Business Case for Energy Efficient Building Retrofit and Renovation Table of Contents 4 Foreword: Making the Business Case

SmartMarket Report

Business C a s e f o r EnergyEnergy EfficientEfficient Building Retrofit and Renovation

Produced with support from

Funding provided by U.S. Department of Energy through the Pacific Northwest National Laboratory ■ Design and Construction Intelligence SmartMarket Report

McGraw-Hill Construction Business Case for Energy Effi cient Building President Retrofi t and Renovation Keith Fox SmartMarket Report Vice President, Product Development Executive Editor Kathryn E. Cassino Harvey M. Bernstein, F.ASCE, LEED AP About McGraw-Hill Construction Editorial Director McGraw-Hill Construction McGraw-Hill Construction (MHC), Research & Analytics/Alliances Michele A. Russo, LEED AP part of The McGraw-Hill Compa- Vice President, Industry Editors nies, connects people, projects and Enver Fitch, LEED Green Associate Insights & Alliances products across the design and con- Harvey M. Bernstein, F. ASCE, LEED AP Donna Laquidara-Carr, LEED AP struction industry, serving owners, Senior Director, Research & Analytics Senior Group Art Director architects, engineers, general con- Burleigh Morton Francesca Messina tractors, subcontractors, building Director, Partnerships & Alliances Contributing Art Director product manufacturers, suppliers, John Gudgel Donald Partyka dealers, distributors, and adjacent Director, Green Content & Production Manager markets. Research Communications Alison Lorenz A reliable and trusted source Michele A. Russo, LEED AP for more than a century, MHC has Contributing Editor David Sokol remained North America’s leading provider of construction project and Research Project Manager product information, plans and spec- Dana Gilmore, MRA, PRC ifi cations, industry news, market

research, and industry trends and For further information on this SmartMarket Report or for any forecasts. In recent years, MHC has in the series, please contact emerged as an industry leader in the critical areas of sustainability and McGraw-Hill Construction Research & Analytics interoperability as well. 34 Crosby Drive, Suite 201 In print, online, and through Bedford, MA 01730 events, MHC offers a variety of tools, 1-800-591-4462 applications, and resources that embed in the workfl ow of our cus- [email protected] tomers, providing them with the information and intelligence they need to be more productive, successful, and competitive. Acknowledgements: Backed by the power of Dodge, The authors wish to thank the many individuals who provided insights on Sweets, Architectural Record, their effi ciency programs and projects for the case studies. Engineering News-Record (ENR), GreenSource and SNAP, In particular, we would like to thank Roland Risser and Joseph Hagerman at McGraw-Hill Construction serves the U.S. Department of Energy’s Building Technologies Program for provid- more than one million customers ing strategic direction for this project. We also appreciate the assistance of within global construction Andrew Nicholls at Pacifi c Northwest National Laboratory for his project community. To learn more, visit oversight. us at www.construction.com.

Finally, thank you to Mike Italiano, Capital Markets Partnership for sharing his invaluable assistance and expertise regarding sustainability in the world of fi nancing and to Ken Black, E Source for his assistance. SmartMarket Report

Introduction he opportunity for improving insights that build on previous research by energy performance in the United McGraw-Hill Construction and others on how States has never been greater. The to create high-performing buildings. Some ation Better Buildings Initiative proposed critical results include: v Tby the Obama administration is the latest ■■The commitment of corporate America to eno national effort drawing attention to our build- R sustainability continues to grow, despite ing energy consumption and ways we can the adverse economy: 42% of the firms and help reduce it—and win at the same time. it surveyed view sustainability as a business f The economic downturn shifted the Harvey M. Bernstein opportunity or as transformational, up attention of firms and public owners with F.ASCE, LEED AP

etro from 37% just a little over a year ago. large building portfolios toward their exist- Vice President Industry Insights and g R ing buildings. With government and utility ■■92% of companies report being influenced Alliances incentives, the time was ripe for focusing by operational savings in their decision McGraw-Hill Construction

uildin on retrofit and renovation investments that to pursue energy efficiency projects, but B could save energy and money. market differentiation (73%) and employee However, despite the fact that retrofit satisfaction and productivity (71%) are icient activity remained active during the down also important. economy, only a tiny portion of the U.S. build- ■■Renewable energy is seen as a potential gy Eff ing stock has been affected. The opportunity business opportunity for some firms. has never been greater. We merely need to ner

E help create and seize those opportunities. It is obvious that the business case matters or In order to do so, it is important to under- f to firms, and energy efficiency and utility stand what drives American companies and Michele A. Russo

ase savings are the foundation of that case, but building owners to adopt efficiency improve- C firms today expect more. Tenants are using LEED AP ments and sustainability policies. Director, Green Content & their influence in a high-vacancy commer- Understanding those drivers is the first Research Communications cial office building market to demand green McGraw-Hill Construction step. Then, it is about making the business usiness

B features (see page 65), and firms want market case to those different influence agents. differentiation and competitive advantage. We were excited that the U.S. Department Whether you are a manufacturer trying to of Energy’s Building Technology Program get your energy-efficient products installed, and the Pacific Northwest National Labora- a builder or engineer experienced in adding tory supported this effort because the results value to projects through better building show that energy efficiency is occurring and practices, or policy makers wanting to lower will continue to occur. The levels of that activ- the environmental impacts of our buildings, ity depend on our ability to convey the full understanding how to make the right busi- breadth of benefits that come from sustain- ness case to the right person is critical. able investments, of which energy efficiency We hope the data and market insights in is just the tip of the iceberg. this report help you make that case and seize The research in this report provides new those opportunities.

Harvey M. Bernstein, F.ASCE, the Civil Engineering Research an M.S. in engineering from contributor to The McGraw-Hill LEED AP has been a leader in Foundation. He has written Princeton University and a Companies’ corporate initiatives the engineering and construc- numerous papers covering inno- B.S. in civil engineering from around sustainability. Previ- tion industry for over 30 years. vation and sustainability and the New Jersey Institute of ously, she served as Executive Currently, he has lead respon- currently serves as a member of Technology. Director of the Clean Beaches sibilities for MHC’s market the Princeton University Civil Council and Deputy Direc- research group, including MHC’s and Environmental Engineering Michele A. Russo, LEED AP, tor of the National Pollution thought leadership initiatives Advisory Council. He is a visit- has been working in environ- Prevention Roundtable. She in areas such as green building, ing professor with the University mental policy and communica- has authored several articles BIM, interoperability, innova- of Reading’s School of Construc- tions for 15 years. She currently on pollution prevention and is tion and global construction tion Management and Engi- is responsible for helping a frequent speaker on green markets. Bernstein was one of neering in England, where he direct the green content across building trends. Russo has a B.S. the team members involved in also serves on their Innovative MHC’s portfolio of products and in chemical engineering from launching MHC’s GreenSource Construction Research Centre services, including the manage- Cornell University and a Masters magazine. Previously, Bernstein Advisory Board. Bernstein has ment of MHC’s SmartMarket of public policy from Harvard’s served as President and CEO of an M.B.A. from Loyola College, Report series. Russo is also a Kennedy School of Government.

McGraw-Hill Construction 1 www.construction.com SmartMarket Reports SmartMarket Report Business Case for Energy efficient Building retrofit and renovation table of contents 4 Foreword: Making the Business Case

5 Executive Summary

7 Recommendations

10 Data: Retrofit and Renovation: Market Activity and Sizing 10 Construction Activity at Large: Renovations versus New Construction 11 Private versus Public Renovation Projects 12 Green Building and Green Retrofit and Renovation Market Opportunity 13 Retrofit and Renovation: Project Size and Sector Activity 14 Retrofit and Renovation Regional Activity: Non-Green versus Green

16 Data: Business Case for Green and Energy Efficiency Upgrades 16 Current and Future Levels of Energy Efficiency Activities 18 Energy Efficiency Activities Undertaken in the Last Two Years 20 Current and Future Influence Factors on the Business Case for Energy Efficiency Upgrades 23 Financing Energy Efficiency Activities 27 Business Benefits from Sustainable Activities 29 Drivers and Obstacles to Corporate Sustainability 34 Corporate Involvement in Sustainability 36 Sustainability Metrics 37 Looking Forward: Renewables and Net-Zero Energy

46 Data: Financing Energy Efficiency: Perspectives from Banks and Real Estate Investment Firms

58 Sidebar Data: Business Benefits of Green and Energy-Efficient Retrofit and Renovation Activities 58 Comparative Market Value of LEED Certified and Energy Star Labeled Office Buildings 59 Financial Benefits Expected from Green Upgrades 60 Owner Perspectives 62 Building Manager Perspectives 64 Tenant Perspectives 66 Occupant Perspectives Photograph care of Getty Images (Front Cover)

SmartMarket Reports McGraw-Hill Construction 2 www.construction.com contents

72 73 Photograph by Robert Flynn c/o DOE/NREL (left) Photograph by Kathreen Fontecha/California Lighting Technology Center UC Davis (right)

Case Studies Case Sidebars

Resources Methodology 70 68 55 52 25 44 22 40 19

Using Paybacks to Fund Energy Efficiency in Higher Education: University ofCalifornia University in Higher Education: to Efficiency Fund Energy Paybacks Using Improving Energy Efficiency in Public Schools through Performance Contracting with Existing Budgets: Budgets: Existing with Contracting Performance through Schools in Public Efficiency Energy Improving Conserving Energy at a Major Healthcare Facility and Reaping Financial Rewards: Gundersen Lutheran Gundersen Rewards: Financial and Reaping Facility at a Energy Major Healthcare Conserving Creating a Culture of Energy Efficiency in Commercial Office Buildings: Hines Buildings: Office inCommercial Efficiency of a Energy Culture Creating Government and Utility Policies and Incentives for Energy Efficiency and Green Building and Green Efficiency for Energy and Incentives Policies and Utility Government Pursuing Efficiency and Making Good BusinessSense: Transwestern The Role of Energy Service Contracts Service Energy of Role The The Walmart Example: Portfolio-Wide Use of Efficient and Green Technologies Green and Efficient of Use Portfolio-Wide Example: Walmart The Technology Mesa County Valley School District 51, Colorado District Valley School County Mesa Construction McGraw-Hill

www.construction.com Structure ing at UC Davis Parking Light NC; Induction School, From left: Middle Durant

SmartMarket Reports SmartMarket -

Foreward

Making the Business Case

Importance of the far more conscious of the bottom line rent Built Environment figures than of incremental operational cost he building sector is the single larg- savings. est user of energy and emitter of The office sector faces an additional chal- greenhouse gasses in the U.S. lenge because office buildings as assets enovation R Today’s buildings consume 40% of see frequent turnover in ownership as well TU.S. energy, release 30% of U.S. greenhouse as tenants, causing the payback period for gas emissions and 38% of carbon dioxide significant efficiency investments to be emissions, and use nearly 13% of all pota- longer than the ownership period. Thus, an ble water in the U.S.1 Given that the U.S. is investment that seems sound on the surface etrofit and currently the largest global user of energy, it does not make a compelling business argu- becomes even more important for the design ment for the level of widespread investment and construction industry to take a leader- necessary to achieve a serious reduction in ship role in making buildings more efficient energy use in the building sector. in their use of energy and water. The healthcare and education sectors ient Building r

c At first glance, esigningd new buildings face an entirely different set of issues. Their

ffi and updating existing ones to achieve owners are often nonprofits, government greater energy efficiency seems to be a or for-profit businesses with narrow profit straightforward and logical first step towards margins where the battle for investment nergy e energy independence in the U.S. To the dollars is challenging. However, there are E casual observer, the business case for greater unique opportunities in these sectors. energy efficiency in buildings is obvious. Education buildings are expected to offer Using existing off-the-shelf technologies can cutting-edge facilities. Hospitals, and some yield impressive energy use reductions. university buildings, are also particularly However, when examined more closely intensive users of energy, so decisions with the ultimate goal to achieve net that can help them reduce this use can be

Business Case for zero energy for all buildings through the encouraged with compelling intelligence. combined strategies of efficiency and renewable energy, the massive scale of Finding Opportunity investment required to upgrade the existing Through Energy Efficiency building stock is daunting. In addition, each and Sustainability and industry sector has its own challenges, Overcoming Challenges making it necessary to tailor the business The fundamentally compelling business case case to each sector. for efficiency rovidesp far more opportunities than challenges. The ambitious goal of Building Sectors improving efficiency across the entire built This study examines the challenges and environment is achievable, but only through opportunities presented by four industry a serious recognition and response to the sectors in particular: office, retail, healthcare obstacles faced in these major industry and education. One critical obstacle faced sectors. by the office and retail sectors, where This report, through in-depth market buildings are typically leased to tenants, research and case studies, demonstrates is that the savings generated by building that industry-wide adoption of efficiency operations often do not directly benefit the investments in each of these sectors is owner enough to make it easy to justify ultimately profitable and makes good 1 U.S. Energy Information Administration, an investment. Additionally, tenants are business sense. U.S. Department of Energy, 2007

This report was sponsored under contract by the Building Technology Program within the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy and managed by the Pacific Northwest National Laboratory. The data and narrative in this report do not reflect the opinion of the U.S. Department of Energy or the Pacific Northwest National Laboratory.

SmartMarket Reports McGraw-Hill Construction 4 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation Executive Executive Summary

Ripe for Opportunity in Energy Efficiency Retrofitand Renovation: age of that is new construction each year. each construction percent new is small a that only of age space,and building commercial of environment comprises more than 77.9 billion square feet untapped area for upgrades and activity. O from bank loans. were financedfrom performance contracting and6% through capital budgets and company profits. 85% of the energy efficiency projects were funded Funds Outside Not Resources, Internal Use Projects Renovation and Retrofit Financing: investment. these needs when trying to influence these levels of case. orga these at staff nizations who internal are on responsible for making burden the more business placing only efforts. building green other and efficiency energy from sustainability initiatives, including investments in F Case Business the Make to Used Be Can and Expected Are Benefits Business of activity over the last two years. to investment, but it is also a slight decline from the level in years. two the next projects 78% of respondents plan to do energy efficiency upgrade Future the for Planned and Occurring— Are Projects Renovation and Retrofit Energy-Efficient investments and activities. proj major for 2014 by ects, a large portion anticipated of which includes billion energy efficiency $53 with years, in major commercial renovation activity over the next five buildings. those upgrading in interest of lack including access to funding, insufficient incentives and remains relatively low. building floor area. floor building commercial construction only accounted for 1.8% of total attractive to help the market grow to the market help attractive financing needs to be made more available and more mately a limiting factor for the efficiency market, and irms have high expectations about the benefitscoming verall, the existing building market is an important R It is incumbent upon the industry to recognize I Mc However, the amount of renovation and retrofit activity n fact, these expectations are increasing over time, elying on capital budgets and company profits is ulti is profits company and budgets capital on elying G raw-Hill Construction expects continued growth growth continued expects Construction raw-Hill Current Energy-Efficient Energy-Efficient Current 3 T here are many reasons for this, T his is a high commitment commitment high a is his . Construction McGraw-Hill T 2 I he n 2008, new new 2008, n U . O S nly 16% . built - - - -

Source: Construction, McGraw-Hill 2011 Years Two Next the in Upgrades Efficiency of Firms Energy Planning Percentage 2 Annual Energy Outlook 2010, U. S. Department of Energy, Energy Information Administration http://www.eia. BuildingConstruction, Stock3 Database. McGraw-Hill doe.gov/oiaf/aeo/excel/aeotab_5.xls; Administration Information Energy Energy, of Department S. U. 2010, Outlook Energy Annual 2 Improved ROI Source: Construction, McGraw-Hill 2011 Adoption Sustainability from Benefits Business Expected Other Greater Productivity Costs andDrop in Operating Energy www.construction.com Planned 78

16 % % Not Planned Not 14

60 % Don’t know 8 %

82 SmartMarket Reports SmartMarket %

98 % Executive Summary continued

Influencing Energy Influence Factors Behind the Business Case for Efficiency Retrofits: PAST Energy Efficiency Retrofit Activities Utility Savings Lead, But Other Factors Also Significant Source: McGraw-Hill Construction, 2011 enovation Businesses recognize a broad range of incentives for Amount of Influence: investing in efficiency. ■ Some ■ Good Deal ■ Major ■■Utility cost savings is by far the most important factor; it is selected as a major influence by 43% of respon- Utility Cost Savings (energy bills, etc.) etrofit and R dents, compared to 17% or less for all other factors. 17% 32% 43% 92%

■■Other factors with larger profit margins, including Market Differentiation employee/occupant satisfaction and productivity and 28% 28% 17% 73% improved asset value, can drive the market, but better Employe/Occupant Satisfaction/Productivity benchmarks and data are required to make these 29% 33% 9% ient Building R 71% elements stronger aspects of the business case. c ffi Creating Business Value: Utility Incentives Renewables and Net-Zero Energy 30% 26% 11% 67% Buildings Offer Opportunity for

nergy E Improved Asset Value Product and Service Companies 33% 22% 8% 63% The industry sees strong opportunities in investing in renewables and net zero to help grow their businesses. Tax Incentives Almost half (42%) of the businesses see an opportunity in 22% 16% 10% 48% buildings achieving net zero and two thirds (66%) regard increasing the percentage of their energy from renewable sources as important for their companies.

Business Case for E Corporate America regards investment in these resources as important for their bottom line, and they express interest in public investment to develop new technologies.

The Shift to Net Zero Provides Opportunity for Increasing the Percentage of Our Company in the Market Our Energy from Renewable Sources Is Important for Our Company Source: McGraw-Hill Construction, 2011

Source: McGraw-Hill Construction, 2011

5% 2%2% 10% 17% ■ Strongly Agree 11% ■ Agree ■ Strongly Agree ■ Neutral 30% ■ Agree 19% ■ 25% ■ Disagree 19% Neutral ■ Strongly Disagree ■ Disagree ■ No comment ■ Strongly Disagree 24% 36% ■ No comment

SmartMarket Reports McGraw-Hill Construction 6 www.construction.com Recommendations

Key Findings and Recommendations by Sector and Firm Size The key drivers influencing decision makers to invest in energy efficiency retrofits and renovations sometimes vary by firm size and by industry sector. As a result, some strategies may be more effective when trying to influence the activity levels of these specific players. enovation Larger Firms ■■Larger firms have greater ■■A greater percentage ■■Smaller firms have a (Annual Revenues expectations for high of larger firms report greater expectation of over $500M) returns on their effi- seeing ROI gains from around cost savings than These firms include some ciency investments sustainability efforts larger firms. etrofit and R of the largest corpora- in multiple measures than smaller firms. One tions in the U.S. Due to beyond just cost savings. possible reason is their Implication: the breadth of their build- ability to take advantage This fact suggests ing portfolios, they offer Implication and of economies of scale. that marketing with an a strong potential market Recommendation: emphasis on cost sav- for significant efficiency Being able to demon- Recommendation: ings could be quite ient Building R c adoption. strate strong results for Emphasizing this strat- effective. ffi efficiency gains is par- egy can not only increase ■■Overall, larger firms ■■Chief Sustainabil- ticularly important when interest in efficiency are bigger adopters of ity Officers (CSOs) in marketing to this group. improvements but may nergy E sustainability efforts. smaller firms have more This is particularly true increase the scope at influence on financial with productivity gains. which the larger compa- Implication: decisions than those in Therefore, emphasizing nies are willing to under- They are currently the larger firms. those gains to this audi- take them. strongest market for ence may reinforce the energy efficiency and Recommendation: business case beyond Smaller Firms also relatively well- Marketing to CSOs is utility cost savings. (Annual Revenues informed about a broad more likely to be effec- Business Case for E from $250M to range of sustainability ■■Competitive advantage, $500M) tive in this sector than measures. customer need and staff with larger firms. Previ- The smallest firms included retention/talent acqui- ous studies by MHC have ■■Decision-making author- in this study still qualify sition are all drivers suggested that CSOs ity tends to be higher as large businesses when that resonate with this are more conscious of up in the organization compared to the Small segment more than they the need to make a clear, for larger firms than for Business Administration’s do with smaller firms. straightforward busi- smaller firms. definition of a small business case around green ness. However, there is a Recommendation: than other corporate offi- Recommendation: marked difference in how Emphasizing the impact cers. Materials that aid Efforts that target companies with revenues of efficiency on the ben- them in their ability to the C-suite employ- of $500M or less make deci- efits they can offer to do so, combined with an ees (CEOs, CFOs, etc.) sions about their invest- customers and to their emphasis on the aspira- may succeed particu- ments in efficiency versus employees should be an tional goals around sus- larly well in this segment even larger firms. effective strategy when tainability and green that to encourage broader dealing with larger firms. typically drive these pro- adoption. fessionals, would be most likely to appeal to this group.

McGraw-Hill Construction 7 www.construction.com SmartMarket Reports Business Case for Energy Efficient Building Retrofit and Renovation Recommendations ■ SmartMarket Reports Reports SmartMarket ■ Concern over govern Concern correctly. company is positioned ing ones to ensure the track trends for upcom ing regulations and that can interpret exist fewer internal resources may be due in part to than larger ones. This of smaller companies a higher percentage only driver selected by ment regulations is the navigate policy shifts. policy navigate advice on how to help likely be receptive to T policies. these with align tive to activities that recep and policy ment govern by influenced be an audience heavily A to environmental risk. corporate exposure vide services to reduce pro that firms for tunity T Recommendation: his audience would oppor offers sector his dditionally, this may

------■ ■ vate schools. pri and public both as well and higher education as includes both K–12 schools T Education Sector: Building ■ ■ he education sector A smaller percentage One strong factor to other sectors. of just under half for all compared to an average influential, as factor this this sector regarded of the respondents in tion. Over two thirds differentia market education sector is emphasize with the improvements. drop due to efficiency and operating costs expect to see energy the education sector respondents from fact that all of the sectors, despite the ROI compared to other expect to see improved factors. as emphasis on other sector this in investment for increasing efficiency compelling an argument ings alone may not sav be as cost operating that T Implication: hese results suggest Construction McGraw-Hill - - -

■ ■ A higher percent than in any other. adopted in this sector also more widely mance contracts are perfor and efficiency, investing in improved limitations present in the challenge budget express concern over the education sector age of respondents in efficiency. increase investment in in a budget may help item line a as include to cation firms do not need edu that improvements methods of financing Providing alternative Recommendation: in this sector. D sector. this in an effective argument schools is likely to be themselves from other as a way to distinguish efficiency investment Positioning increased Recommendation: selecting selecting schools. ity commitments when sustainabil university increased interest in ing students given their attract in important entiation will also be www.construction.com iffer ------■ ■ ■ ■ Educational institu The education sector any sector. of renewable energy of the highest adopters addition, they are also the last 18 months. In has grown by 9% over ity adoption, and that levels of sustainabil at the two highest rank their institutions tion respondents (80%) The majority of educa appears to be growing. that commitment green measures, and sustainability and experienced with is one of the most tion of efficiency. of tion adop in overall increase ical factor behind an benchmarks—a crit establish performance resource in helping to could be an important that these institutions result demonstrates ous investigation. This since MHC’s previ ity in the 18 months certifiedbuilding activ and tracking LEED ing emission reductions activity around measur tions have doubled their edge technologies. cutting- more to open measures, and one it comes to efficiency and savvy market when ticularly sophisticated E Implication: xpect this to be a par a be to this xpect ------Business Case for Energy Efficient Building Retrofit and Renovation Recommendations

■ Healthcare Sector: Building ■ Hospitals are the second important. important. from this sector as very by many respondents energy savings is cited line, which is why impact on their bottom can have a notable ing cost savings alone operat result, a As U.S. building sector in the most energy-intensive these utility savings. utility these group is responsive to always remember this It will be important to Recommendation: - ■ ■ A higher percentage of Recommendation: sition. retention/talent acqui customer need and staff for other sectors include care respondents than health of percentage Key drivers for a higher healthcare respondents. only important driver for consumption is not the strates that energy sectors, which demon compared to other efficiency investments major influence on their asset value to have a ity improvements and consider productiv healthcare respondents consumption. not restricted to energy but including factors, ple fitsthat highlightmulti bene with approached Hospitals need to be Construction McGraw-Hill

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■ ■ 25% of healthcare their industry. benchmarks focused on education and more benefit from greater tutions would clearly insti These sectors. the average across all benefits of green than ing of the financial lack of understand are challenged by a dents state that they healthcare respon In addition, 14% more ROI as a key benefit. 100% expect improved despite the fact that sustainability efforts, to measure ROI for not knowing how respondents report www.construction.com - - -

■ ■ Healthcare institutions organizations. selves as sustainable them define yet not do ment sustainability and imple best to how at they are still looking level 3, suggesting that 50% rate themselves as sustainability scale, tion or office. In the like educa sectors other ability much later than sustain to coming are approach. education as part of their care need to consider health in efficiency and increase sustainability sector. tive services in this consulta for market T Implication: here is a potential T SmartMarket Reports SmartMarket hose seeking to ------Data:Retrofit and Renovation Market Activity and Sizing Construction Activity at Large: Renovations versus New Construction

Commercial Construction Based on Construction is a critical part of the U.S. economy. At Number of Projects Started (2005–2010)

6.5% of GDP, it is the second largest contributor to U.S. Source: McGraw-Hill Construction, 2011 data GDP behind healthcare. However, the composition of 70% that activity has changed since the recession—with more ■ Alterations emphasis on existing buildings versus new construction. ■ New 60%

enovation ■ Additions Construction Activity to Date In 2010, the value of new U.S. construction starts totaled 50% $431.6 billion, down from $670 billion in 2005.

