Efficiency State of Mind
From retrofits to new construction, building owners are investing in distributed energy and energy-efficient technologies to cut operating costs, boost asset values, ensure reliability, and meet sustainability goals during tough economic times.
Outside of the real estate and energy industries, it wasn’t front-page news that energy efficiency in office buildings has been growing steadily since the early 2000s. But one high-profile project made headlines around the world—the retrofit of New York City’s (NY) famed Empire State Building. The $550 million renovation was announced in April 2009 and is well on its way to reducing energy costs by $4.4 million annually.
The project was spearheaded by Rocky Mountain Institute (RMI), a Boulder, CO-based nonprofit “think-and-do tank” focusing on the efficient and restorative use of resources. Other partners include Jones Lang LaSalle, a Chicago, IL-based financial and professional services firm specializing in real estate services and investment management; Johnson Controls, a Milwaukee, WI-based provider of technologies for energy and operational efficiencies of buildings; and the Clinton Climate Initiative.
Deep Retrofits Change Behaviors
For RMI, the project has earned praise and awards such as the Sustainable Buildings Industry Council’s (SBIC) Beyond Green High-Performance Building Award. The SBIC is a Washington, D.C.-based, independent, non-profit organization and advocate of the whole building approach to sustainable facilities. Such awards are important, but, according to Robert Hutchinson, RMI’s program director for research and consulting activities, the media attention is especially gratifying. “I think the interest is very high, partly because the timing is so fortunate. There just aren’t as many new buildings going up right now, so the need for attractive real estate is there, along with the need for energy efficiency. And clearly, these kinds of deep energy retrofits haven’t been around for many years, so we’re trying to help the world learn how to do them as rapidly as we can.”
The concept of a “deep” retrofit goes beyond just technology, it also addresses outreach programs to help tenants and building owners get the most from upgrades that include: energy-efficient windows, new lighting and increased use of daylight, a new chiller plant, tenant energy management programs and demand control ventilation, and variable air volume air handling units. Overall payback is projected at three years, with a 38% reduction in energy usage. Then too, there’s another benefit—value. “The Empire State Building is a classic example,” notes Hutchinson. “The owner has been quite public about the difference in rental rates before and after, and that’s one of the drivers in the value of a commercial building.”
The Empire’s owners aren’t the first to discover such benefits. A study release in July 2009 by the CoStar Group, Bethesda, MD, profiled two office buildings in the Pacific Northwest and one in Canada to determine the impact of sustainability and energy efficiency on property value. “High-Performance Green Building: What’s it Worth?” reported that green has worked out well for all three properties. For example, at Alley24 East, a 210,000-square-foot office and retail complex in Seattle’s (WA) Lake Union district, researchers found shorter lease signings and higher occupancy than comparable buildings and rents that ranked above industry averages. Two anchor tenants reported 30% fewer sick days for employees and a 10% rise in net fee revenue per person after moving into the building.
The value proposition climbs a step higher if the owner wants to sell the building, says Greg Coleman, vice president of Lowell, MA-based, TRC Solutions. Coleman has seen many
energy efficiency projects in his role as market manager for New Jersey’s Commercial & Industrial Clean Energy Programs. “The general rule of thumb is that for every $100,000 that you reduce an energy bill, you increase the value of the building 10 times,” says Coleman. “And this isn’t my opinion; it has been demonstrated and studied, reviewed, and published by everybody from the EPA and Energy Star, to various real estate organizations. In fact, the National Association of Real Estate Investment Trusts has an energy awards program, and I will tell you categorically that they don’t do anything that doesn’t improve the bottom line.”
Talent on Tap
With such potential for improving the bottom line, it’s not surprising that the energy efficiency industry is responding to the market aggressively. There is a tremendous availability of talent, and, in the case of distributed systems, there are highly credentialed architectural and engineering firms to design the systems and related facilities, according to Leanne Tobias, author of Retrofitting Office Building to Be Green and Energy Efficient and founder and managing principal of Malachite LLC, Bethesda, an advisory firm that specializes in green real estate and energy efficiency.
Tobias notes in her book that there is also a tremendous availability of buildings more than ready for energy efficiency retrofits. In fact, her research found that existing buildings account for 98% of the building stock in developed countries, and the majority were constructed before green building regulations were implemented. “From the building owner’s perspective, there’s a good payback,” explains Tobias. “It makes a building more marketable and less expensive to operate. Today many institutional and commercial real estate owners, and management companies are saying that tenants are very aware of sustainability, the Energy Star label, and LEED [Leadership in Energy & Environmental Design] requirements.”
The buildings don’t have to be very old to get great returns, adds Jim LaRoe, principal of LaRoe Consulting Services, Washington, D.C., a consultant to Malachite and former director of the Global Commercial Building Retrofit Program for the Clinton Climate Initiative. “Buildings that have been around for five years or more can have energy reductions of 10 to 40%, and you can do it profitably.”
