Energy Efficiency: The Pot of Gold Hidden Under the Floorboards

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While it's becoming increasingly accepted that higher energy performance for commercial properties goes hand in hand with improved financial performance, there are still no industry-accepted methods for integrating energy performance assessment into property transactions. For a potential buyer, understanding energy performance is a useful data point, but understanding what steps to take to improve energy performance is another thing entirely. Operations & Maintenance (O&M) improvements alone can reduce energy use by 16%, but for a commercial property buyer that potential is hidden, metaphorically "under the floorboards," unless someone takes the effort to look for it.

There are two major factors that are influencing the role of energy efficiency in commercial property transactions. The first is recent policies that mandate disclosure of energy performance (typically in the form of an Energy Star score) by a property seller to the buyer/lessee/lender at time of sale. The second is the ever-increasing body of research that is connecting higher energy performance with higher rents, occupancy rates, and asset value. Neither of these has fully transformed the market yet, but together they are providing some regulatory "push" and market "pull" that is gaining momentum.

While the aforementioned factors are providing motivation, there is still some way to go in making energy efficiency an integral part of the commercial property transaction process. While policies may mandate disclosure, there is no standard approach that describes when this should take place or what a buyer can do with the energy performance information. With respect to energy, a buyer will typically have two areas of concern:

  1. What is the current energy performance of this property? This relates to its operating costs, rent potential, and marketability
  2. What opportunity exists for improving this property's energy performance? This relates to its potential for investments in energy efficiency improvements with high ROI

Energy Star Portfolio Manager is a widely-accepted tool for addressing item 1 above, and the recently released ASTM Building Energy Performance Assessment Standard (2797-11) complements that with a standardized approach to determining a property's energy use & cost.

There are few standardized approaches for assessing opportunities for improvement, however -- ASHRAE energy audits being a notable exception. An ASHRAE Level 1 energy audit is a potential option for assessing opportunities at a high level; Level 2 would more confidently assess opportunities, but with a price of up to $0.10 per sq.ft. may be a hard sell. An ASHRAE Level 1 energy audit provides energy use analysis and a site walkthrough to identify improvement opportunities, at a typical cost of around $0.03 - $0.05 per sq.ft. This can provide a high level indication of opportunity, although the buyer should be aware that there can be a high level of variation in how auditors will perform the audit and report its outcomes.

A newly-released procedure from the nonprofit California Commissioning Collaborative -- the Facility Operations Assessment (FOA) -- is now available, as an alternative to an ASHRAE Level 1 energy audit. The FOA takes a more standardized and prescriptive approach to the site assessment, incorporating a standard site assessment checklist, reporting templates, and other useful documents into its free toolkit. The process is built around a hit list of the most common operational opportunities found in commercial properties, from simple equipment scheduling opportunities to more complex HVAC controls measures; this hit list was developed from a comprehensive national database of findings and savings from existing building commissioning (EBCx) projects. The FOA toolkit is available for free download at http://www.cacx.org/resources/rcxtools/foa/.

While time-of-sale energy performance assessments are not yet standard practice, some forward-thinking owners have already developed in-house teams that can perform walkthrough assessments as part of their property appraisals. Others are likely to follow, and it is also expected that appraisers will be looking to add energy performance assessments to their suite of services. Developing industry-standard assessment procedures and tools will be a major factor in seeing that owners can find that pot of gold under the floorboards.

Eliot Crowe is Senior Technical Manager at PECI (www.peci.org), a leading nonprofit energy efficiency consulting firm. He has over 16 years of program and project management experience across a variety of industries. His work in the area of commercial buildings energy efficiency has encompassed utility rebate program management, publicly-funded R&D on commissioning, and technical support for state policy development. Mr. Crowe also provides management support for the California Commissioning Collaborative (www.cacx.org).

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