New commercial construction activity ended 2010 at 40% $147 billion, while the value of major commercial retro- etrofit and R fit and renovation projects grew from $31.4 billion to $41 30% billion over the same period.4 In 2010, major retrofit and renovation comprised 64% of all construction projects, up from 60% in 2009, with a 20% steady increase since 2006. A primary reason for this shift ient Building R may be credit availability during the economic downturn, 10% c with less capital available for new construction projects. ffi The result has been an increased emphasis on retrofit 2005 2006 2007 2008 2009 2010 and renovation projects. nergy E Commercial Renovation Activity Energy-Efficient Building Share of Retrofit Going Forward Market (In Billions of Dollars) McGraw-Hill Construction expects continued growth $50.6 Source: McGraw-Hill Construction, 2011 in major commercial renovation activity over the next $45.3 $30.8 five years, with $53 billion anticipated by 2014 for major ■ High Estimate $27.2 projects. ■ Low Estimate Overall, the existing building market is an important Business Case for E 2010 2014 untapped area for upgrades and activity. The U.S. built environment covers more than 77.9 billion square feet of commercial building space, and only a small percent- ■■Many incentives and programs now encourage retro- age of that is new construction each year.5 In 2008, new fit and renovation activity with an energy efficiency commercial construction only accounted for 1.8% of total component. building floor area.6 However, the amount of renovation and retrofit activity As a result of the above factors, most retrofit and reno- remains relatively low. There are many reasons for this, vation activity that is occurring includes an energy including access to funding, insufficient incentives and efficiency element such as lighting or HVAC upgrades lack of interest in upgrading those buildings. (see page 18). Rebates for efficient lighting and mechani- There are shifts that may increase energy efficiency cal products have encouraged these investments. activity: In 2010, energy-efficient building retrofits comprised 66%–75% of $41 billion of total major retrofit and reno- ■■Concerns about energy consumption, costs and vation spending. By 2014 that share is expected to rise to climate change continue to encourage support for 85%–95% of $53 billion of total major retrofit and renova- increases in the energy efficiency of existing buildings. tion spending.7 ■■Energy efficiency is perceived as affordable and achievable with technologies currently available. 4 McGraw-Hill Construction, Construction Market Forecasting Service, as of December, 2010. 5 Annual Energy Outlook 2010, U.S. Department of Energy, Energy Information Administration http://www.eia.doe.gov/oiaf/aeo/ excel/aeotab_5.xls. 6 McGraw-Hill Construction, Building Stock Database. 7 McGraw-Hill Construction, 2011 Green Outlook, 2010.

SmartMarket Reports McGraw-Hill Construction 10 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation data

economic recovery efforts. D A federal agencies including the efficiency improvements in buildings to a number of billion for provisions encouraging investment in energy initiatives—particularly federal ones, such as the A the as such ones, R ican federal initiatives—particularly renovations suggests a positive impact of government ment and ment the figuresbelow. continued to increase through 2010, as can be seen from sector increased from 2008 to 2009, and down federal projects economic turn. recent the by impacted strongly were Many privately funded retrofit and renovation projects Private versus Public Renovation Projects Retrofit & Renovation Marketand Activity Sizing dministration, efense, D efense, T he stability and growth in public sector retrofit and I n contrast, retrofits and renovations in the public ecovery and R and ecovery D epartment of Housing and U and Housing of epartment epartment of epartment D epartment of einvestment A einvestment V eterans eterans ARRA U E . nergy, S included over $30 . A Construction McGraw-Hill ct ( ct G ffairs. eneral ARRA rban D rban D epartment of S ) and other other and ) ervices ervices evelop mer - - -

4000 6000 8000 3000 5000 -10,000 2000 -12,000 7000 1000 Source: Construction, McGraw-Hill 2011 Public Renovation Projects -4000 -6000 -8000 -2000 Source: Construction, McGraw-Hill 2011 ( in of Growth Number Projects Renovation 4000 6000 2000 2005 0 ear over over Year www.construction.com 2006

■ ■ ■ ■

State County Private Federal 2006 Year)

2007

nt i 2007 n ued

2008 2008

(2005–2010)

SmartMarket Reports SmartMarket ■ ■ ■ 2009 2009

Federal State County

2010 2010 Retrofit & Renovation Market Activity and Sizing continued

Green Building and Green Retrofit and Renovation Market Opportunity8

New Green Building Market Size Green Building Green building has experienced dramatic growth while a data severe economic downturn has resulted in sharp declines Definition McGraw-Hill in overall construction activity. The U.S. market for new Construction uses the commercial green building increased from $3 billion in following definition of 2005, comprising 2% of the commercial building market, green building, which enovation to $41–$51 billion in 2010, comprising 28%–35% of the encompasses more market. than energy efficiency. According to McGraw-Hill Construction’s five-year con- To be considered a green building, struction market forecast, by 2015 the new commercial a project must be green building market is expected to reach $118–$141 bil- etrofit and R energy efficient and lion and comprise 40%–48% of the market based on the water efficient, have current construction forecast for 2014. improved indoor air quality and include Retrofit and Renovation Green features that use Building Market Size renewable resources. Therefore, a ient Building R The green share of the retrofit and renovation market is c building that focuses also expected to grow. In 2010, the green share of the total ffi solely on one aspect commercial retrofit and renovation market was 7%–12%, of environmental equating to a $3–$5 billion market opportunity.9 performance (e.g.,

nergy E In five years, McGraw-Hill Construction estimates that energy) is not the green share of retrofit and renovation activity will considered a green reach 25%–33%, equating to a $13–$18 billion, based on building, nor is a building that has only the current forecast of 2014 activity.10 one or two products Green renovation projects tend to be larger (see page that lead to improved 13). As a result, the green share of renovation activity is environmental less likely to be significantly influenced by smaller reno- performance. vation and remodeling projects. Buildings certified Business Case for E under recognized green building rating Projected Green Building Market Growth in systems are typically Billions of Dollars (2010–2015) more narrowly defined given their specific Source: McGraw-Hill Construction, 2011 requirements. These buildings are a subset $145 ■ Upper within McGraw- Market Size Hill Construction’s definition. ■ Minimum $120 Market Size

$18

$54 $14

$43 $5

$3 2010 2015 2010 2015 8 Note: The market size numbers provided by McGraw-Hill Construction are based on the overall project valua- New Nonresidential Major Nonresidential tion. The way this money is allocated to different products, technologies, labor, etc. is included. 9 McGraw-Hill Green Market Size Retrofit Green Market Size Construction, 2011 Green Outlook, 2010. 10 Ibid.

SmartMarket Reports McGraw-Hill Construction 12 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation data

■ ■ ■ ■ fore costlier projects are more likely to be green. green. be to likely more are projects costlier fore incorporat for down costs ing green the products and bring technologies. inevitably and needs green projects will cause the market to respond to those and experienced designers and contractors. market demand for green building products, technologies construction whether it is large hospital projects or show or projects hospital case office large buildings. is it whether construction green. construction and retrofit and renovation—are going largest construction projects by value—both new Sector Activity Sector Mc Project Size Project Size and Sector Retrofit and Renovation: Retrofit & Renovation Marketand Activity Sizing ■ ■ ■ ■ Heal E Offi R and renovation projects in the retail sector have fared Retrofit years. over three the past new construction from the economic downturn, with large declines in steadily increase over the next five years. renovation projects in the officesector are expected to McGraw-Hill Construction’s forecast, total retrofit and ing in a 23% decline in 2010. However, according to as result well, has suffered market and renovation nonres of 30% to 46% idential from construction in 2010. decreased construction nearly 40% higher than those in 2010. 2014with fiveover levels the years, next expected Steady and substantial growth in retrofit activityis retro 2009, in fit and renovation decrease activity hasseen small a consistent growth. 2010. from in 7% aside and 2009 However, in 17% of decreases with years, tion starts in the education sector over the past two sector. growth of retrofit and renovation activity in this after a decline in 2009. McGraw-Hill forecasts steady tion starts in the healthcare sector rose again in 2010 A T G duc e his trend is critical because major projects create a s can be seen in the figure at right, large and there and large right, at figure the in seen be can s raw-Hill Construction’s research shows that the the that shows research Construction’s raw-Hill tail: T c thcare: a his is true in almost every area of commercial e: e: t Retail construction has especially suffered io D ue to the economic downturn, new office n: T he downturn affected new construc new affected downturn he

T he value of retrofit andrenova he of value retrofit A T he office retrofit ctivity Construction McGraw-Hill T hese larger ------

- - 13

Source: Source: Dormitories h Capitols/Court ■ ■ (2009–2010) Average Cost of Projects Renovation Libraries and Museums Libraries Buildings Service Government Other B and Recreational Social Amusement, Schools and Colleges Buildings Miscellaneous Nonresidential andBank Buildings Office Hospitals and Other Health Treatment Health Other and Hospitals

$ $ $ $

retrofit and renovation activity going forward. McGraw- 2010. in Hill steady Construction forecasts slow, stayed gradual increases and in better slightly $ 1 1 1 1 All Renovation Average Cost Average Renovation All Dollars) of Thousands (In Cost Average Renovation Green 2 2 2 2 www.construction.com 3 McGraw-Hill Construction, McGraw-Hill 2011.

$ 12

13 $ 15 ouses/City Halls ouses/City

$ $ 19 19

$ co

25 $ nt 27 i n

$ ued 31

(In Thousands of Dollars) of Thousands (In

$ in uild 41 gs SmartMarket Reports SmartMarket Retrofit & Renovation Market Activity and Sizing continued

Retrofit and Renovation Regional Activity: Non-Green versus Green

Total Value and Number of Renovation Projects by Region (2005–2010) McGraw-Hill Construction’s regional data show a variation in the number and value of retrofit and renovation data Source: McGraw-Hill Construction, 2011 projects across the U.S. Value ($ billions) Middle Non-Green (Including Projects That Atlantic $46 Are Only Energy Efficient) 35 enovation South Atlantic $40 ■■Value of Projects: Retrofit and renovation proj- 59 ects in the Mid-Atlantic region are the highest in value, followed by the South Atlantic and Pacific regions. $36 Pacific 35 This difference may be attributed to the growth in $34 etrofit and R public retrofit and renovation projects encouraged East North $34 by the provisions of ARRA and other federal govern- Central 42 ment policies. (See page 25 for more on government West South policies.) Central $27 41

ient Building R ■■Number of Projects: The South Atlantic region c $16 has the highest number of retrofit and renovation Mountain 21 ffi projects followed by the East North Central and West New South Central regions. $14 England 13 nergy E West North $13 Central 14

East South $12 Central 16

0 10 20 30 40 50 60 Number of Projects (thousands) Business Case for E

continued

SmartMarket Reports McGraw-Hill Construction 14 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation data

■ ■ green projects. green T ProjectsGreen and Retrofit Renovation Regional Retrofit & Renovation Marketand Activity Sizing ■ ■ here are similar regional geographic distributions for R R renovation projects, at 20%. tic region has the largest number of green certified renovation projects, at 27%. tic region has the largest investment in green certified e e g g i i o o nal nal o Value nal N u mb er er f Pr f o f Pr o je o je ct Construction McGraw-Hill ct s: s: s: s: T he A Mid- T he South A South he A ctivity: Non-Green versus Green Non-Green ctivity: tlan tlan -

- 15

Source: Source: South Atlantic ■ ■ by: Projects of Percentage By Region Projects of TotalPercentage Renovation Green East South Central South East Central North West Mountain Central South West England New Central North East Pacific Middle Atlantic Middle

2 3

un Co V 4 www.construction.com % alue %

McGraw-Hill Construction, McGraw-Hill 2011 % 6 6

7 7 7

% % 8 % % %

% 10 t

11 11

% 14 % %

17 %

% 20 %

% 24

27 %

% (2010)

co nt in ued SmartMarket Reports SmartMarket Data:Business Case for Green and Energy Efficiency Upgrades Current and Future Levels of Energy EfficiencyA ctivities

Percentage of Firms Who Conducted Energy Percentage of Firms Efficiency Upgrades in the Last Two Years

Source: McGraw-Hill Construction, 2011 data Who Have Engaged in Energy Efficiency Activities on The last two years have seen strong energy efficiency ati activity. nov e ■■Nearly all (91%) of the firms surveyed have undertaken 91% 9% energy efficiency upgrades on buildings in their port- Upgraded Did Not Upgrade nd R

a folio in the last two years. fit ■ o ■42% report that more than 30% of their building portfolio is green or high performing. etr ng R

i These results demonstrate that nearly all of the firms Percentage of Firms Planning Energy ld surveyed are familiar with the benefits of energy effi- i Efficiency Upgrades in the Next Two Years ciency. They also reinforce the impact of government Bu t incentives for energy efficiency, including rebates and tax Source: McGraw-Hill Construction, 2011 n credits, from the Energy Independence and Security Act and the American Recovery and Reinvestment Act. fficie Variation by Firm Size gy E

er Throughout the survey, larger firms demonstrate a larger 78% 14% 8% Planned Not Planned Don’t Know

En investment in efficiency, including the number who have r

o engaged in efficiency projects over the last few years. f • Larger Firms (revenues of over $500 million): 93% ase completed efficiency work. C • Smaller Firms (revenues of $250 million to ess $500 million): 84% completed efficiency work. n si Variation by Sector Bu Education: 95% of education institutions have improved the energy performance of buildings in their portfolio in the last two years. Factors influencing this large commitment include: • Legislation driving schools and municipal buildings to greater efficiency (K–12 schools) • Market differentiation (higher education) • Cost savings due to budget restrictions (K–12 schools and higher education)

Percentage of Firms Planning Energy Efficiency Upgrades in the Next Two Years 78% of respondents plan to do energy efficiency upgrades on buildings in their portfolio in the next two years. While this indicates a relatively robust market, it also suggests a slight decline expected in overall energy efficiency projects compared to the past two years, when 91% reported doing efficiency projects.

continued

SmartMarket Reports McGraw-Hill Construction 16 www.construction.com Business Case for Green & Energy Efficiency Upgrades

Current and Future Levels of Energy Efficiency and Green Activities continued

Current and Future Level of Energy Efficiency Current and Future Levels of Energy and Green Building Investment Activity

Source: McGraw-Hill Construction, 2011 data Efficiency and Green by Percentage of Total Buildings on 0% 1–15% 16–30% 31–60% More than 60% Exploring of BUILDINGS of BUILDINGS of BUILDINGS of BUILDINGS ati Current Levels of Activity whether or not As of late 2010, firms are seeing a relatively high level of to undertake this activity nov e energy efficiency and building investment. 39%

nd R ■■Upgrading less than 30% of their buildings: 39% 31% a of respondents 29% fit 25% 24% o ■■Upgrading 31%–60% of their buildings: 31% of etr respondents 13% 15% 11%

ng R Future Levels of Activity i 6%7%

ld In addition to the reduction in the number of firms plan- i ning to conduct energy efficiency upgrades on their Bu ■ Current t buildings, the respondents also expect a slight reduction ■ in 2 Years n in the number of buildings which they intend to upgrade. fficie ■■More respondents expect to upgrade only 1%–15% of

gy E buildings—from 13% to 25%. er ■■Fewer expect to update 16%–60% of their buildings— En r from 70% to 53%. o f An exception to this trend is the number of firms with ase the most aggressive approach to efficiency, where the C percentage of firms that report they will upgrade more ess than 60% of their buildings increased from 11% to 15%. n si These slight declines may be the result of a number of

Bu different factors: • Some incentives that have been in place over the last two years are scheduled to end within the next two- year window. • Many simple upgrades with low investment and high returns may have been made on poorly performing buildings. These results demonstrate the need for a strong business case for energy efficiency improvements to encourage a more robust efficiency market than is currently expected. While upgrading existing buildings is still proposed by most of the industry, the slight decline in the level of work is noteworthy. In order to make a significant impact on U.S. energy use, an increase in efficiency upgrades is necessary across the entire building stock. A company— and society as a whole—will not receive the full benefits of upgrades unless there are larger levels of investment in these activities.

McGraw-Hill Construction 17 www.construction.com SmartMarket Reports SectionBusiness Hed1 Case continuedfor Green & Energy Efficiency Upgrades continued

Energy Efficiency Activities Undertaken in the Last Two Years

Energy Efficiency Activities Variation by Firm Size (based on Annual Revenue) data Undertaken in the Last Two Years Over 70% of respondents installed four major efficiency For each of the activities listed, companies with an annual on features in their existing buildings, demonstrating that revenue above $500 million report more activity than ati most efficiency retrofits cover a range of systems rather smaller companies.

nov than focusing on one area. e ■■Larger Firms (revenues of over $500 million): • Lighting Upgrades—95% nd R ■■Lighting: 94% of respondents performed lighting

a • HVAC Upgrades—88% upgrades. Lighting improvements are widely acknowl-

fit • Zoned Temperature Controls—78%

o edged to require minimal investment and produce • Building Automation Controls—76% measurable results. etr • Renewables—42%

ng R ■■HEATING AND COOLING: ■■ i 85% also invested in effi- Smaller Firms (revenues of $250 million to

ld cient HVAC systems, and 74% incorporated zoned $500 million): i temperature controls. More efficient VH AC systems • Lighting Upgrades—88% Bu t typically require a larger up-front investment, but • HVAC Upgrades—77% n clearly they are also perceived to deliver strong returns. • Zoned Temperature Controls—62% The investment in zoned temperature controls is also • Building Automation Controls—58% fficie a reminder of the importance of emphasizing build- • Renewables—35% gy E ing operations as much as the equipment installed to er improve energy performance. These controls are most The difference is not statistically significant, ranging from En r effective when adjusted to the current use of a space. 7% to 18% more respondents by category, but the consis- o

f tency of the increase across the categories suggests ■■BUILDING AUTOMATION CONTROLS: 72% included larger overall investments in efficiency by the largest ase

C building automation controls in their existing build- companies. ings. Building automation controls help contribute ess Variation by Sector n to more efficient building operations. Their heavy si Education: 84% of the education sector reports installing use demonstrates that good building operations are Bu renewables in the last two years. Renewable energy use needed after upgrades in order for strong energy is particularly popular in the education sector because performance to be achieved. visible solar panels and windmills are used as “teaching moments” to increase discussion about energy savings. ■■EFFICIENCY VERSUS RENEWABLES: Efficiency In fact, the U.S. Department of Energy’s Wind for investments are more common than investments Schools program seeks to encourage installation of in renewables. Compared to previous surveys, the windmills, with a goal to “develop a knowledge base reported use of renewables is also slightly reduced— for wind energy in schools.” As of January 28, 2011, 204 from 50% down to 40%. institutions, including K–12 and higher education, have participated in the program.11

11 U.S. Department of Energy. “Wind Powering America: Wind Energy for Schools.” http://www.windpower- ingamerica.gov/schools.asp.

