Applying Deep Retrofit Value to help the Better Buildings Initiative reach its goals
Buildings consume more energy than any other sector—42 percent of the nation’s primary energy and 72 percent of its electricity. And at current trend and performance levels, fossil fuel use in commercial buildings will increase, not decrease, by 2050, when 65 percent of today’s commercial square footage is predicted to be still standing. This is why in 2011 President Obama announced the Better Buildings Initiative and in the same year launched the Better Buildings Challenge to push CEOs, university presidents, state and local government leaders, building owners, and others to commit their organizations to reduce their annual energy use by 20 percent over 10 years while showcasing the best energy-saving strategies and their results.
Better Buildings has scored major wins in its first two years: there are now more than 170 organizations in the Better Buildings Challenge committing more than three billion square feet of building floor space. With clear success garnering broad support for energy savings in the near term, the Better Buildings Initiative has driven the commercial and industrial sectors onto the path of mitigating climate change and reducing fossil fuel dependence.
But to reach the finish line, commercial buildings must become closer to being 40 percent more energy efficient by 2050. Achieving these deeper levels of savings more broadly will require a scaling up of investment in energy efficiency. RMI’s new practice guide on how to calculate and present value from deep energy retrofits can help drive that investment.
The importance of value
A 2012 Urban Land Institute survey underscored the importance of calculating and presenting value. It found that lack of demonstrated value was the leading impediment to greater adoption of building sustainability and proving that value at the property level the most important intervention.
In addition, a June 2013 survey of U.S. buildings sector executives by The Economist indicated that better valuing the “co-benefits” of energy efficiency—such as improved thermal comfort and tenant retention—would increase investment. While the most advanced building-owner decision makers are already referencing these values on an ad hoc basis, they are typically not taking them into account on a systematic, portfolio level. And attributing the value of the energy efficiency investments to the value of the portfolio can be difficult due to the numerous factors that influence value. For example, the local economy can increase tenant demand for an office space just as well as greater comfort and efficiency.
As a pre-condition to wide-scale capital investment by the private (and public) sectors, a complete set of value and risk considerations must be better integrated into retrofit decision-making practices. New decision-making practices in the real estate investment and lending mainstream are a powerful way to bring more capital to bear on a climate-change imperative.
Better Buildings partners and other leaders are currently demonstrating energy efficiency investment methodologies that others can use, including appropriately acknowledging the value proposition. “Through the Better Buildings Challenge, our partners are leading by example and sharing their strategies with other organizations,” said Maria T. Vargas, senior advisor and Better Buildings Challenge director at the Department of Energy. “By focusing on portfolio-wide improvements and showcasing real solutions, these organizations are helping to accelerate energy efficiency across the marketplace.”
To help the industry begin sorting through the value and risk considerations, Rocky Mountain Institute released a practice guide How to Calculate and Present Deep Retrofit Value for Owner-Occupants. We’re now seeking partners who will use this report to rethink and even refine their real estate energy strategies and retrofit decision making, to test enhanced retrofit strategies, and to drive energy efficiency even deeper on new projects.
The Better Buildings Initiative has made great progress in getting the U.S. commercial building sector on track for substantial energy savings through implementation of industry-tested strategies. For example, Better Buildings Challenge partners are saving on average 2.5 percent annually over the previous year’s energy use, and have delivered more than 100 solutions that other organizations can adopt to achieve significant energy savings in their buildings.
In some cases Better Buildings Challenge partners are achieving deeper levels of savings in already-efficient buildings. TIAA-CREF, a leading financial advisor that reduced energy intensity in its real estate investment portfolio by 15 percent by 2011, spent just over $6 per square foot ($1.01 million) on one 158,000-square-foot office building that was already in the top 10 percent in the U.S. for efficiency performance. The investment increased the building’s ENERGY STAR rating from 92 to 98, where a rating of 100 indicates the office building is the most energy efficient in the U.S. The retrofit will result in energy savings of 27 percent, or $89,000 annually.
What’s required to reach climate and energy goals
The above examples show that energy efficiency pays off, and not only in energy cost savings. Leaders such as TIAA-CREF and others are investing in efficiency because it provides numerous benefits, including making the building more attractive to tenants and enhancing company reputation and leadership.
The new RMI practice guide is intended to help others properly calculate and present the value of these benefits in order to rapidly accelerate energy efficiency investment. The first guide focuses on owner-occupants, and ensuing guides over the next two years will be tailored for investor-owners and lenders. These guides can help drive investment in efficiency helping the Better Buildings Initiative reach its important goal of reducing building energy use. Watch our latest video to find out how.
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