Monday, December 12, 2011

EPA Boiler Rules Create Significant Opportunity for Building Energy Assessments!

On Friday, December 2, 2011, the Environmental Protection Agency (EPA) released for public comment its rules for industrial boilers under the Clean Air Act. The rules require, among other things, that all buildings with oil-fired boilers equal to or greater than 10 million Btu/hr will need to conduct an energy assessment. Tens of thousands of buildings across the country will be impacted.

EPA divides all boilers in the country into one of two categories: “major sources” of toxic air pollutants (defined as emitting 10 tons or more per year of any single air toxic such as sulfur dioxide, nitrogen dioxide, mercury, lead, etc. or 25 tons per year or more of any combination of air toxics), and everything else (referred to as “area sources”). Approximately 187,000 boilers would be covered under the “area source” boiler rule, 98% of which would be required to implement work practice standards, including maintenance and tune-ups. The majority of area source boilers are located at commercial and institutional facilities, such as office building, retail establishments, hotels, medical centers, schools, universities, churches, municipal buildings, apartment buildings, warehouses, restaurants, nursing homes, etc.

If you own a boiler other than a gas-fired boiler, EPA’s boiler rule will impact you! The extent of the impact will depend on whether or not your boiler(s) has a heat input capacity less than, or equal to or greater than 10 million Btu/hr. From our "building energy performance assessment" viewpoint, facilities with oil-fired boilers having a heat input capacity equal to or greater than 10 million Btu/hr will be required to perform an energy assessment consisting of:

1. A visual inspection of the boiler system.
2. An evaluation of operating characteristics of the facility, specifications of
energy using systems, and operating and maintenance procedures.
3. Inventory of major systems consuming energy from the affected boiler(s).
4. A review of available architectural and engineering plans, facility operation
and maintenance procedures and logs, and fuel usage.
5. A list of major energy conservation measures (ECMs).
6. A list of the energy savings potential of the ECMs identified.
7. A comprehensive report detailing the ways to improve efficiency, the cost of
specific improvements, benefits, and the time frame for recouping those
investments.

The energy assessment would need to be completed no later than March 21, 2014.

How many area source oil-fired boilers would be impacted by this energy assessment requirement? I was astounded to find out that it would impact more than 26,000, located all across the country, but with the heaviest concentration, of course, in the Northeast and Mid-Atlantic. This is a huge number of buildings, and all will have to be assessed over the next two years!

The opportunity for energy professionals is significant. Moreover, the up-sell opportunity to conduct a full building energy audit is even more appealing. While an energy assessment as defined by EPA in the rule is not a full energy audit (since it only covers energy use systems that use the energy generated by the boiler), it would seem logical to me that a building owner would be remiss if he or she did not take advantage of this opportunity to include a full energy audit to identify all possible ECMs and their ROIs. In this way, a much more-informed decision could be made about any potential capital investment.

EPA is taking comment on the proposed rules for 60 days from the publication of the rule in the Federal Register this month, with the final rules to be published by April 2012.

Monday, October 24, 2011

A Big Win for Energy Savings Insurance

A few weeks ago a business consortium including Lockheed Martin and Barclays Capital announced the largest single private-sector investment to-date for commercial property energy efficiency retrofits. The business consortium, referred to as the PACE Commercial Consortium, was created by the Carbon War Room, a Washington, D.C based non-profit group set up by British entrepreneur Richard Branson. The consortium will provide up to $550 million in financing for city-led PACE projects in Miami and $100 million for projects in Sacramento. The consortium is led by Ygrene Energy Fund of Santa Rosa, California. Loans will be provided by Barclays Capital and Lockheed Martin will provide project management and engineering services. Energy savings guarantees will be insured by Energi Insurance Services of Peabody, MA with paper backed by global re-insurance giant Hannover Re.


Energy savings insurance was first offered approximately 15 years ago, but failed to make much headway in the emerging energy efficiency marketplace principally because most of the work was being performed in the public market by large energy service companies (ESCOs) who could back their guarantees with strong balance sheets. However, with energy efficiency now moving firmly into the hugh commercial market, hundreds of energy service companies are now playing in the game, many without the financial strength of the large ESCOs. Energy savings insurance can provide a backstop to the performance guarantees made by these smaller ESCOs.


It is good to see the insurance industry, beginning with Energi and Hannover Re, coming back to the market. There is definitely a need for the product. I believe it can do much to remove the uncertainty asssociated with energy savings projections and thereby avoid disputes between building owners and ESCOs. It should also reduce the risk associated with energy efficiency lending and lower the cost of financing. As in many other areas in our industry, insurance can once again act as the grease to make the deals move forward.












