Commercial, Demand Management, Energy Efficiency - April 18, 2016 - By Ellen Bell
Filling the gap: How efficiency standards could save billions in commercial real estate
No one ignores an opportunity to save billions of dollars. Numbers of that size are enough to make an audience take notice, even in a business like commercial real estate, where deals in the hundreds of millions and billions are commonplace.
Each year, the U.S. spends more than $400 billion on energy for our buildings, many of which were constructed before modern energy codes existed and, as a result, use more energy than they should. This efficiency gap has led to the creation of a $20 billion retrofit industry, designed to help building owners and managers overcome barriers that deter them from tackling energy costs such as lack of information, misaligned financial incentive, or insufficient capital. In my hometown of Chicago alone, buildings could save up to $184 million in energy costs if more aggressive energy management was pursued, just including the ones reporting data.
Given the numbers, we know the opportunity to improve a building’s bottom line is huge, so why are so many still ignoring energy efficiency? For one, retrofit projects are still a heavy lift for many organizations. Although there are quite a few reasons for this slow progress, lack of uniformity for comparison and verification of results stand out as clear obstacles. Having worked with numerous building managers and engineers on efficiency projects, I’ve seen these barriers firsthand countless times.
Opening the door for more efficient buildings
We all know standardization is essential for manufacturing products; standardization was the key to the industrial revolution. Additionally, every financial market - mortgages, auto loans, commodities trading, stock exchanges, bonds, credit cards – can only achieve and operate at scale with standardization.
For the real estate industry, however, it is not so simple. Building owners and investors often perceive energy savings and financial returns as unreliable, creating a major barrier to investment. For a long time now, energy efficiency experts have been helpful in saving buildings energy, but it has been difficult to establish consistent and comparable metrics.
In an effort to answer this conundrum, EDF’s Investor Confidence Project developed standardized tools to better assess performance risk, and build trust in both financial and environmental results. With a certification called "Investor Ready Energy Efficiency” projects, the Investor Confidence Project, or ICP, measures a building’s savings over time, and ensures that investments are paid off in the form of reduced electricity bills.
More needs to be done in order to standardize the energy efficiency marketplace. The ICP approach is just one solution. Overcoming this challenge will remove one of the major barriers to scaling the $20 billion retrofit industry and capture the vast potential of energy efficiency trapped in buildings throughout the country.
Solving problems for engineers
Coming from the world of industrial sustainability (where there are audits and protocols for everything), it was immediately clear to me why standardization can offer valuable tools to the engineers on the ground, who often struggle to measure and verify the value of an energy efficiency project. They need to create a simple, straightforward picture of the process and metrics involved. This allows those who know the building best to make the business case for upgrades in a way they haven’t been able to before.
For example, imagine a building engineer identifies an opportunity to upgrade the lighting in a property’s common areas, but the building manager hears the upfront cost and says it’s not worth the investment. The trademarked Investor Ready Energy Efficiency certification, for example, would enable the project developer to create a detailed business case that outlines the anticipated savings and builds confidence based on industry standards and third-party review.
By following the process from baselining to measurement of savings once implementation is complete, the engineer could clearly demonstrate the project’s value.
The increasing number of energy benchmarking and disclosure regulations across the U.S. have already led to a growing body of tools that can help property managers and engineers identify potential energy efficiency projects. That said, the sheer breadth of technologies and providers in the marketplace can be overwhelming, and often commercial real estate professionals lack confidence that savings are real. If we want to unlock the savings and revenue potential of optimizing efficiency, we need to continue to create and embrace tools, like ICP certification, that establish uniformity for comparing results.
Ellen Bell manages the Environmental Defense Fund's Redefining Energy Efficiency Project by working with commercial office buildings and other partners in Chicago. The project develops new approaches that value efficiency, advanced energy management, and existing and emerging technologies as a source of revenue. It also helps to build new markets where efficiency measures will be readily adopted. By harnessing the power of markets, choice and incentives, Ellen helps to unlock the economic, health and environmental advantages of energy efficiency.