. But a decade ago, we started using something as straightforward as LED. People think now anyway, and it's straightforward like LED lights as a way of installing upgraded infrastructure that does the same job, in other words, provide as much light, but just uses much less energy. So that's where our journey started. We started by designing and installing as a service. There's no upfront capex for the client projects to replace lighting. We've done that with heating, ventilation, air conditioning, building management systems and so on, all of which reduce energy consumption.

So these opportunities are still abundant and there to be taken and can create huge carbon cost savings. Something a bit more zeitgeist today is what do you do if you're a data center? You talk about the energy intense AI data centers, but even for cloud stories and so on. What do you do? And if you want to locate in a major data center location in Europe, Paris, for example, availability of power is an old story there just isn't any if you want to locate here in London, I think it's 2037 for good connection. We've talked about efficiency and on-site generation as a solution to energy demand consumption of carbon, but it's also a solution to availability rather than wait 10 or 15 years or frankly go somewhere else building on-site generation can rapidly advance the availability of energy. It can, as long as it's done in an efficient format. In other words, you are using heat as well as power and you're generating locally not only is it improving the availability of carbon footprint versus business as usual but you're also obviously able to produce a cost-efficient solution partly because the alternative isn't available at all, but even if it was because you're generating locally you're avoiding all of the waste of the system.

About half your bill Guy, I think in the UK has got nothing to do with wholesale energy prices much higher in the UK than they are in America, by the way but it's to do with transmission distribution taxes and all the rest of it. So on-site generation just makes a ton of sense. So those examples we do and data centers now because of the growing demand at Guy's point at the beginning data centers probably are largest and fastest growing market I would say through the commercial sector where you can replace business as usual with soda electrical, thermal storage, lighting, heating, ventilation, air conditioning is our second biggest market.

And then hard to abate industry that is steel, cement and you can take waste gases and even other forms of fuel dramatically cut costs and improve efficiency. So those are some examples of things that we've done 10 countries, 50,000 buildings two and a half billion dollars invested in works.

Guy Grainger: Yeah, we just released some research at JLL showing that in the U.S. 76 percent of the industrial logistics facilities are over a decade old. So they were developed out when actually energy efficiency was still in its, and smart building technology and on-site renewable energy was still in its infancy. So if you think about that is a lot of facilities around a very developed country, the world's biggest economy that really need some care and attention. And there is a huge opportunity to optimize when actually, whether it be the transport or the logistics or the actual industrial things that take place in those facilities can be made far more efficient.

And that is a real opportunity going forward.

Jonathan Maxwell: I think the last point I'd like to add to that is time. All of those things can be done now. The projects that I've described to you can take a few months, maybe a year or two to design and implement. I'm saying that because most of the language around the energy system at the moment is around good, war, large scale generation.

A big, enormous number of column entries dedicated to nuclear power plants, small modular reactors, and so on, which is great, and to be celebrated again. However, it's going to take a decade. Plus, what are we going to do in the meantime, and energy cost is now, affordability is now, productivity is now, business is about now, competitiveness is now, carbon emission reductions, if that's what you're interested in, is now, if we're talking about implementing projects in the 2030s and 2040s, it's done, our carbon budget's over what are we trying to solve, if it's for carbon, if it's for cost, or if it's for reliability, that's why efficiency comes first.

It doesn't mean we shouldn't be building nuclear power stations, renewables, and the rest of it. But efficiency comes first, and if you're going to plug the new stuff into the system, make sure the system isn't leaking like a bucket, like it is at the moment. If two-thirds of the beautiful energy that we have in the world is being wasted, why don't we do something about that, so that when we're ready to produce large scale clean energy solutions?

James Cook: So are there obstacles? One of the solutions for efficiency is to generate, have smaller energy generation on site. Are there obstacles to that around zoning or government obstacles that you have to deal with? Cause you are creating electricity on site.