Monday, October 10, 2011

Building Energy Efficiency Certifications

Licensed professional engineers and registered architects have long been practicing in the building energy efficiency market. However, in addition to these licensed programs, there are a number of nationally-recognized professional building energy efficiency certifications. When asked by peers, my first suggestions have always been the Association of Energy Engineers' Certified Energy Manager (CEM) and Certified Energy Auditor (CEA) certifications, the Building Performance Institute's Multifamily Building Analyst (MFBA) certification, and ASHRAE's High Performance Building Design Professional (HPBD) and Commisioning Process Management Professional (CPMP) certifications. I now have to add to that ASHRAE's relatively new Building Energy Assessment Professional (BEAP) certification.


Launched approximately eight months ago, this certification program was developed by ASHRAE in collaboration with the Illuminating Engineering Society of North America, the National Institute of Building Science, the Testing Adjusting and Balancing Bureau and the Sheet Metal and Air Conditioning Contractor National Association. The program is specifically designed to certify an individual's ability to audit and analyze buildings including determining project scope, collecting data, analyzing building performance, interpreting results, evaluating alternatives, submitting recommendations for energy conservation measures, and assisting with implementation of these recommendations. The certification requires an individual to meet certain eligibility criteria and pass a written examination. All those who pass the examination are posted on ASHRAE's website. To date, approximately 100 individuals have already received this new certification.


In view of all the complexities associated with the assessment of building energy performance, it would be wise to rely on the services of qualified individuals. Certifications are one way to accomplish this.

Friday, October 7, 2011

The Confusion Around "Energy Savings"

Unfortunately, in the commercial real estate industry "energy savings" means different things to different people. To some, such as the energy service companies, it generally means savings in energy use (in kBtu/year or kBtu/sq. ft. per year). To others, such as building owners, it generally means actual savings in energy expenditures (in $/year or $/sq. ft. per year). Of course, if you are relying on the energy cost savings to offset the cost of the installation, it's the actual savings in energy cost that really matters. Further complicating the picture is the fact that energy use and energy cost savings are often "adjusted." This can happen for a variety of reasons, such as to reflect changes in weather conditions or building occupancy or energy pricing. Notwithstanding, from a practical viewpoint the concern is that "adjusted" energy cost savings may not be sufficent to offset repayment of the loan.


At the heart of the problem, in my view, is the all too often lack of complete transparency on what exactly the performance guarantee is really guaranteeing. For example, even if the type energy savings is fully defined, the question still arises of how exactly it will be determined so that all parties fully understand, and if "adjustments" are made, how exactly this will be done and what it means to the building owner. The need for consistency, accuracy and transparency is of paramount importance to owners of commercial real estate. As such, we as an industry should do everything we can to comply with this mandate.

















































Friday, September 30, 2011

BOMA Responds to DOE's Planned Asset Rating Program for Commercial Buildings

On August 8, 2011, DOE published in the Federal Register (Vol. 76, No. 152, 48152-48158) its plan to develop a National Asset Rating Program for Commercial Buildings. As envisioned by DOE, the Rating Program would evaluate energy efficiency from a building's "as-built" characteristics and identify potential energy savings opportunities. Thus far, measured energy performance based upon utility bill history has been the dominant way to rate building energy performance. DOE believes their initiative would fill a hole created when utility bill history is missing or incomplete. DOE also believes there is a need to be able to distinguish whether energy use differences between similar buildings are associated with installed ("as-built") building systems or with operational choices. The Rating Program would enable building owners and others to directly compare the "as-built" energy performance of building systems among similar buildings, regardless of occupant behavior and building operation.


The Rating Program would have three components: (1) an asset rating system to compute building energy efficiency taking into account building characteristics including its design, envelope elements, HVAC system, lighting system, and service hot water system; (2) a web application (which would be included as a free on-line software tool) that would provide an energy rating to facilitate benchmarking; and (3) a tool in the software to assist building owners in identifying and analyzing potential energy savings opportunities.


DOE believes their Asset Rating initiative would be complementary to EPA's Energy Star Portfolio Manager, which provides only an operational rating. They expect to launch a pilot program beginning in 2012.

