Green Buildings and Energy Efficiency: Diligence Pays |
With energy prices forecast to rise for the foreseeable future and increasing interest in environmentally responsible "green" buildings, it is critical that such buildings be energy efficient. It is often assumed that a green building will be energy efficient; unfortunately this is not always the case. Because a building can gain green certification based on environmental factors other than energy efficiency, a building certified as green may actually not be any more energy efficient than a typical, non-green building.
When considering the green attributes of a potential investment property, energy efficiency should come first ¡ª it should provide the cornerstone of a property's green rating and be of paramount consideration to any investor undertaking a green real estate purchase or development. Energy efficiency is important not only because of the environmental concerns surrounding energy use, but because among all potential environmental facets of a green building it provides by far the most economic return. Cash flow and profitability resulting from building green are largely derived through energy savings.
For investors interested in the green real estate market space, a little knowledge of current green building issues will go a long way towards ensuring that a green asset meets financial expectations.
What Makes a Building Green?
The Energy Factor
Designing to Achieve Energy Efficiency
What Makes a Building Green?
In the U.S. real estate market there are a number of green building rating systems and guidelines currently competing to provide the definitive answer to this question. Of these, the most widely recognized program is the U.S. Green Building Council's Leadership in Energy & Environmental Design (LEED) certification. Other programs include Green Globes, administered by the Green Building Initiative, and the Federal Sustainable Buildings Principles.
Most green building certification systems rate the "greenness" of buildings by awarding points for clearly-defined, environmentally preferable construction, design, and systems. These attributes include a range of factors in addition to energy efficiency: choice of materials and location, indoor air quality, water usage, emissions, etc. Most systems offer tiered levels of recognition, such as Gold, Platinum, 3 Globes, 4 Globes, and so on, depending upon the number of points a building earns.
Green rating systems differ in their definition and weighting of the various environmental attributes, their means for assigning points, and their certification process. Additionally, these rating systems have varying minimum requirements, relationships to building codes, certification processes and costs, and certifier training requirements.
These rating systems are by nature flexible ¡ª they provide only general guidelines for a building's development team across multiple categories. None of the major green certification programs currently require buildings to meet a set of core green requirements beyond code, instead, they allow builders flexibility to meet the green threshold by accumulating a minimum number of points from any of the various categories. Consequently, achieving certification as a green building does not necessarily have to involve energy-efficient design, construction, or operation.
For investors interested in developing or purchasing green properties, an understanding of the scoring and methodology underlying the various rating systems is especially important when gauging the energy efficiency of any certified green property.
The Energy Factor
Commercial buildings account for 18 percent of total U.S. energy consumption and contribute an estimated 15 percent of U.S. greenhouse gas emissions. When considered over a building's 40¨C50 year lifespan, the energy-related environmental impacts of a building's operations dwarf the impact of energy and fossil fuels consumed during its construction. Reducing a building's energy consumption has a major beneficial impact on the environment, a point not overlooked by the National Association of Real Estate Investment Trusts (NAREIT), which recognizes the significance of energy-efficient buildings through its environmental awards programs.
Energy consumption represents 30 percent of a typical commercial office building's operating costs, making it the single largest controllable cost of operations, so improved energy efficiency has a direct and substantial payback for investors. For example, a 30 percent reduction in energy use (commonly achievable in the average commercial office building) can yield the equivalent of a 5 percent increase in Net Operating Income (NOI) and overall asset value. The U.S. EPA estimates that the 2,500 buildings that have earned the ENERGY STAR label for energy efficiency through 2005 save a combined $350 million on their energy bills when compared with similar buildings having average energy consumption.
Consequently, one of the strongest selling points for green construction is reduced operating costs from increased energy efficiency. In fact, much of the "business case" for green buildings is founded on the assumption that a certified green building will be more energy efficient than a conventional building. However, this assumes that all certified green buildings have scored meaningful points for energy-efficient design and actual energy performance.
Unfortunately, it is possible under some rating systems to achieve a green rating without actually achieving meaningful energy efficiencies. As a result, some property owners are now finding that their green buildings are actually less energy efficient than many conventional buildings.
Designing to Achieve Energy Efficiency
Energy-efficient design strategies encompass a wide range of traditional building construction elements, including building envelope design, mechanical systems, HVAC, lighting, controls systems, and so on. Green design budgets must take care not to sacrifice these fundamentals in order to accommodate headline-grabbing "green technologies" that may have a much smaller impact on overall energy performance. For example, a project may spend green funds on a few solar panels at the expense of better window glazing, which dollar-for-dollar yields far greater energy savings and pollution prevention.
Another concern for investors in the market for energy-efficient real estate is the growing assumption that a building designed and modeled to exceed energy codes by 30 percent will achieve a parallel 30 percent improvement in energy performance. Building energy code, however, is not a performance metric of actual energy use, nor is it a good proxy of future energy performance. Studies conducted by the New Buildings Institute and others have shown that exceeding building codes is not a guarantee of future energy performance.
A more effective way to design for energy efficiency is to set an energy target derived from actual building performance data and let that target inform modeling exercises and design choices. Furthermore, the ways in which a building is operated are often greater determinants of energy efficiency. If a building's energy-efficient design relies on operating procedures that are not followed by its operators, the design intent is lost. |
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