Selling the Savings: Deep Energy Retrofits

Despite growing awareness of the need to become radically more energy efficient, the small to mid-sized commercial real estate market has been slow to implement energy efficiency retrofits. This sector represents a majority of the existing commercial building stock and a huge potential for meeting climate and energy policy goals, utility efficiency targets and real estate objectives. Limited financing options and shortages of capital remain some of the primary barriers to deep energy retrofits (energy savings of greater than 30 percent).  One of the other main culprits is a perceived low return on investment for owners. 2010 research by Johnson Controls revealed that only 25 percent of organizations with small (<50,000 square feet) commercial buildings planned to implement any energy efficiency improvements last year, much less deep energy savings retrofits.Addressing the Issue In April, our friends at the Northwest Energy Efficiency Alliance (NEEA) and the Rocky Mountain Institute (RMI) convened a workshop to explore ways to increase the availability of financing for deep energy retrofits. The goal was to engage building owners, lenders, utilities and others with a vested interest in building performance in meaningful dialogue about existing challenges and potential solutions for deep energy retrofits in small commercial buildings. Existing challenges include:

  • A lack of understanding among building owners, lenders, and utilities about  the potential risk of the retrofit not delivering estimated savings in costs and energy
  • A fragmented small-buildings industry with “language differences” and “inflexible lending practices”
  • High costs for design, analysis, underwriting ,etc. distort the perceived potential return on investment
  • Split incentives in small non-owner occupied buildings
  • A building owner’s lack of good credit quality
  • Need for a significant “spark” of interest in the market

The Threefold PathThe Workshop Report summarizes the top three of seven opportunities identified for driving deep retrofits:

  1. ‘Service Integrator’ Business Model—developing a support system for building owners, who may lack the time or expertise to navigate and plan a deep retrofit
  2. Education and True Stories—ensuring that parties involved in a retrofit (including developers, tenants/owners, brokers, managers, contractors, accountants, utilities) understand how the project could make good economic sense and see the potential for ensuring economic success
  3. Enhanced Value—developing a way to ‘show’ improved asset value for deep retrofits such as strategic positioning (i.e. as a risk-reducing measures or leveraging the ‘fear’ of building obsolescence)

The logic behind these three opportunities, the channels of engagement and critical partners for moving forward were synthesized into an action plan that would involve defining deep energy retrofits for small buildings, linking improvement roadmaps with financing, simplifying the process, and educational outreach and marketing.One Potential SolutionOne thing that may serve to address existing barriers and advance opportunities is the potential of measured performance data, which involves benchmarking and feedback. NBI’s measured performance work, including case studies and research, has demonstrated the potential for information on the characteristics and performance data of actual buildings to help owners and other interested parties understand the value of retrofits. This includes identifying what’s working and where a building falls short of expected or target performance.  Reliable data can lead to shared insight and a common language for discussing current and potential building performance. In turn, this may address barriers like perceived ROI and differences in terminology while indicating potential first steps for implementing deep energy retrofits. Finding a common language through measured performance may be one promising solution for advancing the three opportunities outlined above—to inform the process and next steps, educate the parties involved and ‘show’ the value of deep energy savings.