The DOE announcement specifically asked for industry input on their plan. On September 22, 2011, BOMA responded with a number of comments and recommendations. One of these, and one that I consider most relevant, was BOMA's questioning the real need for DOE's Asset Rating Program. In my view, this is the most salient point made by BOMA. We already have Massachussetts developing a program that includes an asset rating ("MPG Rating for Commercial Buildings: Establishing a Building Energy Asset Labeling Program in Massachussets"), along with California (under AB 758, for development of a "Building Energy Asset Rating System"). In addition, we have ASHRAE's BuildingEQ program that includes an asset rating. How many asset rating programs does the industry need? BOMA believes and I concur that the private sector voluntary marketplace is already meeting the commercial real estate industry's need for diagnostic tools to evaluate building energy efficiency and that serve as a market driver for identifying and implementing retrofitting opportunities. In these times of limited financial resources and the Solyndra fiasco, does DOE really believe this Asset Rating Program to be of critical importance to the industry? If DOE still insists on spending money, then I suggest they seriously consider spending it on bringing back the Commercial Buildings Energy Consumption Survey (CBECS) and expanding it to include many more buildings. This would be of much greater value to the commercial real estate industry and the many existing building energy performance rating systems that rely on CBECS data!

Tuesday, September 27, 2011

Return of CBECS Funding Urgently Needed

There is a real need in the commercial real estate industry for the return of the Commercial Buildings Energy Consumption Survey (CBECS) funding. If you recall, on April 28, 2011, DOE announced that due to budget cuts work on the 2011 CBECS was suspended. They also announced that they would not be releasing the 2007 CBECS results. This means that the industry had and continues to have no choice but to rely on the last published survey in 2003, an information baseline that is almost ten years old. There is no question that much has happened with building energy use since the 2003 survey. To use data this old in benchmarking can only call into question any conclusions drawn. The industry not only needs CBECS, but needs it to be expanded to include many more buildings.


Benchmarking in EPA's Energy Star Portfolio Manager, for example, relies in large part on CBECS data. By any statistically supportable measure, the number of buildings relied upon by EPA in their benchmarking is wholefully inadequate. For example, Energy Star Portfolio Manager relies on only 498 office buildings (bank/financial/courthouse) located throughout the country to establish the office baseline for benchmarking; only 182 retail buildings (other than malls); only 83 grocery/ supermarkets (of which 49 were from the 1999 CBECS); only 142 hotels; and 277 warehouse/storage buildings. It is not difficult to see why building owners with these property types who understand this significant limitation can call into question benchmarking results they receive, particularly if their buildings are located in areas where there are building energy performance disclosure regulations. Too much is at stake in this highly competitive marketplace to rely on anything but absolutely unassailable data. We as an industry need CBECS to continue and need it to be expanded to include many more properties in each commercial real estate property type category. Action is needed to restore CBECS funding, and needed now!

Wednesday, September 21, 2011

Innovative Financing Strategies for Energy Efficiency Improvements

If you are not a building owner able to easily handle the capital cost associated with the installation of energy efficiency improvements, there are a number of innovative financing strategies that might be able to help. The goal is to be able to pay the cost of these improvements over time, with the cost being offset by the energy cost savings.


On the government side, one program worth investigating, if it is available or soon will be available in your area, is the PACE (Property Assessed Clean Energy laws) program. PACE programs allow for long term (15-20 years) borrowing at low interest rates (typical of municipal bond funding). PACE laws have already been enacted in 27 states to-date.


On the private side, a number of new companies have jumped on this bandwagon, including Metrus Energy, Skyline Innovations and Transcend Equity Development Corporation. Metrus Energy, established in 2009 and headquartered in San Francisco, uses its innovative Efficiency Services Agreement (ESA), whereby customer repayment is based on a cost per avoided unit of energy savings. Metrus, typically working with Energy Service Companies (ESCOs), pays for all the upfront and on-going project costs, providing facilities with the immediate operational benefits of large-scale energy efficiency measures without the capital expense. Metrus says it can finance projects as low as $100,000 to projects in excess of $1 million. Skyline Innovations, founded in 2009 and headquartered in Washington, D.C., also has a model that delivers guaranteed energy savings to customers without the capital outlay. Skyline typically finances, installs and maintains the energy saving systems (largely concentrating on solar), and gets paid out of energy cost savings. Transcend Equity, founded in 2001 and located in Dallas, TX, uses its Managed Energy Services Agreement (MESA) and typically will pay the utility bills for a building in exchange for a fee that is less than what the owner would ordinarily pay for energy. At the end of the eight- to ten-year agreement, title to the improvements then passes to the building owner.


Essentially, these companies are selling energy efficiency as a service! You may want to check them out if you are interested in alternative ways to finance energy savings improvements in your building.










