The Business Case for Deep-energy Retrofits

Commercial building deep-energy retrofits provide substantially greater energy savings—often reducing a building’s energy consumption by up to 50 percent—than traditional retrofits. Yet they offer more than just a low utility bill. When planned and executed properly, a deep retrofit can yield improved employee health, productivity and satisfaction; bolstered sustainability leadership and reputation; access to tax, finance and entitlement subsidies; improved risk management; reductions in non-energy operating costs; and higher occupancies, tenant retention, rents and sales prices.

The Rocky Mountain Institute’s retrofit value model

Building designers and managers who are able to articulate the full value of deep-energy retrofits to developers and owners deliver more value to their client; help the built environment reduce its carbon footprint; and can potentially drive greater investment in energy-efficiency retrofits by better articulating risks, lowering the hurdle for returns, and developing a more complete accounting and picture of those returns (which are often calculated on the basis of energy costs alone).

Nine Value Elements

Rocky Mountain Institute (RMI), which has locations in Snowmass and Boulder, Colo., has broken down the non-energy-cost aspects of deep-retrofit value into nine discrete elements that provide a comprehensive framework to capture all value beyond energy-cost savings:

1. Retrofit development costs are critical to calculating and presenting retrofit value because they represent the initial capital investment against which future cost savings and other benefits are measured. Though complicated to calculate, things that help offset those costs include pre-planned capital projects and access to tax credits, grants, rebates and other incentives.

2. Non-energy operating costs can be critical components of building profitability and company value. Deep retrofits can reduce these costs, which include maintenance, water, insurance and occupant churn rate. In some cases, a deep retrofit can also add more occupied space in a building through equipment downsizing. Adding more occupants to the building or subleasing the extra space reduces the net property operating cost per employee/occupant.

3. Retrofit risk mitigation is a traditional practice among developers and investors yet largely ignored by the current energy efficiency/sustainability retrofit industry. Clearly identifying risks and discussing how they will be managed will quickly elevate the capital request head-and-shoulders above the others, thus improving the likelihood of securing capital with a lower hurdle rate.

4. Health costs can be reduced because a deep retrofit often means improved health for building occupants through controlling moisture and pollutant sources, improved ventilation and access to outside air, more access to the natural environment and lighting, and improved temperature control.

5. Employee costs are rarely considered and can be quite substantial. A deep retrofit can reduce these costs by improving employee retention and lowering recruiting and employee-compensation costs.

6. Promotions and marketing costs often consume 10 percent of a company’s revenue. A deep retrofit can reduce these costs by improving a company’s reputation and bolstering marketing efforts.