SmartMarket Reports McGraw-Hill Construction 18 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation Sidebar

M E in tandem. Washington, reasonably priced strategies working headquarters demonstrates the most itself back for more than a century. installing light shelves will not pay controls, while an undertaking like detection and computerized lamp installations include perimeter light tions make reduc sense. More such expensive where climates in load the added benefit of loweringcooling lower the power density, then there is ect includes installation of lamps that improving for building performance. technologies lighting to look Building owners and managers first Lights the Dimming Technology lighting consultant Clanton & A & Clanton consultant lighting two floors of a 1970s mid-rise,with achieve alone. there are limits to what they can provide significantefficiencies, but nologies in all three categories can mechanical systems. Current tech ing systems, building envelope and approximately two years. I years. two approximately the electricity savings pays back in are affixed directly to lamps, and tal cost. Motion and daylight sensors capi the least require ket systems A fruit. lowest-hanging the energy. total of 30% lighting can consume as much as like offices and academic buildings, facilities that require few air changes, only .25 watts per square foot. of .54 watts per square foot, but uses rior was designed for a lighting load T ciates. nvision fashioned the officefrom T D he aylighting control systems are U . he 75,000-square-foot inte 75,000-square-foot he S . : G reen Building Council categories: light categories: fall within one of three efficiency upgrades ost practicable energy- D C–based C–based f the proj the f fter-mar - sso - I - - n Construction McGraw-Hill - - - - expensive. insulation or improving glazing, is building envelope, such as adding to reduce thermal bridging in the Consulting computer,” explains Buro Happold close at the command of a central thing is every wired and that windows open means and which answer, cal whole range. “ ting under-floor retrofit as ventilation. such substantial, tor—to radia steam every to thermostats and engineer Zimmer V ple—in sim renovating from the 1920s Joseph range can upgrades cal Mechani cooling. and heating to ing’s energy load build a can of be devoted 45% and 30% Between Mechanical Upgrades years. but payback is 70%— between as 50 and much 100 as by performance energy improve can building a I Improvements Envelope F achievement. this in role tural and interior design plays a big I it. T it. and facilities managers to handle swing seasons [relies] on occupants way to naturally ventilate buildings in Matthiessen. daylight inward. ified light-coloredcarpet I to reflect glare. minimize to desks tion, the project penetra team configured daylight maximize to ple, frequency drives to fan motors, motors, fan to drives frequency practice is to retrofit variable n the appropriate climate, recladding t should be noted that good architec good that noted be should t ance Building in Portland, Mixed-mode systems reflect this I n this category, the most common he other route is a fully techni fully a is route other he E ven the simplest attempt G unsul E ngineers principal Arup retrofitted local T

he most inexpensive F 19 rasca

rchitects Architects www.construction.com t also spec also t or exam or O regon, L - isa ------technologies. happen simply by piling on new daylight control. workspaces can have an impact on example, configuration of employee be designed as part of a system; for efficiency improvement. climate doesn’t promise much building located in a Mediterranean climate and program—recladding a must be determined according to Matthiessen says, “ be buy-in from facilities managers. technologies, particularly new launching new about sustainability dynamic most is industry A planning and architecture firm of the highly regarded sustainable down costs.” costs.” down starting to find ways to really bring more experienced and integrated are based architect Chicago- says bar,” high really a pass the giggle test—right now, that’s rigorous net-zero standards “doesn’t R An Integrated Aproach considered for colder locales. locales. colder for considered of incoming ventilation, should be which mitigate the temperature whereas heat recovery ventilators, are recommended for dry climates, says. must be specific to the building,” she one- a size-fits-all solution, are most retrofits drives frequency variable were better understood. “Whereas with ventilation and humidity control if these technologies’ interactions could become equally commonplace Matthiessen says that chilled beams simple daylight-control projects. the payback of which is similar to etrofitting existing buildingstock to ssociates. Y et reaching net-zero won’t

E vaporative cooling systems F arr says the lighting ■ T he right strategies D A ouglas nd there must T eams that are SmartMarket Reports SmartMarket F T arr, founder hey must LED F arr s. s. Business Case for Green & Energy Efficiency Upgrades continued

Current and Future Influence Factors on the Business Case for Energy EfficiencyU pgrades

Influence Factors Behind the Business Case for Influence Factors on Efficiency Projects PAST Energy Efficiency Retrofit Activities

Source: McGraw-Hill Construction, 2011 data in the Last Two Years Utility cost savings are the strongest influence factor by on Amount of Influence: far, with at least some influence on 92% of the respon- ati ■ ■ ■ dents. Even more striking, though, is the fact that 43% Some Good Deal Major

nov select utility cost savings as a major influence—two to e Utility Cost Savings (energy bills, etc.) four times more than any other factor. Utility cost savings 17% 32% 43% 92% nd R can be more easily measured and reported than ROI, a and they are directly attributable to energy efficiency Market Differentiation fit o improvements. 28% 28% 17% 73% etr Other Measures Selected by More Employee/Occupant Satisfaction/Productivity

ng R 29% 33% 9% 71% i Than 70% of Respondents: ld i Utility Incentives ■■MARKET DIFFERENTIATION: This factor is perceived Bu 30% 26% 11% t 67% to be a major influence by 17% of the firms surveyed. n Efficiency is important to the market for multiple Improved Asset Value reasons—from good corporate citizenship to attrac- fficie 33% 22% 8% 63% tive leasing terms. An emerging legislative trend for gy E commercial buildings to report their energy use could Tax Incentives er increase the influence of this factor by creating a stigma 22% 16% 10% 48% En r around buildings that are not high performing. If this o

f occurs, the market could more easily track the value of Variation by Sector energy efficiency and green efforts, and competition ase ■■Healthcare: The healthcare sector finds improved

C could lead to increased efficiency efforts. (See page 25 asset value and improved productivity to be more for more information on government policy trends.) ess important than other industry sectors do—57% affirm n si ■■EMPLOYEE/OCCUPANT SATISFACTION AND that asset value and productivity improvements have

Bu PRODUCTIVITY IMPROVEMENTS: Even though only a good deal of influence or a major influence, which 8% select employee/occupant satisfaction as a major is considerably higher than the overall rating for each influence, 33% report that these factors have a good category. deal of influence. The contrast between the percent- ■■Education: Market differentiation carries greater age who find these factors influential and those who weight in the education sector than it does in other consider them a major influence correspond to the industry sectors—68% report this to have a major or high importance of increased productivity and satis- a good deal of influence versus 45% overall. Colleges faction and to the difficulty of measuring the impact and universities, in particular, are highly competi- of efficiency on these factors. Even slight productivity tive and need to distinguish themselves to potential increases can yield financial paybacks that far outweigh students and donors. the financial impact of the other benefits. However, it • Institutions with strong environmental credentials are hard to connect satisfaction/productivity measures actively sought by the current generation entering directly to efficiency improvements. college, and college rankings are in part based on the These results indicate that making a strong business case difference between the number of students who apply for energy efficiency involves promoting several different and the number accepted. factors simultaneously. All but one of the categories are • Colleges and universities also need to be recognized as selected as influential by over 50% of the respondents, good financial stewards to potential donors and offer which indicates that multiple factors, rather than just one, the perception that donations are focused on important are considered in energy efficiency investment decisions. programs and not wasted on needlessly high utility bills.

continued

SmartMarket Reports McGraw-Hill Construction 20 www.construction.com Business Case for Green & Energy Efficiency Upgrades Current and Future Influence Factors on the

Business Case for Energy EfficiencyU pgrades continued

Influence Factors Behind the Business Case for Influence Factors for Adoption of FUTURE Energy Efficiency Retrofit Activities

Source: McGraw-Hill Construction, 2011 data Future Efficiency Projects The business case for future investments in energy effi- on Amount of Influence: ciency is multifaceted, with all factors selected by over ati ■ ■ ■ 50% of the respondents as having at least some influ- Some Good Deal Major

nov ence on their decision on future energy efficiency e Utility Cost Savings (energy bills, etc.) retrofits. Making the case for additional energy efficiency 11% 39% 42% 92% nd R projects can be done best by emphasizing cost savings, a but the strongest case will also address the impact on Employee/Occupant Satisfaction/Productivity fit o the buildings and their occupants, as well as making the 33% 34% 11% 78% initial investment capital easier to secure. etr Utility Incentives

ng R ■■UTILITY COST SAVINGS: 26% 38% 13% 77% i Just as utility cost savings

ld were a critical factor that influenced past decisions to i Improved Asset Value undertake energy efficiency upgrades (see page 22), Bu 40% 24% 8% t 72% 91% of the firms surveyed expect them to be a strong n influence in the future. In fact, almost half (42%) regard Tax Incentives utility cost savings as a major influence—a higher fficie 22% 33% 3% 58% percentage by a factor of more than three over any gy E other influence. Access to Financing er 29% 9% 13% 51% En r

o ■■OTHER FACTORS SELECTED BY MORE THAN 70% f OF RESPONDENTS: Utility incentives, employee satis- ase faction and productivity, and improved asset value are C also considered influential by more than 70% of the ess respondents. n si • Employee and occupant satisfaction and productivity ■■ACCESS TO FINANCING: While a lower percentage

Bu offer better returns than simple cost savings for firms. of firms consider financing influential, 13% consider • Utility incentives, by saving money up front on the initial it a major influence—a percentage only exceeded investment, help firms get past the challenge of finding by cost savings and equal to utility incentives. Like the capital for the initial investment. This may explain utility incentives, access to financing will reduce the why they are considered influential by a higher number burden of finding the initial investment funds for future of respondents as compared to the influence of tax projects. However, the access to financing through incentives. traditional institutions like banks is currently limited. • Improved asset value is expected to influence the (See the data section starting on page 46 for more infor- business case by more firms in the future than have mation on financing energy efficiency.) been influenced by it in the past. 72% report it as influential on future activities, as compared to 63% on past activities. This differential may be due to more available information on the performance of efficient buildings relative to their overall market.

McGraw-Hill Construction 21 www.construction.com SmartMarket Reports Business Case for Energy Efficient Building Retrofit and Renovation Sidebar F released by the ing the energy efficiency market. they are grow approach, circus-tent mance perfor risk, and and thanks in part to technical that its of all on take in performance. savings of the resulting improvement operations-and-maintenance ( compensation, in turn, is tied to the fund modernization plans, and their tured by energy savings over a tracts—capital investments are cap con on performance long-term the L business in 2008, according to the N 2006. billion in 2008, a 7% increase over try’s aggregate revenues totaled $4.1 market comprised 69% of all K–12 schools, and hospitals, and the ments, universities and govern colleges, state and municipal for T The Biggest Losers Buildings in Efficiency Energy Improve to (ESCOs) Companies Service of Energy Outlook Use of the Future and Market Current The Role of Energy Service Contracts agreements. are termed managed energy service ation. gener power renewable on focus effi ciency, with energy a remaining, smaller enhances activity this increase. Currently three quarters of $7.3 billion in 2011—a 26% annual revenues between $7.1 billion and ity ity of major vast the for responsible SmartMarket Reports Reports SmartMarket awrence Berkeley study. Because he so-called M ational L ational A ES ccording to research recently ES T Occasionally, these projects C he report also forecasts total O C panies develop, execute and shop. E shop. fits, ES fits, or high-performance retro business model is based O aboratory, the ES the aboratory, : activity. M C L US nergy service com service nergy I awrence Berkeley n so doing, they O s are a one-stop one-stop a are s H market is US H stands C ES O - O - indus - C &M) - O - - Construction McGraw-Hill - - - - - eral resentatives from DOE from rep resentatives comprising board a by screened not ment of U the example, for 2008, prop erties for subject equally long time spans. operating to committed clients like M predetermined period—it requires congressional appropriation. fitswithout up-front investment or launch high-performance retro in reduction goals, like emissions- those and stated energy- stringent percent of is responsible for approximately 70 potentially save lives. embracing self-funded retrofitscan harm’s way, for example, so actively lia a as bility. inefficiency views military are “qualified billion in energy costs. alone could save as much as $80 mately $3.6 billion. 550 ES 550 agencies had launched more than ES work with preapproved ( S markets. sector, while ES 25 for more information), will boost ness in both the M ES helping is tract. ery, indefinite-quantity ( ES avings Performance Contracts T A E PCs as part of an indefinite-deliv an of part as PCs PC engagement in the federal PCs) allow federal agencies to he xecutive IDI mong federal agencies, E nergy Management Program. A F Q-contracted but have been U PC projects worth approxi worth projects PC uel transport puts troops in s of March 2010, 25 federal E . S nergy ( . ES D O epartment of C US R PC work because the ES rder 13514 (see page O ecovery

H owners who are s secure more busi more secure s DOE C 22 O US T s,” which are he 2008

) awarded 16 H and federal I ncreasingly and the F the and A A ES IDI . lso, there ct funding S www.construction.com . D . D C Q) con E O efense epart IDI nergy I s to n late - Q ed ------secure the savings guarantees.” guarantees.” the savings secure have the balance sheets required to project development, and only they can bear the costs and time frame of materialize, “only large companies the agreed-upon savings did not knows of very few instances in which used to pay the and Johnson Controls. “Contracts capitalized companies like Honeywell well- large, favoring will continue president of national policy. G S N the life of the contract,” explains is liable for the agreed savings for the end of the contract, the ES customers. format proved very expensive for as savings were realized, and that says Jason Hartke, the ing to accord appropriate comparables,” appraised being is building off, because you’d know that your energy-efficient retrofitting to take moves. some talk about more foundational service agreements. “ building tax credit to encompass $1.80-per-square-foot commercial are advocating for revision of the U partner with easier for the commercial market to I the Pie Increasing ndustry groups are trying to make it ervice Companies president . illigan. ational S What is certain is that the field C . O G regains its capital cost at reen Building Council ( G A A reen appraisals would help nd although ssociation of T ES oday, because the C ES O C s. O G over time T roups like the USG G here’s even E illigan nergy ES BC’s vice USG C D O onald ■ BC) - Business Case for Green & Energy Efficiency Upgrades continued

Financing Energy Efficiency Activities

Means of Financing Energy Means of Financing Improvements Efficiency Improvements

Source: McGraw-Hill Construction, 2011 data ■■CAPITAL BUDGET/COMPANY PROFITS: 85% of on energy efficiency projects were funded through capital Capital Budget/Company Profits ati budgets and company profits. Therefore, investment 85% nov in energy efficiency must compete with other priori- Energy Efficiency Savings Resulting from the Retrofit e ties for a company’s limited pool of capital. For more 56% nd R comprehensive efficiency improvements to occur, a other sources of funding must be developed. (See data Other fit 18% o section starting on page 46 for more information on financing energy efficiency.) Performance Contracting etr

■■SAVINGS RESULTING FROM 16% ng R i ENERGY EFFICIENCY Efforts: Bank Loans ld i 56% report directly financing retrofit projects using 6% Bu the energy efficiency savings that result from the t n retrofit.This is consistent with the fact that for leaders Don’t Know in corporate America, the key benefit of green retrofits 3% fficie is the resulting utility savings. gy E

er ■■PERFORMANCE CONTRACTING: Performance ■■UTILITY AND GOVERNMENT INCENTIVES:

En contracting, at 16%, is still a relatively small part of Although it was not a choice offered in the survey, r

o financing for energy efficiency in the private sector. several respondents volunteered utility and govern- f By redistributing the performance risk, performance ment incentives—including rebates and tax ase contracting has the potential to help owners who are incentives—as a source of financing for energy effi- C not well positioned to make efficiency investments. ciency projects. The fact that these were volunteered ess (See page 22 for more information on performance as top-of-mind suggestions demonstrates the impact n si contracts.) government can have on increasing energy efficiency

Bu investment in the private sector. ■■BANK LOANS: At 6%, bank loans have not been an important factor in the financing of energy efficiency efforts to date. This can be attributed to a few factors, including: • Tightening of bank credit after 2007 • Relatively low cost of many typical energy efficiency updates like lighting upgrades

However, if more extensive energy efficiency improvements are to be made to a wider percentage of the current building stock, bank financing may need to play a larger role.

continued

McGraw-Hill Construction 23 www.construction.com SmartMarket Reports Business Case for Green & Energy Efficiency Upgrades

Financing Energy EfficiencyA ctivities continued

Influence of Chief Sustainability Officer Financing Energy Efficiency versus on Future Financing Decisions

Source: McGraw-Hill Construction, 2011 data Green Retrofit and Renovation Projects on The data on financing from MHC’s 2009Green Retrofit 1 2 3 4 5 VERy little Neutral Most ati and Renovation SmartMarket Report reveals that green Influence influence

nov retrofit projects rely somewhat more on bank financ- e ing and less on capital budgets/company profits or cost

nd R savings compared to energy efficiency projects. a 33% 31% fit ■ o ■Bank loans: 19% for green as compared to 6% for energy efficiency projects 21% 22% 23% etr 17% 17% 13% 11%13% ng R ■■Energy efficiency savings: i 41% for green,

ld compared to 56% for energy efficiency i

Bu influence over financing: t ■■Capital budgets/company profits: 54% for ■ previous ■ Future n green, compared to 85% for energy efficiency fficie This comparison is particularly striking since 2008 and

gy E 2009 were the nadir for banks issuing loans, and in the er time between the 2009 study and this one at the end Influence on Financing by Role

En of 2010, the conditions for obtaining a bank loan for r Chief sustainability officers (CSOs) have significant influ- o construction projects had slightly improved.

f ence on financing decisions for investment in energy Incorporating energy efficiency as part of green efficiency. In fact, they report increases in their influence, ase retrofits may be a way to open up projects to financ-

C from 28% having high levels of influence in mid-2009 to ing opportunities beyond capital budgets and company 46% having high levels at the end of 2010. ess profits, offering the potential for increasing the overall n At the very highest levels, corporate officers, such as si market for these upgrades. CEOs and COOs, had the highest levels of influence on Bu Variation by Sector financing decisions. Education: 37% of the education sector used perfor- This finding is encouraging for making the case on mance contracting to help finance their energy efficiency energy efficiency. Since CSOs are becoming more upgrades, more than double the amount of any other common in the largest corporations and they are recep- sector covered in the survey. Schools are good candi- tive to discussions on green, sustainability and energy dates for performance contracting because their efficiency, their increasing influence on financial invest- long-term ownership allows them to see the long-term ment decisions means that they can more easily advocate benefits of the efficiency retrofits after the performance for increased levels of energy efficiency activities. (For contract expires. more information on the role of the CSO, see page 34.)

SmartMarket Reports McGraw-Hill Construction 24 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation Sidebar

I GSA R from the T ARRA For Groundwork The Laying fed eral of legislation, the pieces and orders executive A of 2007 (EISA) Act Security And Independence Energy Efficiency and Green Building and Incentives for Energy Government and Utility Policies high-performance green building. movement, including a definition for foundation for the sustainable design in encouraging efficiency. mance, perfor government stock must play building a in role improvement bipartisan interest. tration, and they usually attract strong G by place tives are not new. States. However, efficiency initia ing energy efficiency in the attain net zero by 2030. struction and major renovations to by 30% 2015, new con and required consumption of federal buildings to required reduction in total energy ( G U agencies, and to coordinate with the to such buildings across federal ings to coordinate G activities relating High-Performance eral dated by the act. G mance O GSA wo prongs of einvestment lthough it is predated by several . eneral ffice of Commercial High-Perfor Commercial of ffice S EISA Moreover, . ’s O ’s Buildings Buildings administration’s new Better f passed as prosed, the an important role in improv in role important an D ) to establish an O an establish to ) epartment of also increased the rate of ffice of F of ffice S reen Buildings, also man also Buildings, reen A ervices ervices eorge W. Bush’s adminis Bush’s W. eorge : merican EISA I A EISA nitiative will play nitiative ct ( ederal High- ederal S A required the T everal were put in ARRA dministration R EISA got a big boost E o see significant ecovery and nergy’s ( ffice of F of ffice provides a reen Build reen ) of 2009. U O nited bama DOE U - ed - . S - - - ) - - Construction McGraw-Hill . - - - Performance inventory. ARRA inventory. mance modernizations of its existing ARRA of allo cation agency’s the in role integral an A with an adjunct effort, launched by cated. allo entirely were funds upgrades; had to be earmarked for building lion to early 2010,early to aim for “Zero respectively. ment and products and technologies, tive grants—for strategic develop competi and formulas through cial and technical assistance to states EE of efforts E investment to $7.8 billion. sector contributions bring the total offices. billion was channeled to state energy energy and energy efficiency,$3.1 in O ARRA under Spending State space, or approximately 6% of all fed eral all square of footage. 6% approximately or space, work federal of feet square million mental ARRA D program administered by the munity I time. G E formula grants. and other projects, mostly through invest in energy efficiency retrofits D billion for nergy Program redoubles the the redoubles Program nergy fficiency andConservation Block dministrator Martha epartment of Housing and evelopment and allows localities to rant ( f the approximately $16 billion billion $16 approximately the f ARRA EISA ARRA funded t is modeled after the Com the after modeled is t T GSA EE also authorized the E the authorized also F D tate State sources and private- hese efforts have dovetailed has successfully motivated funds dedicated to clean ootprint.” evelopment Block CB EE , and $4.5 billion of that CB G CB G ) Program, and the EE

G funds to high-perfor to funds reen Buildings played G ARRA dedicated $5.5 bil $5.5 dedicated CB by providing finan providing by 25 . GSA G

for the first allocated $3.2 N manages 362 . Johnson in www.construction.com T he E G U nergy nergy nviron rant U rban S - . tate S - - . ------I Level Local and State the at Activities Non-ARRA encourage energy efficiency. major initiatives of their own to aged by reduced project costs: egies range from tax credits to up more than 20% from 2009. in 2010 reached $5.5 billion in 2010, energy efficiency program budgets Consortium for energy efficiency. activity among states and utilities in was just one prong of significant mately $930 million. $930 mately approxi worth states, 34 in available in three years. long as the entire allocation is loaned which are not subject to expiration as ing to set up revolving loan funds, mechanisms. states to create long-term funding such standards on the books. ing that a majority of states now have A in energy efficiency resourcestandards year also saw passage of mandatory states have applied for ARRA for applied have states ■■ ■■ n addition to the activities encour activities the to addition n Gran Tax Credi ring at the state level, such as the million in private investment. which they estimate has over $60 value created by the renovation, added the off 75% of program nati, Ohio, Cincin has a tax abatement example, For level. local sive action has taken place at the renewables. Even more aggres for efficiency retrofits oruse of legislation for tax incentives States like NY and MD have G rkansas and Wisconsin, mean Wisconsin, and rkansas rowth in revolving loan funds loan in funds revolving rowth

t ARRA s: Grants are also occur also are Grants ts/ I , many states have n particular, many T E here are 65 funds, nergy A A ba ccording to the SmartMarket Reports SmartMarket t emen E fficiency, fund Strat T ts: he - -

------Business Case for Energy Efficient Building Retrofit and Renovation Sidebar and must also file S at emissions gas greenhouse of the White House with inventories January federal agencies provided struction of con federal new facilities by 2030. net-zero 100% and 2020 by include 26% potable water reduction is notable, especially because of the S hereafter. ability Performance Plans annually sustainability goals of of almost eight months after passage is efforts to advance energy efficiency O ARRA Beyond tives Initia Efficiency Federal SmartMarket Reports Reports SmartMarket ■■ ■■ R Loans: copes 1 (direct), 2 (indirect) and 3, cope 3 greenhouse gas emissions ne of the most critical federal E Vista, California, offers 3% financ 3% ing for qualifiedretrofits. offers California, Vista, the local level. For example, Chula ing includ Wisconsin and Florida and at states, several by offered of efficiency retrofits. which pay for up to 75% of the cost Management Retrofit Grants, Energy (PSE) Business Energy utilities, such as the Puget Sound initiated in partnership with local the local level. Many of these are Washington and Illinois, and at grants offered by the states of ects that increase efficiency by by 10% or more. efficiency increase that ects on up back proj to $5,000 offers has a direct rebate program that equipment. The state of Louisiana installation of energy-efficient offered through utilities for A ARRA t eba xecutive s per , es: EO Inexpensive financingis EO T : he order’s recognition of Many rebates are 13514’s deadline, in O 13514 expands upon the Energy Efficiency and Energy Green Building Efficiency Government and Utility Policies and Incentives for rder 13514. Strategic EO 13423; they S igned S ustain - - Construction McGraw-Hill - - - - proposed proposed by the T Forward Looking waste removal. business and commuter travel, and transmission and distribution losses, typi cally referenced more under activities agency to tion and inextraction distribution, addi footprint of building materials’ acknowledgement of the carbon initiatives. that have proven successful in other effi ciency policies existing in and following models shortfalls addressing investment in energy efficiency by tration promises to help increase its plans to stimulate the economy. the stimulate to plans its bil lion per $40 year by and view bills this as part energy of commercial the improved efficiencywill reduce 2020. efficiency incommercial buildings by achieve 20% improvement in energy land. striving toward report surveying how agencies are than 25%. to reduce overall energy use by more than comparable office buildings and con sumption that is energy as much as 65% achieve less to expected are IRS ing in Portland, E tions— renova major two including studies already. ■■ Implementing Tax Credits rather dith G dith he new Better Buildings a critical obstacle to increasing report demonstrate, financing is Improvements. than Tax Deductions for Efficiency T O Key initiatives include: Key initiatives service center in A in center service he White House has released a ne goal of the initiative is to R T espectively, these projects GSA he White House predicts that reen/Wendell Wyatt Build Wyatt reen/Wendell It includes several brief case ’s modernization of the

O EO O 26 regon, and of an

A bama adminis 13514 standards s the data in this

ndover, Mary ndover, S continued cope 3 like www.construction.com I nitiative ------■■ ■■ ■■ ■■ Race to Green. to Race Green. More Financing Options through Training Next Generation of Skilled Better Better Buildings Challenge. the highly successful leaders in sustainable banking.) activity from the point of view of loans could increase efficiency information on how guaranteed to banks. ( size businesses medium- far and more appealing small for rating credit antee loans, guar which to could make the program pilot a conduct D to expand that effort. and the administration proposes program for financingefficiency, tion already has a successful loan and the Department of Energy. T Energy. of Department the and the Small Business Administration Workers. Workers. activity. a tenfold for increase in efficiency account could alone change administration suggests that this in eral and are collat easier as to recognize used be easily more can efficiency investments. cal cal assistance. techni and recognition public like efficiency by offering incentives university presidents to commit to program will encourage C the most promising proposals. ciency. effi encourage to ways creative communities to develop their own T in buildings. in buildings. ency around energy transpar performance more seeks also program ing more workforce training, this op school initiative to encourage he S he epartment of ROI mall Business A Business mall than tax deductions. G rants will be awarded to In addition to provid S ee page 46 for more n T E his program uses uses program his nergy will also R T dministra he ace to the T ax credits U EO T T . S his he s and . ------Business Case for Green & Energy Efficiency Upgrades continued

Business Benefits from Sustainable Activities

Expected Business Benefits from Sustainability Adoption Corporate leaders across the U.S., including those at the

largest corporations in America, as well as education Source: McGraw-Hill Construction, 2011 data and healthcare owners, all expect business benefits from on Drop in Energy and Operating Costs sustainability activities. ati 98%

nov Operating Cost Decreases Improved ROI e Nearly all (98%) expect to see drops in energy and operat- 82% nd R ing costs. This is a significant increase compared to their

a Greater Productivity expectation just 18 months ago. In 2009, only 71% of this fit 60% o same population of respondents expected to see operating cost decreases. Other etr This suggests that corporate leaders are setting 16% ng R

i higher expectations, something that industry players

ld will need to be mindful of. i

Bu Expected Operating Cost Decreases t n Overall, there has been little change in the level of decrease expected in operating costs as a result of fficie sustainability initiatives. Nor has there been much differ- Expected Operating Cost ence by size of the building or the type of respondent. gy E Decreases from Energy Efficiency

er Retrofit/Renovation Activities Ability to Measure Benefits En r One thing that did change dramatically was the ability to Source: McGraw-Hill Construction, 2011 o

f measure those reductions. More than double the number of firms in 2010 were able to measure operating cost ase 9% 12% C savings as compared to 2009—increasing to 21% from 9%. This will be very important since quantifiable savings ess ■ More Than 10% Lower n can be a powerful tool in making and sustaining the busi- si ■ 5%–10% Lower ness case for efficiency investments.

