Page 8 - Zero Net Energy Case Study Buildings-Volume 3

ZERO NET ENERGY CASE STUDY BUILDINGS, VOL. 3
FOREWORD
(Opposite Page) View of en- trance to 435 Indio Way, Sunny- vale, CA, which is documented in Volume 2 of this series. This building demonstrates that high performance equates to higher market value, with the lease pre- mium commanded by this build- ing greatly exceeding the value of the energy cost savings.
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Zero Net Energy Case Study Buildings: Volume 3
der to meet the GHG challenge requires roughly 50% savings across the entire building stock: such projects, on average, will cost much more than what the energy cost savings alone will pay for.
Taking a high level view, energy bills are +/- $2 per square foot for the bulk of the commercial building stock (recognizing that there are plenty of outliers), and about half that for residential buildings. To get the 50% savings equates to a roughly $1 per square foot per year bill savings. With favorable assumptions, the math on this savings works out to a net present value (NPV) of about $15 per square foot (using modest interest rates and a 20 year project life). So, from this perspective, $15 per square foot becomes the available budget to work with—a little under $500,000 for a building like the aforementioned 435 Indio Way building in Sunnyvale, CA (docu- mented in Volume 2 of Zero Net Energy Case Study Buildings).
We should consider what this developer actually did to renovate the building and make money: instead of investing $500,000, this developer invested a total of about $3.5 million in the build- ing: about $1.6 million, or about $50 per square foot, represented the incremental cost of high performance and ZNE features. Why did it make sense to for this developer to spend triple the plausible value of the energy savings NPV?
It’s all about capturing the value stream: the high performance features make the building more healthy, more comfortable, more resilient—simply a better place to work. Accordingly, it com- mands a higher lease rate (and also, as the developer points out, is leased months more quickly than competing buildings). The lease premium commanded by this building is in the range of +/- $4 per square foot per year, dwarfing the value of the energy cost savings of $1 per square foot per year (although that $1 still counts!). Although there are no pro-forma line-item values for “more healthy, more comfortable, more resilient,” on a de facto basis, the market has spoken with respect to this building.
Of course, this model only “works” in competitive private commercial real estate. A school dis- trict, for example, cannot extract a “rent premium” from an individual school; generally, these value streams are not available to the many buildings in the public sector—but it does not mean these value streams do not exist. Similar challenges are present in residential market valuation and pricing. A challenge in the coming years will be around finding new methods to document, communicate and access these new value streams. We need better methods of capturing and assigning value to what are sometimes called “non-energy benefits.”
All of California. With the completion of this third volume of Zero Net Energy Case Study Build- ings, we have documented 17 non-residential projects across the state, from north to south, comprising coastal to valley climate zones. We have reported on public buildings, private build- ings, offices, research facilities, schools and universities, museums, libraries and other building types, seeking to broadly represent the commercial building stock, demonstrating ZNE feasibil- ity across it. Similar efforts are ongoing in residential markets.
Going forward, we recognize that despite the rapid growth and momentum of the ZNE market in California and elsewhere, ongoing efforts to build a capable building design and construction infrastructure will need to continue to ramp up. We are on track to meet the grid-side challenges associated with GHG reduction. As an industry, we need to continue to work on capturing and realizing the full value of high-performance, ultra-low emissions buildings—not just the energy cost savings, but the full value of the comfort, health and resilience of ZNE.
—Peter Turnbull, Principal, Commercial Buildings, Pacific Gas & Electric Company