How FM Can Benefit
from the U.S. Stimulus Package David Leathers Stephen Scaff
he national Science and Technology Council reports that commercial buildings account for more than 40 percent of total U.S. energy consumption—approximately one-third of the world’s energy. With energy costs continuing to skyrocket, this level of consumption poses a serious obstacle to the profitability of a building. However, the inception of new energy efficient technologies and practices offers an effective way to manage utility expenses. For facility stakeholders, the challenge lies in identifying and exploiting the available resources to assist in this venture.
Sustainable practice is key Undeniably, sustainable building practices are among the most important issues of the day. The Energy Efficiency Indicator, Johnson Controls Inc. and IFMA’s annual survey of North American business leaders, cites that interest in energy efficiency has increased by 70 percent over the course of the last year. As
energy and utility costs continue to rise and capital budgets continue to fall, this statistic is not surprising. For commercial buildings, energy is the single greatest operational expense within a facility manager’s control. Quite simply, by reducing energy consumption, a dramatic impact will be felt across a company’s bottom line. Failing to develop a comprehensive energy management strategy will equate to a drop in operating income, depreciated property value and reduced worker productivity. Facilities that do not adapt to green building strategies will be at a major disadvantage with their ENERGY STAR® and LEED® (Leadership in Energy and Environmental Design)certified counterparts. Green buildings command higher rents and sales prices; are more efficient and less costly to operate; provide healthier work environments; and appeal to growing numbers of tenants demanding green space and willing to pay a premium for it.
A building does not have to be new to be greenâ€”nor does it have to undergo a topto-bottom renovation to see substantial
Help is on the way A major component of The American Recovery and Reinvest Act of 2009 (ARRA) seeks to address this issue by allocated billions of dollars for energy efficiency projects. Several key funding opportunities exist for financing building retrofits, making the move to invest in such measures much more attractive. In the past, a facility manager might have been dissuaded from installing or upgrading to the most efficient systems
as a result of a lack in available capital. Now, the stimulus is laying out a comprehensive approach for facility managers to make the necessary changes that will foster significant energy and utility savings. The stimulus plan disperses funding to state and federal agencies by way of preexisting channels and programs. In terms of incentives available for energy efficiency and alternate or renewable energy projects, nearly US$17 billion has been appropriated to the U.S. Department of Energy (DOE). One DOE program of specific interest to building owners and facility managers includes the Energy Efficiency Block Grant Program (EECBG).
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But despite the many benefits that accompany better energy management, many building owners and facility managers have been slow to respond. Given the current economic downturn, facility managers are working with increasingly limited budgets, making the implementation of sustainable practices a hard sell. This barrier is largely due to a lack of informationâ€”as rudimentary, lowcost energy saving strategies are available, even for existing structures.
savings. However, a green retrofit can introduce many simple and cost effective upgrades that will have a serious impact on energy consumption and sustainability. Such techniques represent a practical method for facility managers to improve utility costs without causing much interruption to occupied workspaces. As existing buildings outnumber new ones by 100 to 1, retrofitting presents the greatest area for both economic and environmental revitalization. According to a recent MicKinsey Global Energy report, more than US$130 billion in energy saving opportunities go unrealized each year.
Specifically, the U.S. Environmental Protection Agency approximates that ENERGY STAR buildings use 40 percent less energy, have at least 2 percent greater occupancy, rent for US$2 per square foot more, and sell for premiums as high as 30 percent more than traditional buildings. While more impressively, LEED-certified buildings have US$11.24 per square foot in higher rents, 3.8 percent higher occupancy rates and sell for US$171 more per square foot.
In March 2009, the DOE announced that US$3.2 billion of economic stimulus will be available to states, cities and counties through the EECBG to support a variety of green initiatives. The purpose of the EECBG program is to assist in the creation and implementation of strategies that reduce energy consumption and fossil fuel emissions in a manner thatâ€™s both sustainable and viable. The DOE views such energy programs
Building owners and facility managers could contract an ESCO to partially or fully fund infrastructure improvements via a lease agreement with a third-party financial institution. Ideally, the costs incurred are realized through the energy and operational savings over a period of time. By employing this approach, facility managers can devise a thorough, cost-neutral energy management system while avoiding the potentially problematic first-cost expenditures. Additionally, the ESCO guarantees the cost
Performance contracting has been a successful approach for implementing energy efficient upgrades and retrofits in the public sector for more than 20 years. However, facility managers have only recently begun to view ESCOs as a viable solution for their utility and energy consumption concerns. The U.S. ESCO market has grown as a result of the ARRA and the U.S. government’s push toward energy conservation and efficiency. Stimulus objectives combined with soaring energy prices and aging infrastructures are cultivating an increased awareness among end-users regarding the necessity of energy services. However, certain behavioral barriers are still presenting obstacles to the growth of performance contracting in the United States. A large number of potential ESCO customers are simply not educated on the process and are hesitant to engage in a long-term contract. For example, a facility manager may replace a faulty heating, ventilation and air conditioning component with a model hav-
ing the lowest upfront cost, rather than the most energy efficient model representing the lowest lifecycle cost. Even seemingly small retrofits can produce significant results— changing to high-performance lighting, new windows and insulation and low-flow plumbing fixtures. Also, as retrofitted facilities become more prevalent, a seldom-discussed, indirect economic benefit will materialize. The large scale decline in energy consumption will drop demand and consequently lower energy’s overall market price. While this dynamic is often missing from current fiscal analyses on energy efficiency, it represents an important promotion for the greening of America’s buildings.
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While a facility manager is unable to apply to their state directly for EECBG funds, this source still perhaps represents the greatest opportunity for non-governmental buildings to benefit from the stimulus. For example, under this program, the DOE approves financial incentives for entities to conduct an audit of a facility’s energy usage to determine the most effective approach for realizing improved energy efficiency. At which point, a complete retrofitting can be undertaken in accordance with the audit’s results. The best and most cost effective method for a facility manager to approach such a project would be to use the performance contracting services of an energy solutions provider. State and federal agencies align with a private company (i.e., energy service company—ESCO) to finance the end-user upgrades and often times completely eliminate any out-of-pocket expenses for the facility manager.
savings and assumes the risk of performance. Projects can be either funded outright or increased to comprise a greater degree of long-term return. Performance contracting offers a streamlined, facility-wide scope in which multiple upgrades can be tackled simultaneously with a single contract. Facility managers can divert funds previously destined for utility bills and invest them into their building. This means limited budgets can be stretched further and energy efficient projects can be tackled now—regardless of budget cuts and competing priorities.
and projects as the path toward increased economic vitality, energy security and environmental quality. To qualify, a project needs to maximize potential benefits over the long term—thus increasing energy efficiency and decreasing energy consumption.
Encouraging change One upside to the current financial crisis is the opportunity to reconsider the framework of modern construction and make the shift toward sustainable and energy efficient building practices. Sadly, real estate developers have been historically motivated to build fast and cheap. Even just five years ago, “building green was viewed as risky,” said Greg Kats, managing director of Good Energies, a leading global investor in renewables. “Costs were higher, there were few green buildings and not much experience with building them. Today we have a large body of data that show green cost premiums are actually quite small and that the payback is relatively quick.” Hopefully, this emerging information, compiled with the availability of federal funds, will provide the incentives needed to spur a change in trends. FMJ