One of LaRoe’s favorite examples is the San Jose, CA, headquarters of Adobe Software. “They invested about 1.4 million in energy efficiency projects and have savings annually of 1.2 million,” says LaRoe. “So that equates to a 121% return on investment.”
At this point, Adobe has achieved recognition as the world’s first commercial enterprise to garner four LEED-Platinum certifications. Through investments in energy-efficient lighting, real-time water meters for landscaping, and an intelligent control system to monitor building efficiencies, total savings are estimated at $6.7 million, and growing.
Winds of Change Blowing
According to Randall H. Knox, III, Adobe’s senior director, Global Workplace Solutions, the next step is distributed energy. Adobe recently installed 20 1.2-kW vertical-axis Windspire wind turbines at their headquarters, but phase two will be something in the scale of megawatt output. “We are evaluating fuel cells for supplying our larger power needs,” explains Knox. “It would be a fairly sizable installation of possibly three megawatts, because on a 24-hour average that’s what we draw, so a fuel cell makes the most sense.”
Adobe’s wind turbines may not produce megawatts of power, but their visual appeal as a symbol of “green” power offers something that can be nearly as valuable. So it’s no surprise that they are gaining in popularity for office buildings, especially when corporations want their headquarters to make a strong statement about sustainability. For example, the PepsiCo/Quaker Oats Sustainability Center in Chicago, erected four 1-kW Aeroturbines from Aerotecture International Inc., Chicago, to highlight the building’s purpose. Two Aeroturbines and one Hybrid AeroSolar Aeroturbine with photovoltaic (PV) panels found a home at the offices of the Sloan Valve Company, Franklin Park, IL. Multinational corporation SC Johnson recently launched a wind energy pilot program at their headquarters in Racine, WI. The installation features three Swift Turbines, manufactured by Cascade Engineering, of Grand Rapids, MI.
California has a long tradition as a wind-friendly state, but PV solar panels have established a much stronger presence in office-based distributed energy. Most notably in the Silicon Valley area of San Jose, with such high-profile solar arrays as Internet search engine giant Google’s installation of 9,212 solar panels. It takes eight rooftops and two newly constructed solar carports to accommodate the forest of panels. Google expects the output to satisfy 30% of peak electricity demand.
As such large projects continue to bloom across the “sunshine state,” it’s not surprising that a company like Schneider Electric, Palatine, IL, would position itself as a key resource for both renewable energy and energy efficiency. With the acquisition of PV inverter manufacturer Xantrex Technology Inc. in October 2008, Schneider launched its Renewable Energies Business to supply technology for PV solar farms, large commercial, residential, off-grid, and backup power.
A New Twist on Spinning Reserve
“There are various state renewable portfolio standards, but California is the largest with 33% by 2030, but they will not supplement enough additional capacity to meet the demand,” says Todd Quayle, Schneider’s national business development manager. “Once the wind stops blowing or the sun goes behind clouds, generators can’t instantly ramp up or down to compensate for that volatility, and that’s a reason why demand response is going to be a vital component of energy management on the grid. In a manner of speaking, it could be called spinning reserve.”
Office buildings are high priority for Schneider, and Quayle sees great opportunities, because the California Public Utilities Commission has allocated funds to the state’s three main investor-owned utilities to develop demand response energy curtailment programs. “They pay for audits, equipment, and infrastructure, and then they pay for participation in the demand response program,” he explains. “The utilities give you $125 per kilowatt-hour of reduction in the standard demand reduction scenario, where they call you a day ahead and you’re not expected to respond for 24 hours. But they will pay $300 per kilowatt-hour of reduction for automated demand response, so the incentive is huge, and at the same time, it increases the reliability of curtailment.”
Quayle notes that historically, customers have not been allowed to offer curtailment services in the marketplace, but now that Federal Energy Regulatory Commission (FERC) has put Order 719 into effect (see “Demand Response Fees Explained” above), it’s mandated that a utility’s customers have the right to bid in different types of services that were previously unavailable to them. “Of course that means they have to have the infrastructure and with office buildings seeing customers get their buildings as sophisticated as possible in preparation for the opportunity to bid those services.”
In Los Angeles, office buildings that chose PV systems as their source of distributed energy can get an additional boost from a newly approved carbon surcharge. In March 2010, the city launched a carbon reduction surcharge designed to fund a renewable energy trust fund. In essence, the solar feed-in tariff will allow the owner of a solar facility to sell electricity directly to the Los Angeles Department of Water and Power (LADWP), to be feed directly to the grid. The LADWP will pay for the energy through a 20-year power-purchase agreement.