Monday, September 19, 2011

Pension Asset Managers Push for Disclosure of Energy Performance Data

I was astounded to read recently that a global consortium of pension asset managers, including USS in the UK and APG and PGGM in the Netherlands, have convinced some of the world's largest property managers to disclose detailed data on the environmental and energy performance (sustainability) of their funds. More than 340 property funds and companies responded to the call for action by the Global Real Estate Sustainability Benchmark Foundation (GRESB) to disclose information on environmental management and energy performance. GRESB is backed by $1.7 trillion in institutional capital. APG and PGGM were founding partners in the GRESB Foundation. APG also indicated that the information disclosed is being used in its investment decision-making.


This is just another piece in a growing body of evidence that building energy performance disclosure is a train that has left the station. It is only a matter of time before a build's energy use and relative performance will become just another building attribute, no different than a building's floor area or date of construction.

Friday, May 13, 2011

Death Knell for Energy Star Building Benchmarking or Another Opportunity for the Commercial Real Estate Industry?

On April 28, 2011, U.S. DOE’s Energy Information Agency (EIA) announced that due to budget cuts, work on the 2011 Commercial Buildings Energy Consumption Survey (CBECS) has been suspended. As if this was not bad enough for our industry, a short time later, they shocked the industry even more by saying that they will not be releasing the long-awaited results of the 2007 CBECS, apparently due to “statistical” problems.

As may of you know, the CBECS is a national sample survey that collects information on U.S. commercial buildings, their energy-related characteristics and energy consumption. The survey, which began in 1979, is conducted every four years. The most recently published data is based upon the survey conducted in 2003.

The specific reason given by EIA for not releasing the 2007 CBECS data is that it “has not yielded valid statistical estimates of building counts, energy characteristics, consumption, and expenditures.” In a paper I published in April of 2010, The Formidable Challenge of Building Energy Performance Benchmarking (see link at the end of this blog), I pointed out several shortcomings in the CBECS data and why many of us in the industry did not believe it represented a statistically valid building energy performance database for use in benchmarking, particularly when local regulation requires benchmarking results to be publicly disclosed. With the spiraling growth of city and state-initiated building energy performance disclosure legislation, there simply is too much at stake for building owners in the highly competitive commercial real estate industry to accept anything less than unquestionably reliable, statistically supportable benchmarking. As such, I have long advocated for EIA to expand significantly the number of buildings included in the 2011 CBECS. I also made this recommendation as a working group chair on DOE’s Zero Energy Commercial Building Consortium. Unfortunately, the 2011 CBECS is now a mute issue, and the data void will remain a growing challenge for the commercial real estate market.

The problem created by these announcements is even more complicated. The building benchmarking methodology EPA uses in its popular Energy Star program is based upon the CBECS data. As such, Energy Star’s benchmarking has been relying for years on the outdated 2003 CBECS data. This is one of the reasons why the commercial real estate industry was so very much looking forward to the release of the 2007 CBECS data. Moreover, many of the cities and states with existing and pending building energy performance disclosure legislation rely on Energy Star for benchmarking. It is clear now that they have been left in a lurch. What are they to do? (It is my opinion that they should eliminate the benchmarking requirement (using Energy Star) from their legislation and instead only require disclosure of the building’s energy use following ASTM E 2797-11, Standard Practice for Building Energy Performance Assessment (BEPA). Over time, cities and states on their own will accumulate a considerable building energy use database, confidently knowing that energy use information has been collected in a standardized and reliable manner. Eventually there will be sufficient data for all major building types such that statistically valid benchmarking will be possible. Only at that time, in my opinion, should benchmarking results be added to the public disclosure process. Notwithstanding, I am also absolutely confidant that as soon as only building energy use alone is required to be publicly disclosed, private industry will rise to the occasion, well before the government, to provide the public with an answer as to what the numbers being disclosed mean and provide a perspective.)

Since ASHRAE’s Building EQ and U.S. Green Building Council LEED building labeling initiatives rely on Energy Star benchmarking, these programs will clearly be adversely impacted by the effective demise of CBECS. This is also true of other building labeling programs that have incorporated Energy Star benchmarking, such as the Architecture 2030 Challenge and Capital Markets Partnership Green Value Score.

As with any new and emerging market, I strongly believe it will ultimately be those from within the industry that is impacted who will ultimately respond and coalesce around any new challenge to further evolution and innovation. Recognizing the need to have a standardized methodology for building energy use data collection and that this process must be consistent, transparent, practical and reasonable, the industry did respond by working with ASTM to develop such a standard. This was accomplished earlier in the year with the publication of the ASTM E 2797-11 BEPA Standard. There is now a need for the industry to again rise to the occasion and respond to the building benchmarking data void created by the loss of CBECS. This unquestionably represents a unique opportunity for entrepreneurs servicing the commercial real estate industry.

