By Mike Taylor
Published in the June 2011 issue of Today’s Facility Manager
Integrating energy conservation measures into a commercial property can help facility managers (fms) save operating costs while making buildings more enticing to environmentally conscious employees. However, payback periods on energy focused improvements have caused many organizations to think twice about making the long-term investment.
In public facilities like city halls and schools, awareness is often the only obstacle to upgrades with an extended return on investment. But in the commercial sector, the life span of a facility is harder to predict. Most municipal buildings, for example, are held and used by a city for multiple generations, whereas an office building may lack such guaranteed staying power. As a result, fms are uncertain if they will recoup the cost of wide scale efficiency efforts—and uncertainty leads to inaction.
Faced with these constraints, energy programs in commercial buildings can often sub-optimize the amount of savings they achieve and the corresponding carbon reduction by just focusing on projects with short payback periods. Following implementation of these measures, projects with longer returns often linger on the wish list and become missed financial and environmental opportunities.
Federal, state, and local governments have been spearheading energy efficient change in the commercial building sector through programs that will help encourage and, in some cases, fund retrofit projects. Legislators see energy improvement projects in the private sector as an opportunity to decrease the nation’s carbon footprint and incite job growth during a time of economic recovery.
In January 2011, President Obama proposed an initiative designed to promote energy efficient upgrades in commercial buildings through tax incentives, loan guarantees, competitive grants, and other means. The goal of the program is to reduce energy consumption by 20% in the commercial building space and trim utilities by approximately $40 billion by 2020.
Named the Better Buildings Initiative (BBI), the new program is an improvement over traditional tax deductions, which fms can only take advantage of if they make a profit or pay corporate income tax. The latter is especially important, because it has kept real estate investment trusts (REITs)—which own 15% of the commercial real estate market—from taking advantage of deductions and other governmental support.
The current BBI proposal will allow REITs and fms to use funds from a tax credit pool of $300 million. This measure aims to create immediate financial stability and help fund the initial costs that are associated with infrastructure improvements.
The administration is also working to help make it easier for fms to obtain loans, another current barrier to retrofit projects. To that end, BBI will encourage lenders to use newly increased loan size limits to help fund energy efficiency improvements for small businesses.
The initiative also includes a proposal for a Department of Energy backed pilot program to guarantee loans for upgrades at hospitals, schools, and other commercial buildings.
BBI includes competitive grants, specific incentives for colleges and universities, and training programs to educate the next wave of energy experts as well.
While Waiting For BBI…
The BBI initiative is part of the President’s 2011 budget proposal, and it is working its way through Congress—so the makeup and specifics of the program are yet to be determined. In the meantime, fortunately, there are other forms of support.
Local and state governments are also helping spark energy efficient efforts in the commercial building sector. Known as the Property Assessed Clean Energy (PACE) legislation, a plan has been put in place that will allow fms to finance energy efficiency and renewable energy projects in residential and commercial facilities. To date, the legislation has passed in more than 20 states and aims to create local jobs and increase property values while using private capital rather than taxpayer dollars to help fms make infrastructure improvements.
Managers who “opt in” to PACE can receive financing which they repay through an assessment on their property taxes for up to 20 years. This lengthens the duration of repayment plans and makes them more manageable for those taking part in this financing mechanism.
Current fms who initiate infrastructure improvements through PACE will not continue to carry the debt if they sell their properties at some point in time. Instead, if ownership changes during the repayment period, the repayment obligation automatically transfers to the new owner.
A Case In Point: One Liberty Plaza Cools Off Costs
Some fms already see energy efficient improvements as an opportunity to strengthen their long-term outlook. And programs like BBI and PACE could potentially help build on work that has already been completed.
New York, NY-based Brookfield Office Properties is a prime example and has already taken steps to make improvements with the goal of reducing operating costs and differentiating itself from area competitors. At One Liberty Plaza in lower Manhattan next to the World Trade Center site, Brookfield installed new control technologies to improve energy efficiency throughout the building.
Eight years ago, following the events of 9/11, One Liberty Plaza’s operators sought a way to shut down the entire 2.4 million square foot building with the push of a button in the event of a crisis. That led to the installation of digital controls and a management platform that ties multiple building systems—including HVAC and lighting—into one central view. To maximize this investment, Brookfield then added technology to monitor and manage energy consumption across the entire facility. The goal was to help avoid peak demand charges from the local utility.
During the summer of 2010, the building’s managers successfully shed electrical load by reducing air conditioner use, which would have put them over the demand threshold and increased prices. Before the efficiency improvements, Brookfield would run two chillers for cooling when temperatures spiked. But with more sophisticated controls, One Liberty Plaza didn’t have to bring the second chiller online automatically.
In the past, air conditioner fans would run all day, and fms relied on local thermostats throughout the building to manage temperatures. The new management platform allows fms to view temperature settings in specific areas of the building easily and drive down fan use, if necessary, while increasing fans in areas that need more cooling. This process reduces electricity consumption substantially without impacting occupant comfort.
Overall, One Liberty Plaza reduced energy expenses by about 20% compared to previous summers. The improvements also decreased the building’s electrical demand by more than 1.5 million kilowatt hours—enough energy to power more than 140 homes.
Electricity use is not the only concern for One Liberty Plaza. During the winter, the building relies on steam for heating. However, due to rising costs and higher prices for steam at peak times, building operators are hoping to replicate the success they have seen during the summer months and automate measures to decrease the need for excess steam. The new management program has not only shown its ability to automate and optimize building operations, such as adjusting HVAC controls throughout the day, but the platform has also become a chief decision making tool, enabling building engineers to make more informed, strategic decisions on building operation and maintenance.
Set For Change
The commercial building sector is primed for an energy overhaul in the United States. Some fms are already making energy efficient retrofits while differentiating themselves from competing commercial sites. However, most are still hesitant or unable to make the financial investment without greater payback. With more incentives fueling the commercial building sector, commercial fms can finally receive financial support to curb energy usage, leading to a greener horizon for the private building sector.
Taylor is the vice president of Honeywell’s Clinton Climate Initiative (CCI) work. Honeywell is one of the original four energy services companies chosen to partner with the CCI on its Energy Efficiency Building Retrofit Program—a global effort to help cities around the world improve the energy efficiency of buildings and decrease greenhouse gas emissions.