Strategically Green - Balancing Green With Financial Results

Fall 2010

Building owners and tenants are reminded of the high cost of energy every time they open their monthly utility bills. Energy costs are the largest operating expense for most commercial properties, accounting for 25-30 percent of a typical building’s annual operating budget.

Energy Conservation Measures Can Yield Significant Savings

No wonder many developers are making sustainable design a centerpiece of new developments. But owners of existing buildings also can reduce costs and improve bottom-line performance by taking a green approach. By selecting and implementing the right energy conservation measures (ECMs), building owners and operators can reduce energy costs by as much as 30 percent, according to ASHRAE.

For example, building-wide renovations to the Executive Centre buildings on Merchant Street in Cincinnati reduced energy, operating and maintenance costs for Northstar Realty and their building manager, CB Richard Ellis. The company engaged an energy services company (ESCO) to help conduct a thorough building assessment and identify opportunities to reduce energy use and greenhouse gas emissions. Replacing and upgrading the 487,000-square-foot buildings’ heating, ventilating and air conditioning (HVAC) system alone delivered more than $40,000 in annual energy cost savings and reductions in carbon dioxide emissions equivalent to taking 24 cars off the road. The next year the buildings achieved their third Energy Star award by garnering scores of 95 percent. The project is in the process of obtaining LEED EB certification.

Improvements to the mechanical systems at One City Center in Portland, Maine, were just as dramatic. By installing dual-circuited refrigeration units, redundant fans, automated controls and other HVAC system upgrades, the Dirigo Management Co. trimmed annual energy costs for the 202,000-square-foot building by more than 17 percent and cut maintenance costs in half.

Systematic Approach Delivers Greatest Benefit

Building owners consistently see the quickest return on investment from installing window tinting to reduce sun exposure; upgrading lighting fixtures, bulbs and controls; and installing high-efficiency HVAC and automated control systems that optimize HVAC central plant performance.

But every building and operating environment is different. An ECM that might be perfect for one building and set of circumstances may be totally wrong for another. Building owners need to be wary of the one-size-fits-all approach.

A systematic, sensible energy conservation strategy requires that owners do their homework. With the right information, they can choose ECMs that meet their building’s particular needs and provide a return on investment that justifies the up-front capital outlay. Following are steps owners should take before investing in any major improvements:

Partner with an ESCO to conduct a mechanical systems audit, identify ECM opportunities, set priorities and drive implementation. Choose an ESCO with a long-standing industry presence, solid reputation, experience with similar buildings and proven track record.

Compare building performance with industry benchmarks using aggregate data available from Energy Star, ASHRAE, the Environmental Protection Agency or other industry sources. This step is usually both valuable and eye-opening.

Remember that a building is a system so ECMs are often interrelated. For example, adding window tinting may mean increasing interior lighting, which may in turn require adjustments to the HVAC system. A capable ESCO can make sure that the net effect of all changes is considered.

Understand utility rate structures and choose ECMs that take advantage of favorable rates, such as the flexible rates some utilities offer that can change with as little as 15 minutes notice. New HVAC and control technology enables managers to respond quickly to vary the load with the rate, thus optimizing costs.

Consider the total impact of retrofit costs and savings on the building’s financial model. For example, understand how leases are structured and determine whether and how the costs and benefits of energy-saving retrofits are allocated to tenants.

Remember that it takes training, service and regular maintenance to keep HVAC and other mechanical systems running at peak efficiency so they can deliver the return on investment numbers that justified their acquisition in the first place.

Consider innovative financing instruments such as performance contracts that pay for system improvements with future energy savings, requiring little or no upfront spending.

Energy Conservation Measures Bolster the Bottom Line

With a still-uncertain economy and volatile energy prices in the forecast, commercial building owners are constantly looking for ways to reduce their operating costs and improve profitability.

With today’s highly efficient HVAC technologies and other ECMs, owners and operators can reduce energy consumption, push savings to the bottom line, shrink their carbon footprint and create a comfortable, affordable environment that will attract and retain the best tenants.