Guy Grainger: Yeah, I think cities have got a bit more of a challenge because there's less space, there's less roof space, there's less actual space to create the energy, and then if it's being created nearby, then to transmit the energy. So this is probably why city mayors are paying so much attention to energy efficiency because actually it's harder in a built-up area to get those on-site solutions very close to the use. And you're seeing policy really change as a result of that. New York probably being the most high profile. And, that all came out of a situation where a climate event, Storm Sandy, created a blackout and they just couldn't get the energy back up. So this stuff is real risk to business. And so I'd say cities are probably the biggest challenge area for us to get that energy closer. But the further you get out, and that's why there's a lot of noise around industrials, around data centers, actually, they are solvable. When you've got a bit more space.

Jonathan Maxwell: Yeah, they are. I'm going to take the ball that you threw up in the air about city mayors and run with it for a second time because we've, I agree with you. I think city mayors are getting much more focused around what you do in cities. A lot of them have announced decarbonization goals, but also, obviously, alongside that, they're trying to find ways of making energy affordable and available for their citizens and to business and to make them attractive places to do business. I mentioned London earlier. London has really significant power constraints. Yeah, it's very difficult. In fact, it's impossible to attract new data centers or indeed even to provide reliability absolutely assured reliability to industry today. And indeed to build major generation, centralized utility scale generation. The facetious way of explaining that is how many offshore wind turbines can we put in the River Thames. It's just not very practical. What do we do in London? And it's as a result of that, that we established a joint venture partnership, which I had to work JLL, by the way, going forward with the mayor of London.

And the mayor of London came to us and established a collaboration where together we both invested 50 million, the London Treasury invested 50 million pounds. I invested 50 million through one of our funds to create 100 million pound fund to decarbonize London. But to your point, Guy, not by building conventional power generation or utility scale renewables connected to the grid, but it's called the London Edge Fund stands for efficient and decentralized generation of energy. It's about building energy in town where it's needed, heat pumps in a fifth generation, as they call them, ambient heat networks and, on-site solar introducing thermal as well as electrical storage. So we have got an incredible array of cost-efficient technologies that can be implemented locally in town to get energy where it's needed.

And to your point, Guy, also just going out to attack that waste. Going into universities across the city to strip out the waste by replacing their infrastructure. Going to hotels across the city to strip out their infrastructure. We've retrofitted hotels with building management systems, controls, steam traps, shower heads, new toilets. I know it doesn't always sound that glamorous, but all of these things can reduce the energy demand footprint. And that's what we're trying to do. And I completely agree, Guy, with your point that cities mean business and mayors mean business and this is good business.

James Cook: It sounds to me like the devil's in the details here. There's not one solution for efficiency, but it's paying close attention to many small things and doing them together. Is that fair to say?

Guy Grainger: Yeah, it is fair to say. I think also doing things at scale is important. Whereas actually a lot of these efficiency measures are granular. And yeah, Jonathan, I often talk about this and I say the trouble is that energy efficiency isn't as sexy as building a power station. Because that's big, lumpy, whether it's politically or commercially, impact at scale. Whereas what we're talking about actually is the hard graft. But you can do it across portfolios. We have sustainability program managers across portfolios of our corporate accounts who really drive efficiencies across all types of buildings. Across international borders, I'm quite critical of people that boil things down to the uniqueness of certain nationalities or locations because of regulation, but to be honest, energy efficiency is pretty much the same the world over because buildings are pretty similar. They're not complicated and you just have to work out whether you're in a cold climate or a warm climate, but usually you're powering something. You're either cooling or you're heating. And the problem with a lot of older buildings is that those two things are often too attached.

We've got multifamily buildings all over developed cities where actually the heating and the hot water is attached. That's just not going to work in the summer because you're still going to have very hot water pumping through the heating systems as well as the hot water systems. This is dumb stuff that was designed decades and decades ago and we have to get smarter about it. But the amazing thing is, imagine how much money we can save.

Jonathan Maxwell: And I think that's the thing, right? The energy sector or the buildings sector as well, frankly, the biggest problem is the energy inefficiency, but it's the biggest opportunity. And, to your point, no, it's not one solution, you don't go out just with a bag of light bulbs and fix it all.

