In my practice, the most difficult problem I face is the skepticism of property owners and managers when it comes to the savings potential of energy upgrades. I usually deal with fellow engineers and scientists who understand options, can assess benefits, and have confidence the technology will work. But the real estate community thinks differently, and, I’ve learned, greatly fears any perceived risk. Even if there is a tiny chance in their minds that a potential energy upgrade may fail, they will stick with the status quo.
Commercial energy efficiency upgrades, therefore, are low priority items. What factors hold the industry back from going forward on definitely beneficial, cost-saving projects?
As I mentioned above, building owners are skeptical that energy retrofits will deliver a strong return on investment in the field. Some worry that a new technology may work “in theory, but not in my building, with my tenants!” But in most cases it is simple math; a 9-watt LED replacing a 60-watt light will save in actuality the appropriate number of kWh.
Owners are also concerned that overworked staff cannot oversee equipment performance and determine whether an upgrade is really achieving optimum energy efficiency gains. Many building owners also believe that energy is a relatively small cost of their business compared to salaries, taxes, and infrastructure. And if you take proposed annual energy savings and divide that by 12 months and the number of tenants, energy cost savings may be small, in their eyes, relative to the rent collected.
It is even a cultural matter, as building staff tend to think it is OK to work longer hours to maintain older equipment until it practically breaks down, rather than upgrade early to save labor. Staff normally address day-to-day challenges rather than think long-term.
How can this be overcome? Some in the insurance industry now offer insurance to guarantee performance. For payment of a certain premium, a building owner will know that its building’s energy upgrades will meet a certain energy cost savings in the first year after being fully implemented. If the real cost savings is less than that guaranteed, then the insurance company will pay the difference. Thus, for a premium, this takes away any concern that a proposed upgrade will fail to meet its stated goals “on paper.”
A second issue is financing. Many real estate owners already borrow greatly just to afford the buildings they own, and may have trouble qualifying for further financing.
Property-assessed clean energy (PACE) and on-bill financing are existing options addressing financing. PACE loan repayment appears on one’s property tax assessment and, therefore, are considered a higher priority than a mortgage. On-bill financing programs allow repayment based on savings based on utility bills. Government incentives exist to allow institutions to issue financing at lower rates than conventional loans, particularly for small buildings or those owned by non-profits. Building owners can also take advantage of competition among financing firms, as the excellent return on investment of energy projects is well known and better assures a loan will be repaid.
Some energy service companies offer financing, such as a power purchase agreement (PPA). Real estate investment trusts (REITs) which own income-producing real estate can also provide energy-related financing.
Between lowered costs, low interest rate financing, existence of government incentives (which are likely to disappear), and improved technology there has truly never been a better time for a building owner or manager to invest in a smart energy upgrade. Believe it; it is real and will benefit you and your occupants greatly!
CCES has the experience to help your building upgrade your energy systems in a smart and reliable way, ensuring success and maximizing both cost reductions and other benefits. Contact us today at 914-584-6720 or at karell@CCESworld.com.