* http://bepinfo.com/images/PDF/BEPNwhitepaper-AB-3-30-10.pdf

Wednesday, February 9, 2011

ASTM Publishes Its Building Energy Performance Assessment Standard

On Thursday, February 10, 2011, ASTM will publish its long-awaited Standard E2797-11, Building Energy Performance Assessment (BEPA). The consensus standard was two years in development by a Task Group consisting of more than 220 professionals, including consultants, engineers, architects, attorneys, real estate service providers, real estate investors, building owners and managers, bankers, manufacturers, educators, professional associations and government officials. For the first time, the ASTM BEPA standard provides a clear and precise methodology for collection, compilation and analysis of building energy use and energy cost data that is consistent, transparent, practical and reasonable. Use of the standard will support and facilitate better building benchmarking and labeling.

The driving forces behind development of the standard were both regulatory and business. The regulatory driving forces consisted principally of the growing number of building energy performance disclosure regulations in states, such as California and Washington, and cities such as Austin, Seattle and New York. The business driving forces were for the most part financial as more energy efficient buildings have lower operating costs, higher NOI and will be more valuable and attractive to tenants.

The ASTM BEPA methodology standardizes a number of major variables including:

• the time frame over which data needs to be collected
• what criteria must be met for collecting reliable building energy use data
• what constitutes a major renovation
• how partial month data is calendarized
• what building energy metrics are to be used
• how building energy use is normalized
• how variables impacting building energy use are to be treated
• what weather data needs to be collected, over what period and how it is to
be statistically analyzed
• what constitutes an appropriate range for building energy use
• what the most representative values are for building energy use and cost.

The ASTM BEPA standard also includes a series of appendices that provide additional support information for users of the standard. For example, one of the appendices identifies for the major property types associated with commercial real estate transactions those building characteristics expected to have a significant impact on energy use. Another appendix provides a commercial building survey checklist. There is also an appendix that provides an illustrative example using the myriad of calculations that have to be made.

The ASTM BEPA standard is expected to be the foundation for accurate and reliable building energy use data collection, compilation and analysis in the industry. It is already finding use to support benchmarking and energy auditing services in the property due diligence, energy efficiency lending and asset management markets.

The ASTM E 2797-11 BEPA standard may be purchased from ASTM for $55 by clicking on the following link: http://www.astm.org/STORE/AffiliateEntry.cgi?BEPN+E2797.

Thursday, January 6, 2011

Energy Performance Data Published for DC Public Buildings

On December 15, 2010, the District of Columbia published energy performance data for its municipal facilities on a publicly-accessible web site (http://green.dc.gov/green/cwp/view,a,1235,q,463711.asp). The Green Building Act of 2006 and the Clean and Affordable Energy Act of 2008 established the legislative requirements for the District to benchmark energy use in its public buildings 10,000 square feet or larger. The legislation also established private commercial building benchmarking requirements starting in 2010 with buildings over 200,000 square feet.
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In fiscal year 2009 (October 8, 2008 - September 30, 2009), 194 public buildings in the District were benchmarked against EPA's ENERGY STAR benchmarking database. The results indicated that these public buildings performed "below average" compared to "similar" buildings nationwide. For office buildings specifically, the seven government buildings had energy use intensities (EUI) ranging from 212 - 490 kBtu/sq. ft., with three of the buildings performing above the national average (50% ranking) and none of the buildings in the top quartile.
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The fundamental issue I have with drawing conclusions about comparative energy performance of District buildings is that the buildings are compared to "similar" buildings nationwide without any clear definition of what constitutes "similar." For example, the 2003 CBECS database is used by EPA for benchmarking. This database has less than 700 office buildings nationwide greater than 10,000 sq. ft. Moreover, the number of building characteristics collected to judge "similarity" is relatively sparse. Interestingly, the office building in the District with the highest ranking (just below the ENERGY STAR top quartile) received this ranking despite the fact that there were many "non-functioning" systems!
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The real issue our industry faces is the legitimacy of the buildings being benchmarked against. Are they truly good "comps?" This is particularly important as the District expands its building energy use disclosure requirement to the private sector. There is too much at stake in the highly competitive commercial real estate industry to accept anything less than what is needed to provide legitimate comps for building energy performance benchmarking.