Bu 31% ■ Up to 5% Lower Variations by Sector 48% ■ Don’t Know How to Measure Healthcare: Firms in the healthcare sector are much more optimistic about the level of paybacks in 2010 as compared to mid-2009. Half expect savings of over 5% today as compared to just 8% expecting the same in 2009. In fact, in 2009 over three fourths of healthcare executives expected savings of less than 5%, but in 2010 those expectations improved, so that only 25% expect this lower level of paybacks.

Greater Productivity At the end of 2010, 60% of firms expected to see an increase in productivity due to sustainability efforts. These levels are comparable to expectations in 2009. The biggest shift in these overall numbers came in the healthcare sector—only a little over a third expected any benefit in 2009, compared with over 60% in 2010.

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Business Benefits from SustainableA ctivities continued

Expected Productivity Improvements Expected Productivity Gains from Energy Efficiency Retrofit/Renovation Activities Overall, there has been little change in the level of data

productivity increase expected as a result of sustainabil- Source: McGraw-Hill Construction, 2011 on ity initiatives. However, there have been some variations ati by size of firm. 11% 10% nov e Variation by Firm Size ■ More Than 10% Higher nd R Overwhelmingly, smaller firms expect lower produc- 17% a

■ tivity gains—81% expect gains of 5% or less, compared 5%–10% Higher fit ■ Up to 5% Higher o to 57% of larger firms, while only 6% expect gains over 5%. In conrast, 32% of larger firms expect gains over 5%. ■ Don’t Know How to Measure etr Smaller firms also have a harder time measuring produc- 62% ng R

i tivity improvements. ld i Improved ROI Bu t 82% expect higher returns on their investments. Consid- n ering that measuring ROI remains a challenge for a Expected ROI Increases from Energy Efficiency relatively significant population (17%), this result speaks Retrofit/Renovation Activities fficie to the higher demands that leaders are placing on Source: McGraw-Hill Construction, 2011 gy E sustainability. er

En Expected ROI Increases r 14% o Most firms expect relatively the same level of ROI 17% f increases—regardless of size or sector. ■ More Than 10% Higher ase

C Variation by Sector ■ 5%–10% Higher Healthcare: Healthcare executives have much more diffi- 22% ■ ess Up to 5% Higher n culty in terms of measurement. 25% of them struggle to ■ Don’t Know How to Measure si measure ROI improvements, compared to only 12% in 47% Bu education and 17% overall.

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Drivers and Obstacles to Corporate Sustainability

Public Expects Corporations to be Good Reasons for Investing in Sustainability Citizens in Sustainability and Green (Over Time from 2009 to 2010) There are a number of factors that encourage corpora- data

tions to engage in sustainability efforts. Source: McGraw-Hill Construction, 2011 (2010); 2009 Greening of Corporate America Report, Siemens/MHC on

ati PUBLIC EXPECTATION ■ Agree ■ Strongly Agree • Over Time: There has been a shift in just 18 months nov e from mid-2009 to the end of 2010 in the public 2010 expectation for corporate investments in sustainability. 54% 29% 83% nd R a

Today, 83% of corporate leaders believe the 2009 fit public expects good citizenship in the areas of o sustainability and green—compared to 69% a year 43% 26% 69% etr ago. • Variation by Firm Size: A much higher percentage ng R i of large firms feel pressure from the public. This is ld i consistent with the number of watchdog organizations

Bu and the level of shareholder attention on these t n companies and organizations. Public Expects Corporations to be Good • There is little variation by industry sector. Citizens in Sustainability and Green

fficie (By Size of Firm) MARKET DIFFERENTIATION gy E Overall, there was little significant difference in percep- Source: McGraw-Hill Construction, 2011 er tion about market differentiation—not by firm size, nor by ■ ■ En Agree Strongly Agree r industry sector. The only significant differences occurred o f

over time. Large Firms ($500 million+) • 2009 to 2010: There has been a shift in just 18 months ase 57% 34% 91%

C from mid-2009 to the end of 2010 in how much market differentiation is offered by sustainability Small Firms ($250–$500 million) ess n investments—78% report it in 2010, compared with 45% 16% 61% si only 61% in 2009. Bu • 2006 to 2009: This increase from 2009 to 2010 follows a dramatic shift in opinion from 2006, when only 31% reported an expectation of market differentiation from sustainability. This speaks to the way that these concepts are perceived in corporations today.

Key Drivers Promoting Corporate Sustainability Creates Market Differentiation Sustainability (Over Time from 2009 to 2010) The key drivers for corporate sustainability have not Source: McGraw-Hill Construction, 2011 (2010); 2009 Greening of Corporate America Report, Siemens/MHC changed significantly since 2009. ■ Agree ■ Strongly Agree ■■ENERGY/COST SAVINGS: Energy and cost savings is still of primary importance at 94%. This is roughly 2010 equivalent to study results in 2006 and 2009, demon- 55% 23% 78% strating the stability of this factor as the most critical 2009 driver. 38% 23% 61%

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Drivers and Obstacles to Corporate Sustainability continued

The Main Reason to Engage in Sustainability Is to Lower Operating Costs from Efficiencies ■■PUBLIC RELATIONS/MEDIA: Public relations/media

coverage is now recognized by 74% as a key driver, 9% Source: McGraw-Hill Construction, 2011 data more than previously. This result demonstrates that a on commitment to sustainability is increasingly perceived 1%

ati 8% as a necessary part of a company’s image. 22% nov ■ Strongly Agree e ■■COMPETITIVE ADVANTAGE: Along with public rela- 22% ■ Agree nd R tions/media coverage, the identification of competitive ■ Neutral a

advantage as a driver demonstrates that companies ■ Disagree fit o see business benefits from positive public perception ■ Strongly Disagree of their sustainability work. 48% etr

■■GOVERNMENT REGULATION (2009)/Govern- ng R i ment-REQUIRED ENERGY REDUCTION TARGETS ld i (2010): Even though the possibility of a cap-and-trade

Bu program around carbon looks politically unlikely, the t Key Drivers Promoting Corporate n 2007 Supreme Court decision that allows the EPA to Sustainability regulate greenhouse gas emissions under the Clean fficie Air Act has been widely and publicly debated. Until the Source: McGraw-Hill Construction, 2011 (2010); 2009 Greening of Corporate America Report, Siemens/MHC full set of regulatory rules has been established and gy E ■ 2010 er tested in the courts, uncertainty around this area may ■ 2009

En continue to drive sustainability adoption. r Energy and Cost Savings o f

■■CUSTOMER NEED: Fewer respondents saw customer 94% ase need as a major driver toward sustainability in 2010 91% C than in 2009—60% in 2010 as compared to 67% in 2009. Public Relations/Media Coverage ess One factor that may have influenced this decrease n 74% si is that sustainable green products and services are 65%

Bu becoming more commonplace in the market, and firms Competitive Advantage may be engaging in sustainability efforts because of 65% the business benefits and advantages instead of just 66% responding to clients and the market. Eventual Energy Reduction Targets Required by Government (2010)/ Increased Regulation (2009) ■■STAFF RETENTION/TALENT ACQUISITION: While 61% the year-over-year change in the impact of staff on 59% the decision to engage in sustainability is not statisti- Customer Need cally different, the increase is striking because it has occurred during a recession with high unemployment, 60% 67% which gives a greater advantage to the company than to the employee. In this environment, this increase Staff Retention/Talent Acquisition suggests that employers are finding that sustainabil- 52% ity is an important market differentiator—even for their 44% workers. Shareholder Demand 35% 35%

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Drivers and Obstacles to Corporate Sustainability continued

Key Drivers of Sustainability by Firm Size

Variation by Sector Source: McGraw-Hill Construction, 2011 Healthcare: A few factors are selected by a significantly data

Annual Revenues of $500M + higher percentage of healthcare respondents than any ■ on ■ Annual Revenues of $250M–$500M other sector: ati • Customer Need (75%): Studies have found that green Energy and Cost Savings

nov features like natural light and better ventilation correlate e 94% with better recovery rates for patients in hospitals.12 94% nd R • Staff Retention/Talent Acquisition (75%): Unlike

a Public Relations/Media Coverage other fields, healthcare continues to face challenges fit 78% o in the area of staffing, such as the high demand for 65% qualified nurses. This would create more sensitivity to etr the demands of their current and potential employees.13 Competitive Advantage

ng R 71% i • Eventual Energy Reduction Targets Required by 48% ld Government (88%): Healthcare is the second most i intensive commercial building sector for energy use, Customer Need Bu t after food sales and service. Therefore, any required n 67% energy use reductions may be particularly costly for this 39% sector.14 fficie Staff Retention/Talent Acquisition 62% gy E Variation by Firm Size 26% er (based on Annual Revenue)

En Eventual Energy Reduction Targets Required by Government r These results support the general trend that larger o 58%

f companies experience a greater business need to adopt 68% sustainability as compared to smaller firms, whether that ase Shareholder Demand C need arises from distinguishing themselves from their competition or attracting and retaining staff. Addition- 38% ess n ally, their larger investments in sustainability suggest that 23% si they are achieving greater business benefits and value Bu these as investments in staying competitive. Specific differences include the following: • Larger Firms (revenues of over $500 million): In general, more respondents from larger organizations regard the various drivers as key to promoting sustainability. • Smaller Firms (revenues of $250 million to $500 million): Small firms are more driven by government regulations. In fact, this ranks as their number two driver. Smaller firms may have fewer resources (financial and legal), which could make impending regulation—especially when it is as highly contested as the current EPA attempt to regulate greenhouse gases under the Clean Air Act—seem even more daunting.

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Challenges to Implementing Sustainability

Challenges to Corporate Sustainability Source: McGraw-Hill Construction, 2011 (2010); 2009 Greening of Corporate America Report, Siemens/MHC The obstacles noted in the 2006 and 2009 studies of these data same corporate leaders continue to be challenges today. ■ 2010

on ■ 2009 More firms cite most of the categories, which suggests ati that, as more companies actively pursue sustainability, Budget (Capital and/or Operational)

nov awareness of the challenges is becoming heightened. e 77% 74% nd R ■■BUDGET (CAPITAL AND/OR OPERATIONAL): By far Implementation / Operational Issues a the greatest challenge is budget (capital and/or opera- fit 46% o tional), cited by 77%. This result corresponds directly with 53% the fact that 85% of energy efficiency projects are financed etr through company profits or operational budgets (see Not Knowing How to Measure ROI from Sustainability 45% ng R

i page 23). As long as green and energy efficiency improve- 31% ld ments are tied directly to budgets and available capital, i broader adoption of these measures is unlikely. Concerns Lack of Sufficient Tax Incentives Bu t about budgets and costs have always been among the 39% n highest when it comes to green building as well. Perceived 31% higher first costs were cited as a concern by the largest fficie Lack of Knowledge Base number of respondents in MHC’s Commercial and Insti- 36% gy E tutional Green Building SmartMarket Report (61% of 26% er respondents) and in the Green Retrofit and Renovation Organizational Issues / Lack of Leadership En r SmartMarket Report (62%). In addition, different budget o 28%

f accounting for green was also selected by the second 20% largest percentage of respondents in the Green Retrofit ase

C report (53%) and by the third largest percentage from the Commercial and Institutional report (48%). ess n si ■■MEASURING ROI: An increasing percentage of firms Bu report concern about measuring ROI associated with sustainability as an obstacle, whith 45% of the firms citing it in the current survey compared with 31% in 2009. Many benefits from increased sustainability—including competitive advantage and employee satisfaction—are influenced by factors other than sustainability adoption. Therefore, it is very difficult to link those advantages directly to sustainability efforts. Additionally, benefits like health and productivity increases are also difficult to quantify. However, as more attention is paid to accounting for these benefits more effectively, better models may result that can create stronger arguments for investment in sustainability. Until then, utility and operational cost savings remain the most compelling argument for promoting energy efficiency investment.

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Drivers and Obstacles to Corporate Sustainability continued

The Industry Has a Lack of Understanding on How to Measure ROI and Other Benefits ■■IMPLEMENTATION/OPERATIONAL ISSUES: The only factor that was perceived as an obstacle by a lower from Sustainability Investments data

percentage of firms is implementation and operational Source: McGraw-Hill Construction, 2011 on issues, which declined from 53% in 2009 to 46% in 2010. ati As expertise surrounding implementation of sustainable 2% 11% nov programs in companies grows with broader adoption, it is e ■ Strongly Agree not surprising to see that this problem has begun to recede. 21% ■ Agree nd R

a Variation by Sector ■ Neutral fit 38% ■ Disagree o While all sectors consider budgets to be the major problem, the education respondents are nearly unani- ■ Strongly Disagree etr 27% mous in selecting budget as an obstacle. ng R

i • Education: 95% report that budget is an obstacle

ld to sustainability adoption, compared to 77% of total i respondents. The recession has been particularly Bu t difficult on education financing, due to radical cuts n in state and city budgets, and private universities still recovering from large drops in the value of fficie their endowments. Concerns about finding capital gy E for sustainability may be partly responsible for er the increasing pursuit of alternative financing like Lack of Service Providers Limits En r performance contracting in the education sector. Adoption of Sustainability o f Limiting Factors Source: McGraw-Hill Construction, 2011 ase C Understanding and Measuring Benefits 2% 1% ess Today, nearly two thirds of respondents report that they 9% n si lack understanding of how to measure ROI and other 21% ■ Strongly Agree

Bu benefits from sustainability investment. ■ Agree 24% ■ Neutral ■■Healthcare Firms: Overall, healthcare firms are signif- ■ Disagree icantly more challenged by their lack of understanding ■ of the financial benefits from sustainability—38% Strongly Disagree compared to 24% overall. 43% ■ No comment Because of the large energy and operating cost savings from sustainability, this remains the focus of healthcare firms—therefore, they have been less aware of OR I and other investment benefits. Firms in the commercial sector, however, have long had to justify ROI and other business benefits as part of their profit mission. As a result, corporations and commercial building owners likely have a longer history of performing benchmarking and measurement.

12 Partners Harvard Medical International. “Green Hospitals.” May 25, 2009. http://www.phmi.partners.org/News/PHMI-Archive/Green-hospitals.aspx. And Martin, Anya. “Green Healing: Hospitals Taking Healthy Environments to Heart.” Wall Street Journal: Market Watch. April 23, 2009. Republished at http://www.usgbc.org/News/USGBCInTheNewsDetails.aspx?ID=4055. 13 American Association of Colleges of Nursing. “Nursing Shortage.” Accessed January 30, 2011. http://www.aacn.nche.edu/media/FactSheets/NursingShortage.htm. Includes data from the Bureau of Labor Statistics about the current and long term nursing shortage. 14 2009 Buildings Energy Data Book, U.S. Department of Energy, October 2009, Table 3.1.10 and Table 3.2.2 .

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Corporate Involvement in Sustainability

Company Involvement in Sustainabilty Over Levels of Corporate Sustainability Time (2006-2009) Commitment DATA 2009 Greening of Corporate Report, Siemens/McGraw-Hill Construction, 2009 Over the past several years, corporations have regarded America sustainability as a larger part of their core business than Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 As required. Doing Engaging, Selling Trans- in the past and more connected to their profi t mission. internally, but seen as sustainability formational, seen consistent with products/ defi ned by This is borne out by the data collected in 2006 and as a cost. profi t mission. services, see sustainability. as a business 2009 in studies conducted by Siemens and McGraw-Hill 40%39% opportunity. Construction. Over those three years, the shift to higher levels was 31% 30% dramatic, and the research fi ndings contained in this report suggest these levels will continue to increase. 19% Most notable were shifts at the highest and lowest levels, 15% 11% clearly demonstrating that sustainability is becoming part 7% 5% of a fi rm’s standard way of doing business. 3% VARIATION BY SECTOR ■ 2006 ■ 2009 • Education: Consistent with other fi ndings, education institutions were more committed to sustainability in their activities. In fact, an overwhelming 71% were in the upper two stages in the Siemens/MHC study. • Healthcare: While there were fewer than average Firms with Dedicated Person or fi rms at the lowest stages (12.5% as compared to Team to Sustainability 19% on average), 50% of healthcare institutions were

at Stage 3, which suggests that while they recognize Source: McGraw-Hill Construction, 2011 sustainability as important, they do not currently defi ne themselves as such. However, nearly a third—32%— were in the highest two stages of the Siemens/MHC Large Firms study. Considering the hurdles facing the healthcare ($500 million+) 70% 30%

BUSINESS CASE FOR ENERGY EFFICIENT BUILDING RETROFIT AND RENOVATION industry, this fi nding is a positive sign of future investment. YES NO TOTAL YES NO 66% 34% Small Firms 55% 45% Agents Infl uencing ($250–$500 million) Sustainability Activities THE CHIEF SUSTAINABILITY OFFICER POSITION In recent years, a new senior position has emerged within the executive suites of corporate America—the Chief Sustainability Offi ce (CSO). Often, this position has been accompanied by a dedicated team focused on these issues.

■ Variation by Firm Size: Larger fi rms are much more likely to have a CSO or dedicated sustainability team. However, the infl uence of these players in larger fi rms have less infl uence than in smaller ones (see page 35).

CONTINUED

SmartMarket Reports McGraw-Hill Construction 34 www.construction.com Business Case for Green & Energy Eﬃ ciency Upgrades

Corporate Involvement in Sustainability CONTINUED

INFLUENCE LEVEL OF THE CSO OTHERS RESPONSIBLE FOR SUSTAINABILITY The CSO position has varying levels of infl uence and DECISIONS DATA responsibility, ranging from a focus on marketing and For the most part, there is no consensus across corpo- public relations to infl uence over product and profi t deci- rate America about where sustainability decisions lie sions. There has been a slight shift over the last year to when a CSO or dedicated team is not present. Responsi- higher levels of infl uence, which indicates that corpora- bility can be that of any of the following: CEO; COO; CFO; tions may be placing more pressure on these positions head of Environmental, Health and Safety group; VP of to deliver business bottom-line results of sustainability Human Resources; VP of Marketing; and head of Facilities efforts. Management to name just a few. One key example of their increase in infl uence is their ability to control fi nancing for effi ciency projects. The ■ Variation by Firm Size: A signifi cantly higher CSO respondents expect their infl uence over fi nancing percentage of large fi rms have responsibility for to increase notably in the future while other corpo- sustainability decisions at the CEO level—19% versus rate offi cers forecast little change in their infl uence over virtually none at the smaller size. Large organizations fi nancing. (See page 24 for more information on the tend to be complex, and as a result, those responsible growth of CSO infl uence on fi nancing.) As CSOs gain would be more dispersed throughout the organiza- greater control over fi nancing projects, their importance tion. Therefore, this is an important fi nding for the to fi rms seeking to do work in green and effi ciency contin- industry seeking to infl uence sustainability decisions ues to grow. since they can focus their efforts and arguments on needs of the CEO or CSO. BUSINESS CASE FOR ENERGY EFFICIENT BUILDING RETROFIT AND RENOVATION

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Sustainability Metrics

Metrics Used to Measure Effectiveness of Measuring Business Impacts of Sustainability Practices

Source: McGraw-Hill Construction, 2011 (2010); 2009 Greening of Corporate America Report, Siemens/MHC data Sustainability The industry is increasingly asking for proof of results. on Metrics around the business benefits of sustainability are ■ 2010

ati ■ 2009 becoming more important as a result. nov In fact, in just 18 months—from mid 2009 to the end Internal Energy Use Targets/Tracking e of 2010—significantly higher numbers of metrics were 86% nd R used across the board to determine the effectiveness of 67% a sustainability investments. Return on Investment fit

o These metrics are being used by firms of all sizes, 82% unlike other sustainability activities. etr 55% Variation by Metric Type Reduced Emissions Footprint ng R i for Industry Sectors 68% ld i While all industry sectors are following the trend above, 46% Bu there are particularly compelling changes in education t Number of LEED Buildings/Square Footage n and healthcare firms that are now measuring emission 36% reductions and tracking LEED certified green building 27%

fficie activity. In fact, that activity more than doubled for both education and healthcare firms. gy E er

En Tracking the Soft Benefits r o of Sustainability f Soft factors—such as productivity, employee health- ase care costs, absenteeism and customer loyalty—are much C Companies Engaged in Measuring Soft harder to measure but can have paybacks that eclipse

ess Benefits of Sustainability those from utility savings. In fact, according to the Build- n si ing Owners and Managers Association, these account for Source: McGraw-Hill Construction, 2011

Bu over 80% of total commercial expenditures versus under 5% for combined energy, electricity, repair and maintenance costs. However, the challenges are evident when looking at the number of firms measuring the soft benefits of sustainability—only 18% report doing so. This is a slight 18% 82% increase over the 14% that reported doing so in 2009, but YES NO it is still too small to garner significant results to inform the industry. Study is needed in this area. Variation by Firm Size Smaller firms are measuring soft benefits at significantly higher rates than larger firms. This is likely due to how much easier it is for smaller firms to track individual employees, given the lower numbers.