Exporting Distributed Energy Gets Easier
Although the Los Angeles surcharge is limited to PV, there are still plenty of opportunities for buildings with other forms of distributed energy. According to Ron Blagus, a manager with Honeywell Building Solutions, Golden Valley, MN, in certain parts of the country such as southern California and New York, building owners with onsite generation in either standby or primary operation, can participate in market activities that are driven by imbalances on the grid. “Any generating asset can participate in those additional markets that have been created by the utility companies and the ISOs [Independent System Operators]. In the past, there were issues about exporting power to the grid, and it was complicated by agreements that favored one party or the other, or simply the cost of the infrastructure to export that power was not an incentive. But the value proposition and business model is simpler if you’re using all your power inside the grid.”
It’s good news that the barriers to exporting power are falling, but such concerns aren’t the highest priority for federal government buildings because they are under mandates to reduce energy consumption. “The federal government is obviously the biggest single spending source in the United States,” says John White, manager of Energy Management and Environmental Solutions at Eaton Corporation, Cleveland, OH. “When they decide to make a move, it’s similar to the ‘Walmart effect,’ and people start to pay attention. Now they have a requirement to reduce energy by 30% by 2015 and increase the use of renewable energy resources 7% by 2013.”
State and local buildings will get a similar boost from Department of Energy (DOE) Awards of $452 million in Recovery Act Funds for Building Retrofits, as announced in April 2010. The program selected 25 states with communities and organizations that will receive funding to launch energy efficiency building retrofits. DOE’s Retrofit Ramp-Up initiative will help communities, state and local governments, private-sector companies, and non-profit organizations to work on energy efficiency. Examples from this program are expected to provide templates that could save households and businesses about $100 million annually.
In addition to the Recovery Act, the 25 projects could access roughly $2.8 billion from other sources over the next three years to retrofit hundreds of thousands of homes and businesses across the country. Grantees are expected to report verified energy savings and incorporate sustainable business models to ensure that buildings will continue to be retrofitted after the Recovery Act funds are spent. DOE will catalog results from these pilot programs and develop best-practice guides.
Trigeneration With a Solar Twist
Many states haven’t waited for assistance from the federal agencies before launching their own programs. In Massachusetts, the electric utilities have to add up to three percent per year of their portfolio with combined heat and power (CHP), says Steve Zilonis, director of business development for CHP solutions at Dresser-Rand. “The governor of Massachusetts instituted a program called the Green Communities Act, whereby he mandated sustainable technologies—so the incentive level has never been better, which in turn has accelerated CHP technology in the marketplace.” A recent CHP project that contributes to the state’s quest is a 250-kW solar thermal-assisted trigeneration facility designed for Transform Pharmaceuticals, Lexington, MA, installed by Aircogen in August 2008. At that time, Massachusetts Governor Deval Patrick lauded Transform’s parent company, Johnson & Johnson, on its commitment to saving energy and contributing to the local economy, and to the project partners for supporting the state’s green energy initiative.
By using renewable solar thermal energy, the system is generating approximately $220,000 in energy savings each year. “It’s an 80,000-square-foot biopharmaceutical mixed-use office and laboratory,” explains Zilonis. “Transform has a solar thermal addition and we do this at another location, Boston Scientific. “The local utility, National Grid, gave an incentive for the solar thermal panels to offset natural gas use. The solar side takes advantage of about 1,500 to 2,000 hours of potential solar thermal in Massachusetts, and that’s through the winter, so we can make upwards of 250-degree hot water in the middle of the winter. Also, the labs don’t have to run their reheat boilers when the sun is shining, and in the summer we can run the solar panel through the absorption chiller.”
Zilonis notes that in 2004 Johnson & Johnson did a building audit and retrofit of the Transform location and implemented extensive efficiency and conservation measures. So the company was more than impressed when the Aircogen team showed them how a trigeneration system could reduce energy consumption by an additional 30% and make a significant reduction to the office’s carbon footprint. “Once you’ve done every energy conservation measure possible, a company can still take it much further.”
High Performance for a High Rise
The Transform project was a retrofit, as are the other projects discussed so far, but in New York, the Durst Company real estate development company has a large-scale CHP operation in its flagship office high rise at One Bryant Park, Manhattan, NY. The CHP system relies upon a natural gas-fired, 4.6-MW Solar Mercury turbine, to supply about one-third of the 55-story buildings peak power demand.
“We had lots of challenges along the way through design and construction, and regulatory and utility approvals and commissioning and startup,” recalls Don Winston, vice president of Technical Services for Durst. “But essentially, the regulatory approvals were probably a significant hurdle. We worked with the authorities having jurisdiction to ensure that the presence of a major generating facility inside the occupied office building was as safe as it could possibly be.”
