Added Financial Benefits of Energy Efficient Building Upgrades

There are often overlooked financial benefits resulting from energy efficient building upgrades. Considering these upgrades are capital-intensive, recognizing, and accounting for these benefits play a key role in justifying the investment as well as securing favorable funding.

 “The average commercial building wastes 30% of the energy it consumes. American businesses spend over  $350 billion on energy costs to operate commercial and industrial facilities. These businesses would save approximately $35 billion with just a 10% improvement in energy efficiency.” EnergyStar.gov

Reducing the overall cost of energy is an important goal for commercial real estate (CRE) building owners. Reducing energy expenses increases net operating income (NOI) which drives property value and marketability.

However, there are other financial benefits resulting from multifaceted energy efficiency upgrades that are often overlooked. They potentially play a key role in not only justifying the required capital investment but in securing the necessary funding with uniquely favorable terms. These financial benefits include reduced end-of-life and maintenance costs, improved employee productivity and health, reduced contractor costs, increased tenant comfort and reduced lost production downtime costs. These benefits also drive NOI.

1. Reduced Equipment End-of-Life and Maintenance Costs–Choosing energy efficient products can not only reduce the cost of energy, but selecting those with longer operating lives and requiring less maintenance are important contributors to financially justifying the investment as well as increasing NOI. 
2. Improved Health and Productivity–In addition to reducing utility bills, energy efficiency upgrades- especially those associated with heating, ventilating, and air conditioning (HVAC)-as well as lighting, result in improved environments positively affecting employee health and productivity. In today’s COVID-19 world, HVAC systems play a critical role in controlling transmission of the virus. This is accomplished with optimal air exchanges as well as the use of germicidal ultraviolet lighting. LED lighting, which eliminates the annoying flicker and buzz of fluorescent lights, has been shown to improve employee health. And in manufacturing environments, the improved quality of LED light can improve productivity as well as reduce accidents and scrap rates.
3. Optimized Operations Reducing Support and Energy Costs–Many energy efficiency upgrades  include computer-based building management systems (BMS) that wirelessly control and monitor the building’s mechanical and electrical equipment such as ventilation, lighting, power systems, fire systems, and security systems. With this type of system, a building owner or property manager can reconfigure HVAC temperature set points, reschedule starts and shutdowns, change workspace lighting and make a myriad of other operational changes in the use of a building. In the past what would have required hiring several contractors can now be accomplished with a few clicks of a mouse. These systems also eliminate the “behavioral aspects” for controlling energy use. For example, it’s no longer necessary to remind people to turn off the lights. The resultant savings can be huge.
4. Increased Production-Outdated equipment can be prone to breakdowns. Production line losses can be monumental and dwarf the cost of repairing or replacing outdated equipment. In addition to energy savings, the increased production uptime of energy efficiency upgrades can be a major contributor to bottom line performance.
5. Tenant Comfort–Many energy efficiency upgrades include new HVAC and lighting systems. Research has shown that a comfortable, well-lit surrounding increases tenant comfort in addition to the improved productivity and safety aspects discussed earlier. A comfortable environment can drive occupancy and lease rates, key contributors to NOI performance impacting property values and marketability.

While a comprehensive, multifaceted approach may initially be financially prohibitive, a relatively new- and one of the more innovative financing options geared towards reducing wasted energy – is Property Assessed Clean Energy (PACE). PACE offers several advantages over traditional funding options. The loans are long term-usually 15 to 25 years-at fixed interest rates. Since the property secures the loans versus the owner, the loans are non-recourse. And they do not have to be paid off if the property is sold before the loan if fully repaid. The loan transfers seamlessly to the new owner. PACE loans can also be considered “off-balance-sheet.” By not being considered a long term liability on the owner’s balance sheet preserves their borrowing capacity for other projects.

Some PACE districts require the resultant project savings to be greater than the entire cost of the project including equipment, material, labor, engineering, audit, legal and financial. In these situations, it’s essential to include all the financial benefits discussed above. They can make or break qualifying for a PACE loan, as well as be a key determinant in securing traditional funding options.

There are many levels of savings and financial benefits possible through energy efficiency upgrades. The added benefits of upgrades can greatly increase the profitability, as well as property value and marketability, of commercial real estate. They help financially justify the capital-intensive investments required for these upgrades, as well secure the most favorable loan terms. 

Contact E3 Prime Environments at info@e3pe.com with any questions or requests for additional information.