SmartMarket Reports McGraw-Hill Construction 36 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation data

strategy.) (See page 40 for a description of Walmart’s use of this lower the cost of renewables through economies of scale. of a commercial property—can increase the market and power company that installs solar panels itself on the site as buying power at a competitive govern rate from can a as renewable prices, ment support lower of and research. In addition, market initiatives—such the increase help for the technology allows. allows. technology the for case still requires quicker paybacks than the current price only 8% disagree. costs have to go down to see widespread adoption, and renewables. Cost is a major impediment to greater adoption of they can price themselves competitively. opportunity for companies in the renewable market if interest is clearly stronger than activity, suggesting an renewable energy technologies or RECs (see page 18), percentage of energy from renewable sources. agree that their company will benefitfrom increasing renewable the from get sources is important. they energy of percentage Most businesses recognize that increasing the and environmentally. to a more sustainable energy future, both economically whether by private industry or by government, is critical sources, and it demonstrates that investment in this area, affirmation of the role of renewable andclean energy disagreed, with of this conclusion. use This the result is a limit strong help will fossil fuels. investments energy clean Corporate America is in strong agreement that Energy Renewable for Support Looking Forward: Renewables and Net-Zero Energy Business Case for Green & Energy EfficiencyUpgrades G D With only 40% of firms actuallybenefiting from onsite espite a demonstrably strong market, the business business the market, strong demonstrably a espite overnment investment in emerging technologies can In fact, 60% strongly agreed, and only 2% 52% of respondents strongly agree that Two thirds of respondents Construction McGraw-Hill

- 37

Source: Construction, McGraw-Hill 2011 Fuels Fossil of Use Limiting in Investing Will in Clean Energy Assist Source: Construction, McGraw-Hill 2011 Widespread Adoption of Renewables of Costs Technology to Need Go Down to Have Source: Construction, McGraw-Hill 2011 Company Our for Important Is Sources Our from Renewable Energy Increasing the Percentage of 19 11 www.construction.com 28 % 27 % 11 3 % 10 % % % 5 % % 2 1 % 2 % 2 % 1 % 36 % % 30 60 52 % % %

continued ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

No comment No Disagree Strongly Disagree Neutral Agree Agree Strongly No comment No Disagree Strongly Disagree Neutral Agree Agree Strongly No comment No Disagree Strongly Neutral Agree Agree Strongly

SmartMarket Reports SmartMarket continued Business Case for Green & Energy Efficiency Upgrades

Looking Forward: Renewables and Net-Zero Energy continued

Federal Government Incentives Are Critical to Increase the Use of Renewables Private Industry Sees Government Incentives as

Critical. 69% agree that government incentives are a crit- Source: McGraw-Hill Construction, 2011 data ical strategy to increase the use of renewables. on These results suggest that there may be a tipping % 2% ati 5 point approaching. If the industry can grow enough to be 5% ■ Strongly Agree nov able to offer more competitive pricing—through incen- e ■ tives and other means of support—industry as a whole Agree 19% ■ Neutral nd R could be convinced of the value and importance of clean 42% a energy. ■ Disagree fit ■ o Eventually, government incentives could be reduced Strongly Disagree as a more mature industry provides sufficient price incen- 27% ■ No comment etr tives on its own. In addition, with traditional energy prices ng R

i expected to rise considerably, businesses may soon find

ld a competitive advantage for early adoption of renew- i ables, and that could further drive the market. Bu t n Achieving Net Zero Energy Buildings The Shift to Net Zero Provides Opportunity for With buildings accounting for 40% of energy use in fficie Our Company in the Market the U.S., they are key to any strategy to reduce energy gy E consumption. In 2007 the Energy Independence and Source: McGraw-Hill Construction, 2011 er Security Act charged the U.S. Department of Energy to En r achieve market-ready solutions for Net Zero Energy (NZE) 5% o

f commercial buildings by 2030 with the goal of converting 10% 17% ■ Strongly Agree all existing building stock to NZE by 2050. NZE build- ase ■ Agree

C ings employ a combination of high energy efficiency ■ Neutral measures with renewable energy to allow the building to 19% ess ■ Disagree

n 25% use no more energy than it generates. si ■ Strongly Disagree

Bu ■ No comment 42% of the respondents find that the shift to 24% net zero provides an opportunity for them in the market. Because survey respondents are drawn from a diverse range of business sectors, this result demonstrates that the move toward NZE is perceived as potentially good for business.

continued

SmartMarket Reports McGraw-Hill Construction 38 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation data

toward efficiency as the necessary first step to move buildings 37). page (see respondents the of 66% renewables, despite the importance placedachieving on in them by role critical net zero. a plays efficiency Energy technologies. tion investment is necessary to develop market-ready mundane, small retrofits. not only highly efficient but also priced for inclusion in N to alone can achieve 52% of respondents disagree that current technology a strong part of the opportunity it presents. The innovation required to achieve net zero may be Looking Forward: Business Case for Green & Energy EfficiencyUpgrades products and systems is critical in order to reach strong investment in developing high-efficiency building 85% of respondents, a strong majority, regard energy innova government that believe respondents of 67% ZE, innovative technologies are needed that are are that needed are technologies innovative ZE, N ZE. Thus, corporate America recognizes that Innovation should not be confined to workwith N ZE. To bring the entire building stock R enewables enewables and Net-Zero Energy Construction McGraw-Hill N ZE. -

Source: Construction, McGraw-Hill 2011 With Current Technologies Can Be Buildings Net Zero Energy Achieved Source: Construction, McGraw-Hill 2011 Net Zero toward Buildings Moving to Step First ShouldBe the Upgrades Efficiency Energy Source: Construction, McGraw-Hill 2011 Zero Net Become to Buildings for Needed from Is Government Investment Innovation 18 www.construction.com 23 45 % 11 8

% %

% % 29 continued 6 % 3 5 % % % 1 1 % % 40 6 % % 27 15 40 22 % % % %

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

No comment No Disagree Strongly Disagree Neutral Agree Agree Strongly No comment No Disagree Strongly Disagree Neutral Agree Agree Strongly No comment No Disagree Strongly Disagree Neutral Agree Agree Strongly SmartMarket Reports SmartMarket case study The Walmart Example Portfolio-Wide Use of Efficient and Green Technologies

almart has U.S. buildings has remained demonstrate that improv- in general since the start long been throughout the recession. ing existing buildings is of the recession, and it committed The national scope and important to Walmart, par- reflects a broad impulse to to improv- year-over-year commitment ticularly since Walmart’s focus on improving exist- enovation R Wing energy efficiency and of their investment demon- activity is more heav- ing assets as a response to sustainability. Their efforts strate that these improve- ily focused in renovation difficult economic times. have been widespread, ments can make good than the industry aver- with nearly 3,000 new and business sense to a large age. Across nonresidential Technologies existing stores incorpo- retailer like Walmart, even building sectors, reno- Employed by etrofit and R rating green building and in the midst of a severe eco- vation projects account Walmart energy efficiency features nomic downturn. for 64% of the total proj- ■■Energy Efficiency in the last four years. ect count and 27% of the Features that reduce McGraw-Hill Construc- New and Renova- value. energy use are the most tion (MHC) has identified tion Projects with The number of new common green building ient Building the green building ele- Walmart stores and addi- c Green Building elements used in new Wal-

ffi ments used in Walmart Elements tions in 2009 and 2010

E mart stores and renova- projects for several years. Renovation accounts for that started construction tions. Light bulbs and light The MHC data reveal that 81% of all Walmart proj- held relatively steady, but fixtures are incorporated nergy Walmart’s green technol- ects in the MHC Dodge that level was a signifi- E in every Walmart project ogies largely fall into three database from May 2007 cant decline compared to that includes any green categories: energy, water through November 2010. the projects they started technologies. and resource conservation. The total includes projects in 2008. In contrast, ren- Unlike lighting, the other As of November 2010, in all phases of develop- ovation projects have technologies employed by Walmart reported that sales ment from early planning been steadily increasing Walmart to improve build- in their U.S. stores had through construction through that same period. ing energy performance declined for the sixth con- completion. This pattern is consis- Business Case for are more frequently used secutive quarter 15 but their By value, they comprise tent with the rise in reno- in new buildings than in commitment to incorporat- 52% of Walmart’s contruc- vation work and decline in renovations of existing ing green and energy-effi- tion activity. new buildings across non- buildings. cient technologies in their These statistics residential construction

Walmart Constuction Projects Projects Started That Include Energy Efficiency Technologies Source: McGraw-Hill Construction, 2011 Source: McGraw-Hill Construction, 2011

160 1000 15% 4% ■ New Buildings 800 120 ■ Addition ■ Renovation/Retrofit 600 80 81% 400

40 200 ■ New Buildings and Additions ■ Renovation/Retrofit 0 0 15 Clifford, Stephanie. “Growth Overseas Lifts Walmart’s Profits.” The New York Times. November 16, 2010. 2008 2009 2010 http://www.nytimes.com/2010/11/17/business/17shop.html. continued

SmartMarket Reports McGraw-Hill Construction 40 www.construction.com Portfolio-Wide Use of Efficient and Green Technologies

case studyontinued c

• High-efficiency refrig- in California and Hawaii16 Green Building Elements eration: and bought the power pro- (Renovation Projects Only) duced from those com- Source: McGraw-Hill Construction, 2011 - 83% new/addition panies at significantly ■ Energy Efficiency Technologies enovation - 17% renovations reduced rates.17 These ■ • Thermal water tanks: Other Green Technologies solar panels do not appear - 91% new/additions Renovation Projects Only in this data because they - 9% renovations were not installed by Wal- Lightbulbs 2,388 • Refrigerated case doors mart, but this practice Light Fixtures 2,386 etrofit and R and daylight dimmers: demonstrates one non- - 92% new/additions Low-Flow Fixture 2,297 traditional method for - 8% renovations Refrigeration 108 reducing their energy • Skylights: expenditures and carbon Recycled Concrete for Flooring 65 - 94% new/additions footprint. Recycled Plastic 54 - 6% renovations ient Building R c ■■Water and Other Green Thermal Water Tank 54 ffi Despite the use of these Technologies Refrigerated Case Doors 44 features in a relatively low Walmart is also investing Recycled Mulch 42 percentage of renovation in conservation and onsite nergy E Bioswale and Pervious Pavemen 42 projects, the high volume stormwater management. of renovation work con- • Low-flow fixtures, Daylight Dimmers 40 ducted by Walmart means like low-flow toilets, Skylighting 27 that each technology has are included in nearly Wind Power/Roof Mounted Solar Panels 26 been included in approx- every project that incor- imately 70 to 120 build- porates any green fea- plastic in many of its newly technologies other than ings updates constructed tures, totaling over constructed stores. The lighting are normally Business Case for E or planned over the last 2800 new and renova- focus on resource con- included by Walmart on few years. However, this tion projects. servation demonstrates new construction proj- penetration is minimal • Green infrastruc- that, when it comes to new ects, but only rarely in compared to the new con- ture methods like bio- construction, Walmart is renovations. struction projects that swale and pervious engaged in sustainable Therefore, it is not sur- incorporate these features, pavement allow sites efforts beyond those that prising that their decline in numbering over 500 for to absorb excess storm- reduce utility bills. use from 2008 to 2009 cor- each. water, which helps responds to the decline in regenerate the water ■■Renewable Energy Energy Efficiency overall new Walmart con- table and reduces the Walmart has invested Technologies in struction projects. demand on local water broadly in solar panels and New and Existing However, that trend treatment facilities. Like wind power, with these fea- Buildings does not hold true for all the energy efficiency tures included in over 480 (2008–2010) efficiency technologies measures other than new building or renovation from 2009 to 2010. Wal- lighting, these features ALL PROJECTS projects since May 2007. mart continued its invest- are usually found in new with Energy In addition, in 2007, Wal- ment in refrigerated case projects rather than ren- Efficiency Tech- mart initiated a program doors, high-efficiency ovations. nologies Other to allow green power com- refrigeration, thermal Walmart also requires the Than Lighting panies to install solar water tanks and daylight use of recycled concrete As demonstrated panels on their buildings dimmers at high levels. for flooring and recycled above, energy efficiency

16 Solar Power Fact Sheet. Walmart. September 1, 2009. http://walmartstores.com/pressroom/FactSheets/#Sustainability. 17 Gunther, Marc. “Wal-Mart: Here Comes the Sun.” Fortune Magazine, posted on CNNMoney.com. May 9, 2007. http://money.cnn.com/2007/05/07/news/companies/pluggedin_gunther_wmtsolar.fortune/index.htm

McGraw-Hill Construction 41 www.construction.com SmartMarket Reports Portfolio-Wide Use of Efficient and Green Technologies

case study

However, the use of day- been demonstrated to technologies. However, The reduced investment light dimmers and sky- offer productivity and unlike their use in new in most of these technolo- lighting decreased, again employee satisfaction projects, investment in all gies is confined to renova- consistent with the down- benefits for offices that of the energy efficiency tion projects, which have enovation

R turn in new construction, are as important as the technologies, other than grown overall. Their new where these features are reduced energy use they lighting and refrigeration, projects have declined more likely to be used. also provide. saw a peak in 2009. The overall, but they still con- This pattern of However, a retail number of projects in 2010 tinue to include a high investment is typical business, with customers with all of these features level of investment in mul- etrofit and

R during an economic coming and going all day, has dropped significantly tiple energy efficiency downturn. Many would find these additional despite growth in the technologies. Most com- companies, operating benefits diluted, and overall number of panies have found light- under more limited limited resources may renovation projects ing and low-flow fixtures margins, focus their capital focus the investment on that year. Thus, the only to be relatively inexpen- ient Building expenses on areas that can areas with the greatest green features that the sive to install relative to the c

ffi achieve the highest level of returns. vast majority of Walmart results they produce. E return for the investment. alteration projects Renovation PROJ- Skylights and daylight incorporated in 2010 were ECTS with Energy Influence on nergy dimmers do not provide lighting and low-flow Emerging E Efficiency Tech- as strong a benefit in retail fixtures.A s the economy nologies Other Technologies as they do in other sectors, improves, it will be worth Walmart’s adoption of Than Lighting such as offices, health care tracking whether Walmart renewable technologies, There were fewer than 20 and manufacturing, given increases the breadth of its especially solar panels, renovation projects that how these different spaces green investments in the suggests the influence that started in any particular are used and occupied. existing building projects it a major retailer can have year with any one of these In fact, natural light has undertakes. on the market. To date, Business Case for

Energy Efficiency Technologies Used Energy Efficiency Technologies Used (All Projects) (Renovations Projects Only)

Source: McGraw-Hill Construction, 2011 Source: McGraw-Hill Construction, 2011

160 16

120 12

80 8

■ Refrigeration ■ Refrigeration ■ Thermal Water Tank ■ Thermal Water Tank ■ Refrigerated Case Doors ■ Refrigerated Case Doors 40 4 ■ Daylight Dimmers ■ Daylight Dimmers ■ Skylighting ■ Skylighting

0 0 2008 2009 2010 2008 2009 2010 continued

SmartMarket Reports McGraw-Hill Construction 42 www.construction.com Portfolio-Wide Use of Efficient and Green Technologies

case studyontinued c

on-site electricity genera- Florida, totaling 20, and Methodology tion has been adopted for North Carolina, totaling 17. From May 1, 2007 through November 30, 2010, only a small percentage of On new stores, the solar 2,935 Walmart projects with green building ele- projects nationwide. panels would come rela- ments were reported in the Dodge Network. enovation Therefore, commitment tively late in the construc- These projects span from early design to com- to such efforts by a large tion process, making it pleted construction. All of the data not otherwise cited was drawn from this pool of data. retailer like Walmart has likely that many of them on The projects listed include new construc- the potential to help drive stores started in 2008 may tion, additions and alterations. The projects onsite renewable energy not have been installed etrofit and R are located across all 50 states and range in generation, which to date and generating power until estimated construction cost from $50,000 to has had minimal market 2009. $50,000,000.They also include all types of build- penetration. ings owned by Walmart, but are primarily retail North Carolina buildings. Walmart’s and the Potential Solar Energy for Influencing ient Building R c Investments the Market

ffi while it is important to kind of market opportunity Walmart’s two-pronged The Interstate Renew- make clear that Walmart and stability that can approach of including able Energy Council alone cannot be credited encourage economies of solar on some of their (IREC) in their 2009 Solar nergy E with growing the solar scale and lower prices. own building projects Market Trends reported investment in North Incentives have been while also having energy that between 2008 and Carolina, their installations demonstrated to be most companies install 2009, the grid-connected certainly would have had effective for expensive units and sell them the PV capacity installed an impact on this relatively emerging technologies electricity has increased increased, 3,668% in Flor- small market. like solar when they span their total contribution to ida and 96% in North at least five years because solar power generation. Carolina. The Retail Sector’s of the stability offered by Business Case for E In 2007, they purchased While that same report Promise for a longer time frame. In the solar power from energy described significant Increasing Solar same way, U.S. retailers companies who installed Florida incentives Energy Generation have the potential to sup- solar panels on the roofs that account for the The importance of a port stable market con- of their stores in Califor- extraordinary increase, retailer like Walmart ditions by committing to nia and Hawaii, and they no mention is made committing to this kind the kind of investment in followed up in 2009 with of incentives in North of emerging technology, solar that Walmart and a additional agreements in Carolina, despite the fact does not lie in the few other major retailers California. that this increase made regional impact but in have made. They would in Incentives, public North Carolina one of the the strengthening of the turn benefit from the com- policies and energy prices top10 states in the country overall market. petition and lower prices, as may have some impact for grid-connected PV Big box retail, more than well as increased public per- on the adoption of solar capacity.18 any other sector, offers ception of their good corpo- technology, but Walmart’s Unlike North Carolina, all a strong opportunity for rate citizenship. n efforts may also have an of the other markets with solar installations, due to effect in some markets. growth in PV capacity on the sheer volume of roof For example, in 2008 and that scale—including New space available across the 2009, the two states with Jersey (155%), Arizona country. Commitment of the highest number of (243%) and Massachusetts a significant percentage Walmart projects that (173%)—all had major of that roof space to solar included solar panels were incentives in place. Thus, energy would provide the

18 Larry Sherwood. U.S. Solar Market Trends 2009. Interstate Renewable Energy Council. July 2010. http://irecusa.org/wp-content/uploads/2010/07/IREC-Solar-Market-Trends-Report-2010_7-27-10_web1.pdf.

McGraw-Hill Construction 43 www.construction.com SmartMarket Reports Business Case for Energy Efficient Building Retrofit and Renovation case study T and due diligence at senior vice president of engineering buildings. by the engineers responsible for spotted the opportunities from in efficiency at Much of the impetus for investing Efficiency Energy Role—Driving Engineers’ Building the bill to a improvement. has always been a goal of business reducing cost in a business process makes sense because “removing or observes that energy efficiency of A Step First The Energy Efficiency— achieving A E much success—including being an However, their approach has yielded changes like an owner could. the fact that they cannot mandate the buildings they manage despite fluctuations in usage or cost.” or usage in fluctuations that people are very aware of its measured and billed in such a way years. for over 50 buildings in the past two of years.” of managed properties in just a couple practices will be commonplace in all implement. customers should expect us to of sustainability, is “what our energy efficiency, as acomponent SmartMarket Reports Reports SmartMarket nergy ward winner for eight years and l S LEED S kodowski also believes that kodowski, senior vice president S and sustainability services, tar of buildings across all the energy performance effective at improving ranswestern has been LEED R T oy Cook, managing T S ... oday’s cutting-edge ustained E T E

E nergy efficiency fits ranswestern came nergy is metered, B O &M certification T ranswestern, E Pursuing Pursuing andEfficiency Making xcellence

Construction McGraw-Hill Good Good Business Sense Strategie upgrades. that they should invest in building is to convince the building owners building performance, the next move low cost/no cost options to improve clients. case for energy efficiency to their position of presenting the business T Owner the Convincing competition.” competition.” to differentiate ourselves from our in looking for opportunities and ways “We’ve always been very motivated money for our clients.” He affirms, and looking for opportunities to save group collectively getting together from “our regional engineering describes how the initiative resulted He states, “ during the with their behavior in the late eighties owners over the last couple of years compares the behavior of building downturn on real estate. Cook devastating impact of the economic they have faced has been the but recently, the biggest obstacle the idea of efficiency improvements, clients are more open than others to wide, according to Cook: “ adoption is now evident company nationally and regionally.“ are in every marketing piece,” both for our clients across the country initiatives and what we are doing the programs nationally. E and received recognition from the to realize results in terms of savings roots campaign. only.” ranswestern is frequently in the P T T A hey have always found that some heir efforts began as began a grass heir efforts , they were able to implement O Transwestern Transwestern nce they have explored all s S A It is crisis management avings and cro

