10 Ways to Reduce Energy Use and Costs in Your Building

Octus participated in an energy project financing panel at this week's Sacramento Clean Tech conference, shouldered by experts from Ernst & Young, Morrison Foerster and Five Star Bank. Great conversation and content, with an underlying theme (at least from our seat on the podium): If you own or manage a commercial building, investing in energy efficiency improvements is the best investment you can make. Period. And, of course, we plugged the Octus/Five Star Building Energy Savings project financing program and other readily-available financing options.

The panel concluded with standard audience Q&A, including questions about how the economics of energy efficiency retrofits and project finance work, and how CRE professionals can sagely make it happen. We served up a handful of easy-to-consume morsels, both physical (retrofits) and behavioral. Time was short; unfortunately, we did not have an opportunity to orate, in depth, the myriad measures Octus employs to help slash utility bills.

If time allowed, we would/should have shared a top-10 list from Johnson Controls, as reported in GreenBiz.com, summarizing how you can reduce energy use and costs. Bread and butter stuff for folks in the energy- and building-efficiency space, but worthy of a recap:

1. Assess how your building consumes and wastes energy. Conduct regular energy audits to determine what condition your equipment is in and how it is performing. These audits will show where and how energy is being wasted and prioritize energy improvement measures.

2. Use more energy efficient equipment. Install new energy efficient equipment and replace or eliminate outdated, inefficient equipment. Look for Energy Star labels for equipment and appliances.

3. Match HVAC and lighting output to occupancy. Install programmable building controls that enable systems to provide light, heat and cooling to building spaces only when they are occupied.

4. Maintain equipment for maximum efficiency. Make sure that your equipment is properly serviced and maintained so that it runs as efficiently as possible. Increase operating efficiency of chillers, boilers and packaged cooling equipment through proactive service and maintenance.

5. Maximize lighting efficiency. Upgrade lighting to high efficiency bulbs and fixtures. Energy efficient lighting uses less energy and generates less heat, reducing your costs and easing the strain on your HVAC systems.

6. Measure water usage and waste. Conduct water audit in your facilities, campus, or geography to determine where water is being used and wasted. Reduce water consumption by installing low-flow equipment and fixing leaks.

7. Schedule cleaning during regular work hours. Experiment with different "day cleaning" schedules. Arrange cleaning schedules to overlap with work hours instead of having cleaning done after hours and keeping the lights, heating and air conditioning on at night. That will reduce energy consumption.

8. Insulate thoroughly. Insulate exterior walls, outlets, pipes, radiators, etc to reduce heat and cooling loss.

9. Meet LEED standards. Build, renovate, and operate your facilities according to Leadership in Energy and Environmental Design (LEED) standards. That will benefit your bottom line by lowering operating costs and increasing asset value. It will benefit the environment by conserving energy and water, reducing waste sent to landfills, creating healthier, safer occupant environments, and reducing harmful greenhouse gas emissions.

10. Make building occupants more informed. Educate and engage building occupants to promote energy conservation and reward wise energy decisions and behaviors.

Water: The Third Utility (and an efficiency goldmine)

Increasingly, current and prospective Octus clients have inquired about how they can reduce their water and sewer bills. We have deployed a number of energy-centric solutions -- including industrial ozone washing machines for hotels and our proprietary Wickool evaporative cooling device for rooftop HVAC units -- that both reduce energy costs and conserve water. These solutions fill specific needs for specific customers, but there is a more grand and growing opportunity to help building owners conserve water and reduce costs.

Here's our general logic: The thirst (demand) for water is increasing, and the supply of water is decreasing. Conversely, demand for energy -- electricity, in particular -- is increasing, albeit at a slower rate, but the supply, with renewable generation proliferating, is increasing too. If you own or manage a property, you are not myopically concerned with reducing your energy or water use; you care about slashing your utility bills.

From Buildings.com:

Major advancements in the technology and reliability of water equipment in the last 10 years have made the investment in water conservation very cost effective. While water and sewer rates vary, the process is worth your time for a variety of reasons:

• Water conservation is an investment with attractive ROI potential.
• Water rates are increasing.
• Sewer rates are increasing dramatically due to higher EPA mandates on municipal sewer plant operators (100 percent to 400 percent over the past 10 years).
• Droughts are requiring water conservation for businesses, or you face major water cost increases. Atlanta required a 10-percent reduction or a charge of an extra 25 percent.
• Water conservation and sewer plant operations benefit from water conservation since it directly impacts billion-dollar capital investments to address peak loads (like electricity).
• Some cities have demand-side management (DSM) rebates to incentivize water-conservation investment.
• Fresh water is a major element in our lives and the viability of our communities and, ultimately, the earth.

The article highlights that the U.S. government alone owns or leases 500,000 buildings that use 350 million to 500 million gallons of water per day. Water-conservation efforts in federal buildings have produced savings of more than 30 percent with no cutbacks in operations or service levels. These water-conservation projects have included high-efficiency toilets (HETs), high-efficiency urinals (HEIs), and other improvements.

And, it's a threefold savings opportunity: When you reduce water consumption, your reduce sewer charges. (Sewer charges can be one-third to two times the cost of the water, depending on local rates.) When you reduce hot-water use in showers and clothes washing, you’re also reducing your natural gas or electricity bill since the volume of hot water needed has been reduced.

Furthermore, with the Octus/Five Star Bank Building Energy Savings project financing program, building owners can implement energy- and water-saving initiatives with no up-front or ongoing costs.

Commercial Building Energy Efficiency Retrofits: $190 Billion Market

How big is the market for energy-efficient retrofits of commercial buildings? In a word: Immense. In numbers: Tens of billions of dollars, as we've quantified in previous SmartEnergyWorks posts. As ambitious and bullish as we are at Octus about the market -- and our opportunity to build an extraordinary business -- the Urban Land Institute just upped the stakes.

