Noah Goldstein — February 18, 2015
The frequently overlooked component for unlocking the great potential of energy efficiency in commercial buildings is the bottom line: cold hard cash. For commercial building owners and operators, especially those managing small and medium (under 50,000 square feet) facilities, the idea of installing energy-efficient equipment or energy management tools is a nice-to-have, not a need-to-have.
Tenant improvement and making a profit by keeping expenses low come before improving or replacing equipment with state-of-the-art efficient alternatives. A recent report from the National Institute of Building Sciences’ Council on Finance, Insurance and Real Estate contains a set of findings and recommendations on how small commercial buildings can implement energy-efficient retrofit projects.
The report lays out the case for focusing on small and medium commercial buildings, a dormant $36 billion market opportunity that could provide huge employment opportunities (424,000 job-years) and carbon reductions (87 million metric tons a year). According to Navigant Research’s Energy Management for Small and Medium Buildings report, the energy management systems and services associated with this market are expected grow from $231.3 million in revenue in 2013 to $1.3 billion in 2022. The benefits are clear; what can be done?
The report recommends a few multi-tiered sets of actions that could help invigorate this market, at least in the United States. These include federal action, such as expanding research from the Commercial Buildings Energy Consumption Survey (CBECS), which is a critical tool for understanding the state of energy use in commercial buildings, but is only updated every 5 years. CBECS data could be used with benchmarking data to make the collective understanding of building energy data a living data set, providing a meaningful performance-based evaluation of how energy efficiency is actually deployed in existing buildings.
Increasing the Pace
Another recommendation is challenging in this political climate. The Section 179 (D) tax code, a part of the Energy Policy Act (EPAct) that incentivized commercial building energy efficiency, expired at the end of 2013. At $1.80 per square foot for the full achievement of 50% energy reduction, the incentive was helpful. The reliance on modeling was a challenge, and the improvement of benchmarking data drawn from a living version of CBECS could change that.
Finally, the report focuses on the variety of financing that can be made more available to this market. If energy efficiency financing can be presented as a secure investment with known outcomes and well-understood risks, the adjacent available pools of financing could, with some urging, be made available. Increasing the deployment of utility-based on-bill financing is one possibility, but not all utilities in the United States would be open to that approach. Property Assessed Clean Energy (PACE) programs enable energy efficiency (or solar deployments) to be financed by local bonds, and repaid via local property taxes over time. The White House recently announced it would use the success of PACE in the multifamily residential market in California and apply it to federal Housing and Urban Development Department housing.