44 O ss nce they started T

heir Portfolio heir L oan crisis. www.construction.com E nthusiastic O ur energy their clients as well. to owners who pass utility bills onto E efficient than theircompetition. can demonstrate that they are more more strongly in their market if they properties can be positioned much sense. He also affirms that the clients money makes good business projects in their space that saves their possible, and that implementing who are as financially viable as of a building owner to have tenants points out that it is in the best interest president of sustainability services, to tenant needs can also yield comfort from tuning up systems range. 30%–40% the in for them to be able to achieve savings on the building, it is not uncommon However, he also said that depending of 3%–15% on a building’s utility bills. involvement usually yields savings Cook reports that Achieved Benefits savings t is [per square foot].” or two below what your competition because you are going to be a dollar going to help with your rental rates energy efficiency investments “are competitive. costs, namely making buildings more that are in addition to lower energy focuses on the investment benefits Owners wh Owners thing to do. an added P Owners Owners three-year window”? owners ... to look outside the two- to invest or, as Cook puts it, “educate S R nergy efficiency investment matters o how do they persuade owners to eceive Utility Benefits Utility eceive Walker thinks that greater tenant R W value that it’s the right A o h ccording to Cook, tenants o o pass pass Directly Directly T ranswestern’s R A ick Walker, vice T nd owners get ranswestern u tility tility continued Transwestern Strategies Across their portfolio case study continued

greater productivity benefits.T hat Cook reports that they benchmark to be adjusted to reflect that change, productivity gain may be hard to all of their buildings in Energy which can save energy—and money. measure directly, but its impact is Star Portfolio Manager. They have Identify Energy Waste Areas significant. found that the Energy Star program enovation Finally, Walker also advocates provides a critical benchmark making sure you understand where Challenges and for their building performance most of the energy consumption Opportunities for compared to peers, which their in the building is coming from to Class B and C Buildings individual building performance ensure initiatives result in the biggest Walker sees the true challenge in analysis cannot provide. etrofit and R paybacks possible. class B and C buildings, which are Building Operations typically not owned by large REITs Conduct Regular Tuneups Technologies and or companies. Convincing these Transwestern conducts annual Systems That Offer owners to make the necessary building tune-ups on all their Greatest Paybacks investments to improve efficiency is properties, including envelope, Cook and Walker find the following ient Building R a bigger challenge, not because they c HVAC and lighting inspections. have been productive investments

ffi don’t want to improve their buildings, These ensure that the systems are in their buildings, including lighting but because they think they cannot operating efficiently. retrofits, cooling tower upgrades, afford it or they don’t know how to variable speed drivers, submetering, nergy E proceed. Respond to Occupant Needs digital building controls, and most Walker points out that buildings They also continually work to adapt importantly, education of staff. As today that have achieved the Energy their building operations plan to Walker warns, “We are not providing Star label were already typically the current needs of the building’s enough training in the marketplace high-performing buildings. Due to occupants. Cook describes the for our operating staff to understand the large number of underperforming impact they’ve seen just from exactly how that stuff works and how buildings, he predicts that “the conducting a tenant survey once a to get the most out of it.” biggest opportunity for green is yet year. Based on the survey results, Business Case for E to come. Our biggest opportunity is they adapted the air conditioning Taking Advantage of still through energy efficiency and to the needs the tenants describe in Utility incentives water [savings].” the survey. Cook estimates that this Both Walker and Cook affirm activity alone reduced their use of air the importance of seeking Strategies for Achieving conditioning 35%–40% on Saturdays. utility incentives to help support Better Performing He also makes sure the tenants are investment in technology. Cook Buildings aware of the savings accrued and the cautions, however, that they impact on utilities payments. Benchmarking and have seen pronounced regional Energy Star Change as Building differences in terms of being able A critical part of Transwestern’s Needs Change to take advantage of the initiatives management strategy involves Walker sees understanding the offered. He states that they have had measuring the performance of changing needs of a building as great luck finding good incentives on their buildings and comparing it to essential to efficient operation. He the West Coast. However, in regions previous performance on a monthly points out that in commercial office like the South, money put up by the basis. All utility expenses like gas, buildings, “spaces lease up, spaces utilities is frequently gone before water, electricity and steam are go unoccupied.” In addition, he has they take advantage of it. n measured. This forms the basis for observed that “a 100% occupied their savings. Walker states, “You building now may have significantly cannot manage what you don’t fewer people in it than were there 20 measure.” years ago.” As a result, systems need

McGraw-Hill Construction 45 www.construction.com SmartMarket Reports Data:Financing Energy Efficiency: Perspectives from Banks and Real Estate Investment Firms

Use of Bank Financing improves, there are fundamental, whole, but rather are early adopters structural issues inherent in the way driving increased levels of green and data for Energy Efficiency Upgrades Is Rare real estate is financed that stand energy efficiency financing. One common obstacle to increased as obstacles to significant energy The interviews reveal how these adoption of energy efficiency in the efficiency investment. early adopters perceive the potential stock of existing buildings is the If owners are confined to relying market for investment in energy enovation up-front cost. Despite the relatively on operation budgets and company efficiency in buildings, explain quick payback for many efficiency profits to finance upgrades, invest- why loans for energy efficiency improvements and the long-term ment in energy efficiency is likely to improvements are so limited and savings they provide, acquiring the remain at current levels. As a result, provide insights about what can be initial capital remains a challenge. the widespread commitment nec- done to increase the availability of etrofit and R Only 6% of the respondents in the essary to bring all of the building financing. Financing Energy Efficiency Activi- stock to high levels of performance ties section on page 23 currently use is unlikely to take place. Financing Current and Expected loans to finance green or energy- through banks must be made more Future Level of Demand efficient retrofits, while 85% draw available for true market transforma- for Energy Efficiency ient Building R directly from capital budgets and tion to occur. Financing c company profits.T his suggests that To make the business case across Nearly all the respondents from ffi the market for energy efficiency is all sectors and to accomplish the banks report seeing a strong restricted by the battle for resources breadth of investment necessary, demand for energy efficiency.

nergy E in the private sector. the banks’ structural issues that A few recognize that the primary prevent ready availability of funds driver is the desire for cost savings. Impact of the Recession must be understood and addressed. One affirms that energy efficiency on Securing Financing The untapped market of energy That battle has become more efficiency financing provides a major heated as the recession has reduced opportunity for banks if these issues profitability in many sectors can be addressed. Encouraging Broader and left low margins for capital Business Case for E Availability of Energy improvements. Despite the fact Survey of Green and Efficiency Financing: that investing in efficiency will Sustainability Leaders ultimately reduce expenditures and in the Financial BUILDING OWNERS help the bottom line, securing that Community • Make energy efficiency part initial capital for investment can be In December 2010, McGraw-Hill of a larger focus on greening difficult. Construction conducted in-depth buildings. Many factors contribute to this interviews with 10 leaders in • Provide data on building problem, including the owners’ green and sustainability from energy performance. reluctance to incur debt and the large and midsize banks and from • Support building energy limited availability of financing since real estate investment firms. S( ee performance standards. the stock market crashed and the the Profile ofF irms on page 50 • Provide data on energy recession began in 2008. for more information.) All of the efficiency improvement respondents are proponents of projects. Bank Financing Is increasing financing for green and • Capitalize on energy-efficient Critical to Widespread energy efficiency retrofits.A nd their buildings in branding/ Adoption of Energy perspectives are well-informed marketing to attract potential Efficiency given their level of engagement tenants and increase rental Even as the availability of financing in encouraging the green lending incomes. gradually loosens and companies market. As a result, they do not regain confidence as the economy represent the financial industry as a continued

SmartMarket Reports McGraw-Hill Construction 46 www.construction.com Financing Energy Efficiency:

Perspectives from Banks and Real Estate Investment Firms continued

comprises the largest share of upgrades are typically investments the building improvements they that deliver quick returns.

data Encouraging Broader are asked to finance. However, Availability of Energy The confidence in the growing respondents differed on how well the Efficiency Financing: demand for efficiency financing demand is currently being fulfilled. may be due to how underserved the BANKS At least one respondent notes enovation market is now. The data in the section • Better quantify risk that the building owners’ interest Current and Future Levels of Energy- by increasing internal in financing energy efficiency is Efficiency andG reen Activities on intelligence about energy tempered by the lack of available page 16 provide a mixed picture of efficiency projects. financing.T his statement is the owner’s perception of market • Create standardized/ supported by the survey data in this etrofit and R growth in the near future. simplified process for report, which show that owners While 78% expect to do efficiency loan requests for energy currently do not consider obtaining upgrades in the next two years, the efficiency. financing a major trigger for greater level of activity as a percentage of • Alter rules/practices of growth in efficiency projects in the their overall portfolio is predicted to adding debt to properties future. Thus, it appears that owners fall back slightly from current levels. with a primary mortgage, ient Building R do not consider financing to be a c However, as demonstrated above, especially if that mortgage strong motivator because they do ffi this result is impacted by the owners’ has been securitized, in order not expect it to be readily available. presumption that financing will be to encourage lending on None of the respondents reported relatively limited for these projects. energy efficiency upgrades. nergy E seeing more demand for efficiency in a particular building type or sector, Real estate investment firms regard nor did they report any trends in investments that strictly target the loan requests they receive for green or high-performing buildings specific efficiency technologies. to be a niche market rather than a One respondent also describes general trend. All of the respondents from banks investors who see a direct profit by A few observe that generally expect the demand for efficiency purchasing “energy hogs” in order to Business Case for E investors do not seek energy financing to grow in the near future. upgrade them into better buildings use information as a criterion for The reasons provided for rising and quickly increase the property evaluating real estate investments, demand differ among respondents. value. but they do see a few savvy investors • Stabilization of the economy is who consider this information. credited for the rising demand. Advantages Offered by The marketing advantages of a This was the one factor noted by Providing Financing for building that is high-performing several respondents. Energy Efficiency are noted by respondents as a key • Large companies, especially Respondents from investment firms factor for the investors who ask those with sustainability officers, see greater client investment based for energy use information. This will drive increased demand for on the operational savings offered corresponds with the finding on financing because their executives by energy efficiency. page 20 that 73% of owners consider are thinking about sustainability Two out of three describe owners market differentiation to influence more holistically as it relates to the who are seeking to invest in better- their decision to invest in energy entire company. performing buildings. They note that efficiency. • The increasing need for upgrading Energy Star scores are highly valued older and class B properties will as quantifiable, easy-to-interpret drive greater investment in energy performance measurements. efficiency, especially since those

McGraw-Hill Construction 47 www.construction.com SmartMarket Reports Financing Energy Efficiency:

Perspectives from Banks and Real Estate Investment Firms continued

Branding and marketing opportuni- Challenges to Providing Currently, most banks cannot even ties are also recognized as important recognize how efficiency may impact data Financing for Energy for owners. Efficiency the value of the building. Building owners who brand Ultimately, banks base loan Underwriting loans is based on themselves as energy efficient decisions on factors that have historical data, and currently there and use that as a marketing tool historically been shown to correlate are insufficient data collected on enovation can enhance leasing, a factor that directly with the ability of the energy efficiency improvements most directly adds value to their borrower to repay the loan. for most banks to account for the properties. For most businesses, operational savings expected. savings are too small a percentage of In fact, one respondent points out Banks can market themselves as total expenses to impact significantly that the nature of energy efficiency etrofit and R better citizens and build better their ability to pay down their debts. causes this problem to be even more customer relations. • In commercial real estate, factors acute because it is an estimate of Several respondents noted that like location that affect occupancy what is not going to happen in the a key advantage for banks when rates and rents are much easier future, not an estimate of what will they offer financing for energy for banks to acknowledge. In happen, such as the expected energy ient Building R efficiency is the improvement of their fact, one respondent affirmed produced by solar panels or wind c relationship with customers and that energy efficiency loans power. ffi potential customers. One interview are more important from the Banks need to be able to quantify subject asserts that banks risk bank’s point of view because both the savings and the risks

nergy E being perceived as environmentally they help maintain the value involved in order to incorporate those unfriendly if they are not in this of the building in the market factors into the value of the building, business. Additionally, banks may by avoiding obsolescence, not possibly even allowing them to be get left behind if other institutions because of the operational collateralized and improve the terms create this image of corporate savings. of the loan. In addition, banks need responsibility. • For owner-occupied buildings, to quantify those risks and savings Another respondent argues multiple respondents affirm that using their existing methodologies that being able to build better loan the credit of the borrower is a and software, but very few of them Business Case for E terms based on improved building much more important factor than have the expertise or access to performance can increase the the operational performance of the historical data necessary to do so. total volume of lending with that building. One respondent stated that the customer, creating an advantage for lack of standardized third-party both the bank and the client. due-diligence reports contributed to their inability to collateralize Energy-efficient buildings offer direct cash flow and business case Encouraging Broader Availability benefits. of Energy Efficiency Financing: Most of the bank respondents agree that more efficient buildings GOVERNMENT are ultimately a good investment. • Continue to offer financial incentives either directly or indirectly through However, the banks’ ability to fully utilities, focusing on those that can be directly collateralized. recognize those benefits in their • Provide loan guarantees/credit enhancements for owners undertaking process for generating real estate energy efficiency improvements to make borrowers more appealing loans is an issue that still needs to be to banks. resolved, so this benefit is tempered • Consider revising rules governing new debt on mortgaged properties to by the challenges facing energy more effectively respond to the securitization of primary mortgages. efficiency loans.

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SmartMarket Reports McGraw-Hill Construction 48 www.construction.com Financing Energy Efficiency:

Perspectives from Banks and Real Estate Investment Firms continued

the savings of efficiency projects. Another pointed out that uncertainty

data Glossary of Terms

about the risks due to insufficient • Collateralized: The condition of a bank recognizing the value of historical data prevents banks from a guarantee, rebate or other financial incentive as collateral to secure a attempting to pool companies loan when that type of incentive is not typically recognized as collateral. and properties seeking to make Credit Enhancement: enovation • Different strategies that can be employed these investments into a bulk loan to reduce a bank’s concern about the risk of possible default, especially program. with a class of borrowers who are typically considered to be poor credit A bulk loan program would be risks. Examples of credit enhancements for energy efficiency include more effective because it would government-backed loan guarantees and guaranteed grants by public allow quicker loan processing etrofit and R agencies associated with the proposed upgrades. and possibly better loan terms • Securitized Mortgage: A securitized mortgage is one that has due to a standardized rather than been combined with other mortgages as a financial instrument that individualized approach to the risks can then be sold to investors. When a mortgage is securitized, it is and rewards of energy efficiency difficult to add additional debt because of the challenge of obtaining the lending. approval of the multiple investors who each own a share of the original ient Building R c mortgage. For properties already carrying ffi • Underwrite: Formal evaluation of the lender’s exposure to the risk a mortgage, strict rules about of default if it approves a loan request. additional borrowing significantly

nergy E limits the financing of energy efficiency improvements. Even if banks could recognize the value of the savings that result from energy efficiency improvements, Real estate investment advisors A few regions around the country, additional debt on many commercial see the lack of transparency around such as the District of Columbia buildings is hard to secure, due building energy use and lack of and New York City, have begun to to rules put in place after the clear standards as challenges to require public reporting of all build- Business Case for E savings and loan crisis and stricter widespread investment in energy ing energy use, and wider adoption underwriting standards that resulted efficiency. of similar policies would reduce that as a reaction to the crash of 2008. Investors could help drive concern. Many commercial real estate efficiency if the energy use of each mortgages are securitized, so the building was published. This would Investors also see owners as required approval of any new debt by encourage energy use to be a factor reluctant to part with their cash the mortgage holders is particularly whenever commercial real estate in the current, tight economic challenging to obtain. To truly loosen changed hands. One respondent conditions. the market for energy efficiency expressed concern that owners Since the market is largely being financing, these fundamental issues with a significant percentage of funded out of operating expenses with mortgages and financing must low-performing buildings in their and company profits, this concern be resolved. portfolio have a vested interest in about investing limited funds has a keeping energy use information from particularly detrimental effect on the being widely available and could be efficiency upgrade market. However, an obstacle to significant change in as economic conditions improve, this this area. concern should decrease.

McGraw-Hill Construction 49 www.construction.com SmartMarket Reports Financing Energy Efficiency:

Perspectives from Banks and Real Estate Investment Firms continued

Strategies to Encourage Two respondents directly Strategies for Banks referenced the preference data Greater Availability

■■Banks need to alter the lending of Energy Efficiency for green renovations over practices around real estate that Financing simple energy efficiency when has a mortgage. considering financing. Green General Strategies buildings have been associated enovation Until the problem of adding ■■The most effective way to with health and productivity additional debt to a mortgaged encourage market transformation benefits, in addition to operational property is resolved, banks will is to help the market drive the savings, and these qualities not be able to broaden the market change itself. have been demonstrated to be for energy efficiency improvement valued by tenant companies and etrofit and R loans for buildings. Respondents from banks and occupants. insurance companies agree ■■Standardized or simplified loan that the strong business case • Since a building’s occupancy rates processes for energy efficiency for energy efficiency can help and rents are significantly more projects would benefit both banks the market to drive itself. The important than operating costs and owners. ient Building R market can only put a premium on in loan evaluations, deciding to c efficiency if it is fully transparent pursue green projects, rather Two respondents felt that a ffi about energy use in buildings. than narrowly focusing on energy simplified, standardized process efficiency improvements, can help for energy efficiency loans would

nergy E Greater reporting of building firms obtain financing more easily, energy use is the top priority for especially as more data continue a few respondents. This includes to emerge on how green buildings voluntary measures like the compare to the rest of the leasing Profile Of Firms newly adopted ASTM Energy market. Disclosure Standard and enacting BANKS ■■More data on energy efficiency government mandates for (6 firms–7 respondents) projects need to be made publicly reporting, such as the legislation • 4 Global and 2 Regional Business Case for E available. in place in Washington, D.C., Institutions

and New York City. Both would • Headquarters: NY, CA, PA, For banks to allow the savings have the effect of making energy BC (Canada) expected from energy efficiency disclosure standard practice. • Total Assets: Range from loans to impact the loan terms, $14.4 billion to over $1 trillion, they need historical data that • One respondent also saw a need with more than 50% of demonstrate savings and show to educate small business owners respondents at institutions risks of typical renovation on the advantages of efficiency with assets over $1 trillion projects. These data will clarify the upgrades and the various risks to banks in offering energy REAL ESTATE initiatives designed to encourage efficiency loans and thus assist INVESTMENT FIRMS the market. with more effective underwriting (3 firms–3 respondents) ■■Place a greater emphasis on of those loans. • Specialize in Green/ overall green projects rather than Sustainable real estate just efficiency in commercial real investments estate projects. • Advisory firm, Advisory and Private Equity Firm, Global Consultant • Small firms (10 people or less)

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SmartMarket Reports McGraw-Hill Construction 50 www.construction.com Financing Energy Efficiency:

Perspectives from Banks and Real Estate Investment Firms continued

make these loans more profitable • One respondent describes how • One respondent offered the Small for the banks and therefore easier his institution increased its internal Business Administration’s practice data for building owners to secure. expertise on the benefits of of providing loan guarantees as However, part of that process common, “cookie-cutter” retrofit a successful example of this involves increasing internal activities in order to be able to take kind of government support, and intelligence within the bank those benefits into account when several argued that government enovation about how to account for energy they process loans. programs that minimized the efficiency returns. • Another explains that increasing bank’s exposure to loan default the bank’s internal expertise could dramatically encourage this ■■Banks can better quantify risks on these matters can even put market. associated with energy efficiency the bank in the position to make etrofit and R if they actively seek knowledge recommendations to the building ■■Current government incentives, about it. owner to increase the loan without especially those that can increasing the risk of repayment, be collateralized, should be Government and construction thus allowing the bank to generate continued. industry associations can play more business from its clients. a role to help banks become These programs are regarded ient Building R c more informed. Many of the Strategies for by banks as one way to help ffi respondents pointed out that Government government secure these loans. a critical stumbling block is the As long as the incentives are ■■If government provided loan inability of banks to account for implemented in a way that clearly nergy E guarantees or other forms of the savings generated by energy lowers the risk of loan default, credit enhancement for building efficiency. However, a few did they are considered valuable by owners, banks would find it much suggest that banks can address the respondents. easier to finance energy efficiency this issue directly. projects. ■■Government regulations regarding the addition of debt • One respondent discussed how The owner’s credit plays a central to existing mortgages may need external expertise can bridge the role in determining whether to be reconsidered, in light of Business Case for E gap for the banks if the energy a bank will issue it a building the way that commercial real efficiency retrofits are being done improvement loan, and a large estate mortgages are currently using the services of an energy number of small businesses do not securitized. service company (ESCO). The have strong, established credit. ESCO’s energy cost savings Regulations put in place after the estimates, which provide the A few respondents suggest S&L crisis make this particular basis for its profit, supply banks that government backing the scenario challenging. If energy with a trustworthy estimate to loans directly or in some other efficiency is to be considered an use for their own underwriting way providing a guarantee of important priority, regulations purposes. (For more information repayment for a percentage of the that allow reasonable, well- on what ESCOs are and how they loan could significantly increase secured debt on mortgaged can encourage wider adoption of this market. properties to gain approval more energy efficiency, as well as the directly may need to be enacted. challenges to using them, see page 22.)

McGraw-Hill Construction 51 www.construction.com SmartMarket Reports case study Creating a Culture of Energy Efficiency in Commercial Office Buildings Hines Achieving Operational Savings

n s a developer and builder management program that tracks of commercial proper- energy consumption in their prop- atio v ties, Hines has always erties on a monthly basis year-over- o prioritized energy effi- year. All variations, both increases en Aciency. Robin Obaugh, vice president and decreases, from the previ- nd R of engineering for Hines in Houston, ous year’s performance must be a

it TX, states that newly hired building explained. f

o engineers are immediately taught The attention to monthly variations r t “that our mission is to satisfy our not only helps to improve energy per- e tenants, and the number two mis- formance but also to prevent deci- ng R i sion is to accomplish the first mission sions that save energy at the expense d

il with the least amount of energy use of tenant comfort or sound building possible.” operation. Obaugh regards the fact Bu t As their business has grown to that their engineering managers are en include acquisitions, Hines has faced held accountable for monthly per- ici

ff the challenge of making the onsite formance of their buildings as essen- staff they inherit part of that culture. tial to ensure that these measures They have found that educating the are allocated sufficient time and

nergy E new team properly and providing the attention.

r E tools that demonstrate how the build- o ing uses energy can significantly Use Teams to Identify e f improve the building’s energy use, Opportunities and as

C even before any investments in build- Achieve Results ss ing upgrades are made. Many of the successful projects ne undertaken by Hines to improve si Leadership from the Top building energy performance are Bu Obaugh explains that it is Gerald initiated by the onsite teams at the Hines’ commitment to issues sur- The Hines management team at 131 buildings. Kevin Krejci, assistant South Dearborn were able to achieve rounding building performance that 23% energy savings without any signifi- engineering manager, reports that led to their corporate emphasis on cant technology upgrades. an energy task force team drawn sustainability. He states, “Since we from the building managers has been have that leadership from the top, it systems than any renovation or ret- created to encourage their staff to is very easy for that priority [around rofit could possibly achieve.” explore innovative ideas about how energy efficiency] to flow down.” to save energy. Leonard Swonke, Make Staff Accountable engineering manager, reports a simi- Training Forms the Basis for Energy Performance lar type of brainstorming at an annual A mission statement alone, however, Goals meeting of the building teams who is not enough to create a team that Most building managers want their report to him. has integrated energy efficiency into buildings to operate well, but even Obaugh affirms that all ideas, their management of a building. Pat for a well-trained team, the chal- even those that may seem too Griffin, vice president of engineering lenge is encouraging them to allo- expensive to implement, are fully for Hines in Chicago, IL, states that cate the time to improving energy considered. “We really try to run “investing in education and support performance. the traps: What is this product or of the onsite team pays huge divi- In order to keep efficient energy program? What will it do for the prop- dends.” He goes on to affirm that “a use as a priority for their build- erty? What is the real cost?” Having highly educated team can reduce far ing management staff, Hines has a well-trained, energy-conscious more energy from operating existing developed a proprietary utility team that is intimately familiar with

SmartMarket Reports McGraw-Hill Construction 52 www.construction.com Hines d Achieving Operational Savings case study continue

n building operations encourages Efficiency first: use “Providing the training creativity and insight when it comes RetroCommissioning to and guidance, and then atio v to potential savings. identify opportunities

o sharing the positive Before the Hines staff will even con- en results of the team’s Challenges and sider making technology upgrades, actions, results in energy nd R Opportunities Presented they focus on improving existing a management getting it by Building Acquisitions building performance. “Before we f

o The true test of the Hines culture introduce any new technology,” into their blood.” r t comes not from the buildings they says Obaugh, “we dive into exactly e have built and managed but from how the building is built, the design ng R i their new acquisitions. Working with of its mechanical systems, and then d

il the existing management staff clar- our first effort is to make sure the ifies how simply raising awareness building is operating as per design Bu t and commissioning the existing sys- and to see how we could tweak that en tems can significantly impact build- performance.” ici

ff ing performance. Griffin points out that commissioning the building can lead to discov- Know where you rank, and eries that yield large energy savings. Increase Staff Awareness nergy E For example, a commissioning proof Building Performance stats r E cess could reveal that equipment o Griffin reports that providing the that is scheduled to turn off may still 131 South Dearborn e f building management team with an be running. Without a thorough pro- Location as assessment of how their building

