commentThe greenest building is the one you don’t build, and the cleanest, cheapest energy is the energy you don’t burn. These refrains are commonly heard in the green building community, and now, in a new report, “A Profitable and Resource Efficient Future,” the World Economic Forum (WEF) has put them on a broader stage and added a third message: a lot of people could make a lot of money by retrofitting existing buildings.
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Courtesy World Economic Forum
With new construction off the table for many, the conversation turns toward building retrofits and how they fit into the economy.
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“Though retrofit markets are definitely in their infancy around the world, we were interested to learn that stakeholders expect this to change in the next couple years,” says Robin Ried, lead author of the report and senior community manager for real estate, infrastructure, and urban development at WEF. “Demand for high-performing building stock is growing, and asset owners see increasing risk in owning older assets that have not been retrofitted for maximum efficiency.”
Stakeholders contributing to the research include Jones Lang LaSalle, Greenprint Foundation, Arup, Siemens, and the Urban Land Institute, among others—groups that provide a global scope for this how-to guide, which explains how government policies, financing mechanisms, and market demand must all work together to create a robust and profitable building retrofit market.
The report advocates two complementary policies that bring transparency to lease and sale transactions: building performance rating and disclosure, which requires publication of actual performance compared with that of other buildings of the same type; and asset rating and disclosure, which requires publication of as-built efficiency ratings based on building features like insulation, mechanical systems, and plumbing fixtures.
While the U.S. Environmental Protection Agency (EPA) provides the Energy Star Portfolio Manager to enable performance rating and is currently developing an asset-rating tool, their use is still voluntary in most places. “A national building-performance disclosure policy would be terrific, but it’s not going to happen in the foreseeable future,” says Andrew Burr, director of the building rating program at the nonprofit Institute for Market Transformation, which helps local and state governments develop rating and disclosure policies. “It will continue to happen at the local level, and that is where we are focusing in the U.S.”
Even without national rating and disclosure policies in place, a U.S. market for new, retrofit-specific financing tools is starting to emerge. One such instrument is Property Assessed Clean Energy (PACE) financing, which allows building owners to borrow from local governments to upgrade buildings. PACE has not taken off in the U.S. due to concerns from mortgage holders, and while some states have addressed these concerns the programs have not been tested in the marketplace (see Nationally Stalled PACE Program Moves Forward in Vermont).
A private-sector alternative, called a Managed Energy Service Agreement (MESA) could also have potential. Serious Capital, a subsidiary of building services company Serious Energy, recently announced the national rollout of its new MESA program, which offers building owners an energy retrofit (including installation of its energy management software platform) at no upfront cost. Building owners continue to pay the utility bills at past levels, giving the payments to Serious instead of the utility. Serious Capital pays the actual utility bills, returning 10–15 percent of the energy savings to the building owner and keeping the rest—completely avoiding complications associated with the bank or the local government. “If you touch their taxes, you get in trouble. If you touch their mortgage, you get in trouble,” says Kevin Surace, CEO at Serious Capital. “We just pay their utility bill and everybody’s happy.” The company is already finalizing its first three contracts, which Surace estimates will put 500 to 600 buildings in its MESA portfolio.
While the WEF report makes it clear that a building retrofit market is unlikely to take off without some government leadership, the fact that investors believe they can turn building retrofit opportunities into a lucrative business proposition is a promising development. “With little demand for new construction in the wake of the financial crisis, property owners were eager to turn their attention to opportunities to maximize performance of existing buildings,” notes Ried.
Copyright 2011 by BuildingGreen Inc.
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