Guide Shows Cost-Effectively Transforming Buildings to Net-Zero Energy

by | Sep 25, 2018

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Rocky Mountain Institute and Urban Land Institute have published a new guide for portfolio owners and managers showing how to achieve cost-effective deep energy retrofits that lead to net-zero for their entire portfolio while increasing revenues.

Net-zero energy (NZE) buildings are gaining interest from building owners, tenants, and landlords, RMI and ULI point out. These buildings can garner higher rents, increased net operating income, and better resale value for landlords. Tenants, meanwhile, benefit from healthier and more enticing workspace environments.

Called Best Practices for Achieving Zero Energy Over Time for Building Portfolios, the new guide suggests the zero-over-time (ZOT) approach, which focuses on cost-effective energy efficiency and renewable energy by prioritizing projects that pay back quickly in the short term. In addition, ZOT aligns larger energy efficiency projects with major building life-cycle events, like equipment upgrades.

RMI’s guide is a response to the misconceptions that net-zero energy building retrofits are costly to implement and that they don’t mesh with the current state of practice in commercial real estate portfolios, Cara Carmichael, principal in RMI’s buildings practice, told Energy Manager Today.

It includes a case study of the John Madden Company (JMC), a mid-sized private investment portfolio located in Denver. JMC adopted the ZOT approach and now has a cost-effective path for achieving net-zero energy through a series of well-timed energy projects. The case study shows an incremental NPV of added value of $1.3 million over 20 years and $10.3 million over 30 years, with 5% and 8% internal rates of return, respectively.

Other key takeaways from the report:

  • Putting buildings on the path to ZOT can carry value through multiple ownership transitions including short-term holding periods — each subsequent owner will benefit from the increased value of high-performing buildings, which retain value better than conventional buildings.
  • The geographic location of the portfolio is a significant factor in the economics of the ZOT approach. Areas with high utility rates and incentives, good solar resources, and lower labor rates will have more favorable economics.
  • The ZOT approach reduces carbon emissions over the 20-year period by 46% compared with business as usual.

Achieving ZOT requires a thoughtful approach, the report emphasizes.

Using industry interviews and case study analysis, the authors outline six simple steps to follow, many of which align with processes that corporate energy and asset managers already follow: setting goals, establishing a baseline, planning efficiency projects, analyzing renewable energy and energy storage opportunities, implementing projects, and tracking progress.

One of the common mistakes Carmichael sees is letting the daunting prospect of a net-zero energy upgrade lead to a “do nothing” scenario. “It’s far more powerful to take action over time and align projects with major building lifecycle events, rather than wait for the capital funding or capacity to take on all projects at once,” she suggests.

NZE buildings are becoming more cost-effective, Carmichael notes. “With certain financing mechanisms like commercial or residential PACE, a property owner can spend additional money on the up-front costs of a net-zero energy building, and pay it back over time — resulting in cost parity with a building that achieves code standards, while saving energy and carbon,” she says.

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