C cess and good building automation Chicago, IL performs compared to other Hines ss system, problems like that can go Building Size (Square Feet) properties is often the first step to ne undetected. Gross : 1,778,502 si improving building performance. Rentable: 1,504,264 Bu “The first thing they say to me is, Look for Technology Owner ‘Nobody has ever told us that our improvements and 131 S. Dearborn LLC energy consumption was high.’” Opportunities Building Management That awareness, combined with Only after the building staff is aware Company training and guidance on how to of how their building performs and Hines improve, sets the stage for higher have retrocommissioned all its sys- Cost of Improvements performance, both immediately tems will they then consider what Operational improvements only, and in the long term. Once the team kind of technology will improve no retrofit costs starts to see monthly improvements building performance. By this point, Savings (kWh) in the First 12 in the building performance, they the staff’s immersion into the work- Months of Hines Pperation of become engaged. Griffin states, ings of the building systems provides Building “We find that providing training and great insight into those that would 6,232,496 guidance, then sharing the positive benefit most from an upgrade, allow- Percentage of kWh Savings results of the team’s actions, results ing Hines to maximize its investment 23% in energy management getting into in the property. Value of Energy Savings in their blood. Once this happens, there Each property benefits from differ- the First 12 Monthes of Hines is no end to what the team will strive ent technologies, but a few technolo- Operation of Building to accomplish.” gies often provide significant energy $525,733 performance improvement with Percentage of Energy Cost impressively low payback periods: Savings 21%

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McGraw-Hill Construction 53 www.construction.com SmartMarket Reports Hines d Achieving Operational Savings

case studycontinue

n • Improved building automation 1 Greenspoint, Houston, TX 717 Texas, Houston, TX systems that measure as much as Krejci describes how the first step An energy review meeting by the atio v possible they took at this property was learn- operating staff resulted in retro- o • Variable speed drives ing more about and expanding the fit and operations projects that pro- en • Lighting retrofits—including LEDs operation of their building automa- duced savings of over 1 million kWh nd R tion system. After educating both over a 12-month period. Their retro- a

it themselves and the building opera- fits included installation of variable f Specific Property o tions staff, they then reprogrammed frequency drives and lighting retro- r Examples t existing systems and added profits, including the use of LED lighting e 131 South Dearborn, grams for new systems including in the building lobby. Operationally, ng R i Chicago, IL chilled water, condenser water and they performed an outside air reset, d

il Hines took over the management of supply air. By educating the staff discharge air reset and chilled water this seven-year-old building in the fall about the system, they helped insti- supply reset. The culture of efficiency Bu t of 2009, and for the following year, tute ongoing changes. led to the staff engagement, which en focused their attention on educat- Krejci describes how the operators in turn led to the projects that would ici

ff ing the existing onsite team that they can see in real time how the adjust- yield the best results. inherited, in addition to fully retro- ments they make to temperature Not all of the projects they wanted commissioning the building systems. or airflow “impact the overall con- to do had short payback periods, but

nergy E No significant investments in new sumption for the central plant ... and they knew that everything would

r E equipment or technology were made that has tremendously increased the ultimately improve building perfor- o for that period. The table indicates operator awareness of energy.” mance. One strategy they used was e f the results they were able to achieve, They have seen significant energy to combine all the projects together, as

C just by optimizing the current build- cost savings, but the most sur- which allowed the overall payback to ss ing systems. They reduced their kWh prising benefit is that by improv- be sufficiently strong to convince the ne use by 23.5%. Even on a modern ing the air supply to the building, building owner to invest in the proj- si building with good systems, close they also improved tenant satisfac- ect as a whole. Bu attention to building operations can tion. Before the air system opera- An unexpected factor that yield extraordinary benefits. And it tion improvement, they received improved their energy performance is noteworthy that all of these were 20 to 30 calls a month about tenant is that the outside air optimization achieved without any compromises comfort, but since it has been com- and reset program allowed them to to tenant comfort. pleted, they typically only receive shut the central plant down for the Now that building operations have about one or two. Krejci points out large majority of cold days (temper- been tightened, they are consider- that not only are the tenants happier, atures in the high 30s) because they ing investment in technology. Grif- but the reduced call volume “frees up could cool the chilled water loop by fin reports that they are putting in the engineers who had to run those using the cold outside air. n motion sensors where practical and temperature complaints to do other flush valves in the restrooms. They things.” have added variable frequency drives to the lobby fans and are considering adding drives to other equipment as well. With these upgrades, they expect reductions in energy use to continue.

SmartMarket Reports McGraw-Hill Construction 54 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation

continued A northeastern northeastern Wisconsin, western across ties in 19patients coun serves system N and Health & Public cine ity. prior top a reduction energy made at a rate of $350,000 each year. nessed its energy costs increasing I Priority Key a as Reduction Energy Sees Leadership energy use and emissions. A emissions. and use energy 11 years. 11 years. past the for hospitals of percentile fifth top the in being as recognized nationally is and Minnesota ern of sity Wisconsin in tered healthcare system headquar integrated not-for-profit, cian-led, become critically important. solutions to rising energy costs has energy costs annually, so finding spending more than $5 billion on management. circulation, air cooling and waste commitments on air filtration and open 24 hours a day and have extra mercial com building, because they are similar-sized a as energy much hospitals use about 2.5 times as ing to the Clinical Campus for Campus the Clinical Western designated the as well as center emergency and trauma I ical Center, which is a is which Center, ical T 325-bed a and tions n 2007, G 2007, n t comprises of t 41comprises clinic loca ursing. ursing. T G U his integrated healthcare undersen undersen nder the guidance and vision of L undersen L undersen U a Crosse, Wisconsin. Wisconsin. a Crosse, tionally larger amount of of amount larger tionally propor a for account and healthcare facilities s a sector, hospitals . S Conserving Conserving Energy at a Major Healthcare . D U Facility and Reaping Financial Rewards I L owa and southeast epartment of utheran is utheran a physi . S . hospitals are Strategie S chool of chool Medi utheran wit utheran ertiary Med ertiary L evel evel U S niver chool of of chool ccord E II - - nergy, T s - - hat and A and - - - Construction McGraw-Hill ------ctivitie its C tal program, called L for healthcare providers nationwide. T creating clean, renewable energy. through energy conservation and by fuel energy it consumes by 2014 Its goal is to offset 100% of the fossil hedging against rising energy costs. cost of healthcare to its patients by its community as well as reduce the improve air quality and the health of program are: program utheran established its environmen he program can serve as a model " • • • • T stats T VFD Drives, Auto Blowdown VFD Drives,

(exhaust fans and (exhaust air handlers) Condenser Water Feed Acid Condenser Optimization Chiller/Tower Removable Insulation on Program of of Computers Reducing Station for HP Boilers, New Chiller Fittings, Valves, Unions, Etc. Valves, Unions, Fittings, Nightwatchment Software System Lighting Energy-Efficient New Boiler Controls, Boiler Economizers, Zone Scheduling Traps Steam

Gundersen Lutheran he he key elements of the Recycling Sustainable design of new design Sustainable control and management Waste including Energy management, facilities renewable energy and efficiency energy both EO E , Jeff nvision program aims to s for E for —Auto Turn-Off T hompson,

nergy Saving nergy 55

E nvision.

www.construction.com G undersen E nvision s

cro - ss energy conservation measures that cal engineering helped chemi in them tackle background Zarecki’s engineering and his colleague Corey Jeff’s background in mechanical and began seeing paybacks quickly. commissioning process in May 2008 T Achieved in Stages in Achieved Savings Cost and Energy equipment. existing of use the mizing opti by as such use, energy reduce tunities, including low-cost ways to many oppor energy conservation helped audit in sen who was before hired right projects and efficiency improvement, R T Ret 1: Stage $250,000 $237,000 $1,615,000 $130,000 $230,000 $285,000 $17,000 $77,000 $88,000 Cost he health system started the retro the started system health he he ich, the executive director of major the H the L E

r utheran conducted its energy nvision program is led by Jeff ocommi R F

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s pital $70,000 $87,000 $265,000 $39,000 $42,000 $69,000 $26,000 $91,000 $65,000 Savings Annual ss ioning SmartMarket Reports SmartMarket

T he audit 3.6 2.7 6.1 3.3 5.5 4.1 0.7 0.8 1.4 Payback (years) G

under case study case - - - - -

Gundersen Lutheran Strategies and Activities for Energy Savings Across the Hospital case study continued

use so that equipment does not have to run unless it is needed. This improvement led to savings of more than $90,000 enovation per year.

• Addressing computers. Gundersen Lutheran Health System has more than etrofit and R 8,500 computers within its organization. Many of those computers were left on 24 hours a day, seven days a week, leading to a large draw on energy and higher ient Building R c energy costs. Gundersen ffi Lutheran’s information systems department teamed up with As part of Gundersen Lutheran’s retrocommissioning process, changes were made the efficiency improvement nergy E to the chiller’s system programs to optimize cooling tower fan utilization with the team to come up with a chiller compressor. solution that will save the organization approximately they considered the low-hanging using two high-pressure $40,000 in energy costs when fruit. boilers, which were already fully implemented. The project running to sterilize equipment. Stage 2: Prioritizing involves the installation of The adjustment is saving the Efforts to Achieve Nightwatchman software health system $69,000 per year. Business Case for E Results on all of the health system’s Using a Six Sigma approach, they computers. The software allows • Adding acid feed to improve prioritized projects based on pay- unused computers that have efficiency. Chillers used to cool back time and impact. As a result, been left on to be automatically campus buildings were hampered they achieved significant success.I n turned off at a set time each by buildup of calcium carbonate in the first eight months of the program, night. their copper tubing. The calcium they reduced energy consumption by carbonate, which comes from the 10%. By the end of the next year, they Stage 3: Identifying hard water supply, impedes heat were able to get it down to 25%. Larger Opportunities and transfer, increasing the amount of According to Rich, “Most of these Investments work the chiller motors must do. initial projects had a less than two- The retrocommissioning process The addition of an acid feed has year payback period and were con- also revealed projects Gundersen saved the health system more sidered a better investment than Lutheran could undertake that would than $25,000 annually. some other things that we could require more significant investment have been doing with our capital.” but would provide a greater savings • Adding controls to the As a result, these activities comprise over time. exhaust fans used to ventilate approximately 40% of their projects. One example was a comprehen- laboratories and pharmacies. sive lighting retrofit of the hospi- Key Activity Examples By adding these controls, tal and all the clinics, in which the • Switching from using three Gundersen was able to healthcare system switched to high- low-pressure boilers to create schedule their exhaust fan efficiency fluorescent lamps (from steam to heat buildings to

Gundersen Lutheran Gundersen continued

SmartMarket Reports McGraw-Hill Construction 56 www.construction.com Gundersen Lutheran Strategies and Activities for Energy Savings Across the Hospital case study continued

T-12 tubes to T-8) and ballasts. The kWh–75,000 kWh annually, two wind a $5 million energy bill across their new equipment will save Gunder- energy projects that will generate system and it was increasing at a rate sen Lutheran $250,000 per year in 15,000,000 and 13,000,000 kWh, of about $350,000 a year, even at the reduced energy costs. Because the and a landfill gas project that will status quo level. Even though this is enovation lighting retrofit will cost more than $1 offset 100% of Gundersen Lutheran’s 1% of their operating budget, it is still million, it will take nearly six years for Onalaska campus energy needs. $5 million dollars and they are only a the health system to recover its initial 3% or 4% margin business. investment. A Self-Financed These types of projects are what Approach Being Flexible Is a etrofit and R Rich refers to as competitive capi- The majority of Gundersen Luther- Key Part of Success tal projects, which typically have a an’s energy plan has been self- Gundersen Lutheran has moved three-to-five-year payback period and financed.I t has invested roughly quickly to establish an energy effi- make up 40% of their projects. “These $5 million in efforts to upgrade its ciency program. Less than a year projects had to go head-to-head up existing equipment or make it more after conducting its initial energy ient Building R against some of the other needs of efficient and to build the system’s audit, the health system committed c

ffi the organization, and many times we renewable energy projects. Its strat- to spending $5 million on equipment were able to qualify for Wisconsin egy is to use savings from no- and to make its operations more efficient Focus on Energy grants” says Rich. low-cost energy reduction efforts to and to invest in renewable energy.

nergy E invest in energy renewal programs, The health system’s plans have Beyond Efficiency: that have a longer payback period. changed frequently as the energy Using Renewable Energy Gundersen has received support efficiency team has discovered new to Help Achieve from the state of Wisconsin’s Focus technologies with faster paybacks. Carbon Neutrality on Energy program, which was set Because energy technology is rapidly Gundersen Lutheran has a goal of up to assist energy efficiency efforts evolving, such programs require flex- offsetting 100% of the fossil fuel it for businesses and residents. That ibility. They may also require a will- consumes by 2014. To achieve this program typically covers 10% of ingness to pursue partnerships to Business Case for E goal, it plans to develop partnerships projects costs. produce renewable energy. with municipalities, utility companies To other healthcare institutions and businesses to utilize available Measurement Is seeking to reduce their energy renewable-power opportunities. Helping the Program use, Rich recommends just getting Currently Gundersen Lutheran Achieve Its Goals started. Rich claims, “We’re not is engaged in a combined heat and In order to measure and track their perfect, and we have a lot of things power (CHP) project that uses waste energy consumption and savings, we’ve done, but we have a lot of biogas discharged from the La Rich and his team went back and col- things that we can improve on. Crosse City Brewery and turns it into lected all historical data from their But I would say, get started.” As electricity. utility bills, from all of their facilities. he did with Gundersen Lutheran, The project, which was powered It was a challenging process, but they Rich suggests first starting with the up in 2009, is generating three mil- were able to establish a baseline. gathering of utility bills, and then lion kWh per year, approximately 8% Using that baseline, Rich’s team iden- understanding where your company of the electricity used on Gundersen tified areas of opportunity and tar- is positioned. The next steps are Lutheran’s La Crosse and Onalaska gets, and since that time, they have to find a benchmark to establish campuses. measured their results on a monthly where your company should be, for Gundersen Lutheran’s other basis. the size of its building, and getting renewable projects include They have achieved a 25% energy an energy intensity benchmark. solar photovoltaic panels on efficiency improvement—equivalent Rich recommends the EPA Energy a LEED certified underground to $1.25 million annually in savings. Star website which has all this parking garage generating 50,000 When they started in 2007, they had information. n

McGraw-Hill Construction 57 www.construction.com SmartMarket Reports Business Case for Energy Efficient Building Retrofit and Renovation Sidebar Sidebar Data I the E the efficiency upgrades and achieved that underwent green and energy mercial buildings managed by CB 19 C Source: Occupancy Average Higher Have Star LEED and Buildings Energy as well as human that important tofactoroccupants. are benefits opportunities motivated by business also but are they costs, operational reducing and performance energy goal of improving primary the with upgrades efficiency energy and green in investing are owners Building of & LEED Buildings Office Energy StarCertified Labeled Comparative Market Value ( cation under the than their markets. had occupancy rates 2.15% higher the 4.74% higher than the market, while tified buildings had occupancy rates T rates. vacancy which has been plagued with high criti cally important rate, during this downturn, occupancy to regard with significantlybetter than the market Building: SmartMarket Reports Reports SmartMarket 86.17 only Star Energy E E B ichholtz, Kok and Quigley. Quigley. and Kok ichholtz, T O his group of buildings performed E D (CB Construction, CB n 2009 and 2010, Mc 2010, and 2009 n nergy S nergy nergy &M) program. B Richard E Richard B iego ( iego % RE O ) and the peration and Maintenance USD S llis, 2010 llis, tar label and/or certifi and/or label tar tar D ) investigated com investigated ) L he LEED he oing Well By By Well oing LEED abeled buildings U : 84.04 LEED niversity of R for Retrofit andRetrofit Renovation Activities Energy-Efficient and of Green Benefits Business ichard D G oing Good? Green Green Good? oing E E raw-Hill raw-Hill B % xisting O &M cer &M E llis S RE O - an - Construction McGraw-Hill - ffice Buildings. American American Buildings. ffice - data in this section, see page 72. with a higher average rent of 7.38%. of rent average higher a with market with regard to rental rates, ings also performed better than the ings.find these confirms Quigley and Kok unrated building. unrated more than the value of a comparable a green building is about $5.5 million A are higher by approximately 16%. the sales prices of green buildings buildings without certification, and higher 3% per square foot than identical approximately are that rates green certificationcommands rental Market 82.27 lso, the study reports, the value of For the methodology behind the the behind methodology the For T A he LEED he recent 2010 study by T heir results demonstrate that % E conomic Review 100 ( 100 Review conomic E B O

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Market $ 27.22 continued - Business Case for Energy Efficient Building Retrofit and Renovation Sidebar Sidebar Data

E “Green Buildings and Productivity”. Vol. 1. Vol. Productivity”. and Buildings “Green ■ ■ 20 Kats, Gregory. Greening Greening Gregory. Kats, 20 from Green Upgrades Financial Benefits Expected occupancy and higher rental rates. ing build values, improved increased costs, operating investments in the form of decreased expect paybacks from their green financially lucrative properties and five years. including: have over conventional buildings, sev eral by advantages green buildings explained be can preference by consumers. are increasingly being preferred of the trend that green buildings ■ ■ E building: green of Value six. cost of green by a factor of four to paybacks exceed the additional is $5.79 per square foot, and the fits from atypical green building bene of value energy present 20-year the reports Kats ings. than efficient conventional build ing can be 25%–30% more energy health and well-being. and health considered, such as productivity, savings and other benefits are water and energy when foot present value of $24 per square tional buildings, conven but provide a than net more foot square per buildings cost on average $3–$9 Built World 2010 Kats’ Gregory T nergy sa hese 21 21

findings are indicative green buildings over of the last growth dramatic the for are one of the key reasons xpected financialbenefits O wners , he reports that green O v ur Bu ur T ings he r ilt World: World: ilt are interested in : eason for this ROI : Greening Our N Green build Green C Busi Retrofit andRetrofit Renovation Activities o 1.o F osts 20 , in all 2009. all , Benefits and Strategies. Strategies. and , Benefits

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■ ■ Triggers and Obstacles and Triggers worker productivity. healthcare claims, absenteeism or tracking other soft benefits, such as (36%), with negligible numbers turnover (43%) and customer loyalty related factors such as retention customer- and tracking often more Commercial property owners are types of benefitsbeing measured. T tenants to measure these factors. these measure to tenants cal over time for owners to work with rates. T rates. ten ants and at justifying retaining higher and rental attracting in able invalu be would information this space in their buildings. However, often have multiple firms leasing build ing owners to measure, since commercial they for hard extremely ■ ■ here is some variation in the T S and competitive advantage (72%). features are reduced energy (79%) causing owners to invest drivers in green primary the that show (see page 36). for executives across the industry rates are significantly higher than building upgrades. In fact, the as they relate to impacts of their of commercial building owners being tracked by a large portion ism and higher productivity, absentee are and costs healthcare business benefits,such as lower T oft benefits: oft benefits: riggers: hese soft benefits maybe herefore, it may become criti become may it herefore, The survey results results survey The : Human factor Retrofit andRetrofit Renovation Activities Energy-Efficient and of Green Benefits Business Owner Perspectives - - - Construction McGraw-Hill - - ■ Increase in Energy Prices Energy in Increase Savings Expense Operating Green Features from Advantage Competitive Needsin Building Reduction Energy Source: ( Major Triggers to Work Renovation Green Source: Source: of Upgrades to Buildings Benefits Soft Measuring in Engaged Commercial Building Owners McGraw-Hill C McGraw-Hill McGraw-Hill C McGraw-Hill A ■ O green. see any obstacles to investing in more than half of all owners do not green building retrofits. However, invest ment is a challenge to initial investing high in that cite owners ccording to Building O Building to ccording bstacles: The Business Benefits ofGreen Building The Business Benefits ofGreen Building 43 onstruction/ C onstruction/ onstruction/ C onstruction/ YES

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■ ■ ■ ■ ■ different agents. managers are influenced by several I Influence Agents low levels. as higher firstcosts, but at relatively renovation of existing buildings, such sev eral obstacles to green report retrofit and also managers Building cost savings. on energy, water and operational primarily motivated by factors based Commercial building managers are Obstacles and Triggers n their green decisions, building ■ ■ ■ ■ ■ LEED Managem Ow O T investment. age increased energy encour efficiency to entry of point unique service leaders, they may pose a to engage in. For technology and decisions about what activities influenced by LEEDconsultants 72% of building managers are market. market. theretrofit make influence will commitments that these firms building managers. As a result, (85%) have strong influences upon Property management companies ultimately pay for green upgrades. since commercial building owners influential. Thisis notsurprising owners, and 87% findbuilding them by very influenced are ers riggers bstacles ners:

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T concerning concerning green upgrades. and ability to be more influential and give tenant firms the incentive and submetering can change this upgrades. Green lease provisions direct financial benefits of green that many of them receive fewer of tenants may be due to the fact influential. The weak influence though only 13% tenants, find themby very influenced are ers Influential ccording ccording to Building Managers) enants: The Business Benefits ofGreen Building 87% 2% 2% onstruction/ C onstruction/

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Tenant Perspectives

Importance of Green Office for Tenants

n today’s down economy, tenant Source: The Business Benefits of Green Building SmartMarket Report, McGraw-Hill Construction/ CB Richard Ellis, 2010. firms in commercial office buildings have more selection of ■ Agree ■ Strongly Agree space to lease, and therefore can enovation Green Office Creates a Good Public Image Ihave greater influence on features of 42% 20% 62% that office space.F or owners looking to attract new tenants, and at higher Important for Employees to Work in a Green Office than market value, having buildings 46% 15% 61% that differentiate them in the market etrofit and R is critical. Green Office Creates Favorable Client Impression 40% 19% Below are some key influence fac- 59% tors for tenants, and the advantages Green Office Attracts Prospective Employees they see with regard to green build- 26% 8% 34% ing upgrades. ient Building R c

ffi Key Findings from Tenant Firm Data Benefits: Importance of ■■Attracting Employees: ■■Tenants find that a green office nergy E Green Buildings There are a relatively small creates a good public image and number of tenant firms that a favorable client impression. ■■Company Public Image: place importance on using green Owners can attract more tenants Factors around company to attract new employees as by marketing these benefits of image—both internally and compared to the other factors. The green buildings. externally—were of the highest current economic downturn may ■■Tenant firms report better levels of importance to tenant explain why this measure was employee health and increased firms. Therefore, in influencing selected by fewer firms than the Business Case for E productivity as a result of green tenant companies, emphasis on other three. Employees may be features. Employers can save on these factors will be of utmost less inclined to insist on working healthcare costs by investing in importance. in a green office in a difficult job green. market.