But the good news is, there is a toolbox. And there are things that work and that could be scaled through replication, and if they could be scaled because they may be a larger solution, like a district energy system, they may be smaller solutions. Like I mentioned in the case of the Santander project, where it's a rollout across a platform or a portfolio of buildings, but scale through application or scale on its own right.

But there is a good answer to these questions here. And I would also add because it made this in case it's not obvious that the things that we're talking about here on site generation and efficiency using these types of applications are established. They've got 10 year track records. Most of what I read about in the press, because it's interesting, is the next new thing, will small modular reactors, will this work, will that work?

The great news about what we're doing is that 10 year track record. It will be 2040 before the world's first, or at least the Western world's first, small modular reactor at scale has a 10 year track record. This stuff works today. So we've actually got, not only have we got the toolbox to solve this problem, but we've got it now, and we know it works, and we know it's cost effective.

Guy Grainger: And the advantage of that is you can raise capital against it because you've got the track record, which is effectively what Jonathan is doing. And whether it's in partnership with cities or with corporates or with capital investors being able to raise capital is exactly the same as being able to take a business case to a board.

You can prove you can get a return on your investment that you're making in year one. And there's plenty of opportunity out there still to do it.

James Cook: You both are very close to this, so I'm going to ask you to test a theory I just learned about recently. You've probably heard of, is it Jevons Paradox? I'm not an economist, although many of my friends are, and here's how they explain it to me. Here it is. Once you get efficient, the cost of something goes down. But that only means that because it's cheaper, people use it more. Now you're actually out there creating efficiencies. So Jonathan, I should ask you, does that happen? Do people use more whenever you save them on energy?

Jonathan Maxwell: Okay. I'm familiar with the paradox. There were some other paradoxes or at least ideas that Jevons came up with, which were utterly disproven, but the Jevons paradox is very interesting. Big feature of the tech industry, which I'll come back to in a second, but the short answer is my lived experience, which is having invested in projects involving over 50,000 buildings in 10 countries is that we have seen in reality, no evidence that after the installation of equipment that reduces energy footprint, that there is an expansion of consumption per se, for example, we retrofit all of the car parks for a company called National Car Parks NCP in the UK. It was the same product light. It just used less energy. Same time there, same product light, just use less energy. That would be a good example when we produce power and steam for steel mills or industrial facilities. They use the same amount of energy they just, it's just less is wasted.

Yeah. I would say that there is a flip side to it though, which is that I'm skeptical about the Jevons paradox itself, but I'm also, there's an element that I would like to believe is true, and maybe this isn't the normal way that an efficiency person would address this, let's apply this to the data center market, like right now.

You can't do very much in terms of building a new data center because you've got huge constraints. So what if this was actually true? What if we, by building energy efficient infrastructure, we could find a way for people to do more? More with the same. In other words, reducing natural energy waste, but actually producing more power, more cooling systems.

And frankly, we need Jevons to be right in that respect. We need to be able to do, to be much more competitive, much more productive to cut the cost, improve the availability and improve the carbon footprint. But the only way we're going to do it ironically is by using efficiency, efficient technology.

And, actually that's where the technology industry is talking about Jevons and how they're using it, not as a to beat the head of the efficiency story, but instead to promote it by saying, Look, if we produce more efficient chips, more efficient technology and architecture inside of data centers, we can do more compute with the same. And, I would say that this is the really important thing. Please, we need to do more. Europe can't afford to do less. It can't afford to go into recession because it doesn't have enough gas or it's too expensive. That's what's happening though in Germany and Italy. Industry is struggling because of the cost of energy.

We have to do more. But we have to do more using less, and the only way you can get at it is efficiency. So in, I've never thought about this until recently like this, but I actually hope Jevons is right. Not because it's an argument against efficiency, but because it's a very good way of making efficiency work better for the economy.

James Cook: We've got time for one more question. So Jonathan, I'll ask you first and then I'll guy, I'll have you close it out. So Jonathan, you're on the ground dealing with this every day. What let's say in the next five years do you think that this focus on efficiency or do you think it's in danger of going away or is it growing or where do you see things going?