According to ULI, and as reported in SustainableBusiness.com, the market potential for energy efficiency retrofits in commercial real estate is projected to total $190 billion over the next ten years. From the article:

... the sheer size of the commercial real estate sector's carbon footprint illustrates the potential of energy-efficiency measures to make a dramatic impact on reducing emissions. The nation's approximately five million commercial buildings are responsible for 18% of total annual energy consumption in the U.S.; moreover, only 7% of those buildings represent half of the overall floor area of commercial buildings.

Investing in energy efficiency in real estate--an emerging practice with great market potential--requires new business practices and government incentives to overcome investment barriers. "Recent efforts to catalyze investments in energy efficiency in buildings have challenged how policy makers and market participants view real estate finance and valuation practices," the report says.

"Are investments in energy efficiency to be approached as a discreet value capable of being financed independently of the underlying real estate asset, and then traded as "efficiency-backed" securities on secondary markets? Or, is an energy efficiency investment to be treated in the same way a lobby upgrade is, which without question drives new value to the real estate asset? The answer is both, as policymakers work to unleash market forces to reduce energy demand."

The reports states that innovation in this emerging investment market requires evidence of real costs and returns. Information now available on building performance indicates that feasible energy retrofits for an individual building typically save 20% to 30% and in some cases as much as 60% of energy use, depending on a building's age, type, design, condition and maintenance.

As we discussed a few weeks ago, several energy efficiency project financing vehicles (including the Octus-Five Star Bank Building Energy Savings program; click here for a recent Business Journal article) are emerging. Coupled with increasing incentives and rebates from utility companies, the market is ripe, albeit with barriers. The ULI report echoes our thinking: there is a strong business case for commercial real estate owners and managers to incorporate energy efficient practices in their business strategies:

• Operating-cost reductions through energy savings in an era of tighter budgets
• The creation of reputational advantage in the context of evolving voluntary and regulatory emissions reductions targets
• The creation of new markets or lines of service leading to economic expansion
• Improved tenant working environments, leading to employee retention and higher productivity
• Lower building vacancy rates and tenant turnover
• Reduced business risk in the midst of energy price volatility and changes in consumer preferences regarding green building
• Reduced reputational risk in a globalized, increasingly transparent marketplace.

As SustainableBusiness summarizes, the report cites the need for a change in the perception of energy efficiency as an "investment in less," as in less environmental impact, to an "investment in more," or an investment that produces more value and cost-saving.

We could not agree more.

Commercial Building Energy Use: Start Your Disclosures

If you are a CRE professional in California, section 25402.10 of the California Public Resources Code is probably the last thing on your mind. If you lease, sell or finance commercial properties, come January 1, 2011, it will be top of mind. Specifically, the state will require disclosure of energy ratings and building performance. From the statute: An owner or operator of a nonresidential building shall disclose the [EPA's] Energy Star Portfolio Manager benchmarking data and ratings for the most recent twelve-month period to a prospective buyer, lessee of the entire building, or lender that would finance the entire building.

Last spring the California Energy Commission published a proposed schedule, which after January 1 will require disclosure for any nonresidential building that is solely occupied by the owner or that measures more than 50,000 square feet. Any nonresidential buildings that measure 10,000 to 50,000 square feet will be required to comply as of January 1, 2012, and those as small as 1,000 square feet must be compliant by July 1, 2012.

Analogous -- but obviously, with more depth and variables -- to automobile fuel efficiency stickers, as discussed below. For Octus Energy and other companies involved in generating energy savings and financing energy projects, it will further validate and quantify the value of a building's operating and energy efficiency.

Here's an in-depth look from California Lawyer:

A building's energy score must be accurately calculated, either on the EPA's Portfolio Manager website (www.energystar.gov) by a knowledgeable building owner, or by a third-party energy firm. Although the EPA provides helpful resources on its website (see the Tools and Resources tab), this can be complicated stuff. And because an inaccurate disclosure could create liability, some owners will opt to spend a modest amount of money for professional help.

The required disclosures can also create legal issues regarding tenants' privacy rights. A building owner or an energy disclosure professional is responsible for entering data regarding the tenants' energy consumption over the previous twelve months, along with building parameters such as hours of operation, computer usage, and thermal settings. For the landlord of a triple net leased building, this entails disclosing the tenant's energy bill, which raises potential confidentiality issues. At a minimum, counsel should be writing leases that specifically allow for this statutory disclosure; however, in the absence of a specially tailored clause, seek the tenants' cooperation in attempt to comply with the law.

Limitations of the EPA's online Portfolio Manager may prove problematic for some commercial buildings. For example, though office buildings can be rated quite easily, other facilities such as movie theaters, bowling alleys, and funeral homes are not specifically addressed by the free online software.

Despite imperfections, California's energy disclosure law is an important step forward. Commercial tenants, buyers, and lenders in this state will soon be comparing buildings based on their energy efficiency and, it is hoped, the market will reward more–energy efficient buildings.

So what should attorneys suggest to their clients who own buildings? They should first see if the online compliance resources will suit their purposes. If a more searching analysis is required, the clients can consider having their buildings surveyed by an energy engineer to understand their energy spending and how to reduce it. Indeed, some owners may wish to be more aggressive in the "green market," opting for a full-blown energy audit to identify ways to make a building more efficient.

Energy disclosures do more than comply with legal rules. They also can contribute to a smarter real estate market, just as the fuel efficiency stickers on new cars help educate consumers. And studying a building's energy use may lead to less consumption, higher net operating profits, and a healthier planet.

Well said. To learn more about EPA's Energy Star Portfolio Manager tool, click here.