■■Green features are influencing tenant leasing decisions. Owners can capitalize on this trend by investing in these green features.

continued

SmartMarket Reports McGraw-Hill Construction 64 www.construction.com Business Case for Energy Efficient Building Retrofit and Renovation Sidebar Sidebar Data

■ ■ ■ employees. sig nificant healthcarecosts for their incurring are who employers for have significant financial rewards ductivity and satisfaction—that pro can employee improved as such bui A Upgrades Energy-Efficient and Green from Impacts Business Benefits: ■ ■ ■ s mentioned previously, green L Hig P “soft” benefits. measurement challenge for these an increase, again pointing to a that they state do 34% not know if while there was features, green result of working in a building with tivity of their employees as a report an increase in the produc F L critical factors in their leasing decisions. leasing their in factors critical environment and daylighting are tenants. In particular, healthy are looking to attract and retain ical crit finding for owners as they decisions—a leasing during play an important role for tenants that impact productivity also workforce. a more satisfied and productive employers (the tenant firms) have place, and therefore, make their in the work happier make people ing, daylight temperature). These factors all airflow, (better comfort impacted by factors around an increase in productivity are ldings can provide soft benefits— soft provide can ldings easing easing actors: roducti e v h els: els: er er P 10% of tenant firms D roduc Tenants that report report that Tenants v ecis ity ity ions: ions: Im : ti pro v Busi Retrofit andRetrofit Renovation Activities Tenants Perspectives ity ity Factors v e ness Benefits of Green and Energy-Efficient Energy-Efficient and of Green Benefits ness m - ent ent - McGr - - - - aw-Hill Construction aw-Hill Source: Source: McGraw-Hill McGraw-Hill Green Cleaning Fixtures and Practices Water-Efficient of Commitment Building Management to Sustainability Convenient Access to Public Transportation Energy-Efficient Practices and Products Electricity Conserve to Sensors and Controls Lighting Recycling Program andDaylight Views ■ Lease Existing Renewing or Lease New on Tenant Decision for Features Green of Importance Healthy Healthy Indoor Environment 30% 33% 32% 28% 33% 33% 27% 32% 24%

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help play a role in that. in role a play help productivity. occupant health and well-being and for a company to strive argument to improve compelling a is there are a company’s largest expense, healthcare and other workforce costs productivity. Considering that can positively impact occupant Better lighting and air quality also Impacts satisfaction. are among the top causes of worker important by most occupants and indoor air quality, are considered increased as daylighting such and improved well-being, and health G Factors Motivation and of their employers (tenant firms). and (tenant of their employers lation between attitudes of workers corre a direct demonstrating sions, firmsdeci in tenant theirleasing reen features that benefit occupant T his is reflected in motives for for motives in reflected is his G reen upgrades can : Retrofit andRetrofit Renovation Activities Energy-Efficient and of Green Benefits Business Occupant Perspectives - Construction McGraw-Hill - ■ ■ ■ ■ Ov P faction: were systems related and likely not as noticeable likely to and tenants. related systems were some of the upgrades undertaken share of neutral responses is that O 54% satisfied and36% neutral. after building upgrades—with reported higher satisfaction rates labeled and/or in buildings that are tion ofrenova their and building. retrofit green a after pants report productivity increases productivity increases. firms report—with 10% expecting is a bit higher than what tenant late with higher levels. satisfaction corre to has shown been directly upgrades by building managers the level of communication about roducti nly reason reason for the large erall B erall

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A F significantportion of eature LEED

LEED buildings may find E buildings are SmartMarket Reports SmartMarket S nergy atisfac S tar - - Mesa County Valley School District 51 Business Case for Energy Efficient Building Retrofit and Renovation case study M 3,200 employees. and Provo, largest employer between more than 20,000 students. facilities. campuses and four administration Colorado, and includes 43 school E partner with the I Benchmarking and Star Energy Step: First The increased. to repair as the frequency of difficult failures and expensive ingly T systems in its numerous schools. T Opportunity The performance. improvement of its facilities’ energy the environment through continuous fundamental commitment to protect County the classrooms. lighting and no exterior windows in structed in con the 1980s, been with had inefficient buildings the of Many costs along with declining budgets. increasing energy and operating improvement. ones that needed considerable that it also had many very inefficient good, energy-efficient buildings, but district realized T that it had some efforts. efficiency of baseline for measuring future results of all use its schools and established energy a evaluated district SmartMarket Reports Reports SmartMarket n 2007, the school district decided to nergy S nergy he systems were becoming increas becoming were systems he he school district was facing aging L T ike many school systems, Mesa hrough the program, the school V tar program, making a a making program, tar alley T he school district serves U tah, with more than S miles of Mesa County, covers 2,200 square esa County S chool chool U Public Schools through Performance . S Upgrades and Contracting with Existing Budgets . government’s D D he school school he istrict 51 istrict faced Mesa CountyMesa Valley School51, District Colorado Improving Energy Efficiency in V D alley It is the enver Construction McGraw-Hill - - A ctivities capital. eliminating the need for up-front period of many years, reducing or facilities operating budget over a essentially would come out of the was attractive because the funding contracting, performance which district explored the possibility of and staff to learn and work. and learn to staff and creates a Lighting optimization more for pleasant environment teacherts students, reserves. school district was lacking capital hit hard by the recession, and the A Solution Investment Contracting: Performance Energy through the steps of finding and set up. performance contracting program nor’s t that time, Mesa County had been T hey consulted with the G the with consulted hey “ provides us a way to make those improvements. those make to way a us provides those projects. Energy performance contracting E with energy-efficient alternatives can generate big savings, but we lack the capital funds to do do to funds capital the lack we but savings, big Replacing Replacing aging lighting, heating, and cooling nergy T he program helped them A A chieving chieving s a result, the school O ffice,which had a

Efficiencies and www.construction.com over - to 20-year time frame investments that would fit into a 15- work that would be good payback then developed the three phases of the school district needed to borrow, of work and determined how much district’s energy efficiency efforts. was the major component of the handle the lighting retrofit,which F T relationship, as a primary contractor. school district already had a working company ( company a large international energy service technical energy audit. contract and beginning the formal choosing a vendor, setting up the rane brought in inancial Cost T T rane also developed the scope scope the developed also rane he school district selected S avings E ES nergy Management to C O ) with which the the which with ) D enver-based T rane, c ” ontinue d Mesa County Valley School District 51, Colorado d UPGRADES AND ACTIVITIES ACHIEVING EFFICIENCIES AND COST SAVINGS

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The Results: Energy Efficiency stats Lighting and Mechanical Improvements Financed Number of Schools Retrofits Lead to by Performance 45 Significant Benefits Contracting Number of Students enovation 20,000 The lighting retrofit involved all the By using performance contract- Number of Buildings school district’s buildings, with a ing, the school district did not need 79 total of about 3 million square feet, to provide any up-front financing. Square Feet of Building Space and accounted for about two thirds of The contractors arrange the financ- 3 million the total project cost. Improvements ing and will be paid gradually from etrofit and R ESCO were made even to buildings that had the energy and operational savings. Trane Corporation seen lighting equipment upgrades as The school district is guaranteed a Energy Consultant recently as four or five years ago. minimum level of energy savings Financial Energy Management For example, many buildings had ($283,000 per year) and a positive Total Project Costs recently replaced old T-12 fluorescent cash flow through this arrangement. $10,000,000 ient Building R tubes with more efficientT -8 tubes The entire retrofit will be paid for out c Payback

ffi and had replaced metal halide of the school district’s facilities oper- 10 years lighting with fluorescents. In the ations budget, and no capital funds past five years, further upgrades will be needed. Annual Electric kWh District-Wide Savings nergy E such as installing optical controls Eric Anderson, resource conserva- 6,367,000 kWh and electronic ballasts have become tion manger for Mesa County Valley Annual Natural Gas District- more cost-effective, increasing School District 51, recommends Wide savings energy savings even more. energy performance contracting as 15,359 DTH The mechanical and lighting ret- a great way to finance energy effi- Total Guaranteed Annual rofit results are expected to provide ciency improvements at other K‑12 Savings electricity savings of over 6.3 mil- school districts as well. He states, $732,828 lion kWh per year. The total cost of “Replacing aging lighting, heating, Business Case for E Xcel Energy Custom Rebate the project will be approximately cooling and controls with energy- for Phase I lighting Retrofits $10 million for lighting and mechan- efficient alternatives can generate (September 2010) ical combined, and it is projected to big savings, but we lack the capital $804,000 save a total of $732,828 per year in funds to do those projects. Energy Xcel Energy Custom Rebate energy and maintenance costs. With performance contracting provides us for Phase II and III (Expected) utility rebates, the payback time will with a way to make those improve- $500,000 be approximately 10 years for the ments with money we would oth- ENERGY STAR Program mechanical and lighting retrofits erwise be spending on high utility Partnership combined. bills.” Since September 2007 The school district also opted In fact, schools are one of the sec- ENERGY STAR Portfolio Man- for the utility provider Xcel Energy’s tors suited to performance contracts ager (PM) Score (District-Wide) self-directed energy efficiency as long-term owners and occupiers 86 out of 100 incentive program, which provides (see sidebar on ESCOs on page 22). Adjusted PM Energy Use a reward for total energy saved. Even though there are slight risks Reduction through Dec. 2010 This self-directed approach is more involved—for example, if the energy 30% involved but also more lucrative. savings does not pan out in the end— Adjusted PM Energy Use For this project, the school district Anderson states that most schools Reduction by End of Phase II benefited from a rebate of $804,000. have similar kinds of buildings with and III (Expected) 45%—50% similar kinds of challenges and can replicate the success other schools Energy Star Buildings 24 have achieved. n

McGraw-Hill Construction 69 www.construction.com SmartMarket Reports Photo by Kathreen Fontecha/California Lighting Technology Center UC Davis Business Case for Energy Efficient Building Retrofit and Renovation case study I metric metric tons.” G cost avoidance of $21 million and a by the end of 2010, including “a gross pro the gram achieved about 70% of university, its goal the at utilities and U line measure. base the as 2000 year the using con sumption by 10% energy or more by 2014, system-wide reduce to system. projects across the university implement cutting edge technology. The at lighting in UCthe structures parking to Davis an provided opportunity of part the university’s T Sustainability Driving Students these demands. these to response one as formed was room. in a students class educating beyond responsibilities social had university the that insisted who students, from demands to a response as 2007 in created was which Policy, Practices able SmartMarket Reports Reports SmartMarket he energy efficiency program is program efficiency energy he lden, associate director of energy H G passing 900 energy efficiency encom plan energy strategic fornia initiated a $280 million n 2008, the n 2008, emission reduction of 93,000 T T he strategic energy plan plan energy strategic he he goal of the program is A niversity of Cali University ccording to En e Using Paybacks to Fund Energy rgy Effici rgy Efficiency inHigher Education S ustain D irk van ------Construction McGraw-Hill e - ncy Programs S Programs ncy mined that the bond debt service for the would work, guarantee that this financing model gen erated by the projects. savings the from repaid loan the to pay for the improvements, with this case, $280 million was borrowed was predicated on an initial loan. be a “self-funding effort”, though it ment that the strategic energy plan T Investment Ongoing and Initial Enabled Program Self-Funding frame. time a reasonable in returns maximum deliver to ability a project’s on based activities 900 on settled ultimately team the projects, 3,000 A van to according cient,” to make them systems more effi some rebuild maybe and energy conserve to opportunities for ing “roamed look all the campuses, who individuals key the were tors Contractors and subcontrac Efficiency Activities to Identify Energy Contractors Using University of California he he fter originally recommending recommending originally fter niversity set up set the require University

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m-Wid I n order to www.construction.com U lden. lden. e and at U at and - - - I n - - - C and five medicalcenters that gaining buy-in from all 10 campuses faced, according to van O a System-Wide Approach of Taking Challenge The across the board. create a uniform incentive program sys the tem-wide effort meantbut they could projects, efficiency on with individual campuses in the past with the utilities. aggressive goals create is to its relationship university the allowed A Activities System-Wide Leveraging by Utilities with Partnerships Strategic more than $85.” than more we saved, the project could not cost U 85% of the avoided energy costs. individual projects could not exceed reducing their overall cost. reducing debt incurred by the initial projects, help enable quicker payback of the normal customers.” 60% above “50%– what is they would that give saved kWh per amount proj ect allowed each the utilities for to offer an process application for the university. and increased the incentive structure administrative costs for the utilities described by van for limited fiscal resources. competing with any other program necessary improvements without money at a low rate and make the capitalize on their ability to borrow tion. adop its for critical was funding D nother critical component that lden explains: “ ne of the challenges the program T T avis C avis he advantages to this approach, he fact that the project is self- is project the that fact he T he U am C campuses were able to pu s U F U T or every $100 that tilities had worked lden, lowered he standardized T hese savings U lden, was - - c V on - an t in ue d University of California d ue in Energy Efficiency Programs System-Wide and at UC Davis Campus t case studyon c

comprise the UC system. Each has UC Davis has taken the lead on University of California stats a unique identity as an institution, these projects. The campus’ Cali- Statewide Energy Partnership and they typically operate autono- fornia Lighting Technology Center UC System mously. In addition, some campuses helped UC Davis achieve the aggres- enovation 10 campuses and 5 medical were concerned about the impact sive goal of reducing the energy used centers of the project on their debt ceiling. for lighting by 60% over the next five Total Building Square Feet However, because their campuses years—resulting in 32 million kWh Approximately 10 million would accrue the 15% cost savings per year and over $3 million in sav- Cost of Energy Efficiency exceeding the cost of investment, it ings, and a carbon footprint reduc- etrofit and R Improvement was easier to persuade them to get tion of approximately 6.5%. The cost $80 million as of 12/31/2010 involved. of $39 million requires a longer pay- Project Start Date Before the system-wide strate- back than most of the UC efficiency 1/1/2009 gic energy plan was introduced, projects, approximately 15 years, but Project Completion Date the UC Davis campus already had will help demonstrate the efficacy of In progress ient Building R energy efficiency initiatives in place the new technologies. c Scope of Improvements

ffi to exceed efficiency code require- One lighting project they pursued Lighting, HVAC control upgrades, ments by at least 25%. Therefore, with unexpected benefits was to refit motor, chiller and boiler replacements they were engaged by the program their parking garages with bi-level Products and Technologies nergy E from the start, but they still found lighting that gauges the occupancy T-8 fluorescent lighting (latest significant advantages in participat- in the building and reduces light- generation), LED and induction ing in the system-wide approach. For ing in an unoccupied garage to 50%. lighting, demand control in lab- example, Sid England, assistant vice The technology also proved to be an oraties, CAV to VAV conversions, chancellor for UC Davis, states that unexpected security asset. Accord- central plant upgrades the emphasis on a reduced carbon ing to England, “If there’s anybody in Process Improvements footprint, rather than just operating the parking structure moving around, Increased building occupant awareness, automated control sys- cost savings, came largely from this the lights start popping up.” Business Case for E tems, continuous commissioning initiative. Cost Reductions and Paybacks Efficiency Projects with (as of December 2010) Implementing New the Greatest Return Energy savings (cost): 7% Since the strategic energy plan has Technologies Energy Use Reductions: The program helped the University been implemented, certain technolo- 155 million kWhs and 8 million therms system achieve goals beyond reduc- gies and systems have emerged that Energy Savings (Use): 8% ing its operating costs and carbon offer high returns for investment. The Payback: Less than 7 years footprint. Van Ulden also believes university reports that HVAC systems that the university can help lead and retrocommissioning are the UC Davis Campus market transformation through their efforts that yield the greatest returns, Investment $44,000,000 implementation of new technologies with paybacks in retrocommission- in the commercial buildings sector. ing in one to three years. Partnership Incentive In order to meet the stringent In particular, van Ulden cites proj- $10,145,965 requirements for payback on invest- ects that improve the energy perfor- Cost Reductions and Paybacks ment, van Ulden says that their strat- mance of laboratories as having the kWh Savings: 34,846,232 egy is to consider the overall payback greatest impact, since laboratories Therm Savings: 2,364,940 of a combination of projects, with are such intensive energy users. n Energy Savings (Use): 18% advanced technologies considered kWh Savings: $2,981.830 along with “very cost-effective pro- Therm Savings: $2,152,832 grams” to achieve the 85% avoided Payback: 6.7 years energy costs.

McGraw-Hill Construction 71 www.construction.com SmartMarket Reports Business Case for Energy Efficient Building Retrofit and Renovation Methodology ity ity activ represented in this market section. of analysis the of all for cal purposes, and they form the basis 1967. T 1967. base of start projects goes back to haveconstruction. started D mation on a monthly basis from the I 16–39): (pages II Section Data Mc the from com piled were activity market renovation T 10–15): (pages I Data Section research conducted in Report, the D Construction this pool of projects, MHC draws the tial, residential, nonresiden nonbuilding). (e.g., types project all 700,000 reports annually, covering work, MHC publishes approximately T projects. tion (MHC) database of construction executives (e.g., C of the respondents were C-level energy and natural resources. 78% retail, real estate, insurance, construction, computer technology, manufacturing, pharmaceutical, a diverse range of sectors, including equities market. over 75% of the then $36 trillion million and above, which represent firmswith annual revenues of$250 203 corporate executives from March 2009. corporate sustainability. corporate investigated the broad patterns of corporate sustainability. holding responsibility in the area of remaining 22% were respondents SmartMarket Reports Reports SmartMarket n 2009, he data used to track the retrofit and atabase, which pulls project infor project pulls which atabase, odge Greening of Corporate America America Corporate of Greening hese data are used for analyti for used are data hese N which featured market S etwork data on projects that iemens and MHC published hrough the D the hrough R A espondents included ctivity ctivity T G hese firms include EO raw-Hill Construc raw-Hill , C S F

ervice (C FO odge N odge ebruary and T he survey ) and the T his data F rom et U AS - - . S - Construction McGraw-Hill ) . - - - - - ducted using data collected from 2009 from to 2010. collected data using ducted A (pages 58–67): 58–67): (pages Data Sidebar efficiency activities in particular. A upper management in corporate ior, behav opinions and assess perceptions to among study this con ducted MHC report. this in analyzed and con ducted in survey research new a for basis following criteria. following corporate officers had to meet the level or higher). (over 50% were at the vice president and 70 general corporate contacts tacted, con with 50 sustainability were officers managers high-level and nalysis in this section was con was section this in nalysis merica of sustainability and energy • • • T A T o be an eligible respondent, the he same sample formed the Company Company revenues of at least One One of the following roles: C-level Responsibility in Responsibility at least one of the sample of 120 corporate officers $250 million $250 in 2010 manager or business unit, or a supervising director of a division department or business unit, vice-president, or head of division department following following areas: activities stewardship, or philanthropic governance, corporate ethics, 4. Promoting the company’s initiatives sustainability measures and for performance 3. benchmarks Establishing initiatives sustainability getting financing forcorporate 2. Setting budgets and practices productsand energy-efficient 1. and Selecting installing more : D ecember 2010 presented S ome of these data

www.construction.com - - - - - ing buildings. energy efficiency upgrades to exist the business case for investing in try understand—and help indus influence— the help to way a as data these in this study aggregate and analyze Market Report Green RetrofitandSmart Renovation Building SmartMarket Report E tigated the impacts perceived in 150 S survey conducted from July through featured some results of a market Building SmartMarket Report the lished Report 2009 Greening of Corporate America ent forms in the following studies: were previously released in differ green areas. project that addressed at least two planned to complete a renovation years old and that had completed or in a building that was at least five they had owned or occupied space screened on the basis of whether ment bymanage CB under buildings certified partnership with CB with partnership nies. compa tenant and owners building interviewing the building managers, existing commercial buildings man aged by CB buildings commercial existing from a sample of 738 office and retail pleted the survey, which was drawn had conducted green retrofitscom 61 building owners and tenants who with building owners and tenants. con ducted from May through survey June 2009 market a of results some SmartMarket Report the S of versity nergy eptember 2010. T 2010. eptember I I n N n n Green Retrofit and Renovation October 2009, MHC published T ovember 2010, MHC pub MHC 2010, ovember he research was conducted in , S Business Benefits of Green tar labeled/ Business Benefits of Green an D an RE R ichard . . However, the results R iego. espondents were his research inves research his RE and the E LEED , which featured llis (CB

E B RE O , and , which &M &M ), - Uni ------Resources Organizations, websites and publications that can help you get smarter about energy efficiency and green building retrofit and renovation

McGraw-Hill Construction Main Website: construction.com, GreenSource: greensourcemag.com Research & Analytics: analytics.construction.com, Sweets: sweets.com Engineering News-Record: enr.com, Achitectural Record: archrecord.com Green Reports: construction.com/market_research

Federal Government Agencies and Programs • U.S. Department of Housing and Urban • U.S. Department of Energy (DOE): www.energy.gov Development (HUD): www.hud.gov • DOE, Office of Energy Efficiency and • HUD, Office of Environment and Energy: Renewable Energy: www.eere.energy.gov www.hud.gov/offices/cpd/ library/energy/index.cfm • Buildings Energy Databook: http://buildingsdatabook.eren.doe.gov • U.S. Department of Commerce: www.commerce.gov • U.S. Energy Information Administration: • U.S. Census Bureau: www.census.gov www.eia.doe.gov University Programs • U.S. Environmental Protection • Carnegie Mellon University, Center for Building Agency (EPA): www.epa.gov Performance and Diagnostics: • EPA Clean Energy Information: www.cmu.edu/architecture/research/ www.epa.gov/cleanenergy/index.html cbpd/absic-cbpd.html • EPA Energy Portal: www.epa.gov/energy • University of California, Berkeley, Center for the • National Plan for Energy Efficiency: Built Environment: www.cbe.berkeley.edu www.epa.gov/cleanenergy • University of San Diego: www.sandiego.edu • Energy Star: www.energystar.gov Nonprofit Organizations National Laboratories • Alliance to Save Energy: www.ase.org • Pacific Northwest National • American Council for an Energy-Efficient Laboratory: www.pnl.gov Economy: www.aceee.org/index.htm • Energy & Efficiency Division: • American Society of Heating, Refrigerating and www.energyandefficiency.pnl.gov Air-Conditioning Engineers: www.ashrae.org • National Renewable Energy • Building Performance Institute: www.bpi.org Laboratory: www.nrel.gov • Clinton Climate Initiative: • Lawrence Berkeley National www.clintonfoundation.org/what- Laboratory: www.lbl.gov we-do/clinton-climate-initiative • Environmental Energy Technologies • Database of State Initiatives for Renewables Division: www.eetd.lbl.gov/eetd.html and Efficiency: www.dsireusa.org • Ames Laboratory: www.ameslab.gov • Electric Power Research Institute: • Argonne National Laboratory: www.anl.gov http://my.epri.com/portal/server.pt • Brookhaven National Laboratory: • Energy and Environmental Building www.bnl.gov/world Alliance: www.eeba.org • Oak Ridge National Labratory: www.ornl.gov • National Association of Home Builders (NAHB): www.nahbgreen.org • National Energy Technology Laboratory: www.netl.doe.gov • NABH Research Center: www.nahbrc.org • National Institute of Standards and • National Association of State Energy Technology: www.nist.gov Officials: www.naseo.org • Savannah River National Labratory: • New Buildings Institute: www.newbuildings.org www.srnl.doe.gov • Pew Center on Global Climate Change, Energy White House Efficiency Resources: www.pewclimate.org/energy-efficiency • Energy & Environmental Issues: • Sustainable Buildings Industry www.whitehouse.gov/issues/ Council: www.sbicouncil.org energy-and-environment • U.S. Conference of Mayors, Climate Protection • Council on Environmental Quality: Center: www.usmayors.org/climateprotection www.whitehouse.gov/administration/eop/ceq • U.S. Green Building Council: www.usgbc.org ■ Design and Construction Intelligence SmartMarket Report www.construction.com

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