Jonathan Maxwell: So our whole business and all of our investment is going in with one principal objective, right? And it's to transform the way that energy is used. I hope that we can have a really substantial impact on that by introducing much more directly by having my developing and investing in much more efficient energy supply by building it closer to the point of use and by stripping out waste by upgrading infrastructure inside of buildings and it will cut costs, carbon, improve resilience, and I want to have that kind of direct impact with our firm and with all of our funds.

But we want to have an indirect impact. The indirect impact is just showing what can be done so other people do it too. And we are, we've currently built probably the largest platform of its kind in the world. We don't want to be the only platform of its kind. The best, yes, but not the only.

What success in 2030 looks like to me is that we would have had a direct impact. We would be making money for our clients because they're paying less for energy. We're earning a reasonable return for our investors because we're delivering high quality energy services reliably for them. But I think genuinely what I'm trying to achieve with the firm is actually to use that as a way of transforming the way that energy is used right now. There is profligate waste on a national system basis and on a local basis. I hope that companies, shareholders, ask companies and that, voters ask governments how much energy is being wasted in their business or in their system, why and what they're doing about it. And, I will then be here together with companies like JLL and the rest of the industry to answer the question about how it can be dependent on finance.

James Cook: Guy, how hopeful are you for, say, the next five or 10 years? You think more focus on sustainability, more focus on efficiency? What do you see from your point of view?

Guy Grainger: I'm not sure I like the word hope because it suggests that you don't know what's coming next, but I'm really interested and pleased to hear Jonathan talk about that in using the terminology, the dirty secret of the energy sector, because it feels like there's some home truths coming out. But I know having been on an executive board that, of course, every business out there is driving to be as efficient as possible. You're always looking at the competition. You know that, whether it's economic headwinds or other things, there's always stuff that's going to come along to prove you, to prove a challenge to you.

So you want to be as efficient as possible. But there's one thing that trumps efficiency over everything, and that's the ultimate risk of going dark, right? And the reason that this isn't about hope, but it's a real thing, is there are many grids that are on the verge of going dark. There are many locations that still have blackouts. This is the reality of the situation. There isn't enough energy to drive the growth everyone wants out of the economy. And that fear, which is in every executive's sort of heart of going dark in a critical asset data center, lab, manufacturing plant, you name it. That's real. That's why when we do a location analysis and search for these corporate clients, for these critical assets, the first question is, tell me about the energy supply. And then they talk about, okay, what about the efficiency of the building? They want to go closer to the source or they want to bring the energy closer to them. So yeah, this is all about efficiency, but don't underestimate how going dark and blackouts is the biggest fear in the system. And yeah, that, that will still happen. And when it does, there will be a huge response and every business out there is trying to really be proactive rather than reactive to that hideous situation when your critical asset goes dark, because that's when the business gets in real trouble. For me, this is as much about security as it is about efficiency, and you can kill two birds with one stone. That's what we're about.

Jonathan Maxwell: I completely agree.

James Cook: Excellent. We're making efficiency cool. We need we need to get some I don't know, like some rock bands to do some videos for efficiency. I don't know. Maybe that's probably not cool. I sound really old right now. We need some t-shirts made up anyway. You sold me. This is fantastic. Jonathan, Guy. Thank you so much for joining me today. This has been a fascinating conversation. Thank you so much.

Jonathan Maxwell: Thank you.

Guy Grainger: Thank you.

James Cook: If you liked this podcast, do me a favor and go into the app that you're listening to right now and give us a rating. Even better. Give us a little review, just write a sentence about one thing that you liked about the show. Of course, you need to be subscribed to Trends and Insights, the future of commercial real estate in that same app to get a new episode every time we publish. Or you can find us on the web anytime at jll.com/podcast. We'd love to hear from you. Send us a message, a note, an idea for a new episode, whatever. Email us at trendspodcast@jll.com.

This episode of Trends and Insights was produced by Bianca Montes.