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Nancy Anderson, Ph.D.Torchlight

Measuring Up

By: Nancy Anderson, Ph.D.

April 02, 2012

The Data-Driven Built Environment, a May conference put on by the New York Academy of Sciences, is organized around the premise that "the real estate industry is turning to metrics to validate and evaluate buildings" and this interest is propelled by "new regulations, the desire to improve building performance through modeling, measurement, and benchmarking, and the aspiration to revolutionize building design and engineering to take into account user behavior ... (and) positively affect the financial bottom-line."

Today, benchmarking building energy performance is the law in New York City, San Francisco, Austin, Seattle and Washington, D.C. Today, too, benchmarking tools for gathering, measuring and making sense of building energy consumption data are works-in-progress. They are not yet universally applicable to all building types and occupancy conditions, and there is a healthy competition among different scoring systems to become best in class. Given these conditions in the context of rising policy and market demands for reliable and comparable building energy use information, there is an drive to make these performance metrics ready for prime-time while establishing a mature discipline of building science that real estate operators, owners, regulators, bankers, underwriters and tenants can rely on.

The New York Academy is not alone in this endeavor. New York City's Benchmarking Law and its accompanying Annual Report is grounded in the conviction that gathering and publishing data on building energy performance by way of standardized reporting software, which makes cross-building and over-time comparisons possible, will bring the value of energy efficiency into the valuation of buildings. The City plans to release its Annual Report, the first to include benchmarking data from office, institutional and residential properties in April, and there will be much to learn. Under the impetus of such reporting, Gotham's buildings can become part of the solution to climate change rather than part of the problem. Another benefit of making energy efficiency the new normal will be reduced demand on the generating capacity and less stress on the electric power distribution grid.

The March 2012 Deutsche Bank Climate Change Advisors (DBCCA) and the Rockefeller Foundation report, United States Building Energy Efficiency Retrofits: Market Sizing and Financing Models, starts with these bold words, "Upgrading and replacing energy-consuming equipment in buildings offers an important capital investment opportunity, with the potential for significant economic, climate and employment impacts...Case studies and various analyses have shown that the energy savings from retrofit projects can offer the potential for strong financial returns. However, a status quo bias, asymmetric information and structural barriers in the real estate industry have traditionally resulted in low levels of demand by home and building owners." The DBCCA report seeks to overcome these obstacles and significantly increase energy efficiency retrofits by developing a detailed template of four "emerging" financing models, with particular emphasis on Energy Services Agreements (ESAs) and three "other" models. Significantly, this report relies on "assumed" energy savings of 30% in buildings constructed before 1980, rather than on data about actual savings achieved by building energy makeovers. Based on current energy efficiency literature, 30% may be a top-end figure rather than a norm at this time.

Exploring other opportunities in the energy efficiency space, the Institute for Market Transformation (IMT) finds that cities and states trying to leverage building energy performance disclosures to stimulate energy efficiency improvements are also forging the apparatus to create thousands of "net new jobs" and attract billions in private sector investment that will yield meaningful dollar savings for building owners. The nuanced take-away message of the Institute's Analysis of Job Creation and Energy Cost Savings From Building Energy Rating and Disclosure Policy study is, "The policy will motivate energy performance improvements in a greater share of buildings over time. The policy will galvanize long-term market transformation and become more effective at motivating energy performance improvements as buildings are rated in consecutive years and as disclosure cultivates market-based demand and competition for energy-efficient buildings. However, the policy will not motivate energy performance improvements in a sizeable portion of the buildings that it covers." The caveat in this final sentence is important. because IMT assumes more than 60% of buildings will make no changes as a consequence of rating and disclosure laws. This is a consequence of a number of factors including inertia, ownership structures, information costs, hassle costs, replacement cycles and split incentives.

In this context, efforts to advance financiers' and real estate owners' informed energy efficiency decision-making through use of impact-making metrics make good sense, given the premise that energy efficiency is a necessary, if not yet universally adopted, condition for enhancing the sustainability and market value of a building. For example, the Greenprint Carbon Index metrics are a way to express building performance that can be used for redefining or modifying current definitions of what is deemed a good, class A building. At the same time, US EPA is exploring how to upgrade its Energy Star Portfolio Manager program and ASHRAE, a highly respected professional engineering society, has developed its own new energy rating system.

And now, actions based on findings of such building rating systems can attract real money. For example, the New York City Energy Efficiency Corporation's mission to "support New York City's energy and climate action goals by catalyzing an energy efficiency retrofit financing market for private building owners." will deploy $37.5 million in federal stimulus funds. The Corporation's website contains a Case Studies page with information on its completed transactions, which, over time, should be a source of data and analysis of use to all.

So where do we stand now on making energy efficient, high performance building the new normal? We've got benchmarking laws, we've got financial models, and we've got an emerging discipline of building science. We even have buildings that have undergone energy-efficiency makeovers, some are rated as LEED for Existing Buildings, others not. Another recently-released Deutsche Bank report demonstrates that energy efficiency projects in affordable multi-unit buildings in New York City can achieve significant fuel savings (although have less impressive achievements on cutting electricity consumption). What we don't have yet are predictable and standardized performance outcomes and ways to measure and verify them across building types and uses. The upcoming New York Academy of Sciences conference will be focused on how to do just that. As one conference planner put it, "Let's show how data can become the value proposition for the energy efficient building." Don't miss it.

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