The turbine connects to a duct fired steam generator, and baseline recovered steam production is approximately 14,000 pounds per hour. It can reach a total of 50,000 pounds per hour low-pressure steam, limited to 15 PSI. “The Mercury 50 really appealed to us, in part because of the low emissions, and it’s good for our heat requirement,” notes Winston. “But it has relatively low-steam production, and this office building has peaking periods where we need a lot of steam. But we don’t need that much steam on a 24/7 basis.”
The building uses the turbine’s heat to run an absorption chiller and also takes advantage of a thermal storage system that produces ice at night from the excess steam. “The ice storage is something we did in another building, and we’re happy with it as a load shedding method,” says Winston. “With electricity, we’ve been on a mandatory day and hourly rate schedule since 2008, and we use the ice to take the edge off those peak hours.”
With the success of the system, Winston sees more of the same in Durst’s future. “We are believers in office building CHP, and the plant is running flawlessly. The Durst organization controls approximately 10,000,000 square feet of office space, and we’re going to look at CHP opportunities in any building that we construct or those we’re considering for capital upgrades.”
Now considered as one of the world’s greenest office towers, One Bryant recently achieved LEED-Platinum certification, making it the world’s first office tower to reach the USGBC’s highest rating. Architects Cook+Fox, New York City, specified the energy saving innovations to mitigate daytime air-conditioning loads, such as filtered under-floor displacement air ventilation, advanced double-wall technology, and translucent insulating glass. Daylight dimming and LED lights reduce electric usage while carbon dioxide monitors automatically introduce more fresh air when necessary. Other LEED-related considerations included a graywater system to capture and reuse all rain and wastewater, and planted roofs to reduce the urban heat island effect.
If the Durst Corp. wants more CHP, New York looks to be the place. In March 2010, Governor David Paterson awarded $24 million in American Recovery & Reinvestment Act funding to 206 renewable energy and energy efficiency projects that could assist 137 municipalities to reduce energy and operating cost by $3.3 million a year. The awards will help the state to hit its target of producing 45% of its energy need from renewable energy and energy efficiency by 2015.
Wanted: New Financial Models
While such grants and subsidies exist, the fact that they are needed shows that the structure of financing energy efficiency projects could use a recovery act of its own, says Michael Zimmer, counsel, Thompson Hine, Washington, D.C. Zimmer heads the American Bar Association’s Energy Finance Committee, and has also chaired ABA’s Renewable Energy Committee. He has over 30 years of experience in structuring energy efficiency transactions and says it’s an ideal time for distributed energy, but the biggest issue remains access to capital and financing. “The whole system is not set up to serve these decisions or investments,” says Zimmer. “Banks don’t lend to this area, and utilities have basically vacated the market. We need the financial bandwidth and the balance sheets and performance guarantees, so you need somebody like Johnson Controls to develop their version of GE Capital for purposes of distributed energy financing. John Deere does that with wind right now, and they have a separate credit and finance group. Either that, or it’s got to come from more vertical integration into the supply chain by contractors, vendors, and independent engineering firms that are taking additional margin and earning opportunities off of the relationship.”
Funding does have some other routes, says Brent Gaulke, vice president, Acquisitions/Development, Gerding Edlen Development, a Portland, OR-based developer of mixed-use urban infill commercial real estate projects. “We are in the process of raising an equity fund to build infill housing in core locations and also by existing office buildings and retrofit them,” says Gaulke. Gerding is also guiding the redevelopment of a new green civic center for the City of San Diego, CA.
Public private partnerships offer another bright spot in the picture. For example, The National Trust for Historic Preservation has announced the launch of a pubic-private partnership to facilitate energy efficiency retrofit work in historic buildings. The new program is called Preservation Green Lab, and is funded in part by a $50,000 grant from the City of Seattle. The National Trust for Historic Preservation’s Sustainability Program promotes reuse and retrofitting of existing buildings and reinvestment in communities through policy, research, and outreach.
Green real estate portfolios and dedicated funds offer another viable resource, according to Tobias. For example, the Multi-Employer Property Trust, a $6.1-billion commercial proper fund for union pension investors, has been investing in sustainable projects since 1995. Liberty Property Trust, a $7-billion real estate investment trust, has nine green office and industrial properties completed or under construction in eight markets throughout the US.
Such entities have been quite public about their commitment to sustainable building practices, and their projects have proven to be solid investments. Moreover, they’re good customers for major engineering companies like Honeywell, Schneider, and Eaton, plus the distributed energy marketplace, as well. Ultimately, the technology is in place, according to Zimmer. “I have worked in this market since the 1970s, and there has never been a more fertile positive market opportunity for distributed energy. The opportunity and magnitude of the prospects is substantial as we’ve ever seen it and compounded by globalization and the attraction of these products in a global marketplace.”
Author's Bio: Writer Ed Ritchie specializes in energy, transportation, and communication technologies.